Slowdown in the growth of cement and steel production reflected in the Index for Industrial Production in May mirrors the tapering demand from sectors such as power, infrastructure and real estate, which have been burdened by high cost of fund.

Growth in steel production moderated to 6.1 per cent in May compared to 9 per cent in the same period last year. The growth halved to 5.5 per cent (10.9 per cent) between April and May.

Weighed down by the supply glut, cement production registered a fall of 2.3 per cent in May compared to 8.6 per cent last year. In April-May, output fell 1.7 per cent against an increase of 8.7 per cent in the comparative period last year.

India's crude steel production rose by just 0.3 per cent in May, after declining 1.7 per cent in April, the World Steel Association had said. On a sequential basis, however, steel production in May improved by 2.5 per cent.

Inflation control

Mr V.S. Seshagiri Rao, Joint Managing Director and CFO, JSW Steel, said, “One should be happy that the industry has managed to register a growth in steel production. The IIP numbers reflect the policy initiative taken by the Government to control inflation. Interest rates have gone up after the RBI hiking key banking rates”.

Though the steel demand slowdown was more pronounced in the infrastructure sector, others such as automobile and realty sectors are also trimming down their output, which had resulted in lower steel output, he said.

Lending rates

The RBI has marked up key rates 10 times since March 2010 to tame inflationary pressures and has expressed its desire to sacrifice some growth to rein in inflation.

“Taking the signals from RBI, most banks have increased the lending rates making it difficult for corporates to execute their expansion plans. Besides, the slowing automobile and white good sectors have hit steel demand,” said an analyst. Automobile companies have been reporting lower sales in the last few months, while attractive offers by the white good makers have failed to woo customers as finances turned costlier.

The fall in cement production has not surprised many as the industry been hoping for a turnaround in demand for the last six months. With the monsoon season round the corner, cement companies are trimming down their output to match the demand.

“A series of fall in cement prices last two months has failed to revive sales. Though raw material cost has come off from their peak, they are still higher compared to last year. The recent increase interest rate has added to cost in these difficult times,” said a cement company official.

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