October Editorial 2018

In 2017, Indian economy was shadowed by demonetization in the first half and the implementation of much awaited GST.As mentioned in my last piece, one may debate on the long term utility of these measures but on a short term basis the economy did get a big jolt. Organized part of iron & steel industry did not get much affected by demonetization and infact it gained a little bit from GST implementation. Now in 2018, Indian economy seems to have recovered from these tremors and is cruising forward. The GDP growth rates of the first two quarters of 2018 (7.5 % and 8.2 % respectively) are quite encouraging for the economy as well as for the iron & steel industry. A good GDP growth rate always encourages the industry and in turn helps the steel demand to rise.

If one looks at the user industry sectors of steel, there too a positive sentiment is prevailing. Infrastructure sector which consumes maximum steel, is growing at a steady speed. Many mega projects have now shifted from drawing boards to the sites. They are expected to give a big boost to steel demand in the country. As regards construction, one may develop a feeling that it is stagnated in big metros. Yes, it may be the case but look at tier II and Tier III cities. They are growing at amazing speed and eating lot of steel in the process. Auto industry too is growing at a decent speed and creating a good demand for flat steels (body) and long products (auto parts). Of course experts feel concerned about the auto steel demand on a long term basis when electric vehicles will be popular. In any case, today all seems to be well.

 

Today, one of the major concerns of the industry is rising oil prices. It makes the transport more costly and affects all the products, industrial as well as household. As we all know, for producing a tone of steel three tones of raw materials are required. Thus in totality, four tones are transported. With these facts in mind, one can imagine the impact oil price rise is going to have on iron & steel industry.

If the industry has to progress, technology should provide the push and the direction for this transition. For the last few years, we have been talking about automation, robotics in steel sector. Now the concept of ‘smart manufacturing’ or ‘industry 4.0’ is getting popular. With implementation of this, one can not only monitor but also effectively and efficiently manage his factory by using an app on his mobile phone. I feel now is the time Indian iron & steel industry should look for such technological upgradation so as to improve on quality, productivity and overall efficiency of the plant.

 

If the industry has to progress, technology should provide the push and the direction for this transition. For the last few years, we have been talking about automation, robotics in steel sector. Now the concept of ‘smart manufacturing’ or ‘industry 4.0’ is getting popular. With implementation of this, one can not only monitor but also effectively and efficiently manage his factory by using an app on his mobile phone. I feel now is the time Indian iron & steel industry should look for such technological upgradation so as to improve on quality, productivity and overall efficiency of the plant.

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Editorial September 2018

In 2017, Indian economy was shadowed by demonetization in the first half and the implementation of much awaited GST. As mentioned in my last piece, one may debate on the long term utility of these measures but on a short term basis the economy did get a big jolt. Organized part of iron & steel industry did not get much affected by demonetization and infact it gained a little bit from GST implementation. Now in 2018, Indian economy seems to have recovered from these tremors and is cruising forward. The GDP growth rates of the first two quarters of 2018 (7.5 % and 8.2 % respectively) are quite encouraging for the economy as well as for the iron & steel industry. A good GDP growth rate always encourages the industry and in turn helps the steel demand to rise.

If one looks at the user industry sectors of steel, there too a positive sentiment is prevailing. Infrastructure sector which consumes maximum steel, is growing at a steady speed. Many mega projects have now shifted from drawing boards to the sites. They are expected to give a big boost to steel demand in the country. As regards construction, one may develop a feeling that it is stagnated in big metros. Yes, it may be the case but look at tier II and Tier III cities. They are growing at amazing speed and eating lot of steel in the process. Auto industry too is growing at a decent speed and creating a good demand for flat steels (body) and long products (auto parts). Of course experts feel concerned about the auto steel demand on a long term basis when electric vehicles will be popular. In any case, today all seems to be well.

 

Today, one of the major concerns of the industry is rising oil prices. It makes the transport more costly and affects all the products, industrial as well as household. As we all know, for producing a tone of steel three tones of raw materials are required. Thus in totality, four tones are transported. With these facts in mind, one can imagine the impact oil price rise is going to have on iron & steel industry.

If the industry has to progress, technology should provide the push and the direction for this transition. For the last few years, we have been talking about automation, robotics in steel sector. Now the concept of ‘smart manufacturing’ or ‘industry 4.0’ is getting popular. With implementation of this, one can not only monitor but also effectively and efficiently manage his factory by using an app on his mobile phone. I feel now is the time Indian iron & steel industry should look for such technological upgradation so as to improve on quality, productivity and overall efficiency of the plant.

 

If the industry has to progress, technology should provide the push and the direction for this transition. For the last few years, we have been talking about automation, robotics in steel sector. Now the concept of ‘smart manufacturing’ or ‘industry 4.0’ is getting popular. With implementation of this, one can not only monitor but also effectively and efficiently manage his factory by using an app on his mobile phone. I feel now is the time Indian iron & steel industry should look for such technological upgradation so as to improve on quality, productivity and overall efficiency of the plant.

Editorial August 2018

The iron & steel sector in India seems to be slowly gaining momentum. Finished steel consumption and demand are growing steadily which is reflecting positively on capacity utilization of steel plants. The price curve too is showing a gradual increase which means the conversion margin at every stage is reasonable.

Though steel user sectors such as infra, construction, auto, engineering are putting up impressive performance month after month and are providing support to the demand curve, in my opinion, this is not enough to have a sustainable growth. The real and biggest trigger for steel demand comes from mega infra projects undertaken by the centre or state government and this has not yet picked up as expected. Still the overall capacity utilization of Indian plants is below 80 % and there is a lot of ground to be covered.

Steel Ministry has made a projection of steel making capacity to be enhanced to 300 mtpa by 2031 from the present level of around 130 mtpa. This also means that with around 80 % capacity utilization, the steel production has to reach to 240 mtpa from present level of 102 mtpa. On consumption front, if the Indian economy grows by near double digit rate, then the steel consumption can rise to that level but it is not only consumption estimate which will decide the fate of such ambitious projection. The whole system has to gear up to that level. The raw materials, plant equipments, plant builders, logistics, technical manpower, everything has to increase three times the present level and this is a real huge task and challenge. A lot of technological upgradation is also needed at various stages in iron & steel making and for that purpose, our R & D institutes have to gear up. India has a great history of metallurgical advancements but unfortunately in the present era, we are lagging behind the developed world in this very subject.

On policy front too the industry needs support. Firstly, land acquisition bill. Unless it is in place no Greenfield expansion is possible and as we all know brownfield expansion has land limitations. Industry is struggling to get this bill passed by the parliament but till date the issue is fluid. Further, because high cost of power and finance, Indian steel price can be never competitive in a global marketplace. Now, these are old issues but still not resolved. One has to understand that steel prices do have a big effect on a lot of industry verticals and by making it higher, we are putting the viability of not only steel but many other industries under question. One more issue is logistics support. We all know that to produce a tone of steel, four tones have to be moved. It is government’s responsibility to provide logistic support (roads, rail and sea route) I do agree that the process of building the infrastructure is being carried out with a great speed in last few years but still a lot of ground is yet to be covered. Unless infrastructure is in place, iron & steel industry cannot progress. Something has to be done about it.

Overall, I am quite bullish on the fortune of Indian iron & steel sector and would certainly bait my money on it !

 

Editorial July 2018

Today, India is the fastest growing economy attracting many international companies, financial institutions etc. It is natural that these companies would want to participate in the growing Indian economy. The fiscal 2017-18 was shadowed by currency ban first and then implementation of much awaited GST. One may debate the long-term necessity of these measures but its tremors felt immediately by the economy. Thus last fiscal performance of Indian economy was somewhat depressed. But now the industry and the economy seems to have recovered from the jolt and look, last quarter growth of Indian economy was 7.5 %. Further, it is expected that GDP growth for the next quarter will be better than this. This is surely a very encouraging signal for the economy as well as the industry. It also ensures a positive industry sentiment and an attractive environment for overseas companies and capital.

Here is a catch. A good GDP growth is good but not enough for a healthy growing economy. Let me explain this. GDP only tells you how much the economy has earned but it does not tell you who contributed to this earnings. Thus a handful big companies doing superlative performance may boost the GDP while rest of the economy may still be struggling. I think the Indian growth story is somewhat similar to this. Few mega companies are doing extremely well while most of the other companies, especially from MSME sector are fighting for survival. We all know that MSME sector is the backbone of any economy. It rolls the maximum capital and it generates maximum employment. Unfortunately this very sector is struggling for its existence. Stagnated markets, no access to soft capital, severe competition especially from China. This is the reason why Indian GDP growth is not accompanied by a similar growth in the employment index.

The situation in Indian steel industry is bit different. Here, the big ones are facing big problems (of course with few exceptions) and the small ones are sailing comparatively smoothly. I do not mean they have no problems but then one has to accept the cyclic nature of this industry. The secondary steel producing companies, somewhat smaller than the big ones, have emerged as the most important and relevant segment within the iron & steel sector.  They are contributing highest in terms of tonnage and also the employment generation. These mid cap companies are indeed the backbone of Indian steel industry.

Editorial – June 2018

Last year was quite eventful one for the Indian iron & steel sector, full of ups and downs and filled with enormous uncertainties. Let’s have a look.

Though the availability of vital raw materials has improved over past 2/3 years, depressed oil prices and overall subdued environment on a global level has to have its effect on every country’s economy. In today’s networked world, no country can progress in isolation. India too was affected by the global slowdown which has now been referred to as ‘New Normal’.

Nevertheless, India’s auto sector has been putting up an impressive performance for the last few years and continues its upward path this year too. We all know that only about 12 % of steel produced in India goes for auto industry and majority (about 60 %)is  consumed in infrastructure building. Thus it is evident that the fortune of iron & steel industry in India is firmly tied up with the infra and construction sectors. Building of roads, bridges, ports, airports, metro projects, dams etc. will consume huge amount of steel and thus will give a boost to steel demand in the country. For India, most period in the last year was under the influence of demonetization and implementation of newly framed Goods & Services Tax (GST). Though one can argue on the long term benefits of these steps, they naturally affected the performance of atleast first three quarters of the fiscal 2017-18. The industry somewhat recovered and stabilized by the end of 2017 and thus the Indian economy grew at the rate of 7.5 % during Jan-Mar 2018. Further, during this period the steel industry went through a huge transition as regards financial and ownership restructuring. This uncertainty too played a sizable role in slowing down the pace of the industry.

Now that the Indian steel sector has crossed most of these hurdles in the growth path, one can be little more optimistic for the coming period. Also, the central government’s focus on MSMEs and Steel Ministry’s efforts to upgrade and help secondary steel sector should put the Indian mills in a position to cater to the growing steel demand in the country. As such India is seen as one of the few growing economies in the world and a lot of overseas companies want to enter into this growing market. I feel that India is in the right place at the right time. Only time will tell how much benefit it can extract out of this situation !

 

Editorial May 2018

As we all know, majority of steel produced all over the world is mild steel, I mean it is non alloy steel. It is used extensively in construction activity and infrastructure projects. When the steel / steel components are required to possess special properties, specific alloying elements are added at the time of melting. These special steels are used for intricate applications such as automobile parts, engineering equipment, springs, bearings, fastners etc.

Special steels industry in India has come a long way. conventionally mini steel plants employing electric arc furnace supported by LRF used to produce such steels. Capacities of such mills used to be small and even the demand was limited to mostly automobile sector. This scenario started changing after Indian economy adopted liberalisation and globalisation as its basic philosophy. Many overseas automakers set up their manufacturing / assembly lines in India. The then Indian government made it mandatory for these automakers to gradually shift to Indian auto components. This gave a big boost to Indian auto component industry and naturally demand for special steels increased substantially. Many big steel plants started producing these value added steels to achieve higher turnover and profits. Let me caution you, special steels production requires thorough knowledge of metallurgy and very tight control over the process and parameters.

Today, almost all the major international automakers are present in India. The auto sale in India has been increasing continuously for the last few years and it is expected that this trend will continue for some more years. Further, special steels demand is increasing in the sectors like power plants, engineering, infrastructure etc. For the last few years, Indian government has been trying to reduce its dependence on imports in the defence sector. This is opening up huge opportunities for special steel applications in this so far untapped industry. This is the reason along with the traditional scrap + sponge based mini steel plants, a lot of integrated plants are also entering in the special steels business.

The only threat to special steels sector seems to be from electric cars. It is expected that Indian roads will be crowded with these cars in next decade or so. If this happens, the vehicle will no more require today’s complicated engine and the demand of special steels may reduce drastically. It is also predicted that such cars will take many  years to develop supporting infrastructure for the usage of such cars. Let’s see how the future unfolds !

Editorial – April 2018

Indian economy has witnessed two tremors in the last one or two years. One was demonetization and the other was introduction of GST, Goods & Services Tax. While demonetization was intended to nullify the fake currency and to curb cash economy, GST’s purpose was to bring the whole nation under one tax regime, avoid double taxation and collect the tax at the point of sale. The thought behind these two moves was said to be making Indian economy more straight and more attractive for overseas investment. While one can debate the extent of fulfillment of these objectives, it is really creditable on the part of Indian economy which successfully withstood these tremors. Its growth rate for the fiscal 2017-18 was around 6.5 % and it is predicted by the international agencies that Indian economy will grow by around 7.5 % in the fiscal 2018-19.

 
We all know that the steel consumption is directly related to GDP growth rate and thus the consumption grew decently in 2017-18. Now if Indian economy speeds up in coming months, the consumption curve is also going to shoot. Infrastructure and construction are the two foremost important consumers of steel and they seem to be doing well. Another important customer is auto industry. It is undoubtedly doing well for the past few quarters. All these factors do make us believe that Indian iron & steel industry will be doing better, quarter after quarter. The raider in this thought process  is that the steel consumption is sure to grow, If Indian producers are unable to take advantage of this situation for their own (financial or management related)  reasons, then the country may turn into a long term importer of steel.

 
Here, we should differentiate between the large integrated steel business houses and medium scale steel plants. The financial and ownership restructuring problems are faced by these large business houses while the medium scale plants are in a perfect position to exploit this situation. This is evident from the reactions of steel veterans from Chhattisgarh published in this issue. In the past few years, Chhattisgarh has become the biggest steel producing state in the country and Raipur has emerged as the ‘New Steel Capital’ of India.