For the last few years, global metals sector is passing through a rough period and the same is true for India.
On a global level, demand stagnation is the major concern. The developed countries and regions have already reached a plateau as far as infrastructure development is concerned. Thus their metal appetite is naturally low. In other parts of the world like Asian region, availability of raw materials, availability of finance coupled with demand stagnation is the issue.
In Indian context, for the last few years demand stagnation along with raw material crisis has restricted the growth of metal sector. It has also affected vital numbers like demand growth, bottomline, capacity utilization etc. All this resulted in value erosion and placing many companies in the red.
Now the situation has started tilting towards positivity and there seems a slight increase in the demand, a huge increase in industry sentiment due to good monsoon in most of the parts and some forward planning too. Nobody doubted India’s growth potential on a long term basis but till now the ground reality was not supporting this thought line. Now with slight increase in demand and somewhat better performance of metal companies, there is a huge optimism in the industry.
Unfortunately financial institutions have a different take on this. As per them, they have invested very big capital in the metals sector out of which substantial part has become or on the verge of becoming NPA. Further, metals industry is subjected to cyclic ups and downs which are very difficult to absorb. Lastly, even in best of the times, the margins of the industry are not so attractive when compared to other verticals like IT, Biotech etc. Thus it is very difficult to support this industry beyond a certain point.
In such a situation when the industry is looking up and needs capital for further capacity expansion, we have to find some solution bringing all the stakeholders together. It’s a huge task and requires support from every corner, the most important being from financial institutions !
Metals industry continues to have challenging times in most parts on a global level. Eurozone continues to be stagnated, Middle East region showed a little forward movement when oil prices started moving up but now with oil prices steady at a lower level than expected, the industry and the economy in ME region seems to be halted. South East Asian countries are again witnessing a tough time. Their economies have great influence of their Chinese counterpart and now they are exposed to a dynamically changing policy situation. As we all know, now for last so many years, the key player in metals sector is China. In global steel industry, material availability, pricing and other parameters are being greatly influenced (if not decided) by Chinese industry. In this global fluid situation, India seems to be better poised to attract investor’s attention because of its steady economic growth.
Indian metals sector has also gone through a very challenging time for the last few years. They have seen shortage of vital inputs like ore, coal etc, closure of mining activity by the supreme court orders, continues demand stagnation etc. But now the situation is changing, though slowly but definitely. The demand seems to have started climbing up. This may be due to forward movement of mega infra projects in the country. This will boost construction activity and in turn help the products like aluminium extrusions, wires etc. Also, better road condition is facilitating auto industry growth which in turn helps castings demand to grow. Fortunately this year monsoon is quite satisfactory in most of the regions in the country. This will have a direct, positive and immediate impact on agro equipments sector, tractor sale etc. Further, good crops will increase the purchasing power of the common man whereby helping the economic wheel to move faster. This will obviously help the metals sector to grow. It is expected that the introduction of GST will bring many business transactions in the mainstream economy and will support the growth of GDP.
Overall, I feel the metals sector will make some lost ground in coming months and as such the fiscal 2018-19 will be a better one than 2017-18.
Last few years were quite challenging for the metals industry. On one hand the demand did not rise up to the expectations and on the other hand, the cost of vital inputs was on the rise. Most of the developed world countries are going through an economic slow down and this suppressed the growth of the industry too. Many infrastructure projects were on hold due to liquidity crunch. As we all know, infrastructure and the construction together give the biggest trigger to the metals demand. Thus this situation results naturally in lower metal demand.
Indian story is slightly different. India too had its share of challenging days but fortunately the Indian economy showed up a comparatively good performance and this naturally helped various industry verticals including that of metals. Secondly, the Indian auto industry did fairly well in these testing years which helped foundry sector to survive. Actually, lot of foundries expanded their capacities in anticipation of good export opportunities to European countries but this thinking was proved wrong by the struggling economies of most of the countries in Eurozone. Today, most of the Indian foundries are aiming for domestic markets rather than exports.
Today, if an investor has to put his money, it is but natural that he will strongly consider Indian economy. Auto sector is progressing well, the speed of infrastructure development has also picked up to some extent, most of the raw material issues are sorted out and most importantly, majority of people believe that the Indian economy will continue to grow at a decent rate. Thus there is a strong reason to bait on India’s prospects. Further, introduction of GST will also have some added attraction about Indian economy. After initial teething problems, it is expected that the tax structure will be more simple, transparent and more industry friendly. In fact, from the last few months, the foreign direct investment (FDI) has already started scaling up in anticipation of GST regime.
I hope the positive sentiment in the industry continues and the metals industry in particular benefits from the economic progress and the infrastructure development.
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 !!!