NEW DELHI: Indian steel makers have increased production on the back of marginal recovery in supply orders from the construction and infrastructure sectors. Steel producers who had cut production last quarter citing low demand, are now witnessing a rise in demand from companies engaged in oil & gas, power generation, road and railways, aviation, urban housing and telecom sectors.
“Sales showed an improvement last month vis-à-vis October and November 2008,” said a senior executive at India’s largest steel firm Steel Authority of India. JSW Steel also witnessed a 10-15% jump in sales last month over December 2008. “The demand came mainly from rural housing and industrial construction sector,” said JSW Steel president (sales) Jayant Acharya.
Industry analysts are optimistic about recovery in steel demand, backed by government investments in infrastructure projects. About 60% of the country’s steel production goes into construction and infrastructure sectors.
Essar Steel Holdings CEO J Mehra pointed out that export-oriented steel consuming sectors have been hit hard because of the slowdown in demand globally.
“Moreover, lack of credit availability also led to postponement of projects. Now that the credit situation has improved, firms in infrastructure and construction sector have again commenced work,” he said, adding that Essar Steel posted marginal growth in sales in January.
Industry analysts point out that inventory levels of steel firms had increased in October-November 2008 as demand had weakened. “Early last quarter, firms across sectors were sitting on huge inventories. Now that end-users have started picking up steel again for normal operations, inventory levels have dipped,” said Angel Stock Broking senior research analyst Pawan Burde. But demand in excess of 10% is expected only after a year.
“The 5% import duty on steel products has made imported steel costlier adding to the demand for locally manufactured steel,” says Ernst & Young partner Naveen Vohra. Moreover, steel prices in China, the world’s largest steel producer, have moved up marginally which has allowed domestic firms to maintain prices, he added.
As a result of the rise in demand for steel in China, India’s iron ore exports to China surged 38% to 13.6 million tonnes in December 2008 compared with 9.8 million tonnes in the previous year. India exports 50-60% of its iron ore to China.
Source : The Economic Times