>India steel imports may rise as supply lags demand

New Delhi - India's steel demand is expected to rise 8%-10% in the current fiscal year amid a series infrastructure projects supported by a government stimulus package and work ahead of the 2010 Commonwealth Games, but the domestic steel industry may not be able to ramp up production quick enough after delaying or shelving several expansion projects during the market melt-down.

This could lead to a rise in imports in the coming months, especially as importers take advantage of softer international prices after Indian producers raised prices in recent months.

According to industry estimates, imported hot-rolled coils currently cost about INR27,200/ton ($561.25) in the western Indian city of Mumbai while locally produced HR coils are priced around INR31,000/ton ($639.2) at factory gates.

"I understand, there have been a number of contracts for hot-rolled coil imports signed between Chinese exporters and Indian buyers in the last few months," said a federal government official who did not wish to be named.

According to provisional estimates, imports have already risen by 4% on year between April and August, to 2.75 million metric tons. The shipments were mainly from Russia, Ukraine and France, according to the Joint Plant Committee, a data dissemination unit under the federal steel ministry.

"There is a shortage of hot-rolled coils in the country," said S.C. Mathur, executive director of Cold Rolled Steel Manufacturer's Association. Hot-rolled coils are main input used in making cold-rolled, value-added steel.

India's steel output rose just 2.7% on year to 23.46 million tons in the first five months of the current fiscal year from April while demand rose by 6.6% to 22.14 million tons.

Local steel makers expect demand to rise further from the construction sector after the monsoon season ends this month. The construction sector in India accounts for about 60% of the total steel demand in the country.

"We expect demand to grow by at least 10% in the financial year ending March 2010 on rise in demand from sectors like automobile, engineering goods and construction," said P.K. Rastogi, the top bureaucrat in the federal steel ministry.

In fiscal 2008-09, demand totaled 52.05 tons while output was 56.08 million tons.

Big-Ticket Items To Boost Demand Substantially

Besides the federal government stimulus package, the World Bank has approved an additional $4.3 billion to support India's infrastructure investments.

With the expected surge in construction activity, steel producers are again looking at adding capacity.

"Most companies, which had earlier deferred their investment plans, are starting to invest again in capacity expansion," said Seshagiri Rao, joint managing director of JSW Steel Ltd (500228.BY), India's second-biggest steel company by domestic sales.

"We expect construction sector demand to grow after the festive season (October)...The demand had tapered a little in the last couple of months," Rao said.

Higher car sales during the festive months of September and October are also expected to boost steel demand. In August, car sales rose 26% in Asia's third-biggest automobile market.

Another source of strong demand could be the power sector as the country plans to add 78.7 gigawatt of generation capacity by March 2012, at an estimated investment of INR10.6 trillion to tackle its peak-hour power shortages.

"Enquiries for steel from power companies have increased sharply in the last few months," a senior official of a state-run steel company said adding that power plants consume a lot of steel for construction, machinery and transmission.

Source: COMMODITIESCONTROL