Domestic steel makers unable to meet strong demand. Still lag in pricing and production efficiencies due to input cost escalations, poor logistics and slower technology upgrade

Impact: Negative (Construction Industry); Negative (Steel Industry)

Brief: Indian steel industry increased production by over 6.8% in YTD FY19 - double the growth as compared to same time last year. Despite this, Indian steel prices have risen by 28.8% in YTD FY19 as compared to 15.9% increase during same time last year.

In the face of trade wars and anti-competition practices, steel has been one of the most impacted commodities in the world today, especially after the US administration's decision to impose 25% import duty on steel. India is a case in point here as the country had earlier put Minimum Import Price (MIP) on steel imports from China and has additional anti-dumping duties in place to safeguard its domestic industry. Despite this, Indian steel prices have risen by 28.8% in YTD FY19 as compared to 15.9% increase during same time last year.

What is surprising however is the fact that domestic demand remains very strong and global steel production has in fact increased. Consumption for steel in India has expanded by nearly 8% this year so far and remains consistent with the previous year's strong growth. Domestic production side is not far behind, as Indian steel industry, which currently ranks as the world's 3rd largest, increased production by over 6.8% in YTD FY19 - double the growth as compared to same time last year. The drop in Indian exports (-31.2%) partially explains the anomaly - as domestic manufacturers are bifurcating their exports to meet domestic demand. Having said that, the rise in price remains a concern given the rise in production and meeting underutilized capacities. This we reckon is connected to the inherent deficiencies in logistics and the resultant rising input costs, especially of coal and iron ore.  

While it is difficult to believe that domestic demand has cornered much of Indian steel exports (as apparent from the export growth numbers), the fall in imports by (-) 5.1% brings about some cognizance nonetheless. However, Indian manufacturers inability to benefit from a depreciating Rupee, flattening Chinese production (replaced by rising US production albeit at higher prices) remains baffling. One explanation could be related to India's inability to play in the upper ends of the steel value chain, where its falling presence is apparent; a fact that remains its Achilles Heel.

   

 

YoY growth

  Consumption IIP Index Finished steel Export Import Domestic price Change
2014-15 5.11 5.1 5.34 -6.52 71.03 -6.89
2015-16 5.89 -1.3 2.21 -27.10 25.65 -17.49
2015-16 5.89 -1.3 2.21 -27.10 25.65 -17.49
2016-17 3.70 10.7 12.64 102.06 -38.30 8
2017-18 8.09 5.6 9.44 16.71 3.54 16.48
FY18 YTD 7.83 7.0 13.79 57.08 17.58 15.9
FY19 YTD 7.94 3.2 3.41 -31.19 -5.11 28.8

Source: CMIE; Acuité Research



YoY Change in Crude Steel Production

Crude steel China Japan US India
2014-15 0.94 -1.51 -0.68 8.92
2015-16 -2.99 -5.11 -9.03 0.91
2016-17 2.88 0.9 0.63 9.07
2017-18 5.96 -0.31 3.82 4.49
FY18 YTD 7.69 -1.42 0.91 3.68
FY19 YTD 7.11 0.87 4.28 6.84

Source: CMIE; Acuité Research

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