Financial Express reported that the domestic steel industry is heading for a major glut if the demand scenario doesn’t improve over the next 2 years.

The reason for the same being that while the demand for various grades of steel is growing at 0.5% to 1% annually, the production is growing at a rate of 3% to 4% and is expected to take a major leap when the companies start commissioning their expansion projects in the next 2 years. This is likely to lead to a situation where the production will comfortably outstrip demand and the companies will have to scout for more and more opportunities abroad to sell their products.

According to the data available from the Joint Plant Committee, India’s total steel production during April to January 2014 grew by 3.7% to 70 million tonne against 67 million tonne a year earlier. During the same period, domestic steel consumption grew by a meagre 0.5% to 61 million tonne against 60 million tonne last fiscal.

Dr AS Firoz chief economist at JPC said that “Steel, which is the backbone of major powerhouse sectors of the economy such as automotive, real estate, white goods like refrigerators and washing machines, construction of roads, highways, etc always grows at a 1.5 times rate of gross domestic product of the economy, when the economy is growing above 6%. Whenever the economy slips below 6%, the growth rate of steel usually lags GDP by 1%.”

Assuming that post elections, even if the sectors pick up, the analyst said that it cannot go beyond 2% to 3% growth rate. This essentially means the consumption in India will reach up to 82 million tonne in FY15 from the expected consumption of 80 MT in FY14 This will be in sharp contrast to over half of 14 million tonne of additional capacity which is expected to come up in the next fiscal.

This will be largely contributed by SAIL, which is expected to take its capacity up to 21 million tonne from the current 13 million tonne by FY16 end, TATA Steel, which is expected to add 6 million tonne to its current capacity of 10 million tonne, JSW Steel, also expected to add a minor 2 million tonne to 3 million tonne of capacity through debottlenecking and reaching 100% capacity utilisation to reach its rated output of 14.3 million tonne and JSPL, which will be adding 3 million tonne per annum at its upcoming facility at Angul. In fact, expectations are that Essar Steel, too, will be reaching a capacity of 10 million tonne from its current suppressed output of 5 million tonne per annum.