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Growth of consuming segments must resurface to restore stability

Sushim Banerjee

There are two scenarios that are emerging in the industrial scenario of India. If the impact of the pandemic is controlled and managed by next week, it is great news but at the same time, it sounds optimistic. The rate with which the outbreak is wreaking havoc all over the globe and specific countries are becoming the major victims of the same, it does not seem it is going to ebb immediately.

That brings back the second scenario which is significant. Like other countries, the government has just announced industry lockdown. This may be for a limited period, one week or so. But the direct and indirect impact of complete halt of production and distribution activities in the last week of March has a disastrous impact on turnover, logistics, banking and finance and partially hampers the activities of all. However, the industry must take a pro active and positive view of the challenges as the alternative is severe loss of human lives. The contingency plans must be in place by each unit depending on its strength, coverage and interest of the employees. We may also take a feedback from other countries in this regard.

Coming back to the state of steel industry in the first 11 months of the current fiscal, it can be surmised that growth and health of the industry was reasonable. During this period, the crude steel production at 101.1 MT rose by 0.2%.

Steel production in China for February till April 2020 would be much lower compared to last year. It would have a reverse impact on their consumption and exports and would bring down Chinese import of iron ore and coking coal in 2020 with resultant impact on global prices.

The production by major steel plants in India that comprised 57% of the total production during April 2019 to February 2020 was nearly at the same level as previous year. Comparatively, steel production by SME sector with a share of 43% rose by 0.4% over last year. The inventories with major steel plants were higher by 0.217 MT than last year's level.

The import of total steel during the period at 6.8 MT was lower by 16% compared to last year. It is seen that South Korea, Japan and China took 73% share of the total import arrival. Product-wise, total import of HR coils, CRC, coated products, electrical sheets and Pipes and Tubes consisted of 55% share of imports. Despite repeated appeal by the domestic producers, the import of defective/seconds of tin plate at 1,66,000 MT and of coated sheets at 1,63,000 MT continued during the period, although the flow of defective steel has dipped.

Seconds grade of tin plates arrive from Belgium, the US and Spain and defective coated sheets flow from China, Vietnam and Korea. Among HRC, the predominant quality/grade was rerolling and line pipe grades and among coated sheets, the major varieties were galvanealed, pre painted galvanised. The production constraint by domestic producers in supplying API grade pipes of more than X-70 has led to maximum arrival in HRC and plates.

India has imported 6.14 MT of melting scrap during this period which is 3.8% higher compared to last year. As sponge iron production at 34.5 MT displays nearly 9% more than the last year's level during April 2019 to February 2020, these two facts taken together is indicative of the marginal increase in output by the SMEs. The import of ferro alloys at 0.6 MT surpassed last year's level by more than 19%. It is noteworthy that imports of alloy steel/SS at 1.9 MT were around 3% higher as opposed to last year.
While alloy steel market suffered due to challenges in automobile market, the SS demand from building and construction and also from household segments were subdued. Total steel exports at 10.43 MT which were growing at a high rate till December 2019 slowed down and were 34.1% higher compared to previous year.

The major destination for Indian steel exports was Nepal, UAE, Vietnam and Italy that comprised 45% share of the total exports. Product-wise, major exports were of HRC, bars and rods, GP/coated products, and pipes and tubes. There are some views if India can replace Chinese exports to Southeast Asia and Vietnam in the post-coronavirus period of Q4 FY20. This would be known in April onwards as economic activities in all these countries have also suffered. The other export destinations are also major casualties thus creating a big question mark on the export performance in the coming months.

The Apparent consumption of finished steel at 92.7 MT exceeds last year's level by 3.9%. We may end up the year with 4% surge to 102.6 MT. Still this growth would be significant in the global perspective. This is an exceptional March when traditionally steel production and consumption rise at their peaks. The sustainability of the crisis beyond another one and half months may cause return to normalcy indeed painful and time-consuming. Steel industry thrives on derived demand. Health and growth of all other consuming segments must resurface to restore stability in the sector.

(The author is DG, Institute of Steel Development and Growth. Views expressed are personal)