Global steel production in August 2017 raises hopes for the revival of steel industry. A 6.3% increase at 143.6 MT over last year is indeed significant. Only barring the last few months, the concern over excess steel capacity which was frequently taken up as a major agenda point in almost all the international fora including the G-20 meeting, had made production growth an avoidable activity especially in EU, NAFTA and MENA countries. For others in Latin America, CIS and SE Asia, the continued subdued economic conditions could not create an enabling environment to enhance steel production. The most pertinent question therefore that can be raised now relates to if sufficient demand growth, current and potential, would neutralise the excess capacity syndrome and as steel demand growth is inseparably linked with upward movement of economic parameters, does it also imply that economic growth in EU, NAFTA and other steel producing countries would usher in bright periods for steel industry in the months to come?

During the first 8 months of the current year, Chinese production of crude steel at 566.4 MT has gone up by 5.6%, Japan at 69.6 MT by (-) 0.4%, India at 66.5 MT by 5.1% and the US at 54.7 MT by 2.4%. These first 4 steel producers along with Russia, Ukraine, Turkey, Vietnam and Iran comprise around 77% share of the global steel production. In case of India, Iran and Vietnam, the increased steel production continued with higher capacity augmentation, while for others it was higher capacity utilisation and no addition in fresh capacity. A growth in production stems from a perception that the market exists with a higher realisation. First it started with prices of coking coal and iron ore and next we knew that HRC prices rose by nearly 30% during November 2016 to September 2017, followed by all other flat categories. The long product prices, dependent on scrap and infrastructure investment, picked up a little later.

It is true that stimulus investment in China has led to demand pick up, rise in domestic prices and higher export offer, more demand for imported iron ore and coking coal and an overall improvement in the profitability indices of the domestic steel industry. Thanks to the emergence of the age of protectionism that many steel importing countries resorted to anti-dumping and countervailing duty measures against dumped steel from China and a few other low-priced steel exporting countries.

This brings up another debatable issue — if the upward movement of global production, consumption and prices in steel are incumbent on what is in store in the Chinese domestic market and would fizzle out the moment the Chinese bubble is burst. This is hypothetical, but it can be safely concluded that steel produced in China in excess of what is genuinely required to cater to the infrastructural and other industrial requirements in the country would necessarily lead to price depression, distress export offers and thereby cause injury to the health of global steel industry. Although China is going ahead of dismantling capacities of the SMEs and closing down environment polluting entities, the unutilised capacities in the SOEs are a deterrent against fresh capacity additions and a correct assessment of future demands from the large infrastructure projects and the corresponding industrial demand from the indigenous and export markets would only be the guiding light for Chinese capacity activation and the sustainability of global steel industry in terms of growth, capacity planning and profitability.

It is heartening to note that for the rejuvenation of Indian economy (perking up GDP growth from 5.7% in Q2 of FY18) and meeting the significant gaps in infrastructure building in roads, rail network, housing, communication, ports, energy, the government is contemplating a stimulus dose of around Rs 50,000 crore of investment in the balance period of the current fiscal. Total finished steel consumption that went up by 4.7% in the first 5 months in the current year has been achieved by 3.7% growth in crude steel production, finished steel import and export growth of 18% and 57%, respectively. Total long steel consumption in India predominated by infrastructure demand has actually gone down by 1.6% during the period with TMT bar and wire rods consumption dropping by 2.5%, while consumption for rails including other railway materials went up by more than 13%. The same trend continues for alloy/ SS non-flat products also. The flat steel consumption went up by more than 16% with major growth observed in plates (around 8%), HRC (more than 17%), coated products (more than 26%), electrical sheets and tin plates. The alloy/SS flat products experienced a higher level of onsumption.