The steel industry has been passing through challenging times with rising input cost and falling demand. The margins of steel companies are squeezed with its inability to pass on the rising input cost to end user due to falling demand.
The shortage of iron ore has led to higher prices in the e-auction even as the key raw material prices in the international markets are hitting a new low.
The cost of coal is expected to go up with companies bidding for 21 coal blocks put on auction. With the rising production cost, steel producers are banking on the Government thrust on ‘Make in India’ programme to boost steel demand.
Goutam Chakraborty, Research Analyst, Emkay Global Financial Services, said the industry has sought the government to increase import duty to 10 per cent from 7.5 per cent as there has been a steady increase in import.
“The industry also wants a cut in export duty of low grade iron ore of 55 per cent to 58 per cent grade, specially to revive mining in Goa, but it would not help much even if it comes through as price of high grade iron ore itself has fallen sharply in the international markets,” he added.
Indirectly, he said, the steel industry would benefit from any sops provided to boost infrastructure and real estate spending.
Though the Reserve Bank of India has signalled softer lending rates, banks seem not comfortable toeing the line. The recent cut in repo rates has not led to lower rates for corporates. Investment in infrastructure projects and demand for housing will get a boost, if the lending rates are reduced. Steel demand will go up with the revival in infrastructure and real estate projects.
Imports on the rise
From being a net exporter of steel last fiscal, India has turned out to be a dumping ground for major steel manufacturing countries. In the first 10 months of this fiscal, imports were up 69 per cent to 8.1 million tonnes against 4.8 million tonnes in the same period last year. In 2014, imports from China alone were at 2.83 million tonnes against 1.25 mt, an increase of 128 per cent. China, with production capacity of 1,116 million tonnes, accounts for 49 per cent of global output and has surplus capacity of 200 mt.
Last year, steel consumption in China was down 3.4 per cent, but it managed to maintain a production growth of 1.5 per cent.
Countries such as Europe, the US, West Asia, South-East Asia and India are the major markets for exporting countries. Demand in West Asia has remained sluggish due to sharp fall in oil prices, while Europe is struggling to recover from the economic crisis. With the US imposing anti-dumping duty on steel imports, India and South-East Asia has become the preferred markets for China.
In a bid to encourage export of low value steel products, China offers incentives ranging from 13 per cent to 28 per cent of the value of shipments. In contrast, the production cost in India has gone up steadily due to high iron ore prices and coal prices. Iron ore prices in the international markets have fallen 50 per cent in the last one year, while it was 14 per cent in India.
