Steel Feels The Pinch

The Steel Industry across the world is in a dilemma. Estimates show that the demand for steel has gone down not because there is no need for it but rather because the feeder element of the steel industry has been capped. As an industry, steel sales are directly influenced by companies which require it for their purposes. When these companies as part of an industry are themselves experiencing a tough time, then they put projects on hold. It’s this that the steel industry has recognized as the fundamental reason it’s started to experience a downturn.

The realty industry which is one of the biggest users of steel has experienced an alarming shortfall in its projects. Current economic conditions have made financing difficult forcing realty firms to very selectively commit to newer projects. Their main source of revenue continues to be projects already underway in their order book. Steel demand from this sector has hit the industry really hard .Since the amount of newer realty projects like malls,apartments,buildings and roads have been either delayed or cancelled the requirement of steel too has suffered.

What this has forced steel companies to do is start cutting down on their outputs .Even low cost quality steel makers like Tata Steel and SAIL have already begun reducing the quantity of their outputs. Local steel makers have adopted a different strategy; they plan to increase supply while reducing prices across the board in an attempt to retain the same level of profits. Since this is a small phenomenon, it’s not expected to impact the whole industry.

Shrinking demand for steel has also been helped by the fall in the four wheeled automobile sector. The lack of interest in cars and high fuel prices has put the consumer in a state of suspension leading to an indirect effect on the steel industry.

In India the problem for companies has been compounded by the rising costs of iron ore from which steel is made. Not only have the prices of the raw material gone up but the cost of importing them also. Things are also difficult for foreign companies which have invested heavily in India by undertaking lucrative building projects. The rise in ore prices has hurt their supply requirements.

As an industry the booming steel industry is bracing for a period of economic recession. Many companies have bet on India and China growing at double digit figures and want a part of the business pie. Companies are well aware that while India is growing, it needs to do so by developing its infrastructure which is where steel companies in partnership with the government and realty companies step in offering to develop infrastructure projects with profits in mind.

For Indian companies there is no need to panic in the short term apart from dealing with the falling demand. Sales will continue to happen within the local economy which is in ample need of the material. The bigger problem lies in the acceptance of the fact that as an important element of economic growth, steel companies must not be allowed to suffer for reasons that affect other sectors.