According to Mining News Pro - The steel sector in India, which had been under stress due to lack of demand over past three years is back on track this year. The steel consumption in India has grown by7.9% at 39.5 MnT in the first 5 months (Apr-Aug’18) of the current fiscal. This rise was supported by growth in Infrastructure and construction sectors (8.1% rise in April-July’18) supplemented by manufacturing and Industrial production (5.6% rise and 5.4% respectively in April-July’18.
The short range outlook by WSA (World Steel Association) has estimated the global steel market to grow by 2.6% and 1.0% in 2018 and 2019) and India’s steel consumption has been estimated to grow from 95.4 MT in 2018 to 102.3 MT in 2019 which would put India second to China by surpassing USA’s steel consumption level. Another indicator of growing market is the continuation of import flow. It is seen that around 66.3% of import flows are still coming from three sources, namely, South Korea, Japan and China.
Post-U.S. tariffs announcement in Mar’18, there has been once again increase in India’s total steel imports as major steel manufacturing countries like China, Japan, and Korea started diverting their steel output meant for U.S. to countries like India-where steel demand is quite positive.
According to customs data, in the first quarter of FY19, India’s steel exports dropped by over 33% whereas steel imports grew by over 11%, and consequently India turned a net steel importer in Q1 FY2019, after having been a net exporter for the last two years. While steel imports into the U.S. from China, Japan and, Korea reduced by 240,000 tonnes after the imposition of tariffs, their collective shipments into India increased by 450,000 tonnes.
What will help the domestic steel sector?
Now the big question that lies here is how Indian manufacturers can take advantage of positive steel demand and growing consumption amid increasing imports.
During FY15, the percentage share of imports in India’s steel consumption was 12% which increased to 14.4% in FY16 due to the dumping of cheaper steel by countries like China, Japan, Korea, and CIS. However, in FY17, the same dropped to 8.6%, then to 8.2% in FY18. This drop can be attributed to the intervention of the Indian government in the form of MIP, Safeguard and Anti-dumping duty. But as per the latest data, in the first five months of FY19, the percentage share of imports has once again increased marginally to 8.42% as the anti-dumping duty rate imposed has become ineffective amid rise in domestic steel prices, making imports a viable option.
The industry experts believe that in order to beat the imports influx, it has become critically important for Indian steel manufacturers to enhance the steel availability either by higher capacity utilisation or by incremental supply from the newly installed capacity. The increased demand for steel arising out of enhanced inventory accumulation or to execute new orders, make new products, all these have to be catered to within a specific time period.
The demand once not fulfilled would never come back as there are many ways and means to fulfill the demand. Thus in the context of rising demand, delayed supply from any producer leads to loss of market share and additional revenue generation. Also, the demand for various special grade steel must be catered at the earliest in order to achieve higher realisation and take hold of the niche market.
If Indian players are able to cater the demand of special steel products that are usually fulfilled via imports, it would help India to save foreign exchange and improve the current account deficits.
Factors supporting Indian steel manufacturers
The Indian currency is on a free-fall especially over past few weeks amid rising crude oil prices and strengthening of U.S. Dollar. The Indian Rupee has fallen by 14% against the start of the year. This dramatic fall in Indian currency has made imports expensive thus restricting end-users to opt for imports. Also, the Indian government is planning to increase customs duty on steel imports from 12.5% to 15% in order to reduce the demand for US Dollars and help the falling Indian rupee.
On the manufacturers’ side, domestic steel mills in India have also increased investments to expand and upgrade manufacturing facilities in order to reduce reliance on imports. Besides, they are also bringing comprehensive improvements in entire operations, which are backed by efforts for improving efficiencies and improved techno-economic parameters. Indian steel manufacturers have started benchmarking their facilities and processes against global standards to boost productivity.