Till the last month, both price and demand curves were heading north and the iron and steel industry was very happily sailing ahead. Suddenly winds changed their direction. Black clouds started gathering and the whole industry sentiment changed. What really happened ? Why this unexpected dive ? Lets analyse.
It is a well-known theory that a rising price curve will not interfere in the demand curve up to a certain level but after that demand curve is not able to carry the price weight on its shoulders and still climb up. It starts falling. I do agree that the rising raw material prices have pushed the finished steel prices up but now I think it has crossed the limit and reached the threshold. The demand can no more carry its burden.
I can also see another reason. To improve the yearly performance and to achieve the targets, steel mills have done a record dispatch in the month of March. Thus there is a lot of material in the market which has naturally reduced the appetite. This is a yearly phenomenon and every year the month of April is usually dull.
The third reason being the Ukraine-Russia war which has disrupted logistic chain at many places. This has influenced the movement of raw materials as well as the finished steel in many sea routes. Today the availability of ships and containers is also an issue. This has increased the freight charges which again has a depressing effect on the demand.
The last reason is of course China. As we all know, China is the single country producing and consuming around half of the world’s steel. Any shift in Chinese market is sure to have a multiplying effect on the world. Today, there is a re-occurrence of Covid pandemic in China. Many cities are under lockdown and this has also affected steel production and the consumption in China, in tern affecting the global steel industry dynamics.
What lies next ? I think the inventory in the market will get cleared in a month or two and its negative effect on the demand will get neutralized. What is more worrisome is the raw material prices and logistics. Firstly, the war between Ukraine and Russia is showing no signs of stoppage. Even if the war is being fought between two countries, many countries, lobbies are helping these war bound countries and indirectly fueling the crisis and prolonging the war. There is a possibility that few other countries may jump into the war. If this happens, the war may continue for a longer time. Lastly, even if the war stops tomorrow, it is foolish to expect the raw material price correction to happen instantly. It will take at least 4 to 5 months to secure and restore the production facilities. Logistic disruptions too need to be worked on and this is going to eat some more time.
Finally I feel it will take around six months for the industry to normalize after the war is stopped. Friends, be prepared for an extended challenging period.
In the last two decades or so, due to faster, seamless and smooth communication, the world has surely come closer. Thanks to internet and its various tools, we can know about almost everything about almost anywhere on this planet and even beyond. Great feeling ! Obviously this has translated in the business environment too and today international trade is not as difficult as it was in the last century. Of course, there are other challenges like quality, price etc. thus keeping the trade extremely competitive. The supply chain of most of the mega corporate is spread over not countries but various continents. Even the markets are truely global. This strategy surely helps in building world class products and also due to spread out markets, required sustainability is achieved. Stretching this logic further, the effect of one country’s or region’s economy, positive or negative, is bound to be felt in other nearby countries and regions. So to say, today no country can progress or go through a depression in isolation. Rest of the world would surely feel the tremors. Today, we are witnessing a war between Russia and Ukraine. It is going on for more than three weeks and there is a likelihood that it will not only extend but also spread elsewhere. As such the global situation remains quite delicate and the world leaders are busy trying to figure out a solution of this crisis. As we all know, Russia and Ukraine both export finished steel as well as semis in huge quantity. All this has nearly stopped due to this ongoing war. Even the prices of almost all the raw materials of steel have shoot up since the outbreak of the war. How can the finished steel prices remain stable ? They are bound to surge. Also the hike in petrol / diesel prices will surely have a cascading effect on the industry and finally on the consumer. Thus along with the global economy, the fortune of steel industry too is tied up with such events and the whole world suffers from any irresponsible act by anybody in any corner of the world. This is the unfortunate part of globalization, the other side of the coin. Fortunately India is not too much dependent on other countries for the steel raw materials except for coking coal, nickel and few types of refractories. Also, most of the domestically produced steel is consumed in the country itself. Thus in my opinion, India would feel the heat of the war but in a milder way. Let us hope this war crisis ends soon and the world economy resumes its normal peaceful functioning !
As mentioned in my last piece, the steel demand lies outside the steel industry and hence if the government spends and pushes the steel user sectors such as infra, construction, auto etc., it will automatically boost the steel demand in the country. There may be very little direct benefit to iron & steel industry in the recently announced union finance budget for the fiscal 2022-23, but the fact that it has a bigger outlay for infrastructure than the last year, emphasis on domestic purchases of defence equipment will surely benefit our industry. Further, thrust on MSME sector coupled with PM Awas Yojana, Gati Shakti Yojana would certainly go a long way in creating employment and thus helping the economy wheel move. All this will enhance the purchasing power of the population and will also indirectly support the steel demand curve. Friends, we must also understand that only creating demand is not enough to drive such a complicated and multi dimentional industry forward. Iron & steel industry has a very long (perhaps the longest) process chain. One has to study the loose links, disruptions at every stage, find a workable, feasible solution and fix them. This will ensure a seamless growth of this elephant like industry of ours. First of all, there are not enough consulting and designing companies which can erect and commission a steel plant. There is a big vacuum in this area. Also, for the last so many years, our industry has been crying for the shortage of technical manpower. Not enough number of metallurgists are produced in the country to support this growing industry. Right from the engineering colleges, the emphasis is to the streams like Computer Science, IT, etc. and most of the engineering colleges don’t have metallurgy stream. Fact is even today, many of the metallurgical plants are run by unqualified workforce. (God bless them). One more important area is technology. I do agree that the big plants are quite updated in this regard but most of the melt shops, rolling mills and processing units are still using primitive technology. In developed countries, iron & steel industry has the mindset of adopting latest technologies. Industry 4.0 or digitalization, which is struggling to enter our industry, is already in use elsewhere. Last but not the least, the spending on research in our country is negligible. Most of the steel plants don’t even have a research department. How can our industry progress without all these tools ? is only demand enough for the progress of the industry ? How can we compete in the global marketplace employing unqualified workforce and outdated technology ? Any government can help the industry in only a limited way. The real push has to come from within the industry, isn’t it ?
The union finance budget is just round the corner and newspapers have already started publishing the expert views and also the expectations from different industries and groups. What does steel industry want from the government ? What are its expectations from this budget ?
As we all know, the steel demand lies outside the steel industry and we have to depend on other customer industry sectors such as infra, construction, auto, engineering, consumer durables etc. for the steel consumption. Out of this infrastructure itself consumes more than 70 % of steel in the country and obviously it is the biggest factor influencing steel demand in the country. Thus anything which facilitates and promotes infrastructure activities and projects should be helpful to steel industry as well. To be more specific, mega infra projects floated by the central and the state governments would consume lot of steel and thus need to be pushed hard. This includes roads (including the corridor projects) dams, air and sea ports, rails / metros and other such projects with huge steel consumption potential. One of the major hurdles in these is land acquisition. Unless we have a simple, fair and easy to execute law in place, these infra projects will keep on getting delayed attracting the time and cost escalations. This will naturally lower the steel demand growth rate. If we can overcome this hurdle, it will be a boon to not only steel industry but to the national economy as well.
The steel demand is a function of the overall state of the economy of the country. The last two years were badly affected by the covid pandemic and naturally the economies of most of the regions and the countries suffered a lot. Do we all remember that even before the pandemic erupted Feb 2020, Indian economy was not in the good shape and struggling to maintain a decent growth rate, which was falling by every passing quarter ? In fact, in my opinion, pandemic has given us an opportunity to relook and restructure our economy to some extent. With good growth rate predictions by expert agencies, the world has a better perception of Indian economy, which should result in more FDI in coming years. May be some small changes in export incentives and import duties would be welcome but I must confess that such measures would make a limited impact on the fortune of iron & steel industry in the country.
I remember Dr J J Irani (then MD of Tata Steel) once said,’Steel industry does not want anything from the government as long as it keeps funding big infra projects.’ How true, isn’t it ?
It is said that if one wants to predict the future, he will have to first study the past. How was the past one year for the economy and specifically for the steel sector ? Can we draw some conclusions and make some guesstimates about the present fiscal by analysing past year’s performance by iron & steel sector ? Let’s see !
In July 2020, the covid pandemic was creating havoc all over the world and also in India. The steel industry, which was almost shut during the previous quarter, was slowly trying to wake up. As such the steel demand in construction sector was never fully bottomed and it was the first sector which gave an upward push to our industry post covid. Also a good monsoon triggered tractor demand which gave an initial boost to almost shut auto industry. In next few months this industry really bounced back to almost pre covid sales levels. Of course pre covid period was one of the worst phases for Indian auto sector. The iron & steel sector, which was operating at around 50 % capacity utilisation in the month of June 2020, achieved almost 75 % capacity utilisation by October. This was mainly because a fundamentally strong demand in construction sector, bouncing back of auto sector and the surge in exports for the first few months. It should also be noted that the eastern states, which account for higher steel production, never faced labour migration problem. Infact this migration was from western to eastern region and to some extent, the steel industry actually gained from it. Thus by end of the last year, most of the logistics disruptions were corrected and the steel industry was almost back to pre coved levels.
Though the demand was more or less restored, the balance sheets of the steel mills were damaged and would require a long period to wipe out the losses incurred during the peak covid period. Also the SMEs, which form the backbone of any economy, suffered great losses which were difficult to absorb. Indian government did announce a huge 20 Lac crore package and it did help SMEs to some extent, but still few had to pull down the shutter permanently. Nevertheless, pandemic, though a disastrous entity, taught us a lesson or two. It hastened the digitalization process in the industry. Also, ‘Work From Home’ (WFH) evolved as a good alternative to office culture to such an extent that huge centralised offices may become obsolete even after the pandemic is completely over.
What lies next ? I think the steel industry in India stands on a very strong foundation of demand from domestic infrastructure, construction and auto sector (in that order) and will surely remain bullish for a foreseeable future. The Indian economy is expected to grow at a robust rate of 7 to 8 % annually and will certainly provide the required support and the push for iron & steel sector in the country.
As an important input for infrastructure building, steel has always been very vital industry for the growth of the national economy. No industry can exist without the usage of steel and thus it is the main driver for not only the industry but also for the present structure of the society. The professionals like me who have spent multiple decades in this industry will always take pride in this association with the core industry like steel. A lot of sectors like infra, auto, construction, engineering and so many others use steel as a major input and their fortune is in a way linked with that of steel. Thus it is always a good feeling to be associated with such an important industry vertical of the economy.
The reason to narrate all this is that today our industry has added one more feather in its cap. As we all know, in many cases the covid patient suffers from breathlessness and requires additional supply of oxygen. Out of the total oxygen production in the country, around 80 % of the oxygen is produced by the steel plants for their regular use in iron and steel making. Today these steel plants are diverting this oxygen to the medical emergency to save the lives of our countrymen. It is the manifestation of their love for the country and for the people and our industry has made all of us, the whole steel fraternity, feel proud about it. Today, the oxygen is being carried to different locations and the states with the help of special trains organised by the railways. Thousands of patients across the country are being treated with this oxygen and are thanking our industry. It is a really great feeling !
We all also remember that in the first wave of this deadly pandemic, there was an acute shortage of ventilators and related equipment. Many companies from auto sector like Tata Motors, Mahindra & Mahindra rose to the occasion, quickly developed cost effective and multi user model of ventilators indigenously and supplied in huge numbers for this medical emergency. Mind well, they had to forego their regular vehicle production during this period. What a great patriotic gesture ! Like this a lot of help was extended by other industries as well. At individual level too, we see countless examples of such humanely behaviour. The corona pandemic is no doubt disastrous and may have posed a big threat to human existence but at the same time, has taught us a few lessons of humanity as well.
Our country may be fragmented with many religions, castes, languages, cultures etc. but such incidences assure us that from within we are one and especially at the time of crisis, we will forget all our differences and fight the situation in a united manner. Jai Hind !
Rising demand and strong prices ! What else should the Indian iron & steel sector ask for ? Indeed last few months presented more than one surprises for Indian steel industry. The demand started rising somewhere during July-August, the prices started firming around the same period and now in the month of March 2021, the sentiment in the industry seems completely positive. So much so that the government had to lower the import duty on finished steel and also on the scrap and ore in order to put some pressure on prices. These proposals in the recently tabled union budget rightly aimed at giving some relief to the steel using sector such as automobile, infra and construction.
Yes, we have reached the pre-covid production levels and that is really remarkable but is not the peak performance. If one recalls, the Indian economy was not doing well since 2017. The GDP growth rate started falling gradually. Many parameters along with the auto sales figures went southwards and the experts were busy debating whether this can be technically termed as ‘recession’. It was also argued that in today’s connected world, no country can progress in isolation. India also can not progress when most of the countries in the world (of course except China) are undergoing recessionary trends. Quite valid logic ! So my dear friends, hold your crackers and postpone your celebrations. Let us first understand that we have only climbed till the half way mark. A similar situation in Jan 2020 was termed as ‘recession’, so what is the big deal ?
Friends, the most noteworthy fact about today’s situation is that unlike in Jan 2020, its direction is northwards. We have bettered our situation and position in the last two quarters or so. Stabilized the production, strengthened the demand, rebuilt the logistic channels and imparted the required confidence to the user industry. Let me tell you this is a huge contribution not only to the growth of steel industry but also to the national economy which was struggling to come back on the track at that point of time.
So what next ? I feel still a long way to go. If India has to become a 5 trillion economy and if its annual steel making capacity has to reach to 300 mt by 2030-31, our economy has to grow by around 7.5 to 8 % annually. The ‘Indian growth story’ can emerge only out of ‘Indian steel growth story’. Lets keep going, as said in some old poem ‘Miles to go before I sleep’ !
The steel demand in the country seems to be increasing steadily thanks to the user sectors like infra, construction and auto. The first sign of recovery was visible in September when auto sales showed sizable improvement. Many thought it was accumulated demand as there was almost nil sale during the first few months of lockdown. When the positive trend continued in subsequent months, still it was stamped as festive spike. Now that this upward trend is still continuing, experts are believing it to be a sustainable growth. Lets hope this continues and 2021 be a better year for iron & steel sector in the country.
As mentioned in my last month’s column, after the pandemic, there is a greater need for the industry to be competitive in the global marketplace and for that it must adopt smart manufacturing processes and techniques. Many companies in the manufacturing sector have started looking at Industry 4.0 solutions for increasing the productivity, efficiency and competitiveness of the enterprise. The deadly pandemic has also taught us to care more for the mother earth and thus the iron & steel sector needs to develop environment friendly production and processing technologies creating minimum waste and controlling emission of harmful gases. One such process being developed uses hydrogen as reducing agent instead of coking coal. It is supposed to reduce the carbon footprint during steel production. The problem in developing such green processes is that they are costlier than the prevailing process. It is a big challenge to make them commercially viable so that the industry adopts them for regular use.
The covid period has not only changed the working and thinking of corporations but it has also changed the mindset and the priorities of the society. My gut feeling is that this will have a gradual but definite effect on steel demand profile. Let us remain alert and keep watching how the situation unfolds in coming months !
I am quite happy about the way Indian iron & steel industry is recovering from the global pandemic of covid-19. As we all know, ‘steel’ is one of the core sector of the economy and is important input to many important industry sectors like infra, construction, white goods, auto, engineering, etc. Thus the performance of steel sector affects so many industry verticals and finally has a big impact on overall economy of the country.
In the first few months of unlocking, the steel production was superseding the demand. This was natural as the steel producers were running the plants where as the construction activity was almost closed, infra projects were completely halted and hardly any vehicle was being sold. In fact many automakers were themselves involved in the noble work of manufacturing safety equipments for the people. The exports surged during this period. But now gradually the steel demand is moving up and the industry balance is getting restored.
Now that the industry is back on recovery track and cruising ahead decently, there are few other challenges peeping in. Firstly, even if the demand is recovering fast, the supply chain which was disrupted at many places has not been healed properly. Many points including the logistics has to be improved further. Secondly, this pandemic has created lot of stress and pressure within global economy and has tremendously increased the competition. This necessitates the need to produce better quality at competitive prices. Thus the producer has to adopt smart manufacturing techniques, or Industry 4.0 as is commonly referred to in India, to enhance efficiency, productivity and thus improve the bottomline of the company. Mind you, Industry 4.0 is not a just a fashionable word but the smart way of inducting the sustainability in the organisation. Sooner or later, everybody has to adopt it.
Another important outcome of covid-19 is the total change in the mindset of individuals as well as the corporations. Now, going to office everyday looks unnecessary. Instead, working from home throughout the week and going to office may be once a week looks normal. Also, planning a business tour for fewer meetings may not look professional. Video meeting or conversation completely serves the purpose. Although, most of the restrictions imposed during the lockdown are now lifted, the local trains in Mumbai and public transport systems in many metros are not fully on track. This has forced many corporations to outsource many of the professional functions which is going on smoothly. This situation has drastically reduced the need to have big number of permanent employees and also of a big office premises.
Indeed, the post covid world is different, interesting and off course challenging. One has to face it with a smiling face !
The world is slowly coming out of Covid fear. Finally the livelihood proved more important than life and thus professional activities have been re-started and are gearing up all over the world. Mind well, the corona pandemic has not subsided nor we have found the vaccacine but still the industry has gradually started operating. Infact in many places, there has been surge in cases but fortunately the death rate has come down and recovery rate has improved substantially.
Iron & steel industry too has been improving on it’s production figures and by now it has achieved almost 75 % of pre-covid production level. Of course I am talking about the main, integrated and big steel mills. They are comparatively better placed to handle the situation. Many big plants are far away from the main cities and have their own staff and worker’s colony. Thus depending on the market demand, they can enhance their production level in a short time. Of course, there are instances where the pandemic has spread in these colonies too. Smaller rolling mills and processing units will obviously take a longer time to stabilise their production, processing and selling. For these smaller units, the problems are numerous. They have to first look for re-employing the migrated labour. If they have not come back, then getting their replacement is a big issue as it is very difficult to get matching skill set instantly. Secondly, they have to digest the losses of last six months and then raise the new capital. Which bank or financial institution will finance a loss making unit ? Further, the supply chain has been disrupted in many places and restoring it is not an easy task. Also regaining the customer support is very important and will be decided by your past interaction and relations with them. All in all, it is going to be quite an uphill task for smaller units in iron & steel sector. Let’s see how they take on this challenge !
This unforeseen, unprecedented situation has taught all of us a lot of new things. It has really changed the way we think. Naturally, our industry too has lot of takeaways from this situation. Many old business models are collapsing where as a lot of new models are emerging. One has to access the viability of his business model in the light of this new environment. May be there is a need to change, alter or even scrap the old model (as well as the thinking) and come out with an altogether new concept. Innovation was always welcome but in this extraordinary situation it has become the ‘Mantra’ for survival. Face the new world with courage and a smile on the face. Innovate, innovate and ……… innovate ! I promise you will be the winner !