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
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.