As demand recovery from construction and capital goods sectors remains fragile, any significant improvement in India steel demand can at best be gradual, despite a growth in the automobile sector in the current year, according to rating agency ICRA.
Weakness in domestic demand from key end-user industries persisted in the current year, and the same was reflected by a low consumption growth of 0.5% only during the period April-October 2014. The demand growth has remained largely unchanged from 0.6% witnessed during FY1.
Steel exports, which had grown by over 20% during April-May 2014, slowed down subsequently to post a meagre growth rate of 1% during April-October 2014.
On the supply side, steel production trend tracked consumption pattern, growing by 2.2% only during the first 7 months of FY15 as against 4.1% in FY14.
However, imports of steel surged and reported a growth of almost 40% during the period April-October 2014 on account of a substantial discount at which imported steel is available in the country. This has led to India becoming a net importer of the metal as against its status as a net exporter in FY14.
Higher production growth relative to consumption levels and rising imports also point towards an inventory build-up in the steel market.
With aggregate capacity utilization continuing to hover below 80% for the global steel industry during the period January-October, 2014, steel production growth rate deteriorated to 1.9% during this period, compared to the 6% growth rate posted during CY13.
Growth in China, which had been the main driver for both demand and supply in the past, has moderated significantly, leading to Chinese steel production growing at a muted 2.1% during the current year, with a de-growth of 0.3% registered in the month of October.
Moreover, steel production growth rates in the developed economies, mainly the United States (USA) and the European Union (EU), have also shown a declining trend, thus constraining the overall growth.
On the other hand, weak demand conditions in most of the economies including China are likely to result in a deceleration in steel usage growth rate to 2% in CY14 from 3.8% in CY13, according to the World Steel Association.
Reflecting this trend, Chinese hot rolled coil (HRC) export prices have remained soft at around USD 460-465/MT levels in the last 2-3 months compared to around USD 530/MT prevailing in the beginning of 2014.
Source: Commodity Online
Zhejiang Yaang Pipe Industry Co., Limited