Currently, Indian steel industry faces new sets of challenges. Thanks to the prompt trade measures undertaken by the government that the unabated flow of cheap steel imports into the country that seriously threatened the survival of steel producers, big or small, were stopped. Fortunately, it was not India alone, many other major steel producing countries like the US, Canada, EU, Japan, South Korea, Turkey and Vietnam were fighting the challenge of low priced imports from China, Ukraine, Russia by adopting anti dumping and countervailing duty measures and could successfully block these imports. The net impact of this brief period of protectionism that has been prodded up with a little bit of emotional appeal by the new president of the US witnessed firming up of prices of all categories of steel. The positive price movement in steel had pulled up prices of iron ore, coking coal and also scrap, but these prices were more impacted by infrequent problems relating to flooding of mines and logistic bottlenecks. Thus, an overall upward price movement in the global market had enabled all the major steel producing countries to derive reasonably better realisation for their end products, both in the domestic market and in exports.
As global crude steel production at 836 MT at the end of first 6 months of the current year shows a 4.5% rise over last year, a perception is gaining ground that steel industry is going to experience an upward tick in the coming months. Here lies the stiff challenge before the industry — what is happening in the demand front? China’s production at 419.7 MT at a 4.6% rise in the first 6 months comes to 850 MT productions (minimum) on annualised basis and this has been triggered off by a substantial infrastructure stimulus provided by the Chinese government. It has helped merchant iron ore prices moving up from $56/tonne cfr China to $65/tonne in the last few days. Similarly, coking coal prices have reached around $170/tonne fob Australia from $143/tonne a few weeks earlier. It is reported that steel market in EU is exhibiting signs of revival, albeit not substantially. North American market shows increasing PMI in June 2017. Thus, global steel production growth in anticipation of market growth has not allowed the prices to come down. Steel prices in Indian domestic market have come down in the last 6 months.
Rates of average HR Coils of 2.5mm have fallen by 8%, from Rs 44,500/tonne (including taxes and duties) in January 2017 to Rs 41,000/tonne in June 2017. Prices of average CR Coils of 0.63mm have fallen by 8%, from Rs 50,500/tonne in January 2017 to Rs 46,500/tonne in June 2017. Cost of average GP of 0.63mm has fallen by 3.5% from Rs 57,500/tonne (all exclusive) in January 2017 to Rs 55,500/tonne in June 2017. In the long products, the drop in average prices in TMT 12mm from Rs 37,700/tonne in January 2017 to Rs 36,300/tonne in June 2017 by 4% is comparatively lower than flat product prices. The average domestic prices of Wire Rods 12mm fell from Rs 41,000/tonne in January 2017 to Rs 40,000/tonne in June 2017, by 2.5% during the period. Average Billet prices at Rs 33,200/tonne in January 2017 have come down to Rs 31,000/tonne in June 2017, by 6.4%. These price trends indicate that Indian domestic prices which had moved up in the period (particularly the flat categories) immediately following the imposition of MIP, Safeguard and Anti Dumping duties, have subsequently come down, not very appreciably, in the last 6 months.
This is not the same for the long products. Sustenance of steel prices in the domestic prices on a longer basis is dependent on the strength of the market that can be pepped up either by enhancing investment in building up of physical infrastructure or by higher industrial growth in steel intensive segments. Now, that the headline inflation rate has dropped to 0.9% in June 2017, a downward revision in the Repo rate by RBI by at least 0.5-0.75 basis points in the next quarter can be well expected. It would partially drive in private corporate investment in infrastructure and attract more household expenditure in consumer durable sector and in real estate, especially in the affordable housing component. The enhancement of public investment in infrastructure that would drive in more private participation would accomplish the residual drive required to rejuvenate the Indian steel industry. (Views expressed are personal)
DG, Institute of Steel Growth and Development