The year 2018 begun with a little trepidation and uncertainty on the likely business outlook for the incoming months.
The year 2018 begun with a little trepidation and uncertainty on the likely business outlook for the incoming months. It may be recalled that India ended 2017 with a subdued GDP of two quarters, slower manufacturing and industrial growth till October, GST related complexities and poor agricultural production. Things changed for better since November and Q3 ended much better for the industrial sector including brighter prospects for the services and primary sectors. The rising manufacturing prices that begun nearly six months earlier on the back of enhanced raw material prices leading to increased cost of production is a clear sign of growing demand. Consequently the PMI for manufacturing has improved in the country from 50.4 in January ’17 to 52.4 in January ’18. The business scenario got a much needed boost from the global trends of improved manufacturing and industrial output and market realisation, the emergence of Europe and US markets facilitating increased flow of goods and services dampened only by the plethora of protectionist measures.
Steel industry continues to grow and establish its importance as the essential ingredient for economic growth. Availability of the material being taken care of by rising level of production and increasing share of value added items, it was fast becoming the most preferred material for the architects and the designers as a flexible, ductile, earth quake resistant, fire resistant, recyclable and sustainable item for choice that leads to faster construction, elegant structures, easy to maintain and relocate, if need be. The current market scenario in the country buoyed by a favourable global market can best be summarised as most appropriate to take forward the planned expansion in capacity to cater to the emerging market, both domestic and exports. Things are indeed looking up to take the country fulfilling the 300 MT capacities in crude steel production by 2030.
Growth in steel consumption in Q1 of FY18 at 4.6 % has reached 6.8% in January ’18. Production of crude steel at 4.2% growth in April-January ’18 reached 84.4 MT. India is likely to end FY18 with finished steel consumption at 90 MT(growth of around 7.0% over FY17) and CS production of 102MT. The short range outlook by World steel Association has projected India’s finished steel consumption at 92.1 MT in 2018 (5.7% growth). This is against the estimated growth in Global steel consumption of 1648.1 MT at 1.6% growth in 2018. The finished steel exports from India are likely to be around 11.0 MT by March ’18 with a growth of around 34% over the previous year. The finished steel exports are going to be more than 10% of domestic CS production against the global average of 21-23%. The estimated imports in FY18 may be put at 8.0 MT, a rise of 11% over last year, thanks to the timely support from the government for imposing measures against trade distorting practices of a few countries in the global trade.
Prices of HRC exported by China at $369/t (SS 400 grade ex-Tianjin) in October ’16 are currently available at $585/t in February ’18 (10th February ’18), a rise of 59% over a period of 16 months. The prices of Turkish export (fob) for rebar at $370/T in October ’16 is currently available at $ 558/T in February ’18 (February 10, 2018), a rise of 51% during the period. The domestic price of HRC ex-Mumbai (all inclusive) that was `33625/T in October 2016 is presently ruling at `46,020/T (all inclusive), a growth of 37% during the period.
This favourable scenario for industrial growth and especially for growth of steel consumption has been facilitated by the allocation of `5.97 lakh crore in the Budget for FY19 for the infrastructure sector which is a 21% rise over last year. It is not immediately known how much was actually spent on building of infrastructure in the last year. As this amount has been allocated among various departments like, coal, petroleum, power, steel, new and renewable energy, civil aviation, defence, railways, atomic energy, road transport and highways, shipping, housing and urban affairs, telecommunication, higher education for capital expenditures, we may assume that in all these areas, the actual implementation has the higher elements of steel based construction. Applying the standard formula, this volume of capex would need approximately 26.5 MT of steel. Many of the fresh projects would generally spill over in the next year and beyond and also there would be normal delays in commencing all the identified projects during the year itself. In addition, the budget allotted to rural development ministry for PMAY-G, ministry of panchayat raj for drinking water supply in villages, health and sanitation, rural roads under PMGSY would also be using steel in a limited manner. Taking all these factors into consideration, we may assume that at least 25% of the estimated incremental demand of around 6.6 MT would be realised in FY19 on the back of this investment. However, promotion of steel based construction and the various advantages in terms of cost, ease of construction, saving in time, environment friendly construction and flexibility in design have to be taken up in right earnest with the identified executing agencies, government and private, by all the stakeholders.