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.
Global iron & steel industry continues to remain under stress but it seems that the stress is gradually reducing.
For the last few years, most of us believed that the future of western world countries (or developed world countries) is not so bright as compared with countries in Asian region. It was argued that the economic curve for the developed countries has already been platued and there is not much possibility of further economic growth. The regions like EU, US also manifested similar situation with mostly stagnated or falling economies. But now it seems the situation is taking a turn. The US economy seems to be doing better for the last few months and today the industry sentiment is quite positive. Of course, nobody is very sure about what policies the new president Mr.Donald Trump will adopt but it is believed that he will be industry friendly. Similarly, EU is also showing signs of marginal recovery and the industry sentiment is bit positive than the last year. This in my opinion is a big change in that region. Industry analysts expect EU’s economy to improve marginally in 2017 and 2018.
In last few months, many countries have imposed anti dumping duties on cheap imports, especially from China. This has surely helped the domestic industry to consolidate its position. India too imposed MIP (Minimum Import Price) and this has definitely given some cushioning to Indian mills. The H1 results of most of Indian steel mills are better than those in the corresponding period of the last year. It is also understood that China was successful in closing down the excess steel making capacity to the extent of around 50 MT in 2016. This will further help the iron & steel steel industry in many countries to have a stress free journey to a better future.
India’s position remains strong amongst this turbulant time. Its steel production showed the highest growth rate among big steel producing countries. The economy seems to be on track. Yes, there is a temporary set back to the demand side due to demonitisation of currency notes but experts feel that this should get over by the year end and things will be more or less normal.
It seems global iron & steel industry will see better days in coming months !