Tata Steel predicts 11% growth. And our counter view

Posted By: Religare
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Tata Steel predicts 11% growth. And our counter view
Contrary to the general trend across the industry, the demand for steel is not likely to be affected too much due to inflation and Tata Steel expects the demand to grow by 11% this fiscal year.

The growth may be attributed to the high infrastructure spending - construction is continuing at most project sites and almost all infrastructure projects are in full swing. The demand for Steel grew by 9.9% in 2010-11 at 65 MT.

"There is a bit of concern on inflation. It is not as serious as a crisis. There will be bit of impact. We don't see any big problem. The situation is not alarming at all," Managing Director of Tata Steel Nerurkar said.

However, not everyone shares the same opinion. According to a report by IDFC securities, sales volume of steel went down in the month of April 2011 and the situation is not expected to improve in May either.

The firm believes that consistently low investment-led demand and the recent slump in consumption-led demand for steel have resulted in a state where unless long products' demand improves, growth will not be more than 5-6%.

As per the Joint Plant Committee's report, India consumed 5.03 million tonnes of steel in April this year, up 1.8 per cent over the same month last year.

View: Our view is also not very optimistic on the steel. As the world bank experts have stated that inflation in emerging economies is due to the actions of Federal Reserve, i.e. printing dollars. And as long as inflation is not reined, the central bankers will not lower interest rates but on the other hand they can always raise the interest rates. This will directly affect the capex appetite of the companies and the infrastructure activity will also become costly. Combining all of these details, the bigger picture is not so optimistic for the steel as a sector. Tata Steel's fate cannot be very different than its peers becasue of these reasons.   

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Read more about: tata steel, metal, industry, steel, bse, nse
Story first published: Thursday, June 30, 2011, 9:30 [IST]
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