Staring Down The Furnace

THE STEEL INDUSTRY IS FEELING THE PINCH OF THE PROTRACTED SLOWDOWN IN CONSTRUCTION AND AUTO SECTORS, TWO OF ITS BIGGEST CLIENTS. WILL IT BE THE NEXT DOMINO TO FALL?

- Sumant Banerji

The prolonged slump in demand for automobiles in India and slowdown in investments in the infrastructure sector have started hurting steel manufacturers.

The growth in steel consumption in the country – measured as apparent steel use (ASU) – dropped sharply from a healthy 6.3 per cent at the start of fiscal 2019/20 in April to a worrisome 1.7 per cent in August.

The biggest impact has come from the slowdown in the domestic automobile industry where sales have been under pressure for more than a year now. Automobile sales have declined 15.9 per cent in this fiscal so far. At a more micro level, passenger vehicles are down 23.54 per cent, commercial vehicles 19 per cent and two-wheelers 14.85 per cent. As the second-largest steel consuming industry, this slowdown has affected many secondary steel makers in the country. In Jamshedpur, for example, a steep reduction in production at Tata Motors’ heavy truck and bus factory has resulted in shutting down of at least 12 secondary steel plants in the region while another 30 are on the verge of closure.

“Steel touches all parts of the economy. Around 20 per cent steel is consumed by the auto sector. That is certainly something that has played out over the last three months,” says T.V. Narendran, Managing Director and CEO, Tata Steel. “So, as far as the international market is concerned, things are a bit soft. The problem is less about international steel flows and more about domestic demand.”