Dhiraj K. Chauhan

DirectorMETCON

42 March 2019STEELWORLD

Featureü

HR and CR Steel –Current Scenario in India and World

Introduction:

uring financial year D2017-18, steel

production in India grew by

3.1% to 105 million tonnes

and consumption increased

by 7.9% to 90.7 million

tonnes. The upward

momentum is expected in

production and

consumption to continue in

the ongoing financial year

2018-19 as well.The

increase in output, however,

is slower compared to

11.9% y-o-y growth

reported by the industry

during 2016-17 when

production stood at 101.8

million tonnes.

The demand for steel

from user industries is

likely to result in increase

in production and is

expected to keep the

prices firm during 2018-

19, while some

moderation in steel prices

will result during the

monsoon months as

infrastructure and

construction activities

slow down during these

months. The prices had

averaged 18%-21% higher

during 2017-18.

Steel market conditions:

These conditions continue

to recover in most regions

following the market

weakness of 2015, but it is

uncertain whether the

momentum will continue.

Important headwinds

remain and include financial

vulnerabilities of steel firms

and the presence of

distortive government

support and subsidization.

Economic situation:

The economic recovery

43 March 2019STEELWORLD

Feature üseems to have broadened,

and risks to the downside,

although always present,

now seem to be subdued.

As per OECD projections,

world GDP growth will

reach 3.6% in 2017, 3.7%

in 2018, before

decelerating slightly to

3.6% in 2019.

Steel demand developments:

Market data released in

2017 suggest that the

recovery in steel demand

that commenced during

the second half of 2016

continued in 2017, with

global steel production

registering strong growth

and monthly indicators of

steel demand increasing in

many economies.

However, important

structural imbalances

remain unaddressed.

Steel exports:

After declining slightly in

2016, global steel exports

fell by almost 7% in the first

eight months of 2017.

Steel prices:

Steel prices continued to

increase in 2017, despite a

correction during the first

half of the year.

Steel demand forecasts:

Forecasts by the World

Steel Association, released

in October 2017, suggest

that global steel demand

will continue to grow in

2018, albeit at a slower

pace (1.6%) compared to

2017. Over the longer term,

factors such as the

circular economy and

digitalization trends could

weigh on steel demand

growth.

Steel production:

Steel products can be

widely divided into two

categories, long and flat

products. There are

various products

manufactured within

these two categories

based on the needs of

user industries. While long

products are generally

used for construction,

mechanical engineering,

energy and automotive,

flat products viz.HR and

CR steel are generally

used for automotive,

heavy machinery, pipes

and tubes, construction,

packaging and appliances.

Flat products and pipes

account for 97.9% of the

non-alloyed flat products

manufactured in India.

During 2016-17, the

output of flat products

(HR, CR) grew by a healthy

20.9% to 49.3 million

tonnes and long products

increased by 5% to 44

million tonnes on a y-o-y

basis. In the next year

2017-18, the output of

long products rose by

2.3% to 45 million tonnes

and that for flat products

was up by 0.9% to 49.8

million tonnes.

Demand drivers for

steel industry: India’s steel

production is expected to

remain higher in the

current financial year 2018-

19 backed by growth in

domestic demand from

user industries during the

year. The significant user

industries that drive the

demand for steel is shown

below in Table 2.

Table 1: Category-wise Production of Flat Products (in ‘000 tonnes)

Flats

HR Coil/strip

CR Coil/sheets

Galvanized Products

Plates

Pipes (Large Dia.)

HR Sheets

Other

Fy2014

20.8

7.7

6.9

3.9

2.0

0.9

0.5

Fy2015

20.2

7.5

6.9

4.7

2.1

1.1

0.5

Fy2016

19.5

5.9

7.2

4.1

2.2

1.5

0.5

Fy2017

24.1

8.6

7.7

4.7

2.1

1.1

1.0

% share

48.9

17.4

15.7

9.5

4.2

2.2

2.1

CAGR

5 %

3.5

3.9%

6.5%

1.7%

6.0

28.7

Figure 1:

% Share of

Flat Products

44 March 2019STEELWORLD

Featureü

Automotive sector is a

major demand driver for

flat steel products

(including basic and

specialty steels). These

products are key inputs for

manufacture of

automobiles and account

for significant cost with

respect to automobile

production. Flat products

such as hot rolled coils &

sheets find their

application in wheel-disc in

the automotive segment.

Other products like cold

rolled coils & sheets and

galvanized coils & sheets

find their application in

auto parts viz. hood, roof,

door, body side, floor,

reinforcement pillar,

structural safety

components and impact

beam. The automobiles

sector is expected to

register higher sales on a

y-o-y basis during 2018-19

backed by a growth in

demand from auto

consumers.

Sales of the largest

segment, two & three

wheelers, is likely to grow

by 17%-19%, and sales of

the commercial vehicles

(CV) and passenger vehicles

(PV) segments is expected

to rise by 18%-20% and

8%-10%, respectively.

Subsequently, it is

expected that, demand for

steel from user industries

will remain higher in the

current financial year

2018-19 which is expected

to drive steel production

during the year. Thus,

India’s steel production is

expected to grow by 6%-8%

during 2018-19.

Consumption pattern of

Hot rolled steel coils:

Major economies like

Brazil, China, Germany,

India, Japan, South Korea,

Russia & US show a rise in

consumption since the

beginning of year 2016 as

seen from figure 1.

Outlook for domestic

steel prices: Steel prices

in India remained higher

during the first two

months of the financial

year 2018-19. For May

2018, the prices of CR

coils, HR coils and TMT

bars stood at Rs.61,537

per tonne, Rs.56,480.5 per

tonne and Rs.49,925 per

tonne, respectively. The

prices were at their peak

during the month.

%

62.0

22.1

10.1

2.9

2.9

Sector

Construction & Infrastructure

Engineering & Fabrication

Automotive

Other Transport

Packaging & Others

Table 2: Sector wise steel consumption

Figure 1.

Consumption

of hot-rolled

steel products

45 March 2019STEELWORLD

Feature ü

Considering this and a

likely slowdown in

construction and

infrastructure activities in

the coming months on

account of monsoon, the

prices may see some

moderation on m-o-m

basis. Post monsoon, the

prices may pick up and

remain firm backed by

higher domestic demand

during the year. Pressure

from the raw material

prices is not expected

much.

The domestic prices

however, could get

impacted by the demand-

supply situation in China,

the world’s largest steel

producer. As per the World

Steel Association’s short

range outlook, steel

demand in China is

expected to remain flat in

2018. While the outlook for

demand remains static for

China, the movement in

steel prices here can take a

cue from the production

cuts that the country

undertakes in 2018.

During the financial

year 2017-18, the prices of

HRC and CRC in China

increased in the range of

18%-27% and the prices of

plate and rebar grew by

31%-42% on a y-o-y basis.

The growth in international

steel prices also led to a

rise in domestic steel

prices during the year.

Conclusions:

Ÿ Demand for steel

from user industries will

remain higher in the

financial year 2018-19

which is expected to drive

steel production during the

year. Thus, India’s steel

production is expected to

grow by 6%-8% during

2018-19.

Ÿ The domestic steel

prices are expected to

remain firm during the year

2018-19, while we may see

some moderation in prices

in the coming months on

account of monsoon due to

a likely slowdown in

construction and

infrastructure activities in

these months. The raw

material prices will not have

much effect.

Ÿ The domestic prices

however could get impacted

by the demand-supply

situation in China (the

country being the largest

steel producer) and the

production cuts that the

country undertakes in 2018.

References:

1) Care Ratings. Industry

Research, Steel review and

outlookJune14, 2018.

2) RBSA – Indian Steel

IndustryAnalysis. June

2018.

3) Organization for

Economic Co-operation and

Development(OECD)

Report, Dated 20th

December, 2018.

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Demand for

steel from

user industries

will remain

higher in the

financial year

2018-19 which

is expected to

drive steel

production

during

the year.