But many global weather forecasting agencies are foreseeing a normal monsoon for India, thanks to the absence of negative factors like El Nino this year, against an eight per cent deficit on a long-period average basis in 2012. The local weather analytics firm Skymet has forecast a well-distributed monsoon. More than half the country's cultivated area is still dependent on monsoon rain. This explains why the kharif crops had a setback in 2012. In turn, this must have stunted rural steel demand growth. The country is targeting an annual average growth of four per cent of agriculture and allied sectors in the 12th Plan period (2012-17), against achievement of 3.6 per cent in the last Plan period.
The 2012 rural story was disappointing due to deficient rains. But the story in the current year in contrast will be encouraging if a good monsoon lifts our foodgrain production beyond the record output of 259.32 million tonnes in 2011-12. Levels of economic activity, particularly house building and construction of pucca storage capacity, in a year at the village level are decided by farm production size and crop prices. Besides use of rebars and galvanised sheets for construction purposes, people in the countryside buying agricultural implements, including tractors and harvesters and vehicles and furniture, generate demand for steel. "Low per capita consumption of steel in rural India presents us with an opportunity to promote its use in a still near-virgin-market. The challenge is to take steel virtually to rural buyers' doorsteps and familiarise them with its many applications. In a proactive move, we have created a dealership chain covering 630-odd districts. SAIL has 562 dealers in rural areas," says Steel Authority of India Limited (SAIL) Chairman Chandra Shekhar Verma.
Other leading producers have a differentiated approach to marketing their almost-made-to-order products for rural areas. Like Tata Steel's galvanised corrugated sheets, which have set a benchmark in economical construction and caught the imagination of buyers in rural centres. Similarly, Tata pipes are coming in for increasingly big use in irrigating fields, as the market for the group's agro farming equipment continues to grow.
The growing success of SAIL, Tata Steel and Vizag Steel in penetrating the rural market has encouraged many others to look beyond urban and semi-urban markets. The rate at which steel consumption will rise will depend on the gross domestic product (GDP) growth rate and how well the main consuming points like automobiles, white goods, construction and infrastructure development behave. The Joint Plant Committee, a steel ministry outfit, informs that India's steel use grew disappointingly at 3.3 per cent to 73.3 mt in 2012-13, even while the GDP's progress was five per cent.
Verma and Nerurkar hold identical views that the likely major demand improvements this year should negate the downside risk to steel prices. "Prices will remain similar. It is not going to be jumping here and there. I think it is going to be fairly stable," says Nerurkar. The World Steel Association (WSA) short-range outlook says as monetary easing is expected to support investment activities, Indian steel demand will rise 5.9 per cent to 75.8 mt in 2013, after a dismal growth of 2.5 per cent last year. Likely further reforms will lift steel demand to seven per cent in 2014, says WSA. Many, however, think with parliamentary elections due next year and the UPA government's survival hinging on outside support, policy paralysis in the short term remains a possibility. In any case, our steel demand growth rate will be higher than the 3.5 per cent in China.