Demand for induction furnace-grade long products will likely remain low in the current quarter (April-June) and even perhaps even till the end of the second quarter (July to September) on account of poor rural demand, Devendra Kumar Aggarwal, President, All India Induction Furnaces Association (AIIFA) informed SteelMint. Aggarwal was speaking on the sideline of the 34th national conference of AIIFA. The theme for this year’s conference was, “The Role of Secondary Steel Sector in Achieving $5 trillion Economy by 2024”.
Aggarwal elaborated that demand is likely to remain weak because of two reasons.
- One is the weak wheat crop yield in the current season. As per farmers and locals, the yield drop has ranged from 10-50% as a heat wave has scorched India’s wheat fields. “Crop yields have a huge impact on farmers’ earnings which, in turn, have a cascading impact on steel sales. A good crop means more purchasing power in the hands of farmers, more house-building, more tractor and farm implement sales,” said Aggarwal.
“Around 60% of India lives in villages and so their fate impacts the IF-grade steel industry,” reminded Aggarwal. He added that if the paddy crop, expected in October is good, then there can be a turnaround in rural steel demand.
- Secondly, cement prices have been rising since the beginning of the year, as players pass on the rise in input costs to consumers. High cement prices deter rural building and construction.
Aggarwal reminded that IFs are mainly dependent on rural steel consumption since government agencies like Defence and Railways as well as infrastructure projects prefer to lift material from primary steel manufacturers.
Power impact
Power outages have led to cut in production at IFs. At present, 60-70% capacity utilization is taking place, said Aggarwal.
He further informed power outages rather than the higher tariffs are more challenging for induction furnace units.
“Supply is unstable and outages happen without prior intimation and we do not know the duration. This is turning out to be more of a challenge,” said Aggarwal, adding that Uttarakhand was seeing power cuts of 12-16 hours which later improved to eight hours.
The downside is that sudden outages lead to solidification of the molten metal in the furnace, choked furnace lining, wastage of ferro alloys and other inputs while labour is made to sit idle for long hours.
“Power outages are increasing our cost of production. But we are not able to make up the excess cost from the market, because power tariffs and outages are not similar across states,” reminded Aggarwal.
Secondary share shrinking?
The contribution of the secondary sector has reduced from 50% to 41% because of the drop in production since the recent past and “if things continue as they are then the secondary sector’s role will get further reduced,” reminded Aggarwal.
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