outlook for Indias 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
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 Indias Odisha state.
More than 60 percent
of Indias 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.
investment from central and provincial governments also is
growing more slowly as bureaucratic delays result in repeated
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
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 Indias
steel mill utilization to drop, pressuring domestic
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
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.
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