Editorial August 2016

Chhattisgarh is one of the minerally rich states of the country. With immense reserves of iron ore and non coking coal, last few years saw the emergence of sponge iron based steel industry in the state. As we all know, coal based sponge iron making requires non coking coal and thus hundreds of small and medium scale sponge iron units were established in the state. Sponge iron served as a good replacement for melting scrap which was already in short supply. This industry started growing by the turn of 20th century and was supposed to be one of the most profitable industry at that time. When competition increased, these units did forward integration by adding steel making and rolling facilities. Also, they used hot flue gases being emitted from the kiln to produce power which was in turn utilized to run the whole plant. Few plants also started producing Ferro alloys from this co-generated power. Meanwhile, government strengthened pollution control norms to reduce the pollution being created by these plants. Gradually, Chhattisgarh became a major contributor to the national iron & steel production. Its capital Raipur is now- a -days rightly referred as ‘new steel capital’ of the country !

In spite of all this bright past, today the iron & steel sector in this state is fighting hard for the survival. Many stand alone units have closed down and the integrated ones are mostly running in losses. Demand stagnation, rising power costs, non availability of vital raw materials has sucked out the viability from the whole process chain.

If one sees other steel making states like Odisha, Jharkhand, Karnataka the situation is more or less the same. Presently, there is very thin margin at every process step in iron & steel sector. Presently, the country produces more than 80 million tons of steel and the Steel Ministry has projected a huge 300 MT steelmaking capacity by 2025. First of all, the figure looks too big and somewhat unrealistic. Secondly, if the industry is entangled with so grave viability issues, how can it think of such a massive expansion plan?

Editorial July 2016

Global uncertainty in iron & steel sector continues. China has reported highest ever steel production in the month of June and this is surely a cause of worry for rest of the world. For the last 2/3 years, many countries are complaining about Chinese steel products damaging the domestic industry in terms of price and also volumes. Subsequently it was understood that China will gradually reduce the excess steel making capacity as well as the excess production. This would have reduced the stress existing in the global steel trade. China reporting highest ever steel production in the month of June is a big jolt to this understanding and the uncertainty as well as fluidity in the system returns. Though US market is growing marginally, EU is stagnated and still it has to fully digest ‘Brexit’.

Comparatively, MENA region seems in a better position to grow steadily in coming months. The oil prices are tending to stabilize and this should provide the required trigger for the infra projects in the region to restart. Many such mega projects are presently on hold due to liquidity crunch post oil price crash.

The India story is slightly different. After the government has imposed ‘Minimum Import Price’ (MIP), the imports have drastically reduced but there seems to be pressure from steel user industry to withdraw MIP which has denied them the opportunity to purchase steel at low prices. The government will have to take a call on this and probably strike a balance between various stakeholders. For the last few months, Indian steel consumption has been growing which is a very positive sign for the industry. Good monsoon may be a major contributor to this positive sentiment but whether it will sustain post monsoon will be interesting to watch. Many Indian steel business houses have overseas investments in plants as well as mines. Presently most of them are either closed down or running at losses. The growing Indian economy and steel consumption should provide them a good opportunity to employ their resources domestically and make the most in given situation!

Editorial June 2016

Atlast, the rains have started in most of the parts in India and the monsoon is progressing as per the expectations. It’s a great relief not only to farmers but to the whole country as such.

Though agriculture contribution to the economy and GDP is not even 20%, livelihood of nearly 70% population depends on it. Thus if the rains are good then naturally agro production increases and subsequently the purchasing power of majority of the population also increases. This gives a big boost to the economy wheel and indirectly supports the demand curve of many commodities including auto, appliances, equipments and also steel. Also, good monsoon means more demand for tractors and other agriculture equipment. Hope this monsoon helps iron & steel industry to regain its lost sentiment !

The iron & steel industry not only in India but globally too is suffering since last few years. The demand stagnation in Eurozone is one of the major contributors to this slowdown. Last year there were some expectations that the EU demand curve will rise but nothing happened. Infact, now with the exit of Great Britain from EU, commonly referred as Brexit, the fluidity and uncertainty in the situation has increased. This move by UK has put a question mark on the fundamental concept of EU. It is said that there is a possibility of few other EU member countries going UK way. This, if happens, will further aggravate the situation and will be very bad for the regional as well as global economy.

Demand stagnation is a global phenomenon and some countries have found a shortcut to counter that. They have devalued their currency so that their products can compete in the world markets. This is not seen as a fair practice. It will not only spoil the markets but will also damage the domestic economy on a long term basis. This has started affecting the global steel markets and will surely suppress the price curve.
When will the situation in steel sector improve? In today’s era of globalization, the impact of an event in one corner of the world is felt even at the other extreme corner. Unless the overcapacity created in iron & steel sector (anywhere in the world) is neutralized either by closing down unviable capacity or by simple demand escalation, one cannot expect a sustainable improvement in the situation !

Editorial May 2016

Today, India has clearly emerged as one of the few economic growth destinations in the world. Globally, most of the regions are either progressing marginally or struggling to survive. The demand seems to be stagnated and the iron & steel industry is paying heavily for the overcapacity which they only have created in the past few years.

Though Indian economy is growing at a decent pace of more than 7% annually, it does have its share of problems. Indian markets too seem to have stagnated for a while. Export basket has reduced in size. Indian manufacturers have to fight with cheap imported goods in their own markets. Small and medium sector is struggling hard for the survival. This situation is prevailing in most of the industry verticals including iron & steel sector.

As many may agree, not passing of land acquisition bill in the Indian parliament has become a big hindrance in the growth of big time manufacturing in India. If there are problems in securing the land itself, how can mega projects progress? In case of iron & steel industry, we all very well know that steel plant spreads over hundreds of acres and unless such big pieces are made available, steel industry cannot go ahead with Greenfield expansion projects. Many experts feel that even if the country’s economy grows at a decent speed, even if the steel consumption grows, Indian steel mills will not be able to grab this opportunity with their limited production capacity and the country will have to heavily depend on imports.

But friends, not everything is bad for Indian steel sector. Defense and Railways are emerging as the big time customers for steel industry. Also, with many countries interested in investing in Indian infrastructure projects, the steel demand curve is likely to get a strong support in coming months. Finally, as per the predictions, this year’s monsoon is going to be good. Taking into consideration all these factors, I feel that iron & steel industry will start feeling better after October 2016. As such fiscal 2016-17 should be better than 2015-16 !

Editorial April 2016

Global oversupply situation in steel industry is the biggest problem today. Yes, China is the largest contributor to this but is not the only one. Almost all regions are facing this issue and many international trade bodies, forums are trying to find the solution to this issue. Let’s look at different regions !

European steel demand has been going down since last few years. It is believed that this year may be slightly better than the last one but still capacity utilization in Eurozone remains quite low. We all are aware of the crisis in Tata Steel plants in UK which are facing a huge job cuts. More or less, a similar situation is prevailing in other parts in Europe. Also, the infrastructure utilization index in this region is quite low. This means that there is not much need to develop new infrastructure.
In the Middle East, due to the warfare in the past, a lot of countries are hungry for infrastructure development but the recent blow came from oil price crash. Many infrastructure projects are now put on hold for lack of finance availability. Of late, the oil prices have shown a marginal upward movement and if it continues and oil prices cross US$ 60 / barrel mark, the situation can improve substantially.

In India the main issue is demand stagnation. All the steel plants are running at an alarming low capacity utilization and many have started to cut the jobs. Yes, MIP has given some cushioning to the prices and subsequently there was some price rise too. But if the demand does not increase, this price rise will not be of any use to the mills. The industry activity has also marginally post MIP but how long it will sustain is a big question! It is believed that this year’s monsoon will be good. In India, monsoon plays a vital role in speeding up the economic wheel. If Indian economy continues to grow by around 7 %, it will give a big support to steel demand curve and the things will start falling in place. Also, the infrastructure utilization index in India is more than 100 % which shows a big requirement and opportunity for infrastructure development.

Making predictions in such a fluid and dynamic global situation is foolish but if I am compelled to, then I will put my money on Indian steel sector by end of this year !

Editorial March 2016

Before 2009, Middle East & North Africa (MENA) was seen as one of the fastest growing regions in terms of steel consumption, thanks to the infrastructure development and construction activity all over. The region was net importer of steel and CIS, Turkey, China were the preferred suppliers. During 2009 meltdown, the regional economy got a jolt and the infrastructure development activity drastically reduced followed by reduction in steel consumption. Many mills and the trading houses could not sustain this sudden price fall and few even had to close down permanently. It is always seen that the falls are sudden and the growth is gradual. The industry started recovering and now 5-6 years later, the region was gradually stabilizing in terms of industrial activity, infrastructure projects and the steel consumption is also rising slowly. Then came the oil price crash and it has reduced the pace of the economy. Suddenly, there is liquidity crunch in the market and many infrastructure as well as steel projects, which were in expansion mode, had to halt their plans. Experts feel that the situation will start changing for better from the second half of the current year and 2017 will be definitely a better year than 2016. As such the region still offers tremendous opportunities on a long term basis.

Middle East region and India have very friendly logistic between them. In fact, UAE is the biggest export destination for Indian goods. Naturally, there is a tremendous opportunity for trade in iron & steel sector. As the Middle East region is a net importer of finished steel, many Indian mills are already having presence there. It also supplies steel plant equipment, instrumentation, technical manpower and inputs like ferro alloys, refractories, etc. Indian technical and managerial manpower is making a fantastic contribution to the economic growth of many Middle East countries. On import front, India buys semi finished steel, scrap, limestone etc. from this region. Further, we all know that in the last few years, India has emerged as one of the few growing economies in the world. Its economy is expected to grow by more than 7 % in the current fiscal and according to the analysts, will continue to grow further in coming years. This growing Indian economy can be a big opportunity to Middle East steel business houses to invest and expand. This is also true in iron & steel sector and many Arab investors would like to participate in growing Indian economy.

‘3rd Indo-Arab Steel Summit’ is being organized to facilitate and enhance this trade activity with focus on areas like semi finished & finished steels, technology & equipments, bilateral investment etc. Hope I benefits both India as well as Middle East region !! !

Editorial February 2016

Over the last few years, China has emerged as a big economic power and the manufacturing hub of the whole world. If one enters any store in any country, the maximum items would be ‘made in China’. Indeed, China has flooded the world markets with its enormous low cost manufacturing capacity. What is true for toys is also true for industrial goods. It produces and sells components, equipments at such a low price that the counterparts in other countries have no option but to close down their manufacturing activity and trade the goods made in China.

The ‘steel story’ is similar. China imports most of its iron ore requirement but still produces steel at a very competitive price. All iron & steel professionals would agree that the last decade belonged to China. It escalated its steel making capacity and also the production touching 700 million tonnes (MT) per annum mark. Thus almost half of the world steel production is done in a single country, China. During this period the country has made huge progress in infrastructure building, bridges, dams, airports, super express ways, bullet trains and what not! But since last two or three years, the things have started changing gradually. The speed of infrastructure building has reduced and consequently its steel appetite has somewhat calmed down. Also there seems to be a thinking at the policy making level to reduce ‘over heating’ of the economy. But what to do with the huge steelmaking capacity created in last decade? Chinese steel exports started increasing and in the year 2015 it crossed 100 MT mark, much more than the production in any single country except the US. This has really posed a big threat to the iron & steel sector in other countries. Cheap imports not only eat away the demand but also dilute the price. Many steel companies across the world have started bleeding trying to match the price and compete with cheap imports.

The Indian story is not different. For the last few years, Indian mills have been struggling for the survival mainly due to demand stagnation and non availability & high price of raw materials. The threat of cheap imports has added to their problems. At the governmental level also, it is not easy to comply with the WTO norms and still protect the domestic industry. Also there will always be a pressure from the steel user industry to allow these imports as it helps them to reduce their manufacturing cost. Inspite of all this government of India has taken a bold decision to introduce Minimum Import Price (MIP) for steel and steel products. This may bit annoy the steel user industry but will surely help the steel companies to keep their bottomline intact !!!