Steel Pipes & Tubes is the primary commodity on which much of the world’s transportation and critical activities like E&P are dependent on for development. It is extensively in Oil & Gas Industries (apart from many other industries). So being a primary and important commodity with diverse application, it will definitely take lot of government’s attention. And this has been seen as governments worldwide have taken proactive steps for betterment and protection of their in-house steel Pipes & Tubes producers.
Indian Steel Pipes & Tubes have always run on overcapacities. Supply have historically been higher than demand leading to very low capacity utilization. And to improve utilization, companies produce more at cheaper cost leading to inventory pileup, which further acted as catalyst for lower selling prices to clear piled up inventories. This has already happened in the past. Countries like China, Vietnam, Korea, Japan, etc. are one of the lowest cost producers in the world, and when inventory pile up in these countries, they sell at lower prices to other nations. When prices at which these countries sell are way to low it is called as dumping of products. Due to dumping of products, Imports have surged for many countries because the price at which it is imported is even lower than their own countries cost of production. And when this happens, there is huge threat for the domestic steel producers.
These are the times when government comes in to protect their domestic steel producers. Similar thing happened in 2011, when china started dumping products in many countries at extremely low prices. This led to surge in imports and very low domestic steel pipes production. Hence, associations of steel have written to government to help them with this major threat. And so, we have seen government coming up with certain policies/reforms that changed the look of steel sector (of which steel pipes are a part) completely. Also, majorly steel pipes & tubes are used in infrastructure, construction, Oil & Gas, etc., development of which are promoted by government and hence, it can be said that much of the steel’s future is dependent on government’s policies and decisions. Therefore government’s decision and policies are major impact for steel Pipes & Tubes makers and if policies give boast to steel sector, they are called tailwinds. Hence, let’s look at government’s policies that supported the steel makers in the past:
- Minimum Import Price (MIP).
Major steel maker SAIL along with many associations have written to government regarding surging imports of steel in India. Imports have been very high and this led to threat for domestic production. The imports have been higher and import price is said to be lower than the cost of production for many companies. On this, proposals by SAIL and other associations, government have come up with Minimum Import Price on Steel. Minimum Import Price simply means minimum price which importers have to pay to import products. Hence, there was MIP with escalation clause i.e. up/down of Raw Material price fluctuations. Hence, this led to great protection for domestic steel producers.
- Anti-Dumping Duty.
Anti-dumping duty was another initiative by government all over the world. As explained, due to dumping by China in 2011, many countries domestic steel makers were having major threat to imports. And to put a check on it, government started to impose Anti-Dumping duty to protect domestic producer. Countries like U.K., U.S.A, and India have imposed anti-dumping duty from mainly China due to dumping of products at dirt cheap prices by them.
India, specially have imposed anti-dumping duty for period of 5 years up to May 2021. This duty was also imposed on stainless steel seamless pipes and steel tubes. Hence, this led to a greater push in demand of domestic producers of steel pipes & tubes.
Again point here to note is “Greater Government support”.
- National Steel Policy, 2017.
India stands 2nd largest producer country in the world after China. But, still we do not have cost efficient production due to which lots of tonnages are imported to India. With growing demand for steel and aim to be self-reliant, Indian government have come up with NSP, 2017 with an aim to ramp up capacities up to 300 Million T.P.A. by 2030. To fulfil this aim, the government have proposed many plans for infrastructural development like smart city, pipeline infrastructure, building airports, etc. We can understand the same in our earlier blog related to “Opportunity Size”. Hence, the stance of government to be a huge capacity producer can bring a lot of investments.
- Trade wars.
China is largest producer of crude steel in the world at more than 50%. So, the production and supply of China has impact in world steel markets and prices. But, recently the trade tension of China and U.S. has been favourable for India. Trade wars between China & U.S. led to lots of import restriction from China by Americans. And this benefited India. The orders which could go to China, are coming to Indian companies and has led to greater export in recent times. Also border tensions with China & India recently, have led to government banning of many products to be imported from China. So, all these helped our domestic producer, to get enough demand and profitability for steel.
- Indian Government initiatives.
Indian government have come up with drive of “Make in India” & Vocal for Local” initiatives. These are very strong driver to steel demand and are expected tailwinds. The government for Thrust for Local and Atmanirbhar Bharat initiative have stated that, there will be no global tenders for order up to 200 Cr. Hence, for order with value of 200Cr. or less, all will be procured locally. This will lead to a greater push in domestic producer. The earlier limit for the same was at 50 Cr. Apart from this, the greater emphasis for India to become Self-Reliant and using local brands and products can possibly add to benefit of domestic companies.
- Tailwinds of Steel Pipes & Tubes Industry.
With all the rosy picture explained above like MIP, Anti-dumping duty, trade wars, National Steel Policy, etc. they all are in favour of our segment. Few government announcements bring a drastic change in industry structure and lead to higher sales and profitability. Anti-dumping duty was one such initiative by the government happened in the past was beneficial.
Nowadays, similar advancement is being observed in current scenarios. The trade wars and border tensions of US-China and India-China recently is very positive for Indian Pipes & Tubes manufacturers. US has high requirement for ageing large diameter pipes, and India being the 2nd largest producer will have better orders coming from them. Also, due to China-India border tensions, lots of banning of import have been initiated by both the countries. Banning of imports from China is very positive news for Steel Pipes & Tubes segment.
Also, I would like to mention the scenario of COVID which is bringing to our industry. As we all know, COVID-19 started in China and spread slowly to the whole world. There are rumours that China was responsible for the pandemic. Apart from this, countries like US are going hard on China for their careless attitude of not informing the world when the virus broke out. And hence, many countries are against the Chinese mentality and their governments. Due to all of the above factors, a lot of orders are shifting towards Indian manufacturers. India has cheap labour and capability to produce greater quality products. So, the next best choice of “If not China, then Who?” is India. So, the opportunities are opening up real quick. India is set to gain through export market, and initiatives like Vocal for Local, etc. are acting as catalyst for upcoming opportunities. Many companies across different border have also started looking for India as new manufacturing hub. This is major tailwind for steel pipes & tubes sector, according to me.
As explained by me in “Opportunity Size” that government has planned for greater investments to become a $5 Trillion economy by 2025, hence, overall many sectors are set to benefit. Again, the impact of COVID is sort of positive for Steel Pipes & Tubes producers. I have posted about “COVID Impact on our Segment” earlier which states Cash Selling, early realization from customers, Cost cutting initiatives, demand pick-up in retail segment, etc. are other tailwinds of our segment.
Apart from all the general comments above, there are lots of more specific development to focus on which sets a very good opportunity and a greater tailwinds for Steel Pipes & Tubes Industry overall. Let us have a look at the rosy picture point by point basis:
- National Gas Grid vision for increasing Natural Gas energy mix.
Currently, India has network of 16,788 Kms of Natural Gas Pipelines. These pipelines are used to carry LPG across the country. However, it is not enough to cater to wide requirement at multiple regions. Therefore, government has come up with National Gas Grid vision through which the requirement at multiple regions will be met by expanding its natural gas pipeline network. Currently, government has planned an additional of 15,543 Kms of Natural Gas Pipeline which is 92.5% of current pipeline network. This huge expansion of pipeline acts as greater catalyst for Steel Pipes & Tubes segment. Behind such a visionary National Gas Grid Plan, there are lot of reasons.
Firstly, India wants to switch to greener fuels. Currently, Natural Gas share is 6.2% out of total energy requirement in India. In its drive for greener fuel, government has vision to increase the natural gas proportion in energy mix to 15% by 2025. In order to achieve its target, collectively under the Natural Gas Grid Plan, government have launched the “Hydrocarbon Vision – 2030”, “CGD bidding round roll-out for active participation of private companies”, etc.
Hydrocarbon Vision – 2030 will help government to explore the green fuel initiative in north-east areas of the country where the greener fuel availability is very less. Also, it will improve connectivity with countries like Bangladesh, Nepal, Myanmar and Bhutan. This will lead to better utilization of greener fuels and open door to export to nearer countries.
Also, CGD is part of Natural Gas Grid Plan. Setting up of pipeline into cities is done through CGD Bidding process. A process where, to develop pipeline infrastructure and supply of natural gas to city, bids will be accept from authorized companies. This will lead to efficient management in construction of pipelines where responsibility will be through to each winner of the bid.
Therefore under National Gas Grid Vision, the vision of Energy Mix at 15% Natural Gas, Hydrocarbon Vision 2030, CGD Pipelines are collectively achieved.
- Aim to expand Refining Capacity to double by 2030.
As per Ministry of Petroleum website, Refining Capacities of Oil Refineries in Country stands at 249.366 Million Tonnes Per Annum (TPA). Currently, India is ranked as 3rd largest user of Oil. As of 2019-2020, India imported around 270 Million TPA of Crude Oil. The above data is enough to realise the need for in-house production of Crude Oil. For this purpose, Oil Minister “Dharmendra Pradhan” has announced plans to double the refining capacity in India to about 450-500 Million TPA by 2030.
Initiative have already started with formation of Ratnagiri Refinery and Petrochemicals Limited (A JV of Saudi Aramco & ADNOC and HPCL, BPCL & IOCL). RRPCL will have capacity of 60 Million TPA making it the world largest oil refinery. A project costing around 4 lakh Crores of rupees has aim to be completed till 2025. This refinery especially will bring in greater opportunities for Seamless Pipes & Tubes companies in India. Not only that, the vision to reach refining capacity of around 450-500 Million TPA by 2030 will bring in greater opportunities for Pipes & Tubes in future with announcement of newer projects.
- Roll out of AMRUT Plan and other Infrastructural Development.
AMRUT stands for Atal Mission for Rejuvenation and Urban Transformation, a scheme introduced by GOI to establish infrastructure for adequate drinking water, proper sewage management, and building of basic facilities like parks etc. to improve quality of life for all. An investment of 50,000 Crores initially, was done by government for period of five years from 2015 to 2020-21. However, at the end of five years, based on performance and assessment the revised budget will be decided. Although development under AMRUT scheme have been done to certain extend, there are still many cities which require the support of AMRUT schemes. This will give higher probability for increased budget allocation to this scheme. This scheme will therefore bring demand to ERW, SAW and DI Pipes for water transportation and sewage management.
- Focus on Water transportation & its supply.
India due to its population size, requires huge quantities of water. However, despite having huge water reserve, its uneven distribution have led to excess water supply at some places where as many parts of the country is still facing drought. This led to India make investment in two very ambitious project i.e. “Nal se Jal” and “River Linking Project”. Nal se Jal or the Jal Shakti Abhiyan aims to provide clean piped drinking water to every household. In 2019, an allocation of Rs. 28,261 Crores was done towards this mission.
Due to uneven distribution of water and to deal with problems of droughts & floods affecting different parts of country, an ambitious project involving an investment of 5.5 Lakh Crores was initiated called “River Linking Project”. This project aims to connect river bodies with other areas of countries through pipeline and canal transportation.
All these, hence will give huge demand opportunities for DI Pipes, SAW Pipes and ERW Pipes going forward in future.
Hence, from the above I would say that government has been pro-active in supporting Steel Pipes & Tubes segment through its infrastructure development actions. They have come up with many initiatives for development of our country which has led to higher benefit to our segment. And, this also adds up to tailwind of the sector as much of the dependence of steel producers are on government policies. Hence, the future for steel seems bright as of now.
Disclaimer: Views are personal and presented through independent research. By no means there is any stock advice. Also, presented content is for learning purpose only. I might be wrong in presenting data and inaccurate data, let me know if you find any discrepancies.