The global steel industry has seen robust demand growth during 2005-06, though the decreased steel prices and increased iron ore prices have put pressure on margins for Indian steel players in the last fiscal. The demand-supply imbalances are already daunting the industry with peaking imports. Moreover, the industry is banking on domestic demand rather than export demand with surplus capacities and declining steel prices.
Being the eighth largest among the world's crude steel producers, Indian steel production stood at 42.5 million tons (mt) in FY06, compared to 38 mt in FY05. Out of the total production, exports constituted another 4.35 mt. More importantly, India produced about 150 mt of iron ore out of which 60% was exported.
Though steel production and consumption have increased significantly, financial performance of steel companies in the last fiscal year has been pale when compared to that of 2004-05. This can be attributed to the steadily declining steel prices in the domestic market; a twofold increase in iron ore prices has affected the growth in sales and margins in the subsequent quarters. After recording double digit growth in sales and profit in 2004-2005, companies have experienced single digit growth in sales and negative growth in PAT in 2005-2006. India is becoming a net importer of steel as the imbalances in iron supply are looming large. Imports are peaking to 5-7 mt of the total production of 42 mt. And, if the industry grows at the current pace, there is need for another 20 mt of capacity by 2010. While demand for the next year is expected to grow at a rate of 10%, new supply addition is at least four years away.
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