Sometimes even the best of decisions can boomerang. Burdened with overcapacity, low profitability and environmental issues amid lackluster demand, the Chinese steel industry is a classic example.
Just a decade ago, steel was one of the engines of China's industrial growth. I still remember being dazzled by the ubiquitous and extensive use of steel as I explored Beijing, when I first arrived here seven years ago.
Such was the importance given to the industry that provinces jostled for space to set up steel plants of various capacities, to cash in on burgeoning domestic and global demand.
In the process, some companies became huge exporters of steel products, while others like Taiyuan Iron and Steel (Group) Co Ltd in Shanxi province became renowned the world over for its finished stainless steel products.
But the glory days of the steel companies stealing the thunder seem to be over.
During an interaction with TISCO officials in Taiyuan a few months back, I remember one of the directors telling me how profit margins had shrunk drastically over the years and the company was no longer optimistic on long-term prospects.
The director went on to add that exports of finished products to neighboring countries like India represented the only bright spot on an otherwise bleak horizon, as input costs ate into his profits.
India is undergoing a major urbanization drive, with the government indicating that it plans to build 100 "smart" cities by 2022, a mega infrastructure project that is estimated to cost about $1 trillion and one that would need huge amounts of steel.
And aside from those smart cities, across India there has been a surge in infrastructure investment with various states chalking out ambitious development programs, all of which need huge amounts of steel.
Industry experts estimate that steel consumption in India grew 2.2 percent in 2014 to 75.2 million tons. The World Steel Association estimates that demand in India will rise by 6.2 percent this year and by 7.3 percent in 2016.
"The slowdown in China will give India an opportunity to emulate China's progress over the last few decades," reckons Manoj Mohta, an analyst at Indian market research firm CRISIL Research, adding that for the fiscal year ended in March, the country's steel imports jumped by 71 percent to 9.3 million metric tons, most of which came from China.
In contrast, China's production capacity of crude steel reached 1.16 billion tons by 2014, with the amount of crude steel produced at 820 million tons, accounting for 49.4 percent of the total steel produced in the world. Though steel output grew in China, the actual consumption was just 740 million tons, indicating a severe glut.
While this does paint a pretty picture for Chinese steelmakers aiming to export more products to India, it may not be that easy due to objections from Indian firms.
N. C. Mathur, president of the Indian Stainless Steel Development Association, said in a statement recently that steel product imports from other nations (including China) are a big threat for the industry in India.
"It's a week after week, month after month survival issue for us," he said.
Companies like TISCO, however, still firmly believe that with higher levels of innovation, technology and cost-effectiveness, they can indeed unlock the doors to the huge Indian market.
