The global steel data for 2013, released by the WSA, may seem to support the oft-repeated premise that India is on its way to occupy third position in crude steel production by beating US.
In 2012, the US produced 11.4 million tonne more crude steel compared to India, which has produced only 5.8 million tonnes in 2013. The case gets stronger with more brownfield capacities coming on-stream in India in the coming months with SAIL, RINL, Tata, JSW and JSPL each enhancing their output and others like Essar achieving higher capacity utilization. However, things are changing for the better in the other side across the border.
Despite widespread apprehensions of a continuous downturn in the US and Europe and a deepening Euro crisis, it is now becoming clear that while sovereign debt crisis would continue to retard growth in majority of countries in Europe in 2014-15, the US market is slowly moving up with green shoots visible in all the leading indicators.
Likely GDP growth at around 2% in 2013, industrial production at 3.2% in November 2013 with record PMI in November and December and a steady growth in value-added manufacturing, a much-lowered unemployment rate of 6.7% last month, consumer prices that were always under control and growing at only 1.5% and CAD at 2.5% of GDP, all signal a reversal. Secondly, the recovery of shale gas will immensely benefit the steel industry.
The exploration activity would generate fresh demand for pipes and plate gauge HR coils and plates and the easy availability of gas would benefit the DRI industry. Already new DRI plants are being set up to enhance steel-making capacities in US. It is also possible to replace some of the imports especially of billets and slabs with domestic production provided these follow environment regulations and other items that can be rolled under small economies of scale.
The US may still continue with large steel import penetration, but it may be confined to only special grades and dimensions.
The level of capacity utilization of steel production in the US, which is currently stable at around 75% is likely to go up by at least 10% in the coming years. That would yield around 12 million tonnes of additional steel availability to primarily cater to the growing indigenous demand.
Although the monthly purchase of bonds has come down from $85 billion to $75 billion as a part of QE programme, the stimulus spending by the federal government in building new roads and bridges would boost steel demand.
Additionally, the steel-cement ratio in the US being high, the federal spending on infrastructure would generate more consumption of steel per unit of dollar as compared to what is happening in India. Booking of new houses in the US is going up, the automobile demand growth is reasonable and demand for white goods is going up. Thus the overall scenario provides an enabling environment for the growth of steel industry in US.
Indian steel industry is facing multifarious challenges with lack of government spending in infrastructure, big list of stalled projects that could have generated fresh demand for steel, uncertainty in raw material supply and above all a subdued demand from major end using segments. It would be a herculean task, not insurmountable by any standard, to tackle the challenges and occupy the coveted third position in global steel production in the coming years.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal