Today, Indian metals industry is on crossroads. A lot of opportunities are emerging and at the same time, it is surrounded by numerous problems. Last few quarters have seen a steady increase in metals demand, thanks to mega infra projects being implemented by the central as well as many state governments. A sustained increase in demand can transform the industry sentiment and encourages business houses to plan for the future, think of capacity expansion and so on. It also improves the bottomline and influences the price curve in a positive way. Presently, most of the commodities in the metal process chain have somewhat regained the comfort in pricing which can ensure smooth running of the enterprise and expect some growth in the future. The customer industries like infrastructure, automobile are putting up impressive growth figures and this will surely translate into higher demand in coming months. Recently presented union budget for the fiscal 2018-19, apart from its provisions for the farming sector, emphasizes on infrastructure development in the form of railways, airports, sea ports, metro projects etc. which certainly promises bright future for our industry. It also estimates that Indian economy will grow by 7.2 to 7.5 % in this fiscal. I am sure if the economy really grows at this rate, all the industries including ours will tremendously gain. It can attract huge capital not only from India but from every corner of the world. In my opinion, the technology one employs, the processes he uses, these things are going to be the key parameters in business. Further, the level of automation, using IT based solutions like Industry 4.0 in manufacturing, are going to play a very crucial role in the future. The success of any enterprise depends on how quickly it adapts itself to this new environment. To say so, the future seems bright but the journey is corrugated. Lets see how the things unfold !
Since last few years, MENA region has been identified as one of the most growing economies of the world. This growth story started around turn of the century and had a smooth run till 2008 global economic meltdown. Many economies in the developed world suffered a big jolt and since the economies of many countries in MENA region are closely associated with western world, they also felt huge tremors. Infrastructure creation was at the core of this economic growth and due to crunch in liquidity, many infra projects were halted. The metal demand suddenly dived down and many enterprises associated with this industry witnessed a huge setback, few had to even down their shutters. Many jobs were lost.
All of us know that the collapses are sudden where as the growth is always gradual. The region also started gaining back the lost ground. Slowly the infra projects re started and the metals demand started recovering. Oil price crash happened around 3 years back and it had a similar impact on infra projects and metals demand. Now the oil prices are somewhat better which has improved liquidity situation to some extent. Naturally, the steel industry and the economy in general are on recovery path.
Another factor which has been impacting the economic activity is political instability. The region has been unfortunate on this count and few countries in MENA are going through political instability which is adversely affecting the economy and the industry.
With all these ups and downs, MENA region still offers great opportunities for metals business houses around the globe especially in aluminium sector. It consumes substantial quantity of aluminium mainly for its infrastructure development needs. Thus steel raw material suppliers have a sustained interest in this region. Apart from the primary aluminum producers, there are numerous extrusion units, rolling mills which cater to the growing needs of the industry. Infact, the whole MENA region can also be called as a big aluminium hub. In spite of the tremors of slowdown this industry sector has been growing continuously for the last so many years.
Overall, I feel that MENA region offers a tremendous opportunity for metals industry and I look forward to a vibrant, growing and sustainable industry in coming time !
The last few years had been extremely corrugated for the metals industry. Slow down in the developed world, oil price crash, unstable political situations in many countries and regions, these and similar issues have arrested the economic growth and has adversely impacted the metals demand. On the other hand it is also a fact that metals demand is continuously rising, may be not as expected, but rising. This proves the point that in metals sector, one has to be a really long term player to be able to sustain and grow. Short term outlook of any nature will poison the industry sentiment and kill your own enterprise.
India too witnessed fluctuations in metals demand in the past few years but on year on year basis, the demand seems to be growing. Last few years saw an added emphasis on infrastructure projects and construction sector which are the biggest customer industries for metals. The metro rail projects in many cities, modernization of airports at various locations, massive road building drive also provided the required impetus to the metals industry. New opportunities in modernization of railways and opening up of defence sector will further strengthen this sector. All this improved the numbers as well as the industry sentiment to a large extent. Now most of the metal producers in the country have embarked upon sizable expansion projects. This only shows their confidence in the economy’s future.
The future of foundry sector largely depends on automobile and engineering industry. Both these industries are doing fairly well in past few quarters and are expected to keep a similar pace in the future. This can give a good amount of confidence to foundries and encourage them to invest further in the business. In this situation, Indian metals industry seems to be more interested to cater domestic requirement rather than running after unsure exports markets.
Even if the business prospects are good, Indian metal producers and processors have to upgrade themselves to get the full advantage of this upward economic movement. Most of the processors fall in SME sector and operate with outdated technologies and processes. Naturally this reflects in the final product quality and compromise the business prospects too. Even the big and main producers have to adopt concepts like Industry 4.0 which can substantially enhance the efficiency and induce the much required transparency in the whole system.
I have been always a firm believer of ‘Indian Growth Story’ and strongly feels that the year 2018 will be a much better year than 2017 for metals sector !
Automobile industry in the country as well as globally is passing through a huge transition and perhaps in few years time, the meaning and manifestation of ‘mobility’ will be altogether different !
The last few years saw an enhanced consideration for aerodynamic models, fuel efficiency, impact resistance etc. This led to a gradual shift of some component materials from steel to aluminium and even to composites. Although steel is the most important material and cannot be replaced due to its high strength and impact resistance, the non critical parts have shifted to other materials. This was the period when all the major automakers built their manufacturing facilities in India. This gave a big boost to foundries and auto component industry in the country and India slowly emerged as auto and auto component manufacturing hub for global consumption.
Now, the next generation mobility will employ new technologies and processes like 3D printing and Industry 4.0 and gradually our roads will be flooded with first hybrid cars (which can use fossil as well as electricity as fuel) and then electric cars. Driver less and ‘connected’ vehicles are also not very far. Tesla electric cars are already on the road in the US and have become very popular in a short time span. Industry analysts feel that this change will not be sudden and it will take 7 to 10 years for the industry to completely shift to electric cars, though hybrid cars will become popular in next few years.
This transition in automobile industry will impose a great impact on metals sector. It is obvious that an electric vehicle will have only few metal parts and will consume very less castings as compared with today’s requirement. India’s foundry sector is third in the world ranking in terms of volume (only after China and the US) and produces around 9 mt of castings per year. Its fortune is thickly connected with auto sector and is expecting a double digit growth rate in coming years. With these new developments in auto industry, the long term fortune for foundries look bleak. Will these new structural changes in auto industry have a big dent on foundry and auto component manufacturing sector ? Do we have to look for and develop markets other than auto sector ?
Though 7 to 10 years is a rather longish time frame, we have to address this issue now..
The debate about benefits or shortcomings of demonitisation, implementation of GST is going on nationwide is a truly welcome sign. I am sure Indian economy would mature by these discussions and would move ahead with more zeal in coming days.
As regards metals industry, as long as the economic wheel is running with a reasonable speed, it will keep creating metals demand. Fortunately auto sale figures are impressive for the last few months, thanks to good monsoon which triggered the sale of tractors. This has positively impacted foundry sector and their capacity utilization has improved substantially. Also, they have started planning forward with great expectations from the future. Not only the casting units but the whole vertical as such is in vibrant state.
For the last few years, the demand for primary metals seemed to be stagnated but now it seems that the things have started moving. With metro rail projects in many cities, road building on fast track and also other infra projects the requirement of metals is going to increase manifold. The demand curve has started moving up a bit and this has made primary metal producers optimistic. Few have restarted their expansion plans and the industry sentiment has improved considerably.
Amongst all these happenings, there is one distinct good news for India. World bank monitors a parameter called ‘Ease of doing business’. Till now India ranked 142 on a global level but now her position jumped to 100. It’s a really huge leap, probably the biggest one in one year for any country. For the last few years, India was seen as one of the fastest growing economy and many overseas companies were eyeing on her huge marketplace and wanted to participate in this growing economy. Now with improved ease of doing business in India, I hope there will be more inflow of not only companies but also the investment from international financial institutions which is very vital for building a solid infrastructure in the country.
I would not like to take any side on demonitisation or GST implementation but I strongly feel that India is changing, and changing for better !
The Indian metals sector seems to be in somewhat better shape now. Last few years were particularly challenging for everybody as demand seemed stagnated coupled with raw material crisis. Now, if you look at the quarterly reports of major metal companies, they have started increasing the production. Today, their position is comparatively better than the last year. Atleast they can expect a gradual rise in the demand in coming months. The raw material crisis is also mostly resolved and the availability of ore, coal has improved substantially. Many experts prefer to describe such a situation ‘new normal’ instead of ‘recession’. No, its not only word play. What it means is that now one has to get used to such industry environment where making profits may not be as easy as it was before. One has to be really innovative and articulate to do so. This situation is not a temporary passing phase but a long term reality.
The world around us is changing very fast. Our industry too is feeling the heat and will be undergoing a tremendous transformation in coming years. This transformation is multi dimensional. The technologies like 3D printing are going to re define the auto industry while technologies like robotics, cloud computing, virtual reality, augmented reality are going to completely change the way businesses are being done. I am very sure that many giants of today will face a tough time tomorrow and few of them will even perform a vanishing trick. New business models will emerge. We know today that the biggest taxi company in the world does not own a single vehicle. It were mobile companies which saw the downfall of music and camera companies. In today’s time, one should expect the most unexpected to happen. Auto industry is really heading towards a big transition and as a natural consequence, auto component industry, foundry industry is bound to undergo a huge churning.
Most of the Indian metal business houses are under tremendous finance pressure and few of them are looking for buyers, investors etc. Many companies want to expand the capacity and tap the additional demand expected to be generated but lack the support of financial institutions. Already, there is a talk of mergers, acquisitions and re-structuring of the industry. Looking at all this, I definately see a big fundamental change just round the corner !
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 !