Comments
The prospects for Indian steel companies that looked bright at the beginning of calendar 2011 turned bleak towards the year-end. This was mainly due to sluggish sales coupled with high input costs such as coking coal and iron ore that exerted pressures on the companies' bottom lines.
The Indian steel-makers bore the brunt of high input costs, mainly coking coal, as prices hit the roof due to flooding of mines in Queensland, Australia, a key producer of the commodity used in making steel. As a result, the profits of Indian vendors came under pressure that intensified further towards the latter half of the year, when the rupee got devalued significantly against the dollar.
Sluggish demand
The inability of the steel companies to pass on the cost burden for major part of the year, amidst an uncertainty in demand scenario, did add to their margin pressure. Demand from sectors such as construction, infrastructure, automobile and consumer durables slowed down considerably during the year. The successive hikes in interest rates by the Reserve Bank of India to tame inflation did cast a spell on the steel demand.
Indian companies were expecting double-digit growth in 2011 on the back of strong performance in the previous year. This was reflected in the projections for the World Steel Association, an apex body of global steel-makers, in pegging the demand at 13.7 per cent towards the initial part of calendar.
Consumption
However, as events unfolded tracking the changing macro-economic conditions and the demand slowed down, the WSA scaled down estimates in latter half of the year to a growth of mere 4.3 per cent at 67.7 million tonnes.
Broadly in line with the WSA projections, steel consumption has grown by 3.9 per cent in the April-November period according to the Joint Plant Committee statistics. Production during the period has grown by about 8 per cent to 46 million tonnes. Exports have grown by 31 per cent to 2.7 million tonnes, while imports are down by 20 per cent to 4 million tonnes during the period, according to JPC. The WSA has predicted that consumption will accelerate and pick up in 2012 to 7.9 per cent.
Capacity expansion
Notwithstanding the demand-supply scenario, Indian steel makers such as SAIL and Tata Steel are investing in capacity expansion with a view on long term prospects. The ongoing modernisation will increase SAIL's capacity to 24 million tonnes by 2013 even as the country's largest steel-maker is eyeing newer projects. Similarly, Tata Steel, which will see its capacity expand to 10 million tonnes by March 2012, is building a 6 million tonne steel project in Orissa.
Mining ban
However, JSW Steel, which has seen an aggressive ramp-up in recent years, is reducing its capital expenditure for the year and plans to go slow with its expansion. The curbs on iron ore mining imposed by the Supreme Court in Bellary, Karnataka, on environmental grounds disrupted supplies to JSW Steel and other producers dependent on the region.
Though monitored iron ore sales have commenced through electronic auctions and that the country's largest miner NMDC has been allowed to operate two mines in the region, the steel-makers may take some more time to normalise their operations.
Outlook
The year 2011 also saw the Indian steel makers both private and public sector come together and successfully clinch a bid to develop overseas mines in Afghanistan. Going forward, it would be interesting to watch how this initiative unfolds. Though the Indian public sector companies joined hand to form the International Coal Ventures Ltd to acquire overseas coal assets, the special purpose vehicle is yet to crack a deal abroad.
The struggle of global steel-makers such as Posco and ArcelorMittal to gain a foothold into the Indian market continues. Though Posco got the clearance almost after a six-year wait for its Orissa plant, the land acquisition is yet to be complete. Posco's another venture in Karnataka has also faced land acquisition issues.
Though 2011 has been a tumultuous year for Indian steel makers, will 2012 bring any cheer to them? It's better to wait and watch.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.