Restriction on mining activities, ‘major challenge’

Steel industry growth is set to remain muted with subdued demand from consuming sectors such as infrastructure and realty. Besides, constraints in sourcing iron ore and restriction on mining activities will pose a major challenge for the industry, said an ICRA research report.

Steel consumption growth, which remained muted at 3.9 per cent between April and December, is unlikely to register any significant improvement in the fourth quarter given the control on expenditure exercised by the Government.

The overall consumption growth this fiscal is likely to remain lower than the 5.5 per cent recorded last fiscal. This growth will be significantly lower than the 9.9 per cent and 13.3 per cent registered in the preceding two financial years, said ICRA.

Budget impact

Although a number of players have announced price increases, the rise in freight rates proposed in the Railway Budget is likely to offset the impact significantly.

Given the sluggish demand and high production cost, ICRA expects the pressure on the profitability of steel companies to continue.

Iron ore mining restrictions continue to affect sponge iron production in Karnataka and Odisha, which together account for a little over one third of the total installed capacity.

Mining restrictions in Odisha alone may lead to over 10 per cent fall in sponge iron production this fiscal.

Apart from limited availability, high prices and inferior quality of iron ore being auctioned have also adversely impacted the Karnataka-based sponge iron players.

Following firm international prices, some Indian steel mills hiked steel prices in December, January and March, but the sustenance of the same is doubtful, due to the continuing weakness in consumption, and concerns related to a possible overcapacity situation in India, said the report.

(This article was published on March 14, 2013)
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