 "Emerging from a year of sliding global steel profits")
The global financial crisis of 2008-09 and economic and political tumults since ensured particularly difficult times for the world steel industry last year. Demand falls across the globe but particularly in Europe, volatility in prices through the steel value chain and oversupply resulting from excess capacity dented industry profits. The biggest of them all, ArcelorMittal, ended 2012 with a net loss of $3.7 billion.
The scene, if anything, was more dismal in China, which grew crude steel production 3.1 per cent in 2012 to 716.54 million tonnes (mt). This happened to be the lowest rate of growth for the country since 2007. China Iron & Steel Association informs profits of its 70 member mills took a hit of 98 per cent to fall from 80 billion yuan to 1.6 billion yuan.
No way can India be an exception to the global rule. Steel profits here, too, have been pared and the exact numbers will soon be available as companies release their fourth quarter results. So overwhelmed are investors by the poor working of the Indian steel industry caused by demand fall that they are not inclined to take into account what groups like Steel Authority of India Limited (SAIL) and Tata Steel (Indian operations) are capable of delivering in future.
It is nobody's case that either the world or the Indian economy will see any profound improvement in the current year. From Prime Minister Manmohan Singh to Finance Minister P Chida-mbaram to Chief Economic Adviser Raghuram Rajan will not fail to remind us that no matter the disappointing growth in 2012-13 - between five per cent estimated by CSO and 5.5 per cent as seen by the Reserve Bank of India - the country has the potential to return to a growth rate of eight to nine per cent.
The caveat, however, is India is very much part of the global economy and we are not immune to what happens in the rest of the world. The other day Rajan said India need not limit its vision to eight per cent growth. He claims this country has the capacity to grow at the Chinese rate of 11 to 12 per cent (that, however, was in the past and the new Chinese leadership of Xi Jinping now has the challenge to achieve eight per cent plus growth.) Such optimism has not stopped him from pointing to some worrying global developments.
Behaviour of the world economy cannot but leave a profound impact on the local economy, since our exports and imports, as Chidam-baram says, "amount to 43 per cent of GDP (gross domestic product)". India will do well to take note of Xi's warning that the international financial industry remains fraught with risks and protectionism is on the rise. Did China grow at 7.8 per cent in 2012 as is officially claimed? In a presentation at the recent CRU world steel conference, Standard Chartered Bank head of research (greater China) emphatically said the country's growth was "around six per cent." This then had a big impact on the working of the Chinese steel sector, which last year had 46.3 per cent share of the world production of 1.548 billion tonnes. The third quarter of 2012 saw a sharp slowdown in the Chinese steel market and this had a ripple effect around the world.
No matter that Indian steel consumption grew at a disappointing 4.4 per cent last year, SAIL Chairman Chandra Shekhar Verma remains steadfast in his belief that at some point coinciding with major infrastructure projects taking off and urbanisation getting a major push, metal use growth here will return to 1.2 times the GDP growth rate. Aberrations to what should be the intensity of steel use growth vis-a-vis GDP for emerging economies like China and India happened in recent times for reasons well known.
"Steelmakers have reasons to be happy with CCI work. Any projects flagged off by it will result in incremental demand for steel," says Verma. As SAIL will be commissioning new capacity of 1.8 mt this year as part of its Rs 72,000-crore investment in expansion and modernisation, Tata Steel is ready with an extra 2.9 mt crude steel capacity to make Jamshedpur a 9.7-mt mill. The challenge for SAIL, Tata Steel and others commissioning new capacity will be to market the extra steel at remunerative rates.
CRU demand and price outlook for world steel in the current year are, however, not exactly encouraging. A CRU researcher says consumption of finished steel is to increase 4.9 per cent this year, but most of that growth is to result from "a recovery in the first half. Expectations for the latter part of the year look weak." He says the expected demand growth is almost "solely attributable to China." Whatever our domestic issues, Indian demand growth rate in 2013 at 5.9 per cent to 75.8 mt will be stronger than China's 3.5 per cent to 668.8 mt, according to World Steel Association.
The scene, if anything, was more dismal in China, which grew crude steel production 3.1 per cent in 2012 to 716.54 million tonnes (mt). This happened to be the lowest rate of growth for the country since 2007. China Iron & Steel Association informs profits of its 70 member mills took a hit of 98 per cent to fall from 80 billion yuan to 1.6 billion yuan.
No way can India be an exception to the global rule. Steel profits here, too, have been pared and the exact numbers will soon be available as companies release their fourth quarter results. So overwhelmed are investors by the poor working of the Indian steel industry caused by demand fall that they are not inclined to take into account what groups like Steel Authority of India Limited (SAIL) and Tata Steel (Indian operations) are capable of delivering in future.
It is nobody's case that either the world or the Indian economy will see any profound improvement in the current year. From Prime Minister Manmohan Singh to Finance Minister P Chida-mbaram to Chief Economic Adviser Raghuram Rajan will not fail to remind us that no matter the disappointing growth in 2012-13 - between five per cent estimated by CSO and 5.5 per cent as seen by the Reserve Bank of India - the country has the potential to return to a growth rate of eight to nine per cent.
The caveat, however, is India is very much part of the global economy and we are not immune to what happens in the rest of the world. The other day Rajan said India need not limit its vision to eight per cent growth. He claims this country has the capacity to grow at the Chinese rate of 11 to 12 per cent (that, however, was in the past and the new Chinese leadership of Xi Jinping now has the challenge to achieve eight per cent plus growth.) Such optimism has not stopped him from pointing to some worrying global developments.
Behaviour of the world economy cannot but leave a profound impact on the local economy, since our exports and imports, as Chidam-baram says, "amount to 43 per cent of GDP (gross domestic product)". India will do well to take note of Xi's warning that the international financial industry remains fraught with risks and protectionism is on the rise. Did China grow at 7.8 per cent in 2012 as is officially claimed? In a presentation at the recent CRU world steel conference, Standard Chartered Bank head of research (greater China) emphatically said the country's growth was "around six per cent." This then had a big impact on the working of the Chinese steel sector, which last year had 46.3 per cent share of the world production of 1.548 billion tonnes. The third quarter of 2012 saw a sharp slowdown in the Chinese steel market and this had a ripple effect around the world.
No matter that Indian steel consumption grew at a disappointing 4.4 per cent last year, SAIL Chairman Chandra Shekhar Verma remains steadfast in his belief that at some point coinciding with major infrastructure projects taking off and urbanisation getting a major push, metal use growth here will return to 1.2 times the GDP growth rate. Aberrations to what should be the intensity of steel use growth vis-a-vis GDP for emerging economies like China and India happened in recent times for reasons well known.
"Steelmakers have reasons to be happy with CCI work. Any projects flagged off by it will result in incremental demand for steel," says Verma. As SAIL will be commissioning new capacity of 1.8 mt this year as part of its Rs 72,000-crore investment in expansion and modernisation, Tata Steel is ready with an extra 2.9 mt crude steel capacity to make Jamshedpur a 9.7-mt mill. The challenge for SAIL, Tata Steel and others commissioning new capacity will be to market the extra steel at remunerative rates.
CRU demand and price outlook for world steel in the current year are, however, not exactly encouraging. A CRU researcher says consumption of finished steel is to increase 4.9 per cent this year, but most of that growth is to result from "a recovery in the first half. Expectations for the latter part of the year look weak." He says the expected demand growth is almost "solely attributable to China." Whatever our domestic issues, Indian demand growth rate in 2013 at 5.9 per cent to 75.8 mt will be stronger than China's 3.5 per cent to 668.8 mt, according to World Steel Association.