Steel sector witnesses less than 1% growth in FY14

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The steel sector has seen a listless growth of less than one per cent for 2013-14 as demand remained subdued in the domestic market, experts said.

With a prolonged slowdown in auto, real estate and infrastructure sectors, demand for steel continued at lower levels, resulting in very low growth for FY14.

Sanjay Jain, analyst at Motilal Oswal, said that according to the Joint Plant Committee report, the steel sector has witnessed only 0.6 per cent growth in the first 11 months of FY14. Demand continued to remain low in the month of March, triggering price cut by steel companies much before the onset of the monsoon.

Jain said that along with low demand from the domestic market, prices are also under pressure as prices of imported steel are falling due to softening of raw material prices globally.

Coal prices have declined by around 10-20 per cent sequentially and steel manufacturers are passing the benefit on to customers to boost sales. Thus imported price of steel has started declining in the country, forcing the domestic players to take a price cut.

A senior official from JSW Steel said the company is contemplating a price cut of up to Rs 1,000 per tonne. “We will take a final call soon but most likely prices will be cut by around Rs 500-1,000 per tonne.”

The official said that demand continues to remain low in the domestic market.

Other companies like Essar Steel and Kalyani Steel said that they have not yet decided on the prices but will take a call this week.

Bhavesh Chauhan, analyst at Angel Broking, said, steel prices are showing a downward trend globally because of which the landed price of steel has started to decline. Taking a cue from the global trend, domestic companies are also expected to reduce prices.

Chauhan said that in the first nine months of 2013-14, the sector has witnessed only 0.7 per cent demand growth and for the full year, demand growth will continue to remain below one per cent.

Usually, prices of steel start correcting with the advent of monsoon but this year prices are expected to start correcting a couple of months ahead, Chauhan added.

However, margins of steel companies will not be impacted significantly in the quarter despite the price cut since raw material prices have softened.

According to a ICRA Report, the near term outlook on the profitability of Indian steel players has improved, given the soft price trends of key raw materials. The steel industry being highly raw material intensive, ICRA expects the near term benefits from lower raw material costs to more than neutralise the adverse impact of a low volume growth, even if a part of the benefits of lower costs are passed on to customers to protect salesf volumes.

Jayanta Roy, senior vice-president and co-head, Corporate Sector Ratings, ICRA, said, “over a longer term, volume growth however would be critical, given that substantial fresh capacities are likely to be commissioned in the next two years. Unless demand conditions improve significantly, overall capacity utilisation levels and profitability of steel players would remain impacted”.

Persistent weakness in demand from key end-user industries kept the domestic steel consumption growth at a meagre 0.5 per cent during the period April-December 2013. ICRA therefore expects the domestic steel demand to grow at a slower pace in 2013-14 than the 3.3 per cent growth rate achieved in 2012-13, notwithstanding a typical pick-up in demand in the last quarter.

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