Bloomberg News

Singh Steel Revival Boosts Tata-to-SAIL Outlook: Corporate India

January 03, 2013

Singh Steel Revival Boosts Tata-to-SAIL Outlook

A pedestrian walks past the gate of the Tata Steel Ltd. building in Kolkata, India. Photographer: Brent Lewin/Bloomberg

India’s steel ministry forecast demand for the alloy will quicken after Prime Minister Manmohan Singh eased infrastructure investment rules to revive an economy that’s expanding at the slowest pace in a decade.

Consumption will probably increase 8 percent in the three months to March 31 and in the year from April 1, Sayan Sen, manager at the ministry’s Joint Plant Committee, which forecasts demand, said in an interview. He declined to estimate sales in the final quarter of last year, pending an official release. Deliveries probably expanded 4 percent in the period, said Abhisar Jain, an analyst at Mumbai-based Centrum Broking Ltd.

The nation’s biggest producer, Tata Steel Ltd. (TATA), had the slowest sales growth since 2009 in the three months to Sept. 30, while Steel Authority of India Ltd., the second-largest, reported a decline. Singh last month unveiled plans to accelerate infrastructure approvals and make it easier to acquire land for factories, aiming to garner $1 trillion of investments in roads, ports and power plants by 2017.

“The reforms will provide a fillip to the economy,” Tata Steel Managing Director H.M. Nerurkar said in an e-mail. “A single-window clearance for mega projects will generate activity in the power and roadways sectors” which coupled with the predicted reduction in borrowing costs this month will provide impetus to manufacturing and consumer durables, he said.

Reserve Bank of India Governor Duvvuri Subbarao forecasts the $1.8 trillion economy will slow to 5.7 percent in the year ending March, the weakest pace since 2002. That may prompt the central bank to cut borrowing costs by 50 basis points by March 31, according to 11 of 20 analysts surveyed by Bloomberg.

Share Performance

Optimism about the policy changes and lower interest rates has driven up steel shares in the past month. Tata Steel shares increased 11 percent in December, the biggest monthly gain since January, while Steel Authority, the nation’s second-largest producer, jumped 12 percent. JSW Steel Ltd. (JSTL), which is facing an iron ore shortage at its main factory in South India, increased 9.3 percent in the period. Tata Steel and Steel Authority don’t face raw material shortages because they own iron ore mines.

Tata Steel rose 1 percent to 442.30 rupees, the highest in six months, at close in Mumbai. Steel Authority fell 0.9 percent to 95.15 rupees, while JSW Steel gained 0.5 percent to 831.10 rupees.

Industrial Production

India’s cabinet on Dec. 13 approved changes clarifying a century-old law governing purchase of land for industry and highways, making it mandatory for the buyers to win the approval of 80 percent of landholders, Parliamentary Affairs Minister Kamal Nath said on Dec. 13. For public-private partnership projects, 70 percent need to give consent, he said.

“Investment expenditure has really dried up,” said Jayant Acharya, director at Mumbai-based JSW Steel, the nation’s third- largest steelmaker. “If the government’s and the central bank’s measures come together, it’ll be good for investment expenditure.”

The nation’s industrial production recovered to grow at the fastest pace in more than a year in October after the government overhauled policies to boost growth in Asia’s third-largest economy. The rebound suggests an improvement in the economy next year, Jonathan Cavenagh, a strategist in Singapore at Westpac Banking, said on Dec. 19.

India Demand

Steel demand in India will probably outpace the World Steel Association’s October forecast of a 3.2 percent increase in global steel consumption. World demand grew 2.1 percent last year, compared with a 6.2 percent increase in 2011.

Mumbai-based Tata Steel, which started a 3 million ton unit in the eastern state of Jharkhand in November, plans to produce an additional 1 million metric tons from its factory in Jamshedpur in east India by March. India’s steel demand may rise by about 5 percent this fiscal year and may surge to 7 percent in the year starting April 1, Nerurkar said.

State-run Steel Authority is in the final stages of adding 4 million tons of capacity this quarter. The New Delhi-based company plans to more than triple production to 45 million tons of hot metal in the next eight years, Chairman C.S. Verma said on Nov. 1.

In November, the environment ministry approved a plan for a JSW Steel unit to raise capacity by 67 percent to 5 million tons and build an adjacent pellet facility. Parent JSW Steel plans to triple capacity to 40 million tons by 2020.

‘Investor Confidence’

“It appears that the worst is over for the steel sector,” said A.S. Firoz, chief economist at the nation’s steel ministry. “While the measures being taken now will show up in investments with a time lag, such actions generate lot of confidence among investors and are good for steel.”

JSW Ispat Steel Ltd. (JSWI), a unit of JSW Steel that mainly produces flat steel products used in cars and electronic appliances, is expecting a surge in demand as buyers replenish stocks following a rise in consumption, Ashok Agarwal, joint chief executive officer said on Dec. 28.

“After an interest rate cut, there’s bound to be higher demand -- both pent-up and new,” said Centrum’s Jain. “That’ll drive volumes and prices.” Prices may rise about 3 percent this quarter, he said.

Domestic use of flat steel products, which surged 20 percent before the 2008 global recession, should grow by at least 10 percent this calendar year, Ankit Miglani, director at ArcelorMittal (MT)’s Indian unit Uttam Galva Steels Ltd. (UTTM), said on Dec. 28. No price increases are expected this month as production will rise following the start of new units, he said.

Homes, Malls

DLF Ltd. (DLFU), India’s largest builder of homes and shopping malls, will accelerate projects around the nation’s capital in the next three to four months to benefit from higher demand, Senior Executive Director Sriram Khattar said on Dec. 21. A spurt in real estate activity will raise demand for long steel products that comprise more than half of local consumption.

“The last few years have been a period of lost opportunities for the housing sector, which is the engine of growth,” Lalit Kumar Jain, president of the Confederation of Real Estate Developers’ Associations of India, said in a phone interview. “This fiscal year has been bad and any improvement in demand will depend on government measures.”

To contact the reporter on this story: Abhishek Shanker in Mumbai at ashanker1@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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