The core sectors of cement and steel are witnessing an unusual trend—rising consumption without a proportionate increase in production. This has led to inventory drawdowns, where firms lower production levels below demand, depleting existing stockpiles, as indicated by the Ministry of Statistics and Programme Implementation’s latest data.
Cement production growth slowed sharply in Q2FY25, registering a meagre 3% rise compared to 10.3% in the same quarter last year. Similarly, steel consumption expanded by 12%, down from 17.7% in the corresponding period. Experts attribute this trend to global manufacturing slowdowns, excess capacity, and pressure from imported products. Manufacturing, a critical driver of GDP, recorded a modest 2.2% growth in Q2FY25. Other sectors like electricity (3.3%) and construction (7.7%) also experienced deceleration. Mining and quarrying showed minimal growth, further underscoring the sector-wide slump. Chief Economic Advisor V. Anantha Nageswaran commented on the mismatch in steel consumption and production levels, highlighting global challenges and increased import dumping. A steel industry insider confirmed stress across end-user industries, particularly in auto and construction, forcing mills to undertake production cuts and scheduled maintenance. Flat steel products bore the brunt of subdued demand.
Cement manufacturers are slightly more optimistic, with industry leaders projecting demand growth of 6-7% for FY25, and a stronger 8-9% in H2. They attribute this to pent-up demand and infrastructure activity expected post-festive season. The construction sector is showing early signs of recovery, with steel consumption up by 9% year-on-year in October and cement production growing by 7.1% in September, according to the Reserve Bank of India. Provisional data from the Steel Ministry shows that leading producers such as SAIL, Tata Steel, and JSW Group contributed 45.18 MT (55% market share) between April and October 2024, marking a marginal 1.3% annual increase. Smaller producers posted stronger growth, up 8.9% year-on-year, producing 37.63 MT during the same period.
While government capital expenditure slowed in H1FY25, a significant rebound is anticipated in H2, potentially boosting the construction and cement sectors. Analysts project a 30-40% year-on-year increase in public spending in H2FY25, which could mitigate some of the stress faced by these core industries. Despite these optimistic projections, market participants remain cautious. Stress across retail stocking and subdued activity in traditionally strong months like October and November reflect underlying concerns. Industry leaders emphasise the need for sustained demand recovery and policy support to stabilise production and consumption patterns in these vital sectors.
