Steel sector stares at tough times in 2015, but hope afloat

New Delhi - With an above-global average output growth, India has retained its position as the world's fourth-largest steel producer this year but faces tough times ahead in 2015 amid growing imports and other concerns.

While production has grown at a pace faster than the global average for a significant part of 2014, demand has broadly remained sluggish and the sector is looking for a boost from the new government's stated emphasis on manufacturing and infrastructure sectors.

Hoping to benefit from the 'Make in India' programme, all steel producers would look to expand their capacity from about 100 million tonnes per annum currently.

The total output stood at above 76 million tonnes in the first eleven months of 2014, cementing India's position as the fourth-largest steel producer for fifth year now.

The sector is also looking to benefit from the fall in iron ore prices to five-year low levels, as also from the declining coking coal prices.

The sector, however, continues to lag on a host of parameters, while production cost remains high, particularly for PSUs, limiting its prospects in various export markets.

On the other hand, China is enhancing exports to India and other countries, while there is also a suspicion that the neighbouring country may be circumventing various duties.

Among other Asian countries, Japan and Korea have started to reap benefits of free trade agreements, while imports have been rising from India sharply and exports have been falling.

The problem has got compounded due to sluggish trends in the domestic consumption, which has left a lot of unused capacity utilisation. In the current quarter itself, the steel producers have been forced to cut prices by 5-6 percent due to higher imports, subdued domestic consumption and non-conducive global pricing trends.

The global prices are unlikely to rebound soon, which may come in way of any potential price hike by Indian steel makers, thus affecting their margins.

India's per capita consumption is around one-fourth of the international average and this keeps the hope afloat for an eventual recovery.

There is hope on the raw material front as well. The closed iron ore mines in Karnataka and Goa are expected to start soon, making the situation better for domestic steel makers, many of which had to resort to imports.

Coking coal mine acquisition by ICVL in Mozambique would also help PSUs and analysts believe that prices of this raw material are also unlikely to rise in the near term.

"The next year could be a 'mixed' year for steel makers if we can resist surge in imports. Demand will be there. With raw material prices set to remain lower, we are hopeful," head of a PSU steel maker said.

SAIL Chairman C S Verma, on his part, hopes for a 8-9 percent production growth next year even as during April-November period, it grew by just 1.3 percent. PTI