Steel production grows by 37 percent

The demand for steel products is remained strong and posted 37 percent production growth in first half of this fiscal year (FY18) as public sector infrastructure projects and private investment in housing schemes picked up pace. Additional stimulus for the steel sector came from increasing raw material requirements by two and three wheeler manufacturers, as bike sales continued to rise substantially in the country. On the supply side, adequate availability of electricity enabled the producers to utilize their capacities optimally during the period.
According to State Bank's report, favourable interplay of demand and supply resulted in steel production growing by 37.1 percent in July-December of FY18 compared to 15.6 percent growth during the corresponding period of FY17. The current pace of growth in domestic steel supply lags behind the fast growing demand; this has led to an increase in imports to cover the shortfall.
Keeping in view the demand-supply gap, the large-scale producers are investing further in capacity expansions. Investments worth around $112 million by big players such as International Steel, Amreli Steel, Aisha Steel, and Mughal Steel will lead to cumulative capacity expansion of 53.0 percent. In addition, domestic steel manufacturers have started integrating their operations vertically to benefit from economies of scale and lower tax levies. Furthermore, some big players are introducing new products to cater to the diverse needs of various infrastructure projects.
Since additional capacities are expected to come operational in second half of FY18, domestic supplies are likely to increase further; this will help reducing the country's dependence on finished steel imports. However, in contrast to large-scale producers, the small and medium scale producers are not able to take advantage of the buoyant steel demand in the country. Their inability to operate at economies of scale makes it difficult for them to lower their overhead cost in the face of high electricity tariffs and increased taxation charges due to multiple agents in the value chain.