| STEEL: THE BAROMETER OF DEVELOPMENT By Sriram Iyer
Steel, the backbone of infrastructural development is the basis of over all economic growth without which the progress of mankind is unimaginable
Steel is by far the most important and one of the most multifunctional materials without which development of mankind would have taken on entirely new facet. It is considered to be the backbone of infrastructure development, the basis of economic development. Hence, the performance of the steel industry is often considered as an indicator of economic progress, particularly in developing countries. Steel is an alloy of iron and carbon, with carbon varying between 0.2 to 20.4 per cent by weight. Various other alloying elements like manganese, chromium, vanadium and tungsten, and small amounts of silicon, phosphorus, sulphur and oxygen are also used, which give different grades of steel their various varieties. For example, steel alloyed with 10 per cent chromium often combined with nickel is stainless steel. By varying the amount as well as type of alloying element, one can control qualities like hardness, ductility, strength, etc. For example, higher carbon content makes steel harder but more brittle, nickel and manganese in steel add to its tensile strength. Steel is classified into around 2,000 grades depending upon the metal content in it. The most commonly produced category is mild steel that has a low quantity of carbon and even lesser manganese. Steel as compared to its rival materials has much lower production costs. Its property of being easily recyclable makes it more attractive. In fact, in recent years, as much as three-fourths of the steel produced in the US was recycled steel.
Categories and Uses of Steel
Steel for engineering purposes is primarily divided into two main categories - flat and long -- depending on the shape of steel manufactured. Steel flat includes steel products in flat, plate, sheet or hot or cold rolled strip shapes. The plate shaped steel products are usually 10 to 200 mm thick and thin rolled strip products are of 1 to 10 mm in dimension. Steel flat is mostly used in fabrication, manufacturing (e.g. cars and refrigerator bodies), shipbuilding, pipes and boiler applications.
Steel long category includes products in long, bar or rod shapes, like reinforced rods made from sponge iron. Sponge Iron or direct reduced iron is a high quality product produced by reducing iron ore in a solid state and is primarily used as an iron input in the electric arc furnace steel making process. The steel long products are required to produce reinforced concrete, structural members like beams and girders, bars, tools, gears and engineering products. Steel billets and steel ingots (long products) range in size from small rectangular blocks weighing a kilogram to huge, tapered, octagonal masses weighing more than 500 tonnes. Round bars, flat bars, angle plates, spring steel, wire rods and D-bars are produced from steel billets. Round bars are used for automobile, electric appliances, construction and construction machinery. Spring steel is used for automobile, construction machines and agricultural machines. Wire rods are used for wire rope, construction and electrodes. Flat bars are used for electric appliances and construction machinery. In India, the construction industry is by far the largest consumer of steel, accounting for over 61 per cent share. This is followed by the capital goods industry (plant machinery and equipment) with nearly 11 per cent share and the automobile industry at nearly 8 per cent. All these sectors are growing rapidly in India (and in the developing world) and are likely to continue to drive strong demand for steel
in the coming decades.
World Steel Production
Global steel production has increased by 59 per cent over a period of seven years. Rapid growth and industrialization achieved in China and India along with an impetus to infrastructure development after 2003 has led to a rise in steel production. China is the largest producer of steel turning out more than 400 million tonnes followed by the EU-27, Japan, US, Russia and India. The production of world crude steel is projected to touch 1,410 million tonnes in 2008. This increase is due to expected rise in Chinese and EU-27 production.
The major companies producing steel in the world are ArcelorMittal, Nippon Steel, JFE, POSCO, BaoSteel and Tata Steel.
Use of Finished Steel Products (including stainless steel)
The economic boom in India and China has led to an increased demand and usage of steel. The use of finished steel products has increased by 59.7 per cent over a period of seven years, with the major steel consumers being China, EU-27, US, Japan, South Korea and India.
World Trade Scenario
The demand for steel is directly co-related with economic growth. With the world economy entering into an expansionary phase since 2003, demand for steel has been on the rise and so has trading in the commodity. The leader in world steel exports is China followed by Japan, Ukraine, Germany and Russia. The US followed by Germany, South Korea, Italy, and France are the major importers.
Steel has long remained out of the purview of futures markets. However, trading in steel futures commenced on the London Metal Exchange on April 28. Two regional steel billet contracts have been launched, for Mediterranean and Far East delivery. Each contract is for 65 tonnes of billets.
India
India is the sixth largest producer of steel. After India's iron and steel industry was delicensed in 1991-92, the country has added capacity in private sector. However, compared to world production, India's production is a mere 4 per cent (2007). Though India produces various varieties of steel, mild steel predominates in the production share. The main states that are involved in the production of mild steel ingots are Chhattisgarh, Uttar Pradesh, West Bengal, Orissa, Jharkhand, Rajasthan, Tamil Nadu, Punjab, Maharashtra and Goa. As seen from the chart, the consumption of steel in India has increased by over 78 per cent from 2001 to 2007. This jump is due to usage of steel in automobile and construction industries. Production, which remained below consumption until 2004, showed a quantum jump since 2005 and since then, has exceeded consumption. For the 2001-2007 period, production has increased by 94 per cent.
The major Indian companies producing steel are Tata Steel, SAIL, RINL, ESSAR, Jindal Steel and ISPAT.
Indian Trade Scenario
The government of India from time to time has provided incentives to the steel industry, which has not only helped it to raise capacity but also raise exports. India exports primary and semi-finished iron and steel bar/rod types of steel products. The major countries to which steel is being exported are Australia, Bahrain, Bhutan, Bangladesh, Belgium, Canada and China. The ministry of steel has predicted a slight increase in exports to 6.58 million tonnes in 2007-08 and a decrease in imports to 7.83 million tonnes in the same period.
Steel Trading in India
Steel is traded as mild ingots in India. The major markets which trade steel ingots are Ghaziabad, Kolkata, Gobindgarh, Mumbai and Raipur. The chart shows the annual average mild steel ingot prices at Ghaziabad from July 2005 to July 2008. The prices have increased by 71.07 per cent in this period, mainly on account of rising input cost. Coal and iron ore are the principal inputs in steel production and prices of both these raw materials have soared globally, resulting in high prices of steel.
Recent Developments
Like any other industry, the steel industry is also facing the problem of rising input cost and this could be tackled only by raising prices of steel products. However, forced by spiraling inflation, the government has forced the steel industry to first lower the prices in May by 10 per cent and now hold them prices for three months. This apart, the government has also imposed export restrictions in a move to increase local supplies to help battle inflation. It has imposed duties on overseas sales of iron ore (in fact, the duty has been raised) and steel bars and rods, raised duties on long steel products and iron ore to tame inflation and scrapped export duties on flat rolled products to keep the profits and margins of steel manufacturers. All these measures should help lower steel exports by 30-
40 per cent while availability of steel should go up by 5 million tonnes this year.
Future
The outlook for the steel sector is bright but may get clouded due to slowdown in growth. The economies of Brazil, Russia, India and China are leading the growth in demand. Steel usage in Brazil is largely driven by industrialisation and in Russia by booming oil and gas revenues. Indian consumption, too, is increasing at a double-digit pace. Led by this optimistic activity in Asian markets, and apart from softened conditions in North America and moderation in Europe, the world steel market continues to be strong; but growing economic risks, associated mainly with housing market problems and a slowdown in world economies blur the outlook for 2008. The main crisis in steel industry is spiralling costs and availability of coal and iron ore. High crude oil prices, besides raising prices of other energy commodities like coal and gas, are also leading to high shipping freight rates. Also, availability of coal and iron ore is recently becoming an issue and steel majors are on a coal and iron ore mine acquisition spree. While steel capacity is currently sufficient to meet demand for the next few years, the gap is likely to close as hectic infrastructure development in China, India and the rest of the developing world is likely to keep demand on a high growth curve. Prices are thus likely to remain at consistently high levels for the coming few years, though they may come off their peaks if global growth slows in 2008-09 due to a weaker US economy.
Factors Influencing Demand & Supply of Steel
1.The demand for steel is dependent on the overall health of the economy and the infrastructure developmental activities being undertaken.
2. Steel prices in the Indian market primarily depend on domestic demand and supply conditions and international prices.
3. Government and different producer and consumer associations regularly monitor steel prices, with government intervention quite routine. Government intervention often has a major influence on domestic prices.
4. The duty imposed on import of steel and its fractions, and on the export of iron ore also have an impact on steel prices.
5. The price trend in steel has been a function of domestic as well as world economic activity.
6. Prices of input materials for iron and steel such as power tariff, freight rates and coal prices, also contribute to the rise in the input costs for steel making.
The main crisis in the steel industry is spiralling costs and availability of coal and iron ore. High crude oil prices, besides raising prices of other energy commodities like coal and gas, are also leading to high shipping freight rates, pushing up steel costs
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