The green shoots in the steel industry seem to be showing in 2010…at least in India. With some of the global steel organisations forecasting growth in Asian economies like China and India, the upside looks strong.
“India also remained relatively resilient to the global crisis and steel use is expected to grow by 12.1% in 2010,” according to a report by the World Steel Association, which represents 180 steel producers in the world, including 19 of the 20 largest.
MEPS, the global steel consultancy, has a bullish prediction for 2010 and has listed India and China as the major drivers of the uptrend.
“Chinese steel production and demand is likely to continue its inexorable rise… Indian steel manufacturing is also expected to reach an all-time high this year, after another peak outturn in the previous twelve months. New record steel production rates are also likely to be set in several other countries, including Turkey and several Middle Eastern countries. Most of the steel boom will come from the developing nations of the world,” the MEPS said.
While the global steel and metals industry was one of the most affected by the economic meltdown, the domestic industry was somewhat resilient because of the growing demand in 2009.
A lot of this was owing to the stimulus provided by the government.
In April 2009 the government introduced measures to protection the steel industry. It removed export duties on a number of products and increased import duties to curb dumping of cheap steel.
Hot-rolled import of coils also came under a licence. Moreover, in January 2010, to curb rising domestic steel prices, unrestricted imports of hot rolled steel were allowed.
The government also increased export duties on iron ore to increase its supply in the domestic market. In a way this helped bringing down the input cost for steel companies.
Crude steel production in India, which recovered from March 2009 onwards, has been consistently growing at over 4.6 million tonnes (YoY) up to November 2009. Steel manufactures were also able to improve their margins over the next few months.
Would such packages be required to hold on to the growth?
Fitch Ratings said a key event for the industry would be when the government starts withdrawing its stimulus packages and how quickly private demand could compensate for this.
“This will be a true test for demand situation. On the other hand, the government will also have to take several steps to stop cheap imports-which can be a concern for the secondary steel manufacturers,” the rating agency said.
Anil Sureka, director (finance), Ispat Industries, said the government shouldn’t tinker with the stimulus package. “The whole feel-good factor will decrease and sales volumes will fall if the stimulus like the excise duty is taken back.”
Sureka noted that countries across the world, including the US, are protecting their domestic steel industry by placing import duties. “The Indian government should also put some restrictive measures so that import of steel is lowered and domestic players sell more”.
The government should also increase the DEPB rate so that the steel sector could also contribute to exports, Sureka said. “Exports are rising every month, but the contribution of steel is becoming very low. Earlier, the steel sector used to be a major exporter… There should be an increase in DEPB so that the steel sector could export again.”
Sureka said a reduction in freight rates by the Railways would also help. “If the government wants prices of steel to remain low, it should make sure that the transportation costs are low,” the Ispat Industries director noted.
Vishal Agarwal, managing director, Visa Steel, wanted the government to increase export tax on iron ore. “India produces almost 200 mt of iron ore and half of it is exported. This needs to be checked. We are expecting that the current export duty of 5% on iron ore be increased to at least 20-25%. On the other hand, the government should look at major investments in railway
infrastructure so that the logistics costs come down for the steel industry,” he said.
“I expect steel prices to go up in the next two to three months, unless something is done on iron ore,” Agarwal said.
M S Arora, managing director, Zenith Birla (India) Ltd, the flagship company of the Yash Birla Group, expected a shortage of steel in the near future as no new major capacity expansions are happening.
“ArcelorMittal and Posco are yet to begin construction and some of the local plants in Jharkhand, etc are facing hurdles. Therefore, the government should do away with the 5% duty so that steel imports are much more viable,” Arora said.
As Daniel Novegil, chairman of the Worldsteel Economics Committee points out, “While the state of the global economy has improved, uncertainties and concerns regarding the resilience of the recovery still remain with the possibility of any premature reduction in government stimulus actions.”
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