Fresh capacity set to worsen supply glut in steel market

Finished steel consumption in India advanced at a mere 1.3% to 33.74 million tonnes in the five months from April to August


India’s top three steel firms Tata Steel Ltd, Steel Authority of India Ltd (SAIL) and JSW Steel Ltd are adding fresh capacities in phases.
India’s top three steel firms Tata Steel Ltd, Steel Authority of India Ltd (SAIL) and JSW Steel Ltd are adding fresh capacities in phases.

Mumbai: Steel makers believe construction demand will revive by the time fresh steel capacity comes on line in the next two years, dismissing fears that an oversupply will depress prices.

Finished steel consumption in India advanced at a mere 1.3% to 33.74 million tonnes (mt) in the five months from April to August, according to the Joint Plant Committee (JPC), a government body which collates iron and steel data. Current industry capacity is around 115mt.

India’s top three steel firms Tata Steel Ltd, Steel Authority of India Ltd (SAIL) and JSW Steel Ltd are adding fresh capacities in phases. “If demand in the sector has to catch up with supply, it has to grow at double the pace of supply in the remaining part of FY17, which looks unlikely as there’s already significant capacity addition taking place and they are going to be ramped up in subsequent months,” said Goutam Chakraborty, an analyst at brokerage Emkay Global.

At present, exports are helping Indian producers and any disruption to that can create an oversupply situation, he pointed out. “Last year, imports seized the whole of Indian steel demand growth; this heightened the capacity overhang,” said Prakash Kumar Singh, chairman, SAIL.

Singh is confident demand will rebound on the back of better growth in the construction sector, helped by smart cities, expansion of road and railway networks and indigenization of defence and heavy engineering.

“We expect that in the coming years, there will be a spurt in steel demand and there is no factor which is stopping that rebound,” he said, pointing out that “India is the only bright spot, where 5% growth in demand is expected in years 2016 and 2017.”

JSW on 28 July reaffirmed its forecast of a 25% growth in volume to 15.75 million tonnes per annum (mtpa) of crude steel, and sales of 15 mtpa of saleable steel for fiscal 2017. It plans to have 40 mtpa of steel-making capacity by 2025.

“Everybody is producing more. While the demand has grown, it hasn’t grown enough to cover the capacity. But it’s a matter of time. Steel capacities are always added in steps,” said T.V. Ravindran, managing director at Tata Steel Ltd on the sidelines of company’s June quarter results on 12 September. 

Exports of finished steel rose 23.6% to 2376mt in the first six months of the current fiscal over a year ago, shows World Steel Association data.

Tata Steel’s Kalinganagar plant, the largest by revenue, will be adding 3mt of fresh capacity over the next two years. Of this, a million tonne is likely to be available in fiscal 2016-17 itself. JSW Steel has commissioned a new capacity of 3.7mt, of which 80-85% will be utilized in the current fiscal itself. SAIL will add 2.5mt to its existing 12.5mt by end of this fiscal, taking it up further to 17mt the following year.

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