Steel lost sheen as the year progressed: 2011 Review

The year ahead also does not hold much promise unless the governments take concrete steps to boost consumption of steel in the domestic market, particularly in rural areas. Experts say that the country and the steel makers have to make sincere efforts to develop better technology in-house

New Delhi: Entering 2011 on a strong note amid buoyant demand from construction, consumer durables and automobiles, the steel sector lost its sheen as the year progressed, impacted by inflation, high interest rates and rising input costs, reports PTI.

It was on 5th January that credit rating agency Fitch predicted 7%-9% demand growth for steel in 2011, supported by an expected spurt in consumption by automobiles, white goods and construction sector.

The government’s continuous thrust on infrastructure spending fuelled expectations were bolstered by steel makers reporting strong topline growth in the January-March quarter. JSW Steel clocked 34% growth, Tata Steel, 18% and SAIL 7%. Bottomlines also showed remarkable growth that quarter.

However, even before the end of March quarter, an element of uncertainty started creeping in. Steel makers as well as the policymakers were virtually clueless on the likely demand and movement in the price of coking coal, an important raw material for making of steel.

Already hardening, coking coal prices shot up to a record high of $330 per tonne during April-June, from $200 a year ago due to paucity of supply in the global markets on account of a major flood in Australia’s Queensland province, a major international supplier.

India’s steel sector was then set to take a major hit as the slowing global economy began taking its toll on demand in Europe and the US. The Greek debt crisis and its spill-over to the Eurozone eroded demand further in the following months.

The writing on the wall became clearer.

Indian steel makers had to start living with costlier raw materials throughout the year, with margins shrinking. They weren’t able to pass on the inflated cost to the customers.

The ‘New Year’ euphoria faded.

For the April-June quarter, SAIL reported 29% dip in net profit over the same quarter last year bearing the burnt of ‘red-hot’ coking coal price, which alone inflated its expenditure on raw material by Rs588 crore. SAIL’s turnover grew 19.7% to Rs11,891 crore over a year-ago period.

Steel makers started pinning hopes on the moderation of coking coal prices as output in Australian mines showed sign of stabilising. They also hoped for a pick up in domestic steel demand after the monsoon.

Instead, demand remained subdued, coking coal price did not decline, interest rates continued to hardened, the rupee depreciated and the bottomline of steel makers went from bad to worse in the next three months.

SAIL clocked 55% decline in net profit at Rs495 crore and JSW Steel reported a Rs669 crore loss. Tata Steel Group’s net profit came down to Rs212 crore from Rs1,979 crore in the corresponding period of last year.

Towards July-end, the Supreme Court banned mining in the Bellary region of Karnataka citing environmental degradation.

JSW Steel was the worst hit. It had to cut down production to 70% cent of its installed capacity.

Contrary to expectations of the initial months, domestic steel consumption grew by 2.9% during April-October period to 39.5 million tonnes, pulled down by sluggish growth, interest rate hikes and stubborn inflation.

The country’s steel production in the first 11 months of 2011 stood at 66 million tonnes, up 5.6% from 62.5 million tonnes during January-November period of last year.

It was not only the performance of steel firms which impacted sector. There was been no major movement on the policy front either, barring the raising of export duty on iron ore.

The National Steel Policy is yet to take final shape.

Except for brownfield expansions, no greenfield plant has gone on stream.

The year ahead also does not hold much promise unless the governments take concrete steps to boost consumption of steel in the domestic market, particularly in rural areas.

Experts say that the country and the steel makers have to make sincere efforts to develop better technology in-house.

According to them, unless that is done, Indians will continue to look for foreign collaborations where their partners will dictate terms, like in the case of SAIL-Posco joint venture; and steel firms would have to play second fiddle to them.

User

Q3 GDP growth to remain subdued: Plan panel

“The economy has slowed down, but, we have not seen whether the deceleration has bottomed out ... we should wait for third quarter numbers to have a better picture of the whole year GDP number,” Planning Commission deputy chairman Montek Singh Ahluwalia commented

Mumbai: Planning Commission deputy chairman Montek Singh Ahluwalia on Wednesday said the third quarter gross domestic product (GDP) numbers are likely to ‘decelerate’ from the previous quarter, reports PTI.

“GDP numbers in the third quarter will be subdued. It is likely that it may decelerate in that period. However, whether growth rate in the second half will be less than the first half will be known after the third quarter figures are out,” he said, delivering 3rd M Visvesvaraya memorial lecture here.

GDP growth in the second quarter came down to 6.9% from 8.4% a year ago, indicating a slowdown in the economy, taking the H1 numbers to 7.3%. However, headwinds to growth in Q3 emanates from the Index of Industrial Production (IIP) for the first month of the third quarter, which contracted by a whopping 5.1% against a full 11.3% year ago.

About the growth forecast for the whole fiscal, Mr Ahluwalia said, “The economy has slowed down, but, we have not seen whether the deceleration has bottomed out ... we should wait for third quarter numbers to have a better picture of the whole year GDP number.”

He also said although it is going to be around 7%, it will not be a bad number by global standards.

Terming the sharp fall in October IIP data as temporary adjustment to slower growth rate, Mr Ahluwalia said, “IIP data themselves have a lot of shortcomings in terms of reporting, which means the monthly numbers are not very reliable.”

On inflation, he said it would be around 7% by end of the fiscal. “Food inflation has come down and overall inflation is also coming down. We hope inflation will be around 7% by the end of the fiscal.”

Implementation of the proposed Food Security Bill will not add to food inflation as supply-side concerns can be taken care of in the future, he added.

Referring to the massive fall of rupee, he said the exchange rate movement is not unreasonable. “We have seen rupee falling to lower levels and then coming to Rs44-Rs45 to a dollar in the past. The rupee movement is demand-supply driven and there is nothing unreasonable in it.”

User

RBI eases borrowing norms to ease liquidity crunch

The RBI on Wednesday allowed banks to borrow additional amount from it under the Marginal Standing Facility, a new lending window which was opened by the central bank in the current fiscal. It further said that banks will not be required to seek waiver for default in SLR compliance

Mumbai: In order to ease the liquidity situation, the Reserve Bank of India (RBI) on Wednesday allowed banks to borrow additional amount from it under the Marginal Standing Facility (MSF), a new lending window which was opened by the central bank in the current fiscal, reports PTI.

“It has been decided to permit banks to avail themselves of funds from RBI on overnight basis, under MSF, against their excess Statutory Liquidity Ratio (SLR) holdings,” the RBI said in a circular.

MSF is the rate at which banks can borrow overnight from RBI. SLR refers to the amount which the banks are mandatorily required to invest in government securities. At present, the banks’ SLR is 24%.

RBI also said that banks can borrow funds on overnight basis below the stipulated SLR, up to 1% of their deposits.

It further said that banks will not be required to seek waiver for default in SLR compliance.

There is liquidity problem in the system following payment of third instalment of the advance taxes by the corporates and other assesses. The last date for payment of advance tax was 15th December.

Besides, the companies and traders will have to garner resources for payment of service tax. The last date for payment of half-yearly service tax is 26th December.

The RBI had opened the MSF window to allow banks to borrow money from central bank from 9th May.

The central bank in its mid-quarter credit policy announced earlier in the month had refrained from tinkering with the key rates and ratios despite the demand from the industry to lower the Cash Reserve Ratio (CRR), the amount which the banks are required to park with the central bank in cash. The CRR is currently at 6%.

User

We are listening!

Solve the equation and enter in the Captcha field.
  Loading...
Close

To continue


Please
Sign Up or Sign In
with

Email
Close

To continue


Please
Sign Up or Sign In
with

Email

BUY NOW

The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)