The Repo Rate Hike: Inflation Gave the Cover, the Rupee Gave the Reason

Steel companies outperform Sensex in last seven months

NEW DELHI: The revival of the steel sector in India is now visible on Dalal Street too. Steel companies outperformed the Sensex during the calendar year 2009 as year-to-date returns given by listed steel companies were as high as 75% against sensex appreciation of merely 51%.

As many as 26 companies appreciated by more than 50% from the beginning of the year, whereas market cap of 12 others doubled during the same period, an analysis has revealed. Companies such as JSW Steel, Steel Authority of India (SAIL) and Tata Steel are in the bracket of offering 100% returns to investors. SAIL, the largest steel producing company in the country, posted a good show during July’09 by producing 1.08 mn tonnes of saleable steel, a growth of 14% over the corresponding period last year. The company’s sales also registered a record growth of 25% during the month. “In spite of downturn continuing in the global steel markets, the overall demand for steel in India is encouraging,” said the official spokesperson of the company.

According to director of sales and marketing of JSW Steel Jayanta Acharya, there is a revival in the steel sector but they are only cautiously optimistic. “The bottom has been hit and the revival is largely being driven by the infrastructure sector followed by a growth in demand in rural and semi-urban areas and the automotive sector,” he said. He, however, added that threats in the form of anti-dumping are to be taken care of if a sustained growth has to be maintained. JSW’s saleable steel sales were up 62% y-o-y and 24% q-o-q for the month ending March’09 over the corresponding period last year.

Globally, the demand for steel products has declined barring China and India, which have registered a positive growth. According to the World Steel Association, from the quarter ending May ’09, demand has shrunk by around 50-55% in the US, 40-45% in the European Union (EU) and 20-30% in Japan. In contrast, for China and India the comparitive figures are 1% and 9% y-o-y growth respectively.

According to advisory firm KPMG’s associate director Biswanath Bhattacharya, the revival was expected in the domestic market and not globally as demand improved from the month of March onwards. Slowly, volumes improved and pushed the steel prices up. “The revival is largely led by the infrastructure and the automotive sector working in tandem with a mix of government policies, strong domestic demand and positive consumer sentiments,” he said adding that the industry, however, may not witness a sudden boom.

Steel players remain highly optimistic about a turnaround of the steel sector. An Essar steel spokesperson predicted that the Indian steel industry will grow at 8-10%. “This would require an additional capacity of 4-5 million tonnes every year. The brown field expansions in the steel sector will barely meet the growing demand. In the absence of major greenfield investment in the steel sector, the brown-field expansion would not reduce our dependence on imports. It has to be supported by facilitating acquisition of land, allocation of raw materials like iron ore and expeditious approvals like environment and forest,” he said.