Weak Economic Activities, Rains Impact Overall Steel Demand, Says Tata Steel
A red hot steel slab passes along a rolling machine. (Photographer: Krisztian Bocsi/Bloomberg)  

Weak Economic Activities, Rains Impact Overall Steel Demand, Says Tata Steel

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Tata Steel Ltd. on Thursday said overall steel demand in the second quarter of 2019-20 was impacted due to factors such as rains and subdued economic activities that also plummeted vehicle sales.

Tata Steel India recorded an output of 4.50 million tonne in the second quarter as against 4.30 MT in the corresponding quarter of the previous financial year. Its sales volumes during the quarter, however, took a hit recording 4.14 MT sales as compared to 4.32 MT in the year-ago quarter.

“During the quarter, overall economy activities in India further weakened as reflected in low investment sentiment and demand slowdown as is evident in plummeting vehicle sales and weak Goods and Services Tax collections. This combined with a seasonally weaker monsoon quarter adversely affected overall demand for steel,” Tata Steel said in a statement.

The Indian government has announced various measures to stimulate economic activities and market sentiments, it said and added that, however, the benefits of the same in terms of new private investments and improved domestic consumption will potentially manifest only in the longer term.

It said the recent rate cuts by the Reserve Bank of India are a welcome step to improve liquidity through transmission of the rate cuts is not evident and, hence, the credit offtake has not yet picked up.

"However, as the monsoon season comes to an end and the festive season starts, an improvement in sentiment is expected to trigger a pick-up in consumption and, thus, steel demand," it said.

Tata Steel India's second quarter sales volume increased by 5 percent quarter-on-quarter primarily with better volumes at Tata Steel BSL.

During the quarter, lower volumes at the automotive segment were compensated by higher exports, while deliveries in branded products and retail segments and industrial product and projects segments were maintained.

About the global business, it said the "confidence remained subdued during second quarter of the fiscal year 2020 as weakening economic activities and prolonged uncertainty over trade conflicts impacted investment decisions and trade flows. The accommodative monetary policy stance by key advanced and emerging market economies is yet to show any noteworthy impact on economic activity levels."

Consequently, apparent steel demand remained weak, weighing on steel prices across geographies, it said and added though the regional spot steel spreads have begun improving since mid-July 2019 from the lows of first quarter 2019-20 with softening coking coal and iron ore prices, the meaningful benefit will flow through in the next few quarters.

"In Europe, the steel industry continued to face significant headwinds amidst lower demand conditions due to Brexit uncertainty and trade conflicts," it said.

Tata Steel Europe's production volume was lower at 2.46 MT in the second quarter of the current financial year primarily with adjustments related to weaker market conditions, planned summer shutdowns and unplanned outages, it said.

The sales volumes during the quarter was almost flat at 2.28 MT.

Tata Steel Group is among the top global steel companies with an annual crude steel capacity of 33 million tonnes per annum.

It is one of the world's most geographically-diversified steel producers, with operations and commercial presence across the world. The group (excluding South East Asia operations) recorded a consolidated turnover of $22.67 billion in the financial year ending March 31.

In 2018, Tata Steel acquired Bhushan Steel Ltd. (now renamed as Tata Steel BSL Ltd).

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