Opportunities for Growth: Demand for steel from infrastructure sectors

Demand for steel from infrastructure sectors

Steel forms a significant part of the “material requirement” for infrastructure development. Government’s continued focus on infrastructure development translates to significant opportunity for steel manufacturers, as the metal finds extensive use in such projects. Steel production by Indian companies already exceeds domestic consumption. However, demand is expected to increase once the construction activity picks up after the new government takes charge later this month. Many of the mega projects that are under way already

present sizeable demand for steel. And fresh policies after May are expected to provide a further fillip to the sector.

Indian Infrastructure takes a look at key steel-intensive infrastructure sectors which will provide the opportunities for steel players. The estimates are based on a sector-wise project pipeline and standard assumptions for steel use, as per widely accepted industry estimates.

Railways

Indian Railways (IR) is a major consumer of steel as extensive works are taken up every year with regard to expansion of railway connectivity in the country. As per India Infrastructure Research and the Ministry of Railways (MoR), IR is looking at over 4,000 km of track renewal by 2019-20. It requires 1.67 million tonnes (mt) of rails for renewal of existing lines, construction of new lines, and for doubling and gauge conversion projects during 2018-19 (some works are still ongoing). Of the total requirement, Steel Authority of India Limited (SAIL) will supply 1 mt of rails.

Earlier, the MoR had invited a global tender worth Rs 25 billion for procuring around 487,000 metric tonnes of rails to meet the shortfall in supply from SAIL. As part of the tender, Jindal Steel and Power Limited secured the contract for supplying 20 per cent (97,400 metric tonnes) of the rail requirement by August 2019. The rest still remains a lucrative opportunity for steelmakers. Meanwhile, permission for import of rails has been sought from the Ministry of Steel, thereby offering immense opportunity to foreign rail suppliers as well.

In addition, big-ticket projects such as the high speed rail and dedicated freight corridor projects will significantly push up the demand for steel due to higher requirement of rolling stock and tracks. Demand for the metal will also rise on the back of IR’s decision to increase the intake of stainless steel wagons and coaches by 2020.

Airports

Steel finds extensive use in the construction of airport terminals. With air connectivity likely to remain high on the government’s agenda, airport development and expansion is likely to continue. That said, it is difficult to quantify the amount of metal required for a typical terminal, as factors such as aesthetics, size, design, type of roofing, etc., vary the amount required significantly. However, assessing key upcoming airport terminal projects can give a rough sense of the expected demand for steel. As of May 2019, there are 47 projects worth over Rs 560 billion that entail works related to terminal, aerobridges, etc. (steel-intensive part of the project). The New Pune and Delhi airport expansion projects are some of the big projects in the pipeline.

Power transmission

Another steel-intensive area in the infrastructure space is the power transmission segment. Transmission towers present significant opportunity for steelmakers. As per India Infrastructure Research, about 2.25 mt of steel will be required for transmission towers between 2019-20 and 2023-24.

The highest steel tonnage will be required for 400 kV towers which will account for 39 per cent of the total followed by 765 kV towers which will account for 38 per cent of the total. The estimate is based on line length addition of about 91,000 ckt. km during this period (excluding 320 kV lines) as determined through the planned/under-construction project pipeline on the TARANG web portal.

Tunnels

Construction of tunnels is another demand segment for steel. Typically, 20-25 per cent of the tunnel construction expenditure is on procuring construction materials. However, this range may vary depending upon the kind of tunnel construction technique/method deployed, geological conditions and level of technological advancements.

Tunnel construction requires multiple types of materials. These include steel, cement, explosives, shotcrete material, lattice girders, rock reinforcement, etc. The quantum of materials used for constructing tunnels varies with the design and construction methods chosen for each project. The demand for a particular type of material also depends on its availability, site conditions, transportation cost, project location, manufacturing capabilities and local taxes.

According to India Infrastructure Research, as of January 2019, there is an opportunity for construction materials worth Rs 935 billion for tunnelling activities across infrastructure sectors (for upcoming tunnel works). Sector-wise, hydropower accounts for the dominant share in construction material market, followed by railway and metro tunnels.

Besides, trends such as increasing use of steel fibre-reinforced concrete bode well for steel companies. Steel fibre-reinforced concrete is being increasingly used for tunnel construction. There are multiple applications of the material with the most widely used being tunnel linings, slabs and airport pavements. Many types of steel fibres are used for making the concrete reinforcement. These include round fibres which are the most common type with a diameter ranging from 0.25 mm to 0.75 mm. The rectangular steel fibres used are usually 0.25 mm thick, although 0.3 mm to 0.5 mm wires have been used in India.

Wind-based power

Ambitious targets for wind-based energy generation capacity augur well for the steel industry. According to the Ministry of New and Renewable Energy, of the targeted 60 GW of wind-based generation capacity, 35.6 GW has already been installed (as of May 2019). For the remaining 24.4 GW, demand for about 2.5 mt of steel can be expected to emerge. This is on the assumption that about 100 tonnes of steel is required per MW of wind-based capacity development.

Urban rail

Based on the projects tracked by India Infrastructure Research, the urban rail sector offers a lucrative pipeline of 43 projects which are at various stages of implementation (announced, approved, under bidding, awarded and under construction). These projects involve the development of 124 stretches spanning over 2,500 km and entail an investment of at least Rs 6 trillion. Steel demand will emanate from both the rolling stock requirements (varying from project to project and subject to frequent additions after operationalisation), and the length of rail tracks.

Conclusion

Overall, domestic steel demand will receive a major impetus from the automobile and key infrastructure sectors such as power transmission and railways. As per India Infrastructure Research, the demand for finished steel is estimated to reach 130 mt-136 mt by 2023-24, assuming GDP elasticity of steel demand at 0.8 till 2019-20, and 1 thereafter, as assumed in the National Steel Policy, 2017. However, much clarity will emerge once the new government takes charge and charts out the policies for future infrastructure development.