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India's Steel Sector Woes Continue As Steel Inventories Pile Up

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by: MetalMiner
Summary

India's growth rate has slowed, which in turn means sluggishness in the manufacturing sector.

Tata Steel has announced a closure of some of its operations in the U.K., which could lead to a loss of about 400 jobs.

India's S&P BSE Metal Index has fallen by about 30% so far this year due to the slowdown in the economy and infrastructure.

Original Post

By Sohrab Darabshaw

India's growth rate has slowed, which in turn means sluggishness in the manufacturing sector.

All of the above means lower consumption of steel.

Riding on these developments comes the news that domestic steel producers are sitting on a "larger than usual" steel inventory.

A report in the Business Standard quoted Sushim Banerjee, director general at the Institute of Steel Development Growth, as saying steel inventories are at "alarming" levels of 35 days rather than the more typical 21 days.

The total steel inventory of all primary producers in India is at 2 million tons, up from the more typical level of 1 million tons, according to the Business Standard. Because of such high inventory, domestic prices have fallen by about 20% since April.

Ratings agency Fitch Solutions has revised its 2019 global steel price forecast downward to an average of U.S. $600 per ton from $650, citing weak investor sentiment, the ongoing U.S.-China trade war and uncertainty surrounding the U.K.'s Brexit effort, the Business Standard reported.

Nikunj Turakhia, director at the Steel Users Federation of India, was quoted as saying domestic steel prices were close to the bottom and hoped they would start rising soon.

There is more bad news for Indian steel companies.

Ratings agency India Ratings and Research has revised its outlook on the steel sector to "stable-to-negative" from "stable" for the remainder of this fiscal year. One of the reasons for the downgrade is sluggish demand. The rating agency has also revised downwards its fiscal year 2020 steel demand growth expectation to around 4% from the previous forecast of 7%.

All of this comes as global crude steel production rose by 1.7% in July, with Indian steel production increasing by the same percentage.

Tata Steel has announced a closure of some of its operations in the U.K., which could lead to a loss of about 400 jobs.

It has not been a good year for many steel companies in India; for example, Tata Steel Ltd.'s first-quarter profit slumped to its lowest level in more than two years.

India's S&P BSE Metal Index has fallen by about 30% so far this year due to the slowdown in the economy and infrastructure.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.