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MOSL: EXPERT SPEAK (Metals)-Steel demand growth outlook robust, but for near-term hiccups

EXPERT SPEAK (Metals): Steel demand growth outlook robust, but for near-term hiccups; Indian steel imports may rise to 10-11mt in few years

 

Dr. A S Firoz; Chief Economist at the Economic Research Unit (ERU)

Dr. A S Firoz is the Chief Economist at the Economic Research Unit (ERU) of the Ministry of Steel. He is known world-wide for his analysis of steel, iron ore and the coal market. He was also associated with many other research organizations such as Hatch, ICRIER, NCAER, FIMI, etc. He is also Member Convenor of Steel Exporters' Forum of India. He played a key role in the formulation of the Five-Year Plans and steel policies of the Government of India. He studied Economics at India’s prestigious Jawaharlal Nehru University, obtaining an MA, M.Phil and a Ph.D degree. 

We hosted a conference call with Dr. AS Firoz (Chief Economist at the Economic Research Unit of the Ministry of Steel) to understand demand outlook for steel and key issues in the industry. Key highlights - (1) Steel demand is expected to grow at 10% CAGR over the next 2-3 years, but, with near-term hiccups, (2) quality control measures have helped curb unfettered growth in imports, (3) supply growth will lag due to shortage of capital, while net imports may rise to 10-11mt, (4) many iron ore mining leases will expire by end-FY20E, yet there are no answers to key issues regarding transfer, (5) SAIL has many operational and product mix issues and will continue to require investments, and (6) there are structural changes in the consumption pattern of stainless steel. 

Demand outlook robust, but, for near-term hiccups

• Firoz expects domestic steel demand to grow close to 9% in FY19. He has toned down expectations by 2pp as a cloud of uncertainty has emerged over infrastructure spending. There is a bit of a slowdown and issue of non-payment in road and few other sectors, too. These issues are likely to be short-lived. However, the longer-term outlook is very positive.
• Steel demand is expected to grow at a rate in excess of 10% per annum over FY20 and FY21. Rail demand has been hovering around 800kt for a long time but it is now at an inflection point and is expected to increase to 1.5mt in FY19 and 2.5mt over the next few years. Drinking water supply program has been driving demand for pipes. River linking program will add further to demand. Construction and infrastructure building is now getting more steel intensive. Railways are going in for a big revamp with much gas-pipeline infrastructure being built. Private sector investment cycle has yet to start, which may take another couple of years to begin.