The prophets of hard times saying the world steel industry will start faring poorly in the second half of this year principally on the back of eurozone economic concerns have an opponent in Steel Authority of India Limited (SAIL) chairman Sushil Roongta. For one, Roongta believes that unlike the last time when governments and central banks in developed countries were caught unaware by the shenanigans of financial intermediaries leaving the world in a deep economic mess, they are now keeping their ears to the ground and reacting fast at the first hints of a crisis.
Roongta is not saying that the world at this point is worry free about the down-trending in financial markets, particularly in eurozone.
“At the same time, I don’t think the world is about to be overtaken by panic or once again living in uncertain times,” he maintains. Perhaps he is setting store by the quickness with which European policymakers have put together a euro 500 million ($625) stabilisation fund to spare Europe, as the Economist says tongue in cheek, its Lehman moment.
IMF will chip in with up to Euro 250 to reinforce the fund to defuse the sovereign debt crisis that engulfed Greece and at the same time ensure that the virus does not spread to other vulnerable European countries.
Earlier the CEO of Tata Steel Europe Kirby Adams said, “Europe has exited recession though recovery is still weak. There is confidence about the first half of 2010-11. But this cannot be said about the second half.” Weak it is as Europe grew almost nothing in the first quarter of 2010. Adams tells us European steel consumption is to grow 15 to 20 per cent to 140 million tonnes this year. Any excitement on this is to be tempered by the fact that whatever be the growth, it will occur on a low base.
According to World Steel Association (WSA), the global steel use should improve 10.7 per cent to 1.241 billion tonnes this year after demand shrinkage of 6.7 per cent in 2009. Next year, says WSA, the world steel demand will rise 5.3 per cent to a historic high of 1.306 billion. Such demand guidance has to have some underlying caveats like unforeseen dip in performance in steel user industries. Auto industry in the West is not living up to its early promise. New house starts in the US are still not inspiring confidence. These are major steel consumption points.
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In contrast what reinforces optimism about steel is a remarkable 40 per cent jump in Japanese exports in April led by strong overseas demand for cars and semi-conductors. As automobile exports doubled and semi-conductor shipments rose 35.5 per cent year-on-year, Japan earned $65 billion from April exports.
Roongta has all through been optimistic about steel continuing to do well in China and India even when the world economic scene turns difficult, such are their domestic metal requirements. And now Japan is back in reckoning.
That SAIL came through the world economic meltdown unhurt is because “our unbroken focus has been on the domestic market, winning customer loyalty and reaching the metal to all the districts through an ever expanding distribution network. Moreover, the share of value added products in total SAIL output is rising every year,” according to Roongta. The government as also other producers have accepted Roongta’s proposition that boosting steel sales beyond the metros will require of the industry to make it available virtually at the doorstep of potential consumers in exact form and quantity.
What is encouraging is that as much new capacity is in the pipeline, the industry, particularly its bigger constituents are marking their presence in hitherto unexplored markets and also mounting service centres. Tata Steel managing director HM Nerukar says India’s steel use will once again be growing 14 per cent this year to 72 million tonnes from 63 million tonnes in 2009-10. The good thing is Indian market for steel is expanding. “What at this point is, however, causing concern is rise in imports of steel. Foreign steel arrivals here were 1 million tonnes in March, that’s 40 per cent more than normal. This calls for careful watch,” says Roongta.
According to WSA, the world crude steel production in this year’s first four months to April was 467.8 million tonnes marking a 31.8 per cent year-on-year rise. But we have now seen the Australian benchmark ore (62 per cent iron content) falling to a two-month low at $143 a tonne, principally on account of lack of Chinese buying. In the past few weeks, world steel coil prices have beaten a retreat of $80 to $100 a tonne.
No one will question that pegging customs at the minimum is promoting efficiency here. But this also means domestic steel prices will closely follow international trends. Chinese finished steel exports rose 29 per cent to 4.3 million tonnes in April and the trend may continue should China press ahead with credit tightening. India has to be watchful.