Steel sector is fully geared for the expected growth in domestic consumption
It is rather the other way round. Government's thrust on infrastructure development is driving the steel demand since over 60% of steel is consumed by construction and infrastructure sectors. Government is implementing the National Infrastructure Pipeline at an investment of Rs 111.304 trillion.
- N. M. Rao
Consultant (I&S)
How is the steel driving the demand in the construction and infra sector?
It is rather the other way round. Government's thrust on infrastructure development is driving the steel demand since over 60% of steel is consumed by construction and infrastructure sectors. Government is implementing the National Infrastructure Pipeline at an investment of Rs 111.304 trillion. The programme, which started in 2019, was to be completed by 2025 but may take a little more time due to the delay caused by Covid-19 pandemic. The programme encompasses all infrastructure areas like energy (including renewable energy), roads, railways, sea ports, airports, urban infrastructure, digital communication, irrigation, rural infrastructure, agriculture & food processing, social infrastructure, industrial infrastructure etc.
In October 2021, government announced PM Gati Shakti National Master Plan Multimodal connectivity in infrastructure - Railways, roads, sea ports, airports, waterways, mass transport and logistics. Connectivity is for both goods and people. To be executed at a total outlay of Rs 100 lakh crores, the programme aims at reducing logistics cost from 13-14% of GDP to 10%. Both these programmes will run parallelly.
How is the Indian steel sector performing and in your opinion do you see the need for increasing the output?
Crude steel production contracted by 1.6% in 2019-20 due to economic slowdown and by 5.1% in 2020-21 due to disruptions caused by Covid-19 pandemic. However, it recovered and production increased by 16.2% in 2021-22 despite severe second wave of Covid in the first quarter. Crude steel production increased by 5.3% in April-October FY23. Import intensity is only 4.8% (special steels) in the current year. The industry can easily increase the output if consuming sectors demand. Present capacity utilization is under 80%. As a matter of fact, steel companies have reduced the output due to subdued domestic demand and imposition of export duty.
As the government is focusing on $5 trillion economy, what future you see for the steel industry in the coming years?
The target of $5 trillion economy will come from improved infrastructure facilities & real estate and growth in other sectors like automobile, capital goods (due to growth in manufacturing sector), consumer durables etc. All these sectors need steel products. Steel sector is fully geared for the expected growth in domestic consumption. Domestic consumption is expected to more than double by 2030-31 to 230 million tonnes (105.75 million tonnes in 2021-22). All major steel players have announced expansion plans as well as creation of greenfield capacity (total crude steel capacity is expected to reach 300 million tonnes by 2030-31 as per the National Steel Policy. The government is working on the vision for 2047 (hundred years of independence) and crude steel capacity is expected to reach 600 million tonnes and domestic consumption at least 450 million tonnes by that year. Steel industry is fully geared for the same. Some reputed foreign companies have seen the opportunity and are planning to set up facilities in India.
As the world faces recession, how is the Indian steel sector placed compared to its foreign counterparts?
Indian steel sector is well placed to face the current situation. Experts are of the opinion that India will not face recession. Indian economy will be supported by domestic consumption. Yes, there will be some irritants like weakening of rupee, higher energy prices etc, but India is capable of meeting such challenges. Indian economy is not only having positive growth but is the fastest growing. In the steel sector also, India is having the highest growth. As per World Steel report, India's crude steel production grew by 6.4% during January-September 2022, while production has contracted in every other major steel producing country.
As per World Steel's Short range Outlook released in October 2022, India will have highest growth of 6.7% in 2023, while every other major country (including China) is expected to grow by less than 2%. As per Moody's Investor Services, Indian demand remains a bright spot in the major steel markets as domestic consumption is expected to grow at a high 'single digit rate' over the next 12-15 months in the light of investments in the infrastructure sector.
In your opinion is pricing of steel under pressure and what way forward you see in the coming years?
Steel is a cyclic industry and there will be high and low prices depending on both domestic and international situation. Since demand in India is expected to remain fairly good, Indian producers have to concentrate on cutting costs to maintain margins. They are already working in this area and results are visible in respect of lower consumption of raw materials and energy. The government has helped the industry by removing import duty on critical raw materials. The PM Gati Shakti National Master plan will reduce the logistics cost, which is as of now the highest among major countries. It is hoped that the government will remove export duty on steel soon and will impose anti-dumping duty and Countervailing duty on cheap imports particularly from countries like China and Indonesia.
Hits: 0
