Sushim Banerjee
Apparently there is something to cheer for the steel industry as the consumption in the first quarter of FY16 has nearly repeated the growth rate of 7% till May ’15.
But two factors need to be kept in mind. First, the growth has been achieved by imports exceeding 53% and a 32% fall in exports. For the sake of comparison, if the net imports are excluded from the total consumption in both the periods, there is actually a marginal decline in consumption figures in Q1 of the current year (18.55 MT against 18.57 MT). The implication of this import-led consumption growth (true for both carbon and alloy/stainless steel) is to be seen against the backdrop of capacity augmentation endeavours of indigenous steel industry and the massive surplus capacity existing in major steel producing countries like China, CIS, Japan, South Korea and Turkey.
Based on the trend in the past few months, the anticipated market growth in steel in the country, especially in standard tested grades, may continue to be partially met through imports. Also a part of HR/CR imports could also have been made available from the domestic sources but for imports under duty concession under CEPA/FTA.
While for value-added steel needed for the critical sectors of the economy, import route is the best option as easy availability has to be ensured for the end users of special steel, the situation offers an opportunity for the domestic producers to create indigenous capability of producing the same in association with reputed global suppliers via technology transfer and setting up of downstream facilities.
Here it may be mentioned that some of such facilities created for supply of auto grade CR by POSCO in which the required volume of HRC gets imported from Korea. Now that CRM for meeting a critical requirement has been set up, the ability of the domestic producers to supply HRC at equivalent grade and price must be worked out unless restricted by a provision incorporated at the time of such investment. This matter needs a thorough analysis.
Secondly, as is well known, large volume of steel imports is taking place only on price consideration. It is still worthwhile to initiate dialogue with the large buyers of this steel and work out acceptable terms of transaction for supply from indigenous sources. Some of the other importing countries like the US have successfully implemented this strategy. For large PSU buyers the help of the administrative ministries can also be solicited. This is a better method to convince the strong protagonists of free global trade who are critical of India’s efforts to bring in WTO approved trade measures like AD, CVD, safeguard and duty hike within the bound rates.
The recent report that there is a 60% decline in stalled projects gives hope that the same would arrest the falling trend in private fixed capital formation for the last three years. It would imply that some of the constraining factors like environment and forest clearances, issues in availability of raw materials and unfavourable market conditions are gradually getting solved.
In addition the data released by the government indicate that percentage share of investment intentions in terms of IEMs filed, LOIs/DILs issued in steel-intensive segments like metallurgical industries, boilers, prime movers, electrical equipment, transportation, industrial machinery, machine tools, agricultural machinery, earth moving machinery and miscellaneous mechanical and engineering industries have reached 27.5% of the total intended investment during January to May ’15 as compared to 19.4% share in 2014.
The question remains if the increasing investment trend in manufacturing does generate a higher demand for steel, would it lead to higher imports or higher capacity utilisation in the domestic steel industry.
The author is DG, Institute of Steel Growth and Development. Views expressed are personal.
Souce: FE
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