Source: Financial Express
There is a near unanimity on the view that the market growth in steel at 3% in FY17 is good but the envisaged growth potential of the sector is much more. The growth achieved is good in the backdrop of a meagre 0.4% growth in industrial production in the first 11 months of last year with manufacturing sector dropping by 0.3%.
It is seen from the official data that capital goods that comprise of heavy machineries and equipment have gone down by a whopping 14% during the period.
A major sub-sector, ship-building and repairs have curtailed its activities by nearly 50% in February 2017 itself.
Also, the electrical machinery and apparatus segment has experienced a high negative growth of around 36% in the total period in spite of growing by more than 17% in February. Consumer durable sector that includes passenger car segment had a sober growth of less than 5% with 3 wheeler segment along with passenger and goods carrier nosediving by 24.5% during the month and furniture manufacturing going down by 4.2% during the whole period.
The subdued growth of 4.6% in electricity generation in April-February 2017 period in the country is indicative of such a massive fall in output of electrical machineries. The total consumption of electrical steel sheets has gone up marginally compared to last year, mostly contributed by rise in indigenous availability (electrical sheet production rising by 90% in February 2017) and more than 9% drop in imports of CRNO/CRGO.
It is worth mentioning that growing considerations of carbon footprints and the commitment to reduce environmental pollution by the government as part of its pledge to international agreements, would need a planned diversion from the coal-based power to hydro based and other non-conventional (solar and others) sources. This shift in electricity generation technology away from thermal power stations to other modules has implications for the demand for CRGO and special grades of CRNO for making electrical transformers and other equipment.
A product development strategy by the indigenous steel manufacturers to develop steel grade (EN-10025 S 355 JR/JO/J2, 460 NL/ML) for making wind turbines is urgently called for to stem the flow of imports of required steel grade.
The overall limited growth in industrial production has expectedly affected the consumption of flat products more than the long products which are mostly influenced by growth in infrastructure and construction. As the import component in flat steel (including the pipes category) in the current year by India is around 86% of the total imports, the above trend is likely to act as a dampener to flat imports in the coming month.
During FY17, the total finished steel imports by India consisted of around 9% of the steel consumption (import penetration). This is appreciably lower compared to the US and Korea, but significantly higher than China, Japan and Russia.
Korea and China provide 54.5% of total import flows, followed by Japan (14.4%), Indonesia (4.3%) and Russia (3.7%). The single category where imports exceeded the last year’s flow relates to tin plate. It may be mentioned that the imports of seconds/defective/ waste waste component comprises of 58% of total tin plate imports in FY17 and is around 16% more than imports of prime grade imports. There is little justification of specific requirements of waste products in manufacturing of a consumable item other than the pricing element.
The average import price of $548/t (CFR) at which waste waste grade tin plate has been imported is lower by around $100-105/t (CFR) of the prime grade imports of tin plate. It is worth considering (by ISA or any other organisation) if the banning of a waste product particularly eliminating it from the list of mercantile trade is a fit case to be taken up with WTO so as to prevent the possibility of misutilisation of the imported product in the critical user segment.
If pricing issue is predominant in determining the users’ preference, irrespective of the criticality of the application, the government must consider imposing a differential duty pattern to check the menace.
It is also seen that a quantity of 50,000 tonnes of seconds/defective grade cold rolled sheets and coils has been imported this year at a cfr price of $230/t against the prime grade imported price of $ 651/t (cfr). The domestic steel industry needs to concern itself with unabated flow of cheap and defective imports.