Abstract
India’s buoyant domestic metals market coupled with its insulation from
the global economic downturn
has ensured that the country’s metals
industry continues to grow while other emerging markets shrink,
with
BMI’s latest India Metals Report forecasting 4.4% growth in crude steel
output in 2009. Despite the
optimism, BMI notes growing concerns over the
impact of the debt crisis as well as ongoing land
disputes on planned
steel and aluminium plants as well as the threat of dumping from China and
the
Commonwealth of Independent States (CIS).
The World Steel
Association reported a 3.0% decline in crude steel output in the first four
months of 2009
to 17.99mn tonnes, but its figures also show an 8.1% rise
in output to 4.58mn tonnes in April alone
suggesting a rebound from the
monthly low of 4.1mn tonnes in February. According to PTI’s reports,
imports rose 6% year-on-year (y-o-y) in March-April to 1.57mn tonnes while
exports fell 40% y-o-y to
400,000 tonnes as the domestic market absorbed
the bulk of output. Of total imports, hot rolled coils
represented a 28%
share or 500,000 tonnes. In FY08/09, Indian exports fell by 27% while imports
fell by
17% to 6mn tonnes.
The market has been stimulated by the
government’s fiscal boost, which has been directed at 37 major
infrastructure projects. The stimulus programme is aimed at GDP growth of
7.0-7.5% in H1 FY09/10.
The government has permitted the India
Infrastructure Finance Company Limited (IIFCL) to raise
INR400bn
(US$7.8bn) in bonds to refinance infrastructure-related public-private
partnerships, a move
that will boost construction and steel demand. The
automotive sector is also recovering strongly, with
double-digit growth
rates in Q209. While it is unlikely that growth will be sustained at these
levels
throughout 2009, analysts see the upturn as a sign that the car
market has already passed its low-point.
The Indian market has been
insulated from the global downturn as it has less exposure to the global
steel
trade and good internal demand. The World Steel Association has
forecast steel demand growth of 2% in
FY09/10; an excellent performance
compared to other emerging markets which are expected to contract.
Pramod
Kumar Rastogi, the Secretary of the Ministry of Steel, is even more
optimistic, suggesting growth
of 5-10%. BMI is less sanguine, with the
market likely to be volatile, although recent results have
prompted us to
revise our forecast upwards from a negative output growth rate of 1.4% to
positive growth
of 4.4%, to 57.48mn tonnes in the 2009 calendar year. The
danger of over-capacity will linger, posing a
threat to prices and in turn
profitability especially if coal prices do not remain low. This will be
counterbalanced
by lower prices for both iron ore and coking coal, but
will not offset the full fall in the value of
sales and product price
volatility. In the aluminium sector, there remains a significant danger of
mediumterm
over-capacity due to projects pursued by the three major
players, Hindalco, Vedanta Resources
and Nalco. Nevertheless, aluminium
producers are currently still able to report a profit margin.
India’s steel production by FY10/11 could reach 80-85mn tonnes,
according to SAIL, up from around
60mn tonnes expected in FY08/09, as a
result of domestic demand. Following BMI’s revision in
forecasts, we
believe that output in the 2011 calendar year will reach 82.8mn tonnes, up
from 78.2mn
tonnes. By 2013, our forecasts indicate that output will reach
96.8mn tonnes, although this will partly
depend on approvals and
commissioning of steel plants. This would represent a rise in output of 76%
over
the five-year period.
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