Editorial March 2017

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 !

Editorial February 2017

Last few years have been really testing ones for the entire iron & steel vertical. In most parts of the world, the finished steel demand seemed to be growing slowly or stagnataed, especially in the western world.

This millennium saw the emergence of Asia as the growth engine of the world for manufacturing and infrastructure industry. It consists of the regions like Indian sub-continent, China, SE Asia and the Middle East. All these regions are extremely promising in terms of manufacturing sector and infrastructure development projects. With China producing and consuming more than half the quantity of finished steel produced in the entire world, naturally the focus of iron & steel industry slowly shifted to Asia. In other parts of Asia, numerous infrastructure projects were successfully implemented which consumed a huge quantity of steel & metals.

Today, world’s growth engine seems to have slowed down. China is trying to close down the outdated capacity, Middle East region’s infra projects getting on hold due to depressed oil prices and liquidity crunch and SE Asia not showing the expected growth rate of the industry. Overall the situation is far from satisfactory. India has its own set of problems. The present government till now could not pass the land acquisition bill which would have facilitated Greenfield expansion programs of iron & steel sector. This situation has in a way restricted the free growth of iron & steel sector in the country. Two years back it was non availability of iron ore which was the main hurdle in the industry’s growth. The Supreme Court had imposed ban on the iron ore mines in the states of Karnataka and Goa which drastically affected the availability of this vital input. Now, even if the availability of iron ore has improved, it is the demand stagnation which has emerged as a new problem. The capacity utilization of Indian mills has improved from last year but still in my opinion the average may not exceed 75 %. Needless to mention that such low average would also affect the bottomline and put severe pressure on finances.

Overall its testing time for iron & steel sector, globally, in Asian region and in India too !

Editorial January 2017

Since last several years, MENA region has caught attention of global business community. The reason was very simple. We all know that infrastructure building is the strongest booster to the economy of any region. MENA region is undergoing this process for the last several years and naturally the companies associated with this sector are attracted to this region. Steel sector is the biggest supplier to infrastructure building and fabrication industry and thus the steel appetite of the region grew substantially. As such this region is big net importer of steel and will remain so atleast for the next few years.

The region got its first setback in 2008/9 when global or rather western world meltdown happened. This was because economies of many countries from this region were thickly linked with developed world economies. The region was still promising and importantly, when most of the regional economies were collapsing, MENA economy was still out of the red. It started climbing gradually after the meltdown effect subsided. Experts argued that falls are always sudden and the climbs are gradual. Everything seemed alright till the oil price crash happened around two years back. This directly hit most of the Middle East countries and had a strong negative impact on liquidity position and eventually on the fate of ongoing infra projects.

Now, since last few weeks the oil prices have started firming up a little and this development has imparted some positivity in the system. Infrastructure industry is hopeful that the liquidity position of regional economies will improve which will give a forward push to halted projects. If this happens, it will give a boost to steel demand of the region. But mind well, these are only expectations and not a reality yet.

Today, the major steel suppliers to Middle East region are China, Turkey, CIS etc. The import basket comprises of construction steel longs, semies, HR coils, pipes for oil & gas industry etc. India too has a sizable steel export to this region but there is a vast potential for growth. In my opinion, next few months are very critical for this region and will set the direction as well as the pace.

Editorial Gulf Supplement 2017

Since last several years, MENA region has caught attention of global business community. The reason was very simple. We all know that infrastructure building is the strongest booster to the economy of any region. MENA region is undergoing this process for the last several years and naturally the companies associated with this sector are attracted to this region. Steel sector is the biggest supplier to infrastructure building and fabrication industry and thus the steel appetite of the region grew substantially. As such this region is big net importer of steel and will remain so atleast for the next few years.

The region got its first setback in 2008/9 when global or rather western world meltdown happened. This was because economies of many countries from this region were thickly linked with developed world economies. The region was still promising and importantly, when most of the regional economies were collapsing, MENA economy was still out of the red. It started climbing gradually after the meltdown effect subsided. Experts argued that falls are always sudden and the climbs are gradual. Everything seemed alright till the oil price crash happened around two years back. This directly hit most of the Middle East countries and had a strong negative impact on liquidity position and eventually on the fate of ongoing infra projects.

Now, since last few weeks the oil prices have started firming up a little and this development has imparted some positivity in the system. Infrastructure industry is hopeful that the liquidity position of regional economies will improve which will give a forward push to halted projects. If this happens, it will give a boost to steel demand of the region. But mind well, these are only expectations and not a reality yet. MENA region is definitely very promising as compared to most of the other regional economies but as said earlier, climbs are always gradual and one should have that much patience and of course sustaining power !

Editorial December 2016

The global iron & steel sector suffers from over capacity created in the last few years. The demand did not rise as per the expectations and the prices started falling. The countries where the economy was investment driven, still pushed the steel production further but in this case too, liquidity crunch forced many projects to halt and this further shrinked the demand.

This was more true in the Middle East region where the reason for liquidity crunch was mainly oil price crash. The oil prices went down to such a level that even the major infrastructure projects in this region were compelled to stop. This region had suffered a setback in 2008 meltdown but was gradually coming back to normal. We all know that falls are always sharp but the recovery is gradual. This process in the Middle East region was again arrested by the oil price crash. Now, after two years or so, the oil prices have again started rising and this is a very big good news for the global iron & steel sector in general and for the Middle Region in particular. There are various strategic and political reasons to oil price fall and why they have started rising but they are outside the purview of iron & steel sector. Experts feel that they will keep moving up till $65 to $70 per barrel and if this comes true, the oil exporting countries in this region will have more liquidity and the infrastructure projects situation can improve drastically.

As mentioned earlier, the oil price rise can also affect the other parts of the world in a positive way and the steel demand curve can improve a bit. As far as India is concerned, its steel exports to Middle East region may increase but now it will have to pay more per barrel of oil. For India, next few months are going to be tough from economic point of view. Many experts believe that the ‘Demonitisation’ move by the government will fetch fruits on a long-term basis but people will have to face crisis on a short-term basis. The next few weeks will be very crucial and it will be interesting to see how the currency situation takes turn !

Editorial October 2016

By the start of 21st century, it was clear that Asia would be the next growth engine of the world. By that time, the western countries had done tremendous progress in developing infrastructure in the form of roads, ports, airports, modern transport systems etc. For various reasons, Asian region was lagging behind on the above counts and this resulted in big infrastructure projects boom in the region. Naturally, this served as a big trigger for steel consumption and this industry was on the fast growth track. China was the leader in infrastructure growth as well as in steel production which accounted for almost half of the world’s total production.

All this was quite smooth and growing till western world meltdown in 2009. The developed countries got a big jolt and even Asian countries which were thickly associated with the developed countries, had to suffer. This was the time when China and India along with countries like Russia, Brazil were seen as the only growing economies and many western world companies started migrating to these countries. By this time, Middle East & North Africa (MENA) region was also seen as a fast growing one and with the huge investing ability, infrastructure projects boom started in this region too.

Gradually, China’s pace slowed down, Russia and Brazil got entrapped into their internal issues and India remained the only country which had the capacity to sustain a relatively decent growth rate. (Presently around 7.5%) Also, oil price crash had a big negative effect on the infra projects in MENA region, especially in Saudi Arabia. The region is facing an acute problem of liquidity and many projects are put on hold. The steel production and consumption growth was also arrested due to this.

We must understand that China and most of the economies in MENA region are investment oriented which means that the government is pumping money for the development projects. On the other hand, India’s economic growth is fueled by the domestic consumption. Many will agree that such economies are more stable, less prone to global tremors and thus more sustainable!

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?