Unfavourable domestic and external economic conditions are set to pull down India’s steel consumption in the current calendar year due to a steep decline in manufacturing and construction activities.
The World Steel Association (WSA), a body representing 170 countries of steel producers and consumers, has lowered its steel consumption forecast in India to 5.5% at 73.6 million tonnes for the calendar year 2012 from 6.9% growth estimates the Association had made in April this year. For 2013, however, the Association has forecast steel demand to grow in India at 5% 77.3 million tonnes. The steel demand had recorded 4.9% growth in 2011 at 67.8 million tonnes from 64.9 million tonnes in the previous year.
The cut in steel consumption growth is based on the ongoing unfavourable conditions across manufacturing and housing sector that have been reeling under unprecedented slowdown for the past few years. India’s manufacturing activity growth remained steady in September as well due to increase in export demand and industrial output. The HSBC compiled manufacturing purchasing managers’ index (PMI), an important parameter to judge the performance of the sector, remained steady. Same is the case with construction sector. The two sectors consume around 55% of India’s steel production.
While presenting a short range outlook for 2012 and 2013, WSA forecasts global apparent steel use to increase by 2.1% in 2012, which is considerably lower than the 6.2% growth achieved in 2011. In 2013 world steel demand will grow by 3.2% and reach a record high of 1,455 million tonnes.
“Earlier this year we were seeing some signs of recovery from the slowdown of the last quarter of 2011 and we expected a better second half performance in 2012. However, the economic situation deteriorated during the second quarter of this year due to continued uncertainty arising from the debt crisis in euro zone and a sharper than expected slowdown in China. These factors have weighed heavily on business confidence and manufacturing activities around the world. As a result momentum in both the developed and emerging part of the world weakened considerably,” said Hans Jürgen Kerkhoff, Chairman of the Worldsteel Economics Committee.
However, we expect the situation to gradually improve in 2013 on the basis that the euro zone crisis can be contained, the US successfully deals with the fiscal tightening due in 2013 and the economic stimuli measures secure a soft landing in China. Since the 2008 economic crisis, uncertainty and volatility has become the norm for the steel industry but it is worth noting that world steel demand has maintained positive growth despite all the headwinds and lingering difficulties, he added.
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Earlier this year, WSA had estimated India’s per capita steel consumption to grow 25% in the last five years to 57 kgs in 2011 as against 45.8 kgs in 2007. While India’s per capita steel consumption declined to 45.1 kgs in 2008, the same jumped to 50 kgs in 2009 and 55.4 kgs in 2010.
Notwithstanding the marked improvement, India still lags far behind the world average of 214.7 kg and China's average of 459.8 kg. The average is worse when compared with other Asian peers like Japan and South Korea at 506.7 kg and 1,156.6 kg, respectively.
Steel production in India was recorded at 68.9 million tonnes, an increase of just two million tonnes over the previous year. However, like in 2010, it continued to hold fourth position among the major steel producing nations in the world.
Meanwhile, steel demand in China is expected to increase by 2.5 to 639.5 Mt in 2012 after 6.2% growth in 2011. In 2013, the government stimulus measures are likely to moderately improve the economic situation. This follows sluggish exports resulting from the global economic slowdown. Thus China’s apparent steel use is expected to rise by 3.1% and will reach 659.2 million tonnes in 2013.