Demand for steel has been resilient. Compared to the global slowdown, Indian demand has shown resilience. Provisional figures compiled by analysts show a 7.5% rise in FY19 sales, making India one of the fastest-growing steel markets among large economies. Even though this is marginally lower, it still compares well with a 7.9% rise in FY18. Contrastingly, global steel demand is projected to slow to 1.4% in 2019, more than halving from the 3% increase in 2018.
Data from Joint Plant Committee showed a 7.8% rise in steel consumption from April 2018 to January 2019. According to SBICAP Securities Ltd, demand in the subsequent two months increased 7.7% and 8.8%, respectively. This pegs consumption growth during January-March (Q4 FY19) at 6.4%, points out Emkay Global Financial Services Ltd, notably better than the December quarter when demand decelerated.
Inventory restocking and the seasonal upswing in demand have driven volumes in the last three months. Tata Steel Ltd’s India operations reported a 56% jump in sales volume last quarter. The growth was partly aided by capacity expansion following its acquisition of Bhushan Steel Ltd last year. Even so, higher volumes should help mitigate the impact of subdued prices.
The recent increase in prices notwithstanding, domestic hot-rolled coil prices on average were down around 4% year-on-year in the last quarter.
“After almost two years of a strong steel cycle, aided by disciplined Chinese production/exports, steel prices globally slumped toward the end of Q3 FY19, with impacts visible in Q4 FY19. However, producers took advantage of the seasonally strong demand to recoup part of the fall," Emkay said in a note.
Tracking the sales trends of notable steel producers, Tata Steel and JSW Steel Ltd recouped from their lows in January. But in FY20, all eyes are on demand recovery in China and India.
Demand in India is largely being driven by the infrastructure sector. According to SBICAP Securities, demand for long steel products increased 9.6% during the April 2018-February 2019 period. Comparatively, demand for flat products, which largely emanates from the automobile sector, is up 4.8%. With automobile sales decelerating further in recent months, the fear is that a prolonged slowdown could impact steel demand in the coming months. According to Edelweiss Securities Ltd, about 20% of total steel in India is consumed by the automobile sector.
Another challenge is the slowdown in China. This demand slowdown in China is driving imports to India. The sharp fall in international prices increased imports to India, weighing on domestic prices.
The rise in iron ore prices due to supply disruption in Brazil pushed up global steel prices, benefiting producers such as Tata Steel. But with iron ore supplies rising in the home market, this advantage is expected to erode, making demand recovery in global markets crucial for Indian producers.
“Though there has been some progress in trade talks between the US and China, global demand concerns still pose significant headwinds," said analysts at Edelweiss.