Low Tensile Strength - Interview published by Outlook Money

What is the growth outlook for Indian metal sector?

The growth of metals sector in India depends on the domestic as well as global demand and supply as well as raw material supplies. Growth in steel sector may continue, albeit at relatively slower pace, due to expected growth in infrastructure and construction sectors. In the base metals sector, the global markets are rife with expectations of a cool-off. Some of the miners and smelters of have curbed production and delayed expansion plans. In Indian context too, industrial growth has shown signs of stagnating, blamed on the monetary squeeze, which may impact growth in the sector. Aluminium and alumina prices have also indicated a downward tilt, whether or not it is an inflexion point is yet to be seen, which is due slackening demand from construction, commercial vehicles and aerospace industries. The sentiments in the Indian markets have been that of a cautious optimism.

How is the rising input cost affecting the steel industry? Is it largely impacting the profitability of the companies in the steel sector?

The steel sector thus far has been successful in passing the rise in input costs to their consumers, but going forward, their ability to do so will determine their profitability. There has been substantial rise in costs of iron ore, metallurgical coal and energy. Analysts believe that strength in these commodities is here to stay in short to medium terms, which may impact the steel sector. Some of the Indian steel manufacturers have captive mines and have, therefore, better control on costs. The steel industry, in general, has been on look out for securing raw material supplies and some of the players have acquired mineral resources abroad, including Australia and Latin America.

Is there any downward pressure on prices of base metals like aluminium and copper due to their oversupply in the market or rising inventory? Will that impact the profitability of the companies in base metal sector?

There does seem a downward pressure but it may be re-bound as has happened in the last one year, although there is a growing evidence that markets view the declining price more as supply-induced. The metal companies have been in better control of supplies and hence, the prices than ever before, which is indicated from the revision of production plans and capacity expansions. Copper prices reached a high in the last three months due to concerns of production disruptions in Peruvian mines, but dropped off since then due to expectations of global slow down. In aluminium segment too, the prices rallied but fell by about 10% in a fortnight.

Will the current global slowdown and rising interest rates impact the growth of the metal sector?

Global slow down and rising interest rates may have negative impact on the growth of metals sector. Rising interest rates may make new and expansion projects unviable and thus induce supply constraints, which may not necessarily mean price hikes in slowing global economy.

(This interview was published in Outlook Money, Sept 24, 2008 Issue)