Even as government’s decision to demonetize INR 500 and INR 1,000 notes is being lauded across the country, it is likely to impact India’s steel consumption in the short to medium-term. The move, mainly aimed at eradicating black money from the system, is set to provide a huge blow to the sector now trying to limp back to normalcy after a lull of more than two years.
Steel-consuming sectors such as construction, automobiles and white goods are the immediate casualty of the government’s historic step. These three sectors consume most of the steel in the country. With the discontinuation of these notes, demand from these sectors is bound to fall and this will have a direct bearing on the steel industry.
The move came when the construction activity was set to enter into its peak after an elongated monsoon. Even as government’s spending on infrastructure may remain unabated, the already laggard public money may take time to pour in. Again, with the somewhat softening of the interest rates, developers might postpone new reality project launches and existing projects may take more time to deliver. The construction sector including the real estate consumes more than of India’s steel like any other country in the world.
With over 16% growth in sales in the first half of the current fiscal, automobiles sector has been running at a good pace. Chances of moderation have already been there following the festival time. Now, it is almost certain that people would prefer to wait and watch before going for a new purchase. This is not good news for the steel sector.
White goods sector is also set to feel the pinch as transactions here mostly take place in cash even now and with the scrapping of these currencies, sales will take a hit.
Domestic steel consumption grew by just 2.8% during the April-October period of the current fiscal so far. The per capita consumption of steel in the country is way lower than the global average. It has miles to go to improve its steel consumption.
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