Steel products are used by infrastructure companies and demand has remained steady, though not robust, helped by the three instalments of infrastructure stimulus that have been pushed through in the past six months. There are also several proverbial ‘green shoots’ in the residential real estate market, as evidenced by a slew of launches by regional and national real estate players.

The commercial real estate market which went into overdrive between 2006 and 2007 led to massive over supply, this sector has yet to show any clear signs of a revival. The conflicting signs lead to mixed expected demand from real estate.

In light of the above, the promised land for steel players will be at hand only if the elusive infrastructure development drive by the Government makes rapid strides from here on. Ports, airports, railways, roads, and bridges all require long, flat and other variants of steel.

The potential upside to steel companies from government spending would be high, but to put a number to it would be difficult given that the pace of implementation of public projects on infrastructure has been quite inconsistent.

Suffice to say, long-term growth in demand for steel will outpace the long-term growth of the general economy, solely because of the widespread need for the metal. Sectors such as shipping and automobiles however show decisive signs of revival and hold good potential for steel producers.
Budget hopes

Infrastructure spending apart, the steel sector is also hoping for higher barriers of protection against imports and curbs on the export of iron ore from the forthcoming Budget. With India currently exporting 60 per cent of its iron ore, an export levy could expand domestic supplies and curb prices.

On imports, the industry is looking to a levy to narrow the price gap. With global demand being as weak as it is, steel producers in Korea and Russia, where steel prices are lower than in India, would find India to be a desirable market, while China too provides tax rebates to steel exporters.

However, more than measures such as the above, it is the Government’s much awaited agenda on infrastructure spending that can deliver a demand push for steel. Indian steel companies are among the most cost effective in the world with linkages to raw materials and access to cost effective labour. All it will take is a little push by the Government to set them back on the growth path.