Sushim Banerjee
A fair indicator of industrial production in India is data on core industries, that comprises eight major sectors of the economy — electricity, coal, fertilisers, refinery, crude oil, natural gas, cement and steel.
Together, the core group contributes around 38% of industrial production and the data is released before IIP data every month.
It is therefore heartening to know that the group has grown by 5.8% in August compared to August 2013 and in the first five months of the current fiscal, has slowed down to 4.4% growth compared to the same period
of last year. In this period, power generation experienced healthy growth of 11.3% followed by cement (11%), coal (7.2%) and steel by 2% only.
Electricity has the highest weight of 10.32% in IIP and consistent high growth in the sector has enabled the total index to be pushed up.
However, the steel sector, having a weight of 6.68%, has not been able to contribute much to industrial growth due to its poor growth trend. It is interesting to note that in the last 12 months, output growth in coal, electricity and cement sectors exceeded 10-13% followed by steel at more than 9%.
This implies that during April-August of last year, steel production growth was reasonably adequate, but came down sharply in the September-November 2013 period and also in the months of February, April and June 2014. Although monthly production data get changed subsequently, particularly when compiling yearly data, quarterly data is more indicative of the health of the sector.
Accordingly, the cancellation and consequent stoppage of production at the coal
blocks allotted since 1993 would take its toll on steel output from September onwards, unless made up by higher production by plants with captive sources or by higher volume of coal imports.
The Reserve Bank of India governor does not foresee any adverse impact on power consumers on account of higher import of coal as global prices of both thermal and coking coal have come down in the recent period.
The power sector being more organised can look forward to import sourcing as an interim measure, which is not the case with steel.
As some coal blocks belong to captive sources of steel plants, the SC ruling would cover them as well, thereby impacting production of steel. Under the circumstances, the plethora of small and medium steel enterprises would face greater challenges in maintaining production. The markets catered by them would look for alternate sources.
In the first five months of the current year, production of crude steel from mini and other steel producers (16.1 mt) has gone up by 1.5% only, which is likely to drop in the coming months. Sponge iron production from smaller units (around 8 mt in April-August 2014) may also observe lower growth.
Combining the two, total finished product availability (around 7% growth in the first five months) in terms of TMT bars that showed growth of more than 22% by this segment in the last five months may come down. It may lead to temporary upward pressure on current prices of TMT bars and may tempt merchant traders to indulge in a further surge in imports of this product.
It would need a delicate balancing act from main steel producers to make up the shortfall in domestic availability in long products and partly in HR strip,
CR and coated products, arrest speculative price movement and prevent surge
in cheap imports in the coming months.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal
Source: Financial Express
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