Some steel companies in India, the world’s fourth-largest producer of the alloy, may cut production because of pressure from global oversupply and weak domestic demand, according to Standard and Poor’s (S&P).
Mills with high costs may cut output and those with new plants may slow ramp-ups to avoid the build-up of inventories, Mehul Sukkawala, a Singapore-based senior director at the ratings agency said in an interview Monday. “This is because the current environment is not expected to turn around in a short time.”
Prices in India slumped to a six-year low in September due to a surge in low-priced imports from China, which has flooded the global market with supply because of a slowdown in domestic demand. This prompted India’s government to raise import taxes in August and levy a temporary 20% safeguard duty in September.
These protectionist measures, though beneficial in the near term, will not be enough to preserve profitability of the producers, S&P’s Sukkawala said in an e-mail. “We expect the global excess supply will take at least few years to address as it involves difficult decisions of shutting down capacities with weak cost profile globally.”
Chinese supply
China’s steel exports surged in 2015, propelling global steel prices 25% to 50% lower, according to Bloomberg Intelligence analysts Zhuo Zhang and Kenneth Hoffman. A plunge in Chinese steel profits and a decline of about 5% to 8% in domestic steel demand may force many of the nation’s steel mills to close or consolidate, removing exports from the global market and allowing prices to begin to recover, they said.
India’s steel production for the April-October period fell 0.4% to 53.32 million metric tonnes, while demand rose 4.5% to 46.21 million tons, according to initial data from the steel ministry. Imports rose 42% to 6.68 million tonnes during the period.
Source: http://www.livemint.com/