The steel industry is not going to gain in any significant manner from what has been planned worldwide to avert economic catastrophe. For example, the entire economic package announced by the Chinese government is estimated to raise additional steel demand of around 18 million tonne on the higher side and if one takes a more conservative view of it, the number can be as low as 12-15 million tonne. Compare this number with the estimated finished steel consumption of about 420 million tonne in the country last year. This much of steel demand they will lose from the lost export orders of goods where steel is used. But, something is better than nothing. Importantly, whether all the intended sales are executed or not, small changes can push pricing sentiments up in the market.
There is no doubt that the path to a global all-round economic recovery will be a treacherous one. Even if we are out of the pits we are in today, getting back to growth will perhaps take a fairly long time. The mess in the financial system cannot be cleared merely by government interventions designed to work against institutional failures. The mess is deep rooted and requires systemic changes. Nobody really knows at this stage what is to be done for that. Efforts will need to be taken to bring back the confidence of the common people who are engaged in the most basic banking activities, leave alone investors. This will certainly take time. Till that time, private investments in the real economy too will have to wait. One wonders how much of the stimulus packages announced by various national governments will actually be executable and how long will that take to bring the desired results.
Nothing much is expected in India too as far as the steel demand is concerned from the stimulus measures, so long as the industry is not in the first page of the government agenda. Many small things can be done within the schemes and institutional structures already in place by adding some small resources and changing the content of the programmes to suit the current needs.
For example, the government can decide to present each beneficiary of Indira Awas Yozana with a set of stainless steel utensils of daily use, a drinking water or grain storage tank and a water filter, say. Much of these expenses can be covered from the budget earmarked for the rural employment guarantee scheme. The activities under these schemes should be largely focussed on housing and road construction, which can generate some steel and cement demand. The government can include reconstruction of schools, hospitals and public buildings in the villages and small towns in that. Plan for new hospitals, schools/ colleges, police stations and district administrative offices and that too before the teachers, doctors, policemen are recruited in hordes. The buildings must be ready first. This will certainly create some stock of underutilised assets. But, all of them will come to great use, if done properly, in the course of time and especially when the economy will be back on track. Have maximum use of steel and cement in them. Make these structures strong to be seen as assets rather than liabilities later. The government has to pick up those activities where not much planning is needed and can be started immediately and effectively.
?The author is independent strategy consultant, Steel and Natural Resources and the views expressed are personal