GROWTH FAC­TORS FOR ME­TALS IN­DUS­TRY

Growth in in­ter­nal de­mand, im­ple­men­ta­tion of gov­ern­meent schemes and in­ter­ven­tions to play a vi­tal role in re­viv­ing the In­dian me­tals in­dus­try this year

Financial Chronicle - - RISING METTAL STOCKS -

The In­dian me­tals in­dus­try passed through a pe­riod of tur­bu­lence in 2015 and 2016. The sit­u­a­tion of over­sup­ply in In­dia’s trad­ing part­ners such as China, Ja­pan and South Korea amongst oth­ers has re­sulted in dump­ing of low cost im­ports into In­dia. This de­vel­op­ment af­fected the In­dian manufacturers as they strug­gled to com­pete at such low prices. In ad­di­tion, the con­sis­tent in­crease in pro­duc­tion over con­sump­tion in se­lect me­tals has re­sulted in in­ter­nal gen­er­a­tion of over­sup­ply. The com­bi­na­tion of th­ese fac­tors has re­sulted in in­creased cus­tomer bar­gain­ing power de­mand­ing lower prices, thereby re­sult­ing in In­dian manufacturers los­ing mar­ket share and wit­ness­ing squeeze in profit mar­gins. The coal sec­tor how­ever, re­mained undis­turbed and ex­pe­ri­enced growth, driven pri­mar­ily through in­ter­nal de­mand and ex­ploited the growth in the power sec­tor. The avail­abil­ity of low cost im­ports has ad­versely im­pacted the do­mes­tic steel in­dus­try.

THE ALU­MINIUM IN­DUS­TRY CON­TIN­UES TO WIT­NESS A DE­CLIN­ING TREND IN PRICES

Dur­ing 2016, the whole­sale av­er­age monthly price of alu­minium in­gots in Mum­bai reg­is­tered a de­cline of 5.7%, as com­pared to the pre­vi­ous year. The fall­ing prices of alu­minium have re­sulted in lower sales re­al­i­sa­tions for In­dian manufacturers which have ad­versely im­pacted their bot­tom­line. The pres­ence of low cost smelters in the neigh­bour­ing re­gions and high im­ports has fur­ther pres­sured do­mes­tic manufacturers to curb prices. This trend is ex­pected to con­tinue through 2017.

Power, trans­porta­tion, au­to­mo­bile and con­struc­tion sec­tors are the ma­jor driv­ers for the alu­minium in­dus­try. The other govern­ment ini­tia­tives such as ‘Make in In­dia’, ‘Smart Cities’ pro­gramme and 100 per cent ru­ral elec­tri­fi­ca­tion will act as growth driv­ers for the in­dus­try in the mid-term to long term.

THE OVER­SUP­PLY OF COPPER WILL KEEP PRICES DE­PRESSED THROUGH 2017

De­spite de-growth of 3.3% in copper pro­duc­tion in In­dia dur­ing Jan­uary-Novem­ber 2016 and in­crease in copper con­sump­tion, the prices of copper de­clined due to ex­cess low cost im­ports from China. The con­tin­ued growth in sup­ply of copper over the de­mand has re­sulted in a sur­plus. The sit­u­a­tion of over­sup­ply will con­tinue to sus­tain for the next 2-3 years. There­fore, the In­dian copper mar­ket will con­tinue to be price com­pet­i­tive through 2017.

COAL CON­TIN­UES TO GROW AS PRE­FERRED EN­ERGY FUEL

In­dia is the third largest coal pro­ducer in the world and 72% of In­dia’s power gen­er­a­tion is fu­eled by coal. The coun­try has a press­ing need to ad­dress its en­ergy de­mands and coal is the pre­ferred en­ergy fuel. The con­sis­tent ef­forts to ad­dress In­dia’s en­ergy needs will con­tinue to fuel the de­mand for coal through 2017 and be­yond.

Im­prove­ment of the Chi­nese econ­omy is a vi­tal pre­req­ui­site for the re­vival of the global me­tals in­dus­try

China is a ma­jor pro­ducer and con­sumer of most of the me­tals. There­fore, the pro­duc­tion and con­sump­tion of me­tals by China heav­ily im­pacts the global mar­ket in gen­eral and the In­dian me­tals mar­ket in par­tic­u­lar. The re­vival of the global me­tals in­dus­try is heav­ily hinged at the pickup of do­mes­tic de­mand in China. The pickup will re­duce the ex­cess sup­ply from China, which will in turn en­able price sta­bil­ity glob­ally.

Growth in in­ter­nal de­mand, im­ple­men­ta­tion of govern­ment schemes and govern­ment in­ter­ven­tions

will play a vi­tal role in re­viv­ing the In­dian me­tals in­dus­try in 2017 All the ma­jor me­tals in r In­dia have been neg­a­tively e im­pacted by the macro eco­nomic f fac­tors such as slow­down in the global econ­omy, n re­bal­anc­ing of the Chi­nese econ­omy and fall in metal e prices. Th­ese fac­tors will con­tinue to hurt the In­dian mar­ket s through 2017 as well. In t ad­di­tion, the con­tin­u­a­tion in p the sit­u­a­tion of over­sup­ply will con­tinue to keep metal y prices de­pressed through n 2017. There­fore, it would be y. pru­dent for do­mes­tic manufacturers f to cur­tail pro­duc­tion and iden­tify cost sav­ing d ini­tia­tives. s Mea­sures to curb im­ports and in­tro­duc­tion of price floor on se­lect ex­ist­ing im­ports will play a ma­jor role in en­abling the re­vival of the In­dian me­tals in­dus­try. The me­tals and min­ing in­dus­try pre­dom­i­nantly de­rives its de­mand from growth of in­dus­tries such as in­fra­struc­ture, con­struc­tion, au­to­mo­bile, power and elec­tron­ics, amongst oth­ers. The most sig­nif­i­cant growth op­por­tu­nity for the me­tals and min­ing in­dus­try go­ing for­ward is ex­pected to come from govern­ment schemes such as ‘Make in In­dia’, ‘Smart Cities’ pro­gramme, 100% ru­ral elec­tri­fi­ca­tion and ‘Hous­ing for All’ by 2022, amongst oth­ers. The ex­tent of im­ple­men­ta­tion of th­ese pro­grams in 2017 will have a di­rect pos­i­tive im­pact on the me­tals and min­ing in­dus­try. There­fore, the growth in in­ter­nal de­mand, im­ple­men­ta­tion of govern­ment schemes and govern­ment in­ter­ven­tions will play a vi­tal role in the re­vival of the In­dian me­tals in­dus­try.

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