By SACHIN SEBASTIAN

 

The Indian steel industry is at a precipice in its growth journey as its global counterpart is grappling with the effects of Covid-19. The decline in Indian steel demand in the first half of 2020 was predictable due to the impact of Covid-19. What made matters worse was the fact that it came on the heels of a slower than expected growth in 2019 due to the reduced manufacturing demand in the country.

During the pandemic, India’s demand for steel contracted in April 2020 with end-user industries like automotive, real estate, and infrastructure that constitute 80% of demand, coming to a virtual standstill. According to a worldsteel report, India estimates 8.7 millon tonnes (MnT) of crude steel production in March 2020, down 13.9% compared to March 2019, primarily due to the ongoing difficulties presented by the pandemic globally. Domestic steel production fell by a record 69.5% year-on-year (y-o-y) in April 2020.

Even during the pandemic, GFG Alliance acquired Adhunik Metaliks and its arm, Zion Steel, for USD 4 billion, JSW Steel has planned a USD 4.14-billion capital expenditure programme to increase its overall steel output capacity from 18 MnT to 23 MnT by 2020, Tata Steel has decided to increase the capacity of its Kalinganagar integrated steel plant from 3 MnT to 8 MnT at an investment of USD 3.64 billion. The investments and acquisitions are made to meet the growing demand for infrastructural projects in the coming days.

As per the World Steel Association (WSA), global steel demand is expected to recover by 3.8% to 1,717 MnT in 2021. The reduction in global steel demand will be mitigated by an expected faster recovery in China than in the rest of the world.

“Steel makes the future possible.” Smart cities will be built on steel. As an infinitely recyclable and reusable asset, using steel helps to reduce the burden on the Earth’s resources. A healthy economy needs a healthy steel industry.

The Indian steel industry has taken great pride in being updated with state-of-the-art steel mills and will continue to be the backbone and enabler of the society’s evolution and progress. The industry has always striven towards continuous modernisation and upgradation of older plants and higher energy efficiency levels. With the vision of a INR 500,000-crore economy by 2024-25 and the INR 100-lakh crore planned investment in infrastructure, it is important to shape the steel industry to meet the likely increase in demand over the coming years.

What is Driving India’s Steel Demand?

The per capita consumption of steel has increased from 57.6 kg to 74.1 kg during the last five years. According to WSA, India produced 8.5 MnT of crude steel in September 2020, down 2.9% compared to the September 2019 figures. Supported by the government stimulus, recovery in construction will be led by infrastructure investment such as railways. The demand in India is expected to rebound by 15% in 2021.

The Cabinet move to extend the production linked incentives (PLI) scheme worth INR 6,322 crore to the Indian steel sector will spur more investments and production in the specialty steel segment. It will enable the steel industry to have state-of-the-art technology that would make India self-reliant in producing value-added specialty steel products. It will also help make Indian manufacturers globally competitive and enhance exports. This is expected to be a game-changer and achieve the country’s goal of flourishing in grades of steel while enhancing manufacturing.

According to Frost & Sullivan’s analysis, the outlook for India’s manufacturing sector, which has been lagging behind the services sector as a growth driver, should improve.

First, the Make in India initiative, which aims to transform India into a global design and manufacturing hub, will support the further development of steel-using sectors along the industrial and freight corridors.

Secondly, many states are expected to develop automotive and ancillary industries, to be a global auto hub for small cars with a focus on exports.

Lastly, some states are also expected to strengthen their mechanical machinery sector.

All these factors point to a high potential for steel demand growth in India, but how fast the potential can be realised will depend upon whether India can successfully implement both its reform agenda and infrastructure plans. The Atmanirbhar Bharat initiative will help MSMEs in the steel business and make Indian firms adopt efficiency and quality parameters, in order to prepare India for competition in the global supply chain.

What are the Challenges Ahead?

In order to unleash the demand-led growth of the steel industry in India, the government is pushing through extensive reforms to strengthen infrastructure and enhance productivity. It will be interesting to see how effectively India implements its reforms agenda and infrastructure plans to pave the way for optimal growth and expansion of the steel industry.

During and after the pandemic, there are a lot of challenges in order to ensure the free flow of work can be maintained. For instance, in the automotive manufacturing and construction sectors, the workforce might not be willing to settle for cheap labour owing to the pandemic.

New government policies are in place, both domestic and international. Several formalities and procedures might need to be followed domestically and across countries. Customs approval and waiting time might increase, thereby affecting the overall supply chain.

Investments & Allied Measures

When automakers resume production, our analysis indicates that they will ask steel mills to lower prices until March 2021. Thanks to the ongoing scenario of disrupted supply chains, many countries are presently more receptive to the idea of manufacturing in India.

The author is a Senior Research Analyst, Metals & Minerals Practice, Frost & Sullivan.

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