RINL Production Cuts Spark Concerns in the Indian Construction Sector
Steel rebar prices are on the rise, raising margin concerns for real estate and infrastructure firms. The shortage is partly due to production cuts at state-owned Rashtriya Ispat Nigam Ltd (RINL), a major manufacturer of long steel.
Steel PricesConstruction SectorRinlRebar ShortageIndian Real EstateReal Estate NewsOct 24, 2024
Average rebar prices have seen a cumulative increase of ₹2,400 per tonne over two consecutive weeks in late September and early October, as reported by BNP Paribas on 7 October. This translates to a price hike of about 4-5%. Major steel companies like JSW Steel Ltd and ESL Steel Ltd have raised their rebar prices by about ₹1,000 per tonne, while Jindal Steel and Power Ltd (JSPL) has made a ₹2,000 per tonne upward revision during this period.
The prices are expected to continue their upward trend in the coming weeks as construction activity peaks in the latter half of the financial year, following the monsoon season. “We expect a sharp rise in rebar prices due to the RINL production cuts. RINL is a big player in terms of long products capacity and their production cuts are causing a 4.5-5 million tonnes annual shortage,” said Priyankar Biswas, India analyst at BNP Paribas.
In April-May, rebar prices also saw an increase when workers at the Gangavaram port in Andhra Pradesh went on strike, further curtailing RINL production. Steel represents about 20% of the input cost for construction firms, according to Kushagr Ansal, director of Ansal Housing. “Steel prices have seen a moderate increase in recent weeks, though the impact on our margins is currently manageable. At present, we’re focused on optimizing resources to absorb the impact. If prices continue to rise, we may need to reassess our pricing strategy for future projects,” he said.
RINL, which operates the Visakhapatnam steel plant in Andhra Pradesh, has been facing financial difficulties and has missed debt repayments since July. The company has an annual production capacity of 7.3 million tonnes, one of the largest among makers of long steel products in India. However, only one of its three blast furnaces is operational, and that too at partial capacity, exacerbating the supply shortage in the market.
Adding to the problem, the state-owned National Highways Authority of India has barred several secondary steelmakers from supplying rebars due to quality issues, according to analysts at BigMint, a market intelligence firm. This has further pushed up the prices of rebars sold by primary manufacturers like RINL.
Primary steelmakers, such as Tata Steel Ltd, JSW Steel, JSPL, and RINL, smelt iron ore into steel in large blast furnaces, producing higher quality products at higher prices. Secondary steelmakers, on the other hand, melt steel scraps and iron in smaller electric arc furnaces to make steel.
Pradeep Aggarwal, chair of real estate firm Signature Global (India) Ltd, said the recent steel price hikes are a minor concern. “We remain confident that these price adjustments are temporary, and our thorough planning ensures resilience in navigating industry fluctuations,” he said.
Long steel is shaped into rods, bars, and wires, while flat steel is manufactured in the form of slabs, which are then made into sheets and coils.
Frequently Asked Questions
What is causing the rise in steel rebar prices?
The rise in steel rebar prices is primarily due to a supply shortage caused by production cuts at state-owned Rashtriya Ispat Nigam Ltd (RINL), a major manufacturer of long steel products.
How much have rebar prices increased recently?
Average rebar prices have increased by ₹2,400 per tonne over two consecutive weeks in late September and early October, which translates to a price hike of about 4-5%.
Why is RINL facing production cuts?
RINL is facing production cuts due to financial difficulties and has missed debt repayments since July. Currently, only one of its three blast furnaces is operational, and that too at partial capacity.
What impact do these price increases have on the construction sector?
The price increases are raising margin concerns for real estate and infrastructure firms, as steel represents about 20% of the input cost of construction. Some companies are focusing on optimizing resources to absorb the impact, while others may need to reassess their pricing strategies for future projects.
What is the difference between primary and secondary steelmakers?
Primary steelmakers smelt iron ore into steel in large blast furnaces, producing higher quality products at higher prices. Secondary steelmakers melt steel scraps and iron in smaller electric arc furnaces to make steel, typically of lower quality and at lower prices.
Related News Articles
India's Real Estate Sector Pins Hopes on Union Budget 2024
The upcoming budget is expected to boost sentiment in the housing sector by introducing measures that benefit homebuyers and real estate developers, improving infrastructure funding in cities like Thane.
RERA: A Beacon of Hope for Homebuyers in India
RERA authorities have resolved over 1.25 lakh consumer complaints across India, marking a significant milestone in the country's real estate sector.
Voting Trends: Ruchir Sharma's Insights on Maharashtra and Jharkhand Elections
Renowned global investor Ruchir Sharma offers his analysis on the recent political shifts in Maharashtra and Jharkhand, highlighting the surprising gains made by the Maha Vikas Aghadi and the implications for the future.
Top 5 Real Estate Market Wishes for Budget 2025
The Indian real estate market is on the cusp of significant transformation, driven by evolving market trends and changing customer preferences. Here are the top 5 expectations from the 2025 budget that could propel the sector to new heights.
DOGE's Behest Could Lead to Closure of Numerous Federal Offices, Internal Records Show
Internal documents from the General Services Administration (GSA) reveal a potential large-scale closure of federal offices, following DOGE's directives. The move could affect dozens of locations and hundreds of federal employees.
Maharashtra Promotes Precast Construction to Tackle Mumbai's Air Pollution
The Maharashtra government is incentivizing real estate developers to adopt precast construction methods to mitigate air pollution in Mumbai, offering various benefits for off-site manufacturing.