Shipping has been among the worst-hit industries to have suffered the effects of the ongoing meltdown. With a decline in international trade and cruises, a large number of ships and vessels have turned redundant and are now making their way to Alang in Gujarat, the world’s largest ship-breaking yard.

Nearly 130 ships have queued up at Alang for dismantling as compared to 40 last year. But the increase in business at Alang is causing distress right here in Mandi Gobindgarh, Asia’s largest steel industry cluster.

The scrap obtained from dismantled ships is the primary raw material for small steel industries and the players feel that as the price of steel has already hit the bottom, an excess supply in the market (from ship scrap) would only worsen the situation.

“As recently as July 31, 2008, the price of steel was as high as Rs 41 per kg. By Diwali, the prices had come down to Rs 23 per kg and now they are around Rs 27 per kg,” said Kuldeep Goyal of Kisco Castings.

He said the demand has remained inadequate because of the overall economic meltdown.

“Automobile and construction sectors are our main customers. They too have applied brakes on production and investment,” Goyal added.

The decline in steel prices has badly hit the units in Mandi Gobindgarh which employ around one lakh people.

A trader said on condition of anonymity: “We ordered raw scrap from South Africa in August. The price was 700 dollars per tonne then. It usually takes around 45 days for the material to reach us, which includes a 15-day voyage. By the time the scrap reached us, the prices had sunk to 300 dollars per tonne. So basically, the goods for which I had paid around Rs 5 crore had reduced to Rs 2 crore in value.”

A drastic fall in demand is also being attributed to the meltdown in the automobile sector which remains a dominant customer. Recent surveys have shown that the sale of passenger vehicles has gone down by 25 per cent, while that of commercial vehicles has declined by 60-70 per cent.

Amarjeet Goyal, the managing director of Modern Steels Limited, which supplies parts to Tata Motors, Suzuki, Ashok Leyland and prominent tractor manufacturers, said: “Most units are operating at 30-40 per cent of their capacity. The situation is so bad that even the Letters of Credit are not being honoured. Punjab has four large alloy steel producers which over the years have supplied (steel) to the best known auto players in India and have also exported (it). But everyone has taken a hit. The supply currently is outstripping the demand.”

The industry players, however, admit that the recent initiatives taken by the Centre look promising. “The CENVAT reduction was certainly helpful, but I think the second fillip announcement could actually alleviate the woes. In this, they have apportioned around Rs 4,000 crore under JNNURM and have asked the state governments to purchase buses for local transport. They have also given 50 per cent depreciation benefit on purchase of new commercial vehicles. This could give a boost to the auto sector and eventually lead to a revival of demand,” Amarjeet added. But others, which primarily include furnaces and rolling mills, feel that for the time being the government should restrict cheap import, a lot of which comes from Ukraine and Eastern Europe.