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US housing bubble takes its toll of Indian steel-makers.

By Mahesh Nayak        Print Edition: Sept 23, 2007

If there's one industrial sector in the country that's been directly hit by the us' housing woes, it's steel, with demand for construction-grade steel coming down drastically in the last one month. Says Ankit Maglani, Director, Uttam Galva Steels: "From two vessels of shipment to the us from 5-6 Indian galvanised steel-makers, the shipment has come down to one in the last month." For Uttam Galva Steels, US used to account for 50 per cent of total exports; that figure was down to 20 per cent in August.

The subprime crisis in the US real estate sector has resulted in construction activity slowing down. Indian suppliers like Bhushan Steel, Uttam Galva Steels, JSW, Ispat, National Steel and Shree Precoated are facing the brunt of the slowdown. Says Nittin Johari, Group cfo, Bhushan Steel: "We will take a 1-2 per cent hit on our revenues due to the order postponement." Some 35 per cent of Bhushan's revenues come from exports, of which the us accounts for 6-7 per cent. "The fall in 1-2 per cent in top line is negligible. But the larger concern hovers over whether the US is in for an overall economic slowdown," says Shriram Iyer, Head of Research, Edelweiss Securities. "Today, no one has a complete idea about the quantum of damage from the US subprime. Till then uncertainty will prevail. If the consumer spending takes a hit, then companies in the ferrous and non-ferrous sector will take a hit."

Maglani of Uttam Galva feels that a booming construction sector in other parts of the globe will compensate for the US. "The huge demand from West Asia and European markets will see prices touching new all-time high. In 2007-08, our exports will increase to Rs 2,000 crore from Rs 1,500 crore in the previous year." But Avinash Gorakshakar, VP (Research) of Reliance Money adds: "With us slowing down, companies are set to take a hit in the immediate future, as it is not easy to start exporting from day one if you don't have relationships. Secondly, if US slows down, the impact will spread to other parts of the globe that are dependent on the US."

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