IRON ORE WEEK: India is rising star of Asian steel market but could face tight supply

India is likely to be the rising star of the Asian steel markets longer term due to the expected growth in its steel demand, delegates at the Singapore Iron Ore Forum - the anchor event of Iron Ore Week - said on Thursday May 9.

India’s steel demand is expected to increase by 200 million tonnes in 20 years, with domestic production capacity likely to rise to match it, Wood Mackenzie bulks researcher He Ming said.

The Indian government has made huge investments into housing schemes and infrastructural projects, which could lead to sustained growth in the steel markets in coming years, according to National Mineral Development Corporation (NMDC) chairman N. Baijendra Kumar.

“India aims to achieve 300 million tonnes per year of steel production capacity as part of its 2030 national steel policy. However, India’s pace of development will be slower compared to China’s,” Kumar said.

India is a prime example of how developing countries are driving steel trade, especially with demand growth emanating from countries in Southeast Asia, the Middle East and North Africa.

“This is [because] they have been slow to develop steel capacities and regional capacity shortages have driven more investments into these regions,” He Ming said.

Countries that traditionally export steel have lost market share amid the global trade headwinds over 2018 - including the US Section 232 tariffs and the ongoing global trade war - with global finished steel exports falling in 2018, Ming said.

New Indian capacity
Any new capacities in India are likely to come from integrated blast furnace (BF)-based plants, rather than electric-arc (EAF) or induction furnaces (IF) due to the sheer volumes needed to fulfil the expected increase in demand.

Although India ideally needs to triple its current capacity in 20 years to satisfy the levels of demand forecast, not all of it will happen because of uncertainties around capital expenditure and construction time.

“The challenge is really where the money will come from to build at least 170 million tpy of capacity,” He Ming said.

Each tonne of capacity requires at least $670 per tonne of capital expenditure, using capacity in China as a rough guide.

“This would mean that about $115 billion is required to build the required 170 million tpy of capacity, which will be challenging,” Ming said.

The construction time for steel mills in India has also traditionally been longer than in other countries.

“While projects in China could start up within 2.5 years after the start of construction, most of the steel mills in India have taken at least 4-5 years,” Ming said.

This combination could create supply tightness in India if domestic capacity cannot keep up with demand effectively.

Limited availability of steel may mean India has a less significant export market, but it should still have some influence on the international markets, sources said.

“There is some time lag between Indian and domestic prices, however India is not totally insulated from global trading in terms of steel pricing because it is among the cheapest producer of flat and long steel,” Kumar said.

Supply tightness - what then?
India is unlikely to import steel from other steelmaking countries such as China because of logistical costs.

“The transportation costs to move steel from China to India will add to buyers’ expenditure, which is why we forecast that most of the steel will continue to be produced in India,” He Ming said.

This also raises the possibility that India would start to import more iron ore for its BF-based steel mills.

“India may transition from a net exporter to a net importer of iron ore if it faces challenges in building up its steel capacities,” Ming concluded.

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