Rising input costs due to disruption of supply from major coal-producing regions and fears of suppressed demand may slam the brakes on last year’s rally
After recording a growth of 15% last year, global crude steel production is not likely to maintain the current pace in 2011, Dr AS Firoz, chief economist at the Economic Research Unit of the Ministry of Steel, has told Moneylife.
World crude steel production surged by 15% to 1,414 million tonnes (MT) in 2010 compared with 1,229MT in 2009, said the World Steel Association (WSA), which represents around 170 steel producers.
"World crude steel production rose very sharply by 15% in 2010 as against (the) production of 2009. One of the main reasons (for this hike in production) was that world crude steel production was compared to the low base in 2009 due to the global meltdown, which started in 2008 and continued till mid-2009. Because the base is higher now, you cannot expect this kind of growth every time. This year, I think global crude production growth would be around 4% to 5%," said Dr Firoz.
In 2008, global world crude production stood at 1,327MT.
Apart from India, all major steel-producing countries and regions recorded double-digital growth last year. The EU and North America had higher growth rates due to the lower base effect of 2009, while Asia and the Commonwealth of Independent States (CIS) recorded relatively lower growth, said WSA.
Maintaining the leading position in crude steel production, China registered a growth of 9.3% to 626.7MT, while Japan showed an impressive growth of 25% in 2010. However, China's share of world crude steel production declined from 46.7% in 2009 to 44.3% in 2010.
India was the laggard in 2010, recording just 6.4% growth over 2009 to 66.8MT.
"Yes it's true… India's production growth rate was lower than other major steel (producing) countries. And the main reason was capacity constrains," added Dr Firoz.
Indian steel majors Steel Authority of India (SAIL), Tata Steel and JSW Steel have geared up for a ramp-up in their production capacities in forthcoming years.
Tata Steel has raised around $770 million through its follow-on public offer for various purposes, in which enhancing production capacity by 3MT to 10MT at its Jamshedpur plant by December 2012 is on the cards. SAIL expects to complete its Rs70,000-crore expansion programme by 2012-13. After acquiring the sick Ispat Industries, the Sajjan Jindal-led JSW Steel is also expected to enhance its production levels.
"It's difficult to predict demand growth at this moment, but the demand scenario looks okay. Industrial production is growing by 2.5%, then can you imagine what would be the situation of the steel industry?" asked Dr Firoz.
However, rising input costs have become a major concern for steelmakers. Prices of iron ore and coking coal, the main ingredients for making steel, have been surging on account of low supply from the Queensland region of Australia, due to the heavy flooding in this region. Queensland is one of the main suppliers of coking coal in the world.
Coking coal prices in spot markets have been around $300 a tonne; while contract prices are nearly $225 a tonne in this quarter. Experts predict that coking coal prices are expected to touch $300 a tonne in the next quarter if the flood situation in Australia does not improve.
Due to rising input costs and high international metal prices, Indian steelmakers have increased prices. However, Dr Firoz feels that the rally may not sustain.
"Prices of raw materials and steel are related. But I cannot say that increased raw material prices can lead to higher steel prices, as it depends on the strength of the market. If the market remains good, only then can steelmakers increase prices," said Dr Firoz.
Deutsche Mutual Fund has launched DWS Fixed Term Fund-Series 79 (DFTF-79), a close-ended income scheme.
The objective of the Fund is to generate income by investing in debt and money market instruments maturing on or before the date of the maturity of the scheme.
The new issue opens on 24th January and closes on 31st January. The minimum investment amount is Rs5,000. The tenor of the scheme is 91 days.
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CRISIL Short Term Bond Fund Index is the benchmark index. Bekxy Kuriakose is the fund manager.