The new government is in place, economy is going through some major changes throughout its architecture and Steel sector is no exception. Here are the 2014 highs and lows for Steelmakers which may build a momentum in the growth pattern.
The master plan to build Indian Steel Sector looks quite promising. If our math is correct, an estimated mining of 142 MnT of Iron ore can certainly feed about 97 MnT of steel manufacturing set ups, with some minor imports in India,as long as these are 100% operational. Infrastructure is the backbone of a developing nationand it links with the performances of Steel, Coal, Gas, Cement and Electricity. Crude Steel production during FY14 was about 85 MnT, i.e. India utilized about 87% of its set ups.
Speaking to various steelmakers and experts, anticipation is that the demand might uptick during FY15. Up till end of May 2014, the time was marked by a mix of highs and lows. 2014 highs and lows for Steelmakers defines factors that might affect steel outlook.
- Coal: Soon after new government formation, Coal has been given a priority check. About three of the previously de-allocated mines have been put back on auction. There has been news that the government will take additional efforts to collect already mined coal by developing new rail linkages.
- Infrastructure: Projects were crashing during FY14, growth rate of just about 2.6% was seen. However, projects worth INR 15 trillion are on the verge of completion and commissioning might start by the end of this year.
- Steel Scale ups: These also include Burnpur Steel Plant which will expand its capacity to 2.5 MnT per year. SAIL would scale up its total steel production to about 23 MnT from the current 14 MnT capacity. India will have an additional 10 MnT of Steel Long capacity and 6 MnT of Flat during FY15. Pellet plants in India have already scaled up to about 49 MnT, i.e. about 10 MnT additional over FY13.
- Economy: INR gained robustly (INR 58.76/USD on 21st May), economic indicators are looking strong(Inflation closed at 8.59% in April, USD 1.2 billion CAD in May FY14), business indices are at never before seen numbers (Sensex 25,000 and NIFTY at 7,000 on May 16th)all these, backed up by huge investors’confidence and optimistic sentiments of countrymen, dictates that the wave has come. It has been said that 2014 is a year of reform.
- Iron ore: There has been a constant setback with the basic ingredient of steel from previous three years and this year, was no exception. We estimate about 19 MnT of iron ore shortage which would come from suspended mines’ operation in Odisha during May’14. Although, a few might restart on express renewal orders.
- Prices: The expanding production capacity coupled with raw material shortage might just bring in a situation where prices might be affected.
Looking at eight core sectors’ growth rate, one would realize that total growth rate has been about 2.6% in FY14. If India is to meet 6% GDP growth rate, then one should closely look at the damage in these core sectors, which requires a fix.
|Industry||Growth Rate (in %)||Index Weight|
|Source: Ministry of Commerce and Industry|
These 2014 highs and lows for Steelmakers raises some obvious questions. Can we really pull up growth rate of the steel sector? Will we have enough raw material to feed the plants? What will be the measures taken by the new government to repair the damages? Perhaps, these are a few questions which need contemplation during this fiscal.