Some Cheer, Some Bad News From India’s Steel Sector

Players in the Indian steel sector continue to paint an optimistic picture in the medium-term, despite some recent negative developments in the steel industry. They are also looking at new avenues for selling steel, domestically and internationally.
 
On the other hand, investors and industry experts continue to watch the Indian steel story with caution, preferring to see how the script unfolds in the coming days before making a call.
 
The first positive news came from JSW Steel, the Mumbai-based company that’s part of the diversified interests of India’s JSW Group. According to a statement issued by the company on Monday JSW’s production grew 35 percent in April.
 
Overall, as compared to some of its competitors, JSW Steel had good news to deliver. The company statement further stated that the company’s flat product output grew 34 percent and long products by 35 percent over April 2011. While flat products are used for consumer durables, long products are meant for the construction sector.
 
Hidden in the statement was a note of caution, though. The capacity utilization at its Vijaynagar works in South India remained at around 80% in April 2012 due to the supply of inferior quality and inadequate quantity of iron ore. That could also perhaps explain why the company’s overall production of crude steel in the given month was down 10 percent compared to the previous month.
 
Before the JSW production figures were released, another piece of bad news buffeted the Indian steel sector. Last weekend, India’s largest private steel producer Tata Steel reported an almost 90 percent plunge in its consolidated net profit in the March quarter.
 
A company statement attributed the profit drop to slowing in the demand for steel in Europe, coupled with high raw material costs and low steel prices, as the main reasons. Europe accounts for two-thirds of sales and production for the company with an annual capacity of about 28 million tons.
 
High raw material costs in addition to the low quality of iron ore ultimately caused by the dwindling supply — post the mining-scam — has started to take a toll on India’s steel sector, as reported a few days ago.
 
The private steelmaker posted a 40 percent drop in its consolidated net income, despite an 11 percent increase in gross income.
 
So what exactly are the drivers for Indian steelmakers’ current woes?

BySohrab Darabshaw

The author contributes an Indian perspective on industrial metals markets to MetalMiner.