Vardhman Special Steels Ltd Management Discussions.

An economic overview

How the world progressed

The momentum gained by the global economy from the second half of 2016 started its downward descent in 2018. In a year, a number of factors crept in which contributed to weakened global expansion, especially in the second half of 2018.

Moreover, with this weakness expected to persist into the first half of 2019. The World Economic Outlook projects a decline in growth in 2019. Global growth, which peaked at close to 4% in 2017, softened to 3.6% in 2018 and is projected to decline further to 3.3% in 2019.

Changes that derailed the world from moving forward

• Escalation of US-China trade tensions.

• Macroeconomic stress in Argentina and Turkey.

• Disruptions to the auto sector in Germany.

• Tighter credit policies in China.

• Financial tightening in the larger advanced economies.

An economic overview

How India performed

Indias economic progress could not match expectations – Indias GDP growth stood at 6.8% even as economic experts had estimated an economic expansion of 7.4%. Despite this moderation, India continued to be one of the fastest growing major economy in the world in 2018-19.

So, what led to the decline? India started on a healthy note with an 8% GDP growth in the first quarter and a 7% growth in the second. But in the second half growth slipped below 6.5%. This was due to the poor performance of farm, mining and manufacturing sectors – it led to an overall deceleration in economic progress.

Indias industrial production contracted by 0.1% in March 2019, the lowest in 21 months, mainly due to a slowdown in the manufacturing sector. On an annual basis, IIP growth slowed to a three-year low of 3.6% in the 2018-19 fiscal as against 4.4% in the previous fiscal.

But behind this subdued performance, there were some positives

• Revenue from Goods and Services Tax (GST) witnessed 10% growth from the year-ago period at C1.13 trillion in April (for March 2019), the highest ever since its implementation.

• The per-capita income at current prices during 2018-19 is estimated to have attained a level of C1,26,406 (C10,533.83 monthly) as compared to the estimated of C1,14,958 (C9,579.83 a month) for 2017-18 - a rise of 10%.

• India moved up by 23 places in the World Bank’s Ease of Doing Business Index 2018 to the 77th rank.

• India moved up one place to rank 43rd most competitive economy in the world in the IMD World Competitiveness Rankings.

Going forward: The International Monetary Fund (IMF) cut India’s GDP growth forecast for 2019-20. They project growth to pick up to 7.0% in 2019 (2019-20) and 7.5% in 2020, supported by the recovery of investment and robust consumption amid a more expansionary stance of monetary policy and some expected impetus from fiscal policy.

The steel sector

Its indispensable and invaluable

Every individual every hour is in touch with this metal – steel. Almost everything that we use is either made from or manufactured with steel. It is a uniquely versatile material and is widely regarded as a high performance, contemporary engineering material.

What is even more exciting about this material is that it continues to lend itself to being improved and innovated upon to meet dynamic and challenging demands over decades. This intrinsic benefit of steel makes it a sustainable choice in a growing number of applications. This has made steel indispensable to our modern living and critical to economic growth.

Global steel sector

The steel industry is set to grow in 2019 by at a slower pace owing to a less favourable economic environment.

Despite the global economy registering a muted performance, the steel sector continued to gain momentum.

Production: Global crude steel production reached 1,808.6 million tonnes (MT) in 2018, up 4.6% compared to 2017. Crude steel production increased in all regions in 2018 except in the EU, which saw a 0.3% contraction.

Demand: In 2018, global steel demand increased by 2.1% (after adjusting for Chinese induction furnace closures) growing slightly slower than 2017.

Going forward: The steel industry is set to grow in 2019 by at a slower pace owing to a less favourable economic environment. China’s deceleration, a slowing global economy, uncertainty surrounding trade policies and the political turmoil in many regions suggest a possible moderation in business confidence and investment. As such the World Steel Association has forecasted global steel demand to reach 1,735 MT in 2019, an increase of 1.3% over 2018. In 2020, demand is projected to grow by 1.0% to reach 1,752 MT.