It isnt just China. The massive output of steel specially driven by Chinese overcapacity became a thorn in the side of many global economies (US/ EU) who slapped hefty anti-dumping duties on Chinese steel, going up to 240 percent. Pakistan also imposed a duty. But there are other countries too. India, Ukraine, Italy, South Korea, Taiwan are among those that are producing excess steel.
Coaxed by Modis push toward construction and infrastructure, India has been contributing to the global output growth. Hailing a capacity of 120 million tons, some of the biggest firms in India are expanding capacity, but local demand may not be catching up, and additional steel will be exported. According to a Bloomberg report, consumption in India grew 3 percent, while output jumped 10.3 percent during April-Nov FY15.
The picture is different in Pakistan: two-thirds of the demand (6-7 million tons) is being met by local players (as many as 600 small and big players) and the rest is catered to by imports, but big companies now recognize the need to enhance capacity. Agha steel is doubling capacity (150,000 to 300,000 tons), International Steel, part of International Industries would take it up from 500,000 to one million, while Amreli steel that announced a progress of its expansion in Dhabeji yesterday; would add 320,000 tons to its existing 180,000 tons.
China could potentially be adding a steel factory in Gwadar to support CPEC but will all this be enough?
With demand expectations of 10-12 percent, this expansion in the local steel capacity will not be enough. The economy needs an addition of 2 million tons toward the next few years and even then, imports will continue to play a major role. Even though the government has imposed a regulatory duty (RD) on some products (which are ineffective in the long run and should merely be a stop gap solution), the issues in the sector are of a different variety.
There are myriads of regulatory issues within the sectorincluding instituting quality, testing & safeguard regulations and formalizing large scale informal firms that would continue to thwart real growth in the sector. (Read this columns: Policy push for our men of steel, published Dec 1, 2016). Meanwhile, apart from some formalized players, competitiveness for the sector is low. Most players wont survive if duty on imports are removed.
With the global steel outlook in mind, the private sector will have to invest more in the sector and the government will have to divert resources to think about improving and streamlining regulation. There is plenty of growth to be had, but is the economy cashing in on it? Not quite fully.
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