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  1. Steel sector outlook: Charting forward journey

Steel sector outlook: Charting forward journey

A comparison of the steel prices in the last six months shows that early January levels declined by the end of first quarter of 2016 and although the demand-supply mismatch continues to prevail upon the buyers to exercise downward pressure on prices, the realisations at the start of the current quarter are much higher than December 2015 levels

By: | Updated: July 5, 2016 9:19 AM
Steel L reu The positives for India are many and appear to be unleashing the potential to yield benefits despite the frequent roadblocks created by the above events

As we enter the second quarter of the current fiscal, there is a mixed feeling on what is in store for the coming three months. A quick environment scanning would tell us that the global political scenario would largely impact and dominate the economic behaviour of each country. EU members would take time to fully diagnose the implications of the outcome of British referendum. There are already depressing reports on Indian exports to the UK and if that really happens, it may reverse the pattern of our EU trade also. Thankfully it must be acknowledged that India is no longer counted as an outsider in any politico-economic issues engulfing developed or developing countries except in the small group led by China. The large economies of Iran and Saudi Arabia look upon India as an invaluable trading partner. The US, the largest trade ally of India, has been consistently pursuing non-discriminatory trade policy with us.

However, Latin America, thoroughly engrossed in solving internal economic issues, is yet to develop a pro-India attitude in trade matters. Almost similar is the trade outlook with Turkey, Mexico and a few others. All talks of global partnership and easy movement of goods and services across and within the countries fell to naught due to the renewed vigour and steadfast grit with which the international terrorism is surfacing time and again with its ugly head, anywhere and everywhere in the world. These events are unpredictable like natural calamities, sudden and ghastly and indeed take the economic journeys undertaken by various countries in different regions by different political regimes at least a few years’ back.

The positives for India are many and appear to be unleashing the potential to yield benefits despite the frequent roadblocks created by the above events. A comparison of the steel prices in the last six months shows that early January levels declined by the end of first quarter of 2016 and although the demand-supply mismatch continues to prevail upon the buyers to exercise downward pressure on prices, the realisations at the start of the current quarter are much higher than December 2015 levels.

It is apparent that Gross Value Added of the corporate sectors, be in industrial or service sectors, would spruce up. However, the same rising trend may not reflect itself in the output growth. The core sectors comprising 38% share in industry went up by 2.8% in May 2016 as compared to the previous year. The government has recently enhanced the FDI limits in various sectors (Defence: 100% from 49% with government approval, civil aviation: 100% from 49%). The country has improved its ranking in Doing Business from 134 to 130 in 2016 and in Global Competitiveness Index it occupies 55 ranking in 2015-16 from 71 in previous year. More infusion of FDI in construction, defence and airports is likely to provide good stimulus for growth in these sectors.

The Purchasing Managers’ Index for May 2016 for manufacturing at 51.7 is another shot in the arm for each producer. The positive response on order booking status is indicative of a turnaround, however small it could be. Thanks to MIP, SD imposed by an appreciative government, a large part of rise in PMI, one must admit, is on account of lower imports of cheap steel from China, Russia, South Korea and Japan. Efforts are on to continue to enjoy the benefits of an expanded market (left by imports) by instituting investigation on dumping charges in case of HRC and Wire Rods.

The lacklustre pattern of internal demand is the weak link. While passenger car sales grew by 8.7% in April-May 2016, commercial vehicle sales rose by 17.12% and 2-wheeler sales grew by 15.3% during the period and outputs of consumer durables and machinery and equipment sector rose by 11.8% and 7.6%, respectively in April-May 2016, capital goods and construction sectors’ (particularly real estate) growth were much subdued. Time is now appropriate to introduce a uniform GST for seamless movement of goods across the country.
Thus environment scanning for critical sectors of the economy, steel being one of them, has become a complex exercise. It is worth monitoring the major influencing factors and to prepare a dynamic framework to chart out the forward journey.

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

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