Low government spend to hurt Indian steel business

Faced with overcapacity which is expected to continue in the next two years, the Indian steel industry would be adversely affected if government does not increase its spending on infrastructure.

A strong currency and huge imports is adding to the stress in the industry. The public sector steel giant SAIL alone plans to double its steel-making capacity in the near future, contributing its bit to the Make in India initiative.

The precarious state of the industry is reflected in Tata Steel results declared earlier this month.

It said, “Subdued manufacturing activity in the country adversely affected the market underlying domestic steel demand which decreased by 5 per cent over the previous quarter, along with a relatively strong currency and strong imports from China and other FTA countries like Japan and Korea.”

Net imports rose by over 100 per cent over the corresponding period last year. Though the government raised tariff barriers, the subsequent slide in steel prices has negated the impact of the same.

“Any delay in government spending or inadequate monsoon rains that affect consumer sentiments may weaken demand, and thus affect the profitability and delay improvements in the financial profiles of Indian steel producers,” observed Fitch Ratings.

Global rating agency Crisil Rating in its paper on the impact of the meltdown in steel prices on the ship-breaking industry said adverse currency movement and a meltdown in steel prices “have taken the wind out of the sails of ship-breakers, stalling the otherwise bustling yards of Alang in Gujarat.”

It said the rupee had depreciated about 9 per cent in the 12 months to September 30, 2015 — touching $66 from $61 seen in October 2014 — adding to the woes of an industry already reeling under over Rs 1,200 crore of cumulative forex losses in the last three fiscals.