AMID subdued demand, excess capacity and compressed margins, there is some good news for the Indian steel industry. After a long gap, it has turned a net exporter ? surplus for the first 11 months of the fiscal stands at 0.24 million tonne (mt), and the figure may reach 0.5 mt for the whole year.
One of the factors that might help steel exports is the eurozone?s gradual recovery, which is likely to enhance Europe?s appetite for imported steel such as HR coil. Global iron ore prices, currently at $115/tonne CFR China, are projected to fall below $100/tonne in coming weeks. That will put further pressure on NMDC to lower indigenous prices for direct sale, and to reduce benchmark prices for e-auctions in Goa and Karnataka.
Global coking coal prices are also coming down, which is evident from the current import rate of $150/cfr/tonne. The recent gain in the exchange rate is likely to bring down the landed cost of imported coal.
For both these raw materials, the possibility of a slowdown in China is cited as a key factor for price depression. In the first two months of 2014, China?s crude steel production grew a mere 1.7% over the previous year. The unrecovered loans extended to the steel industry by Chinese banks have made bank credit tough to secure for industry.
In India, the price hike of $30-40/tonne for both long and flat steel over the last three months has by and large been absorbed. Thus, with the major costs of production contained, along with a rise in domestic realisation, the Indian steel industry can look forward to reasonable growth in Ebitda margin in coming quarters.
There is a strong belief among the business fraternity, working professionals and employees that a better environment awaits us after the elections. As investment decisions are deeply influenced by uncertainty, this feel-good anticipation is prompting buyers and processors to build up inventories (to offset the imminent price rise) and complete unfinished construction (to fetch higher rentals under the improved scenario). These two factors would drive steel demand.
A renewed interest in completing stalled projects is also likely. Steelmakers are focusing on their brownfield expansion plans as the cost of losing market share could be steep. With inflation cooling off, lower rates by the RBI
will enhance credit flow by keeping the cost of capital
in check, and facilitate economic activity.
The contours of an enabling environment are taking shape ? the challenge is to make them into a reality.
SUSHIM BANERJEE
The author is DG, Institute of Steel Growth and Development. The views expressed are personal