The major take out of the contact for Atma Nirbhar Bharat relates to a robust and effective manufacturing sector in India. It has suffered as the economy had deviated by thrusting the development of the service sector ahead of manufacturing, even though major sector continued to observe a secular decline in share of GDP. Thus it came as a pleasant surprise that manufacturing possessing degrowing for final months has now entered the optimistic trajectory by clocking a development price pf 3.5% in October ’20.
The Industrial production that entered in the optimistic variety in the final month ( .5% rise in September’20) continued to clock 3.6% development in October. In the manufacturing sub-segments, the development is observed in 1) rubber and plastic solutions (15.5%), 2) pharmaceutical solutions (12.9%), 3) meals solutions (2.5%), 4) leather and connected solutions (3.4%), 5) Chemical solutions (9.6%), 6) non-metallic mineral solutions (3.3%), 7) other manufacturing (10.6 %), 8) fabricated metal solutions (13.4%), 9) pc, electronic solutions (10.9%), 10) electrical gear (20.3%), 11) motor automobiles and trailers (17.7%), 12) other transport (26.6%), 13) machinery and gear (4.4%), and 14) fundamental metals (5.6%).
It is fascinating to note that out of the above sub-segments in the optimistic category for the initial time soon after the pandemic, the segments below categories 8-14 belong to steel market. One should preserve in thoughts that the indices of these groups contain the updated production figures of July and September’20. The festive effect of the month of October in pushing the order flow and for that reason the output as properly as the pent up demand providing impetus to additional rise in order flows are variables that can be stated to be transient.
However, from the user segment point of view, it is particular that development in 2 and 3 wheelers, passenger vehicles and tractors have been observed for the final couple of months and lastly, albeit gradually, the trend is spreading to other user segments as properly.
The use-primarily based output indices indicate that capital goods (energy gear, fabricated metal solution, transformers, material handling gear, cranes, agriculture machineries, mining machineries, industrial automobiles, wagons and coaches and so forth) have clocked 3.3% development in October’20. The infrastructure/ building goods output (steel framework, railway solutions, pipes, tubes, steel casing and so forth.) rose by 7.8% in the month.
Significantly, the customer tough segment (ACs, washing machines, electric gear, passenger vehicles, auto elements, SS Utensils and so forth) went up by 17.6% in the course of the month. Electricity generation has accomplished a substantial rise in October’20 (11.2%). This indicates that thermal generation as properly as renewable power are contributing to enhanced energy provide, also reflected in greater demand for coal for energy generation.
The mining sector is continuing with its unfavorable development in October’20 also. The industrial mining is but to exhibit any acceleration to the output development in mining sector. The iron ore availability in the state of Odisha is nonetheless poor as the auctioned mines, each old license holders and the new ones, are taking some more time to resume production at a satisfactory level. As a outcome the modest and medium scale steel units possessing no extended term arrangement with confirmed sources and based on spot purchases of iron ore in the open industry are facing challenges to keep and improve production at a time when the demand for steel is increasing.
The demand for the extended solutions emanating from property creating in tier II & III cities— private as properly as below PMAY-U&G schemes, the EPC contractors for road building, railways building and state government projects usually catered to by these regional players are not becoming met totally, contributing thereby a rise in costs of steel.
The MSME sector has an typical share of 65% in TMT bars and wire rods and therefore a provide shortage from them has accentuated the dilemma. The TMT costs have gone up by 24% in the course of July to December’20. The second issue top to rise in costs is the typical rise in costs of iron ore (each fines and lumps) which has led to rise in expense of steel production. The costs of merchant iron ore in the worldwide industry have reached $ 158/T (CFR China), a 44% rise in July-December’20. It has led to improved cost expectation in the domestic industry for Iron Ore.
There is a demand to totally quit exports of iron ore and pellets so as to improve domestic availability. There is an export tax of 30% on exports of iron ore more than 58% Fe content. The government should take into account placing a full ban on iron ore exports as meeting the domestic demand should really be the initial priority of the market.
Growth in manufacturing and market signal an improvement in the commodities industry. After the pent up demand has been unlocked, it is now the time for the market to consolidate its position, restructure and strengthen the provide chain in order to move rapidly to attain the customer.
A sustainable cost rise for steel crucially hinges on typical order flows in the industry, a really feel-particular issue that assures reasonably fantastic return for investment and a pro-active government to assistance the demand-provide parity by enhancing public investment in building and infra sector that would multiply the demand acceleration activities in all other segments.
(Views expressed are private)