The weak economy and slowing infrastructure spending has taken a heavy toll on steel and cement prices.
Steel prices have plunged below Rs 40,000-mark for the first time in two years due to the low demand from slowing auto and white goods sectors while cement prices have started cracking from June.
The price of basic hot-rolled coil variety slipped to Rs 38,000 to Rs 39,000 a tonne due to sharp fall in demand in last few months. The auto sector, one of the major drivers of steel demand, had reported drop in sales for last 10 months as the crisis in the NBFC sector squeezed lending to this sector.
Automobile sales across India declined 5.4 per cent in June to 1.64 million units. Ashok Leyland, the country’s second-largest commercial vehicle manufacturer had said it will stop production at its Pantnagar plant for nine days to cut dealers’ inventory while Maruti Suzuki India has resorted to a double-digit production cut for five consecutive months to balance inventory at its dealer end.
Rising defaults by automobile dealers prompted large banks such as SBI and HDFC Bank reduce their exposure towards inventory funding of automobile dealers.
Seshagiri Rao, Joint Managing Director, JSW Steel said steel demand is weak and it has grown only 6.5 per cent in April and May compared to 8 per cent growth logged in March quarter driven largely due to liquidity constraints and curb in bank lending.
Since there are few active lenders, the availability of credit at reasonable rate has become an issue, he said.
There is an anomaly in the market place with RBI cutting key bank rates to stimulate growth, while banks’ lending rates are going up to unaffordable levels, he added.
On one sides, he said inflation and nominal growth is lower on the other real interest rate are so high. A cut in interest rate and availability of credit is need of the hour, he said.
Monsoon impact on cement
Unlike steel, cement prices are driven by local demand and availability. Any cut in output by a cement company in particular region can push up prices substantially.
Though the average cement prices was down two per cent at Rs 366 per 50 kg bag in June, it was up four per cent in the June quarter due to the sudden price spike in May to Rs 375 from Rs 359 a bag logged in April.
Kunal Shah, Research Analyst, Yes Securities said the western and southern regions witnessed sharpest price decline while it was down nine per cent at Vizag in June due to government project cancellations and ban on illegal sand mining.
This apart, he said liquidity crunch, slowdown in Government-led infrastructure activities and onset of monsoon in few regions had impacted demand.