There are various points which need to be considered to examine the prospects of the Indian steel market in the coming days.

The Indian steel market has remained more or less stagnant in the last three years. Prior to that, in the years 1994-95 and 1995-96, steel demand in the country had grown very sharply. In fact, this year, the industry's position, statistically speaking, is comparable to 1994-95 as that year also was preceded by stagnation in steel demand for three consecutive years.Although qualitatively the beginning of 1994-95 was different from this year in terms of flow of investment, there is every reason to expect a definite turnaround in the steel market this fiscal. Whether this is going to be a big boom or only a mild recovery will depend on a host of factors discussed below.

Most macro-indicators of the economy, estimates of growth in the manufacturing sector in particular, seem to show the strengthening of the Indian economy. With political stability, the investment climate looks better. If so, there will certainly be a larger market for steel. In support, there is the much-improved international market, where the Indian companies, in flat products especially, are doing good business. There is no immediate sign of a slowdown in the global market. Europe and the USA are going strong as well as the countries in the south east and east Asia.

Optimism is high for many, making them believe that the market will gain further strength in flat products and will end in a near-boomby mid-2000. If so, the Indian companies will not only see their earnings up, but also get rid of the headache of surplus capacity in the flat products that keep competition high in the domestic market to deprive them of reasonable prices.

However, taking a very conservative view, merely to examine the worst possible scenario, the current improvement in the steel market in India may at best turn out to be a mild recovery and not the much-expected boom. The reason for such pessimism rests on the fact that unless the economic growth in the country is investment led - more particularly driven by investments in construction - infrastructure, commercial and residential - steel demand may not increase substantially. If the Centre for Monitoring of Indian Economy is to be trusted, there has been a slight increase in total investment, measured in terms of outstanding investments, in the country since April this year (also in the last one year till October 1999).

More important, the total fresh investments have,in fact, declined during the same period. The manufacturing sector has shown a sharp decline of 16.6 per cent in total outstanding investment in the last one year ending October 1999.

Fresh investments, however, were up 2.63 per cent. In the current fiscal, outstanding investments are up in electricity generation and distribution, railway transport, storage and distribution and mining. These are down in road services, air transport, shipping, communication services and commercial complexes. If this is the trend, the prospects of growth of steel-intensive construction sector will be limited in the coming year and the steel industry may end up getting practically nothing from an overall economic recovery.

The other important point to note is that even if steel demand in the country grows, whether the Indian steel companies will be fully benefited from it. The problem here lies not so much with direct import of steel.

Steel comes also in the form of capital goods, spares and components in major projectsand manufacturing. Of course, direct imports will continue to take a significant share of the Indian steel market, as the Indian steel users will continue to find attractive opportunities in global business.

Given the inevitability of imports, what matters is, its volume that will be determined by the competitive strength of the domestic industry. Without high tariff or non-tariff protection, the country's industry will have to face the threat of cheaper steel from CIS and other countries.

For example, at $180 per tonne, c&f, for TOR steel, the Indian steel industry will find it hard to retain its full market share. This will adversely affect not only the main steel producers, but also the units in the secondary sector. Then, the imports and seconds and defectives have also increased substantially in the recent years giving a hard time to the domestic industry. The imports of prime flat products is not to be ignored.

In areas where the domestic production faces stiff competition from imports, the localproducers may just be forced to match the lower global price to thwart imports. They may thereby retain market share but lose money.In the last year or so, the Indian flat products have really gone global.

The hot rolled coils from the country are in good demand and have found international quality marks. The prices these products are fetching are also high and the Indian companies can only expect to do better. In the international market, it is no longer a problem of finding a buyer at the ruling prices for the Indian producers. It is the ruling price itself.

Despite the apparent strength of the world market today, backed by some all round recovery of the global economy, there are still skeptics who believe that it may not be so rosy for steel in the year ahead.

Many feel that the current prices, for deliveries for the first quarter 2000, are somewhat speculative and should have been lower. In fact, the second quarter prices historically are higher. Therefore, it is also felt that the prices can onlyincrease further from the levels in the first quarter. Yet, there are experts who still feel that the steel users are not taking any more chances this time, knowing fully well that the second quarter prices would be higher and therefore they have booked their requirement much in advance. The exact nature of any such speculation is difficult to establish.

There are also arguments that trade actions in the developed markets have kept the prices up artificially. True. Such measures can only help creation of islands of higher prices but quite naturally only for a while.

In fact, unless there is a definite growth in demand and reduced supply, further increase of global steel price line will be difficult. Although there are clear signs of an improvement in demand, global production is also on the rise now. Since global recovery is not any longer left to doubt and there is every reason to believe that steel demand in 2000 will only increase, if not substantially, the level of supply will determine the price lineof steel. Even if somewhat speculative, the current trend upward is expected to be maintained throughout 2000.

To some extent, the delivered costs of imported steel have increased due to rise in ocean freight. Now with oil prices increasing sharply, the steel industry will certainly see its costs going up. There is every possibility of a cost-pushed price increase in steel. The steel industry, however, will not gain anything out of it. In the worst case, it will be forced to absorb this burden.

With all reservations on the possible growth of the Indian and the world market notwithstanding, what is more certain is that the coming year is going to see the Indian steel industry much better placed than in the last couple of years. If inflow of foreign direct investment takes of to a higher plane as envisaged by the new government, there will be a lot of steel in demand. New investment in construction is crucial for the growth of the industry.

(The author is member convenor of Steel Exporters' Forum andthe views expressed in this article are his own and not of the organisation he is employed with)