It is indeed gratifying for Indian steel industry to have completed FY18 with a consumption growth of 7.8%. Last year steel consumption rose by 3.1% and the year before last the growth was 5.8%. In the current year also till October 2017, the rise in steel consumption for the first 7 months was confined to 4.5%. Thus it was a case of late pushes since November 2017.
The factors that made this possible was the significant increase in global steel prices from November 2017 which began with rise in raw material prices — iron ore, coking coal and scrap — and increase in global oil prices. Coupled with gradual uptick in the economic indicators — GDP, Industrial Production, unemployment rates — the global economy led by the US, the EU, Japan, South Korea and India has forged ahead since the later half of FY18.
The manufacturing PMI exhibited a corresponding rise aligned with all round improvement in the market scenario. Growth of Indian steel exports was significant and India ended the year being a large net exporter of steel. Against finished steel imports of 7.5 MT, the exports were 9.6 MT, yielding a net export of 2.1 MT.
As Indian steel demand is substantially influenced by infrastructure and construction sector which was primarily determined by the growth of investment, the secular decline of GFCF as a percentage of GDP (33.4% in FY13 to 28.5% in FY18) was very much a worrying factor. There was also no improvement in the share of private corporate sector investment which compensates the shortfall in public investment. The silver lining in this otherwise depressing scenario was provided by the rise in manufacturing sector especially in the steel intensive components since November/December 2017.
Accordingly, during the first 10 months of FY18, the growth of manufacturing at 4.3% supported IIP to achieve 4.1% rise in the period. The prominent sub segments of manufacturing — manufacture of machinery and equipment, vessels and trailers, other transport and furniture — exhibited growth rates of 5.9%, 11.8%, 12.7% and 7.5%, respectively during the period. As nearly 38% of steel consumption in the country is accounted for by the manufacturing sector in the form of engineering, fabrication, automobile, other transport (railways, ship building, civil aviation, barges and containers) and packaging sub segments, the growth momentum observed in these areas in the recent period brought some cheers to steel fraternity. The industrial use of steel was clearly discernible by more demand for wire rods, structurals and plates.
As the growth of 7.8% consumption was contributed by growth in consumption of Alloy and SS by a large margin of around 24%, the thrust on more industrial use was apparent, although Alloy/SS comprises of only 9.7% of the total steel consumption in the country. Crude steel production in FY18 has reached 102.2 MT, a growth of 4.3% over last year. In order to reach 300 MT of CS production capacity by 2030-31, it would require a 9.4% CAGR during FY19 to FY31 which may be considered high in the current context. The assessment of finished steel availability may be taken as a second alternative. The standard method of calculating finished steel production out of 300MT capacity in FY31 may be taken as 243MT (90% yield from crude to finished and 90% capacity utilisation). The finished steel production in FY18 at 105MT would need an annual average growth rate of 7.2% to reach the target by FY31.
It is quite possible that NCLT referred cases would see the light of the day by H2 of FY19. As a result, the truncated production of Essar Steel, Bhusan Steel and Power, Bhusan Steel, Monnet Ispat and Electro steel Castings would arrive in the market in the next year to the extent of 21.6 MT. This tonnage would come from the capacities already installed and would only add to the current CS availability by means of higher capacity utilisation.
India has achieved a capacity utilisation of 76% in CS in FY18 which can be enhanced to 90% under an enabling market scenario. If the current year sustains the growth momentum in steel demand with a reasonably good market realisation, the scenario may pave way for one or two greenfield steel projects to reach beyond the drawing board.
Also the SME sector operating at nearly 50-55% capacity utilisation must be prompted to achieve the higher rate. The availability of non-coking coal from the merchant sale of coal mines should be considered a viable alternative that would remove a major constraint in higher steel availability from this sector. The estimated sponge iron production in FY18 may reach around 25MT which is lower as compared to previous year. With enhanced availability of steel from the SME sector estimated for FY19, the production of sponge iron must increase which would need unhindered availability of iron ore.
It is seen that South Korea, Japan and China constitute more than 82% of Alloy/SS import sources and for the total steel import it is more than 70%. While import from China primarily contains coated products and pipes, South Korea exports HRC, coated steel, electrical sheets and plates, Japan supplies mostly HRC, coated and ESS. In FY19 the sourcing scenario is likely to follow the same pattern.
(Views expressed are personal)