India became the 3rd largest producer of steel in 2015 and is now well on track to emerge as the 2nd largest producer after China. In 2015, India was the only large economy in the world where steel demand continued to demonstrate positive growth at 5.3 %, as against negative growth in China -5.4%, and Japan -7.0%. India’s growing urban infrastructure and manufacturing sectors indicate that demand is likely to remain robust in the years ahead.
Steel is a product of large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. From construction, industrial machinery to consumer products, steel finds its way into a wide variety of applications. It is also an industry with diverse technologies based on the nature and extent of raw materials used. In India, steel has an output multiplier effect of nearly 1.4X on GDP and employment multiplier factor of 6.8X.
The domestic demand backed growth of the Indian economy and consequently the steel consuming sectors has been a key trait of Indian steel industry. The decade before the liberalization of the Indian steel industry in 1991 witnessed growth in crude steel production at a CAGR of 5.2%. Post liberalization, witnessed a decadal CAGR of 6.1% which accelerated to 8.3% during 2000-01 to 2015-16.
On account of rapid industrial development, from a small capacity of 22MT in FY 1991-92 prior to deregulation, India has become the 3rd largest steel producer in the world with a production of 91 MT and a capacity of 122MT in FY 2015-16. Steel production in the world is dominated by China followed by Japan. During 2015-16, crude steel output of China stood at 789.04 MT and for Japan it stood at 104.23 MT. The National Steel Policy 2017(NSP 2017) is an effort to steer the industry to achieve its full potential, enhance steel production with focus on high end value added steel while being globally competitive.
India’s competitive advantage in steel production is driven, to a large extent, from the indigenous availability of high grade iron ore and non-coking coal –the two critical inputs of steel production. About 70% of the coking coal requirement of the domestic steel industry is presently being met through imports. Natural Gas is a greener alternative available instead of coal. Gas based steel plants have been stranded due to lack of supply of natural gas from domestic sources.
Growth in steel consumption in a country is typically linked to the economic growth and steel intensity. While growth in GDP is a crucial determinant of growth in overall consumption, steel intensity is the definitive parameter for an economy and determines the growth rate of steel demand vis-à-vis consumption over time. Currently around 40% of the steel consumption is from construction &infrastructure sectors which is expected to increase to 59% by 2030-31.
The Government has chalked out an extremely ambitious plan of Housing for all by 2022 as well as schemes such as Pradhan Mantri Awas Yojna and Saansad Adarsh Gram Yojna. These provide a huge opportunity for use of steel intensive structures and designs, usage of pre-fabricated and precast steel structures, etc. Hence, Ministry will take all necessary measures to promote the increased usage of steel intensive structures/designs under these schemes.
There is significant potential for growth given the low per capita steel consumption of 61 Kg in India, as compared to world average of 208 Kg. Going forward, the accelerated spend in infrastructure sector, affordable housing, expansion of railways network, development of domestic shipbuilding industry, opening up of defence sector for private participation, anticipated growth in automobile and capital goods industry and the construction in urban & rural areas, are expected to create significant demand for steel in the country.
Post-demonetisation, steel consumption is expected to remain under pressure in the coming few months to a certain extent. This is because it is likely that the demand for steel from the user industries like construction, real estate will take some time to strengthen. Government push towards infrastructure would hopefully compensate for this reduction in demand.