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STUDY |
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Indian
iron & steel
industry
The
Economic Backbone
Sustaining Development
Iron and steel
industry is considered
as a sub-segment
of core industry
and therefore
forms the backbone
of industrial
development. The
wide range of
application makes
steel as one of
the most important
ingredients for
manufacturing
and other industrial
activities. Steel
industry, being
a capital intensive
one, have high
correlation with
the growth in
the economy, especially
the steel consuming
segments, such
as manufacturing,
housing and infrastructure.
Thus, usually
in a country,
a period of industrial
growth is matched
by prosperity
in the iron and
steel sector;
similarly, industrial
sluggishness gets
captured in contraction
in demand for
iron and steel,
resulting in a
phase of stagnation
for the industry.
The level of per
capita consumption
of steel is also
treated as one
of the important
indicators of
socio economic
development and
living standards
of the people
in a country.
Production
India is the fifth
largest producer
of steel in the
world with a share
of around 4.0
percent. According
to the data collated
by Ministry of
Steel, Government
of India, India
witnessed a production
level of 58.2
million tonnes
in 2007-08, a
growth of 5.6
percent over the
previous year.
The production
has witnessed
a compounded annual
growth of 10 percent
in the last eight
years. According
to the Office
of Economic Advisor,
Government of
India, during
the period April-December
2008, steel production
in India grew
by 2.7 percent,
to reach 39.8
million tonnes.
Indian steel industry
produces almost
all grades and
varieties of steel,
comparable to
international
standards. Over
the years, the
percentage share
of secondary producers
(new private sector
players, including
mini steel plants)
has increased;
from a level of
around 44 percent
in 1991-92, the
share of secondary
producers in steel
production increased
to 70 percent
in 2007-08.
Exports
It was in the
post-liberalization
period that the
export of iron
and steel recorded
a quantum jump
in India. During
2007-08, India's
exports were around
five million tonnes;
finished carbon
steel constituted
92 percent of
total exports,
whereas pig iron
and semi-finished
iron together
constituted 8.0
percent. According
to World Trade
Organisation (WTO),
India's share
in world exports
of iron and steel
was 3.8 percent
in the year 2007.
India is also
an importer of
steel; in the
year 2007-08,
steel imports
touched 6.5 million
tonnes, making
India as a net
importer of steel
for the first
time in the post
liberalization
period.
In terms of value,
India's exports
of iron and steel
in the year 2007-08
was US $ 5.5 billion,
and India's imports
of iron and steel
were valued at
US $ 8.2 billion,
leading to a trade
deficit of US
$ 2.7 billion
under this category.
India's export
markets for steel
are well diversified
and less concentrated
as compared to
imports. Major
export markets
in 2007-08 for
steel are: Belgium
(10 percent),
USA and UAE (8
percent each),
Italy and Indonesia
(5.0 percent each),
Germany (4.0 percent),
Iran, Spain and
Thailand (3.0
percent each),
Sri Lanka, UK,
Vietnam and Malaysia
(2.0 percent each).
In terms of imports
of iron and steel,
China was the
major source country
for India with
a share of 23
percent in 2007-08,
followed by South
Korea (11 percent),
Japan (9.0 percent),
Germany (6.0 percent),
Russia (5.0 percent),
USA and Ukraine
(4.0 percent each),
Belgium, Italy,
Thailand and Romania
(3.0 percent each).
During April-October
2008-09, the export
of Iron and steel
grew by 40.63
percent to reach
US $4.3 billion
and the imports
of iron and steel
grew by 16 percent
to reach US $
6.0 billion.
Country-wise Export
of Iron and Steel
from India (2007-08)
The beginning
of 2008 saw a
spike in steel
prices, and the
main factor behind
such spike in
steel prices was
growth in demand
generated by the
construction,
automobile and
infrastructure
industries. However,
the economic recession,
which has taken
a toll on the
growth of all
these sectors,
has led to the
fall in demand
for steel worldwide,
leading to production
cuts and reduction
in prices. The
demand for steel
in end-user industries,
such as construction
and automotive
has fallen. A
slowdown in the
sector could also
result in delays
in implementation
of new steel plants.
Many global steel
majors have decided
to cut output
as the economic
slowdown has dampened
demand for the
steel used in
houses and cars.
Even Indian companies
are looking at
rationalizing
production due
to the economic
turbulence. There
is also threat
of import competition,
as China has announced
scraping of export
tax on steel products,
owing to weak
domestic demand.
Another development
was the fall in
prices of steel
during the third
quarter of 2008.
Almost in all
product categories,
prices have declined,
and in some cases
the decline has
been steep. The
margin squeeze
and contraction
in demand has
made the steel
majors to defer
their expansion
strategies, though
the industry has
committed a capacity
expansion of over
100 million tonnes
in the long-term.
Steel majors may
have to stall
their capacity
additions in order
to avoid further
piling up of stocks.
Lack of demand
and a softening
global scenario
led all large
steel companies,
to announce price
reduction in the
range Rs 3,000
- 4,000 per tonne.
The cut, which
was mainly targeted
at base category
product such as
hot rolled coils,
is subsequently
expected to be
passed through
in all value-added
products like
galvanised steel
and cold rolled
steel that are
more widely used
in consumer goods.
Credit crunch
has led the customers
to defer home
purchases and
also that of consumer
goods, including
automobiles, leading
to a contraction
in demand for
steel. Also, the
end-user sectors,
such as appliances,
farm-machinery
and construction-machinery
manufacturers,
are cutting down
the inventory
levels (thereby
holding new orders)
in order to improve
their liquidity
position. Some
Indian steel companies
have already announced
planned cut in
production by
about 20 to 30
percent due to
demand contraction.
Hence, in the
short term, steel
industry would
face challenges
associated with
demand contraction.
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