Editorial August 2016

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 !

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Editorial July 2016

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 !!!

Editorial June 2016

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!

Editorial May 2016

Global demand stagnation in metal industry is the biggest problem today. Almost all regions are facing this issue and many international trade bodies, forums are trying to find the solution to this issue. Let’s look at different regions !

European demand has been going down since last few years. It is believed that this year may be slightly better than the last one but still capacity utilization in Eurozone remains quite low. Also, the infrastructure utilization index in this region is quite low. This means that there is not much need to develop new infrastructure. As regards the US economy, though it is growing marginally, the infrastructure utilization index is not very high. Thus one cannot expect steep rise in metals consumption in infrastructure projects.

In the Middle East, due to the warfare in the past, a lot of countries are hungry for infrastructure development but the recent blow came from oil price crash. Many infrastructure projects are now put on hold for lack of finance availability. Of late, the oil prices have shown a marginal upward movement and if it continues and oil prices cross US$ 60 / barrel mark, the situation can start improving gradually.

In India the main reason for demand stagnation is slowing down of infrastructure development process. Many projects are still on the drawing board are yet to kick start. Everybody is hoping and wishing that they will start soon and give a big boost to metals demand in the country. Experts feel that the visible change will start happening only by the end of 2016. It is believed that this year’s monsoon will be good. In India, monsoon plays a vital role in speeding up the economic wheel. If Indian economy continues to grow by around 7%, it will give a big support to metal demand curve and the things will start falling in place. Also, the infrastructure utilization index in India is more than 100% which indicate a big requirement and opportunity for infrastructure development.

Making predictions in such a fluid and dynamic global situation is foolishness but if I am compelled to, then I would rather believe in ‘Indian Growth Story’ !

Editorial April 2016

Before 2009, Middle East & North Africa (MENA) was seen as one of the fastest growing regions in terms of metal consumption, thanks to the infrastructure development and construction activity all over. During 2009 meltdown, the regional economy got a jolt and the infrastructure development activity drastically reduced followed by reduction in metal consumption. Many mills and the trading houses could not sustain this sudden price fall and few even had to close down permanently. It is always seen that the falls are sudden and the growth is gradual. The industry started recovering and now 5-6 years later, the region was gradually stabilizing in terms of industrial activity, infrastructure projects and the metal consumption is also rising slowly. Then came the oil price crash and it has reduced the pace of the economy. Suddenly, there is liquidity crunch in the market and many infrastructure as well as steel projects, which were in expansion mode, had to halt their plans. Experts feel that the situation will start changing for better from the second half of the current year and 2017 will be definitely a better year than 2016. As such the region still offers tremendous opportunities on a long term basis.

Middle East region and India have very friendly logistic between them. In fact, UAE is the biggest export destination for Indian goods. Naturally, there is a tremendous opportunity for trade in metals sector. India also supplies plant equipment, instrumentation, technical manpower and inputs like ferro alloys, coal, refractories, etc. Indian technical and managerial manpower is making a fantastic contribution to the economic growth of many Middle East countries. Further, we all know that in the last few years, India has emerged as one of the few growing economies in the world. Its economy is expected to grow by more than 7 % in the current fiscal and according to the analysts, will continue to grow further in coming years. This growing Indian economy can be a big opportunity to Middle East metal business houses to invest and expand. Many Arab investors would like to participate in growing Indian economy.

It is generally felt that the trade between India and MENA region will expand in coming years and both the economies will support each other in the growth path !

Editorial March 2016

Over the last few years, China has emerged as a big economic power and the manufacturing hub of the whole world. If one enters any store in any country, the maximum items would be ‘Made in China’. Indeed, China has flooded the world markets with its enormous low cost manufacturing capacity. What is true for toys is also true for industrial goods. It produces and sells components, equipments at such a low price that the counterparts in other countries have no option but to close down their manufacturing activity and trade the goods made in China.

The ‘metal story’ is similar. All metal professionals would agree that the last decade belonged to China. It escalated its metal producing capacity. During this period the country has made huge progress in infrastructure building, bridges, dams, airports, super express ways, bullet trains and what not! But since last two or three years, the things have started changing gradually. The speed of infrastructure building has reduced and consequently its metal appetite has somewhat calmed down. Also there seems to be a thinking at the policy making level to reduce ‘over heating’ of the economy. But what to do with the huge metal producing capacity created in last decade? Chinese metal exports started increasing and has really posed a big threat to the metals sector in other countries. Cheap imports not only eat away the demand but also dilute the price. Many companies across the world have started bleeding trying to match the price and compete with cheap imports.

The Indian story is not different. For the last few years, Indian metal producing and processing plants have been struggling for the survival mainly due to demand stagnation and non availability & high price of raw materials. The threat of cheap imports has added to their problems. At the governmental level also, it is not easy to comply the WTO norms and still protect the domestic industry. Also there will always be a pressure from the user industry to allow the imports as it helps them to reduce their manufacturing cost.

It is indeed a difficult task to find a solution within the WTO norms, protect the domestic metal producing industry and at the same time keep the prospects of the metal user industry intact !!!

Editorial February 2016

Dear Readers,

Global industry sentiment is down and most of the countries are stuck with negative economic growth. The recent reason being oil price crash.

We all remember the western world meltdown in 2008. It injured EU and US economies which were major export destinations for Asian and also Indian component manufacturing industry. Over the years, US markets have improved a bit but European market seems to be stagnated on a long term basis. This was a major blow to Indian foundry sector but it could survive as the domestic auto industry has performed reasonably well during this challenging period. Secondly, the Middle East region was not directly affected by 2008 meltdown and it had solid backing of oil sector. Today with the oil price crash, the Middle East region’s economy is facing acute liquidity crunch. Many government funded infrastructure projects have been halted and as such the industrial activity is depressed. The overall picture really looks gloomy for oil producing countries.

As regards India, industry is struggling and the demand curve is not rising. Many foundries have over expanded and are now finding it difficult to operate in a viable manner. In spite of all this, there seems to be an optimistic undercurrent in the industry. India’s present economic growth rate is around 7.2 % which is far better than most of the countries in the world. As a big importer of oil, India is in a position to take full advantage of oil price fall. Though there is no visible growth in the industry, it is believed that a lot of work of fundamental nature is going on at the government level. Defense sector is being opened for the industry and this is expected to give a big boost to the metals and metal component demand in the country. Today with Chinese economy slowing down, India is the only country promising a long term sustainable economic growth. No wonder many western world companies are eyeing on Indian markets !

Though all this is true, I am sorry to say that many of Indian foundries are still employing primitive equipment and processes. They will be able to take advantage of the future boom only if they modernize themselves, not otherwise!