A lot of time has passed since 2008 financial meltdown but the developed world financial markets and even the industry is far from normal. Infact, now instead of calling today’s industry situation as ‘depressed’, a new term ‘new normal’ has emerged.
Of course industry fortunes differ from region to region and MENA (Middle East & North Africa) is one of the most prospective regions as far as the industrial growth is concerned. The oil price crash did affect this region for the last one or two years but nobody can deny the fact that the region offers tremendous potential on a long-term basis. Today, it is considered as one of the few growing economies in otherwise financially stressed world.
The industrial growth of MENA region is lead by the mega infrastructure and construction projects spread all over. Yes, the projects did get a jolt when oil price crashed and liquidity shrinked but now with somewhat better oil prices, these projects are expected to move forward.
Along with the huge quantity of steel required for such infrastructure projects, a good amount of non-ferrous metals too are consumed. Especially, the metal of 21st century, aluminium is used in many forms. Extrusions are used for panels, intricate shapes, wires are used as conductors, castings are used as auto and machinery parts, foils are extensively used in food and insulation industry etc. The technology and the processing of aluminium products have undergone a sea change in last decade or so. A lot of new trends in production and applications are emerging. The customer industries include power, aerospace etc. The use of technologies like simulation, 3D printing is expected to completely change the face of aluminium industry in coming years..The GCC region offers the best environment for the growth of aluminium industry. A huge primary metal producing capacity, numerous downstream industries and a promising marketplace.
India has vast reserves of bauxite. If the economic activity increases and infra projects & construction activity take a leap in coming years, the demand for steel and metals will increase manifold. This will surely give a big boost to non-ferrous metal production. Aluminium, the metal of 21st century, has tremendous growth potential and will certainly shine!
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.
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.
Middle East Foundry Summit’ organized by ‘Metalworld’ in Dubai was unique in many ways. It was first of its kind foundry event in the Middle East region and was attended by many top industry executives from UAE, Oman, Saudi Arabia, Bahrain, Egypt, India, South Africa, United Kingdom, Germany etc. It surfaced and discussed many issues facing the foundry sector in that region.
Middle East is part of MENA region (Middle East & North Africa) and is one of the fast growing regions in the world. This was more true before 2008 global meltdown as this region suffered a big jolt at that time. Since 2010 or so, it started recovering steadily and the infra project count and the demand curve started climbing up. Everything seemed to be coming back on track till the region was banged down by oil price crash. Many infra projects were put on hold and numerous other projects from other industries were halted for want of liquidity. Now the oil prices seem to have stabilized a bit and industrial activity is gradually increasing.
As we all know, casting is a very basic engineering product and has applications in almost all industries. Middle East region is very much strategically located and can serve as a gateway to European markets. Further North African markets are also nearby. In India, the most important customer industry for foundry sector is automobile. So to say, the fortune of foundry sector largely depends on the performance of auto sector. This very important customer industry is lacking in the Middle East region. There is no major auto manufacturing or even assembling facility which would have supported a sustained growth of foundry sector in this region. Although, there are other few factors favouring a foundry unit in this region. First is ease of doing business. Once you complete the required paper work (which takes fewer days than most of the countries in the world), there is no outside interference to your business. Further, even if the labour is not cheap, their efficiency more than compensates this aspect.
Finally, with firming oil prices, gradual increase in economic activity, opening up of Iran, the future of foundry sector seems to be promising in the Middle East region !
Atlast, the rains have started in most of the parts in India and the monsoon is progressing as per the expectations. It’s a great relief not only to farmers but to the whole country as such.
Though agriculture contribution to the economy and GDP is not even 20%, livelihood of nearly 70% population depends on it. Thus, if the rains are good then naturally agro production increases and subsequently the purchasing power of majority of the population also increase. This gives a big boost to the economy wheel and indirectly supports the demand curve of many commodities including auto, appliances, equipments and also metals. Also, good monsoon means more demand for tractors and other agriculture equipment. Hope this monsoon helps the metals industry to regain its lost sentiment !
The metals industry not only in India but globally too is suffering since last few years. The demand stagnation in Eurozone is one of the major contributors to this slowdown. Last year there were some expectations that the EU demand curve will rise but nothing happened. Infact, now with the exit of Great Britain from EU, commonly referred as Brexit, the fluidity and uncertainty in the situation has increased. This move by UK has put a question mark on the fundamental concept of EU. It is said that there is a possibility of few other EU member countries going UK way. This, if happens, will further aggravate the situation and will be very bad for the regional as well as global economy.
Many countries in the Middle East region did get a big jolt during 2008 global meltdown but were climbing the recovery curve, slowly and steadily. The halted infra projects were slowly returning back on track. Metal industry too started forward planning to some extent. All these initiatives got a big setback with last year’s oil price crash. Slowly the system is getting reconciled to this new situation. Though all this is true, Middle East region still remains one of the most promising one especially for the metals industry. A lot of infra projects are sure to come up sooner or later which will consume huge quantity of metals in various forms including castings. The region can also act as a gateway to develop business with Europe. Rightly, many foundry entrepreneurs are considering setting up a foundry unit in this growing region.
Experts feel that if the oil prices stabilise at around 65 to 70 USD, the Middle East region’s economy will zoom in no time and it will benefit all the industries including the foundries in the region !!!
Today, India has clearly emerged as one of the few economic growth destinations in the world. Globally, most of the regions are either progressing marginally or struggling to survive. The demand seems to be stagnated and the mineral & metals industry is paying heavily for the overcapacity which they only have created in the past few years.
Though Indian economy is growing at a decent pace of more than 7% annually, it does have its share of problems. Indian markets too seem to have stagnated for a while. Export basket has reduced in size. Indian manufacturers have to fight with cheap imported goods in their own markets. Small and medium sector is struggling hard for the survival. This situation is prevailing in most of the industry verticals including metals sector.
As many may agree, not passing of land acquisition bill in the Indian parliament has become a big hindrance in the growth of big time manufacturing in India. If there are problems in securing the land itself, how can mega projects progress? In case of metals industry, we all very well know that such plant spreads over hundreds of acres and unless such big pieces are made available, metals industry cannot go ahead with Greenfield expansion projects. Many experts feel that even if the country’s economy grows at a decent speed, even if the metals consumption grows, Indian mills will not be able to grab this opportunity with their limited production capacity and the country will have to heavily depend on imports.
But friends, not everything is bad for Indian metals sector. Defense and Railways are emerging as the big time customers for this industry. Also, with many countries interested in investing in Indian infrastructure projects, the metal demand curve is likely to get a strong support in coming months. Finally, as per the predictions, this year’s monsoon is going to be good. Taking into consideration all these factors, I feel that minerals & metals industry will start feeling better after October 2016. As such fiscal 2016-17 should be better than 2015-16!