For the last few months, a perception is gaining ground that emerging countries no longer remain drivers of the global steel market and instead it is once again the turn of US and Europe to lead the turnaround.
A strong basis of this perception is provided by decelerating economic and industrial growth of the emerging countries in the current year as compared to the previous, and correspondingly the better prospects of economies in developed countries.
WSA figures suggest that of around 52 MT rise in global steel consumption in 2013, China accounted for 77% , followed by Turkey, Africa (other Africa), other Asia (Thailand, Indonesia, Malaysia, Vietnam). India?s steel consumption grew marginally by 1.3 MT. Interestingly, the data also indicate that EU, NAFTA (including US) and West Asia have consumed less steel compared to 2012. Thus, the forecast is based specifically on happenings in the last six months.
Consumer and Business spending in the US is rising in the second quarter. With the house construction index marginally moving up, good record in auto sales (16.1 million motor vehicles sold in May 2014), ISM Manufacturing index at 55.5 (May 2014 against 54.9 in April 2014) and new jobs showing upward trend, GDP growth in the US for the second quarter is pegged at 3.5%. The euro zone has entered the positive quadrant of GDP growth with a huge current account surplus.
The Indian steel market has already paid a heavy price for policy logjam. The new government has emphasised infrastructure growth, including the rail and road network and a simplified and transparent policy mechanism, thereby doing away with a plethora of committees and sub-committees with a view to speedily sanction projects and clear stalled projects.
Projects worth of R80,000 crore ? that include a million tonne (mt) pellet plant of SAIL at Dalli-Rajhara mines, expansion of Bhilai from 4 to 7 mt, a captive power plant, expansion plan of Essel Mining from 1.5 mt to 4 mt, a 1.2 mt pellet plant and limestone mine by Grasim Industries ? are likely to get the environment nod in the next two days.
The announcement would make a significant positive impact on the uncertain business scenario that was instrumental in pulling down entrepreneurial investment intentions, industrial growth and also GDP growth.
The latest business environment rankings by the Economist show India at 61st position with China at 49th, Brazil at 41st and Russia at 59th. However, in terms of only infrastructure construction, most countries other than China scored much lower.
As the total financing of the envisaged infrastructure investment in India is beyond the means of the government, an enabling environment for the private corporate sector and FDI capital flow has to be created. The recent announcements by the government on GST implementation, revision in FDI cap in critical sectors and minimising of the number of ministries and government departments are steps in the right direction and would largely improve the share of gross fixed capital formation as % of GDP from the current 27.6% (in Q4 of FY14) to move up by a few notches in the coming months. RBI monetary policy must support this positive business environment.
In totality, even assuming that China?s rate of growth of steel production and consumption would be lower than the previous year, thus impacting the raw material market, India would take a prominent position among emerging economies to take forward the global steel market with its own consumption growth likely to be in the range of 5-6% in FY15.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal