The implementation of an input tariff of 25% by US President Donald Trump on foreign goods which was announced in February 2018 has spoilt the inflow of steel products. However, countries like Canada and Mexico have been kept out of it. The prospects of domestic steel industries looked healthy before the announcement of tariff hike by Mr. Trump. Although steel supply to the US is considerably low but the flooding of steel in the global market impacted the domestic exports. The health of the domestic steel industries is affected by global economic activities which started to weaken due to uncertainties in global trade like the US-China Trade war and Brexit uncertainties and the slowing down of the construction and auto sector globally.
Apart from the global issues the domestic steel industries were further hit by slowing economy leading to the fall in the domestic demand or consumption. The domestic industries were forced to depend on exports due to the rise in inventory levels. The falling prices of steel domestically had further added to the woes.
Although it was beneficial from the user end but manufactures and traders need to brace themselves for margins getting narrower due to the hike in the raw material prices.
The steel exports came down substantially by 32 percent in 2018 to 11 million tonnes compared to the previous year. In 2018, Indian steel industries could maintain higher profit margins due to the rise in steel prices compared to the previous year and healthy demand for steel maintaining a consumption growth of 3.5% to 104 million tonnes. Although the steel consumption growth was 6% and 6.8% for the years 2016 and 2017 respectively.
The stable growth in the year 2019 was affected by the slowing down of the economy and slow movement in the construction sector as well as plummeting auto sales. As per the CRISIL data, despite healthy export, the inventory had been at an average of about 14 million tonnes per month as against 11 million tones in 2018. The projected domestic growth came down from 6.9% in Q 1 to 3.1% in Q 2 and moved further into the negative terrain of -1.8% for the first two months of Q 3, FY 20.
The price of hot-rolled coil prices has come down from Rs.44,000 per tonne to Rs.35,800 per tonne. RCEP negotiation has further added to the rise in imports especially from Japan and South Korea. The rise in imports has put further burden on the domestic front.
The global steel demand can get even worse due to the slowing down of the economy and manufacturing sector in China. Forecast by WSA shows that China’s steel demand is projected to grow by a mere 1% as against 7.8 percent in 2019. Thus, the global steel demand is expected to grow by 2%( approx) as against 3.9% in 2019.
However, the steel supply is going to remain much stable with winter production control becoming less severe for China compared to last year and the reopening of many production units in the US. Low demand and stable supply of steel may impact the steel prices forcing it to rise. The imposition of higher tariffs on Brazil’s steel products can lead to the flooding of steel in the global market which can further threaten the steel prices.
On the domestic front, the hike in iron ore prices due to the issues with iron ore mines can raise the input costs putting pressure on the steel producers. However, the surge in demand supported by several measures by the government with respect to construction and infrastructural activities can provide some momentum. On the global front, the new trade deal between the US and China that includes averting the December 15 tariff imposition, reduction of import duties on Chinese products, and reduction of global uncertainties can impact steel prices. The victory of Borris Johnson in Britain, paving a way for Brexit, can surge steel demand. At the same time, the developed and the developing countries are expected to recover from the low level of demand seen in 2019.
