Indian Steel Consumption Inches Higher

As per the data provided by the Joint Plan Committee, steel consumption in India has grown at a decent pace in the year 2012. In fact, the year has begun on a good note for the steel companies despite the weak economic scenario in India. On an YTD basis the consumption has grown by 8.23 per cent to 30.12 million tonnes.

Steel consumption in FY11 grew by 5.5 per cent YoY to 69.18 million tonnes despite subdued first nine month of the Fiscal. The jump was mainly on account of the revival in demand during the March 2012 quarter which grew by 8.9 per cent YoY. This gives us an indication that the scenario is looking better than FY12.  For FY13 the World Steel Organisation has forecasted growth of 6.9 per cent as compared to 5.5 per cent in FY11.

The growth in the consumption of steel so far has been good given the current economic scenario. The construction sector is the primary demand mover for steel in India, which remains at its peak levels before the monsoon. This can be witnessed from the results of the steel companies during the March quarter wherein they have posted decent numbers on the back of a jump in the sales volumes due to a revival in demand and an increase in steel prices by Rs 1,000-1,500 per tonne during the quarter. The Indian steel companies this year seem to be comparatively in a much better situation in terms of demand and pricing.

However, with the monsoon reaching major parts of India, steel consumption will remain weak in the next three to four months due to the resulting slowdown in construction activity. Further, the depreciating rupee is also a big concern as steel companies buy imported coking coal resulting in higher import cost of the raw material. Moreover, companies with foreign currency exposure will report huge forex losses, thus impacting the bottomline of the steel companies in the coming quarter. However, on the back of higher infrastructure spending by the government the steel companies will do much better than FY12.