JSW Steel Warns of Output Cuts Amid Demand Slowdown

SEATTLE (Scrap Monster): Leading steelmaker JSW Steel stated that the steel industry in India will be forced to cut production in the forthcoming months, primarily due to weak demand from infrastructure and auto sectors. The demand is likely to pick up only if the government comes up with solid stimulus measures to revive the sector, it noted.

According to JSW Steel, auto sector sales have dropped to historic lows in recent months. Also, government spending on infrastructure projects has not reached desired levels. In addition to that, the cost of raw materials including coking coal and iron ore continue to remain at high levels, impacting the cost of production, thereby resulting in margin compression. This is in contradiction to the general trend, in which steel and raw material prices move more or less in the same direction.

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Seshagiri Rao, Joint MD and Group CFO cited lack of investments in all the four major sectors that reflect the country’s economic activity- capital goods, infrastructure, oil & gas and metals and mining, thus making it difficult for steel companies to thrive. Under current tough market circumstances, the domestic steel sector is likely to see massive cut in supply during this quarter or in the next quarter.

Earlier in 2008, JSW Steel has closed its blast furnace operations for a period of nearly one month, in response to weak demand from auto and infrastructure sectors. It had also cut its production in 2011, following dearth of iron ore supplies, on account of mining ban in the state of Karnataka.