Download Report of Sub Group - Steel Furnace Association of India

Ahmed S.Firoz
These are personal views of the author and should not be
attributed to any government agency.
40000
30000
20000
10000
India's GDP Growth Rate (%)
9.59.69.3
2010-11
2009-10
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
2008-09
8.4
8.0
6.8
8.0
7.5
7.47.6
6.7
6.5
6.3
5.7
5.5
5.1
4.6
4.1
3.6
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
1991-92
0
1996-97

50000
1995-96

60000
1994-95

India's GDP ( billion INR)
1993-94

Consistent growth of the
economy, despite global
economic turmoil. Relative
insulation, low global exposure
and the prudence of the
banking sector are reasons.
Falling growth rate in the recent
months : still better than the
most, but, can snowball into a
significant mid term slowdown
of the economy.
Expect the growth rate to fall to
6.5-6.75 % in 2011-12.
Oct.-Dec 2011 growth rate has
dropped to 6.1 per cent.
Government intervention
potential to arrest slowdown is
limited. No pump priming is
visualised.
1992-93
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Index of Industrial Production : Base April
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Tight money supply :slowing
down investment and cutting
consumption.
After manufacturing, it is the
services sector that is slowing
down.
Weaker sentiments ,cautious
investors, high costs of capital
and diminishing real
opportunitiespile up woes for
the economy.
No Visible Feel Good
Factor
2004
206.2
166.6 164.2 165.5 172.1 165.2 172.1 165.2 172.1
GDP
Manufacturing
Construction
Trade, Hotels, Transport and
Communications
176.4
187.3186.5
166.8
179.4
176.1 174.2
182.6
176
Growth rates October
Growth rates April-–December 2011-12,
June 2010-11, YoY YoY
8.3
6.1
7.8
0.4
8.7
7.2
9.8
9.2
Financing, Insurance, Real
Eastate, Business Services
11.2
9
Community, Social and
Personal Services
-0.8
7.9
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Capacity constraints, inflation expectations and
speculations are adding to inflation worries,
despite recent relief.
Food inflation is politically sensitive issue. Food
prices are stable currently with a good winter harvest.
Higher costs of capital are contributing to inflation
spiral.
Despite comforts on inflation, RBI is likely to take
cautious stance on money supply.
Inflationary pressure can be expected to be reduced as global
commodity prices fall. But, government’s income and
employment generation schemes, lower productivity and
capacity constraints in critical industries and infrastructure
will work the other way.
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Uncertain policy terrain, poor infrastructure,
social resistance, legal issues and high costs
of capital eroding investor confidence.
Sharp drop in both FDI ( till December 2011)
and private equity flows are hitting Indian
large businesses.
India’s cross border investment outflows are
turning higher than inflows. Sign of
shrinking domestic investment potential?
Banks are seeing rise in non-performing
assets. Future credit flows may be impaired.
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Indian economy may slow down to a growth
rate of 5.5-6 per cent in 2012-13, resulting
from concurrent issues in manufacturing,
services and agriculture sectors.
Savings and investment rates are already
down to 30% from their peaks of about 38
per cent. No major improvement foreseen in
2012-13.
The GDP will turn stronger in 2013-14
onward as one expects the current problems
to be sorted out.
Steel Industry
Finished Steel Consumption (million tonnes)
62.1
56.1
Crude Steel Production ( Million tonnes)
Source: Joint Plant Committee
The Indian steel industry
withstood the turmoil and the
uncertainty caused by the global
financial crisis in the mid 2008
and came out to record
uninterrupted growth despite
adverse externalities.
2010-11
2009-10
2008-09
2007-08
2006-07
2005-06
38.9
2004-05
2002-03
35.3
2003-04
32.7
2001-02
29.9 31.0
2000-01
1999-00
1998-99
28.2
25.5 26.5
1997-98
1996-97
23.2 24.7
1995-96
20.1
1994-95
14.8 16.0 16.5
1993-94
58.4
1992-93
46.5
53.9
69.4
1991-92
43.4
50.8
64.9
49.4 49.0
43.5 44.3
Steel demand has slowed down sharply in
2011-12 ( till February 2012).
Pricing conditions in steel in the country
have remained weak.
Lower input costs are likely to be passed
on to the buyers.
Despite significant growth in steel
exports (23.1%), India remains a net
importer of steel.
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Forecast of Steel Demand by the Working Group on Steel for 12th Five Year
Plan (million tonnes)
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
Domestic Demand for Carbon Steel
66.5
73.3
80.8
89..1
98.3
108.3
Domestic Demand for alloy steel
3.5
4
4.25
4.5
4.75
5
Total Domestic Demand for Steel
70
77.3
85.05
93.6
103.05
113.3
Imports
7
6
5.5
5.5
5
5
Exports
3.3
4
5
6
7
7
Net Exports
(-)3.7
(-) 2.0
(-) 0.5
0.5
2
2
Production net of double counting
66.3
75.3
84.6
94.1
105.1
115.3
25.00
20.00
15.00
ASU Growth
rate
10.00
GDP Growth
Based on 9% GDP growth rate and consequent 10.3%
steel consumption growth rate.
The key issue is whether GDP will manage 9% growth
rate over the entire plan period.
The current economic crisis has not been factored in
adequately.
rates
5.00
0.00
Steel consumption tends to fall sharply with reduced
investment. Weak investment phase has just started.
Actual demand for steel could be much lower than
forecast above.
1 3 5 7 9 11 13 15 17 19
-5.00
Crude Steel Capacity ( Optimistic
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Opportunities seen in the Indian steel
market have brought in significant
investments in both greenfield and
brownfield steel projects.
Crude steel making capacity is set to grow
from 78 million tonnes in March 2011 to
89 million tonnes in 2012, 119 million
tonnes in 2014 and 149 million tonnes in
2017, on a rather optimistic scenario.
Bulk of the immediate capacity expansions
are on the brownfield sites and in final
stages of completion.
Greenfield projects have been delayed due
to stricter environmental regulations and
delays in land acquisition.
There has been a slowdown in completion
of the brownfield expansion projects as
well., despite being firmly footed.
Projections)
141
149
129
119
105
89
78
9
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There is literally no long term market risk.
Large home market growth potential to mitigate market risk.
Steel demand may rise very sharply once the economy moves
into the next round of investment in industry and
infrastructure.
India’s current steel consumption intensity in GDP and per
capita are so low that at the current technology state of the
world, there will be only an upward movement from the
current position.
Huge opportunities in infrastructure and housing.
Consumption of steel intensive products has taken off to a
higher base. The uptrend will gain further strength.
Large integrated mills may replace smaller uneconomical
units.
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Industrial growth continues to be slow despite reasonable GDP
growth.
Poor logistics and transport infrastructure and energy shortage
will hit steel demand growth potential.
Indebtedness of Indian steel mills rising ; in some cases
alarmingly. The ongoing and planned investments will be hit.
New investments will be seeing the last miles in a global excess
capacity conditions.
India’s steel demand may remain constrained by inadequate
domestic production as imports may not reach all consumption
areas due to transport bottlenecks and overall costs.
Alternatively, domestic consumption growth may continue to be
based on imports, dominated by coastal markets and in the
absence of immediate domestic supply. Imports with strong
foothold in the domestic market can ruin investment prospects
in Indian steel capacity.
Focus on rural development will reduce steel intensity in GDP.
Reduced steel consumption in China is a major concern both
from the point of prices and rising imports.
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Start up of greenfield steel projects. Non-availability of adequate land at the
right place.
Delays in land acquisition and in getting other clearances.
State government machinery is ill equipped to handle clearances of large
projects quickly.
Managing project costs and gestation lags. High capital costs can be cause of
immense concern.
Environmental and societal concerns may lead to increased project costs : but,
all in line with global trend.
Import dependence on high cost coking coal.
Skilled and semi-skilled manpower shortage in the medium term.
Poor state of the existing infrastructure can reduce market penetration for
new large entrants.
Inadequate infrastructure to raise costs of production and sales of steel.
Inadequate mining resources available for captive ownership.
Improper planning and faulty market signals leading to inappropriate choice
of product mix causing market and capacity imbalance.
Trade liberalisation, supported by FTAs and PTAs, Indian steel will face far
greater competition in the future.
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Most steel and mining industries related infrastructure projects are already
included in the government agenda. A trillion dollar investment on infrastructure
is being planned for the coming five years.
However, actual availability of funds may not be as much. Even if so, the actual
requirement for the projects in hand is much larger. This will lead to very thin
spreading of the resources over many projects leading to their collective
incompletion, unless the same is prioritised properly .
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Significant investment is needed in the infrastructure to handle imported coking
coal at ports and railway systems to minimise costs of transportation and handling.
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Steel mills in the coasts are looking to captive jetties, but, require government’s
financial and policy support.
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PPP models are being encouraged for developing the port infrastructure in the
country. With this the dependency on road and rail will be reduced and there will
be an optimum usage of our sea networks.
Infrastructure
Infrastructure
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Indian steel industry has the advantage of significant reserves of
high quality iron ore that can be available to the steel producers
at reasonable costs.
But, excessive exports may deprive the local producers of high
grade ores at competitive prices if they do not have captive
resources.
The most important constraint for the Indian steel industry’s
growth could be shortages of high quality coking coal and
continued dependent on imports.
India’s imports of coking coal have been in the range of 27-29
million tonnes and the same will shoot up sharply with the
commissioning of the new capacities in the coming years.
Indian companies are looking for investment to secure their
supplies of coal. Several Indian companies have invested in coal
assets in countries such as Australia, Indonesia, Mozambique, the
USA and Canada. Investments have been in both coking and noncoking coal assets.
Indian steel makers will additionally require to secure their energy
demand and may have to also secure natural gas assets.
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