After witnessing a low offtake and weak sales growth for several months, the Indian steel sector is once again witnessing a spurt in demand in the domestic market. Riding on the back of increased demand for steel, on the domestic front, since the past few weeks, the SME players in the sector are anticipating a quick recovery.
Last year’s scenario
During the last few months of the previous financial year, the SMEs in the steel sector witnessed a downslide in the demand for steel products both in the overseas and domestic markets.
Reduced investment and consequent fall in production in key consuming sectors of steel like construction, infrastructure, real estate, construction and auto industry amplified the troubles of small and mid-sized steel units. Sluggish demand compelled many of them to cut down production temporarily to prevent inventory-pile up. The deceleration in the manufacturing sector also worsened matters for small units.
“The last quarter of the previous financial year has beena dismal one for small steel manufacturers as it was marked by slowdown of demand in key markets. Besides, lower offtake, steel price fluctuations, liquidity constraints and weakening credit outlook further squeezed the margins of small-scale steel manufacturers, which were already in a tight spot,” commented M Agarwal, Director of Adhunik Metaliks, a member of the Indian Stainless Steel Development Association (ISSDA).
Things looking up
Following months of demand slump, the domestic steel demand is gradually picking up on the back of marginal improvement in sectors like construction and automobiles.
“The rise in investment activity in key consuming segments as well as the twin fiscal stimulus packages and excise duty cuts provided by the governmenthave also provided a boost to the domestic steel demand,” said B Agarwala of Bajrang Steel Enterprises, a small-sized steel dealer in Kolkata.
The increase in demand for steel has also led to a modest price hike of about Rs 1,000 per tonne for some selected product segments like construction steels, offering relief to small steel manufacturers.
However, the SMEs in the steel sector need to take steps to improve their product quality and enhance their production capacity. These steps will enable the SMEs in the sector to use the marginal increase as a springboard to achieve higher growth rates.
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