India consumed 93.4MT of steel in FY21, 6.7% lower than the pre-Covid year. It is likely that real consumption may be revised to around 95MT when final figures are compiled.
Excluding the consumption figure for the first quarter in FY21 which was literally washed away by the devastating impact of the catastrophe, it is seen that from July’20 to March’21, in the nine months’ period, the total steel consumption in the country was 81.2 MT as compared to 75.4 MT in nine months’ of FY20.
This shows that India has consumed 7.7% more steel that is around 57,00,000 tonne of additional volume of steel has been consumed during the period.
Two factors can be identified to be responsible for this. First, economic activities were slowing down from Q2 of FY20 as evident from declining GDP growth in each subsequent quarter and then moving up in the positive zone in Q3 of FY21.
Second, the pent-up demand in Q4 of FY20 and Q1 of FY21 expressed itself from Q3 FY21 onwards as fresh demand also surfaced on account of emerging demand from automobile, rural and housing sector and infra.
Gross fixed capital formation (a proxy for investment) as a per centage of GDP (current market prices) has moved up marginally from 27.3% in Q2 to 27.7% in Q3. This trend however does not take away the fact that In FY21 there has been a dip in GFCF. The government final consumption expenditure (GFCE) as a per centage of GDP has moved up from 11.6% in HI of FY20 to 12.8% in HI of FY21. For the full year also, GFCE (at constant prices) in FY21 at 11.8 exceeds the figure for FY20 at 10.6%.
The rate of growth of private final consumption expenditure (PFCE) was subdued, however, in each quarter of FY21 it has maintained a higher growth as well as a higher share of GDP, although on an annual basis, the share of PFCE in FY21 was lower than what it was in FY20 with GDP declining by 8.0%.
Thus, a sustained private and government consumption expenditures supported rising demand for consumer appliances, sales of passenger car, 2 wheelers. Increasing rural demand led to higher sales of tractors for both agro use and transportation. Public investment came to play its positive role in lifting up the economy from Q3 onwards only and it is in sync with similar trend observed in other large economies also, however social safety net in advanced countries was much larger compared to India.
Total production of crude steel at 102.4 MT was lower by 6.1% compared to FY20. The share of public sector (SAIL, RINL, VISL) remains same at 19%. While production by small and medium enterprises is lower by 7.9%, its share in total production of crude steel had a marginal drop from 37.3% in FY20 to36.6% in FY21. Inadequate availability of iron ore in Odisha constrained the production of SME units in the eastern region for a few months.
In addition, there was temporary disruption of labour supply due to the migrant workers’ issue following the Covid 19 pandemic. The inventory position of finished goods gave a much better scenario in the current year. While FY20 ended with a stock accretion (at the large producers’ end) of 0.86 MT, there was a stock depletion of more than 4.8MT in FY21. Inventory depletion is a good indicator for market improvement.
Covid affected total imports in FY21 at 5.2 MT are lower by around 28%. Steel exports from India at 17.8 MT is a record after many years and indicates a 59% rise over last year. It may be mentioned here that 17.8 MT of steel exports contain export of semi-finished steel of the order of around 6.6 MT against last year’s volume at 2.8 MT only. China accounts for around 50% of semis export from India and the balance volume of semis had gone to Indonesia, Philippines, Thailand, Nepal and others.
A few positive changes were observed in the functioning of steel plants in FY21. As physical presence of people manning the steel plant were mandatorily less with social distancing, the thrust on digitalization of the major activities and work from home became the practice. It also made possible to the management of steel companies to bifurcate the jobs that can be outsourced and those requiring direct engagement of people and thereby achieve a cost effective manpower system.
Rising trend in steel prices in which domestic prices are at a discount with global prices, shows that market demand is adequate, both in the domestic and global market thereby giving ample opportunities to Indian steel players to reap benefits in terms of realisation, bringing down debts and plan for capacity addition specifically for value added items to make India Atma Nirbhar.
The writer is former DG, Institute of Steel Development and Growth
(Views expressed are personal)
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