India’s Steel Demand May Climb 10% on Infrastructure

Discussion in 'Economy & Infrastructure' started by Rage, Jun 13, 2009.

  1. Rage

    Rage DFI TEAM Stars and Ambassadors

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    India’s Steel Demand May Climb 10% on Infrastructure

    By Debarati Roy

    June 12 (Bloomberg) -- India’s steel demand may gain as much as 10 percent this fiscal year, almost double the pace previously estimated, as the government spends more on infrastructure, Steel Secretary Pramod Rastogi has said.

    “Based on the economic factors, it will not be a surprise to see a surge in consumption,” Rastogi said in an interview in New Delhi, revising his May 18 forecast of 6 percent growth this year. Demand, which almost disappeared last year, rose 6 percent in the past two months, he said.

    Prime Minister Manmohan Singh’s administration, which returned to power last month, is expanding state projects and a rural jobs program that’s lifting demand in villages and towns. The government plans to spend $8.95 billion this fiscal year to build networks of roads, telephones, electricity and irrigation.

    “There are many positive indications for the steel sector and the government’s strategy to increase investments in infrastructure will only increase steel intake,” said Bharath S., an analyst at Sundaram BNP Paribas Mutual Fund in Chennai. “Also, the power plants that are being put up across the country are steel intensive.”

    The shares of Tata Steel Ltd., India’s biggest producer, rose as much 2.8 percent to 465 rupees and traded at 462.95 rupees, up 2.3 percent, as of 11:01 a.m. in Mumbai. Steel Authority of India Ltd., the nation’s second-biggest, rose as much as 1.9 percent, while JSW Steel Ltd., India’s third-largest, surged 6.4 percent.


    Public Spending

    “There’s considerable scope to increase public expenditure, particularly on infrastructure projects and that would not lead to inflation,” Singh told lawmakers on June 9. “That is the right way to deal with the international slowdown.”

    As demand grows, Indian steelmakers are expected to double their combined capacity in the next three years, Rastogi said in his Udyog Bhavan office yesterday. Capacity is expected to increase to as much as 124 million metric tons by 2012 or at least 100 million tons in the “worst-case scenario,” he said.

    “The steel companies have started speaking a positive language as they are seeing a rise in demand,” Rastogi said.

    India produced 56.4 million metric tons of steel in the year ended March 31, little changed from 56.1 million tons the previous year, according to the data provided by the Joint Plant Committee, a data dissemination body under the steel ministry.


    Rising Imports

    Imports of steel rose 21 percent to 528,000 metric tons last month from a year earlier, Rastogi said, citing figures compiled by the ministry. Some countries are offering prices lower than those in India, which is leading to the spurt in imports, he said, without identifying the nations.

    Producers from Ukraine and Russia are willing to sell in India at below-market prices, Seshagiri Rao, chief financial officer at India’s third-largest producer JSW Steel Ltd., said in an interview yesterday. China’s move to offer a rebate on steel exports will also hinder the Indian steelmakers, he said.

    Coking coal contract prices, which surged to a record $300 a ton last year, have declined 60 percent since April. Steelmakers in Japan and Rio Tinto Group, the world’s third- largest mining company, agreed to a 33 percent cut in iron ore prices, settling for 97 cents a dry metric ton unit.

    India’s government last month rejected a plea by Steel Authority of India Ltd., the nation’s second-biggest producer, JSW and rivals to impose a 25 percent so called safeguard duty on imports in addition to the existing 5 percent import tax.

    “We are watching, though from the data it’s clear that China is not a threat at the moment because very little steel is coming from there,” Rastogi said. “Also, Indian companies are trying to lower costs to be more competitive.”

    A venture formed by state-owned steelmakers is scouting for coal mines in the U.S., Canada, Australia and Mozambique to secure supplies for Indian companies, he said.


    To contact the reporter on this story: Debarati Roy in Mumbai at [email protected].

    Last Updated: June 12, 2009 02:02 EDT


    India?s Steel Demand May Climb 10% on Infrastructure (Update1) - Bloomberg.com
     
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  3. Yusuf

    Yusuf GUARDIAN Administrator

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    The consumption of steel in modern economy, is the key indicator of where a country's economy is heading. So if the steel intake of India increases, it only means good news for the entire economy. That in this time of recession certainly augers well.
    Besides that, the good decision by the government to invest in infrastructure will certainly give a fillip to the economy as it has a rippling effect on a lot of allied industries and sectors.
     
  4. ZOOM

    ZOOM Founding Member

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    Iron Ore are among various finite sources in the world and India has abudance reserve of the same, which is highly being used for exporting to our biggest customer that is China and various other nation. As I said, Iron ore are finite resources, hence we need to bring some curb on its mindless exporting and rather then increase export duties to 15% on all typs of exporting of iron ore and various other fossil material meant for the production of steel, because in coming decades, India's consumption as far as Infrastructure needs are concerned will going to increase manifold. So to take some precautions we need conserve our Iron ore resources.
     
  5. Rage

    Rage DFI TEAM Stars and Ambassadors

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    Absoloutely. Infact, the two are reciprocally correlated. If one were to plot 'economic growth' and 'steel consumption' on two different time series and compare them via a regression analysis or alternatively vector autogression, one would find the existence of unidirectional Granger causality (causality borne of a regression analysis on lagged values of the first derivative of the two variables: economic growth and steel consumption, determining a positive or negative correlation between the two) running from economic growth to steel consumption. Ofcourse in the case of economic growth and steel consumption, there is no direct correlation or true causality, the relationship rather depending on three common processes, each with their own independent time-lags and other exogenous influences, known as Domestic or Household Consumption, Government Expenditure and Investment (or C, G and I in our simple demand-side economic model). Thus when overall incomes rise, they are found to be responsible for a higher level of steel consumption (through household consumption, capital investment and [ostensibly] greater government expenditure contingent upon the tax rate [household and industrial], reserve bank currency, excise duties, etc.), which in turn fuels economic growth.

    Though it is prudent to caution that previous augmented Dickey–Füller tests have found that both series, after logarithmic transformation, are non-stationary (as would appear to be obvious with such accelerating and decelerating functions / variables) and individually integrated of order one (which means that there exists [an atleast partial] long-run relationship between the two, provided the residuals from the regression analysis do not contain unit roots). There is also evidence that GDP growth does not seem to be responsive to (positive or negative) demand shocks- boom or bust- for steel, exhibiting a more protracted relationship than a proximal one.
     

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