World Colleges Information

The Indian steel sector has been passing through tough times. The world’s fourth-largest steel producer has had to contend with high output and growing imports. While production grew at a pace faster than the global average for a significant part of 2014, demand broadly remained sluggish.

The vital sector is looking for a boost from the new government’s stated emphasis on manufacturing and infrastructure. Hoping to benefit from the Make In India programme, steel producers are targeting to expand their collective capacity well past 100 million tonnes per annum (mtpa) this year.

BAD PATCH

The sector continues to lag on a host of parameters. Production cost remains high, particularly for public sector undertakings (PSUs), limiting the industry’s prospects in various export markets. On the other hand, China is enhancing exports to India and other countries, and there is also a suspicion that the neighbouring country may be circumventing various duties. Among other Asian countries, Japan and Korea have started to reap the benefits of free trade agreements with India, leading to a rise in imports from the two countries.

While steel imports have been rising sharply and exports have been falling steeply. The problem has got compounded owing to sluggish trends in the domestic consumption, which has left a lot of unused capacity utilisation. This has forced steel producers to cut prices by 5 to 6 per cent due to higher imports, subdued domestic consumption and non-conducive global pricing trends. Global prices are unlikely to rebound soon, and they may come in way of any potential price hike by Indian steel-makers, thus affecting their margins.

TURN AROUND TIME

*Prices of vital raw materials like iron ore and coking coal on the decline

*Iron ore mines in Karnataka and Goa expected to reopen

*Coking coal mine acquisition by ICVL to shore up raw material stock

*Higher economic growth in coming years renewing steel demand

*Rapid urbanisation and rising demand from automobile sector adding buoyancy

*Government’s stress on manufacturing and infrastructure a big positive

BRIGHT PROSPECTS

The country’s per capita consumption is around one-fourth of the international average, and this keeps hope a float for an eventual recovery. There is good news on the raw material front as well. The steel industry is set to benefit from the fall in iron ore prices to a five-year low level. It will also gain from the declining coking coal prices. Analysts opine that prices of the raw material are unlikely to rise in the near term.The closed iron ore mines in Karnataka and Goa are expected to start soon, making the situation better for domestic steel-makers, many of whom had to resort to imports. A coking coal mine acquisition by International Coal Ventures (ICV L) - a joint venture of leading State-owned companies - in Mozambique would also help PSUs to shore up their raw material stock. The new year could turn positive for steel-makers if they can resist the surge in imports.

With raw material prices set to remain lower and demand likely to rise, the prospects for the steel industry look rosy, note analysts. As the economy is likely to grow at a higher rate in coming years, demand for steel will rise exponentially.A recent Frost & Sullivan report estimates the country’s steel production to touch 140 mt by the end of 2016 from about 100 mt in 2014.

Similarly, the report pegs consumption of the alloy to grow to 104 mt by 2017 from about 75 mt last year.

With infrastructure development and automotive industry driving steel demand, steel-makers could see bright years ahead, starting with 2015.

BUDDING MANAGERS

FEBRUARY 2015 ISSUE