Export Attractiveness of India’s Steel Sector

Introduction
India is a major stakeholder in the global steel market. In January 2019, India overtook Japan as the world's second-largest steel producer, with 111.2 million tonnes (MT) of production. Steel production and consumption - being a critical input for critical sectors such infrastructure, construction, engineering and packaging, automobiles, and defense - reflects the national economic health. It is an indicator of modernity, and the sector’s development is inextricably linked to the development of a country. Sectors in India that utilize finished steel are construction (62%), capital goods (15%), automotive (9%), intermediate products (6%), consumer durables (5%), and railways (3%).

India: A Major Producer and Exporter of Steel
India’s crude steel production was 103 MT in 2021. India’s total steel production capacity as of FY19 stood at 142 MT. Economical labor and the availability of raw materials such as iron ore have fueled the rise in production. The Minister of State Steel and Rural Development, Mr. Faggan Singh Kulaste, has also praised India’s steel industry’s growth in FY22. The country’s steel industry recorded a CAGR of 5-6% YoY and witnessed a great recovery in demand post Covid. India is the world's third-largest steel pipe production hub, with steel pipes accounting for 8-10% of total steel consumption. The steel industry accounts for roughly 2% of India’s GDP, providing livelihood to 5,00,000 people directly and 20,00,000 people indirectly. India has good port locations that aid in efficient transportation and help in the export of finished products. Vizag Steel Plant is one such facility.

India is a net steel exporting nation. In 2020, India ranked 8th globally in terms of total steel exports, accounting for 17.1 MT in total steel exports. The country exported 13.5 MT of finished steel in 2022. In FY22, Vietnam accounted for most of India’s steel exports, accounting for 1.70 MT. Exports to Europe and the Middle East, particularly HRC (hot rolled coil), increased India's overall exports for the year. Furthermore, the UAE was the second-highest importer of Indian steel. Increased steel production over the last decade has greatly reduced India’s dependency on imports, despite high domestic demand and usage of steel. As of 2020, India accounted for 5% of the total 1,772 MT of the total usage of finished steel, the second-highest in Asia after China. The country’s exports increased due to foreign trade agreements with countries like Japan and South Korea, and steps taken by the government of India to boost the growth of the steel industry. In addition, prices in international markets were high as of 2021, causing exports to rise.

India’s Finished Steel Exports across 10 financial years: (in Million Tonnes)

Source: EY-CII report and Ministry of Steel, GOI as cited in BusinessToday

Private Sector Investments
As of 2019, the private sector held an 81% market share in the production of crude steel, and PSUs held the remaining 19%. In 2022, JSW Steel announced plans to invest Rs. 15000 crore (US$ 1.9 billion) to increase the capacity of its Vijayanagar facility. The company plans to increase total capacity to 37.5 MT by the year 2025.

Tata Steel plans to double its capacity to 40MT, by 2030. Expansion of its three facilities at Angul, Kalinganagar, and Jamshedpur should be sufficient to meet this target. The company’ is expanding its mining capacity to achieve its 2030 target of possessing the capacity of 55 MT steel production.

Government Initiatives
The government intends to aggressively push its initiative for ‘Aatmanirbar Bharat’ that aims to make the nation self-reliant. It intends to incorporate that in the steel sector as well despite being a net exporter. It plans to achieve this through the following undertakings:

• In 2017, the government approved the National Steel Policy, which focused on the vision of achieving national steel production of 300 (MT) along with increasing domestic per capita steel consumption by 2030.The policy announced some measures that would be taken by the government, such as:
  • The Ministry of Steel, in collaboration with appropriate institutions, will continuously analyze the techno-economic performance of all steel facilities in the country in comparison to global best practices.
  • Setting up joint ventures with global leaders to ease the transfer of technology to manufacture automotive and other specific steels.
  • Under the BIS’s mandated quality certification mark process, 145 Indian Standards for steel and steel products have already been published. Under the required programme to protect human health, the environment, and safety, efforts will be made to bring in new steel items that are utilized in important end-use applications.
• The government approved the Production-linked Incentive (PLI) Scheme for specialty steel in July 2021. The scheme would be for a period of 5 years. The budget for the plan is estimated to be Rs. 6322 crores (US$ 814.6 million), and is expected to attract investment totaling Rs. 40000 crores (US$ 5.2 billion) along with expansion in the total capacity of specialty steel production by 25 MT. The scheme would provide livelihood to an estimated 525,000 people, of which 68,000 would be employed directly. The benefits of this scheme would extend to the small and big players in the steel industry. The scheme will ensure that the basic steel used is ‘melted and poured' within the country, implying that the raw material (finished steel) used to make specialty steel will be produced exclusively in India. This would promote end-to-end manufacturing within the country.
• With an initial investment of Rs. 200 crores (US$ 25.8 million), the Ministry of Steel has planned the establishment of an industry-driven Steel Research and Technology Mission of India (SRTMI) in collaboration with the public and private sector steel companies. SRTMI would spearhead research and development activities in the iron and steel industry.
• The Ministry of Steel of India and the Ministry of Economy, Trade and Industry of Japan signed a Memorandum of Cooperation (MoC) in FY 2021 to strengthen the steel sector through joint initiatives. Later, in the same year, India and Russia inked an MoU to collaborate on steel R&D and coking coal production (used in steelmaking).

Crude Steel Production across 10 financial years: (in Million Tonnes)

Source: EY-CII report and Ministry of Steel, GOI as cited in BusinessToday

Road Ahead
India’s steel industry has experienced tremendous growth over the past few years, solidifying its place among the top steel producing and exporting nations. Despite the pandemic, the industry has shown recovery. Optimism in the steel industry arises from the fact that India’s per capita steel consumption, which is currently low, is expected to increase. A report by Infomerics, which is a SEBI and RBI registered financial services credit rating company, mentions that surging infrastructure construction, rapidly developing automobile and railways sectors, stimulus packages launched in several countries across the development spectrum in the aftermath of the pandemic, and rising global steel prices provide impetus to this sector.

Lastly, the government has introduced policies and taken steps to increase India’s domestic steel capacity and further reduce the already dropping rate of imports drastically. Plans initiated by various companies and PSUs have further ignited the efforts to increase India’s total steel production capacity, and are collectively estimated to bear fruit by 2030.