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The production in the eight core industries recorded a healthy growth in September, signalling pick-up in some segments of the economy. The growth in steel output has been especially strong.
These core industries that contribute 38 per cent to the overall IIP number recorded a five per cent year-on-year increase in September compared to the corresponding period in 2015. Steel production, which has a 6.7 per cent weightage in the total IIP index, shot up sharply over the last two months.
The index measurement for this metal was 233.4, marginally short of all-time high of 237.3 achieved in August.
The steel sector has shown a healthy year-on-year expansion every month from March 2016, except in July. But over the last two months, the year-on-year growth in steel was particularly high at 17 and 16.3 per cent respectively. So what is driving this growth in the steel sector?
The Centre’s recent measures to curb imports have led to the spike in domestic steel production. This has also helped in firming up domestic steel prices. For the first half of this fiscal year, the total crude steel production was at 48 million tonnes, a 7.5 per cent increase compared to the same period a year earlier.
Consumption tepidSteel consumption in the country, however, continues to be tepid.
During the first six months ending September 2016, domestic consumption increased to 41 million tonnes, a mere 3.6 per cent year-on-year increase.
Jayanta Roy, Senior Vice-President, ICRA, says, “The last six months have seen a 35 per cent drop in imports because of the various protection measures implemented by the Centre. This is one of the main factors for the increase in domestic production”.
But, the domestic demand still lags production, raising questions over the sustainability of the increase in domestic production.
However, steel companies will be at an advantage with the Centre’s increasing capital expenditure in the railway, port and electric transmission sectors.
Besides, the manufacturing Purchasing Managers Index (PMI) at 54.4, close to a two-year high for the month of October also indicates positive signs in the manufacturing environment.
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