~By SHUBHAM RAI
A robust growth in the stainless steel (SS) sector in India has been made possible through increased awareness about the benefits of the metal amongst stakeholders, including engineers, architects, designers, Railway officials and other professionals responsible for drafting specification for procuring the material, and fabricators who shape and provide perfect finish to stainless steel in a technically precise manner. The Indian Stainless Steel Development Association (ISSDA) has been leading market development initiatives along with evolving Indian standards for SS products for the purpose of developing a healthy market in India. Currently, ISSDA has a membership base of over 145 companies engaged in the production and processing of SS. Thanks to its sustained efforts, India has now emerged as the second-largest producer of the material in the world as also the fastest growing market globally, says K.K. Pahuja, President, ISSDA.
In an interview to Steel360, he further informs there has been a substantial drop in stainless steel production globally, induced by the pandemic-linked lockdown, but the current production level has almost reached pre-Covid-19 levels.
He said the industry is witnessing a V-shaped recovery in demand and expects further improvement in domestic consumption in the coming quarters.
Q. How do you see the year 2021 panning out for the SS market in terms of demand and prices?
A. The stainless steel industry showed a resilient recovery-post the peak-Covid-19 period in 2020. The quick domestic recovery may be attributed to the government’s encouraging policies for the market and India’s consistent fight against Covid-19.
As for 2021, I believe several positive factors will play out. A further re-opening of markets and the hope of an enhanced vaccination drive across the world will re-instil confidence in the global trade. It is important to note that stainless steel is used in diverse end-use sectors across a spectrum of applications. Moreover, growth in stainless steel demand has a direct link with the overall growth of the economy, especially in the architecture, building and construction (ABC) segment, along with railways, transport, and process industries.
Having entered 2021, the current levels of stainless steel production are clear indicators that we can achieve a healthy production pace and a steady revival in demand.
The industry is pinning hopes on certain new end-use segments to increase demand, such as stainless steel structures, reinforcement bars and healthcare infrastructure, in addition to traditional segments like ABC and transportation.
Evaluating the current economic indicators and the government’s resolve for an Atmanirbhar Bharat, it is expected that in 2021 domestic demand for stainless steel will continue to outpace the global average growth rate.
Stainless steel prices are linked to raw material prices, and, among several other indicators, these prices point to a recovering market. Recent global trends for the metals industry have shown a spurt in the prices of key inputs. There has been an increase in the cost of almost all basic raw materials which go into making quality stainless steels, such as nickel, molybdenum, stainless steel scrap, etc. The domestic stainless steel industry uses the electric arc furnace route for manufacturing. The raw materials mentioned above have to be necessarily imported due to non-availability in the domestic market, leaving manufacturers relying on imports. However, the domestic industry, along with the government, are keen on keeping the situation under check.
Q. What could be the enablers and challenges going forward for SS manufacturers?
A. Stainless steel growth is intricately linked to GDP growth in general. This is why a better-than-expected recovery in Q2 GDP numbers is also reflecting in the performance of the stainless steel industry.
Some of the enablers for stainless steel demand would be augmented spending on infrastructure, favourable policies to support sustainable infrastructure development, enabling growth in the MSME sector and empowering them to become a global hub for production in various fields.
The Indian stainless steel industry (including both public sector and private companies) has invested large sums towards capacity expansion and modernisation. However, like most segments of the manufacturing sector in India, the domestic stainless steel industry has also been facing extremely difficult times due to both external and internal issues.The industry is bogged down by under-utilised capacities and is not able to grow as expected, since the market is being captured mostly by imports. India has always been a net importer of stainless steel flat products. It is worth mentioning that in the flat products segment, the import intensity, ie, share of imports in domestic consumption, has been very high (at over 20%).
Q. We are still passing through the pandemic. What kind of impact is it having on the overall industry?
A. The stainless steel industry has a long value chain, which is why the overall impact on the industry is very difficult to gauge in terms of numbers. However, macro growth indicators can be summarised. The pandemic is still not over, but compared to other countries, India’s better recovery rate has brought confidence in the market.
Globally, there has been a substantial drop in stainless steel production, induced by the pandemic-linked lockdown, but the current production level has almost reached the pre-Covid-19 level.
In the value chain, the domestic downstream industry was the worst hit during the lockdown, and the slowdown in demand further aggravated the situation. However, the industry is currently on its way back to restoring normal operations. The International Stainless Steel Forum (ISSF) released figures for the first nine months of 2020, showing that stainless steel melt shop production decreased 7.8% year–on–year to 36.7 million tonnes (MnT).
However, the last quarter’s preliminary data suggests that, overall, the industry has done well compared to the previous quarters.
Q. How was the performance of stainless manufacturers in 2019 and 2020?
A. During 2019, stainless steel growth in India outpaced the global growth rate. Once again, India registered itself as the second largest producer of stainless steel in the world, touching 3.94 MnT of melt production. Even in terms of consumption, India surpassed the global average growth rate and remained the second largest user of stainless steel in the world. In this financial year, after being hit by pandemic-related restrictions and the lockdown, partial production could re-start only in May 2020, and slowly picked up pace in June and July. Production started increasing September onwards, mainly due to the ramp-up in demand from previous orders and low inventory. Stainless steel demand reached levels similar to the previous year in the October-December quarter. An estimated stainless steel melt production for CY2020 has been compared with previous year’s levels in the accompanying graph, indicating better-than-expected recovery.
Q. What kind of recovery can we expect in the coming year? Are we going to see a V-shape recovery or a U-shaped one?
A. We are witnessing a V-shaped recovery in stainless steel demand and expect further improvement in domestic consumption in the coming quarters. With the low base from last year, we should be looking at high growth in this year. However, it is too early to put a number to it as uncertainty in the business environment still continues and making projections would be futile until the pandemic subsides completely.
Q. Going forward, in which areas do you foresee growth for the sector?
A. Stainless steel is not only corrosion-resistant, but also an excellent engineering material. Therefore, it finds use in a variety of applications in metal products, white goods, process industries and engineering, the ABC and ART (automotives, railways and transport) sectors.
Although the Indian stainless steel industry has been faring well over the years, it still has a long way to go, considering the low per capita consumption of stainless steel at 2.5 kg, against the world average of 6 kg.
Some of the upcoming promising areas, arising out of the new policy announcements under Atmanirbhar Bharat, can boost growth (such as farm sector reforms), and increase stainless steel consumption in food storage and processing, fisheries and the dairy industry.
Moreover, opening strategic sectors of Defence and aerospace can give a significant thrust to demand. Infrastructure and construction will continue to remain focus areas where stainless steel can provide long-term sustainable solutions and add value. The public transport sector will continue to be a fast growing area, along with the expansion of medical and health services, which will further boost the potential for growth in stainless steel consumption. Efforts to make life-cycle cost analysis mandatory for evaluation of all public projects to build sustainable infrastructure can further lead to an increase in stainless steel usage in the country.
The government has already laid the foundation for economic revival with a slew of reforms that are expected to reap benefits in the future.
Also, the government’s focus on the micro, small and medium enterprises (MSMEs) segment, which constitutes about 40% of the stainless?steel industry, will fuel the growth of downstream and allied industries. So, we are likely to see faster growth for stainless steel in traditional as well as new sectors in the next five years.
Q. Is dumping from countries like China, South Korea and Japan still a big problem for SS manufacturers?
A. As stated earlier, India has always been a net importer of stainless steel flat products, with a high share of these imports in domestic consumption. The flat products segment has been the major target for imports from China, and now FTA countries as well, particularly Indonesia.
Excessive capacity addition in Indonesia via Chinese investments in the past 2-3 years has drastically changed the trading dynamics in the region. This happened in parallel with the imposition of countervailing duties (CVD) on the imports of stainless steel flat products from China in 2017. The lowering of custom duties as per the FTAs has adversely impacted the Indian industry. Now, stainless steel flat products can be imported from ASEAN countries, Korea, and Japan at zero-duty. This trend has created a trade deficit in stainless steel production with these FTA-partner countries.
Additionally, subsidised and dumped imports continue to hurt the domestic stainless steel industry, and there is hardly any support for the creation of a level playing field. There is a need for swift imposition of trade remedial measures basis the findings of the on-going/concluded trade investigations, which are testimony to the dumping of subsidised stainless steel.
Q. What are your expectations from the upcoming Union Budget?
A. The Indian stainless steel industry is on a fast recovery path and is likely to become a global hub. However, a large portion of domestic consumption is threatened by dumping, especially from the neighbouring countries. So, we expect actions to improve competitiveness of the domestic industry and remedies against unfair trade practices.
India has to import key stainless steel raw materials as these are not available domestically. Today, finished goods are being imported at zero-duty under FTAs and raw materials like ferro-nickel and stainless steel scrap are being imported at 2.5% duty, resulting in an inverted duty structure. Therefore, an immediate demand is to reduce the basic customs duty on important raw materials like stainless steel scrap, ferro-nickel and graphite electrodes to zero, in order to make the domestic industry internationally competitive.
Further, the government must consider increasing the basic customs duty on stainless steel flat products from 7.5% to 12.5%, bringing it at par with other steel products, in the upcoming Union Budget.
The above measures will improve the industry’s competitiveness by reducing input costs, creating a level playing field for domestic producers (especially MSMEs), boosting local manufacturing, and empowering the ‘Make in India’ vision of the Indian government.