India is among one of the key producers and consumers of steel pipes and tubes in the Asia-Pacific region. Growth in various end-use industries, especially oil & gas and water, is expected to further propel the demand for these products. By DR. RAMESH CHANDRA MANSUKHANI
The manufacturing sector accounts for a major part of the economy. Globally, it contributes to nearly 16 per cent of the GDP. As a result of this, governments around the world have focused on encouraging the manufacturing sector. Some of the well-known initiatives in emerging economies for the promotion manufacturing sector include the homegrown ‘Make in India’ campaign enunciated by Prime Minister Narendra Modi in September 2014, which is now being even more aggressively pursued through the Aatmanirbhar Bharat Abhiyan or self-reliant India campaign.
As a major component of the world’s fifth-largest economy, steel accounts for 68 per cent of the total metal exports and 63 per cent of total metal imports of India. The country’s steel production is expected to cross 100 million tonnes (MT) in the FY2020-21, up 6 per cent YoY. In this, steel pipes contribute around 8 per cent to India’s steel consumption.
According to a recent report by the analytics and advisory firm CRISIL, the domestic demand for steel pipes has logged a steady 4.5 per cent compound annual growth rate (CAGR) in the past five years. And in another five years, this is expected to improve to 7-8 per cent, driven by investment in water supply and sanitation projects, city gas distribution (CGD) projects and the increased usage of structural pipes in infrastructure projects. CRISIL expects Capex of Rs 6-8 billion in submerged arc welded (SAW) and seamless pipes in FY2020-21.
Enormous Market Potential for Steel Pipes
In a June webinar on Aatmanirbhar Bharat, the Union Minister of Petroleum and Natural Gas & Steel, Dharmendra Pradhan stated that there had been tremendous growth in refineries, pipelines, gas terminals, storage capacity, gas cylinders and retail outlets, and all these required large amounts of steel. The oil & gas sector was one of the largest end-users of steel pipes and tubes, with pipelines being the major mode of transport of petroleum, oil and lubricants. Expansion of the CGD network to cover 70 per cent of India’s population, refining capacity augmentation and plans for 10,000 compressed natural gas (CNG) stations, would all will drive the demand for steel pipes.
India is among one of the key producers and consumers of steel pipes and tubes in the region. Growth in various end-use industries, especially oil & gas, has propelled the demand for these products. For instance, as per the Pipeline & Gas Journal, around 134,866 km of oil & gas pipeline was expected to be laid over the next couple of years, presenting an opportunity of nearly $30 billion for the steel pipe manufacturers. Out of the total pipeline, a length of 61,783 km was in the engineering and design construction phase, whereas 73,084 km was in the construction stage. Domestic demand for steel pipes had improved due to the robust growth in almost all segments driven by the demand from oil & gas, water supply and sanitation (WSS) and irrigation segments.
The oil & gas industry is constantly ramping up production to meet the rising demand. The sector has observed a major demand booster for steel pipes manufacturing business. This segment was the largest in 2019 and is projected to grow at a CAGR of 7.1 per cent, in volume terms due to the increasing demand for pipes & tubes for their use in the construction of new oil & gas projects across the globe.
According to the International Energy Agency (IEA), the global oil demand increased by 1.3 per cent and the global natural gas consumption increased by 4.6 per cent in 2018 from 2017. This is a positive sign for steel pipes and tubes market.
The market growth is expected to receive a boost from the increase in industrial production. Seamless steel tubes are extensively used in the construction of various machinery and equipment. According to the Organisation for Economic Co-operation and Development (OECD), their global industrial production increased by 2.5 per cent from 2017 to 2018. A rise in the growth trajectory of industrial production, especially in developing economies, is expected to boost the market for steel tubes and pipes in the coming years.
The SAW segment in the market is anticipated to grow at a CAGR of 8.2 per cent in terms of revenue, from 2019 to 2025. SAW steel pipes and tubes are mainly used in shipbuilding and oil & gas industries. Their sturdiness makes them ideal for use in high-pressure applications such as transportation of hydrocarbons, oil & gas, and in transmission & distribution of water.
Future Not a Mere Pipe Dream
Based on a comprehensive study, the global management consulting and market research firm Lucintel has forecasted that the exploration & production pipe segment was expected to depict the highest growth potential during the forecast period due to an increase in exploration activities of oil & gas. The transportation & distribution pipe market segment expects reasonable growth in consideration with growing infrastructure and pipeline construction. Steel oil & gas pipes would be the largest segment in terms of sales value. The demand for steel oil & gas pipes would increase because of the ultra-deep drilling activities and increasing penetration of shale gas production in the oil & gas pipe market.
The global upstream capital expenditure, which declined nearly 45 per cent between 2014 and 2016 is now forecast to rise by 6 per cent YoY in the medium term as per industry reports. The demand for large-diameter line pipe in the Middle East is forecast to remain at around 1.5-2.5 MT per year up till 2023.
In her Union Budget speech for FY2020-21, Finance Minister Nirmala Sitharaman had announced plans for the expansion of National Gas Grid to 27,000 km from the present 16,200 km. Currently, around 7,000 km of pipeline is under construction. Besides, the CGD projects are expected to add several thousand more kilometres of steel pipeline. With this India is planning to increase its share of natural gas in the energy mix to increase to 15 per cent by 2030 from 6 per cent presently, against the average of 23.4 per cent globally.
Also, the government’s ’Har Ghar Jal‘ programme under the Jal Jeevan Mission
() initiative is envisioned to provide safe and adequate drinking water through individual household tap connections by 2024. The Central Govt has already identified 100 water-stressed districts and the sum of Rs. 3.5 trillion is approved for the same as per the Union Budget 2020-21. The government has expressed its willingness to prioritise districts that have historically faced a water crisis, thus increasing the demand for steel pipes to construct effective water distribution networks.
The worldwide outbreak of the COVID-19 pandemic led to a precautionary halt in the execution of the projects. However, given their long-term impact on the public well-being, the projects have not been called off either in the domestic or export markets. To effectively combat the COVID-19 impact, most companies in the manufacturing sector will have to take concrete steps to survive and thrive in the emerging challenging environment. For this, a well thought out strategy that possibly includes surgical cuts, while balancing short and long-term needs, may be best suited.
Dr. Ramesh Chandra Mansukhani is Group Chairman, Man Industries India Ltd.