The role of the wire rope industry in anchoring the dreams
and aspirations of any country cannot be understated. From general engineering
to deep sea exploration/mining which is of strategic significance wire
ropes find a wide variety of applications in different sectors. Likewise, the
factors that affect growth in the wire rope industry are also varied, and
necessitate a comprehensive analysis.
The following text attempts to familiarize readers with the
wire rope industry, and how the steel and infrastructure sector drives growth
in this crucial subsector
Wire Ropes: A Value-Added Steel Product
Wire ropes are a value-added product derived from wire rods,
and come under the long steel category of steel products. The value chain of
wire rope industry progresses as follows manufacture of wires using wire
rods, then strands from wires, and culminating in the manufacture of wire ropes
from strands. Any player which has an overawing presence throughout the value
chain is expected to come up trumps, and this is where leading wire rope
companies like Bharat Wire Ropes Ltd holds the edge in the wire rope
manufacturing sector in India. As with any other industry, the fortunes of the
wire rope industry depend on growth and investment in the infrastructure
segment. Any slowdown in infrastructure projects and activities negatively
impacts the wire rope industry. Implementation delays can inflate costs, and
following changes in government regulations the viability and sustainability of
the whole project can be jeopardized. A correlation can be drawn between the
wire rope industry and the steel industry on the basis of the fact that wire
ropes are derived from steel. This does call for a general understanding of the
steel industry in India.
A Quick Brief of the Steel Industry:
The Indian Steel industry is the worlds fourth largest
producer of steel for the fifth year in a row in CY14. As per a report by
Credit Analysis & Research Limited (CARE), Steel majors in India have been
on a rapid expansion drive evidenced by a CAGR of 8.4% from FY10-FY15. India is
targeting an increase in installed capacity from 101 MTPA to 300 MTPA in the
next decade, which will boost demand for steel in the country. The per capita
consumption of steel in India in 2014 was 59 kg compared to the world average
of 225 kg a surefire indicator of the potential for growth that the
domestic steel industry holds. The steel industry has witnessed sluggish growth
over the last few years, and this holds good for both the domestic and
international market. The CAGR of 7.5% achieved during FY10-13 slid down to an
abysmal 2% during FY 13-15. Though there was an upsurge in domestic demand
during FY15 compared to the previous financial year, the domestic growth
continues to lag behind previous estimates. The slow growth is mainly
attributable to policy paralysis. Moreover, high interest rates have hampered
growth in the consumer durables and automobile industry, which invariably has
affected steel demand from these sectors.
Sluggish demand notwithstanding, there is no dearth of steel
availability given that steel capacity has increased at a CAGR of 7.7% from
about 48 million tons in FY05 to about 101 million tons in FY15. (Report on
Indian Steel & Wire Rope Industry, 2015)
Going forward, CARE Research expects domestic steel capacity to increase at a
CAGR of 5% during FY15-FY18. These figures do point to an impressible increase
in steel output, but they may fail to keep pace with corresponding rise in
domestic steel demand in coming times.
Intertwined Fortunes: Infrastructure Industry and Steel Wire
Rope Industry
The CARE report further states that the funding which takes
place for infrastructure projects tends to be long term in nature. Uncertain
political climate coupled with high interest rates is acting as a detriment for
private sector investments in India. In such a scenario, growth in the
infrastructure segment requires unwavering government support. In the 11thh
Five Year Plan, funds from the Central and State Governments accounted for half
of the total investments made in the infrastructure segment. The remaining
investment was covered by Debt accounting, equity or FDI. The 12th Five Year
Plan has stipulated investment in the infrastructure segment equaling 10
percent of GDP growth in order to realize the Governments targeted 9 percent
real GDP growth – this translates to an investment requirement of Rs. 40 lakh
crores when calculated on the basis of 2006-07 real term prices, and to achieve
this kind of investment is a monumental task for any government even the
current one.
Growth in infrastructure is characterized by hectic activity
in the construction, engineering and capital goods sectors these constitute
almost 60% of end-use consumption pattern of the steel wire rope industry.
(Report on Indian Steel & Wire Rope Industry,
2015) Needless to say, strong growth in the infrastructure industry bodes well
for the wire rope industry. Few of the areas where wire ropes are utilized in
the constructing and engineering domain include material handling, mining,
ports and shipping, construction equipment, construction of bridges, escalators
and elevators, amongst others. CARE Research foresees growth in the
manufacturing sector on the back of government initiatives such as Make in
India campaign, which, in turn, will drive up
demand for steel wire ropes.
Current Outlook:
After years of unpredictability, capital investment is
finally showing signs of resurgence. However, manufacturing activity is yet to
pick up under the Government Make in India campaign. The spending on
infrastructure projects has also reduced on account of global economic
downturn. Growth in the core sectors has slid down from 6.5% in 2013 to 2.7%
last year. (Report on Indian Steel & Wire Rope Industry, 2015) Unless the Government takes urgent measures to recover
from the slide, one cannot be too hopeful of growth in the infrastructure
sector anytime soon.
Infrastructure sector has been accorded high priority It
has been acknowledged as the sine qua non for long-lasting growth as per an Economic Times article (as cited in Economic
Survey 2015-16). The wire rope manufacturing and steel industry can only hope
that things change for the better by the time the tenure of the current
government ends.
References
Report on Indian Steel & Wire Rope Industry, June 30, 2015, Credit Analysis & Research Ltd.
Economic Survey 2015-16, Ministry of Finance, Government of
India: State of the Economy: An Overview (2016, Feb 26th), p. 124, http://indiabudget.nic.in/survey.asp
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