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India’s output to grow just 4% in ‘13 as domestic demand sags

Keywords: Tags  Indian steel, steel output, steel production forecast, World Steel Association, Metal Bulletin Research, steel outlook, construction, automotive rebar

LONDON — The outlook for India’s steel industry is uncertain, with output expected to grow just 4 percent this year as domestic demand slumps, AMM sister publication Steel First said based on a forecast by Metal Bulletin Research.

Output growth has slowed considerably over the past three years as the domestic economy retreated from previous high rates of expansion.

Indian steel output growth had averaged 10 percent annually for the decade prior to 2013, and reached 77 million tonnes in 2012, according to the World Steel Association.

As the value of the Indian rupee tumbles amid high inflation and slowing economic growth, new steel capacity is coming online that was built on the expectation of significantly higher demand.

Even as some additional capacity projects are being abandoned by international steel groups such as ArcelorMittal SA, Luxembourg, and Posco Ltd., South Korea, more capacity is due to come on-stream in the next two or three years from Jindal Steel & Power Ltd. (JSP), JSW Steel Ltd., Tata Steel Ltd., Vizag Steel Plant and state-owned Steel Authority of India Ltd. (Sail). Sail, for example, is bringing on 2.5 million tonnes per year of crude steel capacity at Rourkela, at the northwestern border of India’s Odisha state.

More than 60 percent of India’s steel demand comes from construction, but a pullback in residential and commercial real estate due to high interest rates has hindered growth in the country.

Infrastructure investment from central and provincial governments also is growing more slowly as bureaucratic delays result in repeated project postponements.

Beyond Sail and Vizag, and to a lesser extent Tata and JSP, the long products sector, particularly rebar, is highly fragmented and local.

In the flat products market, automotive output and sales have also struggled. Vehicle sales fell 7.5 percent year on year in April-to-July 2013 and have registered year-on-year declines for nine consecutive months.

Vehicle output has been cut even more deeply since April 2013 as inventories of finished vehicles have increased.

The combination of rising steel capacity and slow demand is causing India’s steel mill utilization to drop, pressuring domestic pricing.

In August, for example, flat product producers failed to increase domestic prices despite rising international tags.

The Indian market typically moves in tandem with the international market at a small premium due to a 7.5-percent import tariff on steel imports.

Metal Bulletin Research expects this premium to erode and import levels to fall due to the domestic oversupply.

Exports offer a release valve, especially for steelmakers with low internal logistics costs to the seaborne market.

Over the past three months, the value of the rupee has declined by almost 20 percent against the U.S. dollar.

With the majority of input costs paid in rupees, with the exception of coal for some importers, this has significantly increased the profitability of domestic sales and the viability of exports.

Flat-rolled exports were trending higher even before the recent devaluation, while imports were falling.

Thus, the shift in the trade balance toward net exports, which started earlier this year, is expected to accelerate in the second half of 2013, Metal Bulletin Research said.

A version of this article was first published in AMM sister publication Steel First.

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