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◆Why is India’s steel consumption rising?


Release date:[2017/1/11 10:13:54]    Source:Shan dong Wan steel importer and exporter co.ltd

In December, steel consumption rose by 5.2% over a year ago and by 17.1% over November, according to data collated by the government’s Joint Plant Committee (JPC).
In November too, consumption was up by 3.8%, although it did decline sequentially. Specific factors appear to be behind this increase and the underlying demand for steel remains weak.
Consumption data reported by JPC represents sales made by steel producers to buyers such as steel dealers—who then sell to actual consumers—and large companies such as in the automobile or projects sectors.
In December, the purchasing teams of large consumers of steel got wind that steel companies will be increasing prices January onwards, said Puneet Paliwal, consultant at research and consultancy firm CRU Group. Higher input costs, especially of coking coal, had led to talk of price increases. Large consumers of steel bought additional quantities in December to build stocks for future use, which explains the sharp increase.
In November, the increase although relatively slower, was seen due to dealers stocking up steel while they could use their stock of demonetised currency, according to Vivek Jain, associate director (large corporates) at India Ratings and Research Pvt. Ltd. They have stocked up on additional inventory, to be sold in future months.
Firms have announced a hike in flat steel prices in January, as predicted, but maintaining higher prices will be tough. Steel mills have purchased raw materials at high prices, but the market may be unable to absorb higher steel prices, says Paliwal. Underlying demand conditions are weak, due to demonetisation. The export market, too, is not supporting higher realizations and it may get tougher when the Chinese New Year holidays see more exports from China as local activity ebbs.
If both dealers and companies have stocked up on inventory and demand is not robust, things may get tougher. The coming months may, therefore, see reported consumption growth under some strain, till the surplus steel already in the market gets absorbed. A quick revival in demand in user sectors could do the trick as well, although that’s an idle hope at this point. Steel producers may, therefore, have to decide between exporting more or cut back on output. Analysts are predicting the latter.
Meanwhile, the December quarter results of large steel companies may show a surge in sales based on JPC data. Tata Steel Ltd’s December quarter saleable steel output rose by 25.8% over a year ago while sales rose by 27.5%, partly due to volumes from its new plant.
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