In the halcyon years from 2005-06 to 2011-12, demand for Indian steel grew at an annual rate of 10 per cent and production at 7.8 per cent. The rise in demand was so strong that the country, instead of achieving the "strategic goal" of exporting "23 per cent of production", became net steel importer since 2007-08.
The good time for steel was due to annual gross domestic product (GDP) growth ranging from 8.59 per cent to 9.57 per cent, except in 2008-09 when as a result of the global financial crisis, it fell to 6.72 per cent. The economy's strong steel use intensity was principally derived from good performance of manufacturing and construction sectors.
But all this is in the past. According to the Joint Plant Committee (JPC), in the first seven months of 2014-15, year-on-year steel demand growth was a small 0.5 per cent to 43.12 million tonnes (mt). What is particularly disturbing is a 1.3 per cent demand slide in October to 6.53 million tonnes.
The numbers are reflective of the "lingering effect of economic slowdown." Steel demand situation will also remain grave through 2015 in China. Metallurgical Industry Planning & Research Institute of China says steel consumption, in line with a slowing economy, will grow 2.5 per cent to 710 mt this year. Demand growth in the world's largest producer and user of steel will further recede to 1.4 per cent to 720 mt in 2015.
Slump in demand China and India stands as vindication of India Steel Association president Chandra Shekhar Verma's thesis that the metal use intensity of 1.1 to 1.2 vis a vis GDP holds good only when the economy grows beyond a certain level and focus steadfastly remains on infrastructure development. No wonder, at steel capacity of over 100 mt, its use here has remained at around 82 per cent, which though is better than world average of 78 per cent. Essar Steel vice chairman Firdose Vandrevala said at the recent Global Steel conference that even while it is unlikely that "Chinese boom years" would return again, growth in demand would lead to reduction in present world overcapacity of 360 mt to 180 mt by 2020. But the caveat is steel groups in China remain engaged in creating new capacity parallel to phasing out of uneconomic and polluting units. A question mark too remains on world demand growth. Euro zone is perilously close to deflation with growth stuck below one per cent. Japan continues to slide. Knock-on effects of Chinese slowdown on global economy are proving hard.
Quoting from a McKinsey report, Vandrevala says in steel profit pool, share of the metal is 26 per cent, coking coal 32 per cent and iron ore 42 per cent. India has iron ore reserves of 30 billion tonnes. Like in Australia and Brazil, ore reserves here will rise substantially if exploration and prospecting are stepped up. The country's mining sector is in a state of flux. But in the crisis besetting the sector Vandrevala sees a "great opportunity to redraw the mining landscape." Investment in steel will dry up if mills are denied captive mines. Rise in India's import vulnerability will bring cheer to the surplus ridden Chinese steel industry, which must export more and more to compensate for tardy growth in domestic demand.