The current year is going to test the mettle of the Indian steel industry to face challenges on a number of fronts. With a supportive government, the industry has faced tough competition from cheap imports at the beginning of the year from China, South Korea, Japan and Russia.
The various trade measures namely, safeguard duty on HRC, the MIP on 173 steel categories and provisional anti-dumping duty on HR, CR and wire rods, have restricted flow of cheap imports by specifying benchmark prices in each category that are sufficiently higher than the extant import prices.
The stoppage of imports have opened a market of 5-6 MT to the domestic players which are adding additional 7-8 MT of steel from Brownfield expansion in the current year.
In H1 of FY’17 the import arrivals at 3.96 MT is 36% lower than the previous year. While imports of HRC (non-alloy) at 0.95 MT is lower by 50% compared to last year, imports of CR (non-alloy at 0.5 MT) and coated products (at 0.27 MT) are lower by 48% and 4%, respectively. There is, however, a 16% rise in imports of tin plates (at 0.15 MT) during the period along with a significant growth in imports of ferro alloys (0.26 MT against 0.12 MT in last year).
China continues to remain the top steel exporting country to India, having 27% share of the total imports, closely followed by South Korea, with Russia maintaining the same level of steel exports to India as in the previous year.
India, after a long gap of 2-3 years, is going to emerge as a net exporter in the current year with steel exports exceeding imports by 0.04 MT in September itself and total exports during H1 at 3.6 MT exceeding last year’s level by more than 42%.
It is interesting to note that in H1 of the current year, India has already emerged as a net exporter with respect to semi-finished steel (billets/ slabs/rerollable scrap), structural, HR sheets, coated sheets and pipes. Higher exports would ease the excess supply scenario in the country and contribute to higher capacity utilisation for the domestic producers.
While crude steel production in H1 shows a rise of 7.6% over last year and finished steel availability is 9% more during the period, the apparent consumption has grown by 2.5% only.
There has been a marginal rise in inventory accumulation with the producers, but substantial fall in imports and corresponding rise in exports do primarily account for tardy growth in consumption. A back of the envelop calculation suggests that while steel imports have dropped by 2.22 MT in H1, consumption has grown by only 1 MT. The rise in steel exports by 1.07 MT was the answer to a visible drop in demand and therefore consumption in the domestic market.
Compared to the cumulative figures, the monthly data of September portrays a better picture of demand. The finished steel availability has gone up by 10.5% which has been mostly taken care of by rise in steel exports during the month by a rate exceeding 110% over last September. The better market scenario is reflected by a stock depletion of 78,000 tonnes in September ’16 against 5, 27,000 tonnes addition in stocks by the producers in last year, resulting in monthly consumption growth of 6.6% in the last month.
The answer to consumption growth on a sustainable basis lies in fixed asset investment which is steel-intensive. In spite of a firm commitment to restructure the economy from investment-led to consumption-led, the Chinese government has signed new offshore infrastructure projects worth of $210 billion out of which around $100 billion is already earmarked for January-June ’16, a 15% growth over last year.
The fixed capital investments as a % of GDP in India in Q1 of the current fiscal has improved to 29.6% from 29.4% in Q4 of FY ’16, but lower than 32.9% achieved in Q2 of last fiscal. This trend has to be reversed in favour of steel to achieve a double-digit boost to steel consumption in the country in the coming months.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.