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Wednesday, December 26, 2012
Steel firms look to govt infra push, rate cut to hike demand
Buy Steel Counters since RBI is expected to Cut Interest Rate in the next month
The domestic steel industry, now reeling under a severe sluggish demand, is betting big on the government’s infrastructure push and the expected easing of monetary policy by RBI as it goes past 2012, considered by manufacturers as “pretty tough”. Despite good sales, bottom-line for most of the steel firms got impacted in January-March quarter on costlier raw material and rupee depreciation.
The weak rupee deepened woes for almost all of them during April-June quarter. The US dollar-rupee exchange rate, which was 44.70 in June 2011, touched record low of 57.32 on June-end this year.
Adding insult to injury was the slackening of demand that started creeping in since July. Things became more difficult due to the monsoon coupled with an overall economic slowdown during the last 3-4 months, making 2012 “pretty tough” for the sectoral players.
None would perhaps disagree to the fact that the steel industry failed to get the kind of attention it otherwise would have got from a developing economy, which is currently reeling under the effects of high inflation and RBI’s tight policy stance. Even discounted sales failed to enthuse buyers.
Steel has a direct co-relation with the GDP growth of a economy. As the India economy slowed down, there was hardly any demand pull.
The steel ministry did not help much, industry experts say. The ministry, however, made iron ore exports expensive to ensure that the key raw material does not go outside the country without value addition and domestic steel makers get it at a cheaper rate.
The domestic steel industry, now reeling under a severe sluggish demand, is betting big on the government’s infrastructure push and the expected easing of monetary policy by RBI as it goes past 2012, considered by manufacturers as “pretty tough”.
The tough business environment ensured steel makers’ efforts to push sales by lowering prices was mostly in vain as inventories piled up. SAIL’s inventory touched its highest to nearly one million tonne in September.
To tide over gnawing problems, efforts are required to push sales in the rural market, where one kg per capita consumption increase could have led to an annual demand spike of at least one million tonne.