Steel Demand in India to Accelerate Following Polls, JSW Says

By Debarati Roy

May 19 (Bloomberg) -- India’s steel demand will accelerate this year as the incoming Congress party-led government increases investments in infrastructure, following its best showing in an election in two decades, JSW Steel Ltd. said.

“The steel industry’s performance is dependent on how the economy grows and now with a stable government more thrust will be placed on infrastructure,” Joint Managing Director Seshagiri Rao said yesterday in an interview in Mumbai. “Those programs announced earlier will now be accelerated.” Orders from the construction industry will drive a 6 percent gain in overall sales this fiscal year, up from 1.3 percent last year, he said.

Prime Minister Manmohan Singh’s re-election may spur the investment needed to fund a $500 billion plan to build roads, ports and bridges and continue a rural jobs program that lifted demand in villages and towns. Bharat Heavy Electricals Ltd. said it expects as much as $1.5 billion of new power-equipment orders in the first quarter as pending government projects are cleared.

“Demand for construction grade steel will jump as we expect investments to increase sharply in infrastructure,” said Bharath S., an analyst at Sundaram BNP Paribas Mutual Fund.

Operating profit at Mumbai-based JSW, India’s third-biggest steel producer, will improve this quarter from 3.57 billion rupees ($75 million) in the previous three months, Rao said, without giving specific numbers. Operating profit was 8.9 billion rupees in the fiscal first quarter last year.

JSWshares rose 15 percent to 480 rupees in Mumbai yesterday, the highest since Sept. 30, before trading on the Bombay Stock Exchange was halted for the day. The key Sensitive Index breached the upper limit, gaining 17.2 percent to 14,272.63.

Stimulus Package

Congress won the most seats in an election since 1991, clearing the ruling party to form a government without needing the support of communist parties that frustrated plans to entice foreign investment in Singh’s first five-year term.

The government had announced three stimulus packages since December and spending worth $8.95 billion this fiscal year to build networks of roads, phones, electricity and irrigation.

“There won’t be other pulls and pressures on the government so they will be focusing now on growth and governance,” Rao said.

JSW’s crude steel production climbed 60 percent last month as sales of construction grade products surged 78 percent.

The company reported a fourth-quarter group loss after the global recession eroded demand in the U.S. The net loss was 399.3 million rupees, compared with a profit of 3.57 billion rupees a year ago. Sales fell 16 percent to 35.7 billion rupees.

U.S. Shutdown

JSW plans to shut one of its three plants in U.S. as demand has collapsed in that market, Rao said. The company will decide on the shutdown by the end of the month and restart only after it accumulates orders, he said.

The company’s three factories in the U.S. employed 950 workers when JSW acquired the unit in 2007 for $810 million from Jindal Saw Ltd. A 1.2 million ton steel-plate mill, which could be shut, employs 300 people, Rao said.

“In hindsight, this seems like a bad purchase,” JSW Steel Managing Director Sajjan Jindal had said on May 7, while announcing fourth-quarter earnings. “It would be difficult to get a buyer even if we decide to sell the unit.”

Inventories worth $58 million were written down during the March quarter in the U.S. and demand there remains weak, Jindal had said. The three plants are running at 15 percent of their installed capacity.

To contact the reporter on this story: Debarati Roy in Mumbai at droy5@bloomberg.net.