The year 2011 was eventful both for global as well as Indian steel industry. Major leading indicators like world output, production trend in key industrial segments, and trade volume exhibited downward trend while unemployment and inflation rate went up. Correspondingly, while steel production had a secular growth (world crude steel production up by 7.4% in first 11 months), steel prices declined (HR by 8%, Rebar by 4 %), leaving adverse impact on Ebitda of steel producers. Partial relief on account of downward trend in major inputs such as coking coal (30%), and Iron Ore (10%) was neutralised by low prices of finished goods.
However, global steel performed better in H1 before the start of a sliding fortune in H2.
China occupied 46% share in global production in 2011, more than the last year. As Europe is facing a threat of a prolonged recession and the US is limping back to a positive growth, the competitive threats from China, due to low-priced exports and restrictive raw material exports (bauxite, coke, zinc, rare earths etc), is gradually assuming the character of an eco-political battle between the super powers.
The massive trade deficits progressing on ever-increasing manufacturing exports from China, including indirect exports of steel, a potential of an intense trade war involving currency manipulation, subsidy and various other governmental supports, and faulty implementation of IPR issues. This year has virtually made the prospect of taking forward the unfinished agenda of Doha talks a distant reality as protective measures (mostly NTBs) are likely to proliferate in the coming months against the backdrop of industrial slowdown.
Indian steel industry had a fluctuating fortune in the year. Production growth of 5.6% in the first 11 months was accompanied by 4% rise in consumption with exports increasing by 32% and imports declining by 18%. GDP growth in January-March quarter at 7.8 % came down to 7.7% in April-June quarter and 6.9% in July-September with every indication of a slower growth in subsequent quarters.
Major steel-intensive segments also exhibited lower growth. For instance, production of cylinders went down by 11% in April-September?11 compared to 14% growth in same period last year. Similarly, passenger car saw only 5% growth in H1 against record 28% in same period last fiscal. Three wheelers saw 17% rise against 29% last year while sales of refrigerators declined 13% against 10% growth in h1, 2010. Diesel engines saw 7% increase in H1, 2011 against 11% in same period in 2010. All this impacted the growth in manufacturing to drop by more than 20% in the first ten months. Construction sector accounting for around 60-63% of steel consumption in the country could clock only 4% growth in April-September period. Devaluation of exchange rates (15% during the year) is hurting the importers of raw materials, including oil and coking coal, while providing small benefit to the exporters in view of fall in global prices. Rising inflation rates particularly the food prices prompted the RBI to increase the repo rate by 24% during the year leading to rise in interest rate which acted as a virtual dampner for the industry, and brought down the demand for consumer durables. However, the year has brought to light an unprecedented level of economic inertia paralysing the decision making and policy implementation process.
The unpredictable environment and ever increasing business risks have sapped the entrepreneurial spirit and market sentiments. Let us hope for an early end to this impasse, possibly by April-June quarter of 2012-13 and a lengthy glorious innings for Indian steel more than what is in store for aluminium and copper sectors.
* The author is DG, Institute of Steel Growth and Development. The views expressed are personal