Rain to Rupee Boost Steel as Festivals Approach: Corporate India

Tata Steel Ltd., Steel Authority of India Ltd. and JSW Steel Ltd. may raise prices by 3 percent this quarter as monsoon rains, festivals, and expensive imports stoke domestic demand, a Bloomberg News survey found.

The nation received the best start to monsoon rainfall this year since 1994, Indian Meteorological Department data show. The rains, the main source of irrigation for the nation’s 235 million farmers, help drive rural spending on cars, consumer goods and construction. A festive season considered auspicious for purchases starts next month with a celebration for the elephant-headed Hindu god of wisdom, Ganesha, and culminates with Diwali, the festival of lights.

“The automotive firms are low on inventory and we expect them to start restocking anytime from the second week of August, if they want to target sales during the festivals,” Jayant Acharya, director at JSW Steel, India’s third-biggest producer, said in an interview. “The alloy prices have bottomed out and we expect it will be ably supported by higher demand and the steep fall in the rupee.”

Higher demand and firmer prices will help Indian steelmakers recover from the slowest sales growth in at least five years in the quarter ended June 30. Steel Authority, the country’s second-biggest maker, is forecast to report its lowest quarterly net income in nine years, while Tata Steel’s profit may decline by more than 50 percent, according to analysts’ estimates. JSW Steel swung to a loss in the three months to June 30 from a profit a year earlier.

Rupee’s Decline

The rupee has lost 11.7 percent against the dollar since March 31 in Asia’s worst performance. The rupee weakened 1 percent to a record 61.47 per dollar as of 9:58 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg.

“India will benefit from a falling rupee that will make imports expensive,” said Giriraj Daga, an analyst at Nirmal Bang Equities Pvt. in Mumbai. “Good monsoon will also push up farm income, which will reflect in higher spending on automobile purchases and housing activity, though with a lag.”

An increase in prices will be the first quarterly gain since June 2012, the survey of seven industry participants including steelmakers, traders, analysts and a government official showed.

Following Peers

Jindal Steel & Power Ltd., the nation’s second biggest producer by market value, raised spot prices of steel plates by 1,500 rupees ($25) a ton, or 4.3 percent, while keeping contract prices unchanged, Deputy Managing Director V.R. Sharma said in New Delhi yesterday, citing the rupee’s decline and demand improvement as reasons.

Tata Steel shares fell as much as 3.7 percent to 200.20 rupees in Mumbai trading today, the lowest since March 20, 2009, while Steel Authority, declined 2.9 percent to 38.80 rupees. The stock has fallen 57 percent this year. Smaller rival JSW Steel dropped 3.6 percent to 508.55 rupees. The benchmark BSE S&P Sensex slid 1.1 percent as of 10:06 a.m. local time.

Indian steelmakers will follow their counterparts in China, the world’s biggest consumer, and Japan in raising prices. Hebei Iron & Steel Group Co. and Jiangsu Shagang Group Co. increased prices last month. Nippon Steel & Sumitomo Metal Corp., the world’s second-largest steelmaker, settled with Toyota Motor Corp. to raise steel sheet prices by 10,000 yen ($102) per ton, or 10 percent, for the six months ending Sept. 30, the Nikkei newspaper reported on July 23.

Softening Demand

“Steel prices have fallen 30 percent in two years as Europe went into recession and on uncertain demand in China,” said Rahul Jain an analyst at CIMB Securities India Pvt. in Mumbai. “Indian prices also fell tracking world prices. Going forward, prices can rise about 3 percent.”

In Europe, steelmakers are able to produce about 210 million metric tons a year, as much as 60 million tons more than needed in a “normal market,” according to industry lobby group Eurofer. In China steel demand appeared to be “softening” with mills and traders reporting order declines, Macquarie Group Ltd. wrote in a report July 4.

Monsoon-sown grain production in India this year may exceed the all-time high of 131.3 million metric tons in the 2011-2012 season, Tariq Anwar, junior agriculture minister, said on July 30. As of Aug. 2, farmers planted rice, oilseeds and cotton in about 12 percent more area than last year, according to Agriculture Ministry data. A bigger harvest may help tame inflation and revive the nation’s economic growth from a decade low.

India’s economy expanded less than 5 percent for a second straight quarter as investments slowed, according to a May 31 government report.

The nation’s steel consumption rose 0.2 percent in the three months ended June 30, the slowest pace in at least five years, as demand for automobiles waned amid an economic slowdown. Demand rose to 17.8 million metric tons in the three months ended June 30 from a year earlier, according to initial data from the steel ministry.

“Demand will pick up,” JSW Steel’s Acharya said. “Good monsoon is already shaping up positive sentiment, helping in reviving economic growth and spending.”

Before it's here, it's on the Bloomberg Terminal.