The worst is over; signals are cheery: Steel industry

For Indian steel companies, the present may not be perfect, but the future isn't that tense either. A scenario that prompted Ratan Tata to announce at the Tata Steel annual general meeting last week that the company would raise its European production to 80 per cent of the capacity from the current 50 per cent by the year-end.

"Demand is picking up in the West and the trade fall in Europe and the US has bottomed out," the Tata Group chairman said, even while announcing that the steel major's consolidated loss has gone up sharply.

No one is saying the steel industry is out of trouble. The financial crunch continues, and coupled with high cost of input, severely affected the first-quarter profits of steel companies. But most agree with Tata that the signals are encouraging.

A report by RNCOS, the marketing research and analysis company, says per capita finished steel consumption in the country, estimated at 44 kg in 2008-09, is projected to reach 54 kg by the end of 2011-12, showing the tremendous growth potential in coming years.

The report -- Indian Steel Industry Outlook to 2012 -- says despite the slowdown, steel output rose 3.4 per cent in the first quarter of fiscal 2009-10, in comparison to the first quarter of 2008-09, while steel consumption was also up by 5.3 per cent.

Moreover, India was ranked the third largest steel producer in the world after China and Japan during January-May this year. Anticipating a major recovery, the steel minister projected a 6-8 per cent growth for the industry during 2009-10. Steel analysts and company heads said the two major steel products -- long and flat -- would be hot properties again within two quarters.

India's largest steel-maker, Steel Authority of India, registered a 14 per cent growth in July by producing 1.08 million tonnes (mt) of saleable steel, while its sales recorded a 25 per cent jump. Tata Steel clocked an 18 per cent rise in domestic sales, at 0.48 mt in July. The highlight of the growth story was a 48 per cent jump in long product sales, supported by the infrastructure sector's revival.

With the firming of demand, JSW Steel has reported a 51 per cent jump in crude steel output. It crossed 0.5 mt in July. Taking a cue from the market, SAIL and Tata Steel hiked prices on flat products to the extent of Rs 500 to Rs 1,000 a tonne.

Navin Vohra, partner, Ernst & Young, said while steel exports had come down, the surplus was being supplied in the domestic market because of the rising demand.

Edelweiss' senior vice president Prasad Baji said the prices of long products have stabilised after the recent decline and were set for a move up, supported by the growth in construction and engineering sectors. Flat steel prices were going up, along with growth in volume, he said.

"Steel consumption has risen 5-6 per cent in the first quarter and it is estimated to rise further in the current quarter. In the last two quarters of this financial year, it would increase to 8-10 per cent," added Baji.

"India's capacity is short, but the demand is strong. Thus, the space for growth is higher," Vohra said.