India’s Overwhelming Steel Projections?

The Indian government's plans of hitting 300 million tonnes of steel capacity by 2030 sounds overambitious in the current scenario given that output only managed to reach the 101 million tonne mark in 2017 - indicating three-fold (<200%) growth in a span of 13 years. In order to understand if this is attainable, MBR has looked into the growth performance recorded in the recent past.

Looking at the data between 2010 and 2016, Indian steel companies recorded major capacity expansions from 75 Mt in 2010 to 125 Mt in 2016, registering a compound annual growth rate of 8.9%, which is actually above the 6.5% required for the next 13 years. However, challenges not limited to raw materials, financials, Greenfield expansion and pressure from foreign imports remain.

India's Steel Capacity

Source: MBR, Joint Plant Committee (JPC), Ministry of Steel

The expansion will require access to high quality raw material at affordable prices to retain low input costs. This becomes even more crucial as the country's domestic consumption rates are not growing at a similar pace suggesting that producers will need to be more competitive at home and thereby reduce the import penetration in the Indian market, and overseas to compete in markets where oversupply conditions still persist. While India has sufficient iron ore reserves, the government has mandated allocation of captive mines through auctioning, since the announcement of MMDR Act Jan '15, which is a rather slow process. Meanwhile, availability of coking coal, for which domestic mills are heavily reliant on imports, remains a challenge for the expansion given the greater volatility seen in international prices.

Whilst Indian authorities have decided to depart from iron-based steelmaking in favour of more environment-friendly scrap-based steel, MBR believes that the only way capacity targets can be met is via the BF-BOF route. There should be, however, a significant increase in scrap consumption (partly due to projected higher usage of the raw material by BOFs), but also increased demand for DRI alongside traditional blast furnace (pig iron) material.

India Steel Output & Raw Materials Demand (Mt)

Source: MBR, Ministry of Steel, WSA, ISSB

Scrap demand in India is projected to rise to almost 33Mt by FY2030-31, with over 80% of it coming from BOFs, compared to just under 6Mt in FY2016-17 according to MBR's calculations. Imports accounted for almost 80% of India’s scrap consumption in April 2016 - March 2017.

Requirements for DRI, known as sponge iron in India, will exceed 52.5Mt by FY2030-31. In FY2016-17 India's usage of the material, fully covered by local production, was just under 28.5Mt with capacity at 46Mt.

Thus, India is not really departing from iron-based steelmaking, as BOF output is aimed to rise fourfold over the next 13 years, and the county will require at least 6.5Mt more sponge iron for EAF/IFs by FY2030-31 than its current capacity.

As per National Steel Policy 2017, at the current rate of GDP growth, steel demand will grow threefold in next 15 years to reach 230-240 Mt by 2030-31. The steel sector contributes over 2% to the GDP of the nation and in order to stimulate this percentage, the government stepped up infrastructure spending from 5% of GDP to 10% in 2017 and invested $61.8 billion in infrastructure in the Union Budget 2017-18. Considering the growing global trade protectionism and overcapacity, albeit dwindling in recent years, it becomes even more important for the Indian government to focus on stimulating domestic demand rather than relying on growth in exports.

India's Finished Steel Market (Mt)

Source: MBR, Joint Plant Committee (JPC), Ministry of Steel, WSA, ISSB;
Note: *Provisional Data for April 2017-February 2018 by JPC

Initiatives such as 'Make in India' and 'Housing for All by 2022' are designed to stimulate otherwise poor steel intensity readings, especially in rural areas. India's current overall per capita steel consumption is 61kg and in some rural areas it is as low as 10kg. This compares to a global average of 235 kg. By 2030, assuming Indian authorities achieve their targets, per capita steel consumption will rise to 160kg.

Should the Indian government achieve these exponential growth figures it will require it to promote investor-friendly projects, ensure one-clearance windows for relevant permissions, smoother policies for further expansion, ease of financing, land acquisition and last but not least accessibility to raw material. While the challenges are probably too great for such ambitious targets, we forecast that India's steel development will be the most impressive of all major markets in the next decade. Specifically in the next five years, we predict a CAGR in steel consumption of 7.0%, dwarfing the world's 2.2%.

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