Under the current subdued global commodity market scenario, the production growth in any item anywhere in the world is viewed as the inevitable result of excess capacity and therefore is considered harmful for the economies. This aspect the origin of which lies at Chinese overcapacity in steel and in a few other engineering goods and services has clearly emerged as the most engaging topic of discussion in a host of Associations and Groups like OECD, WSA, G-20 and others.
China is also blamed for lowering the merchant demand and prices for good quality iron ore from Australia and Brazil and coking coal from Australia. Global trade volume is projected to come down to less than 3% in 2017.
Europe, which is passing through a most trying phase of declining internal demand leading to low capacity utilisation and loss of employment, grave uncertainty on the fate of euro and the health of banks and other financial institutions, the downward trend in economic growth in Spain, Greece, France, Italy and East European countries and the spectre of Brexit implications are becoming much protective of the national interests by restricting imports and only promoting trade within the region.
Interestingly, the US is fast emerging a country to pursue a ‘Make in US’ and ‘Hire in US’ policy by adopting measures to rejuvenate US manufacturing and service sectors to the detriment of export opportunities for China, Japan, South Korea and NAFTA partners.
The backdrop of such an uncertain global environment offers a big challenge to India’s response to stabilise performance and maintain the growth momentum in various sectors. Taking steel as a test case, it is seen that India has enhanced its crude steel production by 7.4% in 2016 at 95.6 MT, recording one of the highest growth rate, compared to China (1.2%), Japan (-0.3%) and the US (-0.3%). The capacity utilisation in the country reached 78.4% in last year against the global average of 68.1%. The per capita steel consumption at 61 kg in India is, however, way behind the global average of 208.2 kg and here lies the true potential of increasing steel consumption in the country.
It is heartening to note that the government has fully appreciated the role of steel industry in developing the industrial backbone of the country by necessary policy support. While the Make in India programme, the thrust on defence procurement through indigenous sources, the pledge to make houses for all in the next 5 years by affordable housing in rural and urban areas, the removal of procedural bottlenecks to ease doing business in India and continuation of economic reforms and financial prudence have impacted positively the domestic market growth, the various trade measures (anti-dumping, safeguard and MIP) have gone a long way to support the domestic steel industry against the unabated flow of cheap and dumped imports of surplus steel from abroad.
It has resulted in slowing down of imports at 6.1 MT (-37.8% growth over last year) and encouraging exports at 5.9 MT (71.1% growth over last year). The worrying part remains on the growth of domestic market that has increased by a nominal 3.5% in the first 10 months of the current fiscal. The industry is planning to enhance capacity from the current 122 MT to 300 MT by 2030-31 implying an average growth of 6.2% in capacity augmentation in the next 14 years.
The two broad channels of steel consumption — construction and manufacturing — must grow in tandem in order to fulfill the growth aspirations of steel industry.
The major item responsible for pulling down the growth in Industrial Output during April-December 2016 to a meager 0.3% is manufacturing (accounting for more than 75% growth in industrial production and notching a negative growth of 0.5%).
Source: Financial Express