Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Steel Sector Analysis Report 

[Key Points | Financial Year '16 | Prospects | Sector Do's and dont's]

  • Being a core sector, steel industry tracks the overall economic growth in the long term. Also, steel demand, being derived from other sectors like automobiles, consumer durables and infrastructure, its fortune is dependent on the growth of these user industries. The Indian steel sector enjoys advantages of domestic availability of raw materials and cheap labour. Iron ore is also available in abundant quantities. This provides major cost advantage to the domestic steel industry.
  • The Indian steel industry is largely iron-based through the blast furnace (BF) or the direct reduced iron (DRI) route. Indian steel industry is highly consolidated. About 60% of the crude steel capacity is resident with integrated steel producers (ISP). But the changing ratio of hot metal to crude steel production indicates the increasing presence of secondary steel producers (non integrated steel producers) manufacturing steel through scrap route, enhancing their dependence on imported raw material.
  • In 2015, World Crude Steel production stood at 1,623 million tonnes, a decline of 2.8% vis-à-vis 2014, as estimated by World Steel Association (WSA). All major steel producing countries witnessed a decline in Crude Steel output, except India which registered a 2.6% increase in its Crude Steel output for the calendar year 2015. India produced about 90 million tonnes of Crude Steel in 2015 to rise to the third rank amongst top steel producing countries, displacing United States which saw a 10.5% decline in Crude Steel output.
  • China continues to dominate Global Crude Steel production accounting for almost 50% of total production. In 2015, China produced 804 million tonnes of Crude Steel, down by 2.3% as compared to 2014. For Asia as a whole, total Crude Steel production in 2015 stood at 1,114 million tonnes.
  • In FY16, India was the only major steel consuming market globally, which saw a demand escalation. However, the country suffered from an unprecedented inflow of steel imports from China, Japan, South Korea and Russia. South Korea and Japan benefitted due to the free trade agreement with India. The result was that the domestic industry was forced to take a series of price cuts, leading to a severe margin squeeze for domestic steel companies.
  • Steel prices are now increasingly aligning to global export prices as markets strike a balance between imports and domestic demand. China’s waning demand and resultant rise in exports poses a risk to leveraging improving domestic demand in South Asia and Europe. Further, movement of currencies against USD would also have a significant impact on the movement of global steel and raw material prices.

How to Research the Steel Sector (Key Points)

  • Supply
  • With trade barriers having been lowered over the years, imports play an important role in the domestic markets.
  • Demand
  • The demand is derived from sectors that include infrastructure, consumer durables and automobiles.
  • Barriers to entry
  • High capital costs, technology, economies of scale, government policy.
  • Bargaining power of suppliers
  • Low for fully integrated players who have their own mines for raw materials. High, for non integrated players who have to depend on outside suppliers for sourcing raw materials.
  • Bargaining power of customers
  • High, presence of a large number of suppliers and access to global markets.
  • Competition
  • High, presence of a large number of players in the unorganized sector, Imports from China, Russia and FTA Countries such as Japan, South Korea.

top ↑

Financial Year '16

  • In FY16, Crude Steel production was reported at 89.3 million tonnes, growth of about 0.4 % over the same period last year. However, Finished Steel production registered a decline of 1.1%. The Import of total finished steel was at 11.2 million tonnes and saw a growth of 20.2 % compared to same period of last year.
  • India's consumption of total Finished Steel grew by 4.3 % in FY16 compared to same period of last year. However, such growth was mostly catered to by imports given that production for sale was down by 1.1% during this period.
  • Global steel industry continued to be impacted by large overcapacity especially in China, Japan, and South Korea. Though the steel production decreased in all regions except Oceania during the year, the decline in production was slower than the drop in demand. Global crude steel production decreased by 2.9% to 1621 million tonnes in 2015. Exports from the steel surplus countries flooded the global markets leading to severe pressure on supply and demand balance and steel prices.
  • In February 2016, the Government has imposed the Minimum Import Price (MIP) condition on imports of 173 steel items. The MIP conditions laid down in the Notification are valid for six months from the date of notification or until further orders, whichever is earlier. Further, in March 2016, the Government has extended the Safeguard Duty on HRC imports that was placed in September 2015, till March 2018. However, the Duty would be reduced to 10% in stages over the next two years. Further, during April, 2016, the Government of India has initiated Countervailing Duty/Anti-subsidy investigation on imports of certain "Hot Rolled and Cold Rolled Stainless Steel Flat Products" from China.

top ↑

Prospects:

  • The environment in the metals and mining industry will be challenging due to the weak demand and declining commodity prices. The forecasts from World Steel Association (WSA) suggest that the global steel demand is expected to decrease by 0.8% to 1,488 mtpa in 2016 after a contraction of 3% in 2015. The world steel market continues to suffer from weakness in the manufacturing sector and inadequate investments in the developed economies.
  • The growth in advanced economies is expected to be modest owing to factors such as low productivity, unfavorable demographic trend, uncertainties in the political landscape and slowdown in activities on account of the ongoing financial crisis. This calls for growth in emerging markets and developing economies for recovery.
  • Steel demand in some emerging economies remained bleak owing to worsening of external environment on account of weak exports, low commodity prices, currency devaluation, capital outflows and other geo-political issues. Ongoing recession in a number of large emerging economies and difficult macroeconomic environments (including that of China), weaker terms of trade with tighter external financial conditions will continue to be causes of concern.
  • In the backdrop of the above environment, India's prospects seem bright with the Government of India taking several policy measures to support manufacturing, infrastructure and foreign investment. As per WSA, steel demand in the emerging and developing economies (excluding China) is expected to grow by 1.8% and 4.8% respectively in 2016.

top ↑

Related Links for Steel Sector
Quarterly Results | Sector Quote | Over The Years

Views on News

Sorry! There are no related views on news for this company/sector.

Most Popular

My Top Stock Recommendation for 2021 and Beyond (Profit Hunter)

Jan 5, 2021

My new guide will show you the huge potential in future proof businesses.

'Essential' Smallcap Stock Recommendations (Profit Hunter)

Jan 8, 2021

The smallcap rally has enough steam left in it. If you haven't joined yet, it is still not too late.

Is Nifty Forming a Top (Fast Profits Daily)

Jan 8, 2021

The charts are telling the bulls to be cautious.

Why Gold Hit Lower Circuit (Fast Profits Daily)

Jan 11, 2021

Were you shocked that bullion prices hit lower circuits on Friday on the MCX? Find out why it happened...

Five Wishes and a Will (The Honest Truth)

Jan 4, 2021

Ajit Dayal on the investing strategy for 2021 and beyond.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE METAL


Jan 15, 2021 (Close)

COMPARE COMPANY

MARKET STATS