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More than a century ago, in 1907, the first iron and steel plant, Tata Iron and Steel Company was set up at Jamshedpur in Jharkhand (then Bihar) with a production capacity of one lakh tonnes. It’s part of the history now. Tata Steel has grown manifolds over the years and is now among the top steel producing companies in the world with an annual crude steel capacity of 34 million tonnes.

Iron and steel have been at the centre of human development for centuries. Steel is the world’s most important and cost-effective engineering and construction material. However, despite serving humankind in innumerable ways, steel has its share of predicaments. The industry is a high-energy and natural resource-intensive sector, such as coal, iron ore and water. Steel manufacturing is one of the largest contributors to global CO2 emissions, estimated at around 7-8%.

With growing global concerns over climate change, regulators, investors, and industrial customers are increasingly pushing steelmakers to increase their sustainability by pursuing decarbonization pathways. To speed up the process the sector would require incremental and breakthrough technologies.

The three facets of sustainability as represented by environment, economy, and society in the steel industry are directly connected to the efficient and effective management of energy and resources, such as raw materials, by-products and water.

In keeping with the Indian government’s COP26 commitments, the ministry of steel has invited the stakeholders to prepare an action plan targeting the reduction of emissions in the steel industry. On an annual basis, the global iron and steel industry accounts for around 8% of total carbon dioxide (CO2) emissions. The industry accounts for 12% of total national CO2 emissions in India.

The Steel Association of India (SAI) recently compiled a list of policy enablers that might help advance green steel in the country. It includes preferential public buying of green steel, creating green steel standards, and other initiatives.

The Indian steel industry has increasingly implemented cutting-edge clean technologies, improving raw material quality, increasing fuel economy, and creating a carbon sink in recent years to make steel making more environmentally friendly. The result is encouraging. As per report JSW Steel, for example, reduced its absolute Scope 1 & 2 GHG emissions by 7.4% in 2020-21 over the previous year while achieving a 3% energy intensity reduction across the organization.

Another aspect of sustainability is recycling of steel. Here India, being a major stakeholder, is uniquely poised to leverage the opportunities that steel recycling presents. The global metals recycling market was valued at nearly $230 billion in 2021 and is expected to grow to over $380 billion before the end of this decade. A significant part of this is expected to come from Asia which accounts for over 70% of the total steel produced in the world. Recycling steel not only conserves finite resources like iron ore and minerals but also saves energy and water that would have otherwise been used in producing virgin steel. 

Growing steel production in India

But if Tatas were the pioneers, the sector was revolutionised with the entry of the public sector investment with the beginning of the planning era. India is now the second biggest producer of steel after China. In less than a decade India’s steel production has more than doubled from about 60 million tonnes in 2013-14 to 125.32 tonnes in 2022-23. New Delhi is now talking of more than doubling of steel production to 300 million tonnes per annum by 2030.

Post-Independence India has seen a magnificent growth in the Steel industry. From the year 1950 to 1951 India produced an estimate of 16.9 lakh tons of pig iron. During the first plan, Iron and Steel in India, TISCO and IISCO were the three main players in the private sector and Mysore State Iron and Steel Works were in the Public sector.

The Steel Authority of India (SAIL) was launched in 1973. It is a government organization which manages all the major steel plants in India like Bhilai, Bokara, Rourkela and Burnpur. This organization started managing the Iron and Steel in 1976.

Steel is an important multifunctional and adaptable material that plays a key role in making lives convenient. Being the basic raw material of a large number of manufacturing activities steel forms the backbone of national economic development. The industry is often considered as an indicator of the economic progress because of the critical role it plays in infrastructural and industrial development of a country.

With increasing production and a growing network the steel industry in India has increasingly expanded its role in the economic development of the country. According to the communiqué of the 5th International Exhibition cum Conference on Steel Industry, Mumbai, February 2023, the industry contributes about 2.5% to GDP and employs 2.5 million people directly and indirectly. The output effect of steel on the Indian economy is about 1.4 times with an employment multiplier of 6.8 times.

India is currently the second biggest crude steel producer in the world. Crude steel production was estimated at 125.32 million tonnes in 2022-23. Installed capacity of steel has increased from 137 MT in 2017 to 154 MT in 2022. The growth of the Indian steel sector has been driven largely by rising home demand and domestic availability of raw materials such as iron and cost-effective labour. Consequently, the steel sector has been a major contributor to India's manufacturing output.    

The industry started well on the back of a strong post-Covid recovery and the infrastructure investments that many governments across the world had announced to support this recovery. However, the conflict in Ukraine made the inflationary pressures being felt due to supply chain bottlenecks in the post Covid world. Gas prices shot up as did coal prices which led to steel prices shooting up, he noted.

Amid all this, India continues to stand out for its economic recovery and infrastructure investment-led growth. This makes optimistic about the future that despite a challenging year, the steel industry would continue to grow robustly.

Infra push increases consumption

After becoming the world’s second-largest crude steel producer India is now expected to become the second largest consumer too. The Indian steel market is expected to grow steadily in the coming years with an investment boom. Steel consumption across industries, including automotive and transportation, building and construction, and others, was restricted in 2020-21 following the pandemic. However, the steel market witnessed a strong recovery with the smooth functioning of the end-user industries in curbing the spread of the virus. Currently, the steel market is recovered from the pandemic and is expanding significantly.

Over the short term, expanding population, urbanization, automobile industry, increased spending on construction and infrastructure projects, and increased steel demand have been projected to drive the market.

According to predictions by the World Steel Association, the steel industry growth rate is estimated to be around 6.7% in 2023. After a slack period following the pandemic, the sector was able to revive in 2021-22 with global demand for steel rising.

The growth prospects and steel industry outlook in India is favourable. Recent changes in export taxes and import duties on steel, complemented by the rising demand for affordable housing, infrastructure development and construction projects, has led to a pan-India need for steel metal. Moreover, the government’s initiative to make India self-sufficient has made room for sustainable urban development, construction of proposed logistics park and industrial corridors – all adding to the meteoric demand for finished steel and steel as a raw material.

Icra too has revised its outlook for domestic steel demand to 7-8% for the current fiscal. Earlier, the ratings agency had estimated the demand to grow in the range of 6-7%."With the central government's capex outlay in FY2024, Icra has revised upwards its steel consumption growth estimate for FY2024 to 7-8 per cent from 6-7 per cent," it said in a report.

The government’s initiative to redevelop 50 plus existing railway stations and the plan to provide a capital of  `2.4 lakh crore to railways is likely to scale the need for steel. Likewise, the investment of `75,000 crore allocated in the budget for 100+ critical transportation infrastructure projects to connect ports, coal, steel, fertiliser, and food grain sectors across the first- and last-mile delivery network too would increase steel demand.

Budget has also allocated funds for urban planning development projects to transform cities into sustainable cities. With a proposed `10,000 crore annual fund, the goal is to ramp up infrastructure development, especially in Tier II and Tier III cities. This is likely to witness a growth in steel demand, especially for TMT steel bars in construction.

In 2023-24, the overall capital expenditure is budgeted at `10 lakh crore which will constitute 3.3% of GDP. In the ongoing fiscal also, the domestic steel consumption growth has remained strong supported by the government's push for infrastructure-led economic growth.

The aggregate steel consumption in the country had grown by 13% last year from 105.75 million tonnes in 2021-22 to119.17 million tonnes in 2022-23. This was a huge jump from 94.89 million tonnes in 2020-21 following the pandemic.              

The scope for growth is enormous as the per capita steel consumption in India is one of the lowest in the global template. The apparent per capita steel consumption in the World is around 233 kg. The per capita consumption in India is around 76 kg.     

The high consumption growth is expected to bring the industry's capacity utilisation rate to around 80% despite the commissioning of some new expansion projects, Icra has predicted.

India’s growth prospect would look even healthier when compared against the global scenario. According to the World Steel Association (worldsteel), a body with membership of every steel producing country, the global demand for steel will witness a 2.3% growth in 2023 and 1.7% in 2024. In its short range outlook released last April, worldsteel said that the demand will increase to 1,822 million tonnes in 2023 and 1,854 million tonnes in 2024. The association pegged 2022 crude steel at 1,831.5 million tonnes down 4.3% compared with 2021.

“Manufacturing is expected to lead the recovery, but high interest rates will continue to weigh on steel demand. Next year, growth is expected to accelerate in most regions, but deceleration is expected in China,” worldsteel said.

Nuisance of Chinese dumping

Since the start of FY24, steel prices have witnessed a continuous downward spiral, primarily driven by the demand weakness in China. With domestic demand falling, China has increased its exports to international markets, including India at rock bottom prices

According to Ravi Uppal of Jindal Steel & Power China is exporting steel to India at a rate of 1.1 to 1.2 million tonne a month, which basically translates to 12-14 million tonne of steel on an annual basis, which means the total steel they are exporting is more than the annual production capacity of any single major Indian steel manufacturer

Domestic steel prices have been under pressure since March, and pricing pressure has intensified, said analysts at Motilal Oswal Financial Services Ltd (MOFSL). Indian steel manufacturers are facing a double whammy, as demand pickup was slower than anticipated and there is a reduction in realizations.

Icra suggests that In view of the undercutting of prices by China the average domestic HRC prices are now expected to be lower by 4-5% year-on-year in FY24, against a marginal year-on-year increase of 1-2% expected earlier. The lower realizations can put pressure on profitability of steel companies.

To note that last December India has imposed an anti-dumping duty on stainless steel seamless tubes and pipe imports from China for five years to remove "injury" to the domestic industry, according to a government notification.

National Steel Policy

Steel is a deregulated sector and the government’s role is that of a facilitator for fostering steel consumption in the country. In that direction, the government has brought National Steel Policy (NSP), 2017 which envisages per capita steel consumption to increase up to 160 kg by 2030-31. 

NSP 2017 aims to increase focus on expansion of MSME sector, improve raw material security, enhance R&D activities, reduce import dependency and cost of production, and thus develop a “technologically advanced and globally competitive steel industry that promotes economic growth” eyeing self-sufficiency in production, developing globally economical steel manufacturing capabilities by facilitating investments and cost efficient productions with adequate availability of raw materials. With focus on R&D, the technology would be of utmost focus over the next decade and MSME steel plants would be the key drivers to achieve the additional capacity required for India's consumption-led growth and improvement in the overall productivity and quality. Steel mills are seeking a re-imposition of anti-dumping duties on select popular products like coated hot rolled flat steel products, cold rolled flat steel products, colour coated flat steel and wire rods.

Challenges before

The Indian steel industry is all set to get a major thrust in the form of the government’s heightened focus on infrastructure development but a key challenge could hamper the growth of the sector, which is directly and closely linked to the overall economic development of the country. 

Like most other industries, logistics and supply chain management remain key areas of challenge for the steel industry. The main raw materials for making steel are iron ore and coking coal. Both these are bulk materials while the finished product i.e., steel is also a bulk material. Meaning, they are not regular goods to be transported and need to be handled differently.

A report by global consulting major Deloitte states that raw material availability is going to be a key challenge as captive leases will expire by 2030. Slow process of iron ore mine allocation and intermittent mining bans across a few states are also impacting the sector, the report says.  

The import of cheap steel is another problem that is affecting the financials of domestic steel makers. In fact, steel mills are seeking a re-imposition of anti-dumping duties on select popular products like coated hot rolled flat steel products, cold rolled flat steel products, colour coated flat steel and wire rods.