Global steel out­put trends pos­i­tive for re­vival of in­dus­try in In­dia

Resource Digest - - CONTENT -

Global steel pro­duc­tion in Au­gust 2017 raises hopes for the re­vival of steel in­dus­try. A 6.3% in­crease at 143.6 MT over last year is in­deed sig­nif­i­cant. Only bar­ring the last few months, the con­cern over ex­cess steel ca­pac­ity which was fre­quently taken up as a ma­jor agenda point in al­most all the in­ter­na­tional fora in­clud­ing the G-20 meet­ing, had made pro­duc­tion growth an avoid­able ac­tiv­ity es­pe­cially in EU, NAFTA and MENA coun­tries. For oth­ers in Latin Amer­ica, CIS and SE Asia, the con­tin­ued sub­dued eco­nomic con­di­tions could not cre­ate an en­abling en­vi­ron­ment to en­hance steel pro­duc­tion. The most per­ti­nent ques­tion there­fore that can be raised now re­lates to if suf­fi­cient de­mand growth, cur­rent and po­ten­tial, would neu­tralise the ex­cess ca­pac­ity syn­drome and as steel de­mand growth is in­sep­a­ra­bly linked with up­ward move­ment of eco­nomic pa­ram­e­ters, does it also im­ply that eco­nomic growth in EU, NAFTA and other steel pro­duc­ing coun­tries would usher in bright pe­ri­ods for steel in­dus­try in the months to come?

Dur­ing the first 8 months of the cur­rent year, Chi­nese pro­duc­tion of crude steel at 566.4 MT has gone up by 5.6%, Ja­pan at 69.6 MT by (-) 0.4%, In­dia at 66.5 MT by 5.1% and the US at 54.7 MT by 2.4%. These first 4 steel pro­duc­ers along with Rus­sia, Ukraine, Tur­key, Viet­nam and Iran com­prise around 77% share of the global steel pro­duc­tion. In case of In­dia, Iran and Viet­nam, the in­creased steel pro­duc­tion con­tin­ued with higher ca­pac­ity aug­men­ta­tion, while for oth­ers it was higher ca­pac­ity util­i­sa­tion and no ad­di­tion in fresh ca­pac­ity. A growth in pro­duc­tion stems from a per­cep­tion that the mar­ket ex­ists with a higher re­al­i­sa­tion. First it started with prices of cok­ing coal and iron ore and next we knew that HRC prices rose by nearly 30% dur­ing Novem­ber 2016 to Septem­ber 2017, fol­lowed by all other flat cat­e­gories. The long prod­uct prices, de­pen­dent on scrap and in­fra­struc­ture in­vest­ment, picked up a lit­tle later.

It is true that stim­u­lus in­vest­ment in China has led to de­mand pick up, rise in do­mes­tic prices and higher ex­port of­fer, more de­mand for im­ported iron ore and cok­ing coal and an over­all im­prove­ment in the prof­itabil­ity in­dices of the do­mes­tic steel in­dus­try. Thanks to the emer­gence of the age of pro­tec­tion­ism that many steel im­port­ing coun­tries re­sorted to anti-dump­ing and coun­ter­vail­ing duty mea­sures against dumped steel from China and a few other low-priced steel ex­port­ing coun­tries.

This brings up an­other de­bat­able is­sue — if the up­ward move­ment of global pro­duc­tion, con­sump­tion and prices in steel are in­cum­bent on what is in store in the Chi­nese do­mes­tic mar­ket and would fiz­zle out the mo­ment the Chi­nese bub­ble is burst. This is hy­po­thet­i­cal, but it can be safely con­cluded that steel pro­duced in China in ex­cess of what is gen­uinely re­quired to cater to the in­fras­truc­tural and other in­dus­trial re­quire­ments in the coun­try would nec­es­sar­ily lead to price de­pres­sion, dis­tress ex­port of­fers and thereby cause in­jury to the health of global steel in­dus­try. Al­though China is go­ing ahead of dis­man­tling ca­pac­i­ties of the SMES and clos­ing down en­vi­ron­ment pol­lut­ing en­ti­ties, the unutilised ca­pac­i­ties in the SOES are a de­ter­rent against fresh ca­pac­ity ad­di­tions and a cor­rect as­sess­ment of fu­ture de­mands from the large in­fra­struc­ture projects and the cor­re­spond­ing in­dus­trial de­mand from the in­dige­nous and ex­port mar­kets would only be the guid­ing light for Chi­nese ca­pac­ity ac­ti­va­tion and the sus­tain­abil­ity of global steel in­dus­try in terms of growth, ca­pac­ity plan­ning and prof­itabil­ity.

It is heart­en­ing to note that for the re­ju­ve­na­tion of In­dian econ­omy (perk­ing up GDP growth from 5.7% in Q2 of FY18) and meet­ing the sig­nif­i­cant gaps in in­fra­struc­ture build­ing in roads, rail network, hous­ing, com­mu­ni­ca­tion, ports, en­ergy, the gov­ern­ment is con­tem­plat­ing a stim­u­lus dose of around Rs 50,000 crore of in­vest­ment in the bal­ance pe­riod of the cur­rent fis­cal. To­tal fin­ished steel con­sump­tion that went up by 4.7% in the first 5 months in the cur­rent year has been achieved by 3.7% growth in crude steel pro­duc­tion, fin­ished steel im­port and ex­port growth of 18% and 57%, re­spec­tively. To­tal long steel con­sump­tion in In­dia pre­dom­i­nated by in­fra­struc­ture de­mand has ac­tu­ally gone down by 1.6% dur­ing the pe­riod with TMT bar and wire rods con­sump­tion drop­ping by 2.5%, while con­sump­tion for rails in­clud­ing other rail­way ma­te­ri­als went up by more than 13%. The same trend con­tin­ues for al­loy/ SS non-flat prod­ucts also. The flat steel con­sump­tion went up by more than 16% with ma­jor growth ob­served in plates (around 8%), HRC (more than 17%), coated prod­ucts (more than 26%), elec­tri­cal sheets and tin plates. The al­loy/ss flat prod­ucts ex­pe­ri­enced a higher level of on­sump­tion.

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