Why's the Indian Steel Industry Hot?

The Russia-Ukraine conflict and supply constraints from China have spurred the global demand for Indian steel export

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Recently, the Union government waived import duty on raw materials such as coking coal and ferronickel used by the steel industry. It raised the export duty on iron ore to 50 per cent and some steel intermediaries by 15 per cent. The move has been made to tame price hikes and strengthen the domestic steel market.

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The surge in raw material prices prompted large steel companies to increase prices in April. Besides, reports said, the Russia-Ukraine conflict and supply constraints from China have spurred the global demand for Indian steel export, which is expected to hit an all-time high of over 20 million tonnes (MT) in FY22.

Rising demand

India's finished steel consumption is anticipated to increase to 230 MT by 2030-31 from 86.3 MT in FY22 (till January), said an analysis by India Brand Equity Foundation (IBEF).

"Demand for steel is expected to increase by 17 per cent to 110 million tonnes, driven by rising construction activities. To drive post COVID-19 economic recovery, the government has planned investments in roads, railways, metro connectivity, industrial parks, industrial corridors, DFC, transportation of water, oil and gas, transmission towers and affordable housing. All these sectors will drive demand for steel," Seshagiri Rao, joint managing director of JSW Steel Ltd, told IBEF.

Consumption of steel by India's infrastructure segment is expected to increase to 11 per cent by FY26. The government of India has allocated INR 111 lakh crore under the National Infrastructure Pipeline (NIP) for FY 2019-25.

Global market

As of October 2021, India was the world's second-largest producer of crude steel, with an output of 9.8 MT. Easy availability of low-cost manpower and presence of abundant iron ore reserves make India competitive in the global set up. India is home to fifth-highest reserves of iron ore in the world.

To achieve steel capacity build-up of 300 MTPA by 2030, India would need to invest $156.08 billion by 2030-31. "The industry is witnessing consolidation of players, which has led to investment by entities from other sectors. The ongoing consolidation also presents an opportunity to global players to enter the Indian market," the report quoted.

New policies

In 2019, the government introduced Steel Scrap Recycling Policy with an aim to reduce imports. Raw materials such as plastic, copper, aluminum, steel and rubber will be recycled from scrapped vehicles.

"This will bring down the cost component and help the industry become more cost competitive.This proposed policy seeks to phase out unfit vehicles to reduce vehicular pollution, meet the climate commitments, improve road safety and fuel efficiency, formalize the vehicle scrapping industry and recover low-cost materials for the automotive, steel and electronics industries. Primarily, this new policy aims to boost new vehicle sales, which will stimulate the economy," the report added.

Sector opportunities

The automotive industry is forecast to reach $260- 300 billion by 2026. The industry accounts for around 10 per cent of the demand for steel in India. The capital goods sector accounts for 11 per cent of the total steel consumption and is expected to increase 14-15 per cent by 2025-26.

Similarly, the infrastructure sector accounts for 9 per cent of steel consumption and is expected to increase to 11 per cent by 2025-26. "Due to rising investment in infrastructure the demand for steel products would increase in the years ahead. Almost 70 per cent of the country's infrastructure, estimated at INR 6 lakh crore, is yet to come up. Thus, a significant growth potential for the steel sector is present," the IBEF report quoted former minister Chaudhary Birender Singh.

Estimated steel consumption in constructing airports is likely to grow more than 20 per cent over the next few years. Railways, oil and gas, and energy sectors are also set to increase steel consumption.

What's next?

India's steel exports will drop 35-40 per cent year-on-year to 10-12 MT this fiscal following the 15 per cent export duty imposed on several finished steel products, a CRISIL research analysis shows.

Steel exports, which had reached a record high of approximately 18.3 MT last fiscal, continue to see momentum because of the disruption caused by the ongoing Russia-Ukraine conflict.

"The export duty imposition on steel and iron ore by the government was able to tame the uncapped rally in domestic steel prices. Falling steel prices, in turn, have aided recovery in domestic demand in the flat segment. Auto production and construction activity picked up in June. With monsoon setting in, a seasonal moderation in demand is expected, which will put further downward pressure on steel prices," CRISIL said in a report.