The mineral industry of India would be made export-centric through a big infrastructure support, Steel Minister Dharmendra Pradhan said while speaking at a webinar on “New Opportunities for Steel in Construction and Infrastructure”, recently organised by the Indian Steel Association (ISA).
Steel demand outlook
India has already started showing a v-shaped recovery curve across most sectors. From August, construction, auto and manufacturing sectors rebounded because of which there was 7% growth in steel demand in the October-December quarter. The momentum is expected to continue into the January–March quarter, riding stalled construction projects. This shall limit contraction in volume to 9-11% this year.
The coming fiscal can see retracing back to FY19-20 peak levels of 100 million tonnes with a further upside depending on the vaccine’s effectiveness. In the medium term, Crisil foresees 7-7.5% growth which would be above the trend line of the last decade and also mirrors 1-1.1 times multiple of GDP growth.
Hit by Covid-19, demand in H1 of FY21 fell 30%.
Areas that would drive steel demand
The share of construction (building and infrastructure) is 62%, the highest in India, and 55% for China and lower for other countries. The reason is China and Japan both have a higher base of machinery, engineered goods and automotive production.
Secondly, the US has relatively low steel intensity in its housing.
Rasika Chaube, Additional Secretary, Ministry of Steel, said feedback from the infrastructure industry is that the desired thickness of plates is not available in the country which forces imports from China and elsewhere. An example is the Signature bridge in Delhi where the maximum portion was procured and fabricated in China. Chaube stressed on the urgent need to critically evaluate future requirements, modernise, and upgrade facilities suitably.
The other critical area, Chaube said, is development of rolled products made of high strength and corrosion-resistant steel so that the cost difference between
RCC and construction steel, about 30-40%, can be minimised.
There is huge scope of work in the rural hinterland, especially after enactment of the farm Bill. The agri sector is set for a boom in terms of transportation, housing, storage etc.
Almost INR 80 lakh crore of physical assets built in the country in last 25 years have aged and require retrofitting and repairs. Steel has a role to play here too.
Use of steel structures instead of RCC for railway bridges and roads will intensify steel consumption since steel structure is two-third made of steel against one-third for RCC.
Expected growth over next four years?
Construction would likely see a modest growth of 5-6%, led by three key drivers. a) Around 1.2 billion sq ft of real estate is under development in the top 10 cities and due for delivery as per RERA deadline in three years. b) On the rural side, construction or conversion to pucca houses with 2-3 back-to-back good agricultural years augur well for rural housing. c) Government-led initiatives on affordable housing will regain its sheen after two dull years as nearly 30 lakh units are under construction in urban areas and around 39 lakh units have been approved.
Infrastructure will see a healthy 8-10% growth helped by the National Infrastructure Pipeline (NIP).
Govt initiatives
The government under NIP has an outlay of INR 111 lakh crore. Around 42% of the investments are under construction, 36% are in the pre-construction stage.
The share of under-construction projects is higher in steel-intensive sectors like railways, urban infrastructure and roads. More than three-fourth of the projects are through the EPC mode, which is expected to be 80-82%, thereby limiting risks.
Several projects under NIP will play a critical role going ahead. The largest is the Pradhan Mantri Awas Yojna (PMAY) where both urban and rural sides hold potential of consuming 40 million tonnes of steel and contribute 5-6% of the annual steel consumption.
The project was to be completed by 2022. However less than one-third of both rural and urban houses have been constructed till date. The pace of construction is relatively better on the urban side at around 35% but around 27% of the target is under construction and approvals have been wrapped up for around 36% which would potentially translate into the entire demand coming up for steel over the next four years.
In roads, the government’s scheme of Bharatmala, which aims to construct nearly 85,000 km, would translate into at least 20 mnt of direct steel demand, not accounting for indirect impact of the construction. Healthy awarding numbers are seen in roads and the segment would be back to FY19-20 levels in the current year.
In the current year, NHAI awarding has gone up 94% from April to October. Railways DFC and Metro will propel steel demand growth. Metro construction investments will see 1.3 times rise over the next four years vis-a-vis the last four years, led by Mumbai Metro, some phases of Gurgaon Metro and those in southern cities.
NHAI is also planning to set up wayside amenities every few kilometres which would necessitate associated infrastructure development.
India’s urbanisation rose marginally to only 34% against China’s 60% over the past 25 years which will provide great structural opportunity for steel industry in the long term.
Industry perspective
JSW Group Chairman Sajjan Jindal feels the industry needs to focus on 700-750 strength TOR steel in India which will reduce the tonnage in infra construction.
Pankaj Malhan, Whole-time Director, ESL Steel, stressed on high opportunities in the rural markets, need for creating infrastructure to connect cities to rural markets, and getting closer to the customer. He stressed on the “need of getting steel into buildings and buildings into steel”.
For projects to take off, land availability and single window approvals are needed which will not only give a fillip to steel but also the capital goods sector, which is steel-intensive.
Outlook
There is an urgent need to bridge the per capita steel usage gap, which is one-third of the global average, take steel usage to the next level, create greater awareness on steel usage and make concerted effort to raise steel usage in rural areas.
The government has sanctioned INR 6,322 crore for a production-linked incentive scheme (PLI) for specialty steel. Faggan Singh Kulaste, Minister of State for Steel, hoped the Indian Steel Association would work on further value addition and focus on specialty steel to bring in greater self-reliance in the sector.
~Madhumita Mookerji
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