Steel industry to keep utilisation levels high in lean monsoon period

Sajjan Jindal-led JSW Steel, Tata Steel, Rashtriya Ispat Nigam Ltd, Jindal Steel & Power (JSPL) and state-owned Steel Authority of India (SAIL) are among the top steel producing companies in the country
For the second consecutive year, the domestic steel industry is likely to keep its utilisation levels high in the lean monsoon period of July-September. 

“We don’t see a major dent in construction activity due to monsoons this year. Changes in real estate GST (goods and services tax) is expected to prompt developers to get active once the new government is in place (in May). Cities in the eastern part of the country, such as Kolkata, may see real estate projects commence, with projects panning out for 1.5 to 2 years,” Sushim Banerjee, director general at Institute of Steel Development & Growth (INSDAG), told Business Standard.

The industry’s capacity utilisation level is high at 85-90 per cent during strong consumption period between October and March, and drops during monsoon, as construction activity takes a hit. Last year too, due to a patchy rainy season, domestic steel producers had kept up its utilisation levels.

“Construction activities this monsoon season will not be in full swing but will be higher than usual during the lean period and this will support capacity utilisation of domestic steel industry. I am excluding natural calamities and in a normal scenario, am seeing construction activity go on at a reasonable pace,” Banerjee added. 

So far, the India Meteorological Department (IMD) is seeing monsoon to be near normal at 96 per cent of the Long Period Average (LPA) with a model error of +/- 5 per cent. Skymet Weather on the other hand, said Monsoon 2019 is likely to be ‘below normal’ at 93 per cent.

Sajjan Jindal-led JSW Steel, Tata Steel, Rashtriya Ispat Nigam Ltd, Jindal Steel & Power (JSPL) and state-owned Steel Authority of India (SAIL) are among the top steel producing companies in the country.

Industry officials said ahead of construction demand pick up in the usually lean period, producers are expected to take maintenance shutdown by April-end and in May, with Tata Steel, JSW Steel and SAIL being a part of the list.

“Maintenance shutdown is routine in manufacturing, but there is no planned shutdown at our plants at present,” said JSW Steel sources.

Ratings agency Icra in its recent report said it saw the industry’s capacity utilisation level to remain at a healthy 82-83 per cent between FY19 and FY21, supported by a favourable domestic demand and low greenfield capacities.

Alongside, domestic sponge iron players will also continue to contribute to the domestic demand making up for any gap in demand-supply scenario due to shutdowns, said officials.

Icra expects domestic steelmakers to increase the capacity further by about 16 million tonne over FY19-FY21. Additionally, with investments being ramped up and stressed assets resolved, this would lead to an industry capex estimate of Rs 750-800 billion between FY19 and FY21.

On the product pricing front, domestic steel producers have been continuously raising prices since February. In April, domestic producers have raised prices across products by a marginal 2 per cent. This indicates continued strong demand for steel in the domestic market.

 

Lean season
  • Icra sees utilisation at 82-83% 
  • Steel producers raised product prices by 2% from April 
  • Change in real estate GST to perk up construction demand



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel