What is in store for steel in the year 2001? While the global scenario in the industry is yet to look up and remains unusually uncertain, there are reasons to believe that the Indian steel mart will perhaps not be as bad. This prognosis is against the general perception of the weakening of India's economic growth, particularly of the manufacturing sector. There is also a background of increasing stocks of unsaleable steel in the market and falling prices of steel worldwide in the past couple of months. This assertion, therefore, is certain to meet with a certain degree of resistance. Hence it is important for us to examine the numbers currently available on the status of the industry in the country in greater detail.

In the first eight months of the year 2000-01, April-November, gross finished steel consumption in India went up by 11.9 per cent as per the estimates of the Joint Plant Committee. The net consumption, after adjusting for multiple counting, stands at a higher 12.6 per cent, as per the author's estimates. Exports of saleable steel shot up 7.3 per cent and the capacity utilisation of the plants stood higher at 90.1 per cent for the main steel producers (SAIL, TISCO and RINL ).

However, this high growth scenario raise points for concern too. The stock of steel with the main steel producers is up from 0.822 million tonnes on April 1, 2000 to 1.453 million tonnes at the end of November. The prices of major steel products have also fallen in the domestic market despite high degree of tariff protection. These two scenarios in contrast are easy to explain. During the period, against the remarkable increase in demand, the gross production of finished steel rose by 13.5 per cent. Net production increased by 14.4 per cent. The crude steel output was up by 7.5 per cent. Production thus had grown at a faster pace, leading to stock accumulation that in turn hit the price line.

The major problems have been seen in the market for flat products. While net consumption of flat steel has grown at a phenomenal 18.4 per cent, net production increase stood higher at 21.5 per cent. The pressure on this market, quite expectedly, has remained high as a result - a subject that is a favourite with the prophets of doom. Although much of the expressed pessimism seems exaggerated, these are not matters to be swept aside as irrelevant or of lesser value.

Today, flat products are more important for the steel industry because these involve many behemoths currently lying deep in debt. Given the economies of scale, there is not enough space for these companies to cut production quickly and sufficiently to adjust to the size of the market demand. To add to it, flat steel producers have so far managed to keep their business going by tapping the opportunities in the world market.

Hot rolled coils found way to foreign markets in a big way. During the period April-November, 2000, exports of HR coils went up to 1.225 million tonnes, as per the preliminary estimates of the JPC, from about 0.938 million tonnes during the corresponding period last year. In the first couple of months of the year, export prices were among the highest seen in the recent years. Today, the situation is radically different.

With trade action around and fresh cases of dumping and subsidy initiated in the US - the most important market for the Indian company for these products - export avenues are getting narrowed down. Moreover, prices have crashed to historic low levels. The catastrophe in the global market has hit Indian steel companies in no small measure. Therefore, prospects are not too bright for the industry at the onset of the year as it will have to turn to the domestic market for any growth, if not for survival.

Prospects for the steel market in the country are, however, not too bad. What is spreading fear in the steel industry at present is the reported slowdown in the manufacturing sector in India. Figures released by the government for the first two quarters of the year, i.e. for the period April to September, definitely indicated a slowdown in the growth of the manufacturing sector. But recent trends in the industry, reported by various industry associations, as well as by the government, do not show continuation of the downtrend in the third quarter.

There are areas of concern as agricultural growth rate is dropping and the services sector seems to be failing to match expectations. Even if there is a fall in the domestic demand for manufactured goods, exports are on a rise. Exports from the country have gone up by as much as 21 per cent, valued in the US dollar, during April- November 2000, year on year. Much of this increase has been accounted for by the manufacturing sector. This phenomenal rise in exports can be an indication of the shape of things to come in the coming days with exports leading growth in the economy and in the manufacturing sector.

Although on the conservative side, one can read the increase in exports signs of the poor state of the domestic market forcing the industry to export as much as it can, there is a stronger possibility of exports increasing to the extent of offsetting the impact of weakening domestic market. What has bothered most is the drop in the rate of growth of the farm sector.

Most experts believe that this is the main cause for the drop in domestic demand. They have also argued that this factor will play a larger role in shaping the pattern of demand in the economy in the coming days. The sharp drop in investment in the new economy has also been seen as responsible for the slowdown in final consumption demand in the economy.

Neither of the above two factors, in fact, is critical for steel demand growth. Major steel consumption lies in the area of construction of infrastructure, residential and commercial housing, and industrial complexes and plants. Although a slowdown in the production of commercial and private vehicles will have a significant impact today, in the overall steel market, these sectors are still small compared to, say, construction. Construction has not seen any major growth in the past few years. Will it see one this year? If one carefully examines the steel consumption statistics available for the reported period, one sees a sharp increase in demand for pipes and tubes, galvanised sheets and bars and rods.

All these products fundamentally go to the construction sector. Does it indicate that despite the reported slowdown in investment, there is an undercurrent of construction activities gaining momentum quite unnoticeably? This may also be corroborated by the apparent strength in the cement market (we are not talking about prices, that might have been influenced by certain degree of cartelisation.) The slowdown in investment may have been in areas like IT and services sector. There is a possibility that investments have turned to construction and old economy developments that has boosted up steel demand in the last few months. If this trend continues, steel will benefit. If so, Indian steel companies will find some space to sustain themselves.

But, as I said earlier, the main problem lies with flat products. However, sharp rise in demand for pipes and galvanised sheets will help the flat segments in the same proportion. There is no clear estimate available of the exports of pipes and tubes and the same may have entered as domestic consumption raising the figure to artificial highs. In fact, there are discreet reports from the ports that exports of pipes and tubes from India have increased very sharply.

The same is true for galvanised sheets also. (This has, however, been captured as exports.) Intermediate flat products like HR coils may suffer in the export front but greater efforts will see increase in exports of value added downstream products. What haunts the country's export initiatives is the reported slowdown in global economic growth. But exports are unlikely to suffer in any major way on account of this considering the composition of the country's export basket. In fact, there has been substantial diversification and consolidation in the country's external trade with greater acceptability of its products in the world market. Therefore, an export led growth is all that is going to sustain the country's manufacturing sector growth this year. Steel has, therefore, chances amidst a dull outlook projected at present.