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Forecasting Steel Demand and Supply in India

By
Deepa Karthykeyan, Asha Abraham, Sarin Paraparakath and Arnab Bhattacharya1

Abstract
This paper seeks to forecast the demand and supply gap of steel till 2020-21. Further, it aims to
present the end use approach to forecasting steel demand. Under this approach, steel demand is
calculated separately for every major steel consuming sector and then aggregated. Although, this
approach consumes more time and effort than the more commonly used macro-economic
approach, it was thought to be more appropriate for a country like India.
The main findings of this paper are:

Supply of steel was presented in two scenarios. In the reasonable scenario, supply was
estimated to grow at a CAGR of 10.4% in the period 2010-11 to 2020-21, while in the
base case scenario, CARG of supply was 8.6%.

Demand is forecasted to grow at a CAGR of 9.035% driven mainly by the construction,
automobile and consumer durables sectors.

The demand supply gap is expected to lie between a supply surplus of 4.47 MT in the
reasonable scenario and a 21.21 MT supply deficit in the base case scenario.

Due to pressure from the construction sector, the demand for longs will continue to
dominate the steel industry, while on the supply side, flats are expected to dominate.

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All authors currently work as Consultants in Athena Infonomics India Pvt Limited

1. Introduction
1.1. Steel Industry in India
Steel is traditionally considered the backbone of national economic development. It is a major
input into sectors which support economic growth such as infrastructure, machinery, power and
railways, as well as being important for fast growing sectors, in particular automobiles and
consumer durables.
The steel industry in India is currently at an inflexion point brought about by ambitious capacity
expansion plans, entry of new players and increased competition on one hand and consistently
rising and shifting demand patterns on the other.
This rise in demand is expected to be driven by the construction, automobile and consumer
durables sectors (OECD 2011). In the construction sector, Government spending in infrastructure
is expected to surge during the twelfth plan period, thus driving up demand for steel used in
construction. Similarly, rising incomes coupled with rapid urbanization have contributed to the
increasing demand for automobiles and consumer durables.
With respect to supply, the Compound Annual Growth Rate (CAGR) of crude steel production
has doubled from 3% for the period 2000-04 to 6% in 2005-09. As a result, India has risen from
being the seventh largest producer of steel in the world in 2005 to the third largest in 2009 (Spark
Steel and the Economy Research Centre 2010).
Most steel producers are planning major capacity expansions through both Greenfield and
Brownfield expansions. This, coupled with the entry of new players such as the Pohang Iron and
Steel Company (POSCO) and Arcellor Mittal, will result in a significant rise in steel production
over the next ten years. There is also an increased emphasis among steel players on the
production of special steels that were until now being imported.
Despite this, however, there is still some apprehension on the capability of Indian steel suppliers
to meet the expectations arising from increasing demand. Given this context, the objective of this
report is to forecast the demand and supply of steel in India till Financial Year (FY) 2020-21 and
estimate the size and the nature of the demand-supply gap. The gap will be estimated for
finished steel as a whole, as well as for flat and non-flat (longs and pipes) steel separately.
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1.2. Methodology
While the need to estimate the demand-supply gap of steel cannot be questioned, some debate
exists with respect to the methodology used to do so.
Forecasting Supply
Forecasting steel supply is normally done through an aggregation of the capacity expansion plans
of all major steel producers till 2020-21 (Ministry of Steel 2011; OECD 2011). This paper takes
the analysis further.
1. To estimate realistically when the additional production will go on stream, the likely
commissioning date of all greenfield and brownfield steel projects were studied. This was
done by examining each project‟s stage of completion and analysing the problems the
project was encountering.
2. Based on the above analysis, the paper presents three scenarios of steel supply –an
optimistic, reasonable and a base case scenario.
3. The paper further examines the expansion plans of steel producers and estimates the
types of steel that will be produced in future.
The above methodology to estimate steel supply is further explained in the following section.
Forecasting Demand
Forecasting steel demand can be done through various methods. Approaches to forecasting steel
demand can mainly be divided into two – the macro-economic approach and the end use
approach. These are briefly described below:
Macro-Economic Approach: This is a more popularly used approach. It uses the relationship
between steel consumption and macro-economic variables such as Gross Domestic Product
(GDP) to forecast steel demand. (Rao 1984). This approach normally involves the formation of
regression/time series equations to model the relationships between variables.
The most popular macro-economic approach is the intensity of use method developed by
Malenbaum (Chen et al 1991; Crompton 1999; Rao 1984). Intensity of use is defined as the
amount of steel consumed per unit of GDP. This method models the relationship between the
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Very few papers in the public domain have attempted an end use method for forecasting steel demand in India. ie. End Use Approach: The end use approach is a bottom up model in which steel demand forecasts are separately estimated for each steel consuming sector and then aggregated (Rao 1984). this transmission mechanism between GDP growth and steel consumption becomes less defined. the success of the macro-economic demand estimation approach depends on the relationship between GDP and steel demand. an increase in the value of the GDP will mean an increase in the production of goods and in turn an increase in the demand for steel. This is based on the assumption that there will be no substantial shift in the manufacturing processes and product design over the period for which steel is being estimated. the end use approach gives sector wise forecasts of steel demand. Even though the end use approach requires a lot more time and effort. steel intensity will show a rapid increase with rising per capita GDP and then a slow reduction. this paper advocates the use of this model in India rather than the macro-economic approach mainly for the following two reasons: Firstly. in a country like India.intensity of use and per capita GDP. it is useful in estimating not only the total demand for steel. unlike the macro-economic model. but also helps us in understanding which types of steel are being demanded. However. Limitations This model makes two important assumptions:  Firstly. Secondly. this paper is a preliminary step in better understanding the limitations and advantages of this methodology. 4 . It assumes that this relationship can be represented by an inverted U shaped curve. Thus. we assume that the input-output technical coefficients that guide steel use remain constant over the period for which steel demand is being estimated. Thus. where around 55% of the GDP comes from the services sector. The logic behind this model is as follows: steel is used in the production of goods that contribute to GDP. Thus.

2. JSW Ispat Steel Limited. Second. finished steel production is calculate after accounting for capacity utilization and production of semi-finished steel. Forecasting Steel Supply As mentioned in section one. newspaper articles and through direct interviews with members in the selected companiesi. Bhushan Power and Steel Limited. 5 . TATA Iron and Steel Company Limited. Bhushan Steel Limited and other secondary producers. Essar. Secondly. the supply of steel till 2020-21 is forecasted through an examination of capacity expansion plans of all steel producers. Data on capacity expansion plans for each of these producers was gathered from their websites. Rashtriya Ispat Nigam Limited (RINL). among others. Description of the Paper The rest of the report is structured as follows: section two forecasts supply of finished steel in India till 2020-21. crude steel capacity in the country for the next ten years is calculated by aggregating the capacity expansion plans of all major and secondary steel producers. 2. It also calculates the supply of flats and non-flats for the same period. Section four looks at the demand-supply gap. Kitchen Ware and Use by PWD/other important government works. The demand for steel will be analysed in section three. Outside of the limitations imposed by the model. The steel producers considered for the analysis are Steel Authority of India Limited (SAIL). the model does not entirely capture the price effect of steel and assumes that consumption patterns are relatively inelastic and non-responsive to changing prices in the short run. JSW Steel Ltd. the findings of the study are also restricted in its scope to select sectors on account of lack of access or non-availability of data Some of the important sectors that remain un-captured in this study include Defence. annual reports.3. First. 1. Jindal Steel and Power Limited (JSPL). Supply estimation involves the following two steps: 1.

However. According to this scenario. The effect of these delays on the date of commissioning of projects was assessed through interviews with experts and a review of secondary literature.11 MT in 2020-21. it was estimated that crude steel capacity will be 259. Reasonable Scenario: In order to account for the above difficulty. while the steel producers have announced ambitious capacity expansion plans. raw material availability. all crude steel capacity expansion targets announced by steel companies are aggregated. The reasonable scenario is the same as the optimistic scenario till FY 2015-16 as plans to achieve the targets are clearly given till this year. a reasonable and a base case scenario. However. as announced by steel producers are met. a second scenario (called the reasonable scenario) was estimated.11 MT. Calculation of crude steel capacity under the three scenarios is given below: 2. It accounts for delays in commissions of projects due to problems associated with land acquisition. concrete measures to meet the advertised targets through greenfield and brownfield expansions have not been specified in some cases. Estimation of Crude Steel Capacity Crude steel capacity was estimated in three scenarios . Base Case Scenario: The base case scenario gives a lower bound crude steel capacity estimate. a reasonable and a base case scenario. for 2020-21. crude steel capacity in the country in 2020-21 will be 178.1. obtaining environmental clearances. this scenario estimates a more reasonable capacity of 210. Results of all three scenarios are presented in the figure below: 6 .Expansion of crude steel capacity for all the above mentioned steel producers till 2020-21 is presented in three scenarios – an optimistic. this will be possible only if the crude steel capacity targets. Under this scenario. This scenario takes into account only those capacity expansion targets that are backed by concrete brownfield or greenfield projects. However. etc.8 MT.an optimistic. The three scenarios are defined below: Optimistic Scenario: In the optimistic scenario.

5 103.4 90.5 124.8 Source: Author’s calculation based on data from company annual reports.5 124.04 210. The remaining is sold as semi-finished steel products (blooms/billets).4 88.8 117. a capacity utilisation of 90 to 95% is assumed for the major producers and 85% for small secondary producers. newspaper articles.04 133.11 Reasonable Scenario 78.04 259. the production of finished steel can be calculated as follows – Firstly.04 133. in order to calculate the actual production of crude steel.8 117. Finished steel as a percentage of crude steel is given below for the three major producers: 7 .2 115.Figure 1 – Crude Steel Capacity Scenarios 300 250 Million Tonnes 200 150 100 50 0 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2020-21 Optimistic Scenario 78. Production of Finished Steel From the crude steel capacity estimates given in the previous section.44 124.44 178. Secondly. interviews with experts.4 90.2.5 100. not all of this crude steel gets converted to finished steel.8 111. etc 2.5 103. company websites.11 Base Case Scenario 78.

8 89.36 71.5 2013-14 2014-15 92. the 8 .84 35.51 73.23 97.29 96. this section examines the nature of steel that will be produced.1 93.4 63.88 36.26 82.59 98.72 Source: Spark Steel and the Economy Research Centre (2010) Total finished steel production in both the reasonable and the base case scenarios was estimated after the above deductions and are given in the figure below: Figure 2 – Production of Finished Steel (2010-11 to 2020-21) Reasonable Scenario Base Case Scenario 170. Types of Steel Having established the total production of finished steel in the country for the next ten years.6 180 160 144.04 84.44 57.3 60 40 20 0 2010-11 2011-12 2012-2013 2015-16 2020-21 Source: Author’s calculation 2. This was again estimated from the plans of steel producers for the next ten years.62 91.06 81.43 72. for many projects that are planned.5 98.15 67.81 94.32 86.9 72.65 86.54 33.31 85.12 97.52 68.4 106.5 70.28 92.9 Million Tonnes 140 120 100 80 63.37 37.3.36 93.87 72.74 69 76.82 87.Share of Finished Steel in Total Crude Steel Production (%) Steel Producer Bhilai Durgapur Rourkela Bokaro ISP Total SAIL TATA RINL 2005-06 2006-07 2007-08 2008-09 2009-10 Average 64.28 69.99 92.7 100.44 89.1 71.97 89.49 89.33 68.33 92.39 74.3 81.32 88.52 69.Table 1 .14 66.46 82. However.53 37.1 83.59 85.83 35.19 80.48 76.4 73.

68 35. flats constitute around 45% of production and longs around 55%ii.83 46.83 84. flats are projected to grow at a faster 9 .39 40.51 60.86 46. these estimates are only indicative of the direction of supply of flats and non-flats.54 Source: Author’s calculation based on data from company annual reports.00 51.17 46.11 109. in these cases the project mix of the company is assumed to remain constant even after expansion.48 43.71 36.97 60. newspaper articles.03 61. Thus.24 Flats 28.39 40. The actual production will depend on the demand for flats and non-flats in the future.68 41.33 50.35 Base Case Scenario Percentage 100% 80% 60% 40% 20% 0% 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2020-21 Non-Flats 34. due to increased demand both domestically and internationally. The supply of flats and non-flats under both the reasonable and the base case scenarios are given below: Figure 3 – Supply of Flats vs Non-Flats Percentage Reasonable Scenario 100% 80% 60% 40% 20% 0% 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2020-21 Non-Flats 34.69 47.82 44.88 53. etc Currently. However.71 36. Thus.56 46.68 37. company websites.38 Flats 28.product mix has not yet been announced.11 43. interviews with experts.11 42.

This is done through literature surveys and interviews with experts.rate. Due to problems of data availability. The steps involved in forecasting demand are described below: 1. First. 3. 3. As mentioned. sector growth. a slightly modified methodology was used for the machinery. the growth in each sector till FY 2020-21 was estimated. The sectors that will be studied include construction (in real estate and infrastructure). railways. ie. In both scenarios. 10 . this is a comprehensive bottom up approach in which demand for steel is calculated separately for every steel consuming sector and then aggregated. in sectors such as construction. Next. steel intensity and total steel consumption. automobile. machinery/equipment. consumer durables and fasteners. 2. Forecasting Steel Demand This section forecasts the demand for steel using the end use method introduced in section one. Data on production in each sector was obtained from various sources and forecasted using time series models such as Autoregressive Integrated Moving Average (ARIMA) Models and Vector Autoregressive (VAR) Models. the methodology is explained in the three steps explained above. shipping. The total demand of finished steel in each sector was then determined by multiplying the steel intensity of the sector with the forecasted values of production/investment in each sector. it is expected that the production of flats will account for around 55% of production and by 2020-21. power. growth in investment was forecasted. The data sources and the methodology used to forecast growth in each sector are detailed in the next section. the steel intensity (steel consumption per unit of investment or per unit of output) was estimated for each sector. fasteners and consumer durables sectors. For each sector. its share will go up to around 60%. It should be noted that due to unavailability of data.

commercial or industrial building. Construction – Real Estate Construction is the largest consumer of steel in the country (Spark Steel and the Economy Research Centre 2010). Methodology 3.1% Commercial Real Estate 2. To forecast growth in the sector.2% Industrial Real Estate 9. CIDC Steel Intensity The intensity of steel used per unit of investment was calculated using the following formula: Steel Intensity Ratio: Cost of Steel per sq ft/Total Cost of Construction per sq ft The steel intensity ratio is the ratio of the cost of steel consumed per sq feet to the cost of construction per sq feet in a standard residential.1% Total Real Estate Sector 8. commercial and industrial real estate. This investment data was then extrapolated till 2020-21. This section deals with real estate which has been further divided into residential.3. The resultant CAGRs for these sectors are as follows: Table 2 – Growth in Real Estate Sector CAGR (2010-11 to 2020-21) Residential Real Estate 9.1. Data is limited as this sector is not very well regulated and falls almost entirely in the unorganized sector. the construction sector has been divided into two – Real estate and infrastructure. commercial and industrial real estate as provided by the CIDC for the years 2004-05 to 2009-10.1. 11 . For the purpose of analysis.5% Source: Author’s calculation. this paper uses estimates of investment in residential.1. Sector Growth The major problem with estimating growth in the real estate sector is the availability of data.

The price of steel was taken to be the average price of joists. This is multiplied with forecasted investments in real estate to get the total amount spent on steel till 2020-21. 7 kg in commercial buildings and close to 14 kg per square feet in industrial buildings.Unit Construction Cost (Rs/sft) Residential (Terrace) Standard Luxurious 825 1100 1997 870 1200 1998 890 1300 1999 865 1350 2000 875 1370 2001 918 1430 2002 964 1502 2003 1012 1577 2004 1050 1600 2005 1123 1712 2006 1202 1830 2007 1286 1960 2008 1376 2097 2009 2244 2010(Oct) 1470 Residential (High Rise) Standard Luxurious 650 1100 650 1100 650 1100 640 1150 685 1225 719 1286 755 1350 793 1417 805 1500 861 1065 920 1717 986 1837 1055 1966 1130 2103 Commercial (Office) Standard Prestige 625 950 625 950 625 950 610 1050 640 1225 672 1286 705 1350 740 1417 760 1500 813 1606 870 1717 931 1837 996 1966 1065 2103 Industrial Light 600 600 600 600 615 646 678 712 750 802 858 918 983 1051 Heavy 800 850 850 870 890 934 981 1030 1080 1155 1236 1323 1415 1514 Source: CIDC Total Steel Consumption The steel intensity ratio gives us the percentage of the investment on real estate construction that is spent on the consumption of steel. 12 . Dividing this amount by the price of steel gives the quantity of steel that will be consumed in this sector. sections. After direct interviews with a number of civil engineers and construction contractors. Total cost of construction per square feet in each of sector was again obtained from the Construction Industry Development Council (CIDC) and is given in the table below: Table 3 .The cost of steel per sq ft is calculated by multiplying the consumption of steel per sq ft in a standard residential. angles. commercial and industrial building with the price of steel. the average consumption of steel per sq ft was established to be around 5 kg in standard residential buildings. tor steel and TMT bars and was estimated to be an average of Rs 32 a kg.

Steel Utilization Norms Sector Civil Construction (% of Investment) Steel Component(% of construction) Roads and Bridges 100 Telecom Irrigation Water and Sanitation Ports/airports 15 50 60 40 14 20 15 18 25 Source: ICICI Direct (2009) Total Steel Consumption Again like in real estate. These are given in the table below: Table 4 .2.5%. multiplying the steel utilisation norms with total forecasted investment gives the total amount spent on steel till 2020-21. water and sanitation and telecommunication. Construction – Infrastructure The infrastructure sector consists of roads and bridges. were calculated for each of these sectors from planning commission estimates. sea ports. 13 .3. 2009. with majority of the investment going into the roads sector. Dividing this amount by the price of steel gives the quantity of steel that will be consumed in this sector. Demand for steel through construction activities taking place in railways and power sector (which are technically an integral part of the country‟s infrastructure) have been separately accounted for in these sectors respectively. airports. It was estimated that investments in infrastructure would grow at a CAGR of around 13.1. Sector Growth The expected investments. Similar estimates were also given by Dun & Bradstreet. both public and private. the percentage of total investment spent on steel was calculated using steel utilization norms as provided by a research report by ICICI titled „Steel Sector‟ published in May. Steel Intensity Similar to real estate. in each of the infrastructure sectors.

in the current study an attempt has been made to break down the railway sector into various steel consuming sub segments to arrive at a more accurate estimation of steel. However. clips to hold rails to sleepers. rail track material. wagons and coaches).3.1. Major areas in the railways where steel is predominantly used are rolling stock (which comprises of the locomotives. Sector Growth The methodology for calculating growth in production of each of these sectors along with the estimated CAGRs is given in the table below: 14 .3. the steel consumption of the railways is captured through proxies such as the growth in railways as a percentage of GDP and public expenditure. posts to carry overhead traction lines and construction in the railways. concrete sleepers. Railways Conventionally.

assuming 70% target achievement. locomotives and 7. Based on the requirement of new 13. this Traction data was extrapolated and the values were backed by estimates Posts of the Vision 2020 document. Again. Sleepers/ Data on the number of new tracks being laid was obtained from Clips/ the Ministry of Railways from 2001-21 onwards.Table 5 . This data was extrapolated to estimate production till 2020-21. Source: Author’s Calculation. These estimates were backed from data provided by the Vision 2020 document of the Ministry of Railways.Methodology Sector Methodology CAGR(%) Rolling Time series data on production of coaches. An ARIMA model was carried out on this data to forecast production of tracks till 2020-21.6% Stock wagons was obtained from the Ministry of Railways from 200102 to 2009-10. the production of sleepers. clips and traction posts were estimated. RBI Database on Indian Economy Steel Intensity and Total Steel Consumption Forecasted production was then multiplied with per unit steel consumption to obtain total steel consumed.7% was estimated from figures provided in the Vision 2020 document. Rail Track Annual data on the production of tonnes of railway tracks was 3.Railway Sector . Construction Investment in construction in the railways sector till 2020-21 in Railways 23.6% obtained from the World Steel Association from the year 1987.35% tracks. Steel weight for each of the above components is given below: 15 .

ARIMAs were performed on this data to get projections till 2020-21. is both an important consumer of steel and is essential for the economic growth of the country. These estimates were checked by comparing them to estimates brought out in the 12th and the 13th plan estimates.5 tonnes 96 tonnes 20 tonnes 20 kg 1 kg 1 ton Source: Interviews with experts *Steel weight per rail track was not required as production data for rail track was already in terms of weight.Table 6 . Estimated capacity additions in each sector are given in the table below: 16 .1.Railways Item Coaches Locomotives Wagons Sleepers Clips Traction Posts Steel Weight per unit 37. Steel consuming areas in the power sector are construction of hydro.Steel Intensity . 3. steel consumption in railway construction was determined using Steel utilisation norms of ICICI. like railways. thermal and nuclear sectors for the past ten years was obtained from the CEA. Like in infrastructure. Power Power. The growth of each of these components and their steel intensity is discussed below: Sector Growth Data on capacity additions for the hydro. thermal and nuclear power plants and setting up of towers. power transformers and sub-stations.4.

Steel Intensity and Total Steel Consumption The amount of steel required i.784 7892.713 Thermal 9653.329 Source: Author’s calculation.815 8214. The table below gives the set norms in the case of hydro.494 5853.949 4983.29 4866. gas and nuclear power projects: Table 8 .749 4068.217 8497.Steel Utilization Norms – Hydro Power Plant Steel Type Structural Steel Reinforcement Steel Total Steel Required (Tonnes/MW) 34 93 127 Source: CEA (2006) 17 . This formula is based upon the amount of steel that is required for electrical and mechanical packages (generators and turbines) and civil work.736 8791.96 12548.751 10476. Tonnes/MW in the case of a hydro.749 2370.948 7521. thermal.07 15086.423 6545.693 7326.58 17508.e.248 3383.Table 7 .256 1343.Capacity Additions in the Power Sector Year 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Hydro 2200 3209. the forecasted values till 2017-18 were again obtained from the 12th plan estimates and then extrapolated till 2020-21.855 7082.809 2825. Annual Report 2009-10 With respect to growth in steel consuming components of the transmission sector.133 4877.7 4005. CEA.221 1975.871 6041.965 1629.48 Nuclear 1050 1080. thermal or a nuclear plant has been formulated by the National Hydroelectric Power Corporation (NHPC) and Bharat Heavy Electricals Limited (BHEL) (CEA 2006).

1 Norms for weight of steel for Towers MT/Km Norms for special requirement for substations (MT/bay) 0.4 0. on an average it takes a minimum of three years to construct a thermal/nuclear project or a gas based power plant.Steel Utilization Norms for Thermal.8 75 50 35 25 Source: CEA (2006) Multiplying the above with growth in the three components gives total forecasted steel consumption.14 Indigenous Steel (Tonnes /MW) 111. Similarly.707 44.3 23.5 0. Steel utilisation norms for the components in the transmission sector are given below: Table 10 .1 9. 2 Obtained through expert opinion 18 . the consumption of steel will start five years before the date of commissioning of a hydro plant.Table 9 .36847 19.90392 130.597 50. Therefore.83 Source: CEA (2006) In India.53545 111. nuclear and gas plants is distributed in the ratio 20:30:50.Steel utilisation Norms – Transmission Sector Voltage line Norms for weight of steel for Towers MT/Km 765 500 HVDC 400 220 132 65 38.4 0.89 6.5 10. on an average it takes five years to build a hydro power plant2.67 Total 130. Thus. the steel consumption by hydro power plants is assumed to be distributed over the previous five years in the ratio 10:10:20:30:30 while the steel consumption by thermal. Gas and Nuclear Power Plants Type Thermal Gas Powered Nuclear Imported Steel (Tonnes/ MW) 18.

an average steel intensity per unit of output was impossible to calculate. textile. Independent ARIMA‟s were carried out on each of these sample equipments to forecast the production value/number of these equipments in 2020-21. a different methodology had to be evolved to forecast steel demand from the machinery sector. The machinery sector constitutes a large number of subsectors varying from industrial.1. Due to problems of data.5. Thus. 19 . tractors. A weighted average of the various growth rates was taken to assess the overall growth in the machinery sector. Total Steel Consumption Due to the heterogeneous and complex nature of the machinery sector. the scope of the machinery sector was narrowed down to include only the following sample of equipment:           Dumper Ball and roller Bearings Gear boxes Lifts Material handling equipment Cutting tools Machine Tools Valves Diesel Engines Electric Motors Sector Growth Data on the production for each of the sample equipment from 1994-95 to 2010-11 was obtained from the RBI databankiii. the growth rate in the production of these components was calculated for the year 2020-21. It was estimated that over the next ten years the machinery sector will grow at an average growth rate of around 6% to 5%. printing. cranes etc.3. After having forecasted output for each sample component. office machinery to heavy construction and agricultural equipment such as agricultural implements. dumpers. Machinery and Heavy Engineering The machinery sector is the second largest consumer of steel after construction (Spark Steel and the Economy Research Centre 2010).

72MT. the index of production of consumer durables was regressed against GDP and inflation 3. but the growth rates provided by it were unrealistically high. this is expected to grow up to 1. Consumer Durables The consumer durables sector is currently one of the fastest growing sectors with a growth rate of 28% in 2010-11. time series data on the index of production of consumer durables was obtained from the CSO. it was estimated that steel consumption would grow from 14. it was established that the consumption of steel in 2009-10 for the sector was around 14. 3.16 MT in 2020-21. This paper assumes a 1:1 relationship between growth in the number of units of equipment produced and the steel consumption.1. In this model. 20 . 3. Using time series models and past data on the production of nuts and boltsiv. The growth rates estimated from the model are as follows: 3 A VAR model was also tried.8 MT in 2009-10 to around 28.1. ie. A regression analysis was performed on the above data to estimate growth in this sector. the steel consumption is expected to grow at the same rate as the growth of production in the machinery sectors.7. forecasts and growth rates were obtained for the next ten years. rapid urbanization and increasing penetration in rural areas. Sector Growth In order to forecast growth in this sector. Fasteners Steel consumed in the fasteners and hardware industry was calculated using a similar methodology as that used in machinery. It is expected that growth in this sector will continue to remain high due to rising incomes.6.From estimates provided by the Spark Steel and the Economy Research Centre (SSERC) in its Steel Scenario Yearbook 2009-10. The current consumption of steel by the fasteners and hardware industry is established to be 0. The regression model was thus selected as it provided the best results.8 MT.7 MT in 2020-21. Taking the machinery sector growth rates as established by the ARIMA. Using the forecasted growth rates.

Table 11 . per capita income. According to the Steel Scenario Yearbook.24 17. the sector was divided into six components as specified in the National Industrial Classification Code by the Reserve Bank.62 15. The VAR model includes the influence of aluminum prices.1.91 25.50 Source: Author’s calculation.29 23. The six components consisted of 1) Commercial Vehicles 2) Passenger Cars 3) Jeep Vehicles 4) Auto Rickshaw5) Motorcycles 6) Scooters.78 MT of steel. 3. CAGRs for the period 2020-21 for each category are given in the table below: 21 . Using the growth rates estimated by the regression model. Sector Growth Data on the production for each of these categories from 1994-95 was obtained from the RBI databank.Consumer Durables Sector Growth Rate Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Growth rate (%) 28. the industry was estimated to have consumed 0.95 22.74 24.86 16.36 20. Database on Indian Economy Total Steel Consumption To estimate steel consumption. steel prices.8. inflation.8 MT by 2020-21. this is expected to increase to around 6. In order to predict the total demand for steel in this industry.75 19. a similar strategy as used in machinery and fasteners was also adopted for the consumer durables industry. in 200910. A Vector Auto Regression (VAR) model was used to predict the total number of units that will be produced till 2020-21.95 25. Automobiles The Automobile sector is expected to evolve as a major consumer of steel in the future. GDP and prices of crude oil in its forecast. RBI.

RBI.6% Jeep Type Vehicles 4.4% Scooters 19.15 Motor Cycles(MC) 0.8% Motor Cycles 4.81 Jeep Vehicles (ZV) Auto Rickshaws (AR) 1.Steel Weights in the Automobile Sector Type Commercial Vehicle (CV) Passenger Car (PC) Per Unit Steel Weight in Tonnes 3. These weights are given in the following table: Table 13 . multiplying the steel weight with total forecasted production gives total consumption of steel in the automobile sector. 22 .5 0. Steel Intensity and Total Steel Consumption The steel weight is the weight of the steel used in the vehicle.055 Scooters (SC) 0. This was established through interviews with various experts.625 0.Table 12 .5% Auto rickshaws 4.7% Vehicles Passenger Cars 15.035 Source: Compiled from expert opinions As with other sectors.9% Source: Author’s calculation.Automobiles Sector Growth Rate Category CAGR (2010-11 to 202021) Commercial 3. Database on Indian Economy As can be seen maximum growth is expected from two wheelers (scooters) and passenger cars.

Expert opinions from naval architects were used to identify the self-weight of ships (weight of the empty ship.1. large (40000-100000 DwT) and ultralarge (>100000 DwT). this amount was distributed among the years. the ships were divided into four types based on their dead weight .9. only steel consumption by major ship building docks were considered.3.Details of Shipping Industry Type of ship Small Medium Large Ultra Large Deadweight Tonne (DwT) <1000T 1000-40000T 40000-100000T >100000 Self-Weight as a percentage of DwT 35% 25% 15% 12-15% Project Completion Time (Minimum) 6 months 6 months -1 year 2 year >3 year Source: Compiled from expert opinions Order books of shipyards are available only till 2015-16. 23 . Shipbuilding and Containers Given that India has one of the largest merchant shipping fleets among the developing countries.000 DwT). Due to unavailability of data. steel consumption in the shipping industry after 2015-16 was estimated through an extrapolation of past trends. For ease of analysis.small (<1000 Dead Weight Tonne (DwT)). Using the self-weight of a ship and the data on types and number of ships being built. medium (1000-40. Future production of each type of ship from each dock was obtained from their order books. Taking into account the time used to complete a ship. which is approximately equal to the steel weight of a ship) and the time taken to complete building ships in each of these categories. the total steel that will be consumed in 2015-16 was calculated. Due to problems with the availability of data. the shipping sector assumes an important role in the economy. Steel Intensity and Total Steel Consumption The order books give the number of ships of each type that will be produced and the year in which they will be completed. This is shown in the table below: Table 14 .

Steel consumption by all other sectors left out in the above methodology is included in the „others‟ category and is estimated here.4 6. The actual demand for the year is stated to be 60 MT (Spark Steel and Economy Research Centre 2010). Total Finished Steel Aggregating steel consumption by all sectors considered above. 3.4 2.1.Sectoral Steel Consumption (2009-10) Sector Real estate Infra Machinery Fastners Consumer durables Auto Power Railways Containers Total Demand (million tonne) 25.83 1.42 MT.8 13. 24 .2. The sectors that have been considered under the current model are only 94% inclusive.2.69 0. In order to do so.7 4.42 Source: Author’s calculation This gives us a forecast error of 6%. Results 3. The demand for steel as estimated by our methodology for 2009-10 was estimated at 56.1 56.3. we estimate the degree of inclusiveness of our model by applying our demand estimation methodology to the year 2009-10.1. This is shown in the table below. The sectoral divisions are given in the table below: Table 3.4 0. Thus. an additional 6% margin has been added to the total demand estimate under the „others‟ category in order to make our model more inclusive. Others All major steel consuming sectors have been analysed above.1 1.15 . we get the total demand for finished steel in India till 2020-21.10.

demand for finished steel in India is estimated to be around 70 MT. Demand from international markets will further push this figure up.Currently. As can be seen from the table. 25 . This is expected to more than double to 166 MT by 2020-21. automobile and consumer durables sectors. It must be noted that this figure includes only domestic demand for steel. this demand will mainly be driven by the construction (real estate and infrastructure).

09 12.70 2.11 9.40 28.11 8.99 1.61 Consume Automobiles Shipping Containers Others Total r Deman Durables d 1.00 6.66 152.28 1.13 1.12 3.71 2.27 3.15 22.55 2.56 0.30 2.79 1.53 40.25 0.13 Source: Author’s calculation 26 .11 6.46 11.27 34.80 13.60 3.31 Power Machinery Fasteners 1.90 0.24 0.79 1.60 52.65 0.11 7.86 15.94 0.80 18.37 0.98 7.66 3.56 24.72 118.44 4.41 0.60 8.55 3.94 6.13 90.25 6.79 1.21 2.69 3.15 108.31 0.58 6.85 17.36 1.86 21.20 0.40 166.86 20.12 4.96 69.Table 16 .17 1.29 0.30 14.12 4.62 99.00 21.34 0.13 9.97 5.51 2.32 11.00 9.29 37.72 0.24 3.75 16.Estimated Demand for Finished Steel in India (MT) Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Real Infrastructure Railways Estate 28.74 0.99 44.69 82.09 27.52 1.26 0.69 48.68 4.11 7.81 26.96 16.20 1.11 6.34 23.48 0.90 0.12 5.99 4.00 0.46 31.24 10.94 13.71 26.96 140.35 0.29 75.69 5.72 1.14 61.97 3.92 3.34 3.87 0.62 10.15 23.76 66.59 6.90 2.33 5.32 129.43 0.29 0.98 1.43 3.77 57.75 0.45 8.06 1.74 18.12 5.52 0.57 2.44 1.

91 94.33 26. Flat vs Non-Flat Steel As mentioned in the introduction. Expert opinion The total demand for flats and non-flats till 2020-21 is given in the figure below.00 99.2. the total demand for finished steel in India is split into demand for flat steel and long steel.72 73. Non-flat steel will continue to dominate domestic demand.67 68.21 73.09 85.2.00 60.28 40.11 91. a major advantage of the end use method is that it can also be used to estimate the nature of steel demand. Table 17 . From the figure it can be seen that the proportion of flats demanded to non-flats demanded is expected to remain almost the same over the next ten years. This is mainly due to the demand for non-flat steel arising from the construction sector. The total steel consumed by each sector was then split accordingly.00 25. in this section.Proportion of Flat to Non-Flat in Each Sector Sectors Construction Railways Power Machinery Fasteners Consumer Durables Automobiles Shipping Containers Others Flat Non-Flat (%) (%) 26.26 Source: Spark Steel and Economy Research Centre 2010. it can be used to estimate demand for different types of steel. 27 .00 14.3. which accounts for around 60% of the total demand.87 75. the proportion of flat steel used to non-flat steel used in each sector was estimated.74 72. In order to do this.82 0.18 27. Thus. ie.79 31. This is shown in the table below.13 8.89 5.

79 82.54 -0.36 27.69 166.2019.44 50.61 50.86 55.70 99.74 100.2011.79 90.47 85.24 78.53 42.34 144.202011 12 13 14 15 16 17 18 19 20 21 Non-Flats (MT) 42.81 46.59 -3.83 3. the 28 .34 46.17 Source: Author’s calculation 4. This is shown in the following table: Table 18 .60 -8.2015.2018.08 92.47 Base Case Supply 63.Demand–Supply Gap: Total Finished Steel Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2020-21 Total Demand 69. 2010-11 to 2020-21 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2010.1.60 4.17 99. Demand-Supply Gap 4. Total Finished Steel The total supply and demand of finished steel in India till 2020-21 was estimated in the previous sections.07 81.18 -6.34 108.35 72.78 66.2014.90 35.52 92.44 0.98 75.77 Flats (MT) 29.92 83.39 72.Percentage Figure 4 – Demand for Flats and Non-Flats.13 98.13 Reasonable Scenario Supply Gap 63.72 -1.39 -6.2017.35 -21.62 60.92 Gap -6. The supply estimates are given for two scenarios – a reasonable scenario and a base case one.65 93.88 55. As explained in section 2.18 31.55 170.27 89.87 -1.2013.2016.02 38.14 -2.67 60.51 -1.80 106.81 66. This section compares the two sets of values and estimates the demandsupply gap.21 Source: Author’s calcualtion *negative sign indicates a supply deficit A perusal of the above tables reveals some interesting trends.59 73.2012.

This has implications for imports and exports of steel. raw material availability.71 36.51 37.68 1.18 31.10 -10.86 46.97 13.17 29.00 14.81 66.77 Reasonable Scenario Supply Gap 34.25 46.10 36.35 99.03 -20. 4.22 40.reasonable scenario includes all brownfield and greenfield expansions that have been planned by steel producers.36 Reasonable Scenario Supply Gap 28.81 46.61 50.33 11.56 -14.43 50.11 -10.67 9.53 Base Case Supply 34.83 -11.2.33 61.02 38. the reasonable scenario shows a supply surplus of around 4 MT. Under the base case scenario.22 -10.49 18. In 2020-21.69 47.17 46. while the base case scenario also accounts for delays due to problems of land acquisition.84 46. Non-Flat Steel The next step is to estimate whether the demand deficit arises from flat steel or non-flats.85 -15. Flat Steel vs.39 -10.48 8. Both scenarios show a supply deficit in 2015-16.11 42.24 -38.36 11.35 43.97 51.45 60. India will continue to be a net importer for the coming ten years.88 55. etc.67 60.68 35. India is currently a net importer of steel.77 -12.53 42.90 35.00 Base Case Supply 28.30 43.54 Gap 1.88 53.11 17.Demand-Supply Gap: Flat Steel Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2020-21 Total Demand 27.39 40.Demand-Supply Gap: Non-Flat Steel Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2020-21 Total Demand 42. while the base case scenario indicates a supply deficit of around 21 MT.83 84.50 9.51 6.26 11.39 Source: Author’s calculation *negative sign indicates a supply deficit 29 .34 66.84 -39.77 43.18 Table 20 . The demand-supply gap for flats and non-flats is given in the tables below for the reasonable and the base case scenarios: Table 19 .96 -19.78 109.51 60.82 44.71 -8.38 Gap -8.68 41.

For flat steel. which mainly uses longs. The reason for this is that most expansion plans are geared towards the production of flats.The above tables reveal that the supply deficit is only in the production of longs. a supply surplus is expected for each year. some steel producers may increase the production of longs. it is possible that in response to the demand for longs. 30 . However. However. many steel producers have not yet announced their future product mix (especially after 2015-16). thus increasing the overall supply of longs in FY 2020-21. as mentioned in section 2. 60% of the demand for steel comes from the construction sector. Thus.

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