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Domestic demand for steel crawls

Domestic demand for steel crawls
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First Published: Thu, Aug 25 2011. 11 12 PM IST
Updated: Thu, Aug 25 2011. 11 12 PM IST
Global crude steel production rose by 11.5% in July, following an 8.5% growth seen in the previous month, according to the World Steel Association.
Normally, that should be a reason to celebrate, as higher production should translate to higher sales for steel companies. Steel prices, too, are favourable. They had fallen from their highs in February, but have recovered most of those losses, and are up by 14% year-on-year (y-o-y).
But the data also shows that global steel production has declined by about 1% sequentially for two consecutive months. Along with slower sequential growth, capacity utilization fell quite sharply, down by 260 basis points to 79.7%, falling to its lowest level in 2011 so far. Country-wise capacity utilization is not available, so it is not clear which region caused the fall. One basis point is one-hundredth of a percentage point.
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But country-wise production data is available, which shows China’s steel production showing a similar trend. Its influence on the global figure is substantial, as it contributes about 47% to global steel production. The European Union countries, which contribute about 11% to the total, saw production decline by 8% sequentially in July. The region’s fiscal problems appear to be affecting demand.
India, in comparison, is doing quite well, with crude steel production up by 3% in the July quarter. But the data on finished steel provided by the government body, the Joint Plant Committee, gives a more accurate picture.
India’s production of finished steel rose by 7.2% in July, much slower than the 14% growth seen in June, and is down by 8% on a sequential basis. Still, the current rate of growth is healthy.
The concern is on the trends seen in the consumption growth. Much of the growth production is going towards substituting imports as a result of an increase in domestic capacity. The data shows that consumption in the April-July period was up by only 1.6% y-o-y, with July’s figure a little more respectable at about 2%.
Domestic demand seems to be growing at a much slower rate compared with last year, especially against the growth in production. Just as we imported steel when domestic supply was insufficient to meet demand, we now have to export the excess. Exports in the April-July period are up by about 46%, as a result.
Steel is consumed primarily by sectors such as infrastructure and construction for long steel products and sectors such as automobiles and consumer durables for flat steel products. Rising interest rates, along with the effect of inflation on disposable incomes, are affecting demand in user sectors.
The plus point is that prices continue to be high on the back of rising costs. That gives domestic steel companies a buffer against lacklustre consumption growth.
Graphics by Yogesh Kumar/Mint
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First Published: Thu, Aug 25 2011. 11 12 PM IST