Blitz Bureau
NEW DELHI:
Output from India’s eight core infrastructure industries grew 1.7% year on year in June, a three-month high, up from a revised 1.2% in May. Taken alone that is a subdued number. Taken apart, it is a much clearer story than the headline allows: five of the eight segments actually contracted — coal down 6.8%, natural gas 2.8%, electricity 2.8%, crude oil 1.2% and fertiliser 1.2% — while three grew strongly, with steel up 9.3%, cement 9.2% and refinery products 3.4%.
That split is not random. The three growing segments are construction inputs and downstream refining; four of the five contracting ones are energy production. A month in which cement and steel rise about 9% while electricity generation falls nearly 3% is describing an economy where building activity is robust and power demand is soft — and softness in power output during an Indian June has an obvious candidate explanation. A cooler, wetter-than-usual stretch reduces cooling load, and this June also followed an unusual weather pattern nationally. Electricity output is one of the most weather-sensitive series in the index, and reading it as an industrial signal without adjusting for that is a common analytical error.
Cement and steel are the tell: both grew around 9% in June, which is what an active construction cycle looks like in the data before it appears in company results.
An index that averages coal and cement will always understate whichever one is doing the interesting thing. In June, cement was doing the interesting thing.
At a Glance
• Core sector growth: 1.7% in June, a three-month high, from a revised 1.2% in May
• Contracting: coal −6.8%; natural gas −2.8%; electricity −2.8%; crude oil −1.2%; fertiliser −1.2%
• Growing: steel +9.3%; cement +9.2%; refinery products +3.4%
• Composition: the eight core industries carry a substantial weight in the index of industrial production
• Read: construction inputs strong, energy production weak
• Context: HSBC India Manufacturing PMI was 54.2 in June, from 55.0 in May
The steel and cement numbers deserve to be the headline for an investor, because they are the cleanest available real-time proxy for construction activity — and construction is the most employment-intensive part of the Indian growth story. Neither commodity travels far or stores well; cement in particular is consumed close to where it is produced and within weeks of being made. Nine per cent growth in both, simultaneously, is very difficult to fake and very hard to explain by anything other than active building: housing, highways, rail formation, transmission corridors and industrial floor space. It is consistent with an infrastructure capital-expenditure cycle continuing to convert into physical work.
The constructive way to read the contracting half is as a series of separable, mostly benign explanations rather than a single warning. Falling coal output alongside falling electricity generation is arithmetically coherent — thermal plants burn less when demand is lower — and a June in which renewable capacity has continued expanding also displaces thermal generation at the margin, which is the transition working rather than failing. Crude oil and natural gas declines reflect ageing domestic fields, a long-standing structural issue that new exploration rounds and the strategic reserve programme address on a multi-year horizon. Fertiliser is seasonal and tied to sowing, which this June was running behind. The genuinely useful step for the market would be publication of a weather-adjusted electricity series alongside the raw one, so that analysts can separate an industrial signal from a monsoon signal. Until then, the honest summary of June is that India built a great deal and cooled itself rather less.