Maintenance activities in steel plants have gained prominence and this is a well established policy and seldom is given priority when the pressure on production to cater to a growing market is predominant.
As raw material prices are not going up and have been projected to follow a downward trend in 2020 majorly due to lack of demand, the same factor is also not allowing the prices of finished products to go up. As a result, the expected widening of the spread is not happening. The only way the manufacturers can gain some advantage under the situation is to bring down the consumption of raw materials per unit of production by adopting innovative technology.
In case of steel, this amounts to higher BF productivity, lower energy consumption and in the process, it offers benefit to the environment. More use of natural gas as a substitute for coking coal is a proven and cost effective technology and more availability of natural gas through pipeline to the steel plants is a priority area. Hopefully, the current experimentation of use of Hydrogen in BF (by Thyssen group), if successful, would go a long way in curbing carbon emission by the steel industry and establish steel as a major sustainable product. It is a pity that user segments are not able to reap the benefit of decline in prices by higher volume of purchase or for inventory build-up as they are unsure of finding markets for the commodities thus procured
Maintenance activities in steel plants have gained prominence and this is a well established policy and seldom is given priority when the pressure on production to cater to a growing market is predominant. The intervening phase can also be better utilised for improving manpower productivity. A recent survey (by Randstad India) has established that divergence between skill set required by specific industries and the available manpower seeking jobs is at the centre of rising unemployment. Similarly, the skill training of the existing employees to make them aware of the changes happening in the work environment that are better learning points to keep pace with competition, is imperative to improve productivity and job enrichment. A sea change is needed in the training space being practiced in large and medium enterprises and the need is stronger when the pressure on revenue is high. Training of employees must abandon the regular practice of arranging periodical training for them as a ritual without adequately measuring the impact on productivity. The PSU culture of continuing with the existing practices, especially in improving productivity, in production and human resources must give way to innovative practices, learning improved skill sets and adopting outcome oriented training and workshops. In a downturn, some of these changes are likely to generate much better means and also higher revenue to face the challenges.
There is a slight upward movement in steel prices indicated by Chinese export price of HR Coils (SS 400 grade) that has moved up from $427/tonne fob Tianjin in October 2019 to $ 445/tonne in November 2019. US domestic prices of HRC which went down to $ 471/tonne ex-works in October 2019 are now traded at $ 584.5/tonne. Indian HRC correspondingly went down from Rs 37,000/tonne ex-Mumbai (GST extra) in August 2019 to holding the price at Rs 34,500/tonne in October and November 2019. In long product the indicative price of Turkish current export price of Re-Bar at $420/tonne fob Turkey was traded at $410 /tonne in last month. The iron ore prices cfr China currently at $ 83.45/dmt is marginally higher than the prices ruling in October 2019 ($ 82.7/dmt). The current prices of premium low volatile coking coal at $ 136/tonne fob Australia are however lower than $ 145/tonne in October 2019. As the merchant trade in raw materials and finished goods are restricted in the winter months commencing shortly, the prices are to move up in the coming month. The downward movement in steel prices in October 2019 is reflected in WPI going up by a meagre 0.16% over October last year. Also the WPI in HRC has shown a 11.7% decline in October compared to April 2019 and the indices for Wire Rods has come down by 8.6% during the period.
However, the retail prices have gone up by 3.99% in September 2019 compared to last year and the rise of food prices is pegged at 4.7%.
The policy support by the government is enormous. The RBI has been bringing down repo rate regularly and the incoming MPC is also likely to further down it. The corresponding impact on credit rate by the banks was initially slow, but it has now picked up. The spectre of NPAs, however, is still hounding the banks. The government expenditure which has seen a growth of 8.8% in Q1 of the current fiscal has to be speeded up further to make up for subdued investment by the government. The private final consumption expenditure which was driving the GDP by growing at 3.1% in Q1 is slated to be stagnant or going down as some of the surveys have established. As the data on saving is not yet available, it is not clear if lower consumption by the household has contributed to higher saving by this segment. One silver lining is provided by higher exports (27.7% growth in finished steel exports during the first 7 months of FY20) and lowering of imports (-0.7% growth in finished steel imports during the period). For the total economy the import values during Q1 of the current fiscal have gone up by 4.2%, while the export values have gone up by a higher rate at 5.7%.
Author is DG, Institute for Steel Development & Growth
(Views expressed are personal)