STEEL INDUSTRY OVERVIEW

Background Steel is one of the world’s most essential materials. It is fundamental to the growth
of any nation as it forms the backbone of industrialization. The demand for steel comes primarily
from the infrastructure, automobile, and consumer durables industry and the fortunes of steel is
highly correlated with these user industries. Steel production in India began with the setting up of
Tata Iron & Steel Company (TISCO - now Tata Steel) in1907. In 1947, India had a fledgling
private steel industry with only 3 significant steel companies with a total capacity of 1.0 MT. The
Indian Steel Industry currently accounts for 2.0 per cent of India’s GDP and employs around 2.5
million people. The low cost of labour and availability of coal and iron ore make India a
competitive producer of the metal. India is the 3 rd largest producer of steel at 104.8 MT in 2017
and is poised to overtake Japan to become the 2 nd largest manufacturer in 2018 backed by the
robust economic activity in the country. India also ranks 4 th in steel production capacity in the
world and is the 3 rd largest consumer of the metal after China and the United States. Industry
Structure The industry in India is classified based on the nature of the manufacturing companies
into Integrated Steel Producers (ISP) and Secondary Producers. Integrated Steel Producers are
companies that are present throughout the steel value chain - starting from the extraction of Iron
Ore to the manufacturing and marketing of finished steel. The Integrated Steel Producers account
for 43.0 per cent of steel production in India. The largest integrated steel players in India include
Steel Authority of India, Rashtriya Ispat Nigam Limited (Vizag Steel), Tata Steel, JSW Steel &
Power, JSW Steel, Electrosteel and Essar Steel. Other major players include Jindal Stainless
Steel and Jindal Stainless Steel (Hisar) Secondary Producers are generally smaller manufacturers
who manufacture steel from sponge iron and scrap. The secondary manufacturers manufacture
steel using Mini Blast Furnace, Electric Arc Furnace and Induction Furnace units. The share of
secondary producers has been steadily rising in India and in 2011-2012 secondary producers
accounted for ~68.0 per cent of steel production in India. In the aftermath of the coal scam in
2012-2013, the ISPs could better cope with the economic uncertainty and saw a growth of 41.0
per cent in production as against secondary producers’ who saw production decline by 11.4 per
cent in the corresponding period.
OVERVIEW OF STEEL SECTOR

Global Scenario

 In January-Oct 2019, the world crude steel production reached 1541.77 million tonnes (mt) and
showed a growth of 3.2% over January-Oct 2018.

 China remained world’s largest crude steel producer in same period (829.21 mt) followed by
India (93.31 mt), Japan (83.79 mt) and the USA (74.07 mt).

 World Steel Association has projected Indian steel demand to grow by 5% in 2019 while
globally, steel demand has been projected to grow by 3.9% in 2019. Chinese steel use is
projected to show 7.8% growth in 2019.

 Per capita finished steel consumption in 2018 was 224.5 kg for world and 590.1 kg for China .
The same for India was 74.1 kg in 2018

Domestic Scenario

 The Indian steel industry has entered into a new development stage, post de-regulation, riding
high on the resurgent economy and rising demand for steel.

 Rapid rise in production has resulted in India becoming the 2nd largest producer of crude steel
during 2018, from its 3rd largest status in 2017. The country is also the largest producer of
Sponge Iron or DRI in the world and the 3rd largest finished steel consumer in the world after
China & USA.

 In a de-regulated, liberalized economic/market scenario like India the Government’s role is

that of a facilitator which lays down the policy guidelines and establishes the institutional
mechanism/structure for creating conducive environment for improving efficiency and
performance of the steel sector.
 In this role, the Government has released the National Steel Policy 2017, which has laid down
the broad roadmap for encouraging long term growth for the Indian steel industry, both on
demand and supply sides, by 2030-31. The Government has also announced a policy for
providing preference to domestically manufactured Iron & Steel products in Government
procurement.

Production

India is the 3 rd largest producer of crude steel in the world and is estimated to overtake Japan,
which is experiencing a decline in production, to become the 2 nd largest producer in the world
in 2018. Steel production is concentrated in the mineral rich eastern regions including Jharkhand,
Chhattisgarh, West Bengal and Orissa. Other states that produce steel include Maharashtra,
Karnataka, and Gujarat. India has added production capacity at a CAGR of 6.9 per cent between
2012-2016 and as of 2017, India has the 3 rd largest installed capacity for crude steel production.
The total steel production capacity is 125.8 MT with an average capacity utilization of 78.5 per
cent between 2012-2016 which is higher than the world average of 70.9 per cent in the
corresponding period. The steel production in India has nearly doubled between 2007-2017 to
101.4 MT at a CAGR of 6.6 per cent. This growth is driven by the government’s investments in
the infrastructure sector and the growth in the economy . India is the largest producer of sponge
iron accounting for 25.0 per cent of global production for sale. India is also the 3 rd largest
producer of pig iron after China and Japan accounting for 5.0 per cent of global production for
sale.

Indian steel industry : Production (in million tonnes) Category 2014-15 2015-16 2016-17 2017-
18 2018-19 AprilOctober 2019-20* Pig Iron 10.23 10.24 10.34 5.73 6.41 3.43 Sponge Iron 24.24
22.43 28.76 30.51 34.71 21.27 Total Finished Steel^ 104.58 106.60 120.14 126.85 101.29 59.73
Source: Joint Plant Committee; *prov.; For Details, please refer to appendix ^ Upto 2017-18,
production of finished steel includs value added product.

Indian steel industry : Production (in million tonnes)

Category 2014-15 2015-16 2016-17 2017-18 2018-19 AprilOctober

2019-20*
Pig Iron 10.23 10.24 10.34 5.73 6.41 3.43
Sponge Iron 24.24 22.43 28.76 30.51 34.71 21.27
TotalFinished 104.58 106.60 120.14 126.85 101.29 59.73
Steel

Demand - Availability

 Industry dynamics including demand – availability of iron and steel in the country are largely
determined by market forces and gaps in demand-availability are met mostly through imports.

 Interface with consumers exists by way of meeting of the Steel Consumers’ Council, which is
conducted on regular basis.

 Interface helps in redressing availability problems, complaints related to quality. Steel Prices

 Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices are
determined by the interplay of market forces.

 Domestic steel prices are influenced by trends in raw material prices, demand – supply
conditions in the market, international price trends among others.

 As a facilitator, the Government monitors the steel market conditions and adopts fiscal and
other policy measures based on its assessment. Currently, GST of 18% is applicable on steel and
there is no export duty on steel items.

 A Steel Price Monitoring Committee has been constituted by the Government with the aim to
monitor price rationalization, analyse price fluctuations and advise all concerned regarding any
irrational price behaviour of steel commodity.
 To avoid any distortion in prices in view of ad-hoc and rising imports, the Government had
taken several steps including raising import duty and imposed a gamut of measures including
anti-dumping and safeguard duties on a host of applicable iron and steel items. In a further move
to curb steel imports, the Indian government banned the production and sale of steel products
that does not meet Bureau of Indian Standard (BIS) approval and to check the sale of defective
and sub-standard stainless steel products used for making utensils and various kitchen
appliances, it issued the Stainless Steel (Quality Control) Order, 2016 for products used in
making utensils and kitchen appliances, that will help filter imports of the metal.

Indian Steel Consumption & Export-Import

India is the 3 rd largest consumer of crude steel in the world after China and United States.
India’s finished steel consumption has grown 1.6 times between 2007-2017 to 83.5 MT in 2017
growing at a CAGR of 5.5 per cent in the period. The increase in consumption is a consequence
of the infrastructural spends and growth in the automobile sector. Although India is the 3 rd
largest consumer of steel in the world it ranks 95th out of 142 countries in per capita
consumption. The per capita Consumption of steel has grown by a factor of 1.5 times from 43.6
kilograms in 2007 to 63.1 kilograms (rural consumption 10.0 kilograms per capital) in 2017 at a
CAGR of 4.2 per cent. Even with the huge infrastructure expenditures envisioned, India is
estimated that it will take several years for India to catch up to the world average of per capita
consumption. The New Steel Policy, 2017, has envisaged to increase in the per capita
consumption from the present 63.1 kilograms to 160 kilograms by 2030. Exports & Imports of
Steel India’s Exports and Imports can be classified as Alloyed Steel, Non-Alloyed Steel and
Other Steel (includes Pig Iron, Sponge Iron, Steel Scrap, Fittings, and Other Items). India’s Total
Steel Exports stood at 10.0 MT in FY2017 growing at a CAGR of 9.9 per cent between FY2014-
FY2017. Non-Alloyed Steel accounted for 88.1 per cent of the exports, Alloyed Steel accounted
for 6.7 per cent of the exports while the balance 5.2 per cent related to the exports of pig iron and
sponge iron. Based on the steel shapes, Flat Finished Steel (Alloy and Non-Alloy) accounted for
72.1 per cent of the exports, Non-Flat Finished Steel (Alloy and Non-Alloy) accounted for 10.7
per cent of the exports while 12.0 per cent was exports of semi-finished steel. Exports of Hot
Rolled Coils/Sheets (41.1 per cent), Cold Rolled Coils/Sheets (19.4 per cent) and Galvanized
Products (23.9 per cent) accounted for 84.4 per cent of Flat Finished Steel Exports which has
grown at a CAGR of 12.0 per cent between FY2014-FY2015. India’s Total Steel Imports stood
at 15.7 MT in FY2017 growing at a CAGR of 2.7 per cent between FY2014-FY2017. Non-
Alloyed Steel accounted for 30.7 per cent of the imports, Alloyed Steel accounted for 11.9 per
cent of the imports while the balance 49.4 per cent related to the imports of other items
(primarily steel scrap - 49.2 per cent), pig iron and sponge iron. Based on the steel shapes, Flat
Finished Steel (Alloy and Non-Alloy) accounted for 39.6 per cent of the imports, Non-Flat
Finished Steel (Alloy and Non-Alloy) accounted for 6.3 per cent of the imports while 4.8 per
cent was imports of semi-finished steel. Excluding Scrap Steel Imports India was a net exporter
in FY2017

About the current situation

The steel industry is suffering from a global crisis due to the slump of steel prices because of massive
increase in exports at dumping prices, especially from the Far East and also due to the existing production
overcapacities. The European steel producers have concerns that, in particular, the Chinese steel industry
is impeding the fair competition with their obviously subsidised products. Additionally the European steel
industry has to buy CO2-certificates resulting in higher production costs, which the oversea producers do
not have. Due to the strict environmental regulations, the European steel producers have modernised their
plant and equipment to the latest technological level resulting in 30 % lower CO2 emission per ton than
Chinese manufacturers. Since 1990, the steel industry in Germany has reduced the energy required per
ton of finished steel product by 20 %. If innovative European producers are lost from the market place,
the steel will still be required, but will then be produced in less efficient plants. This will mean that the
German steel industry will lose up to 80.000 workplaces and a further 500.000 workplaces in the
associated industries will also be at risk. Furthermore the envisaged climate protection objectives would
not be achieved. Therefore efficient trade defence instruments of the EU are vital right now in order to
compensate the existing international trade distortions. On 15 February more than 5.000 European steel
workers have marched on the streets in Brussels for this objective, among them a delegation of Stahlwerk
Thüringen and on 11 April over 45.000 people emphasised these requirements at several steel production
sites in Germany. The German Steel Industry is going to face this international challenge and is
demanding a fair playing field!
STEEL INDUSTRY ANALYSIS

 Being a core sector, steel industry

tracks the overall economic growth in the long term. Also, steel demand, being derived
from other sectors like automobiles, consumer durables and infrastructure, its fortune is
dependent on the growth of these user industries. The Indian steel sector enjoys
advantages of domestic availability of raw materials and cheap labour. Iron ore is also
available in abundant quantities. This provides major cost advantage to the domestic steel
industry.
 The Indian steel industry is largely
iron-based through the blast furnace (BF) or the direct reduced iron (DRI) route. Indian
steel industry is highly consolidated. About 60% of the crude steel capacity is resident
with integrated steel producers (ISP). But the changing ratio of hot metal to crude steel
production indicates the increasing presence of secondary steel producers (non-integrated
steel producers) manufacturing steel through scrap route, enhancing their dependence on
imported raw material.

FINANCIAL YEAR 2018

 In FY18, India's finished steel

consumption grew at a CAGR of 5.6% during FY08-FY18 to reach 90.6 MT. India's
crude steel and finished steel production increased to 102.3 MT and 104.9 MT in FY18,
respectively. In FY18, the country's finished steel exports increased 17% year-on-year to
9.6 million tonnes (MT), as compared to 8.2 MT in FY17. Exports and imports of
finished steel stood at 1.3 MT and 1.89 MT, during Apr-Jun 2018.
 Further, India was the only major steel
consuming market globally, which saw a demand escalation. However, the country
suffered from an unprecedented inflow of steel imports from China, Japan, South Korea,
and Russia. South Korea and Japan benefitted due to the free trade agreement with India.
The result was that the domestic industry was forced to take a series of price cuts, leading
to a severe margin squeeze for domestic steel companies.
 Steel prices are now increasingly
aligning to global export prices as markets strike a balance between imports and domestic
demand. China's waning demand and resultant rise in exports poses a risk to leveraging
improving domestic demand in South Asia and Europe. Further, movement of currencies
 against the US dollar would also have a significant impact on the movement of global
steel and raw material prices.

 Total crude steel production in India has increased at a CAGR of 5.4% during FY12–
FY18, with country’s output reaching 103.1 million tonnes per annum (MTPA) in FY18.
 The country remained the third largest crude steel producer in 2017, as large public
and private sector players increased steel production in view of rising demand.
 Moreover, capacity has increased to 138 million tonnes (MT) in FY18 while in the
coming ten years the figure is anticipated to rise to 300 MT of steel. Steel demand in the
emerging and developing economies excluding China, which accounts for 30% of world
total, is expected to grow by 4.9% in FY18.
 In FY18, the country’s finished steel exports increased 17% year-on-year to 9.6
million tonnes (MT), as compared to 8.2 MT in FY17.
 During the same period, the country’s finished steel imports rose 3.5% year-on-year to
7.4 MT, as compared to 7.2 MT in FY17.
 Exports and imports of finished steel stood at 3.7 MT and 4.7 MT during Apr-Oct
2018.

PROSPECTS

 India is expected to overtake Japan to become the world's second largest steel
producer soon. The National Steel Policy, 2017, has envisaged 300 million tonnes of
production capacity by 2030.
 In 2018, steel consumption of the country is expected to grow 5.7% year-on-year to
92.1 MT.
 Huge scope for growth is offered by India’s comparatively low per capita steel
consumption and the expected rise in consumption due to increased infrastructure
construction and the thriving automobile and railways sectors.
 Companies in the steel industry are investing heavily in expanding their capacity.
Major public and private companies, including Tata Steel, SAIL and JSW Steel, are
expanding their production capacity.
 The capital goods sector accounts for 11% of steel consumption and expected to
increase 14-15% by 2025-26 and has the potential to increase in tonnage and market
share.
 The infrastructure sector accounts for 9% of steel consumption and expected to
increase 11% 2025-26.
 In FY18, passenger traffic at Indian airports stood at 308.7 million and number of
operational airports stood at 100 in September 2018. Estimated steel consumption in
airport building is likely to grow more than 20% over next few years.