MEMBER'S LOGINX
| Invalid Username / Password | ||||||||
| Invalid Captcha | ||||||||
|
||||||||
| Sign Up | Forgot Password? | ||||||||
India's Third Giant Leap
This Could be One of the Biggest Opportunities for Investors
- Home
- Todays Market
- Indian Stock Market News July 29, 2011
Steel: Tough times ahead? Fri, 29 Jul Pre-Open
Indian steel producers have had smooth sailing during the last decade, with demand growth far exceeding supply growth. This was due to easy availability of raw materials like coal and iron ore. As a result, the steel producers enjoyed fat margins. The dynamics of the business are now changing. Falling global demand and rising raw material shortages are posing a threat to the industry.
Coal and iron ore are the two main raw materials used for manufacturing steel. Coal India has reduced linkages to the steel industry in the last few years due to sharply rising demand from priority sectors like power. The situation is likely to get worse. As large scale power capacities are expected to get commissioned in the coming years, Coal India's production is unlikely to keep pace with demand.
Iron ore production is also on a decline. This is due to export ban in Karnataka and increased focus of government agencies in enforcing mining and transportation regulations to curb illegal mining. Production at a number of mines has declined, as they are awaiting renewal of their mining licenses. Exports are also on a decline due to increase in export duty.
The demand for steel was expected to grow at an annual rate of 8 - 10 percent. But it is unlikely to meet that target. In fact, the demand for steel grew only 1.5 % for the April - June quarter. This was due to slowdown in investment in infrastructure sector which is the primary consumer of steel. Also high inflation coupled with high interest rate did not help the situation. Imports also saw a decline of 52 % over the same quarter of last year.
Going forward, the slowdown in demand and rising costs may decrease profitability of steel producers. Smaller steelmakers may have to resort to production cuts. The bigger steelmakers like SAIL, JSW Steel, and Tata Steel will probably slow down capacity additions which were expected to come on stream this year. There is no possibility of price cuts to improve demand as carbon steel is already being produced at cost levels. But steel companies believe that the slowdown in demand is temporary and demand will bounce back in the coming months.
For information on how to pick stocks that have the potential to deliver big returns, download our special report now!
Read the latest Market Commentary
Indian Share Market Update: Top Gainers and Losers
Equitymaster requests your view! Post a comment on "Steel: Tough times ahead?". Click here!
1 Responses to "Steel: Tough times ahead?"
ABOUT EQUITYMASTER
Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.
PREMIUM PRODUCTS
QUICK LINKS
POPULAR TOPICS
- Multibagger Penny Stocks
- Basics of Value Investing
- Benjamin Graham
- How to Invest in Gold
- How to Invest in Silver
- Best Stocks to Buy Today
- Best Small-cap Stocks to Buy
- Best Bluechip Stocks to Buy
- Guide to Penny Stocks
- How to Invest in the Share Market
- Warren Buffett - The Value Investor
- Pick the Best Multibagger Stocks
TRENDING TOPICS
Copyright © Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited).
Whitelist | Refer | Terms | Privacy | Contact | About | Sitemap
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Email: info@equitymaster.com. Website: www.equitymaster.com.
CIN:U74999MH2007PTC175407
Name of the Compliance & Grievance Officer: Ms Sonal Ramachandran
Telephone: +91-22-61434003 | Email: compliance@equitymaster.com
LEGAL DISCLAIMER:
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.
All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
GJ
Jul 28, 2011A very superficial analysis.
The facts
- Coal India deposits are high ash content coal which is not suitable for metallurgical steel production on the other hand high ash coal is used by Thermal Power plants. Thus these 2 are mutually exclusive. Thus there will be no effect on increased Thermal power plants to the supply of coal to Steel plants. The effect of hardening of coal prices by Australian suppliers definitely will.
Linkage of export ban to availability of iron ore for domestic players is also flawed. Iron ore from Karnataka is not used by any of the big Steel plants.