Consumption across some core sector segments like cement and steel are up but production of items have not registered a corresponding rise, indicative of an inventory drawdown, latest data released by Statistics and Programme Implementation Ministry show.

Inventory drawdown refers to a scenario where companies or firms deliberately cut back production to below demand levels, thus causing inventories to be deliberately drawn down. This means the intended inventory investment is negative.

For instance, the GDP numbers released last week show growth in cement production has slowed down to 3 per cent for Q2FY25 from 10.3 per cent in the year-ago period.

Similarly, consumption of steel was at 12 per cent for Q2FY25, lower than the 17.7 per cent in the year-ago period.

Manufacturing sector

The slowdown in the September quarter was led by the manufacturing sector, which registered only 2.2 per cent growth along with electricity that grew 3.3 per cent. The labour-intensive construction sector also decelerated, growing at 7.7 per cent in September quarter compared to 10.5 per cent in the preceding quarter. Mining and quarrying also saw a sluggish growth.

“Steel consumption is up but production has not gone up (in similar levels),” V Anantha Nageswaran, Chief Economic Advisor had said during a media briefing adding that there has been a global slowdown in manufacturing due to excess capacity. Import dumping exacerbated the situation.

A steel-maker told businessline that “there is stress on the ground” which needs to be analysed. Mills had taken production cuts in view of continued stress across consumption and end-user industries like auto and construction.

“In Q2, several mills took up scheduled maintenance. Moreover, pressure from imports meant producers are finding it difficult to sale offerings, with flat products taking the brunt,” the market participant said.

Consultancy firm Motilal Oswal, in a report, said while government capex has declined in H1FY25 (in contrast to expectations), it is likely to make a strong comeback in H2FY25.

“Even though we expect the Central government to miss its annual targets in FY25, their capex (along with that of States) could see 30-40 per cent y-o-y growth in H2 that can help revive construction and cement sectors,” it said.

For April - September period, SAIL, RINL, NSL, TSL Group, AM/NS, JSWL Group & JSPL together produced 38.712 MT of steel (55 per cent share) up by 1.8 per cent. The rest, 31.9 MT, came from the remaining producers, up by 8.5 per cent y-o-y.

Demand recovery expected

Most of the cement company management teams have guided (outlook) for an industry demand growth of 6 - 7 per cent in FY25, with demand growth of 8-9 per cent YoY in H2.

“Pent-up demand, pickup in construction activities and infrastructure projects post-festive period should lead to demand recovery going forward,” a cement-maker said.

The combined Index of Eight Core Industries (ICI) increased by 3.1 per cent cent (provisional) in October as compared to the index in the year-ago period.

Production of coal, refinery products, steel, cement, electricity and fertilizers have recorded a positive growth.

According to the RBI’s November bulletin, the construction sector picked up pace, with steel consumption expanding by 9 per cent (y-o-y) in October, and cement production up 7.1 per cent in September.

Provisional numbers by India’s Steel Ministry, accessed by businessline, show that SAIL, RINL, NSL (NMDC Steel), Tata Steel Group, AM/NS India, JSW Group & JSPL together produced 45.178 MT (55 per cent share) up 1.3 per cent y-o-y for April–October. The rest (37.631 MT) came from the remaining oroducers, up 8.9 per cent.

“There could be some stocking happening in retail levels. But there was stress in the market both in October and November, normally seen as good months,” the steel-maker said.

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