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| Inflation, slowing economy may delay stee (3) 11-Jul-08 21:11 | Tracked by (0) |
| | Posted by:  dineshsahay on ( 11-Jul-08 21:11 ) | | | Fri Jul 11, 2008 7:34pm IST
Inflation, slowing economy may delay steel projectsInflation,
By Swati Pandey
MUMBAI (Reuters) - Indian steelmakers are worried higher costs and a slowdown in the economy would delay expansion projects and hit demand for the metal.
India's wholesale price index jumped to 11.89 percent in the 12 months to June 28, above the previous week's annual rise of 11.63 percent, while industrial output rose 3.8 percent in May from a year earlier.
Capacity expansion projects are seen slackening and fresh plans are being deferred due to fund-raising glitches and cost overruns, officials said.
"One fear is - growth will go on but capacity addition will stall," said a senior official at the steel ministry-promoted Institute for Steel Development and Growth (INSDAG).
Most steel companies are on an expansion spree - raising capacity and buying coal and iron-ore blocks - to control input costs.
Steel production in India is forecast to more than double to 120 million tonnes by 2010, up from an estimated 55-56 million tonnes in 2008.
"Steel companies are under pressure to hold prices. Their confidence level of an assured profit has gone down. Both steel expansion and infrastructure projects are retarding," the INSDAG official, who requested anonymity, said.
Rising prices of key raw materials such as iron ore and coking coal, coupled with pressure from the government to keep local rates down, has forced steelmakers to absorb the costs, even as global steel prices rose 50 percent so far in 2008.
Steelmakers such as JSW Steel, Jindal Steel and Power and Bhushan Steel are concerned higher interest costs and inflationary pressure will hurt working capital funding, impairing future plans.
"Slowdown is expected. But projects taken up 2 to 2-½ years back will be commissioned by this year or next year, as planned. So, quantities will also come into the market," Seshagiri Rao, director of finance at JSW Steel, said.
"New projects are getting delayed as there is cost escalation. Companies are revising their capex upwards," Pawan Burde, senior analyst with Angel Broking, which has a buy rating for Tata Steel and JSW Steel, said.
Jindal Stainless was optimistic about the long-term view, though the "short-term aberration" was a worry.
"We are not feeling the impact immediately but signs are becoming visible," Arvind Parekh, director for strategy and business development at Jindal Stainless, said. "Basic fundamental remains strong."
A fall in consumer durables demand could dent sentiment in the sector but rising use of the commodity for industrial purposes was a respite, Parekh said.
Shares in steel companies have suffered, falling 33 to 66 percent in 2008 compared with the CNX Midcap Index's 42 percent drop. The broader 30-share BSE index has fallen 34.7 percent in the period.
Dineshsahay
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