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Indicators point to good days ahead for Indian steel industry

That Indian steel consumption in the first two months of the current fiscal has grown by 7%  is good news particularly for an industry planning to add fresh capacities of minimum 5-8 million tonnes by year-end. The skeptics may cite the low base data of last year. Nevertheless, it is worthwhile to examine if the trend of first two months can be extrapolated for the whole year.

First, the coal mining auctioning process has raised the hope of boosting of supply of indigenous coal for steel plants. CIL is putting up maximum endeavours to raise coal availability. It also appears that allocation of mines by bidding mode would lead to raising power costs, but that would happen in later stages and the government intervention into the modality of price fixation cannot be ruled out.

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Secondly, as the same process is likely to be extended for iron ore mines also, there is a renewed hope of activity in states of Odisha, Karnataka, Jharkhand and Goa.

Thirdly, the government has reiterated in MM&DR that mine exploration activities, a non-starter till now, would recommence and each concerned state government has been assured of sharing of financial costs in exploration. PSUs like SAIL is going ahead with further exploration of their captive mines to keep pace with the need of fresh capacity augmentation.

Fourthly, the Railways are being persuaded to lay out tracks in mining areas to facilitate quick evacuation.

Fifthly, in tune with global prices, the indigenous prices of iron ore have been brought down with an assurance of more production by NMDC in FY16. The production growth  of 3.3% in crude steel by ISP plants and of 0.4% by mini and other mills  during April-May ’15 are reflective of the above developments.

The continuation of this trend in Indian steel industry is however dependent on some of the macro factors. It is now increasingly felt that marginal drop in Repo rates leading to insignificant reduction in lending and deposit rates by the commercial banks is not going to fuel investment activities in a large way. The rising volume of stalled projects in power, manufacturing, ports, roadways is undermining fresh investment intentions. The response of the lending banks in restructuring the credits extended (5/25 is one of them) is sector-specific and cannot be broad based unless improvement in market scenario is perceived over all sectors. Latest cases of Essar steel and Bhusan steel having their loans recast may not immediately trigger of similar fortunes for other stalled projects. The likely turnaround in steel sector in the coming months following revival of projects in infrastructure is the point in favour of the industry.

Also from the NPA point of view, it is always prudent to focus on the large debtors and steel sector provides ample examples.

It is indeed unfortunate that one of the most reputed consultants in global steel industry does not share the in-built potential of Indian steel industry to grow and sustain the good fortunes and considers the capacity augmentation endeavours by Indian steel majors as merely adding to the global excess supply syndrome and favours that India must recommence exporting iron ore.

As a case in contrast, Arcelor Mittal, POSCO, Nippon-Sumitomo, JFE, Hyundai  have expressed keen desire to invest in India in joint ventures or as equity partners  to transfer technology to their Indian ventures so that mostly value-added products which are not indigenously available are produced to cater to the growing segments like automobile, power equipments, oil and gas, construction. This trend squarely puts to rest all misgivings on the expansion of Indian market or good exporting opportunities from India. A 36% lower exports compared to last year should be a thing of the past.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal

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