The capacity utilisation of steel manufacturers is set to increase with strong export demand and signs of a revival in domestic sales. Steel companies such as Essar Steel and JSW Steel have already seen a sharp rise in steel production in the last two months.JSW Steel’s flat steel production increased by 31 per cent to 1.93 million tonnes (1.47 mt) in the last two months, while Essar Steel has also reported an increase in output.

After a gap of three years, India turned a net exporter, aided by stiff tariff barriers restricting imports. In the last nine months, steel exports from India increased 77 per cent to 6.62 mt while imports fell by 65 per cent to 6.59 mt.

With many importers restricting shipments from China with high duties, exports from India are set to continue rising for a few months, said a steel company official. However, the profit margins of the steel industry are set to come under pressure in the March quarter with rising iron ore prices and high-cost coal inventory. In the last seven months, NMDC has increased the price of iron ore lumps from its Chhattisgarh mines by 43 per cent in line with the global trend.

High-cost coal inventory

Coking coal prices, which peaked to $309 a tonne in November, softened to $157 a tonne in February, but most steel companies are now using the high-cost coal booked in the December quarter, said an analyst. Domestic steel demand has just started showing signs of a revival from the impact of currency demonetisation. The government push on infrastructure spending has also helped revive demand.

In the last 11 months, steel output was up nine per cent at 89 mt, while consumption grew 3.4 per cent to 76.22 mt due to continued weakness in key end-user industries.

Jayanta Roy, Senior VP, ICRA, said sluggish demand led to a reduction of ₹2,000 a tonne in the domestic hot-rolled coil price in February, but the price rose by ₹1,000 a tonne in March and a further hike is expected in April.

Nevertheless, he said the Centre’s thrust on infrastructure and affordable housing in the Budget points to favourable demand for the steel sector in the medium term.

Source: The Hindu Business Line