The demonetisation efforts by the government, a unique and courageous step towards unearthing of black money, have overwhelmingly shadowed all other business related affairs in the past one week. It appears that the process of relaxing the guidelines based on the daily feedbacks would be continuous and the dislocations would be largely mitigated by the next fortnight. The business, especially those related to tiny, small and medium enterprises would be normal by then, with increasing flow of liquidity and return of normalcy in the financial system. The business manned by the general public would be normal only when the government takes due care of the sacrifices made by them to bring in transparency and fairness in all commercial dealings and minimise the scourge of black economy to a large extent. Although extent of corruption and bribery by itself do not figure in as a separate parameter while fixing ranks in ‘Doing Business Survey’ by the World Bank, it is amply clear that these two elements are primarily responsible for slowing down the speed of a number of business processes, penalise efficiency and merit and promote only archaic rules and procedures.
Meanwhile, the Indian steel industry is going ahead with its efforts to return to a phase of stable demand and prices. Thanks to the Chinese market that is yet to show a tapering of demand and even continues with elimination of inefficient and polluting capacities. Chinese production of crude steel in the first 9 months of 2016 has reached 604 MT, a mere 0.4% lower than the previous year, it imported Iron Ore and Coking Coal at 843 MT and 4.54 MT at 8.9% and 59%, respectively higher than last year and exported 93 MT of steel which exceeds last year’s level by 0.7%. The share of gross capital formation is 45% of GDP in China and industry occupies a share of 41% in GDP, the two features that would continue to promote investment and encourage more use of steel in various sub-segments of Industry. HRC export offers from China are on the rise, from $ 377/t fob Shanghai in September’16 to $ 457.5 /t fob, an average 21.4 % rise in two months. Chinese demand for coal coupled with logistic problems faced by Chinese and Australian mills have helped global coking coal price to increase from $92.5/t fob Australia (3rd quarter price agreement) to the spot price of $310 /t fob in November 2016. The corresponding rise in iron ore prices is relatively subdued from $ 56.3/t cfr China in Sept ember to $ 80/t cfr in November. The higher landed costs of imported coking coal prices and marginal rise in domestic Iron ore prices (both fines and lump) would necessitate a further increase in steel prices in India in the coming months. Full neutralisation of the cost of raw materials by rise in steel prices would be dependent on the forces of market demand and supply.
Industrial growth in India continues to exhibit a tardy growth. A marginally negative growth in H1 of the current fiscal is primarily accounted by negative growth in Manufacturing. The most steel intensive capital goods sector is passing through one of its worst periods by clocking a significantly negative output growth of more than 21%. Production of electrical equipment has nosedived to notch a fall exceeding 50% compared to last year. It appears that imports of electrical equipment have taken away the market share with many of the erstwhile indigenous equipment manufacturers being turned into assemblers of imported parts and equipment of electrical machineries.
Automobile sector is on a stable growth path. The domestic steel producers supplying HR/CR to the auto sector and plates, rounds to the auto component sector are having a steady order flows as exports from auto sector is also on the rise. This sector has already seen the emergence of service centres at major consumption points in the country, a relatively new phenomenon in India and is likely to engage the attention of all major domestic steel producers. There is an increasing demand from defence, railways and infrastructure sectors for light gauge, high performance steel. The face of the steel market is fast changing towards quality and innovative product range and the current capacity creation in steel is all set to meet this emerging trend.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal