Posted on 08 Mar 2021
Has the steel industry left behind the phase of declining demand, fresh capacity addition not finding adequate market, falling prices, rising production cost and therefore a continuous period of poor Ebitda? No doubt, Covid 19 pandemic has added fuel to the fire that literally burnt the backbone of many industries globally, large or small, apart from taking away the lives of more than 2.5 million and throwing out a few more millions out of their job and occupation. Against this background, a 4.8% rise in global steel production in January brings in a fair amount of fresh air in this atmosphere of gloom and despondency.
China still remains an enigma with nearly 7% growth in the month after producing over 1.05 billion tonne of crude steel last year. India’s production of 10 MT in January, which exceeds last January’s production by 7.6%, implies that estimated shortfall in steel production in FY21 compared to last year would be minimised.
Globally, the steel market after the end of Lunar holiday period in China is looking up. The stimulus measures by the governments appear to be the prime mover. The EU is in the midst of implementing $2.19-trillion recovery plan to lend support to the region as well as decarbonisation efforts of steel industry. An investment of $1.9 billion is planned on 55 rail infrastructure projects. A good volume of idle capacities in EU is coming back to action to serve the pick-up of demand in post-Covid market. There is a lot of discussion among member countries in EU on continuation of safeguard measures on steel imports.
Hopefully, the Chinese domestic demand from February onwards is likely to rise on the back of higher construction activity in housing and commercial areas. The stimulus measures by the Chinese government on infrastructure are continuing in railways, bridges, roads, flyovers coastal waterways and infra segments. The proposed cut in export rebate by China is making domestic market relatively more attractive for Chinese producers. In the coming months it may lead to firming up of Chinese export offers. Further, the rising steel production in China is supporting the current high prices of merchant iron ore.
Chinese investment in developing infra in ASEAN markets is also helping to boost steel demand in these group of countries.
The Philippines has announced a massive $ 20.8 billion for public infrastructure. Indonesia is another country receiving Chinese investment in metal sector. In the US, the president is seeking approval on $1.9-trillion investment primarily for infra sector. It also includes one-off payments to individuals depending on various income levels. It is expected that it would lead to increased spending in the economy. However, the impact of higher infra investment is perceived to contribute to rejuvenate US construction and manufacturing sectors. Steel producers in the US are largely in favour of continuation of 25% duty on steel imports under Section 232 of US Trade Act.
It is, therefore, apparent that public/federal investment on infrastructure in the post-Covid scenario has been accepted as one of the major demand drivers in all developed and emerging economies, and India as the second-largest steel producer has rightly adopted similar capex enhancing measures in the annual budget for FY22. The total capex including IEBR of Rs 11.4 lakh crore for the next year would be spent on roads, railways, metro connectivity, industrial parks, industrial corridors, DFC, transportation of water, oil and gas, transmission towers, affordable housing.
There are a few challenges to this near-ideal scenario for the commodity markets like steel, cement and other ferrous and non-ferrous and mined products. First, the capex announced must start getting spent in identified projects before the year ends. Second, the indigenous supply mechanism must be readjusted at each level to match the demand flow. Third, productivity linked initiative details must be made available for implementation during the year. Fourth, as basic customs duties have been brought down across the board on all steel items, import monitoring and regulatory mechanism must be strengthened to the maximum extent possible in order to restrict and eliminate non-essential import.
Source:Financial Express
