As steel consumption slows down in a weak economic environment, companies such as SAIL and Tata Steel are faced with a prospect of an inventory build-up.
The disparity in production and consumption numbers for the first five months of current fiscal suggest the possibility of a stock pile-up with steel firms.
Steel consumption grew by a mere 1.3 per cent in the April-August period, according to the provisional estimates by the Steel Ministry's Joint Plant Committee. Production of finished steel grew 9.9 per cent for the period over corresponding last year.
Low consumption
“We will see an inventory build-up as demand has slowed down considerably,” said Mr Bhavesh Chauhan, Analyst at Angel Broking Ltd.
Consumption of steel from sectors such as construction, automobile and consumer durable has seen a decline in recent months. A slowdown in industrial production coupled with successive hikes in interest rates has resulted in a sluggish demand.
“Demand has taken a beating. Imports have come down and the inventories have gone up. There could be a problem with numbers,” said Mr Nishith Sharma, Founder of steelguru.com, an industry portal.
‘Under control'
While industry analysts hint at an inventory build-up, companies such as SAIL refute such claims. “Inventory is very much under control and there is no build-up. There is a good demand in the market and we have been able to sell what we have produced,” said Mr C.S. Verma, Chairman, SAIL.
In fact, SAIL's production, according to the JPC, grew by 2.5 per cent for the April-August period, while the total finished steel output for the industry was up 9.9 per cent.
Steel companies do not disclose their inventory figures. Reflecting the slowing consumption, imports of steel products have seen a decline of 45 per cent.
No new trigger
“There won't be significant uptake in steel consumption considering the weakening economic situation. One hasn't heard of any significant infrastructure spending,” said Mr Ravindra Deshpande, Analyst at Elara Capital.
Moreover, companies that had announced capital expenditure are in final leg of implementation, an unlikely trigger for consumption, Mr Deshpande said.
However, the only consoling factor is that exports of steel products have picked up. Exports grew 56.7 per cent in the April-August period at 1.87 million tonnes.
But for the growth in exports and disruption in supply of iron ore to steel units in Karnataka due to the Supreme Court ban on mining in Bellary that hampered the production, the inventory pile-up with the industry could have been higher.