SAIL cuts FY12 steel demand outlook on higher interest rates

India's steel demand is likely to grow 6 percent in the current fiscal year, nearly half the earlier forecast, as higher interest rates squeeze demand from the automobile and construction sector, the country's top domestic steel maker said.

Maintaining the prior forecast of 10 to 12 percent growth in consumption for the year ending in March is difficult in the current environment, Shuman Mukherjee, director commercial at Steel Authority of India told an industry conference on Tuesday.

"Right now demand is slightly sluggish. Let's hope it improves," he said.

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Car sales in India fell 23.8 percent in October, the biggest percentage drop since December 2000, an industry body said earlier this month, hurt by a series of interest rate increases by the central bank and high vehicle costs.

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The sluggish demand will keep steel prices under pressure, Mukherjee said.

Earlier this month, the state-run steelmaker blamed a halving of quarterly profit on rising costs and a strong dollar.

SAIL imports 75 percent of its coking coal requirements, with a significant portion coming from Australia. The company's coking coal requirements are likely to rise to 21 million tonnes in 2013 from 13.8 million tonnes in 2010, Mukherjee said.

India holds 10 percent of the world's coal reserves but local supplies are falling short of demand as the country builds more power plants, and as domestic projects run into environmental and land acquisition delays.

The recent fall in input costs has been nullified by depreciation in the Indian rupee, he said. The rupee skidded to an all-time low on Tuesday and slumped 16.8 percent from its 2011 high reached in late July.

The company aims to expand its crude steel production capacity to 40 million tonnes by 2020 from the existing 12.84 million tonnes. Iron ore requirements are likely to rise to 39 million tonnes in 2013 from 23.25 million tonnes in 2010, he said.

SAIL is also the country's second largest iron ore producer, and had produced 24.2 million tonnes of the steel-making raw material in 2010/11.

Reuters