Metals industry is the backbone of any economy and their Mco-relation is quite direct and linear. This means that the fortune of metals sector depends on the general condition of the economy and is also a measure of health of any
When we say that western world economy has slowed down,
naturally its metals appetite has reduced resulting in lower metals
consumption as well as production. In Asian region, the
infrastructure building is the main agenda which requires huge
quantities of metals. This serves as a very big trigger for the regional
If we look at the famous economic curve, India is at the starting
point of the steep section of the curve whereas China is towards the
end of this section. This means that countries like China have
surpassed their best growth period and very soon their growth will be
plataued. On the other hand countries like India are about to enter
or just entered the fast growth period of the economy. The next one
or two decades are expected to witness a fast economic growth in
India and as mentioned earlier, it has a direct co-relation with the
iron & steel sector.
We all know that last 2/3 years were quite challenging for Indian
mills. Rise in input costs, stagnated demand, shrinking exports and
cheap imports had really destroyed the bottomline of many metal
companies. Now the raw material situation has gradually improved,
mega infra projects have started moving ahead and the metals
demand seems to have started increasing. All this has helped the
industry to stabilize and expect an upward transition in next few
Of course, this does not mean that the Indian industry is free from
problems. Domestic demand stagnation, reducing export
opportunities and cheap imports are still shadowing the industry. A
lot of technological upgradation is required in many small and
medium scale units. If Indian products have to stand in the global
marketplace, they have to be of excellent quality. The concept of
quality also has to be upgraded. I know many metallurgical units
operating without a qualified metallurgist!
Posted in D.A.Chandekar’s Views |
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 !
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!
Viability and sustainability of any metal producing plant depends mainly on two factors availability of market and availability of raw materials at a reasonable price.
If one takes a global view, it can be seen that the conventional metal markets like US, EU are more or less stagnated, Middle East is going through a rough patch due to oil price crash, African markets yet to grow and SE Asian markets being steady but slow. China is trying to control its overheated economy and is reducing the metal production gradually. India wants to boost its metal production but domestic market seems to be stagnated for the last few years. The new government at the centre is completing its first year but the metal markets are still depressed. The metallurgical industry expects the government to trigger off few mega infrastructure projects which can provide the required thrust to the metals demand and also move the economic wheel forward.
In case of raw material availability, the situation is far from normal. Many mines in the states like Karnataka, Goa, are closed due to legal irregularities. Also, the new coal block allocation process is not yet complete. Thus for metallurgical industry, there is an acute shortage of these vital raw materials and this fact has been affecting the performance of almost all plants for the last few years. The industry expects the government to punish the guilty but at the same time clear off these bottlenecks as early as possible so that the industry can freely grow !
The third factor which generally skips out of our mind is availability of technically qualified manpower. Today in India, very few metallurgists graduate every year and many of them switch to other more paying industries like IT. They prefer to work in an AC office rather than blackening their hands on the shop floor of a metallurgical plant. India plans a big leap in metal production in coming years. Where from the manpower will come ? Who will run these plants ? Our industry also has to rethink on its remuneration norms if it wants to retain technically qualified manpower.
These problems though grave are not at all impossible to solve. If the industry and the government work hand in hand, I am sure they can together solve these and take Indian metallurgical industry to a new height !!!
The global metals sector continues to be under stress for want of demand surge and there are many reasons for it.
Firstly, the effect of China slow down is felt all over the world. As we all know, China is the biggest metals producer. Obviously any change in its production levels or even the policies will have a huge effect in the global marketplace. The China’s metals production has already come down and few more mills are planning closure due to heavy accumulated losses. Secondly, conventional markets in the developed world are stagnant for few years and by now, many mills in this region are either on the verge of closure or waiting for somebody to take them over. In this global recession, the only growing region seemed to be MENA but the oil price crash is making a negative impact on the infrastructure projects due to financial pressure.
India seems to have a slightly different take on these issues. Its economy is growing and as per the government estimations, it will grow at around 7.3 % in the fiscal 2015.16. If it comes true, then it will regain the confidence of the investing community and ‘India Growth Story’ will continue. Unfortunately, the mining & metal producing industry of the country is under tremendous pressure. On one hand the vital raw materials like ore and coal are not available and on the other hand demand is not increasing. The industry is paying a heavy price for the raw over mining and coal block lease issues. Whoever is the culprit, industry is the final and the biggest loser. Our only request to the new government is that if these issues are sorted out as fast as possible, a big bottleneck will get resolved. As far as metals demand is concerned, unless the big infra projects move forward in full swing and economy as a whole progress, it will remain stagnated only. Again, giving the necessary push to these mega infra projects is mostly in the hands of the government and I hope the new government will do the needful. It is also reflected in the recently tabled union budget for the fiscal 2015-16 and is welcomed my most of the industry sectors.
Off course, it remains to be seen how much of these plans are translated from paper to reality! The future of Indian minerals & metals industry depends a lot on this!!!
It is very clear that industry is going through one of its most Challenging phases. Many senior executives confessed that they have not seen such a gloom in their multi decade long career. This means that the situation is worse than one in 1992 and even during 1998 SE Asian currency crisis. Stagnation of demand, non-availability of minerals and high input costs. Many plants have no option but to close down their operations. Of course the silver lining to all this is that we all know that like every other industry sector, metals industry also follows a cyclic path and the situation is likely to change after some period. One more argument in this regard could be the monsoon this year has been good in most of the parts and this can give some boost to the economy in general.
Few years back, when the whole world was shaken up by the economic meltdown, India was one of the very few countries which promised a good economic future. India’s economy was growing at more than 8 % and was expected to touch double digit eventually. Unfortunately it travelled in the reverse direction and today we are struggling around 5 %. In such a grave situation no expansion can be thought but we can surely think of enhancing the operational efficiency, reducing the costs and inducing some viability to the project. One way of increasing the efficiency is to use a better technology and equipment. Another way is to improve the process to achieve better yield. It is very clear that in today’s times, advanced technology, equipments and processes have to be employed so as to improve the overall performance of the plant.
If one looks at the performance of auto industry for the fiscal 2012-13, the curve is almost flat. This has definitely destroyed the sentiment in the foundry sector. Many are struggling to survive as the domestic demand for auto parts is not increasing and even the export market is not substantial as on today. Now that the monsoon has been good this year, we can expect some recovery especially in the tractor segment.
General elections are just few months away and many experts argue that nothing will move before that. I do agree that economic activity is, to some extent influenced by government decision making and bureaucracy but at the same time it should function independently without playing at their hands!
We have bottomed out and hereafter the growth will take place’ were the worlds of India’s FM during his budget speech in Feb end. That was the time when all the graphs were seeing the bottom. Metals production, consumption, auto sales, infrastructure index, everything was negative. Obviously not many believed in FMs words and the industry sentiment continued to be low.
The things started becoming bit positive after the new fiscal started from April. Exports slightly up, auto sales somewhat recovered and now there is a renewed optimism in the industrial world of India. As such we always believed that India has excellent long term prospects and it is one of the few destinations in the world which offer tremendous opportunities for core sector businesses and metals remain an important part of this domain. Unfortunately last two years or so were dull in terms of industrial activity and especially metallurgical industry was going through hurdles, one after the other. First it was mining illegalities which compelled the supreme court to ban mining in some regions. This adversely affected the availability of minerals and naturally the production could not reach the projections made earlier. The consumption also fell during this period due to slow down in infrastructure sector, auto industry etc. All this was followed by the irregularities during coal bloc allocation which paused the process. It too had its toll on the industry and many mega projects were put on hold. It seemed during this period that the metallurgical industry was literally standstill and absolutely nothing moved ahead. Nobody planned for the future and everybody adopted ‘wait n watch’ strategy.
As mentioned at the beginning of this piece, there seems to be a positive development in few parameters but at the same time, it is too early to say that all is going to be well now onwards. The old big problems of illegal mining and coal bloc allocation still persist and need to be addressed as early as possible. I am not even mentioning about fuel prices, land acquisition hurdles, interest rates which are of generic nature but do affect our industry too.
Let us hope that the economy and also the metallurgical industry move towards a better future may be slowly but steadily.