The Indian iron & steel sector seems to be in somewhat better shape now. Last few years were particularly challenging for everybody as demand seemed stagnated coupled with raw material crisis. Now, if you look at the quarterly reports of major steel companies, they have started increasing the production. Further, though most of them owe huge money to financial institutions, their position is comparatively better than the last year. Today atleast they can expect a gradual rise in the demand in coming months. The raw material crisis is also mostly resolved and the availability of iron ore, coal has improved substantially. Many experts prefer to describe such a situation ‘new normal’ instead of ‘recession’. No, its not only word play. What it means is that now one has to get used to such industry environment where making profits may not be as easy as it was before. One has to be really innovative and articulate to do so. This situation is not a temporary passing phase but a long term reality.
The world around us is changing very fast. Our industry too is feeling the heat and will be undergoing a tremendous transformation in coming years. This transformation is multi dimensional. The technologies like 3D printing are going to re – define the auto industry while technologies like robotics, cloud computing, virtual reality, augmented reality are going to completely change the way businesses are being done. I am very sure that many giants of today will face a tough time tomorrow and few of them will even perform a vanishing trick. New business models will emerge. We know today that the biggest taxi company in the world does not own a single vehicle. It was mobile companies which saw the downfall of music and camera companies. In today’s times, one should expect the most unexpected to happen.
Most of the Indian steel majors are under tremendous finance pressure and few of them are looking for buyers, invertors etc. Many companies want to expand the capacity and tap the additional demand expected to be generated but lack the support of financial institutions. Already, there is a talk of mergers and acquisitions. Looking at all this, I definitely see a big change just round the corner!
For the last few years, global Iron & Steel sector is passing through a rough period and the same is true for Indian steel sector.
On a global level, demand stagnation is the major concern. The developed countries and regions have already reached a plateau as far as infrastructure development is concerned. Thus their steel appetite is naturally low. In other parts of the world like Asian region, availability of raw materials and availability of finance coupled with demand stagnation is the issue.
In Indian context, for the last few years demand stagnation along with raw material crisis restricted the growth of Iron & Steel sector. It affected vital parameters like demand growth, bottomline, capacity utilization etc. All this resulted in value erosion and placing many companies in the red.
Now the situation has started tilting towards positivity and there seems a slight increase in the demand, a huge increase in industry sentiment due to good monsoon in most of the parts and some forward planning too. Nobody doubted India’s growth potential on a long term basis but till now the ground reality was not supporting this thoughtline. Now with slight increase in demand and somewhat better performance of steel mills, there is a huge optimism in the industry.
Unfortunately financial institutions have a different take on this. As per them, they have invested very big capital in the Iron & Steel sector out of which sizeable part has become or on the verge of becoming NPA. Further, steel Industry is subjected to cyclic ups and downs which are very difficult to absorb. Lastly, even in best of the times, the margins of the industry are not so attractive when compared to other verticals like IT, Biotech etc. Thus it is very difficult to support this industry beyond a certain point.
In such a situation when the industry is looking up, and needs capital for further capacity expansion, we have to find some solution bringing all the stakeholders together. National Steel Policy has set a very ambitious target of enhancing the steel making capacity to 300 MTPA by 2030 from the present one at around 130 MTPA. It’s a huge task and requires support from every corner, the most important being from financial institutions!
Iron & steel industry continues to have challenging times in most parts on a global level. Eurozone continues to be stagnated, Middle East region showed a little forward movement when oil prices started moving up but now with oil prices being steady at a lower level than expected, the industry and the economy in ME region seems to be halted. South East Asian countries are again witnessing a tough time. Their economies have great influence of their Chinese counterpart and now they are exposed to a dynamically changing policy situation. As we all know, now for last so many years, the key player in iron & steel sector is China. The global steel industry, material availability, pricing and other parameters are being greatly influenced (if not decided) by Chinese industry. Of late, the Chinese industry is in the process of shutting the technologically outdated plants and in the process, reduce the steel making capacity to a manageable level. Today, even their export volume is more than number two steel produces in the world. I feel if the Chinese steel capacity reduces substantially, their exports will automatically reduce. This will take away a big chunk from international trade and obviously will help to subside the pressure on regional iron & steel industries.
Indian iron & steel sector has also gone through a very challenging time for the last few years. They have seen shortage of vital inputs like iron ore, coal etc, closure of mining activity by the supreme court orders, continues demand stagnation etc. But now the situation is changing, though slowly but definitely. The demand seems to have started climbing up. This may be due to forward movement of mega infra projects in the country. Also, better road condition is facilitating auto industry growth which in turn helps the steel demand to grow. Fortunately this year monsoon is quite satisfactory in most of the regions in the country. This will have a direct, positive and immediate impact on agro equipments stector, tractor sale etc. Further, good crops will increase the purchasing power of the common man whereby helping the economic wheel to move faster. This will obviously help the steel sector to grow.
Last few years were really challenging for the global as well as Indian steel industry. The demand seemed to have stagnated in many countries / regions because of slow economic growth or even negative growth in few cases. But now I feel the situation is somewhat stabilized and the steel demand curve is slowly climbing up. Still many countries have to cover a lot of lost ground and come to normalcy.
Indian story is quite different. Its economy was seen as one of very few growing economies in the world. For the last many years, agenda of developing infrastructure has occupied the centre place and this naturally boosted the steel demand. Also, many steel business houses embarked upon huge capacity expansion program anticipating a massive growth in steel demand. Unfortunately many mega infrastructure projects were trapped for the want of land acquisition, few for the required funding etc. The steel demand could not reach to the expected point and the capacity utilization started going down. The crisis of availability of vital raw materials like iron ore and coal also added to this phenomenon.
This situation slowly changed over last two years or so. The raw material availability improved substantially. Many of the mega infra projects started moving ahead. This naturally improved the capacity utilization and has induced a new positive sentiment in the industry. The new ‘National Steel Policy’ announced by the government after numerous debates and deliberations chalks out a clear but ambitious path for the Indian iron & steel sector. India has just entered a new GST regime. This new tax regime is expected to give some relief to the iron & steel sector and I expect steel prices to soften a bit. This can trigger the demand on one hand and also help the economy wheel move faster. Let us hope that the positive sentiment in the industry continues and it heads for a bright future.
I am very thankful to Dr.Aruna Sharma, IAS, Secretary, Ministry of Steel, Government of India, for accepting our request to be the ‘Guest Editor’ of this special annual issue. I am sure her insight about the industry and her vast experience will guide the industry through the present turbulent period. I whole heartedly welcome her to the editorial team of this issue.
Iron & Steel industry is the backbone of any economy and their co-relation is quite direct and linear. This means that the fortune of steel sector depends on the general condition of the economy and is also a measure of health of any economy.
When we say that western world economy has slowed down, naturally its steel appetite has reduced resulting in lower steel consumption as well as production. In Asian region, the infrastructure building is the main agenda which requires huge quantities of steel and also other metals. This serves as a very big trigger for the regional economy.
If we look at the famous economic curve, India is at the starting point of the steep section of the curve whereas China is towards the end of this section. This means that countries like China have surpassed their best growth period and very soon their growth will be plateaued. On the other hand countries like India are about to enter or just entered the fast growth period of the economy. The next one or two decades are expected to witness a fast economic growth in India and as mentioned earlier, it has a direct co-relation with the iron & steel sector.
We all know that last 2/3 years were quite challenging for Indian steel mills. Rise in input costs, stagnated demand, shrinking exports and cheap imports had really destroyed the bottomline of many steel companies. Now the raw material situation has gradually improved, mega infra projects have started moving ahead and the steel demand seems to have started increasing. Export situation has improved a bit and most importantly the Indian government has given some protection to domestic mills in the form of ‘Minimum Import Price’ (MIP). All this has helped the industry to stabilize and expect an upward transition in next few months. The quarterly results of big steel mills announced recently manifest a similar sentiment.
Of course, this no way means that Indian steel industry is free from problems. If they have to meet a target of 300 mtpa by 2031, they have to look into and improve almost all areas including raw materials availability, land acquisition issue, demand escalation and even the availability of technical manpower.
Today, India is not even producing 100 mtpa and I know many steel mills are operating without a qualified metallurgist !
The steel consumption in the Middle East region is growing, though slowly, and there is a bit of positive sentiment in the regional economy. This may be because of partial reversal of oil price crash and re starting of few mega infra projects in the region. Further, it was generally felt that the region is a soft destination for dumping of steel as no government has imposed any anti dumping duties on any of the importing countries or mills. Arab Iron & Steel Union, in order to protect the regional industry, has been advocating for such measures for a long time but as per the governments of many countries, this is against the principle of free trade adopted by the region long time ago. Today the Middle East region is a net importer of steel and off late, India has been able to export substantial amount of flats and GI to this region, may be due to cooling down of China and improved price viability. It was also discussed that if India’s steel making capacity does not rise substantially in coming few years due to land acquisition and environmental issues and if the Indian economy continues to grow at a decent speed, there is going to be scarcity of steel in the country. This situation may arise post 2020 and may provide opportunity to the Middle East steel mills to export to India. These were the few points discussed at ‘4th Indo Arab Steel Summit’ held recently at Dubai.
Another high profile event was ‘India Steel 2017’ held jointly by Ministry of Steel and FICCI at Mumbai where one could sense a lot of optimism around. Industry leaders like T.K.Singh, P. Madhusudhan, T. V. Narendran, Naveen Jindal displayed a lot of confidence regarding the steel demand, Greenfield and brownfield expansions and India’s economy in general. Hon’ble Minister of Steel Choudhary Birender Singh and Steel Secretary Dr. Aruna Sharma too assured the industry to work hard for the removal of bottlenecks being faced by the industry.
Admist all this positivities, I have to make one point. Ministry of Steel has set a target of reaching 300 MTPA capacity by 2030. First of all, is the word ‘target’ correct? We have to remember that steel is not the final product in the process chain but is input to other industries like construction, auto, white goods, engineering etc. The steel requirement of the country depends on the growth of these user industries and it should be estimated accordingly.
Setting high targets without proper analysis of user industry growth prospects would result in creating unviable overcapacity, isn’t it ?
Middle-East is 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 is net importer of steel and CIS, Turkey, China, India are the preferred suppliers. During 2009 meltdown, the regional economy did get a jolt and the developmental activity drastically reduced followed by reduction in steel consumption. The region gradually stabilized in terms of industrial activity, infrastructure projects and the steel consumption also rise slowly. The Middle East and the North African region, commonly known as MENA, is considered to be one of the fastest growing regions as regards industrial and economic activity. The oil price crash had reduced the pace of the economy but now with gradual increase in oil prices, the industry sentiment is also turning positive. As such the region offers tremendous opportunities on a long term basis.
Middle East region has been a traditional and one of the most important trade partners for India and it is true for iron & steel industry as well. The common items exported from India include ferro alloys, billets, HR & CR coils, steel pipes, steel plant equipment and even skilled technical and managerial manpower. India imports iron pellets, TMT rebars, scrap etc. Many Indian executives are working in various steel producing and processing plants in the Gulf and helping the regional economy progress. Also, a lot of entrepreneurs from this region are exploring the possibility of investing and participating in the growing Indian economy.
Indian iron & steel industry is also going through a lean period. The demand is not going up as expected and the capacity utilization of Indian mills is not very impressive. Thus the deficit in the Middle East steel production and the low capacity utilization of Indian mills can very well compliment each other. Of course, other suppliers are already present in that market and there will be very stiff competition.
Mind well, exports are not to be seen as a short term opportunity. It cannot and should not be a filler till the time domestic demand and price improve. It has to be a sustained and a long term policy. Then only one can really boast to be a global supplier !