Prime Minister Narendra Modi government's decision to not ratify the Regional Economic Comprehensive Partnership (RECP) treaty over India's concerns on imports from China was widely hailed by the steel industry. Stakeholders in the steel industry felt that a decision to the contrary had the potential to open the doors to unfair competition that would have stunted the growth of the local industry, including steel.
The slowdown in global growth witnessed in 2018 due to decline in trade and manufacturing activity across most industrial sectors, the US-China trade spat, tightening of the financial sector, policy uncertainty in several economies and higher steel production by China had its impact on the steel sector. However, despite these challenges, global demand for the commodity showed resilience and grew at 2.1 per cent on the back of a recovery in investment activity and improved performance by emerging and developing economies.
In the near and medium-term, global steel demand is expected to recover gradually owing to the risk of uncertainty over the overall trade environment. In such a scenario, India's steel sector is looking beyond the traditional segments for growth opportunities.
Pratap Padode, President & Founder of the infrastructure industry think-tank FIRST Construction Council, opined, "The Indian steelmakers need to change the way they look at manufacturing. Adoption of highest standards in quality and sustainability will be the key to India's infrastructure creation."
India was the world's second-largest steel producer with total output at 106.5 million tonnes (MT) in 2018. Domestic availability of raw materials such as iron ore, cost-effective labour and highly efficient steel mills led the country to pip Japan to the post.
Source: World Steel Association
From 2015-19, finished steel production and consumption grew at a compound annual growth rate (CAGR) of 4.8 per cent to 111 MT and 6.1 per cent to 98 MT, respectively. In terms of trade, India remained a net importer for three years out of five from FY2015 to FY2019. "The imports, nevertheless, declined in FY2017 backed by protectionist measures introduced by the government, which supported India to become a net exporter during FY2017 and FY2018. The trend, however, reversed and India turned net importer during FY2019 and the country's imports continued to exceed exports during the first five months of the current fiscal as well," stated Bhagyashree Bhati, Deputy Manager Industry Research, CARE Ratings.
In FY2019, the country's steel export declined by 34 per cent to stand at 6.36 MT from 9.62 MT for the previous year.
Consequently, the Union Government took several noteworthy steps to boost the sector. To protect the domestic industry, import duties on most steel items were doubled, and measures, including anti-dumping and safeguard duties on iron and steel items, were enforced.
The steepest drop recorded in automobile sales in over two decades left several segments of India Inc., including the steel sector, somewhat shaken. The country's automobile sector - also the world's fifth-largest - consumes approximately 10 per cent of the total steel manufactured in the country.
Echoing the remarks made by Finance Minister Nirmala Sitharaman in September, TV Narendran, CEO & Managing Director, Tata Steel Ltd., told this writer in a recent interview for the 16th Anniversary Edition of INFRASTRUCTURE TODAY, "The automotive decline has happened due to a combination of several factors such as financial liquidity crisis, change in consumption pattern of customers, with millennial preferring to share rather than owning a car, concerns regarding BS-IV vehicles, etc." SSAB Swedish Steel, one of the world's leading manufacturers of specialised steels, feels that the dip in automobiles sales is interim. "The current dip in automobile sales is a temporary one and once the sales pick up, the demand for our automotive advanced high-strength steel brand, DOCOL, will rise as well," remarked Sergio Moyano, Sales Director-Turkey, Middle East & India of the company.
Growth Likely to Revive
Construction and infrastructure account for 62 per cent of overall steel consumption in the country. The slowdown witnessed in private and government spending due to the general elections from April-May along with the arrival of the monsoon season soon after led to subdued activity in construction and infrastructure sectors. However, growth is expected to revive following the announcement by the government of different measures like 100 per cent FDI in real estate, the push to Pradhan Mantri Awas Yojna (PMAY) and the target of Rs 100 trillion on infrastructure spending in five years. Also, the Reserve Bank of India (RBI) has eased criteria for banks to lend to non-banking financial companies (NBFC)s and external benchmarking of home loans. This is likely to help the steel industry compensate for lower demand from the automotive sector.
Moreover, the Government of India and RBI announced different measures like cut in Repo rate and corporate taxes, clarification on BS-VI and BS-IV vehicles, etc., which have helped ease downward risks for the automotive sector and are expected to lead to a recovery in sales.
Agreeing with Narendran's view, the industry is hopeful that the series of economic boosters announced by the Union Government since August and lower interest and corporate tax rates should help strengthen the competitiveness of the manufacturing sector. Further, Prime Minister Narendra Modi government's decision to not ratify the Regional Economic Comprehensive Partnership (RECP) treaty over India's concerns on imports from China was widely hailed by the industry. Stakeholders in the steel industry felt that a decision to the contrary had the potential to open the doors to unfair competition that would have stunted the growth of the local industry, including steel.
Announced in 2017, the National Steel Policy (NSP) encourages the industry to aspire for international benchmarks to popularise the acceptability of Indian steel and steel products on a larger scale globally. "Recent steps by the government to boost infrastructure in the country will further reduce the cost of production and wastage during transportation. The Quality Control Order (QCO) initiatives by the Ministry of Steel standardised the Indian steel product, which will further help in bringing our products on par with global standards," Narendran pointed out. He felt that Indian steelmakers must work with both domestic and overseas customers as well as with R&D and technical institutions to attain global standards cost-effectively.
Reasearch & Development
The Ministry of Steel has also facilitated setting up of the Steel Research and Technology Mission of India (SRTMI) in association with public and private sector steel companies to spearhead research and development activities in the iron and steel industry with an initial corpus of Rs 2 billion. The New Delhi-headquartered platform is part of the country's policy to discourage the export of India's natural resources by encouraging value-addition.
The policy also envisaged a total production capacity of 300 MT by 2030-31. The country's apparent steel use per capita stood at 71 kg in 2018, which is only one-third of the world average. This indicates that India has a huge potential for steel demand growth. "While India has some advantages as a location for globally competitive steelmaking, our ability to realise the target set in the NSP will depend on the ease with which we can set up greenfield plants, the cost of capital, developing a competitive and indigenous industry supplying quality steel plant equipment, improvements and extension of logistics networks. If these challenges are overcome, then definitely the Indian steel industry will be on track to achieve the NSP targets," Narendran said.
To insulate revenues from steel cyclicality, players like Tata Steel are looking beyond the traditional steel-mill products by offering a range of customised services, solutions and value-added products across traditional and new customer segments. Tata Steel has embarked on a Services & Solutions (S&S) journey. "Pravesh' - steel doors & windows - and "Nest-In" - smart steel-based modular construction solutions - are examples of the company's offering in S&S.
"Apart from S&S, we are also looking to strengthen our branded retail business and increase downstream product volumes to improve our performance in steel downturns. Continuing with our spirit of innovation, we have set up a new materials unit that is focusing on fibre reinforced polymer composites and commercial applications of graphene," he added. The country's largest steelmaker's new materials business will primarily cater to the railway, industrial goods, infrastructure and automotive sectors.
Tremendous growth potential
Although SSAB doesn't have any manufacturing facility in India presently, the company sees the country holding out tremendous growth potential.
"India is a lucrative market to manufacture, considering the presence of abundant iron ore reserves and low-cost manpower. Being a player catering to a very niche market, our present plan is to import products from our global steel mills. However, considering the rising demand from the Indian market for specialised steels, we do not rule out our plans to set up manufacturing facility in India," asserted Moyano.
The demand for steel from user industries like construction, infrastructure and automotive is expected to remain firm. CARE's Bhati feels optimistic about the long-term prospects for the sector."With construction and infrastructure expected to hold special prominence in the government's ambitious target of making India a $5 trillion economy, this augurs well for the industry as the segment accounts for about 60 per cent of the total steel consumption. Long term outlook for the sector remains positive," she emphasised.
A lot, however, will also depend on the country's ability to successfully meet the demand for high-grade value-added steels, availability of components such as iron ore, coking coal and natural gas at competitive rates and appropriate policy framework to provide firm support to the sector.
- MANISH PANT