Indian steel industry-in a capsule
This article is continuation of earlier Article ASIAN STEEL INDUSTRY-SERIES 1 CHINA. If we look at India we find that historically the Indian steel industry entered into a new development stage from 2005–06, resulting in India becoming the 5th largest producer of steel globally.
• Producing about 55 million tonnes (MT) of steel a year, today India accounts for a little over 7% of the world’s total production.
• Steel production reached 28.49 million tonne (MT) in April-September 2009. Further, India, which recorded production of 22.14 MT of steel during April-August 2009, is likely to emerge as the world’s third largest steel producer in the current year.
• The National Steel Policy has fixed a target of taking steel production up to 110 MT by 2019–20. Nonetheless, with the current rate of ongoing green-field and brown-field projects, the Ministry of Steel has projected India’s steel capacity is expected to touch 124.06 MT by 2011–12.
• India’s steel consumption rose by 5.7% to 26.49 MT in the first six months of the current fiscal over the same period a year ago on account of improved demand from sectors like automobile and consumer durables.
The chart below shows the growth of India steel production.
Indian demand for steel consumption is increasing in the coming days. We get proof of the putting when we analyzed and found that steel players like JSW Steel and Essar Steel are increasing their focus on opening up more retail outlets pan India with growth in domestic demand. JSW Steel currently has 50 such steel retail outlets called JSW Shoppe and is targeting to increase it to 200 by March 2010. They expect at least 10-15%of their total production to be sold by their retail outlets. Huge flow of investments will happen in the coming days in the steel sector due to increasing trend of domestic consumption.
Investments in Indian steel industry :-If we look into the type of investments that have happened after recession in India we get very impressive and bullish outlook on the sector.
• According to the Investment Commission of India investments of over US$ 30 billion in steel are in the pipeline over the next 5 years.
• Very recently Tata Steel has raised US$ 500 for its expansion of Jamshedpur plant and overseas mining projects.
• Many Steel companies have committed US$ 122.50 million for setting up sponge iron units in Koppal and Bellary in Karnataka.
• Even SAIL have declared that they will invest US$ 724.12 million to set up a 4-million tonne per annum steel mill at its Bhilai Steel Plant.
• Uttam Galva Steel plans a capital expenditure of US$ 62.8 million-US$ 104.6 million over the next two years for setting up of a 60 MW power plant. The power plant will help reduce its production costs.
Fortune of steel prices in 2010
• Steel prices are set to go up from January 2010 due to increase in raw material costs, like iron ore and metal scrap.
• Led by demand from China, prices of iron ore—the key raw material for pig iron—have gone up sharply over the past two months to $106 per tonne from almost $81-$82 per tonne.
• Coking coal prices have also gone up to $165-$170 per tonne from $128 per tonne as China imported more coking coal this year.
If we look into the distribution of iron ore inventories we find:
• According to a report by industry consultancy, this week, iron ore inventories at China’s major ports rose by 830,000 tonnes to end at 66.75 million tonnes.
• While stockpiles of ore originating from Brazil increased by 180,000 tonnes to 19.1 million tonnes, and Indian ore rose by 830,000 tonnes at 13.18 million tonnes.
• Australian ore inventories fell by 480,000 tonnes to end at 21.95 million tonnes by the end of the week.
• Chinese iron ore prices remained steady, the average price of imported iron ore increased by 2.3%. Iron ore prices are 25.8% higher than December 2008.
So raw material prices followed with stringent position of inventories of iron ore steel prices are on the track of a major jump of prices of raw materials.
In Indian and global context the raw material negotiations are slated to start in January and indications are that the increase in new contract prices could be between 10% and 30%. Last year, iron ore contract prices were sealed at $80 a tonne (Rs 3,742). Currently, spot iron prices in China are trading at $126 a tonne (Rs 5,893), an increase of 13.5 per cent in the past six months. Coking coal prices have increased to $186 (Rs 8,692) a tonne since May. Last year, contract prices were $129 (Rs 6,033) a tonne.
Industrial analysts see iron ore prices going up by about 10% to 20% next year on increasing demand as the world economy recovers. In the coming quarters steel sector is set to make a living in a Competitive Economy from an Easy economy that took birth from recession.2010 will be a period for steel industry where growth will be high along with huge wave of demand, but with many twist. Like wise RBI rate hikes which will push up the cost of borrowing, higher commodity prices and inventory position of iron ore. But among all these we are bullish on the steel industry in the log run with few hiccups in short term.
Author: – Indranil Sen Gupta,
Financial, Economic Writer and Research Analyst