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Need to revisit steel for industrial growth

  • As per the estimates of World Steel Association, global steel demand is expected to surge by 1.78%, reaching 1805.7 million tonnes by the end of this year. Steel production is highly concentrated to China, which roughly produces 53% of the global steel output, followed by India which represents 6% of the same.
  • In 2019, despite the global slowdown, steel production burgeoned by 3.68% signalling a relatively higher demand.
  • India has the maximum growth forecast of steel demand which cogently depicts the intensity of economic activities taking place in manufacturing sector. Overall, India exports 6.8 million tonnes of steel. Major export destinations of Indian steel are Nepal, Belgium, Italy, UAE, Vietnam, Spain, USA and Indonesia.
  • Indian steel companies may need to improve their product for further guidance and supply to the sophisticated consumers, such as manufacturers of original auto machinery (OEM). 

Steel Manufacturing

Image credit : https://bit.ly/31KXNhS

India’s initial growth model after independence followed the approach of trickle-down effect aggressively focusing on heavy industries including steel. It is widely known as Mahalanobis model of growth. The steel industry is often seen as the backbone of the economy. The period of industrial growth is often compared to the prosperity of the steel and steel sector; similarly, industrial idleness is being undermined by the demand for steel and steel, resulting in a sector-strong phase correlation among the two. In 2019, despite the global slowdown, steel production burgeoned by 3.68% signalling relatively a higher demand.

Again, after seven decades, steel sector is revamped through eclectic initiatives and framing of the National Steel Policy. This policy aims to structurally change India’s steel production, exports and consumption outlook. It envisages to domestically meet the entire demand of steel and high-grade automotive steel, electrical steel, special steel and alloys for strategic applications. The policy projects crude steel capacity of 300 million tonnes (MT), production of 255 MT and a robust finished steel per capita consumption of 158 Kgs by 2030-31, as against the current consumption of 62.7 Kgs.

Relevant Products of Steel and their HS Code

Categories HS Codes
Primary materials, products in granular and powered form 7201, 7202, 7203, 7204, 7205
Iron and Non-Alloy Steel 7206, 7207, 7208, 7209, 7210, 7211, 7212, 7213, 7214, 7215, 7216, 7217
Stainless Steel 7218, 7219, 7220, 7221, 7222, 7223
Other Alloy Steel; Hollow Drill Bars and Rods, of Alloy or Non-Alloy Steel 7224, 7225, 7226, 7227, 7228, 7229
Articles of Iron and Steel (Other than Tubes, Pipes and Hollow Profiles) 7301, 7302, 7307, 7308, 7309, 7310, 7311, 7312, 7313, 7314, 7315, 7316, 7317, 7318, 7319, 7320, 7321, 7322, 7323, 7324, 7325, 7326
Tubes, Pipes and Hollow Profiles 7303, 7304, 7305, 7306

As per the estimates of World Steel Association, global steel demand is expected to surge by 1.78%, reaching 1805.7 million tonnes by the end of this year. Steel is highly concentrated to China, which roughly produces 53% of the global steel, followed by India which represents 6% of the world steel output. When it comes to the top steel exporting countries, China, Japan, South Korea, Russia, EU, Turkey, India and Brazil feature in the list. Similarly, USA, Germany, Italy, Vietnam, South Korea, Thailand and Turkey are the major importers of steel. India exports primary and raw form of steel due to the availability of natural resource. Currently, global steel demand will be driven by India and China. The rest of the world is expected to record 0.2% growth in 2020.

Source: World steel association, figures in million tonnes

 

Table: Top 10 Steel Using Countries

Usage of steel in million tonnes Y-o-Y growth rate in %
Country/Time 2018 2019 2020 (f) 2018 2019 2020 (f)
China 835 900.1 909.1 7.9 7.8 1
United States 99.8 100.8 101.2 2.1 1 0.4
India 96.7 101.6 108.7 9.1 5 7
Japan 65.4 64.5 64.1 1.6 -1.4 -0.6
South Korea 53.7 53.9 54.2 -4.6 0.4 0.4
Russia 41.2 43.2 43.9 0.7 5 1.5
Germany 39.6 37.2 37.8 -3.5 -6 1.5
Turkey 30.6 26.1 27.7 -14.9 -14.5 6
Italy 26.3 26.9 27.5 4.5 2.6 1.9
Mexico 25.6 24.7 25.1 -3.5 -3.5 1.6

Source: World Steel Association, ‘f’ stands for forecast.

According to the table, India has the maximum growth forecast of steel demand which cogently depicts the intensity of economic activities taking place in manufacturing sector. Even during slowdown or sluggishness, steel demand remains relatively moderate being a core sector. Since developed economies are expected to experience tad growth in steel demand, developing economies like India can be the engine of growth which will further be facilitated by the implementation of National Steel Policy and industry 4.0.  Also restructuring of automobiles through engine shift (from combustion to EVs) and BSVI compliance, steel is definitely not going to see stagnancy in coming decade.

Exports to India’s top 10 steelmarkets represented 63% of India’s steel export volume. Overall, India exports 6.8 million tonnes of steel. Major export destinations of Indian steel are Nepal, Belgium, Italy, UAE, Vietnam, Spain, USA and Indonesia. India’s steel production in May and June 2020 surged by double compared to the figures of March and April of the same year.

Steel in Construction Sector

Growth in the global construction sector is expected to decrease by 1.2% in 2020 after a 2.8% growth in 2018 and a decline in 2019 by 1.5%. The images of the economic construction work developed from 2019 to 2020 are mixed in some way. The US construction sector is expected to weaken by 2019 with no work by 2020. In Europe, the construction sectors in Germany, Spain, the Netherlands, and the Central European economy, while currently sustaining growth, will decline eventually due to the deterioration of the economic base and constraints in a construction capacity. Civil engineering is expected to be the driving force behind the investment in electricity, transportation, and communications.

The Japanese construction industry is expected to report almost no growth as the decline in residential buildings will be offset by the growth of civil engineers. The Korean construction industry is expected to continue to receive contracts despite support from community projects. Construction in emerging markets will intensify, largely influenced by infrastructure projects. In China, the real estate sector boosted construction growth till 2019, but by 2020 this seems to plunge. Infrastructure investment is expected to boost government incentives. In ASEAN and India, active infrastructure investment is expected to drive construction which can also be corroborated from the forecasted growth of steel usage.

Steel in Auto Sector

Global car production declined in 2019 and is expected to contract in-depth in 2020 and will also spread to many major markets including Germany, Turkey, China, and South Korea. The automotive market is plagued by global economic factors including, purchase cuts and incentives to motivate and admire more customers during the transformation of the automotive industry from a hybrid-powered motor engine to fully electric vehicles. This decline has been particularly severe in Germany and China with passenger car production declining by 10.6% and 13.8%, respectively in 2019. The Chinese government is expected to introduce more tax incentives to increase passenger car sales, especially new energy vehicles. This could lead to recovery by 2020. In the US, the automotive market is expected to proliferate slightly by 2020, but the use of steel is expected to benefit from the transition to a light truck model. Japanese and Korean car manufacturers are affected by weak export markets. India’s automotive industry has suffered from liquidity problems and a weak global demand to show staggering growth in 2019, but it is expected to take place in 2020 due to recovery phase.

Current Focus Points

Steel firms across the world are operating in a challenging environment of rising installation costs and limited prices, leading to low profit margins. Ensuring a competitive advantage, steel makers should focus on reducing costs,especially operating costs. Operating expenses need to be paid down by adopting strict cost control steps and measurements.

Further, Indian steel companies may need to improve their product for further guidance and supply to the sophisticated consumers, such as manufacturers of original auto machinery (OEM). This includes establishing wide modification and binding lines (e.g., Galvalume) forward to integrate service centres to meet OEM requirement added value products (e.g., blank spaces, laser,integrated space).

The promise of improved products and the availability of inclusive companies ensures high product reliability among its customers, leading many steel manufacturers to take steps to create their own labels. The branded products offer authenticity and serve as a token, quality guarantee and allow the company concerned to charge the premium product fee after customer approval. Thus, branding remains an imperative pillar for becoming a protagonist in steel sector. Henceforth, it becomes important to focus on these domains as they can be the impetus factors.

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