Given the sharp fall in industrial production and economic slowdown during the last few months, steel demand growth is set to more than halve this fiscal from the earlier estimate of 12 per cent.
In 2010, steel consumption grew by 9.6 per cent and the industry expected it to grow by 13 per cent to 68.7 million tonnes in this fiscal.
The industry was expecting a growth of 10 to 12 per cent this fiscal, but it will be very difficult to achieve the same in the current environment, said Mr Shuman Mukherjee, Director (Commercial) at Steel Authority of India, at the ‘Indian Steel 2011- Steel and Raw Materials Forum' organised by mjunction, a joint venture of Tata Steel and SAIL to offer a wide range of eSelling, eSourcing, eFinance and eKnowledge services across diverse industry verticals.
“Higher industrial production was fuelling steel demand in the last few years, but that is not happening now. Demand is slightly sluggish. After the good rainfall, we hope it improves in the coming months,” he said.
SAIL has set a target to expand its crude steel production capacity to 40 million tonnes by 2020 from the existing 12.84 million tonnes. Iron ore purchases are likely to rise to 39 million tonnes in 2013 from 23.25 million tonnes in 2010, he said.
The country's steel production grew 8.5 per cent to 32 million tonnes in first half of this fiscal, while demand moved up marginally by 1.8 per cent for steel and 0.6 per cent for non-alloy carbon steel.
The slowdown in steel demand was a reflection of slowdown in the economy with the Index of Industrial Production registering a growth of five per cent in the first half of this fiscal compared with 8.2 per cent logged in the same period last year.
Mining sector output fell by one per cent, while manufacturing grew by 5.4 per cent compared to a growth of 8.9 per cent last year.
The prevailing high interest rate has depressed steel demand from the automobile and real estate sectors. Besides, the Government infrastructure spending has shrunk further reducing demand, said an analyst. Hit by high lending rates, car sales dipped 23.8 per cent last month, the biggest drop since December 2000.
The inflation-growth trade-off has been the bane on bankers across the world and there has been a conscious decision to pare growth marginally to rein in inflation.
Industry expects a turnaround in demand as traditionally steel demand picks up with construction and infrastructure building activity picking up during the second half of the fiscal.