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Indian steel consumption likely to grow 7% on higher economic activity: E&Y report

Economic Times:  July, 2015

Kolkata: India's steel consumption is expected to grow by 7 per cent in FY16 on the back of higher economic activity against a 2 per cent growth in consumption last year, according to E&Y's 'Global Steel 2015-16', a report that analyses the global steel sector. At the same time steel supply is expected to increase by around 10 per cent in FY16, though demand is not expected to grow in tandem. As a result, capacity utilization may fall below 78 per cent, the report said. To add to steel industry woes, the trend of rising steel imports into India is expected to continue in FY16 adding to the overall situation where imports had shown an increase of 71 per cent year on year in FY15. However, the quantum of imports may vary depending upon whether India raises its import duty on steel products. In the 12th Five Year Plan, the Indian government intends to invest about $ 1 trillion in the infrastructure sector. This increased focus on infrastructure development bodes well for incremental steel demand in India, the E&Y report said.

Steelmakers around the world will have to find the right balance between globalisation and customisation, the report said. Anjani Agarwal, E&Y's Global Steel Leader said: "Globalisation is forcing change on steelmaking companies worldwide, amidst their need to customise and they must achieve the fine balance to survive and succeed." For this the sector will have to undergo significant change to create and retain value and turn profitable. It noted four key areas of transformation for steel companies around the world --Rationalise excess capacity, Increase market and product concentration, Boost Market Competitiveness and Embrace Digital. The latter would be in the form of predictive analytics, digital supply chain and convergence of IT and operational technology to develop differentiation and improve decision making and resilience to risk.

The report also said that given price volatility in raw materials, steelmakers are changing their strategies around fixing steel product prices. "Most companies have been reviewing product prices either on monthly or fortnightly basis but now companies are thinking of reviewing it daily. For instance, JSW Steel in India has started a daily review of product prices for long products. The company believes that in the current dynamic market, it does not make sense to review prices once and hold them for a certain period of time," it said.