More Iron Ore Imports, Higher Costs for Indian Steelmakers

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India’s sagging domestic demand is not as if the market for steel does not exist, but because of certain conditions, some controllable, others not so much, that have started taking a toll. Catch up on the latest WSA production figures here.

MetalMiner has reported on most of them – the land acquisition problems, the mining ban, and so on. We recently reported on how some of the world’s leading steel manufacturers such as ArcelorMittal and Posco had decided to scrap US$12 billion worth of proposed steel projects in India (and why it doesn’t really matter).

But that, coupled with delays in building plants by Tata Steel Ltd and others, will adversely impact the new target for steel product set for 2020. According to a Bloomberg report, it could cut the nation’s 2020 capacity target of 200 million tons by a quarter.

The steel story may soon suffer yet another blow.

According to a report in the Economic Times, India may turn into a net iron ore importer for the first time as restrictions on production of the steelmaking material and stricter environmental norms cut output. Higher imports will increase costs for local steelmakers that don’t own mines because of freight costs and a weakening rupee, pushing imports to about 24 million tons in the year up to March 31st, an eight-fold increase from a year ago.

Analysts predict that going by the current growth rate, India will only be adding about 50 million tons in the next eight years, taking the total capacity to around 150 million tons, when the need and the market both could use more.

A little belatedly (par for the course), the Indian government has realized this. It recently tried to kickstart the economy by allowing foreign direct investments into several sectors, including defense. But with general elections barely a year away, how much of these “last minute” incentives will bear fruit on the ground is anybody’s guess.

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