Steel demand remains muted in H1FY12

Steel secretary Mr. PK Mishra said that the growth in domestic steel demand has dipped to 2.8% in first half of the fiscal from 8.8% in first four years of the 11 five year plan

If we look at the last five year scenario for demand and supply the trend has reversed in first six months of FY12. Growth in finished steel production during this period was low at 5.8%, especially in comparison to growth in steel demand which has grown at faster pace by 9%. However the situation has changed in last one year as production have grown at a faster pace as compare to demand which has fallen to 1.8% in first six months of FY12.

The reason behind slow demand for the commodity is due to lower consumption from the automobile sector, construction, and consumer durables which has been the major setback for the steel industries in India. World steel association in a statement released has reduced the growth forecast from 13% to 4.5 percent in FY2012.

Mr. Mishra also said that "It is felt that meeting domestic demand, which is likely to grow at the rate of 10.3% per annum in the 12th Plan, will be a highly challenging task. It is estimated that the country will require a crude steel capacity of 140 million tonnes by 2016-17 to meet domestic steel demand.”

We believe demand outlook in short to medium term to remain muted considering the weakening economic situation. However from the long term point of view domestic demand remains strong as development in Infrastructure and construction sector remains one of the major areas of focus of the government in the coming years and that will drive the growth. However increasing production capacity remains one of the challenging areas due to issues such as land acquisition which can widen the supply demand Gap in coming years