Why steel demand plunges – Mr Sushim Banerjee
Mr Sushim Banerjee DG of INSDAG in his personal capacity wrote in Financial Express that in advanced countries, one of the critical issues being debated in most forums relates to surplus steel availability in the global market and the consequences that trading of such surplus tonnages are leading to. The major steel associations of different countries have taken it up with G7 group of countries to keep this on their agenda in the meeting. Generally, surplus capacities in any country draw global attention if it indulges in exporting that surplus at a cheaper rate to other countries. In this manner, the country causes distortion to the domestic market of the importing country that has to take resort to trade restrictive measures (AD, CVD, Safeguard and other NTBs) to thwart imports. This is true for US (NAFTA), EU, Brazil and ASEAN countries as steel importers and China, South Korea, Japan, Russia, Kazakhstan and Turkey as exporters.
In 2015, according to WSA data, EU imported 37.7 MT, followed by US of 36.5 MT, Germany of 24.8 MT, South Korea of 21.7 MT and Italy of 19.9 MT. Major steel exporters were China at 111.6 MT, followed by Japan at 40.8 MT, EU at 33.8 MT, South Korea at 31.2 MT and Russia at 29.7 MT.
All the top exporters had experienced shrinkage in domestic demand. China consumed 38.5 MT less steel in 2015, followed by US by 11.3 MT, Japan by 4.8 MT and Brazil by 4.3 MT. As regards growth of these economies, China’s GDP fell by 0.4%, Brazil by (-) 3.8%, while US and Japan did not experience any higher growth rate in 2015 as compared to 2014.
Industrial production in the US fell by 2.45 in 2015 and it was a massive negative for Brazil, Japan and Russia. It is safe to conclude that lower levels of economic activities leading to lower growth rates in GDP were responsible to bring down demand for steel. It is also certain that the urge to achieve higher capacity utilisation in the face of shrinking domestic demand has led all these countries to export a higher volume sometimes even at sub-optimal prices.
This is exactly where the problem originates for the importing countries whose end users may be looking for cheap imports, but the predatory prices (lower than fair prices and lower than their marginal costs) at which imports do take place cause irreparable damages to the domestic steel producers in terms of profitability, employment potential, capacity utilisation and ability to repay outstanding loans.
A recent report on countrywise analysis of peak steel demand has shown that the UK, the US, Germany, Japan, South Korea and China have achieved their peak levels of steel consumption in 1970, 1973, 2007, 1991, 2008 and 2013, respectively, although post 2006, there is a question mark on the authenticity of the point of inflexion. In all these years, the per capita steel consumption along with steel intensity of GDP and GFCF as a percentage of GDP was high compared to later years.
The above statistics comprehensively indicates that the steel industry is no longer a growing sector in these economies. However, they are the victims of unfair trades indulged in by some of the other countries in transferring a part of their surplus capacities to the large importers. But under no circumstances the perils of surplus capacities can be so generalised as to putting an embargo on all future capacity augmentation in anywhere in the world. By virtue of being the earlier participant in the game does not necessarily provide the rights to them to forbid any further capacity expansion being created in any country for the sole purpose of meeting the indigenous demand.
Looking from this angle, the concern and apprehensions of surplus capacities in global steel and the consequent adverse implications for the market dynamics, employment and growth need to be applied with circumspection while discussing India’s case.
It is gratifying to note that the government is quite appreciative and supportive of the endeavours of India’s steel industry in creating capacities where it is needed to cater to the rising requirements of the various end using sectors.
Source : Strategic Research Institute