Indian economy is seen as one of the few growing economies in the world. In spite of the general slowdown in the world, depressed oil prices, demand stagnation, India managed to put up a decent growth rate of around 7 % in the fiscal 2016-17.
The main drivers of the economy were steady performance by manufacturing as well as service sector, infrastructure development projects and a good performance on agriculture front. Of course, good monsoon in 2016 has been a boon and helped to strengthen the financials of the people associated with this sector. This has further helped to keep the demand curve climbing up.
As far as the metals industry is concerned, the major customer industries are automobile, construction, engineering and the metals requirement in mega infra projects. I do agree that all these sectors did not show a sparkling growth but have certainly given some push to the metals demand. Primary metals producers are planning and even implementing capacity expansion plans. The component and engineering industry was earlier looking aggressively for the export markets. Today, conventional export markets are either stagnated or dried up. Thus the component industry needs to look at the emerging markets and at the same time, consolidate their presence in domestic markets.
As I see the things, gradually positive sentiment is growing, the industry is regaining the confidence and have started planning for the future. A lot of infrastructure projects had been announced earlier. Now is the time to execute them. Industry too is banking on these government funded infra projects as these are the major triggers for metals demand to rise.
The downstream industries like casting, rolling, extrusion too depend heavily on auto, transport, construction, power and if Indian economy can achieve higher growth rate than the previous fiscal, everything will start falling in line.
After many years of fight, debate, deliberations, finally the present government has managed to pass the long awaited GST bill which is expected to be implemented by July 2017. This is surely going to start a new era in the India economy and is expected to simplify the tax structure. Further, the manufacturing sector (which includes our metals sector) is expected to gain from this change and to certain extent, will help to reduce the stress within the industry.
This seems to be the right time to do a bit of futuristic planning and to take a little bit more risk!
Last few years have been really testing ones for the entire minerals & metals vertical. In most parts of the world, the metals demand seemed to be growing slowly or stagnated, especially in the western world.
This millennium saw the emergence of Asia as the growth engine of the world for manufacturing and infrastructure industry. It consists of the regions like Indian sub-continent, China, SE Asia and the Middle East. All these regions are extremely promising in terms of manufacturing sector and infrastructure development projects. With China producing and consuming around half the quantity of metals produced in the entire world, naturally the focus of minerals & metals industry slowly shifted to Asia. In other parts of Asia, numerous infrastructure projects were successfully implemented which consumed a huge quantity of metals.
Today, world’s growth engine seems to have slowed down. China is trying to close down the outdated capacity, Middle East region’s infra projects getting on hold due to depressed oil prices followed by liquidity crunch and SE Asia not showing the expected growth rate of the industry. Overall the situation is far from satisfactory. India has its own set of problems. The present government till now could not pass the land acquisition bill which would have facilitated Greenfield expansion programs of metals sector. This situation has in a way restricted the free growth of metals sector in the country. Two years back it was non availability of ore and coal which was the main hurdle in the industry’s growth. The Supreme Court had imposed ban on the mines in the states of Karnataka and Goa which drastically affected the availability of this vital input. Now, even if the availability of ore has improved, it is the demand stagnation which has emerged as a new problem. The capacity utilization of Indian mills has improved from last year but still in my opinion the average may not exceed 75 %. Needless to mention that such low average would also affect the bottomline and put severe pressure on finances.
Overall its testing time for metals sector, globally, in Asian region and in India too !
As we all know, non-ferrous metals sector and foundry are very vital in the growth of various industries and the same is true for India too. Also, it is a fact that aluminium has emerged as the single most important metal due to its non-corrossive nature, weight to strength ratio and aesthetic look.
Automobile, construction, transport and engineering are the prominent user sectors worldwide and as far as India is concerned, automobile and construction are very important ones. Conventionally, most of the automobile parts and components were made of steel (rather special steels) but in last few years, the auto industry is going through a big transition. Huge importance is being attached to fuel efficiency, aerodynamic shape and aesthetic looks. Also, there is ever growing price pressure from the buyer. In line with this thought process, many steel components are being replaced by aluminium and off late by composites also. Further, in aerospace industry, the properties mentioned above become far more important and a lot of aluminum alloys are being consumed there. Now a day, even magnesium alloys are being employed for weight consideration.
In other sectors like construction, transport and engineering, a lot of new applications are being developed to suit the requirements and expectations of the consumer.
I do agree that in intial stages, society needs steel to build the infrastructure but it is seen that as the society gets developed, it consumes more and more of non-ferrous metals. While enhancing the purchasing power of the consumer is the function of overall economic growth, our industry should concentrate on developing new materials and applications for today and tomorrow. For this to happen, a very strong linkage has to be developed between the industry and academic / research institutes. In developed world we see that a lot of such institutes and projects are being funded by the industry. In fact, most of the research projects are guided by the industry needs and the expectations. Also, there is a definite timeline for every research project.
Such timebound and application directed research can surely help the non-ferrous metals industry to aquire more space into its user sectors and help them to meet the ever growing demands of the end customer !
If we look at the last few years, the consumption of non-ferrous metals has increased steadily. The logic is quite simple. In the begining, any society needs strong infrastructure which is obviously provided by none other than steel. But as the society progresses, its needs also enhance in terms of aesthetic looks, intricacy and diversified applications.
This is why now a days in construction industry, though steel provides the basic strong infrastructure, we see more use of aluminium for the above reasons. Automobile industry case is very interesting. There is tremendous pressure on this industry to reduce weight of the vehicle, increase fuel effeciency and also develop aerodynamic shapes. Many engine parts which were previously made of steel are now been made of aluminium. It is estimated that around 10 % parts by weight are getting converted to aluminium from steel every year. Similar is the case of vehicle bodies and other parts. Here the latest trend is to use composites in place of any metal being used previously. We all know that weight plays more important and critical role in aerospace and telecom industry. Now a days, along with pure metals, a lot of components are being developed out of aluminium and magnesium alloys which are able to reduce the overall weight of the equipment substantially.
While I see a very bright future for non-ferrous metals industry on a long-term basis, the industry is presently facing a rather tough situation. We all know that the metal demand in the developed world is almost stagnated and Asian region including China, India and the Middle East is serving as the growth engine for the global manufacturing sector. With China trying to reduce the overheating of their economy and the Middle East economy hit badly by the oil price crash of last year, India seems to be only promising economy today. Here also the demand is not growing as per expectation and the major metal user sectors like construction, automobile, transport, engineering are witnessing a slowdown. The Demonetisation has also played its part and the GDP growth estimations have come down from 7.6 % to 7.1 % on annual basis.
I do agree that these figures are way ahead than the growth estimates of other regional economies but the fact remains that there is still tremendous untapped potential in Indian economy and I only hope that it steadily comes out in 2017 and the years thereafter!
Global metals industry continues to remain under stress but it seems that the stress is gradually reducing.
For the last few years, most of us believed that the future of western world countries (or developed world countries) is not so bright as compared with countries in Asian region. It was argued that the economic curve for the developed countries has already been platued and there is not much possibility of further economic growth. The regions like EU, US also manifested similar situation with mostly stagnated or falling economies. But now it seems the situation is taking a turn. The US economy seems to be doing better for the last few months and today the industry sentiment is quite positive. Of course, nobody is very sure about what policies the new president Mr.Donald Trump will adopt but it is believed that he will be industry friendly. Similarly, EU is also showing signs of marginal recovery and the industry sentiment is bit positive than the last year. This in my opinion is a big change in that region. Industry analysts expect EU’s economy to improve marginally in 2017 and 2018.
In last few months, many countries have imposed anti dumping duties on cheap imports, especially from China. This has surely helped the domestic industry to consolidate its position. India’s position remains strong amongst this turbulant time. The economy seems to be on track. The auto industry has been performing better than the last year and most of the segments like passenger cars, utility vehicles, scooters have been showing impressive growth rates. This will surely give a boost to castings demand. Also, if the western world’s economy improves in coming years, exports may also increase. Further, many auto components, which were earlier made of steel, are now being made of other materials including aluminiun. This is expected to reduce the vehicle weight and improve fuel efficiency. With added emphasis on infrastructure, making of smart cities and projects like metros, non-ferrous metals will definitely see better days in coming years.
Yes, there is a temporary setback to the demand side due to demonetisation of currency notes but experts feel that this should get over by the year end and things will be more or less normal.
By the start of 21st century, it was clear that Asia would be the next growth engine of the world. By that time, the western countries had done tremendous progress in developing infrastructure in the form of roads, ports, airports, modern transport systems etc. For various reasons, Asian region was lagging behind on the above counts and this resulted in big infrastructure projects boom in the region. Naturally, this served as a big trigger for metals consumption and this industry was on the fast growth track. China was the leader in infrastructure growth as well as in metals.
All this was quite smooth and growing till western world meltdown in 2009. The developed countries got a big jolt and even Asian countries which were thickly associated with the developed countries, had to suffer. This was the time when China and India along with countries like Russia, Brazil (commonly termed as BRIC countries) were seen as the only growing economies and many western world companies started migrating to these countries. By this time, Middle East & North Africa (MENA) region was also seen as a fast growing one and with the huge investing ability, infrastructure projects boom started in this region too.
Gradually, China’s pace slowed down, Russia and Brazil got entrapped into their internal issues and India remained the only country which had the capacity to sustain a relatively decent growth rate (Presently around 7.5 %). Also, oil price crash had a big negative effect on the infra projects in MENA region, especially in Saudi Arabia. The region is facing an acute problem of liquidity and many projects are put on hold. The metal consumption growth was also arrested due to this.
We must understand that China and most of the economies in MENA region are investment oriented which means that the government is pumping money for the development projects. On the other hand, India’s economic growth is fueled by the domestic consumption. Many will agree that such economies are more stable, less prone to global tremors and thus more sustainable !
For last few years, the industry has been witnessing stagnated demand coupled with overcapacity on a global level. This situation has been described as ‘Recession’ by almost all the experts and analysts. Now the perception seems to have changed and the situation is being termed as ‘New normal’ !
In line with the global situation, Indian metals industry too has been not doing well for the last few years. There were acute problems about the availability of critical raw materials like ore and coal. I must say that with the positive initiative from the government, most of these problems are either overcome or under control. Further, with the introduction of MIP, cheap imports will be restricted and pricing may improve a bit. All these factors have positively impacted Indian metals industry which can now look forward to comparatively better days in coming months.
Even if all this is true, there is a major hurdle still to overcome. The demand curve is not going up and this is suppressing the production levels and thus impacting badly on the bottomline. We all know that metals demand lies outside the metals industry and depends on overall economic activity. Yes, this year’s good monsoon has definitely contributed to raise the industry sentiment but the real boost will come when the government funded mega infrastructure projects start moving ahead. Mind well, capacity utilization of our industry has fallen in last year or so and the biggest reason is suppressed demand. Another important issue in our country is cost of power and finance. Needless to say that these inputs are of immense value for the metals production and are very costly in India. That makes our metals products less competitive in global markets.
If we analyze the demand profile, it is seen that the metals demand is concentrated mainly around big cities and the rural areas still have a very poor consumption. If the government, along with main producers launches a campaign, come out with new applications of metals in different facets of rural life, popularize them, then the metals consumption can go upwards. This will help the industry as well as the rural economy.
Overall, I feel the industry sentiment is slowly turning positive and some improvement in demand will provide the required push for the industry.