Indian steel industry is set to meet terrible product mix imbalance if one goes by the announcement of the projects or even by any realistic assessment of their possible implementation in the coming five years or so and the emerging market demand for steel.
If one goes purely by the announcements made, crude steel capacity in India will rise to above 240 million tonne by 2011-12. The number is growing. If one applies some judgment on what really can happen and remain somewhat liberal, the number will drop to about 138 million tonne by that year. A moderate and rather conservative view on it will bring the same down to about 115 million tonne. This includes all kinds of steel – mild, alloy and stainless.
Consider the liberal judgment – 138 million tonne assuming some capacities of Posco, Mittals, to be ready. Of this, if one goes by the information one collects on their proposed product mix, 63 million tonne will be accounting for long products and 75 million tonne flat products. This will means about 57 million tonne of finished long products and 67.5 million tonne of flat. Consider, 90% capacity utilisation for flats and 85% for longs. The minimum aggregate production level one will look for will be about 48.5 million tonne of long and 60.75 million tonne of finished flat. These numbers are net of all possible multiple counting.
On the high end of optimism, according to my calculations, the total demand for finished steel in the country should be about 80 million tonne by 2011-12. This is based on the actual current level of production and consumption and the current growth rate of the GDP to continue for the entire period. Of that, 28 million tonne will be flat products and 52 million tonne longs. This means, unless capacity utilisation adjusts to market conditions, the country will import 3.5 million tonne of long products (net) and export nearly 22 million tonnes of flats. Higher demand for long products should automatically trigger higher capacity utilisation and the external trade balance can be ensured. This is subject to availability of raw materials, critical for small and medium size plants to maintain capacity utilisation at above 85%.
This imbalance will be strongly visible even when one assumes a moderate growth of capacity and a high growth of the domestic market leaving about 13 million tonne of net export of steel in the aggregate. The compulsions to export will be severe if one takes the demand forecast by the Working Group on Steel for the 11th Plan set up by the Planning Commission which is far on the conservative side. Clear problems are foreseen in the specific product cases. It will be uneconomic for the flat products plants to keep capacity low. Increased export efforts will draw trade actions in most destination countries.
In such a case, strong internal conditions will keep domestic prices low. This is exactly what is happening in China today.
?The author is an independent steel strategy analyst