Two of India’s largest steelmakers, one government-owned and the other from the private sector, believe that despite the short-term setbacks to India’s steel sector, its future is “bright.”
The state-owned Steel Authority of India (SAIL) and domestic giant Tata Steel have said (poor growth in steel demand this year notwithstanding) the sector is poised to grow as India’s low per-capita consumption was bound to get a boost with the government’s plan of increasing infrastructure spending.
MetalMiner has been consistently tracking the downturn in India’s steel story, and how steel demand had grown by a mere 0.5 percent to 53.78 million tons during the April-December period of the current fiscal year.
Though India’s per-capita consumption in rural areas had picked up, it was approximately one-fifth of the national average at 12 kg, considered low.
A report in The Hindu Business Line quoted SAIL Chairman C.S. Verma saying the performance was quite low compared to the world average.
Increased Infrastructure Spending
Verma said the government planned to increase infrastructure spending from the current 5 percent of GDP to 10 percent by 2017, and India was committed to investing $1 trillion in infrastructure during the 12th five-year plan.
Even if one assumed 15 percent of this investment as the steel component, it could generate additional demand worth US $75 billion in steel in the next few years or $15 billion worth of additional demand a year.
Tata Steel, on the other hand, felt the small per capita consumption would be a major growth driver, and India would need to add substantial steel capacity in the coming years.
This assertion was made by Tata Steel in its recent presentation, “Potential Areas for Technical Co-Operation in Underground Coal Mining,” according to a report in The Business Standard.
In fact, by the Indian Government’s own reckoning, the National Manufacturing Policy envisions the share of manufacturing in GDP to increase from 14 percent in 2012-13 to 25 percent by 2025, which means a major increase in the demand for steel.
The country proposes to achieve 300 MTPA capacity by 2025.
Over-Supply in the Short Term
However, the SAIL Chairman did add that with around a 50 percent capacity increase in the offing, India’s steel industry was likely to face a temporary over-supply situation.
The rise in production may lead to a “temporary phase of over-supply,” he said, adding, this is because “typically the increase in capacities is in spikes, whereas the increase in consumption follows a relatively smoother trajectory.”
Talking to The Economic Times, Verma said while some of the well-known steel producers in the country had hiked up capacities, anticipating a boost in pickup, demand had not risen on expected lines. While steel consumption rises by 1.1 times of the GDP growth rate for an economy, in India, it had remained subdued so far in the current fiscal year considering India’s slow GDP growth.