Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Steel: What lies ahead? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Dec 20, 2002

    Steel: What lies ahead?

    The global steel industry had been ailing over the last few years, plagued by fragmentation, over capacity and global economic slowdown. Moreover, the September 11 attacks came at a time of declining global trade. World trade grew by less than 1% in terms of volume of world total exports in 2001, a significant decline from growth of over 11% witnessed in 2000. This collapse in growth of international trade was aggravated by the 9/11 attack. However, respite seems in sight. According to leading organisations like OECD and IMF, world economies are set to improve in 2003 led by the US and Europe. Steel being a core sector, any improvement ought to be reflected in this sector.

    The world at large is grappling with problems relating to the steel industry. The global steel scenario is highly fragmented in nature. The chart below shows the fact that the top 5 steel producing companies control only about 15-16% of the world market. As a result of this fragmentation, steel companies are unable to achieve higher operating margins, which is currently around 5-6% as compared to aluminum (approx. 12%), copper (approx. 17%) and cement (approx. 27%). However, in the latter industries, the fact that the top 5 companies control around 45-50% of the world market must be taken into consideration

    The other reason for the lower operating margins in the steel industry is the chronic overcapacity that the industry is facing currently. The global steel consumption in 2002 is estimated around 784 MT, while the capacity is about 1,034 MT. This overcapacity of over 200 MT is likely to keep the pressure on price.

    These issues saw steel prices dip to 20-year lows in January 2002. Dipping prices and lower realizations made the US steel industry pressure the government for protection against steel dumping nations (especially EU countries). As a result of this, the US government passed the anti-dumping law against steel exporting countries to the US.

    This step by the US government worked as a boon for the Indian steel industry, particularly for players like TISCO and SAIL. India did not get affected by this law owing to its ‘developing nation’ status. Also, US steel imports from India did not cross 3% of total US imports. India could continue to export to the US and earn better realizations, as prices in US were comparatively higher on the back of protection given to the US steel industry which had shifted the supply demand equation in favour of the suppliers. TISCO’s exports were up by 94% in 1HFY03 (US$ 105 m) as compared to 1HFY02 (US$ 54 m).

    Of course, apart from export growth, developments on the domestic shores cannot be overlooked. Demand from automobile and consumer goods sectors, and also government’s infrastructure drive, all contributed to the bottomline of Indian steel companies. The dual benefits (both domestic and exports) saw stock prices of both these companies rising in the last one-year.

    Going forward, positive developments are likely to show up in the global steel industry also. In a meeting among steel exporting countries in Paris last December, they identified overcapacity of some 125 MT in the global steel market and have agreed tentatively to make a cut in production capacities by the end of 2005. If this happens, it could provide some relief to the ailing steel industry.

    Also, the big 3 in steel consumption i.e. China, EU (15) and US, who consume over 50% of world steel, are expected to see an improvement in economic growth and consequently benefit the industry. With the improvement of the Russian economy, the steel from the CIS countries is being absorbed by the region itself, which leaves very little for export to the rest of the world. Also, China is likely to increase its imports since the country has started huge construction projects in preparation for the Olympics.

    Going by this, in the foreseeable future steel prices will remain stable if not go up further. Steel companies will continue to reset their current debt at lower interest rates and reduction in employee costs, as a result of VRS, will continue to positively affect their bottomlines’.



    Equitymaster requests your view! Post a comment on "Steel: What lies ahead?". Click here!


    More Views on News

    Tata Steel: A Strong Quarter (Quarterly Results Update - Detailed)

    Aug 12, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    SAIL: Loss at EBITDA Level Due to Higher Raw Material Cost (Quarterly Results Update - Detailed)

    Jun 12, 2017

    The company registered a negative EBITDA of Rs 2.64 billion during the quarter. This is on the back of an increase in raw material prices.

    Tata Steel: Strong Quarterly Performance (Quarterly Results Update - Detailed)

    May 22, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    SAIL: Pressure Continues. Loss at Operating Levels... (Quarterly Results Update - Detailed)

    Feb 15, 2017

    SAIL has reported a 26.2% YoY increase in the topline while the bottomline reported a loss of Rs 7.94 billion.

    Tata Steel: Loss from Discontinued Business Mars Performance (Quarterly Results Update - Detailed)

    Sep 27, 2016

    Tata Steel has reported a 6.3% decline in the topline while the bottomline was in red in 1QFY17.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)