Pillars of Indian economy
Ropes have stretched a long way in history including the Mesolithic period 12,000 B.C. through using hides, hair, hemp, papyrus and even palm to finally steel today. The Indian steel industry remained the world’s fourth largest steel producer for the 5th year in a row in CY14, while China continued to be the world’s top producer of steel, followed by USA and Japan. With not much gap in production, India is closing in on USA and is expected to surpass it soon through ongoing expansions by steel players in India. Production in India has been on the rise with a CAGR of 8.4 per cent from FY10-FY15. India has set ambitious targets to go up from the present installed capacity of about 101 mtpa to as high as 300 mtpa by 2025. The per capita consumption of steel in India also continued to remain low as compared to other countries, indicating further potential growth of the domestic steel industry. With the average per capita use of steel in India in 2014 being about 59 kg, compared to the world average of 225 kg, the domestic steel industry’s long-term prospects remain intact.
In the medium term as well, the leading steel producers in India have lined up plans to increase their steel capacity in line with the expected increase in the domestic
consumption of steel. However, CARE Research believes that, with the current pace of expansion, the Indian steel industry over the next three-four years is only likely to add another 15 million tonnes of capacity, taking the domestic steel capacity to around 115 million tonnes by FY18.
Wire ropes are a value-added product, formed from wire rods, which falls in the long steel category of steel products. Over the years, with significant improvement in the strength of wire ropes manufactured, the usage of these wire ropes has significantly increased in various diverse applications. Registering a CAGR of about eight per cent, India has more than doubles its finished steel consumption from about 30 million tonnes in FY03 to 76 million tonnes in FY15. During the same period, finished steel production grew at a marginally slower pace as compared to growth in demand, growing at a CAGR of about 7.7 per cent. While the domestic steel industry has recorded a robust growth in the past, the current situation has seen a dramatic shift. In comparison to the steel demand CAGR of about 7.5 per cent achieved during the period FY10-13, domestic steel demand grew at a modest CAGR of about two per cent during FY13-15. Nevertheless, the situation in the domestic market is akin to the global steel industry, which continues to remain highly volatile. Although the domestic demand in Fy15 increased at a higher growth rate of about three per cent, when compared with the growth achieved during FY14 (o.83 per cent), the demand growth in the domestic market continues to remain far lower than the growth achieved during the previous years. The slower growth achieved in demand was primarily on account of policy paralysis, which had its toll on the infrastructural activities in the domestic markets. Elevated inflationary and interest rate pressure for a prolonged period further had its impact on the automobile and consumer durables industry, thereby affecting the steel take-off from these sectors. Going ahead, CARE Research expects the domestic steel demand to grow at a CAGR of about 6.3 per cent during the next three years (FY15 to FY18).
Domestic demand is likely to grow from about 76 million tonnes in FY15 to about 92 million tonnes by FY18. The Indian steel industry responded positively by increasing its capacity to cater to the increase in demand from the domestic market. Domestic steel capacity increased at a CAGR of 7.7 per cent from about 48 million tonnes in FY05 to about 101 million tonnes in FY15. In line with the domestic steel capacity, steel production also recorded a similar increase during the same period. While the demand outlook continues to remain volatile, domestic steel industry is witnessing a continuous rise in crude steel capacity. Going ahead, CARE Research expects domestic steel capacity to increase at a CAGR of about five per cent during FY15-FY18, marginally at a slower pace when compared with the expected increase in domestic steel demand. While the domestic steel demand is likely to increase at a CAGR of about 6.3 per cent during the period FY15 to FY18, the domestic supply of the metal, during the same period, is likely to increase at a similar growth rate. However, given a competitive supply edge over cheap imported steel products, domestic steel producers have an option to improve upon their operating rates and push the Indian steel industry in a surplus state. CARE expects India’s exports volumes to increase during the next two-three years while imports are expected to decline.
Against all odds, India continues to remain globally competitive in steelmaking. With its competencies like abundance of iron ore and low labour costs offsetting impediments like scarcity of coking coal and relatively high cost of finance. Most of the large integrated steel producers in India are actively involved in increasing their current crude steel capacity through various Greenfield and Brownfield projects. With the commissioning of these capacities, domestic steel volumes are expected to increase at a robust rate. While domestic steel demand is likely to show an improvement, Indian steel-makers are also targeting the exports market, especially the other Asian and Middle East countries. While India’s exports volumes are expected to improve, lower imports will benefit the domestic steel makers to improve upon their current operating rates.
Domestic steel demand can be broadly categorised into demand for flat steel products and the demand for long products. While the demand for flat products in the domestic market is likely to be supported by the engineering, automobiles and pipe-manufacturing sector, the demand for long products will continue to increase on the back of an expected improvement in the infrastructure and the construction sector. CARE Research estimates show that demand for flat products during the next three-four years is likely to grow at a CAGR of about 6.6 per cent, while demand for long products during the same period is likely to grow at a CAGR of about six per cent. Wire ropes are a value-added product, formed from wire rods, which falls in the long steel category of steel products. Over the years, with significant improvement in the strength of wire ropes manufactured, the usage of these wire ropes has significantly increased in various diverse applications. The value chain of the wire ropes industry covers manufacturing of wires through wire rods and further from wires to strands and ultimately wire ropes are produced from strands. Those players, who are present across the value chain, gain an advantage over other players in the market. However, there are hardly any players in the Indian market, which are present throughout the chain.
Steel wire ropes demand is influenced by growth in infrastructure sector. The construction, engineering and capital goods sectors account for a share of more than 60 per cent of the end-use consumption pattern of the steel wire ropes industry. Growth in these sectors is highly co-related to the growth in investment in the infrastructural activity of an economy. Wire ropes finds application in many of the engineering and construction-related activities such as material handling, mining, ports and shipping, construction equipment (structurals and cranes), construction of bridges, elevators and escalators etc.
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The major sectors that drive the demand for the wire ropes industry includes Engineering and Construction, Oil & Gas, Mining, Shipping and Logistics industry. As per industry estimates, the engineering and construction segment accounts for more than 60 per cent of the end-use consumption share of the wire ropes industry. This includes demand from elevator ropes, aerial haulage, structural systems, general engineering ropes etc. further, the oil and gas industry accounts for a share of another 20 per cent (demand from offshore activities), followed by the mining industry, which accounts for a share of about 10 per cent. Within the oil&gas industry, while the offshore segment generates demand for the wire ropes industry, the anchoring and mooring activity also requires usage of different types of wire ropes. According to various industry estimates, India continues to remain a net importer of steel wires over the past several years. Owing to healthy domestic demand, net imports of steel wires into India have remained firm. CARE Research tried to analyse the export-import trend of the domestic wires industry (2nd in the value chain) through which wire ropes are manufactured. The export-import data for wires indicated that India continues to remain a net importer of wires for the last seven years in a row ending FY14. In analysing the imports-exports trend, CARE Research also analysed the per unit realisation of the exports and imports of wires in the domestic market.
The mining sector is set to improve. Large and small material handling equipment make use of various types of steel wire ropes. These material handling equipments (along with cranes and other engineering goods) are extensively used by the mining industry. Minerals constitute the backbone of economic growth of any nation and India has been eminently endowed with mineral resources. India procures about 87 minerals, which include 4 fuel minerals, 10 metallic, 48 non-metallic, 3 atomic and 24 minor minerals. For FY14, mining sector accounted for 2.11 per cent of the GDP of the country (decline on 0.2 per cent Y-O-Y). the total value of mineral production (excluding atomic minerals) during 2013-14 has been estimated at Rs 2.3 trillion, a Y-O-Y decline of about 9 per cent. Mining activity is expected to grow in the rage of around 6-7 per cent during the next five years. Insatiable demand for metallic minerals which form almost 88 per cent of the total value of the mineral production is expected to support the growth of the mining industry. Power sector which is facing a huge deficit will continue to drive the demand for coal. Growth in the industrial sector is expected to keep the demand of metallic minerals intact.
Major demand for the steel wire ropes industry is also derived from the oil & gas, and the shipping industry. While the offshore and onshore rigs extensively use the steel wire ropes for their exploration activity, the same is used by the shipping industry applications such as anchoring and mooring of ships. CARE Research analysed the trend in the global rig counts and the domestic shipping industry to understand the demand for steel from these end-user industries. Average annual global rig count for CY14 was 3,578 rigs as against 2,174 rigs in CY03, registering a CAGR of about 4.6 per cent during the period. During CY09, average annual rig count witnessed a sharp decline of about 30 per cent Y-o-Y, when the oil prices had significantly declined to a US$ 33 per barrel and E&P activities had become economically unviable.