January 2018: EDITOR Devangshu Datta

EDITOR Devangshu Datta

Steel finds uses across multiple industries. The big-ticket consumption comes from general construction, and the railways, housing and road sectors. Demand for steel in various grades and alloys varies directly with activity in these areas.

The key steel manufacturing inputs are iron ore, high quality coking coal and power supply. Manufacturing costs vary with the availability of such inputs and with the scale of production. India is highly dependent on coking coal imports and it has relatively high-cost power. The iron mining industry has also faced multiple pressures, including regulatory and judicial interventions and protests by environmental activists.

Steel is easy to transport and so there are no natural barriers against imports. Hence, domestic prices tend to track international prices closely, unless there are tariff adjustments.

China is by far the largest producer with over 50 per cent of global capacity. There has been a global oversupply situation for years. However, global demand is now picking up and prices have hardened. China has also deliberately cut back on production, in part to combat pollution. Production has picked up in Europe and the US, to some extent.

India is a large producer – the steel sector accounts for about 2 per cent of GDP. But although growing Indian capacity could make it the world’s second largest producer, manufacturing costs are high  compared to China. India has often been a net importer due to the cost differentials.

Hence, the domestic industry constantly lobbies for protection against imports. This has been forthcoming with anti-dumping duties and countervailing customs duties. Indeed, due to other countries also setting up tariff barriers against Chinese imports, India has become a net steel exporter in the past six months.

Given the focus on building infrastructure and the recent thrust on affordable housing, domestic demand is expected to see reasonable growth over the next two or three years. At present, per capita consumption is quite low – less than a third of the global average.

The sector is extremely capital-intensive. Soft demand, coupled with the controversy over the allotm ent of captive coal mines, has led to the creation of a huge level of stressed and NPAs. The new Insolvency and Bankruptcy Code could enable a quicker resolution of these NPAs. This may lead to consolidation. Lenders are hopeful that the haircuts will not be as deep as was originally feared.

The National Steel Policy, 2017, sets ambitious targets for ramping up production in general, aiming
to almost triple production by 2030. There is also a focus on easing transport links, maintaining tariff protection measures, implementing procurement policies favouring domestic products, etc. Ultimately, however, the industry’s health depends on demand growth, or else it will suffer another cycle of  versupply. Demand growth can only come from the infrastructure and housing sectors.

More capacity creation in any given infrastructure sector involves construction and automatically leads to more steel offtake. Policymakers have to play their part in this since demand can only be accelerated by faster infrastructure development. The steel industry has a bright future if the pace of infrastructure development picks up, even as supply-side measures improve production
and transport logistics.