The Indian growth will be on a low base since its per capita consumption of steel in 2004 was as low as 30 kilogramme compared to 200 kg in China.
NEW DELHI: Domestic steel industry will be growing at a rate of 7-8% annually, compared to a global growth of 3-4%, in the next few years. The Indian growth will be on a low base since its per capita consumption of steel in 2004 was as low as 30 kilogramme compared to 200 kg in China.
Giving out the outlook, The Boston Consulting Group, in its report on the steel sector, has predicted that top 10 companies of the world will hold a global market share of almost 35% in 2010. This might mean three or four players producing more than 80 million tonnes, and five or six players producing between 40 mt and 60 mt, annually.
More mergers and acquisitions will be stimulated by the current combination of mostly moderate valuations and high earnings. Even large, successful companies whose shares win high valuations are in danger of becoming acquisition targets now that the Arcelor-Mittal merger has created a market leader three times the size of the new company’s nearest competitor, said the report.
The trend towards inter-regional mergers is expected to continue. Steelmakers in developed countries are likely to use facilities in low-cost countries to make structural improvements in their upstream cost positions. There will be greater demand for high-quality steel products from important customers like automotive and appliance manufacturers, which are increasingly moving production to low-cost countries. “Consolidation pressure is more in Europe and America where the economic growth rate is slower. While its is not so in China and India. In fact, China has seen number of companies being set up,” said Sachin Nandgaonkar, director, BCG in a presentation here.
Steel makers should carefully choose to play one of three basic roles for the long run: global player, regional champion or niche specialist. Steel industry executives should have a realistic view of their current market and supply curve position, plan ahead and identify the positions and options of competitors and new entrants.
In case of India, its low per capita steel consumption reflects low investment to date in social infrastructure, fairly immature automotive and home appliances industries, and a relatively small share of the economy, represented by heavy industries and construction (only 25%, compared with Brazil’s 35%, Russia 38% and China’s 53%).”The current growth in economy is changing these variables and will create a strong domestic demand,” says BCG . India will need to improve its process technology and product quality.
An advantage for India is sufficient reserve of iron ore and coking coal. “Its steel producers are strongly cost-competitive, have a shown healthy growth in profits and have high growth ambitions,” says the report.
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