The per capita consumption of steel in India is only 70 kg while in China and some other countries it is much higher. Along with the demand surge, the per capita consumption also plays a crucial role in the growth of the steel industry, says Bhagyashree Bhati, Deputy Manager Industry Research, CARE Ratings.
In global steel manufacturer rankings, India is second only to China. How competitive is Indian steel?
Of the total global production of steel, 50 per cent comes from China, which is 550-600 million tonnes (MT) and India is producing around 100 MT. In that position, India ranks second globally, but if you compare it with the number one country, India is far behind. In terms of competitiveness and product quality, Indian steel is acceptable in the international market. But the cost of manufacturing steel products in India is comparatively higher than in other countries. Because of electricity and other charges, certain input costs are quite high which makes manufacturing expensive. In terms of competitiveness, India can still do much better.
The output is increasing, but there is a decline in demand both globally and domestically. Your comment!
The decline is because the demand from the user industry is muted. Even in the construction and infrastructure sector, the demand is low. The other important industry that has high steel intake is automobiles, but this sector is going through a sluggish phase due to the slowdown in the economy. The automobile industry registered a decline in production in the month of October-November in 2019. The major driver for the steel industry is the infrastructure sector that is driven by the government, so when the outlay for infrastructure in the budget is higher, it will be a major boost for the steel industry.
Though projects are announced, there are delays in implementation. What are your expectations?
It will depend on how projects go on. It also depends on the implementation, but as the economy is not doing great now, there is a problem in funding; like the crisis in the banking system which can delay the pipeline of projects. These are certain factors that hinder growth. This is all inter-related to the economy and the position, so even if the government announces they have to be implemented and it better be implemented only when the economy is doing well. Mere announcements do not make sense, implementation has to take place.
What are the major challenges being faced by steel manufacturers in India?
Firstly, there are Primary and Secondary steel producers. As long as the economy is growing the demand also grows. But if anything happens to the economy the consumption goes down and that directly affects the steel segment. Secondly, iron ore and coking coal are the two key raw materials in manufacturing steel. As of now, India is majorly dependent on imports on coking coal. Any variation in the overseas mines, international pricing, policy or regulatory variations in the countries of those coal mines, etc., hurt Indian steel producers. Last year, when there was a dam issue in Australia there was a shortage of coking coal and it affected the supply to India as well. So, the non-availability of such important materials is a concern. Thirdly, we have high trade charges for importing and exporting of goods. Not only that, even transporting coal from one state to other costs a lot. This issue also directly reflects on the cost of manufacturing. For a large player with an integrated supply and manufacturing unit, the impact is less. However, it remains an issue for small producers as they depend on the other chain of supplies. That is not all, there is a problem of royalty when it comes to coal and iron ore. Higher royalty charges also remain a concern.
Though India is second to China only in steel production, the gap in outputs of both countries is wide. In your opinion, how can this gap be narrowed?
Firstly, it will take a long time. Secondly, consumption needs to go up. The per capita consumption of steel in India is low when compared to China or other countries. For example, in India, the per capita consumption of steel is only 70 kg, but in China and other countries, it is much higher. The third-largest producer South Korea, per capita consumption is around 1,000 kg. So, demand has to go up. Only when there is demand, will it make sense for producers to produce more steel.
What probably could trigger that kind of demand in India?
It all depends on the infrastructure spend. The projects need to be of international standards. The infrastructure in developed countries such as South Korea consumes steel in great volumes. So, if we need to increase steel consumption, we probably have to take projects of such infrastructure that involves greater usage of steel.
We all agree that there is a slump now. What are your expectations on recovery and how fast?
Steel production has gone down in the recent past. October was a classic example. The good news is that we are witnessing a slight upward movement in pricing in steel. As published in newspapers, in the month of December prices had improved by Rs 1,000/t. This is because international prices have moved up. So maybe the prices can rise from the current levels.
- LIZA V