Domestic Steel Production expecting a revival

Steel has contributed tremendously in the growth of economies from the twentieth century. This is the time when TATA Steel setup their first and India’s first steel factory in Jamshedpur. This is on one hand contributed to India’s GDP and on the other hand to the steel production in the country, which also highlights the economy’s dependence on steel. National consumption of finished steel rose from 6.5 million tonnes in 1968 to 98.71 million tonnes in 2018, while GDP (at constant price, 2010) grew from USD 0.25 trillion in 1968 to USD 2.7 trillion today. In 2019, India has become the second largest producer of steel with the production of 111.2 million tonnes.

Growth possibility of Indian Steel Industry

Indian steel has been gone through a robust growth in past 10-12 years. Production and domestic steel demand have been increased by 75% & 80% respectively.
With the introduction of National steel policy in 2017 by the Indian government, envisions the growth of steel industry by year 2030-31. As per data from the Joint Plant Committee, at the end of 2018–19, India produced 110.9 million tonnes of crude steel. To reach 255 million tonnes of crude steel production by 2030–31, production needs to grow at a CAGR of about 7.2%. This is easily achievable given that in 2018–19, crude steel production grew by 7.6%. Therefore, the growth potential that the government has charted out in the National Steel Policy, 2017, is coordinated with the industry’s growth trajectory. The next question that comes is where the demand that can sustain the production levels envisaged in the policy will come from. The demand of steel lies in various sectors and the biggest range is needed in construction sector i.e. 62% as physical infrastructure and real estate are expected to pick up in 2020 and beyond, till 2024 by around 7%. The railways that has around 3% demand of steel is expected to grow by 20% as the projects like 100% electrification of tracks, dedicated freight corridors and high-speed rail corridors connecting industrial hubs of western and eastern India are expected to boost steel demand significantly. The Indian Automobile Industry is the fourth largest in the world comprising 9% of steel demand. Two-wheelers occupy 81% of market share while 13% is occupied by public vehicles. The Government has brought Automotive Mission Plan 2016-26, which aims at sustained automotive growth and bringing India at par with the global auto giant. Therefore, steel demand from the automotive sector is expected to be sustained, despite the temporary blip in growth this year.

Sector-wise demand for steel. Source : PWC/ Indian Steel Association

Effects of pandemic on the industry

Nationwide lock down imposed by the government on March 25 impacted the production, demand, and supply of steel. According to the World steel Association the output declines by 65% to 3.13 million tonnes in April. Global steel production also declined by 13% to 137.07 million tonnes as compared to the year 2019. Due to sudden decrease in local demand, industries like Tata steels, Jindal Steels & Power started exporting 80-90% of their production.
Automobile manufacturing is one of the biggest consumers of steel. Logistics and transportation have been curtailed in the effort to slow down the spread of COVID-19 which has led to a decline in demand for steel. Many non-essential construction projects have been halted to maintain financial strength, affecting the steel industry negatively.” State-owned companies like SAIL and RINL, as well as private steel makers like Tata Steel, JSW Steel, JSPL, and AMNS, have put certain restrictions at their offices and manufacturing plants across India and abroad to hold the spread of the virus. TATA Steel had asked their workers who have any travel history to the affected countries to stay in quarantine for 14 days. Sajjan-Jindal led JSW asked their workers to work from home and asked only those to come whose work is extremely important at the plant; they are scanned before entering the premises.
In a steel sector report published in Economic Times said “The export market margins for Indian steel producers are likely to be subdued until end of the 3rd quarter of 2020 as the excess inventory in the global markets is likely to be consumed initially”.
While the domestic demand has been decreased across the country, many industries also faced halt in their productions in the first three phases of the lockdown; revival is expected in the other half of the budget year.

Expected restoration in the coming months of September-October

Steel Industry is expecting the revival of the automotive industry sometime around September this fiscal year, which in turn boost the demand of the steel. Confederation of Indian Industry (CII) has recommended certain measures to the Indian Government to bring the industries back on track. They suggested to time bound the implementation of infrastructure projects and package for steel consumers like automobile and infrastructure. Also, to ban the import of seconds, re-rollable scrap steel, which form hazard to Indian consumers. CII also asked to impose zero import duty on steel making raw material like coking coal, coke, ferroalloys, zinc, and metallurgical limestone. They asked for a ban on export of steel making raw materials for the sake of raw material security for steel makers. They have also suggested that the port authorities should minimize the port charges until the situation gets normal, waiver container detention and ground rent charges for the import export activity to improve supply chain disruption. To avoid congestion on the ports CII has requested to remove inland movement restrictions on the imported goods.
Demand has outpaced supply over last five years. Source : India Brand Equity Foundation

CII gave a statement suggesting a grace period of interest payment and defer payment of import duty, GST and Income Tax during the lock down will assist steel Industries to manage its cash flow. Jindal Steels and Power Limited has said: “with the phased opening up of the lock down and an expected rise in government spending on construction and infrastructure, domestic demand for long steel products is expected to revive faster than that for flat steel products.” “We gradually improved our capacity utilization to 85% in May from a level of 38% in April. We are seeing some traction but it is not from capital goods or auto sector, but from government-induced expenditure in transmission, distribution, solar, metros and pipelines,” Seshagiri Rao, joint managing director of JSW Steel, told Economic Times.
After facing the biggest low in history, the steel industry is only expected to climb by 25-30% of the normal level in the coming months.

India Steel Production in Financial Year 20. Source : IPC, SteelMint