Steel exports must be raised in next three months

By: | Published: January 19, 2016 12:08 AM

The PMI for October at 50.7 came down to 50.3 in November. As it has further gone down to a contraction mode of 49.1 in December, it is likely to hit the industrial output figures for December

The Purchasing Managers’ Index (PMI) has gained much importance in evaluating the plight of the manufacturing sector. As manufacturing occupies the centrepiece for industrial production, the PMI movement seems to precursor the trend of industrial growth of a country. There is an implicit faith in survey results (PMI basis) compared to data on reported output (industrial production basis) although industrial production generally follows PMI with a lag.

Accordingly, the December figures of PMI raise both hope and despair for things to shape in 2016. The global manufacturing index at the end of the year gives a mixed picture. While almost all major emerging countries led by China, India and Brazil had contracted (as revealed by PMI) as well as by Russia and even the US, the welcome news is the revival of major European countries as indicated by rate of expansion in production and new order positions which are reported to be the highest in last 3 years. Positive indices are also visible for Japan and Turkey.

India has witnessed a sudden backward movement of industrial growth. The contraction indicator of PMI going down below 50 (it is 49.1 in December, 1.2 notches down from November index) suggests a temporary increase in uncertainty in business environment that has adversely impacted prospects of investment and new order position. It is temporary because the contraction immediately follows the expansion of industrial output revealed by October indices of industrial growth.

Thus manufacturing growth in October at 10.6% is down at (-) 4.4% in November, capital goods production at 16.3% in October is down at (-) 24.4% in November, while consumer durable production at 42.3% in October has fallen to 12.5% in November. Cumulatively all this downturn in one month has brought down the industrial production growth to (-) 3.2% in November as compared to 9.8% growth in October.

The PMI for October at 50.7 came down to 50.3 in November. As it has further gone down to a contraction mode of 49.1 in December, it is likely to hit the industrial output figures for December. The delays in economic reforms, including the introduction of GST and measures to further easing of doing business in the country, are taking a toll on lifting the veil on business sentiment forcing the corporate sector to pursue a wait and watch policy till flow of public investment increases in critical projects.

Globally the marginal recovery seen in the euro zone provides a welcome signal for Indian exports. The industrial production figures for October is a good positive for Germany, France, Belgium, Italy, the Netherlands, Poland, Sweden and Turkey which reveal a growing appetite for goods and services and may benefit global trade.

During the first 9 months of the current fiscal, Indian steel exports to Germany, France, Italy, the UK, Belgium and Spain reached 6,43,000 tonne. This is despite the fact that Indian steel is facing AD/CVD barriers to enter euro zone in respect of HR Coils and Europe is troubled by cheap flow of imports from China whom they are opposing to give the market economy status in AD/CVD/ Safeguard investigations. All the major European countries are also showing positive current account balances that indicate higher import compatibility.

Significantly, the US economy has yielded a lower PMI in December (51.2) compared to previous month, but still remains above contraction level. The strength of dollar is paving the way for more imports and is causing a threat to its manufacturing sector. The internal demand though growing is of little help to its industrial segments in augmenting output. Steel exports from India to the US at 0.24 million tonne is lower compared to last year and may continue to languish due to various protective measures adopted by the US against HRC, CRC, Plate and Pipe imports from India.

During the first three quarters of the current fiscal, while steel imports by India have increased by 29%, steel exports by the country have dropped by the same percentage compared to the previous year leading to a net import shortfall exceeding Rs 30,000 crore. Indian steel exports to the UAE, Saudi Arabia, Ethiopia, Iran, Bangladesh, Nepal and Sri Lanka must be raised in the next three months to brighten the balance of trade in steel.

The author is DG, Institute of Steel Growth and Development. Views expressed are personal.

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