1. Indigenous capacity building opens new phase in global steel industry

Indigenous capacity building opens new phase in global steel industry

The economic restructuring exercise currently under way in China, India, South Korea, Turkey calls for a higher role for steel industry.

By: | Published: March 28, 2017 5:20 AM

Amidst all concern on excess steel capacity in the backdrop of slow growth in the major consuming segments, lack of investment in infrastructure and real estate as well as in medium and heavy engineering sector including shipbuilding other than automobile, the rise in global crude steel production by around 6% in the first two months of the current year has come as a much needed breather to steel industry. The rate of capacity utilisation that went down to 67.6% in December’16 has moved up to 70.3% in the next two months. It is interesting to note that barring a few countries in EU (France, Spain), South America (Argentina, Uruguay) and CIS (Uzbekistan), all other countries notched up positive growth in steel production with India leading by more than 12% followed by China.

Only a few months earlier this was not the same. A look at the movement of PMI in various countries show that in USA the PMI which was 49.4 in August’16 moved up to 54.2 in February’16. During the same period it has moved up in Germany from 54.4 to 57.0, In Japan from 49.6 to 53.5, In China from 50.4 to 51.6. In India’s case it is a drop from 52.6 to 50.7, still in the expansion mode. The crisis in Euro Zone (Greece and Spain) culminating in Brexit, presidential election in USA, Syrian refugee and Iranian crisis, restructuring of Chinese economy including steps taken to eliminate surplus, inefficient capacities and new political regime and agenda for a number of economic reforms in various areas in India have plausible impact on the health and future prospects of steel industry. These factors are indeed important. But the gradual weakening of the support for globalisation and thereby promoting the interests of indigenous industrial capacities is no less an important factor in espousing the cause of steel industry.

This fresh realisation originated from pumping out of significant volume of cheap steel exports by China to nearly all the importing countries, namely, USA, Mexico, Canada, South Korea, Vietnam, Brazil, India, Indonesia, South Africa, Turkey, Japan, UAE, Malaysia. That China subsidises steel producing companies in terms of bank loans, raw materials procurement and prices, duty exemption on exports are well documented and have formed essence of counter vailing duty investigations by all these countries. China has also been subjected to antidumping and safeguard duties at high rates by these countries and WTO is flooded with a spate of such duty measure decisions. Accordingly Chinese exports are currently confined to limited areas of the globe.

You May Also Want To Watch:

Dealing with Chinese low priced imports, most of the countries had a fresh look at the effective capacities of the domestic steel producers, meeting of the steel demand emerging from fresh infrastructure building or maintenance of the existing level of infrastructure and the growth of manufacturing that require steel for further processing. This pattern of protection, to use a much derided term, to the indigenous capacities that is traditionally synonymous with infant industry argument has opened up a relatively new phase in the history of global steel industry. Steel industry is currently considered as very much a part of heavy industry, generating income and employment and is an essential ingredient of industrial growth. In most of the above countries, no investment is required to add fresh steel capacities and enhanced rate of production is only enabling these states to increase capacity utilisation, bring down the losses and therefore an ability to repay bank loans and meet post retirement obligations leading to minimum social discontent. In case of some of the leading steel companies, Ilva, Tata Steel in UK, Usiminus, the country’s government is taking keen interest leading the delegation and even approaching companies in other countries to take over the sick mills by participating in global tenders.

The economic restructuring exercise currently under way in China, India, South Korea, Turkey calls for a higher role for steel industry. Chinese latest decisions to eliminate inefficient, obsolete steel making facilities including the polluting coking coal units, fix definite targets to close down excess capacities and redeployment of the displaced employees of the closed plants would imply that domestic mismatch of supply and demand would reduce and export thrusts would come down. It would also have a sobering impact on prices of merchandise Iron Ore and Coking Coal.

India’s plan to resurrect steel industry is on a firm footing, rejuvenating demand through emphasizing steel as a preferred choice of materials in government procurement as a first step, creating manufacturing hubs in the country in automobile, defence procurement, shipbuilding, aero space. The winning streak lies in enhancing investment, public and private, in Infrastructure including real estate.

  1. No Comments.

Go to Top