1. Steel production growth in India is sustained by domestic market

Steel production growth in India is sustained by domestic market

The impact of downward risks on the global steel industry is best reflected in crude steel production data just released by WSA.

By: | Published: November 24, 2015 12:10 AM

The impact of downward risks on the global steel industry is best reflected in crude steel production data just released by WSA. A 2.5% decline in production in the first 10 months of 2014 with 68% capacity utilization signal a deep penetration of the negative factors in influencing the level of demand specifically in the major driving forces like China, Asian countries, USA, Japan and EU. At this rate the annualised global production is not only lower than last year but also 2013 and the global effective capacity at this rate comes to 1.97 billion tones. In comparison with a large group of countries, India could see a positive growth of 3.3% in production. Only a few months back India’s elevation as third steel producer generated huge expectation in the steel industry. Now that India raced ahead of USA, the news is no longer making a ripple.

Steel production growth in India is sustained mostly by domestic market as India’s exports had come down by 2% in FY15 and by 30% in April-Oct’15 period. Further India faces market restriction in USA, Canada, Mexico, Indonesia, Malaysia, Thailand and Taiwan with respect to HR Flat products, CRC/S, Galvanised steel, Corrosion Resistant steel, Line Pipe steel. By devaluing currencies, the major exporters like China, Russia have been able to cut down the already low export prices. For instance, while HRC is available at $260/t fob, CRC at $288/t fob and Galvanised at $362/t fob from China, the Rebar is offered at $253/t fob by China.

It is virtually a price war that has been on display in the global market and it is being increasingly felt that no type of WTO measures like Antidumping, Countervailing or Safeguard which are imposed after due diligence and investigation and limited to the level of injury suffered by the domestic industry at that particular time period are not adequately equipped to curtail or impede the current price depressive mechanisms caused by countries with their own shrinking domestic market leading to growing surplus capacities. It is unfortunate that trade measures by WTO have no answer to this type of predatory pricing. The risk factor is much larger in its overall implication as unfair trade has gradually engulfed many other manufacturing segments in the country like machineries and equipments both electrical and non electrical, furniture, transport equipments, solar panels, defence equipments and others. The resultant pains are heavy. Not only the investment earmarked to create capacities in these sectors has become unviable and forms part of growing NPAs in the banks, the existing production facilities created to serve the market appear redundant. Apart from jeopardizing existing jobs, it has severe implications for new jobs and income generation. The employment elasticity of manufacturing growth has been declining for the last one decade. The current situation is going to aggravate the scenario and would put enormous pressure on the service sector to absorb the millions of people entering the job market every year.

It is a fact that against the background of a subdued market the phenomenon of cheap imports appears disastrous. There are a few trade restricting steps like non-tariff barriers (conformance to strict industry specifications, health and safety related issues), floor pricing, enhancement of Bound rates and others that have been applied by almost all steel producing countries to stop flow of imports. But these are purely temporary measures and do not offer a long term solution. Cheap imports must not weaken the base of cost effective and good quality indigenous manufacturing segments that include commodities like steel. The best solution for this scenario is a watchful and supporting government who emphasizes the values of fair trade and facilitates the widening of the domestic market by encouraging more public investment as a harbinger of more private investment to spruce up demand.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal

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