There is a panic around steel and mostly to do with the prevailing pricing conditions. There are worries about the immediate demand situation. There are questions on the long-term growth potential of the industry.
Steel prices will not get back to the levels they reached sometime ago. This, however, does not mean that the industry has no future. Many times in the past, steel has been written off as a sunset industry with no future for it. Each time these pronouncements gained ground, the industry has hit back with strong growth and sublime profits.
The problem with the industry is that while panic grips it very quickly, the optimism and ambitions run faster at the first sign of a recovery. As the industry moves into the higher profitability zone and the coffers of the producers rise to respectable levels, the banks feel more comfortable to lend. The equity market raises more hopes than is required. Stock prices zoom and increasingly the ability of the steel producers to raise funds from the equity market.
Each steel resurgence has been followed by massive capacity addition. More importantly, each slowdown has taken place at a time when there are many unfinished projects, apart from those already commissioned. These become a burden on the stakeholders.
Like in the past, steel will regain its lost ground soon. The question is, how soon will that be? One year, two years or a decade? Is this crisis in the industry temporary, that is, to remain for a couple of years? There are many experts who view that this is a matter of only a few quarters. They believe that the financial crisis of the day has not taken away the real economy growth potential permanently.
Or, is this comparable to the days of the early seventies? The post-oil crisis conditions, in many ways, are comparable to those of the present one. It followed a massive run of growth of the sixties. If so, the gloom in the industry, the uncertainty and volatility in the market and restructuring of the industry at a global level, with capacity cuts across the western world, will be some of the common observations in the days ahead. The pain and the trauma in the industry, bankruptcies and the spread of it into the related industries can remain for another decade.
These are the most challenging conditions for the industry. But, these are also days of great opportunities for the efficient, the resourceful and the intelligent. This is the time for the Indian steel industry to look for the space that will be vacated by many in the high-cost western world.
This is not the time to look for buying opportunities outside of India. This is the time to look for equipment and plants to bring home. This is the time to change strategy and plans, learn from past mistakes and redo the strategic planning. This is not the time to be wasted seeking government favours. This is the time to review technology and scale of plans of the projects in hand. This is the time to build fortunes.
There is no end to opportunities for the Indian steel industry.
?The author is independent strategy consultant, Steel and Natural Resources