Higher global steel prices have impacted the MSME sector and other industries with increased input cost, but it has also put more money in the hands of the steel firms, which are now going in for capacity expansion.
“The steel prices are cyclical, much like several other commodities. Steel firms have firmed up plans to invest about Rs 60,000 crore over the next three years, the biggest private sector investment plans announced in recent times,” newly elected CII president and MD of Tata Steel, T.V. Narendran, told The Telegraph.
“I think we have seen both (demand and profitability) coming back and I can say that from the steel sector point of view, all companies are having significant expansion plans,” he said. Tata Steel is investing Rs 25,000 crore.
“The industry is exposed to cycles... when companies make money and margins are high, capacity expansions takes place. When prices were low, many steel industries went into losses… the country needs to take a call on how to manage not just steel but most commodities..”
The MSME engineering sector has expressed concerns on the rising steel prices. Narendran said he was conscious of those concerns, but added that steel prices in India were still the cheapest in the world. “They have a concern where they have a fixed price contract... I am not insensitive to their concerns,” he said.
Volatility in prices is the unfortunate reality of the industry, it sometimes hurts producers and sometimes it hurts consumers and “both of us need to de-risk ourselves”, he added.
“Domestic demand for steel had picked up pace in the second half of FY21. However, the second wave of the coronavirus has mildly hit demand from certain sectors. We expect it to be lower in the first quarter of FY22. However, in the second quarter, demand will return with unlocking of restrictions. Capacity utilisation rate of user industries will improve as more people get vaccinated ,” Care Ratings said .
“Steel producers are likely to cover up the lost production in the subsequent months and therefore there is no change in our annual crude steel output forecast of 9-11% growth for FY22. Domestic steel prices continue to remain at a sharp discount to international steel prices which indicates there is room for further price hike,” it added.
