India’s steel industry had a dismal 2012 by any standard but the World Steel Association expects the next two years to see a much better performance, in line with its forecast for a global rebound. The association, which released its short-range outlook, has projected global demand to increase by 2.9% in 2013, bettering the 1.2% growth seen in 2012, and then improve further in 2014 with a 3.2% growth forecast.
In India, it expects demand to sharply improve from a tepid 2.5% in 2012 to 5.9% in 2013 and then to 7.5% in 2014. Its optimistic outlook for 2013 is based on monetary easing measures while it expects the benefits of measures taken to lower the fiscal deficit and a better foreign direct investment climate to benefit steel demand in 2014. A lot therefore depends on the manner in which these measures are implemented.
In fact, data for the January-March quarter from the Joint Plant Committee does not paint a very positive picture. Demand for finished steel rose by only 1.5% during the quarter over the year-ago period, while output growth was virtually flat at 0.3%. Low demand levels pose a challenge for the industry to be able to meet growth predictions.
Internationally, worries on China’s economic growth will shadow the steel industry as well as the country accounts for 46% of global demand for the metal. Its growth and a recovery in the European Union are critical factors to boost global demand for steel in 2013.
In the domestic market, a revival in the prospects of automobile and real estate companies should be positive short-to-medium triggers to watch for. In the longer run, a pick-up in infrastructure projects and the investment cycle is critical for demand and to absorb capacity increases. Steel stocks have been under severe pressure on the bourses in the past three months, with Tata Steel Ltd down by 27.7%, Steel Authority of India Ltd by 32.4%, and JSW Steel Ltd down by 16.5%.