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Jan 03, 2018 05:11 PM IST | Source: Moneycontrol.com

JSW Steel sees green shoots in construction sector, thanks to government stimulus  

“Since November, we have seen a sudden pick-up in the demand for TMT bars - used in every construction activity,” Seshagiri Rao of JSW Steel told Moneycontrol.

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JSW Steel, the country’s largest steelmaker, is seeing a pick-up in the demand for long steel, used in the construction sector, further increasing hopes of a revival in the Indian economy as reflected in the Purchasing Managers’ Index numbers that were released yesterday.

“Since November, we have seen a sudden pick-up in the demand for TMT bars - used in every construction activity,” Seshagiri Rao, Joint Managing Director and Group CFO of JSW Steel, told Moneycontrol.

Rao added that the increased demand has seen prices of long steel increasing. “The gap between the price of long and flat steel, which is used in making white goods, has narrowed tremendously. Earlier, flat steel was selling at a premium of at least Rs 6,000 per tonne, over long steel. Now the gap has narrowed to Rs 1,500 per tonne,” Rao added.

The demand, he added, was coming from large projects, possibly driven by government spending. “The demand is surely not coming from affordable housing. Is it thanks to a turnaround in real estate? No. But there is a pick up in big infrastructure projects… it could be from projects of the likes of Metro or Sagarmala,” Rao said.

This is not the first time that the industry has got a helping hand from the government. The NDA government had imposed minimum import price on 173 items in 2016, before reducing the list to 19 products. The MIP was taken off in February last year.

The steel industry would be hoping that the recent pick up is sustainable, adding to hopes after the PMI rose in December - the fastest in five years. The steel sector has been reeling under slow growth and since 2012, the growth in steel consumption has lagged the GDP rate, an unusual occurrence. Also, some of its biggest names, including Essar Steel and Bhushan Steel, are facing insolvency proceedings. In all, steel companies owe banks about Rs 3 lakh crore, making up for most of the Rs 5 lakh crore of NPAs.

The domestic steel sector has an installed capacity of 130 million tonne per annum. “Last year, we produced 97 mtpa. This year the production could be in the range of 104 mtpa,” said Rao.  JSW Steel is also in the running to acquire Bhushan Steel and Monnet Ispat - both referred to the National Company Law Tribunal by the banks.

But if the revival in the construction has to sustain, he added, affordable housing and the real estate sector should see a turnaround.
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