Ships break in Alang,pain felt in Gobindgarh’s steel hub
AMONGST the industries that have suffered in the ongoing slowdown,shipping is one of the worst hit.
AMONGST the industries that have suffered in the ongoing slowdown,shipping is one of the worst hit. With the decline in international trade and number of tourism cruises,a lot of ships and vessels have turned redundant and are finding their way to Alang in Gujarat,which is the world’s largest ship breaking yard. In fact,close to 130 ships have queued up to get dismantled at Alang,as compared to 40 last year. But the increase in quantum of business at Alang is causing distress in Mandi Gobindgarh,Asia’s largest steel industry cluster.
The scrap which is obtained after breaking the ships is the main raw material for the steel industry here and industry players feel that with the prices of steel already scraping the bottom,an excess supply in market (from ship scrap) will only exacerbate the matters.
“On July 31,2008,the prices of steel were as high as Rs 41 per kg. By Diwali,they had come down to Rs 23 per kg and today they are at Rs 27 per kg. The overall economic slowdown has ensured that there isn’t sufficient demand. Automobile sector and construction sector are our main customers. But they have applied breaks on production and investment,” says Kuldeep Goyal of Kisco Castings.
The decline in prices has severely hit this cluster which employs one lakh people. “We ordered raw scrap from South Africa in August. At that time,the price was $700 per tonne. It usually takes around 45 days for the material to reach us and that includes 15 days of voyage. By the time scrap reached us,the prices had sunk to $300 per tonne. So basically,the goods for which I had paid around Rs 5 crore had reduced in value to Rs 2 crore,” said a trader requesting not be named.
A drastic fall in demand is also being attributed to a slowdown in automobile sector that remains a dominant buyer. Recent surveys have shown that whereas the sale of passenger cars has gone down by 25 per cent,the sale of commercial vehicles has gone down by 60-70 per cent.
Amarjeet Goyal is the managing director of Modern Steels Limited,one of the well-known units of this cluster. His clients include Tata Motors,Suzuki,Ashok Leyland and prominent tractor manufacturers. “Most units in this region are today operating at 30-40 per cent of their capacities. The situation is so bad that even the letters of credit are not being honoured. Punjab has four large alloy steel producers,which over the years have supplied to best known auto players and have also exported. But everyone has taken a hit. The supply currently is outstripping the demand,” he says.
The industry players say that the recent initiatives taken by the Centre look promising.
“The CENVAT reduction was certainly helpful,but I think the second fillip announcement could alleviate the woes. In this they have apportioned around Rs 4,000 crore under the National Urban Renewal Mission and have asked state governments to purchase buses for local transport. They have given 50 per cent depreciation benefit on purchase of new commercial vehicles. This could give a boost to the auto sector and lead to revival of demand,” says Goyal.
But the smaller players,primarily including the furnaces and rolling mills,feel that at least for the time being the Government should restrict cheap import,a lot of which is coming from Ukraine and eastern Europe.
Once the ships are actually dismantled (usually takes around six months to break one ship) in Alang and the scrap reaches the rolling mill industry in Bhavnagar and Bhuj (set up under concession schemes after the 2001 Gujarat earthquake),the supply will increase further and in the absence of a recovery in demand,the industry forecasts a bleak future.
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