As if to reiterate the predictive power of CSO, the agency confirmed GDP growth at 5% for 2012-13, assessed earlier as advance estimates, by announcing Q4 growth at 4.8%. It may be compared with the 3.8% growth in GDP estimated by OECD and 4% assessed by IMF for 2012.
What is distressing for the steel industry is poor growth and a 29.6% share of GDP by Gross Fixed Capital Formation, which is lower by 1% as compared to what it was in 2011-12.
The poor industrial growth of 1% is reflected in slower growth in manufacturing ( 1.2% against 3.0% in the previous year) and specifically in depressed growth in capital goods production
(-6.3% against -4% in 2011-12) and in consumer durable goods production (2.1% in 2012-13 against 2.6% growth in 2011-12). The tardy trend in investment is epitomised in the pace of the construction sector and electricity, gas and water supply sectors, coming down to 4.3% and to 4.2%, respectively in FY13 from 5.6% and 6.5% in FY12.
The subdued level of economic performance in Q4 has an adverse impact on the financial condition of most of the steel majors. SAIL earned a net profit of R446 crore in Q4 with an annual profit of R2,170 crore. Tata Steel has made losses of R6,530 crore in last year?s Q4, although its Indian operation earned an overall Ebitda margin of 25%. JSW notched a profit of R1,801 crore.
The capex of R9,731 crore spent on modernisation and expansion by SAIL in FY13 in the form of new sinter plant, oxygen plant, coke oven batteries, raw material-handling plant, skin pass mill would improve the techno-economic parameters of SAIL plants. The capex earmarked for FY14 would signal fresh capacity augmentation of around 4 million tonne in FY14.
It would be quite challenging to market the additional volume of steel in a market that has been projected to expand not more than 6-7% in 2013-14 from the current level of 3.3%.
In FY14, the challenge of earning a higher sales realisation would be uppermost. The favourable factor of a dipping price for coking coal and raw material is to be set against a flat price level of finished steel, which is facing a constant competition from a lower import price neutralised by a depreciated rupee. The SAIL strategy of putting a higher emphasis on value-added steel must pay a good dividend. But there are a number of other customer-specific strategies that would enhance the brand image of the company with a positive impact on realisation.
The author is DG, Institute for Steel Development and Growth. The views expressed are personal
