Healthy steel for healthy economy

By Dr B K Mukhopadhyay

Global steel production fell for third consecutive month in June, 2016, although remained above levels seen in the latter parts of 2015. According to World Steel Association [which represents around 85% of the world’s steel production] global production slipped to 133.7 million tonnes in July, 2016 down 1.7 percent on the 136 million produced in June. Despite the monthly slide, production levels were 1.4 percent higher than the levels of a year earlier. In the first seven months of the year, production totaled 929.6 million tonnes, down 1.2 percent from the same period in 2015.

India: The Current Scerio

India seemed to have lived up to Moody’s Investors Service assessment which referred to it as “the only bright spot in region,” while alyzing J SW Steel’s performance in a recent report.

India’s crude steel production saw a 3.9 percent increase to 7.8 million tonne (mt) in April 2016 compared to April 2015, even as global crude steel production saw a 0.5% decline to 135 mt in April 2016 over April 2015, according to data released by the Brussels-based World Steel Association (W SA).

India’s steel output in April 2016 bucked the trend evident elsewhere in Asia, where Japan’s crude steel output fell 1.2 percent to 8.5 mt and South Korea’s production went down by 1.3 percent to 5.7 mt during the month under review. Chi, the world’s largest steel producer, also posted a 0.5 percent rise in production to 69.4 mt during April 2016 compared to April 2015. The United States produced 6.6 mt of crude steel in April 2016, an increase of 2.5 perecent compared to April 2015. In April 2016, Russia produced 5.9 mt of crude steel, down by -0.4 percent over April 2015, while Ukraine produced 2.2 mt of crude steel, going up by 11.7 percent compared to the same month in 2015. In South America, Brazil suffered a significant 20.6 percent decline in crude steel production for April 2016 to 2.3 Mt, compared to April 2015. In the EU, Germany produced3.6 mt of crude steel in April 2016, a decrease of -1.5 percent  compared to April 2015, while Spain produced 1.2 mt of crude steel, down by -10.6 percent compared to April 2015. Italy posted an impressive 14.5 per cent jump in crude steel to 2.1 mt over April 2015. Turkey‘s crude steel production for April 2016 was 2.9 mt, up by 5.3 percent on April2015.

Crude steel capacity utilization ratio of the 66 countries reporting to the WSA in April 2016 was 69.2 per cent - 3.6 percentage points lower than April 2015. Compared to March 2016, it is 1.5 percentage points lower.

Rosy Days Ahead?

India has achieved the third position in the global steel production only after Chi, Japan and the US. India envisages achieving a steel production of 300 million tonnes by 2025 and it is good to note that the steel ministry is working out an action plan and strategies to achieve this target. The older steel plants are being modernised and expanded - recently opened India’s largest blast furce with a capacity of 4,160 cubic metres at IISCO steel plant in Burnpur, West Bengal. But to sustain the long-term growth of the Indian steel industry, problems in raw material area need to be addressed to utilize low grade ore and high ash coal through research and development (R&D) and technology intervention. Indian steel industry’s R&D has to focus on producing value added products to lessen imports.

All of the large steel companies have to step up R&D and enhance R&D investment up to one percent of their sales turnover.  Works are on in SAIL having corporate R&D centre at Ranchi. RINL is also expending R&D infrastructure. Large private sector companies have also setup good R&D facilities for addressing their problems. To give an impetus to R&D of tiol importance, the Ministry of Steel is contributing up to 50 percent of the corpus required for setting up the new institution SRTMI. Major private steel companies have also signed a memorandum of understanding with the steel ministry for SRTMI and will fincially contribute the initial corpus of Rs.200 crore.

Side by side, it is better to remember that  India is a low steel consuming country  [the per capita consumption of total finished steel in the country has risen from 51 kg in 2009-10 to about 60 kg now, compared to the world average of 216 kg]. Of course, the low consumption no doubt indicates huge growth potential for the Indian steel industry. The steel sector contributes nearly 2 percent of the country’s GDP and employs over 6 lakh people.

Drive Cautiously

Though the large scale operations would help in getting a footprint in newer markets  [viz. U S, Europe and Cada] it should not be forgotten that raw material availability continues to be a matter of big concern. Acquiring of more iron ore and coal mines around the world is no child’s play. In fact the raw materials prices in the recent past have risen to new heights as steel production continues with the upswing trends.

As per current thinking on this score : despite significant investments to increase production of some raw materials, trade distorting exports restrictions as well as infrastructure problems in some of then raw materials markets, the sector  has the potential to forge ahead.

The O E C D alyses must be taken very seriously in as much as it has cautioned of growing risks to the intertiol steel market. The indication clearly states that while world demand for steel would continue to expand favourably, growing economic risks associated with housing market and associated other problems cloud the outlook at least partially. Continued capacity expansions as observed in many parts of the world could well impact on the price - front if demand growth slows down significantly. As capacity expansion continues to be there, abrupt slowdown in global demand have the potentialities to create trade friction to the detriment of the long term health of the steel industry.

The future success of the steel industry obviously depends on the ability to mage the entire supply chain – right from backward integration to forward linkages. The importance of downstream products are also no less – ball bearing rings, alloy steel bearings [ used in two wheelers, fans and motor pumps ],  ferro-manganese and ferro- chrome,  cold rolled steel products,  galvanized steel sheets, etc. Steel is and will be in much demand in the sectors like the aerospace, construction, automotive, railways as well as in consumer products.

To conclude in the line of WSA ‘…..from dawn to dusk, steel surrounds our daily lives. Whether you’re waking up, keeping time, getting in or logging on, steel is there making your everyday activity possible’ - an observation by World Steel Association – something to remember.

Healthy Steel industry ensures quicker growth and development.

(The writer is a noted Magement Economist, an Intertiol Commentator on Business and Economic Trends and Principal, Eminent College of Magement and Technology, can be reached at m.bibhas@gmail.com)