New Delhi: State-owned steel makers Steel Authority of India Ltd (SAIL), and Rashtriya Ispat Nigam Ltd (RINL) are considering scaling down production after a surge in inventories brought about by a sudden and sharp fall in demand—itself a consequence of the global economic slowdown.
G.V.N. Reddy, a general manager with RINL, said his company would take a decision in a week on whether it needs to scale down production. He added that the company has around two months of unsold inventory.
SAIL, the country’s largest steel maker, said the current economic crisis has affected the steel industry globally, resulting in a decline in steel prices in the international as well as domestic markets.
“While no decision has been taken on the production cut by SAIL (as of now), we are reorienting our product mix and are going in for more special products,” the company’s public relations department said in a statement. The firm didn’t provide details of its inventory position.
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Between them, SAIL and RINL accounted for one-third of India’s total steel production of 54 million tonnes last year.
“The demand (for steel) has come down drastically and if this continues, we may have to resort to scaling down production. However, there will be no lay-offs at RINL,” Reddy said. The company may slash up to one-third of its total steel production, he added.
According to an official at the steel ministry, who didn’t want to be named because he is not authorized to speak to the media, both SAIL and RINL will soon take decisions “on the extent to which they may need to scale down manufacturing”.
“Both SAIL and RINL have around 700,000 tonnes each of inventory. And now management in both companies have decided they need to take a call on cutting down production,” this official added.
The freight angle
Lower sales and production of steel could hit freight traffic on Indian Railways. Steel accounts for around 6% of this. Railway minister Lalu Prasad said last month that growth in steel freight was down in October.
“There has been a slowing of steel loading in the last couple of months. This is largely due to a cutting down of supplies by the steel producers,” said member (traffic), railway board, Sriprakash, who goes by one name. The revenue from steel and pig iron has come down from Rs238 crore in September to Rs230 crore in October.
A senior official in the railway ministry said the main reason for the slump was the fall in demand for steel because of the slowdown in the real estate and construction business. “Construction has to pick up again for things to improve,” said this official who asked not to be named because he is not authorized to speak to the media.
Former steel secretary Moosa Raza said steel manufacturing companies will need to cut production for the time being. “Globally, there is a slump in demand for steel and China too has huge inventories of steel. Things may improve in over a year but until then, the manufacturers may have to cut production as well as hold prices,” said Raza.
SAIL, however, said it expected the situation to improve a lot sooner and that sales were already up this month compared with the last. “We understand that stock levels with most stockists are low now, (and) so we hope that normal sales would resume from the month of December,” a spokesperson for the company said. “Please keep in mind that the government is also planning a Rs50,000 crore boost for the infrastructure sector.”
While a Tata Steel Ltd spokesperson said the company had no plans to cut production, a spokesperson for Essar Steel said the company was operating at 75% of its capacity and added that the situation could improve by January.
India’s steel secretary Pramod Kumar Rastogi said soaring inventories of steel were a major problem but added that things had begun to look better in November. “The manufacturing units may take to changing their product mix and need not necessarily scale down. The offtake depends on price, which has come down substantially and now that the rates have come down, we expect the construction sector to increase procurement,” he said.
Rastogi hinted that the government wouldn’t tell SAIL and RINL what to do. “If the manufacturing plants feel the need to scale down, that is a decision they need to take.”