The news that China has announced $150bn worth of spending on infrastructure building has brought a sigh of relief in the battered market environment in this part of the world. The development of coastal belt has been the primary focus area of infrastructure spending in China during the last decade and now the interiors would be targeted. This would usher in the second phase of industrialisation in China. The news is important keeping in view the predominant role of China in shaping the fortunes of many other industries of the world. It would also speed up the urbanisation process with a multiplier impact on a higher demand for residential and industrial complexes and items for urban infrastructure like roads, bridges, flyovers, airports, ports and railway network. Chinese government has already made a conscious effort at shifting the thrust of industrialisation from the heavy machinery and equipment sector to development of light and medium industry sector and IT based enterprises.
This shifting pattern of growth in China from heavy investment to consumption linked nature of investment, in all likelihood, would complete the process of development and lead to diminish the despair and discontent of the common people against the rising inequality of income which remains a necessary evil associated with fast track industrialisation. The two developments in China, namely, stimulus infrastructure spending and lowering of the interest rates may reiterate similar urge from the industry in India before RBI releases its next policy.
The good news for steel industry is lowering of the input costs as coking coal for the last quarter of 2012 is envisaged to move within a band of $170-180 fob/t, a clear drop of $30-40/t. Iron ore prices in a regular downward fashion has already reached around $96/t. However, steel price fall in the past four months from a level of $ 627 for HR Coils (Chinese export price fob/t) to $505/t may neutralise the gain in raw material costs unless the price rise becomes a reality.
In September, for flat products the market is expecting a marginal rise as demand for white goods is likely to be higher in festive seasons and high rupee devaluation is not helping the landed cost of imports to fall. A comparison of the price levels of finished products shows that HR Coils were priced at $715 (Chinese exports fob/t) in Sept?11 with coking coal and Iron Ore prices ruling at $335 (fob/t) and $187 (Chinese import cfr/t for 63.5% Fe) respectively. The current price level indicates a fall of $210/t in HR Coils during the last one year with ruling prices of coking coal and iron ore falling by $135(fob/t) and $91/t respectively in the same period. Although in India the prices of iron ore has behaved on the reverse and the increased rupee devaluation has eaten away partially the advantage of reduced coking coal prices, the drop in realisation of finished products (say, HR Coils) have been sharper which calls for an upward revision.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal