Editorial November 2016

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 !

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?

Editorial July 2016

Global uncertainty in iron & steel sector continues. China has reported highest ever steel production in the month of June and this is surely a cause of worry for rest of the world. For the last 2/3 years, many countries are complaining about Chinese steel products damaging the domestic industry in terms of price and also volumes. Subsequently it was understood that China will gradually reduce the excess steel making capacity as well as the excess production. This would have reduced the stress existing in the global steel trade. China reporting highest ever steel production in the month of June is a big jolt to this understanding and the uncertainty as well as fluidity in the system returns. Though US market is growing marginally, EU is stagnated and still it has to fully digest ‘Brexit’.

Comparatively, MENA region seems in a better position to grow steadily in coming months. The oil prices are tending to stabilize and this should provide the required trigger for the infra projects in the region to restart. Many such mega projects are presently on hold due to liquidity crunch post oil price crash.

The India story is slightly different. After the government has imposed ‘Minimum Import Price’ (MIP), the imports have drastically reduced but there seems to be pressure from steel user industry to withdraw MIP which has denied them the opportunity to purchase steel at low prices. The government will have to take a call on this and probably strike a balance between various stakeholders. For the last few months, Indian steel consumption has been growing which is a very positive sign for the industry. Good monsoon may be a major contributor to this positive sentiment but whether it will sustain post monsoon will be interesting to watch. Many Indian steel business houses have overseas investments in plants as well as mines. Presently most of them are either closed down or running at losses. The growing Indian economy and steel consumption should provide them a good opportunity to employ their resources domestically and make the most in given situation!

Editorial June 2016

Atlast, the rains have started in most of the parts in India and the monsoon is progressing as per the expectations. It’s a great relief not only to farmers but to the whole country as such.

Though agriculture contribution to the economy and GDP is not even 20%, livelihood of nearly 70% population depends on it. Thus if the rains are good then naturally agro production increases and subsequently the purchasing power of majority of the population also increases. This gives a big boost to the economy wheel and indirectly supports the demand curve of many commodities including auto, appliances, equipments and also steel. Also, good monsoon means more demand for tractors and other agriculture equipment. Hope this monsoon helps iron & steel industry to regain its lost sentiment !

The iron & steel industry not only in India but globally too is suffering since last few years. The demand stagnation in Eurozone is one of the major contributors to this slowdown. Last year there were some expectations that the EU demand curve will rise but nothing happened. Infact, now with the exit of Great Britain from EU, commonly referred as Brexit, the fluidity and uncertainty in the situation has increased. This move by UK has put a question mark on the fundamental concept of EU. It is said that there is a possibility of few other EU member countries going UK way. This, if happens, will further aggravate the situation and will be very bad for the regional as well as global economy.

Demand stagnation is a global phenomenon and some countries have found a shortcut to counter that. They have devalued their currency so that their products can compete in the world markets. This is not seen as a fair practice. It will not only spoil the markets but will also damage the domestic economy on a long term basis. This has started affecting the global steel markets and will surely suppress the price curve.
When will the situation in steel sector improve? In today’s era of globalization, the impact of an event in one corner of the world is felt even at the other extreme corner. Unless the overcapacity created in iron & steel sector (anywhere in the world) is neutralized either by closing down unviable capacity or by simple demand escalation, one cannot expect a sustainable improvement in the situation !

Editorial May 2016

Today, India has clearly emerged as one of the few economic growth destinations in the world. Globally, most of the regions are either progressing marginally or struggling to survive. The demand seems to be stagnated and the iron & steel industry is paying heavily for the overcapacity which they only have created in the past few years.

Though Indian economy is growing at a decent pace of more than 7% annually, it does have its share of problems. Indian markets too seem to have stagnated for a while. Export basket has reduced in size. Indian manufacturers have to fight with cheap imported goods in their own markets. Small and medium sector is struggling hard for the survival. This situation is prevailing in most of the industry verticals including iron & steel sector.

As many may agree, not passing of land acquisition bill in the Indian parliament has become a big hindrance in the growth of big time manufacturing in India. If there are problems in securing the land itself, how can mega projects progress? In case of iron & steel industry, we all very well know that steel plant spreads over hundreds of acres and unless such big pieces are made available, steel industry cannot go ahead with Greenfield expansion projects. Many experts feel that even if the country’s economy grows at a decent speed, even if the steel consumption grows, Indian steel mills will not be able to grab this opportunity with their limited production capacity and the country will have to heavily depend on imports.

But friends, not everything is bad for Indian steel sector. Defense and Railways are emerging as the big time customers for steel industry. Also, with many countries interested in investing in Indian infrastructure projects, the steel demand curve is likely to get a strong support in coming months. Finally, as per the predictions, this year’s monsoon is going to be good. Taking into consideration all these factors, I feel that iron & steel industry will start feeling better after October 2016. As such fiscal 2016-17 should be better than 2015-16 !

Editorial April 2016

Global oversupply situation in steel industry is the biggest problem today. Yes, China is the largest contributor to this but is not the only one. Almost all regions are facing this issue and many international trade bodies, forums are trying to find the solution to this issue. Let’s look at different regions !

European steel demand has been going down since last few years. It is believed that this year may be slightly better than the last one but still capacity utilization in Eurozone remains quite low. We all are aware of the crisis in Tata Steel plants in UK which are facing a huge job cuts. More or less, a similar situation is prevailing in other parts in Europe. Also, the infrastructure utilization index in this region is quite low. This means that there is not much need to develop new infrastructure.
In the Middle East, due to the warfare in the past, a lot of countries are hungry for infrastructure development but the recent blow came from oil price crash. Many infrastructure projects are now put on hold for lack of finance availability. Of late, the oil prices have shown a marginal upward movement and if it continues and oil prices cross US$ 60 / barrel mark, the situation can improve substantially.

In India the main issue is demand stagnation. All the steel plants are running at an alarming low capacity utilization and many have started to cut the jobs. Yes, MIP has given some cushioning to the prices and subsequently there was some price rise too. But if the demand does not increase, this price rise will not be of any use to the mills. The industry activity has also marginally post MIP but how long it will sustain is a big question! It is believed that this year’s monsoon will be good. In India, monsoon plays a vital role in speeding up the economic wheel. If Indian economy continues to grow by around 7 %, it will give a big support to steel demand curve and the things will start falling in place. Also, the infrastructure utilization index in India is more than 100 % which shows a big requirement and opportunity for infrastructure development.

Making predictions in such a fluid and dynamic global situation is foolish but if I am compelled to, then I will put my money on Indian steel sector by end of this year !