The official data reveal that total steel production in India in fiscal 2011 has grown by 6.6% and steel consumption by 5.5%. The subdued growth rate in steel appears to be consistent with a lower-than-envisaged GDP growth at 6.5-7% and a slower growth in Fixed Capital Formation during the year. In addition, industrial production at 3.5% (April-Feb 2012), as opposed to 8.2% growth in 2010-11, and drop in output in manufacturing (3.7% in April-Feb 2012), particularly in capital goods (-1.8 % in April-Feb 2012) and consumer durables (2.7% in April-Feb 2012), has adversely affected the health of the steel sector. A few steel-intensive segments like LPG cylinder (-8.7% in April-Jan 2012), drums and barrels (2.9%), diesel engines (6.8%), passenger cars (2.3%) and refrigerators (-12.2%) have consumed less volume of steel.
Imports of steel at 6.8 million tonne (mt) and exports at 4.2 mt has turned India into a net importer, which in a way implies that physical demand is comparatively robust.
Steel imports in 2011-12 are 8% more compared to the level achieved in last year. Interestingly the imports of finished alloy and stainless steel is 71% more than the level reached in the previous year and more than compensates the slower growth in import of non-alloy steel.
Price considerations are one of the major factors for stimulating imports and Indian producers are to keep a close watch on cost of production and pricing of the products if this trend continues in the current year by CIS, China and Turkey. Maximum import growth has been observed in billets and CR Coils/Sheets (26%) which have mostly come from Russia (billets: 31%), China (CR: 24%), Korea (CR: 28%), Japan (CR: 17%). It is possible that certain volume of CR has come as duty free imports against advance license scheme of HR exports. However, there was a sudden jump in the arrival of HR and CR imports in the last four months which prompted a duty hike of 2.5% by the government in the Budget. However, to check the abrupt rise in imports, a Safeguard Duty mechanism can also be resorted to by the domestic industry. It is observed that proportions of seconds/defectives in CR at 9.2%, in GP/Coated at 12.3%, in electrical steel sheet at 20% and in tin plates at 65% of the total quantity in each of the category are substantially high and pose an adverse impact on the domestic steel industry.
Import of seconds and defectives provide a downward pressure on prices, frustrate the quality improvement plans of the domestic producers and make the unsuspecting end users suffer. High export growth was achieved in HR coils (116%) and bars & rods (65%), which indicates excess capacity.
Indian steel industry in the current year is capable of growing at a healthy rate of 6-7% with a corresponding growth in GDP. The caveats are: Fixed capital formation at not less than 32% and manufacturing growth consistently at 7-8%. This is much less than what was envisaged at the beginning of the year.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal