Archive for the ‘OECD’ Category

STEEL … “ECONOMIC POINTER TO GLOBAL RECOVERY”

Steel, the backbone of infrastructure, has shown wild swings in its prices globally. Steel long prices in NCDEX have shown volatile movement from  January’10 till April’10 this year as prices which were trading around Rs 29000 per tonnes in January’10 plunged below Rs 24000 per tonnes in mid February’10 but it again jumped above Rs 29000 in the beginning of April and again melted nearly to Rs 25000 per tonnes tracking jittery stock market and European debt crises. Greek financial crisis is likely to impact the global economy and industry in Europe thereby denting the demand in this favorite destination of steel flat products.

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On the domestic front due to recovery in automobile, consumer goods and infrastructure sector finished steel registered a growth of 9.2% in March 2010 as against a negative result of 1.8% in March last year. The rise in input costs (iron ore prices shooting up by over 90% and coking coal prices rising by around 55%) coupled with steady demand is the prime reason for the prices recovery. But the rise in steel products prices, especially flat products is bound to affect the prices of the end user industries like automobiles, air conditioners, refrigerators and so on, leading to further inflation in India.

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The basic raw material of steel, the coking coal, has acute shortage of premium quality and the demand is mostly met through imports in India. Generally, India exports iron ore mainly to China but in recent days it has been seen that India is importing iron ore and the demand for Iron ore is increasing here. The share of total Chinese iron ore imports has decreased, from 22.92% in 2006, 20.73% in 2007, 20.51% in 2008, to 17.71% in 2009. Going forward, the increasing demand for iron ore in India will stimulate the Indian government and enterprises to invest in the steel industry.

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According to Indian Steel Minister Virbhadra Singh “Government is aiming to achieve a 120 to 125 million tonnes of steel production in the country by 2011-2012 with major chunk being provided by the public sector” India is both importer and exporter of steel. During the month of January and February 2010, India imported 510,000 mt of steel products from China, up 351.57 percent year on year basis. In the years 2006 to 2009, China imported 74.78 million mt, 79.53 million mt, 91.04 million mt and 107 million mt from India, marking respective increases of 9.08%, 6.36%, 14.47% and 18.08% respectively..

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Outlook: According to World Steel Association the apparent steel use will increase by 10.7% to 1,241 mmt in 2010 after contracting by -6.7% in 2009. This represents an improved figure over the Autumn 2009 forecast for both 2009 and 2010. With these projections, world steel demand in 2010 will exceed pre-crisis levels of 2007. In 2011, it is forecasted that world steel demand will grow by 5.3% to reach a historical high of 1,306 mmt. The resilience of the emerging economies, especially China, has been the critical factor enabling the earlier than expected recovery of world steel demand.

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The outlook of the global steel industry in 2010 looks positive based on the below written reasons:

First, Chinese steel production and demand are likely to continue their relentless rise. Government stimulus packages from China to increase consumer demand for cars and home appliances have supported the demand. Perhaps, more importantly, the state is funding massive construction in the West of the country and immense infrastructure projects for rail, road and bridges in the East. This could lift steel output to above 600 million tonnes in 2010.

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Second, Indian steel manufacturing will reach an “all time” high this year, after another peak outturn in the previous twelve months period. New record steel production rates are also likely to be set in several other countries, including, Turkey and several Middle Eastern countries.

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Most of the steel boom will come from the developing nations of the World. However, manufacturing activity in many of the industrialized countries is starting to improve. This will add to the rise in steel production this year.

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According to world steel association “Global steel output in 2010 is forecast at 1,350 million tonnes. This represents an 11.1 percent increase on the anticipated 2009 outturn, which in turn, will be 8.4 percent below the figure recorded in the previous twelve months”.

According to industry and government officials at the OECD’s Steel Committee, the global steel industry is recovering faster than expected from the recession but the strength and timing of the upturn varies across regions and further improvements are expected in the short term although it may take years for some parts of the sector to fully recover.

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Finally steel long in NCDEX may remain sideways in near term considering the jittery situation in euro zone and tumbling stock markets. But it is expected to show recovery faster than expected as seen in recent past and the prices can scale higher towards Rs 28000 in third quarter of this year after taking support at Rs 22000- 23000 per tonnes.

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Global M&A Deals to Fall 56% in 2009: OECD

Global mergers and acquisitions (M&A) are projected to decline 56% in 2009 compared to last year due to sharp declines in such activities in rich and emerging markets including India.

However, the Organization for Economic Cooperation and Development (OECD) stated that the expected decline in M&A activities this year would be the largest year-on-year decline since 1995.

Meanwhile, the estimate is based on an OECD analysis of data for international M&A activities up to November 26, 2009 where the projected decline is primarily due to a 60% fall in value of cross-border M&A by firms based in the OECD area, to just $454 billion in 2009 from over $1 trillion last year.

Moreover, there has been a decline in M&A activities into and from major emerging economies while International M&A activity by firms based in Brazil, China, India, Indonesia, Russia, and South Africa fell by 62% to $46 billion in 2009 from $121 billion in 2008.

Additionally, it is said that such activities into these countries is anticipated to slide by almost 40% to little over $80 billion in 2009 from just under $140 billion last year while M&A investments have been severely hit by the financial turmoil, which has resulted in tight credit flow.

On the other hand, the latest international investment estimates suggest that total foreign direct investment into the 30 OECD countries will fall to $600 billion in 2009 from a 2008 total of $1.02 trillion.