Recent data from the Ministry of Statistics and Programme Implementation reveals a concerning trend across key sectors, including cement and steel. While consumption in these sectors has risen, production levels have not kept pace, signalling an inventory drawdown—a phenomenon where firms deliberately reduce production below demand levels, leading to a depletion of stockpiles.
For instance, cement production growth has slowed drastically, with Q2FY25 growth falling to just 3% compared to 10.3% in the same quarter the previous year. Similarly, steel consumption increased by 12% in Q2FY25, but this is a noticeable decline from the 17.7% growth seen last year. The slowdown in Q2FY25 has primarily been attributed to the manufacturing sector, which only grew by 2.2%, and electricity, which saw a modest growth of 3.3%. The construction sector, a major consumer of cement and steel, also experienced a deceleration, growing at just 7.7% in the September quarter compared to 10.5% in the preceding quarter. Mining and quarrying have also been sluggish in their performance.
V. Anantha Nageswaran, Chief Economic Advisor, highlighted that steel consumption has increased, yet production has not matched this demand, citing a global slowdown in manufacturing due to excess capacity and the impact of imported goods flooding the market. A steel industry participant echoed these concerns, revealing that mills have been forced to cut production in response to reduced demand from sectors like automotive and construction. Furthermore, the pressure from imports has made it difficult for domestic producers to sell flat steel products. The situation has led to speculation that while government capital expenditure (capex) has been sluggish in H1FY25, a rebound is expected in H2FY25, potentially revitalising the construction and cement industries. Consultancy firm Motilal Oswal forecasts a 30-40% year-on-year growth in public sector capex during the second half of the fiscal year, which could offer relief to these struggling sectors.
In the steel sector, major producers such as SAIL, Tata Steel, and JSW have reported a 1.8% growth in output during the April-September period, contributing 55% of the total production. Smaller producers have performed better, posting an 8.5% year-on-year increase. Cement companies are more optimistic, with projections of 6-7% growth for FY25, with demand growth expected to accelerate to 8-9% in the second half of the year. A recovery in demand is anticipated, driven by pent-up demand and infrastructure projects following the festive period. In October, the combined Index of Eight Core Industries (ICI) rose by 3.1% year-on-year, with positive growth recorded in coal, refinery products, steel, cement, electricity, and fertilizers. The RBI’s November bulletin also indicated a revival in the construction sector, with steel consumption up by 9% and cement production growing by 7.1% in September.
Provisional data from the Steel Ministry shows that for April-October 2024, major steel producers accounted for 45.18 MT of steel production (55% market share), reflecting a 1.3% year-on-year increase. The remaining producers contributed 37.63 MT, marking an 8.9% rise. Despite some positive signs, concerns persist in both the cement and steel industries. While demand is set to recover, analysts remain cautious about the underlying pressures on production and the impact of global market dynamics.
