Steep fall in share prices in the aftermath of debt crisis and signals of financial meltdown in the US and Europe is sending shivers down the Indian steel industry. Banning of iron ore mining at Bellary in Karnataka has also dampened the spirits of steel producers and is going to adversely affect the availability in the coming months.

In spite of the depressing scenario of depleting investment in infrastructure, particularly in fresh capacity creation, and subdued growth of manufacturing sector, the drop in steel supply may paradoxically result in price rise as inventory accumulation may be a reality.

Official estimates reveal that finished steel consumption in the country has come down to 0.7% only in the April-July 2011 period. This only confirms that demand drivers, namely construction and automobile are slowing down.

Passenger car sales in July are already lower than last year. A reasonable growth of more than 7% in finished steel production has been sustained by 39% growth in exports, while imports have dropped by as high as 57% compared to last year.

This implies that even to achieve a growth of at least 8% in the current fiscal, steel consumption must grow by 11.6% in the balance eight months. This may not be a tall order for the Indian steel industry but for the return of better market sentiments.

While a part of this would be influenced by interest rates and policy guidelines on land acquisition and allotment of mines, a large component would be dependent on softening of global economic crisis in US and Europe.

There is a potential of achieving a higher growth in steel exports by India in the coming months, which would enable the indigenous producers to sustain capacity utilisation in the face of decline in demand from major steel intensive sectors. Looking at

China, one finds that it has exported 24.4 million tonne of steel in H1 of 2011, which is 7.3% of their finished steel production.

The major three destinations for Chinese exports are South Korea (23%), India (4.5%) and Vietnam (3.7%), followed by Thailand (3.6%) and US (3.3%) and well dispersed.

China also imports maximum tonnages from Japan (47%) and South Korea (26%). Pricing, inter alia, may be the primary reason for Korea, Japan and also India to import large tonnages from China. This is the lesson India is to learn from China.

Qualitatively, apart from specific categories, Indian steel is not ranked high in global market and therefore the only criterion which would determine the exportability of Indian steel is competitive prices and ability to maintain rigid delivery schedule.