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India's great expectations

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Dry Bulk,

India stands at a crossroad. While Prime Minister Narendra Modi’s election in 2014 ushered in an unparalleled amount of optimism for Indian economic growth prospects, India has not yet met its great expectations. By almost all economists’ estimates, India since 2015 has been growing at a larger rate (slightly over 7%) than any other major economy. However, India has not become an engine of robust growth that the dry bulk shipping market so desperately needs.

Overall, the future for India remains unclear and the dry bulk market cannot assume that India will simply replace China. Key gauges of Indian industrial strength relevant to the dry bulk market show only moderate growth occurred last year and Commodore Research believes that no drastic change will occur in upcoming years. In addition, the extremely large jumps in industrial production that were seen in China earlier this decade are very unlikely to occur in India. India is also not expected to bring about a significant change in overall global seaborne grain trade in the foreseeable future. The most reasonable outcome to expect regarding Indian growth and dry bulk prospects is that India will continue to grow at only a moderate rate. The dry bulk market is most likely to remain without an engine of robust growth now that China has lost its steam.


Industrial output





Looking at two fundamental pillars of industrial output – electricity production and steel production – shows that in 2015 India achieved only moderate growth in electricity production and steel production. India produced approximately 1.08 trillion KWh of electricity in 2015. While this set an Indian electricity production record and was 40 billion KWh (4%) more than was produced in 2014, 2015’s growth was much lower than the growth in electricity production seen in 2014. Back in 2014, Indian electricity production totalled a record 1.04 trillion KWh, which was 95 billion KWh (10%) more than was produced in 2013. Overall, 2015’s slowdown in Indian electricity production growth has had a negative impact on the dry bulk shipping market as it has resulted in a buildup of Indian power plant coal stockpiles. This buildup in coal stockpiles has caused Indian coal imports to decline.

Indian power plant coal stockpiles began 2015 at approximately 14 million t, but by the start of this year they had risen to a record 30.6 million t. Also negative for the dry bulk shipping market has been that Indian coal production has been rising significantly since October 2014. While the first three quarters of 2014 saw Coal India, which produces about 80% of India’s coal, mine an average of 39.3 million tpm of coal, since that time, Coal India’s production has risen to a monthly average of approximately 44.4 million t. Higher domestic coal production and lower electricity production growth caused India’s coal imports to fall to approximately 195 million t in 2015. 2014, on the other hand, saw Indian coal imports total a record 211 million t. For this year, there is a good chance that Indian coal imports will decline even further.


Steel production


Another fundamental pillar of industrial output, steel production, has at least shown better growth recently. 2015 saw India produce a record 89 million t of crude steel, which is 5.8 million t (7%) more than was produced in 2014. In comparison, 2014 saw India produce a record 83.2 million t of crude steel, which was 4 million t (4%) more than was produced in 2013.

It is encouraging that annual Indian steel production growth has recently climbed from 5% to 7%, but India’s current level of steel production growth has still paled in comparison to the huge growth that was often seen in China’s steel production growth just a few years ago.

Before China’s slowdown, the dry bulk shipping market had been accustomed to seeing Chinese crude steel production climb by over 50 million tpy. In 2009, 2010, 2011 and 2013, China’s crude steel production jumped y/y by 68 million t, 60 million t, 58 million t and 70 million t respectively. Even during the weaker years for Chinese steel production in 2012 and 2014, China’s crude steel production still rose y/y by at least 20 million t. Unfortunately for the dry bulk shipping market at present, Indian crude steel production rising by 5.8 million t last year is a fairly insignificant splash in the bucket compared to the amazing growth that was seen in Chinese crude steel production during 2009 through 2014.

Going forward, Commodore believes the steel market will never witness India come even remotely close to reaching the annual steel production growth of 50 million t that was routinely seen with China’s steel production just a few years ago. The democratic nature of India’s government is likely to continue to limit the type of extremely robust growth that China had previously been able to achieve. Chinese industrial production, and its steel industry, benefitted greatly from the fact that the Chinese government is an authoritarian government.

Up until a few years ago, the authoritarian nature of China’s government allowed China to have an almost uncanny ability to meet even the most remarkable production targets. Democratic governments, however, are notorious for being unable to drive their economies in the same manner. India, for this reason, has been unable to achieve the same type of robust growth that has been previously seen in China. Too often matters are debated in forums and government hearings in India, while in China decisions are made unilaterally.


A moderate conclusion


As a whole, India is likely to continue seeing solid overall economic growth, including moderate growth in electricity production and steel production. The prospects for moderate growth in India is impressive considering that much of the rest of the world has been experiencing very sharp declines in growth (and in some areas contractions). To help bring about more growth, the Indian government has been focusing on improving and enhancing the nation’s infrastructure. It is India’s highway, railway and shipping sectors that have been receiving the most amount of attention from the government and it is in these sectors that the government will continue to make huge investments in hopes of further developing the economy. Commodore believes that great progress will be made; however, India will fall short of meeting its ambitious plans.


Regarding India’s network of roads, highways and bridges, India has the world’s second largest inland road transportation network, which totals approximately 4.87 million km. As of the start of this year, initiatives have been put in place to build approximately 600 new highways that will require US$16 billion to be spent on construction. These 600 highways are expected to cover approximately 13 000 km and will add to the approximately 97 000 km of highways that currently exist.

In this year alone, the National Highways Authority of India is planning to acquire approximately 10 000 ha. of land to be used for building new roads and highways, and construction on 100 of the 600 new highways is expected to begin this year. Regarding all new roads in India, the government has announced that its new target is to build 150 000 km of new roads every year.

India’s railway network is another key sector that will continue to be expanded. As of the start of this year, India’s rail network totalled approximately 65 000 km of railways that travel through over 7000 rail stations. For the next five years, the Indian government is planning on spending approximately US$140 billion to modernise its existing rail infrastructure and to further expand the rail network.

Towards the start of 2020, it is expected that an additional initiative will be announced on which the government will spend at least another US$280 billion on the rail network during the next five-year period. So far, no exact totals have been announced regarding just how much India’s railway network will be expanded; a sizeable increase is expected however.

India’s maritime transportation network is also set to receive a large amount of investment going forward, as the government intends to have the maritime industry play a larger role in India’s economy. India has approximately 200 ports; overall maritime cargo traffic last year totalled approximately 1050 million t. According to key government officials in India, the overall maritime cargo traffic is expected to increase to approximately 1750 million t by 2017, though Commodore believes this to be an extremely bullish figure. In addition, the Indian government is focused on significantly increasing the use of Indian rivers for inland water transport and Commodore anticipates that significant progress will be made in this sector. According to Indian government officials, more than 40% of overall cargo moves through inland waterways in Europe and China, while the percentage of cargo moving through inland waterways in India is only approximately 3.5%.

Further utilising India’s approximate 7500 km coastline is also of great importance to the government. At the forefront of the government’s plans is India’s Sagarmala project, which is focused on modernising existing ports, setting up new special coastal economic zones and constructing several new ports and harbours. The Sagarmala project is also focused on connecting coastal ports with inland waterways. Total investment in the project is expected to exceed US$10 billion. As part of the project, at least 10 special coastal economic zones are expected to be formed. The plan for these zones is to convert them into new manufacturing hubs, which will be supported by port modernisation projects.




Regarding India’s agricultural sector, the two primary agricultural products produced in India (excluding milk products) are rice and wheat. The production of Indian rice and wheat are both anticipated to decrease by a small amount during the current 2015/2016 grain trade marketing year, which is similar to predictions for an overall decline in grain production that has been expected worldwide. 2015/2016 Indian rice production is expected to total approximately 100 million t, which is 4.8 million t (-5%) less than is estimated to have been produced in 2014/2015. India produces more rice than it consumes domestically, however, and India’s rice exports for 2015/2016 are expected to total 8.5 million t. This is 3.2 million t (-27%) less than is estimated to have been exported in 2014/2015. Indian rice exports are expected to decrease this year primarily due to the decline in production.

Indian wheat production during the current 2015/2016 grain marketing year is expected to total approximately 88.9 million t. This is 7 million t (-7%) less than is estimated to have been produced during 2014/2015. For years, India had been a net exporter of wheat, but ongoing growth in domestic consumption has resulted in India no longer being able to export a significant amount of the grain (Indian wheat imports and exports are both expected to come in at less than 1 million t this year).

In previous years, India was a net exporter of wheat with approximately 3.4 million t of wheat exported in 2014/2015 and approximately 6.1 million t exported in 2013/2014. During the upcoming years, there is a very good chance that India will become a net importer of wheat as the growth in domestic wheat consumption is expected to exceed the growth in India’s wheat production. This change is the most significant development expected to occur in the Indian agricultural sector. Around 165 million t of wheat is normally exported globally every year, however, and India importing even 5 million t of wheat in upcoming years would not have a huge effect on the global grain market, other than creating more Indian-directed cargoes.




Going forward, India is likely to see moderate growth during the upcoming years as a larger amount of its 1.27 billion citizens continue to rise into the ranks of the middle class. India is still very much a developing country, and its infrastructure constructions remains in the early stages of development. The next several years of growth in India, however, is very unlikely to resemble the incredible growth that was seen in China during the last two decades. Most telling in recent years has been how Chinese steel production was routinely able to climb by over 50 million tpy, and yet Indian steel production has not been able to rise by even 10 million tpy.

It is unreasonable to expect that India will become an engine of robust growth for the dry bulk market as was previously seen with China. India’s expected moderate levels of growth, though, are still likely to remain the envy of much of the rest of the world.


About the author


Jeffrey Landsberg is the Managing Director at Commodore Research & Consultancy, USA.

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