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Long product market takes the flak of rupee depreciation in India

Long product market in India has been vexed in contradictions thickening apocalyptically. Deepening economic crisis in India saddled with astronomical hike in lending rates touching 8.5% after 13 hikes in 20 months to rein stubborn inflation have left an indelible scar on the industry.

Infrastructure and construction industry has remained monotonously sluggish since 2008 has been on the lookout for an elusive spark to kindle growth.

Cost of borrowing being a key determinant of alacrity in business activity has been on a song inhibiting turn of fortunes in all segments of the economy. Construction, housing and reality sector are primarily a function of credit availability at remunerative rates has taken bulk of the flack during this period. With an ever tightening noose on credit and cost of borrowing soaring transactions has been an obvious casualty.

Hitherto buoyant consumption from the infrastructure sector been severely emaciated with buying restricted only to immediate needs. Credit squeeze along with policy paralysis by the government paranoid about announcing new projects and investment opportunities culminating in demand generation has taken the sheen of vibrant economy in the last 3 months. Pompous projections of USD 1 trillion infrastructure investments by the end decade failed to catalyze the market.

Demand from the end user and traders are a mere shadow of actual propensity owing to sluggish transactions at the bottom of the chain bearing a backlash on the market sentiment.

Rubbing salt to injury a collapse of 18% in rupee value v/s USD since June has bloated the cost bills of furnace owners and re-rollers without a concomitant growth in finished demand severely eroding the bottom line.

Flagging Rupee has flared the scrap prices ringing death bell for the furnace owners who are finding it preposterous to transfer the incremental cost of nearly INR 3000 per toe to INR 4000 per tonne onto the finished prices as the demand remains stolid. Culminating in mid rib bulge wherein the hike in scrap prices will inflate pencil ingot prices by INR 3000 per tonne to INR 4000 per tonne but the TMT and WRC prices will remain unchanged perforce owing to unviability. Shutdown and capacity rationalization is inevitable.

Biting more than it can chew the long product market is a victim of its contradictions being crucified by the depreciating INR. Seasonality becoming misnomer in Q3, Q4 is likely to be a dampener as the economic fundamental remains murky.

Inflation still hovering around double digit (9.72%) in October with no signs of ebbing credit rates will remain dear. With the budget deficit no were near the planned 4.6% of the GDP government is unlikely to indulge in any extravagance lest the economy capsizes in debt trap. GDP projection being around 7.6% against a planned 9% doesn’t sound music to the every diminishing growth in steel consumption likely clock 4.5% to 5% against projection of 10% in 2011.