Mumbai: Demand for steel in India could grow at the slowest pace in three years as an economic slowdown in the global industry’s bright spot deepens.
Steel consumption in India is likely to increase by less than 6% this fiscal year, according to ICRA Ltd., the local arm of Moody’s Investors Service. That would make it the slowest pace since a 3.1% increase in the year ended March 2017.
“Our earlier view was that demand should grow at 6% to 7%,” Jayanta Roy, a senior vice president at ICRA, said in an interview. “A growth of 7% would be out of line with the current situation now and even 6% in today’s environment would be optimistic.”
India’s steel companies are taking a battering this year. Top steelmaker Tata Steel Ltd.’s first-quarter profit slumped to the lowest in more than two years and rival JSW Steel Ltd.’s earnings fell by more than half as a crisis in the South Asian country’s shadow banking sector fueled a cash crunch and economic growth slowed to a five-year low.
The S&P BSE Metal Index has also plunged about 30% so far this year, the biggest loser among 19 sector indexes on the Bombay Stock Exchange, as high-frequency data signal a worsening slowdown in the economy, with car sales in July dropping the most in almost two decades and infrastructure sector output in June growing at the slowest pace in more than four years.
Infrastructure Investment Critical
Still, consumption in India is likely to outpace global growth, which was forecast to increase 1.3% by the World Steel Association in 2019. The global outlook is turning increasingly bearish with ArcelorMittal, the world’s biggest steel producer, reporting earlier this month that demand could be even weaker than previously expected, while Baoshan Iron & Steel Co. forecast weak demand in the world’s second-largest economy will continue this half.
Steel consumption in the second biggest producer rose 7.5% and 7.9% in the last two years, outpacing a 2.1% to 5% growth globally, bolstered by Prime Minister Narendra Modi’s push to build the nation’s infrastructure. India’s steel demand totaled 97.5 million tons last financial year, jumping nearly 32% in five years, steel ministry data shows.
Fresh capital expenditure from the government is critical for demand growth as private spending on projects is low, and construction and infrastructure remain the most important drivers of India’s steel consumption, Roy said.
Finance Minister Nirmala Sitharaman announced a number of measures on Friday to help re-ignite the economy focusing on steps to spur foreign funds, allowing concessions on vehicle purchases and lending. Economists, finance leaders, industry executives and local media raised questions about the effectiveness of the measures amid lack of any major fiscal support.
“The industry is now focusing on the second half of the financial year to see whether large projects of railways, pipelines, electricity transmission, urban infrastructure or roads gain momentum or not,” Roy said by phone. “If they do, there could be some respite. If they don’t then the concerns would be higher.” – Bloomberg
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