Occasional sparks rekindle hopes of Indian steel firms

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The steel industry, which suffered a blow during market meltdown is recovering steadily with occasional sparks rekindling the hope of steel-makers.

Steel production and consumption are one of the major indices of economic growth and development but production and consumption depends on the extent to which market supports such drive. Before meltdown, the steel market was upbeat for long during 2003-08, a good luck period for a steel-maker. The period was marked by a quantum jump in output of crude steel across the world from 970 million tonnes in 2003 to 1,329 million tonnes in 2008 accounting for 37 per cent increase.

Global steel market

Taking advantage of the feel-good factor in the steel sector, many new companies mushroomed with steel making facilities in greenfield as well as brownfield expansion. It suffered a jolt due to the turmoil in the global economy and since then the steel market is witnessing a sluggish growth. Worldwide steel production and consumption started the upward swing from 2009.

During 2010, global steel market remained sluggish due to higher growth of around 15 per cent in production of crude steel, de-stocking and buyers adopting ‘wait and watch' approach. In the current year, crude steel production is likely to grow by 5 per cent as against 15 per cent in the previous year.

This rate may also get affected due to slackening of appetite for growth in China and Japanese mills suffering on account of tsunami and its after-effect.

In the international steel market, it will not be a question of excess availability of finished steel, as in last year rather it will be an issue of consumption.

Given the forecast of rate of consumption being around 5 per cent, international market, except for seasonal drop, will look up during this year. On the world market, Chairman-cum-Managing Director of Rashtriya Ispat Nigam Limited (RINL) P. K. Bishnoi, when contacted said: “China, India, Brazil and South Korea will continue to drive global growth in steel. With Western countries registering positive consumption and growth, the steel market is bound to come out of sluggishness”.

Good sign

The good sign is that the domestic market during 2010-11 was quite subdued but the domestic prices of steel have been ruling more than the international prices.

During the last fiscal, steel market in India started moving up only from December 2010.

An interesting feature from the behaviour of steel market was the response to international scrap price instead of coking coal. Coking coal price on an average rose by $89 a tonne in 2010-11. There was no upward movement in the market but when scrap prices in December 2010 rose by $50 from $425 to $475 a tonne, steel prices started moving up and it stopped rising once scrap prices dropped to $427 a tonne in mid-February 2011.

T. K. Chand, Director (Commercial), RINL, points out that 74 per cent of production in long products remained with thousands of secondary producers. He also said that yearly steel cycle generally started moving up from the middle of third quarter of the year. However, in 2010-11, it started moving up only from December 2010, mainly due to sluggishness in the international steel market.

On the prospects of domestic steel market this year, he predicted that it is bound to look-up given the gross domestic product (GDP) growth projection of 9-9.5 per cent and industry, infrastructure, housing, construction, power and automobile sectors registering reasonable growth rates. However, he said that the margins of steel producers might be greatly eroded due to steep increase in the prices of key raw materials such as coking coal by around $105 a tonne and iron ore by around $30-40 a tonne, which might affect the growth of the steel sector, unless suppliers take a reasonable approach.

In this see-saw game of steel market, it is quite rewarding to review the growth of RINL, one of the main producers located in Visakhapatnam, Andhra Pradesh, which was once upon a time reported to the Board for Industrial and Financial Reconstruction (BIFR), but bounced back to become first a miniratna and now a navratna company. It is also encouraging to note that the company has no key captive raw materials like iron ore and coking coal, yet the company is progressing by its sheer efficiency in value addition.

In the last fiscal, the company has recorded a higher sales turnover of Rs.11,517 crore, a jump of more than Rs.1,000 crore over that of the previous year. Again in 2011-12, RINL is faced with a gigantic task of achieving a target of over Rs.13,600 crore of sales turnover.

Director (Projects) A. P. Choudhary is quite optimistic about completing the expansion scheme in time.

Mr. Choudhary also indicated that secondary refining facilities in steel-making like ladle furnace, electro-magnetic stirrer and RH de-gasser are being set up, which facilitate production of cleaner steel of high-end value addition, suitable for applications such as axles, seamless tubes and automobile components.

On strategies to meet the market challenge, the RINL CMD said that RINL was focussing now on a dynamic market mix with more emphasis on customisation of products and services. He points to the recently concluded ‘Partners' Summit-2011” in taking the customer on-board.

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