Export orientation of steel reaping benefits of a globalised economy

A capacity of 144 MT of crude steel capacity, a domestic demand of around 95 MT of finished steel (FY21) is yet to show a spurt.

Three decades earlier, India initiated a series of economic reforms amid the unprecedented financial crisis looming large, which included default with regard to loan repayment to te IMF and precarious level of foreign exchange to lead to immediate non-payment for import commitments. By drastically cutting down the high tariff against import, decontrolling pricing and distribution of critical sectors of the economy, including steel and opening the door to private investment in selected areas of the economy, India that was standing on the threshold of a global economy removed major barriers.

The term globalisation defined, in a limited way, to ensure the capability of sailing into the global merchant trade within the norms of WTO stipulations, appeared feasible and beneficial for the country’s economy.

Meanwhile, the global trade had much progressed and India also faced various challenges and risks when the openness in trade agreements with other countries failed to work for the benefits of the selected sectors who suffered significant damages till the prescribed rules and regulated measures got resorted to. All that may be history and only lessons for future course of actions in similar circumstances.

However, it must be acknowledged that the export orientation of steel and a few other sectors in Indian economy are now reaping the advantage of being a part of a globalised economy.

A capacity of 144 MT of crude steel capacity, a domestic demand of around 95 MT of finished steel (FY21) is yet to show a spurt. The economy grew at a lower rate of only 4 per cent in FY20, as the vicious spread of the pandemic became visible since Q4 of that year and devasted the country with innumerable casualties, prolonged lockdowns, loss of employment and income opportunities and cast a deep shadow on aggregate demand. Steel plants operated, though at a much-reduced level of activity in Q1-Q2 of FY21. Though demand from the end using segments surfaced from Q3 onwards, the emergence of second wave of the virus created a flutter, however, the commencement of vaccination acted as a succour and made the crisis manageable in the course of the next few months.

Export of steel at 17.3 MT in FY21, a 56% rise over the previous year and an all time record in the recent past, had supported Indian steel industry to maintain an average capacity utilisation of 72% in the midst of more than 10% decline in apparent consumption.

It is not only the exploring the potential of steel export market in the face of a subdued domestic demand, the price differential of steel exports is an added benefit to the steel producers. Currently HRC is available ex-Mumbai @ Rs 67,500 per tonne ($ 921.75/t) excluding GST against the recent export offer by Indian mill @1030-1050/t CFR UAE. The merchant traders’ price in the indigenous market is around Rs 1,500-2,000/ per tonne lower than the price for OEM supply or to a government project and hence the declared price has to wait for the actual demand from end using sectors to surface.

The demand for consumer durables is yet to exhibit the seasonal impact, the auto manufacturers are perturbed on account of much lower sales affected by lower household expenditure due to uncertainty in the fall out of the pandemic. During the first two months, India has exported 2.96 MT of steel worth of Rs 17,812 crore which exceeds last year’s export collection by 86%.

The author is Former DG, Institute of Steel Development and Growth

(Views expressed are personal)