Despite positive vibes, demand for steel falters

Steel demand is yet to revive as fresh investments are still hard to come by despite the positive vibes all around. Corporate houses across sectors are waiting to ramp up their capacity utilisation to the optimum level before taking a call on fresh investments.

Going by the current steel demand, the country may not achieve the targeted growth of 3-5 per cent in the first half of this fiscal.

Steel offtake in the September quarter was down marginally at 18.6 million tonnes (mt) against 18.8 mt in the same period last year. It dipped by 1 per cent to 37.1 mt (37.5 mt) in the first six months of 2014-15.

Steel production in the September quarter was up 3 per cent at 20.81 mt against 20.22 mt registered in the same period last year. In the first half of this fiscal, it was up marginally at 41.59 mt (40.53 mt).

Steel companies, which produced 81.61 mt last financial year, target 4-5 per cent growth this fiscal. The country has an annual production capacity of about 96 mt.

VS Seshagiri Rao, Joint Managing Director and CFO, JSW Steel, said though the sentiments have turned positive, real investment on the ground is yet to happen as large investments made in the infrastructure sector are still stuck at various levels.

“Few investments were made in the infrastructure space during the first half of this fiscal and the third quarter may not be different with a slew of holidays. In this scenario, it is very unlikely that the annual steel demand growth target would be met,” he said.

Though the Government has announced large infrastructure projects, companies are unwilling to put money on the table, particularly after experiencing issues over environment clearances and land acquisition. The Supreme Court order cancelling 214 of the 218 coal blocks allotted between 1993 and 2010 has caused apprehension among investors.

Vikram Dhawan, Director, Equentis Capital, said fresh investment in the infrastructure space, especially in the power sector, would be restricted until the previous issues are resolved.

“Revival of steel demand is still a few quarters away as the real spending would kick in only after some clarity emerges over the fate of previous investments,” he said.

On the possibility of a lending rate cut spurring overall demand, he said, flow of bank credit to infrastructure projects has been a concern more than the rate of interest.

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