‘Production growth must to meet rising steel exports’

By: |
July 15, 2020 10:10 AM

The view is sure to generate a whole lot of discussions and past references of similar tragedies, but the crisis of this dimension in terms of loss of humans, everyone would agree, had not taken place in the last one century.

Production growth, steel exports, Covid-19 pandemic, IIP for May 2020, MGNREGA activitie, SME sector, PSU, crude steel The industrial activities came to a standstill in April ’20 and during the major part of the following month before commencing to reverse the downfall from second half of June ’20.

By all assessments and evaluation of the impact of Covid-19 pandemic on the economic and social activities of countries across the globe, one of the views that is emerging tells us that these few months’ (5-7 months) experience is better be counted as a sudden aberration in the secular growth path, some sort of a dummy variable, while strategising for the future.

The view is sure to generate a whole lot of discussions and past references of similar tragedies, but the crisis of this dimension in terms of loss of humans, everyone would agree, had not taken place in the last one century. This is more so as we are still unsure about its disappearance from the lives of mankind in near future, the probable dates of the vaccines and the huge risk of its comeback, in a new form, more devastating, may be.

The industrial activities came to a standstill in April ’20 and during the major part of the following month before commencing to reverse the downfall from second half of June ’20.

It is, therefore, logical to accept the decision by the ministry of statistics and project implementation not to release the growth rates of May ’20 industrial output over May ’19 as production data in the current period was difficult to collect and are still pouring in for April and May. The deluge of this sort is not to be compared with the normal scenario existing at the beginning of last year. From the indices for May ’20, it is seen that manufacturing index at 82.4 in May ’20 (partial production) is an improvement over the index of41.5 (nearly nill production) in April ’20.

The IIP for May ’20 (88.4) is better compared to the previous month, but way below compared to May ’19 ( 135.4). Among the user segments, the highestrise in the month was observed in Infrastructure and construction and consumer durable segments. However, as mentioned, with fresh data that would be received subsequently, the segment wise comparison may have to change places.

What is confirmed is that the sales of two wheeler and tractor have gone up in the rural and semi urban areas and the same is also true for sales of small commercial vehicles. This would imply a better sign of sustained rural demand due to increase in income in agriculture which is maintains an annual growth of 5.9% in Fy20 with a reasonably good monsoon.

Commencement of MGNREGA activities in villages and surrounding areas coupled with starting of unfinished housing and other small projects have added to enhanced market for reinforcement steel and light structural. It has helped the steel producers in SME sector to increase production (long products) at their units. The retail and rural sales of the large steel producers have also gone up to partially make up the shortfall of orders from the institutional buyers. The government is pursuing with the PSUs to carry on with their capex programmes. The auto component segment is eying the export market and is also gathering pace to serve the local demand. The imports of tools, alloy bars continue unabated.

India produced 15.87MT of crude steel during Q1 of the current fiscal. It is interesting to note that although June ’20 production at 6.83MT is around 27% lower compared to last year, it is 18% higher than May ’20 production and when the final production figures are captured by JPC, the differential would go up. The apparent steel consumption in Q1 reached 10.7 MT and in June ’20 the level of steel consumption stands around 13% higher than May ’20 which shows that the industry is in a partial revival mode. While total imports at 1.26MT is lower compared to last year, the total steel exports at 5.54MT indicates a substantial jump over last year. Assuming a gradual recovery in domestic demand from H2 onwards, the potential steel exportsof around 15-18MT in the minimum during FY21, wouldbe an all-time record and account for production growth in steel and higher capacity utilisation under such a stiff challenging scenario.

The high component of semi finished steel in total steel exports at 41% (mostly to China with some volume for Nepal and Thailand) is likely to come down in the coming months as other exports in HRC, coated sheet, CRC, plates, TMT and wire rods are to go up. The major destinations of Indian steel exports, China (semis, pig iron and HRC), Vietnam (HRC, plate), UAE (HRC,coated sheets), Belgium (HRC,CRC and coated sheet) and Italy (HRC, CRC and coated) need regular nurturing and India should resist sudden withdrawal from these markets in the event of domestic demand growth for these products which can only be met from higher level of production.

(Views expressed are personal)

 

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