Protective measures by Indian government help steelmakers despite higher production and stagnant demand.
During the April-October period of current fiscal, India’s crude steel production grew by a healthy rate of 8.1% to 56 MT while consumption kept crawling at just 2.8% to stand at 48 MT. Common perception says any persistent gap between the pace of growth in production and consumption does not augur well for any industry; but Indian steel industry is not unnecessarily perturbed – strange, but true.
They are not worried mainly because imports have come down drastically and exports are on the rise. According to the latest data compiled by Joint Plant Committee (JPC), a steel ministry unit, imports of steel to India plummeted by 40% to 4 MT while exports were up by 42% to 3.5 MT during the April-October period.
Rising imports at a predatory price have been the biggest headache for the steelmakers till the time government imposed minimum import price (MIP) on the alloy to protect the domestic industry. Government’s series of steps, including anti dumping duty, to rein in imports have immensely befitted the industry which not only enhanced capacity utilization, but also hiked the prices as well in phases.
Steel has been made dearer even in October with the hope that demand would pick up post-monsoon. Steel companies say they will continue to produce more than earlier as consumption is bound to grow with construction activity is set to be on full swing and demand from the automobiles and white goods sectors will also grow in the coming days.
Higher Coking Coal Prices Worry Indian Steel Makers
However, steelmakers are worried about coking coal prices, which has skyrocketed in recent times. Rating agency ICRA has recently said that the benefits of the protection measures could largely disappear from the beginning of the last quarter of the current fiscal. Since Indian steelmakers largely depend on imported coking coal and chances of cooling off of the current prices from over $250 per tonne are not there anytime soon, the sustainability of higher production by the Indian steelmakers stands remote.
As the demonetization of the high value currency notes could impact demand in the near to medium term, steelmakers would do well getting into the wait and watch mode for sometime before swinging into full stream once again.
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