India Steel Consumption, Recession Both Hurdles to No. 2 Crown

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In Parts One and Two, we’ve outlined two major challenges India’s steel industry sector faces in trying to become the world’s second-largest, taking the mantle from Japan: resources and infrastructure. Just one more thing…

Challenge #3: Market Forces

China is ahead in the race of steel production as well as consumption.

current steel prices - MetalMiner IndXIn 2005, China turned into a net exporter of steel, which means Indian companies have to also compete with cheaper Chinese exports like cold rolled coil and hot rolled coil in global and domestic markets.

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India’s low per capita consumption of steel as compared to, say, China’s or the US’ is another problem area. No doubt consumption has gone up in the last decade and the per capita consumption is about 57 kilograms today, but that is still about 30 percent less than global consumption.

Mr. Subramanian of Frost & Sullivan has expressed hopes that this consumption will keep climbing in the years to come. Which could happen. Traditionally, the construction and infrastructure sectors together have been responsible for the highest demand for steel (more than 60 percent) in the country. Indian finished steel production in 2011-12 stood at 70.32 million metric tons and is forecast to touch 92.29 million tons in 2015-16, according to the F&S report.

Construction, followed by manufacturing and automobile production, will continue to be the three major drivers of India’s steel story in the coming years. Yet, if it will indeed turn into the world’s second-largest producer, it needs to get its act straight on several fronts (some of them mentioned above and in Part Two).

Plus, steel producers here need to keep their fingers crossed, and hope that the financial recession of the last two years becomes history in 2013. Although the OECD just yesterday cut economic growth forecasts for the Western world, India’s economy will grow 4.4 percent in 2012 and 6.5 percent in 2013, according to a Bloomberg Businessweek article.

That may not happen, though, going by present indications. India’s own finance minister made a statement last week that the Indian economy will really kickstart in about two years.

So then, where does that leave the steel sector? Will the current growth rate of 5.5 percent be enough to achieve the 2015 target?

Sohrab Darabshaw contributes an Indian perspective to MetalMiner.

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