The Indian steel industry is on a hot roll, thanks to the revival in the global demand, propelled by China and a significant pick-up in the economic activity in the country. The strong performances by the domestic steel manufacturers on the back of cost-cutting measures and a formidable steel cycle, the domestic steel industry is set for big growth.
Even by `old economy' standards, steel making is hardly a business that sets pulses racing, wrote The Economist, in its March 22, 2001 issue. It has not taken much time for the steel industry, globally, to prove that perception wrong. With the steel prices, the world over, shooting through the roof, thanks to a strong revival in demand, propelled particularly by China, which accounts for about 25% of world steel consumption, the dream run of the steel industry continues uninterrupted for the three consecutive years in a row since 2002. In fact, in the US alone the hot rolled steel coil prices have flared up from $495 a ton in 1998 to $700 a ton in 2004. In India, the average steel prices jumped 30% in 2004 alone; while, the hot rolled coil's prices rose sharply from Rs. 18,000 per ton in June 2000 to Rs. 29,200 per ton in March 2005. In addition, significant pick-up in the economic activity in the country has further galvanized the domestic steel industry. This is reflected in the healthy performances churned out by the domestic companies, which saw the steel stocks emerging major gainers in 2004 with the BSE Metals Index rising about 27% as against Sensex (14%) during 2004.
Also, the announcement by two leading global steel players, Posco and Arcelor, to set up steel plants in the country is a shot in the arm for the domestic steel industry; Posco has already identified Orissa to set up a 12 mt plant at an investment of Rs. 40,000 cr. Giving a further boost to the industry, the government is targeting to double the country's steel production capacity from 100 million tones to 200 million tones by 2020 so as to cater to the global demand. There is another major reason for the industry to rejoice. India's per capita steel consumption of a meager 30 kg is no match for the developed world's figure of 400 kg; forget that, it is even far lower than the world average of 140 kg. That means a big opportunity for the domestic industry. Also, with China's swelling appetite for steel as its economy continues to boom, it offers tremendous opportunity for the domestic industry to capitalize on it. Adding to India's advantage is the fact that it has the six largest iron ore reserves, the major raw material for steel, in the world. All these factors suggest that the Indian steel industry is set for big growth. |
