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Battered metal industry awaits New Year to regain sheen |
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MUMBAI: After taking a big hit in 2015 from the sharp fall in prices and the large-scale dumping from China, domestic metals industry is looking at the New Year to regain its lost sheen with the help from the government's efforts to curb cheap imports and to boost local production.
However, slowdown in China and the resultant decline in global commodity prices can still keep the ghost of cheap imports alive for Indian metals and mining companies.
The prices of aluminum, steel, copper and nickel are near their seven-year lows with China, the world's largest growth engine of the past many years, faltering badly.
The domestic industry is however hopeful about growth coming back on the back of the ongoing structural and pro-business reforms. They expect the domestic demand to improve for steel, aluminum and copper, among other metals.
The domestic steel demand grew by just two per cent in the last fiscal ended March 2015, while the expectations are for a 7 per cent growth in the current financial year.
Steel supply is expected to increase by around 10 per cent in the fiscal 2015-16, but a slower uptick in demand may lead to capacity utilization falling below 78 per cent, according to consultancy major EY.
Steel imports jumped 71 per cent in the last fiscal and the trend has continued so far this fiscal, EY said in a report.
Falling interest rate is however likely to boost the investment and thus augment the end-user demand.
Aditya Birla Group firm Hindalco's Managing Director D Bhattacharya, however, does not expect the price situation to improve much as cheap Chinese imports will continue to rise.
"The slowdown in China which is the world's largest producer and consumer of aluminum and steel, implies that Chinese products would find their way into global markets, which will further bring down prices," Bhattacharya told PTI.
However, he expressed hope that the current phenomenon of falling prices may be short-lived, say two to three quarters at the maximum, as markets have a way to maintain equilibrium.
Bhattacharya further said that the wider applications of aluminium will ensure a strong outlook for the metal in the coming months.
Domestic demand for metals is expected to improve in 2016 following a recovery in the end-user industries such as industrial construction, civic infrastructure, power, automobiles, industrial machinery, and consumer goods, among others, he added.
The domestic metal sector is highly dependent on mining industry which faces a tough 2016 ahead amid weak global markets, even as the government plans to fast-track auctions and check illegal mining.
The major steps taken by the government in 2015 to revive the industry included passage of the Mines and Minerals (Development and Regulation) Act and the resumption of mine auctions. It also notified the National Mineral Exploration Trust.Government expects to auction 65-70 mines by next March.
Among the metals, steel industry was the worst impacted due to factors like excess capacity globally, particularly in China that has a huge excess capacity of 250-300 mt, leading to significant decline in steel prices and increased imports and resultant financial stress on the domestic steel firms.
Steel imports significantly rose in the last two years from China, Japan and South Korea, where slowing local demand has spurred mills to ship unprecedented volumes abroad.
Government plan for additional barriers adds to signs that importers are pushing back with greater vigor against the tide, potentially capping China's exports into 2016.
To help avert further crisis, the steel industry wants the government to bring down the logistic cost and royalties on iron ore. They also want immediate coal linkages through allotments and not through auctions, Chhattisgarh Sponge Iron Manufacturers Association's Vijay Jhanwar said.
Amid rising tide of cheap steel dumping from China, the domestic steel producers have been seeking protectionist measures from the government.
Heeding to their demands, the government has imposed anti-dumping duty of up to 57.39 per cent on import of certain stainless steel products from China, Korea, the US and the EU for five years.
As the hike in import duty and measures like 20 per cent safeguard duty on hot-rolled coils have failed to prevent prices from falling and imports from growing, new steps are being explored to protect the domestic mills.
The Commerce and Steel Ministries have also proposed a floor price for over 30 products below which imports should not be allowed.
The government recently published a draft quality order prohibiting production, sales and trading without BIS approval. If implemented, the order will stabilize steel prices in the domestic market and contain imports.
On the back of rising domestic consumption, which will help mills sell additional production from recent expansions, analysts are expecting stable prices from early next year.
"We have been factoring stable steel pricing through the remainder of the current fiscal and onto FY17," brokerage firm Motilal Oswal's analyst Sanjay Jain said in a note.
Source : economictimes.indiatimes.com
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