India’s steel sector plays a crucial role in the country’s industrial growth while establishing a strong presence on the global stage. The sector is rapidly evolving, bolstered by policy support, increasing demand, and technological advancements. However, it also faces certain challenges.
This article explores various aspects of India’s steel sector, including its current status, challenges, government initiatives, and future prospects.
Current Scenario of the Steel Sector
India ranks as the second-largest producer of steel in the world. According to IBEF, in FY24, India’s crude steel production stood at 143.6 million tons (MT), while finished steel production was 138.5 MT, marking significant increases compared to 125.32 MT and 121.29 MT in FY23, respectively.
India’s steel sector has witnessed unprecedented growth over the last 10-12 years. Since 2008, steel production has surged by 75%, while domestic demand has grown by 80%. The country has also seen substantial increases in steel production capacity.
However, growing competition from countries like China and rising import levels have posed challenges for India’s steel sector. In FY24, India imported 8.32 MT of steel, up from 6.02 MT in FY23, indicating an increasing reliance on imports.
Growth of the Indian Steel Sector
India’s steel production capacity has grown significantly, rising from 97 MT in FY13 to 171 MT in FY24 (as of December 2023), at a compound annual growth rate (CAGR) of 4.84%. Under the National Steel Policy 2017, the target is to increase this capacity to 300 MT by 2030-31, requiring an additional investment of Rs 10 lakh crore (~USD 156.08 billion).
Furthermore, by 2025-26, new steel manufacturing units with a capacity of 40 MT per year will commence operations in India. Of this, 65% will use the BF-BOF process, and 35% will rely on EAF and IF processes. Due to rising prices, steel companies are also preparing to restart capacity expansion projects totaling 29 MT. This growth will further accelerate the country’s infrastructure and economic development.
Challenges in the Indian Steel Sector
While India’s steel sector holds immense growth potential, it faces several challenges:
Availability of Raw Materials: High-quality iron ore and coking coal are essential for steel production. Although India is rich in iron ore, its dependence on imports for coking coal increases production costs
Environmental Impact: Steel production is a significant contributor to carbon emissions. India has set a target of achieving net-zero emissions by 2050, making it essential to promote green steel production.
Global Competition: One of the biggest challenges for the Indian steel industry is the import of low-priced steel from China. As the world’s largest steel producer, China exports more than twice the steel of its closest competitor, intensifying competition.
Impact of U.S. Tariffs: The Indian steel industry plays a significant role in the global market. Recently, the U.S. imposed a 25% tariff on steel imports, but according to Steel Secretary Sandeep Poundrik, this will not have a major impact on India. This is because last year, India produced 145 million tons of steel, of which only 95,000 tons were exported to the U.S. This volume is a small fraction of India’s total production.
Government Initiatives
The Indian steel sector allows 100% FDI, making it an attractive destination for foreign investment. Additionally, the government has increased the export duty on iron ore up to 50% (ad valorem), except for pellets, to boost domestic steel production.
The government is also considering including refractories under the PLI Scheme 2.0 for the steel sector to help achieve the target of 300 million tons of production capacity by 2030. In November 2020, the Union Cabinet approved the PLI scheme for 10 key sectors.
To make the steel sector more competitive, the government has introduced several tax reforms. The customs duty on equipment for setting up or expanding iron ore pellet and beneficiation plants has been reduced from 7.5%/5% to 2.5%. Meanwhile, the customs duty on imported flat-rolled stainless steel products has been increased from 7.5% to 15% to strengthen the domestic industry. Additionally, basic customs duty on steel-grade dolomite and steel-grade limestone has been reduced from 5% to 2.5%, while the customs duty on forged steel rings used in wind energy generator bearings has been reduced from 10% to 5%.
What’s in it for Investors?
The Indian steel industry is growing rapidly, offering attractive opportunities for investors. However, potential investors must consider certain challenges. It is essential to carefully analyse a company’s financial performance, market conditions, and personal investment goals before making any investment decisions.
Future Outlook and Opportunities
The Indian steel industry stands at a crucial juncture. There are immense growth opportunities, as evidenced by the increase in production and the government’s ambitious targets. On the other hand, it faces significant challenges, such as competition from Chinese imports and the global market. However, the steps taken by the government, particularly the PLI scheme, are expected to provide some relief to the domestic industry.
According to IBEF, India’s annual steel production is expected to exceed 300 million tons by 2030-31. It is estimated that with 85% capacity utilisation, crude steel production will reach 255 million tons, resulting in 230 million tons of finished steel. A conversion rate of 90% from crude steel to finished steel and a 10% yield loss is anticipated. During this period, India’s net exports could reach 24 million tons, while domestic consumption may rise to 206 million tons. With this growth, per capita steel consumption is expected to increase to 160 kilograms, a significant indicator of infrastructure and industrial development.
*The companies mentioned in the article are for information purposes only. This is not an investment advice.
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