India was ranked as the second highest steel producing country in 2021 by producing 106.23 MT. China has been the biggest producer of steel, according to the World Steel Association. According to CareEdge Research, India’s steel production and consumption grew by 5.7% and 11.5% respectively, during the first nine months, April to December. The agency estimates India’s steel production to be in a range of 117-119 million tonnes (MT), up by 3.5% year on year in FY 23. The World Steel Association has projected the sector’s growth in India at 6.1% in 2022 and 6.7% for 2023 in its short-range outlook. The per capita steel consumption in India is very low compared to the global average which has been 233 kg. The pace of growth of steel production has been lowered. GDP grew by 6.6% in between 1990 to 2018 and steel production grew by 6% during this period. For the development of the steel industry mainly two broad things are required. One, suitable government policy and two, a large demand for steel is linked to several government projects associated with railways, roads, water supply, sanitation, and development of auto sectors. In this regard, the ongoing government initiative to emphasise infrastructure should increase the development of the steel sector.
Why in India per-capita consumption of steel is low?
Although India has huge scope for its steel sector, it is yet to achieve its potential. There are several challenging factors. First is the shortage of metallurgical coal. India has huge storage of high grade coal and iron ore. India lacks quality coking coal, one of the main ingredients of steel production. Almost 80% of coking coal is imported in India. Secondly, there is a serious shortage of investible capital. Steel production needs huge capital and even the public sector units must be dependent on foreign capital. Thirdly, the cost of electricity is high in India. Fourthly, the per-capita labour productivity has been estimated as 90 to 100 tonnes per labour. This is one of the lowest in the world. For example, a mini mill in the US employs less than 300 employees to produce 1.2 MT of hot rolled coils. In India, it requires 5000 workers. Fifthly, poor logistics cost is another problem. Unlike China, Korea or Japan, most of the steel plants are located inland in India. That enhances the logistics cost. Sixthly, GHG emission is very high. This sector emits about 9% of India’s total GHG emissions. So India has to face very high expenditure to produce steel if it has to achieve net-zero commitment.
Spending on infrastructure and capital formation determines steel prospects
The steel prospects are highly dependent on government policy and amount of expenditure on capital formation or spending on infrastructure. It is also observed that the steel intensity in agriculture exceeds that in the service sector. But it is much lower than the industry sector. The industry sector includes mining and quarrying, manufacturing, electricity, gas and water supply, construction. In all these sectors, steel is used in high quantities. Notably, the construction sector uses the maximum amount of steel. At the same time, in the last few years, the agriculture sector has been performing well with a growth rate of around 3.5%. But its contribution to GDP has not increased – rather it has dropped. The service sector contributes about 55% of India’s GDP. But the main problem has been the performance of the industry sector which is flat, at around 30 to 31%. So, if the industry sector does not rise to a bigger extent, the future of steel will not be as bright. Successive steel policies target to achieve steel production of 300 MT per year by 2030-31. But according to some estimates, it will only reach about 250 MT by 2030-31.
Role of government policy
Government policy has a role to increase steel production and consumption. A few months ago, it withdrew the steel export duty. This has been a welcome decision. But the government must increase its consumption expenditure which has not been as high as expected. Government consumption expenditure also includes spending on constructing office buildings and residential quarters for office employees, beautification of cities including flyovers constructed by PWD, CPWD and other government agencies. All these activities consume steel. Lastly but importantly, the use of automobiles and other transports also has a very high role in steel consumption.
Some recent favourable trend
The steel sector was affected by subdued demand and many producers earned lower prices. But recently, things have looked up. This is because of the recovery of the Chinese economy and reopening of metal markets. China’s February PMI touched a 11-year high of 52.6. It is also reported that China’s export hot rolled coil (HRC) steel price, a good indicator of global steel price, has risen by 14% in 2023. It was 23% down last year. In the Indian market, the prices of steel products have been following a similar trend. The average price of HRC in March stands at `60,700 per tonne. This is 125% above from last December. In 2022, the average price had fallen by 17.5%.
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