- Indian steel prices have bottomed out, global demand recovery hinging on China
- Imports have limited scope of gaining ground in India
- Country poised to be fastest-growing steel market
- Govt capex expected to grow at a CAGR of 14.4% in FY2013-22 and 32.8% in FY2021-23
Morning Brief: Why should India stress on manufacturing? How did the INR 111 lakh crore National Infrastructure Pipeline concept emerge? Which way is the electric vehicle sector headed in India? What is the outlook on prices? These points and many more were discussed at the India Steel Conference, 2022 that was recently held in Mumbai. It was organized jointly by SteelMint, the Steel Users Federation of India (Sufi) in association with the Bombay Stock Exchange (BSE).
SteelMint brings its readers the key takeaways from the conference:
1. Price outlook
In the current quarter, with coking coal and iron ore prices falling sharply, the cost is providing a bottom to steel prices. Thus, in India, price drops are lower. Indian prices are bottoming out.
Global price outlook will depend on the demand recovery and production trends to be seen in China. If there is an orderly exit of the rains in Asia, heatwave normalizing, demand improving with low inventories, and some cost push, prices may move higher. The unknown variable is gas prices. If gas keeps moving higher, thermal coal will also move up, and this will create disturbances across commodities and demand.
Factors influencing prices: In the first 3 quarters of last year, it was demand. Q4FY22 and Q1FY23 saw cost support and pushing prices. Q2FY23 is seeing cost supporting prices plus geo-political impact.
2. Imports prospects
Imports have limited scope of making much headway because of the lower export allocations from source countries like Russia which is keen to cater to home demand first.
Imported materials are still cheaper than domestic prices. SteelMint assessed that HRC import prices are hovering around $620-650/t CFR India from FTA countries, whereas domestic HRC prices are hovering at INR 55,000/t levels ($690/t).
3. Changing demand-supply dynamics
The key question is whether the 300 mnt of crude steel production capacity planned by end of this decade will have more of the same or offer something different? There are trends, mega trends and emerging trends which will decide the mix of the additional capacity that will come up – both in terms of products and service.
Service will pertain to the way sellers reach out to consumers. Of the present 106 mnt of finished steel, 40-45 mnt goes out in retail sales – organised and unorganized. If there are 240 mnt of finished sales by 2030, it would mean 120-130 mnt in retail. Is the existing distribution, stocking and retail infrastructure capable of handling this volume? Capacities will grow but, more importantly there has to be a shift in the mindset of channel partners to a more service-oriented one which can be a game changer.
The country is poised to be the fastest growing steel market. India’s finished steel demand in 2023 (F), as per WSA, is expected to show the highest growth at 6%, compared to 4% in the Euro Area, 2.4% in the US and 1% in Japan, South Korea and China.
Demand for steel in building construction and infrastructure as a ratio of total demand is the highest in India, at 60-65% — even higher than China’s 50-55%.
Four quarters back, globally only 30,000 electric vehicles (EVs) were registered per quarter. The last quarter has seen a 7-fold growth (a number still small), with only 5% (3 million) of EVs on roads. Global projections indicate 50% (30 million) of the world’s cars will be EVs by 2030 from current 5%. India is looking at an EV penetration of 3% annually and passenger car segment by 10-15%, by 2030.
Steel demand towards the end of monsoon will increase. The commodity price fall is encouraging buyers to lock into a price decision. Therefore, buying will see traction in the coming quarters. Production activity will resume, and accumulation of inventory is expected across the chain soon.
ICRA estimates demand will grow 6-7% unless there is unforeseen shock.
CRISIL sees inflation and China’s deceleration to impact global steel demand. Global finished steel demand is expected to fall to 1,670-1,690 million tonnes (mnt) in 2022 (1,760 mnt in 2021) and edge up to 1,700-1,730 mnt in 2023. However, China’s share is expected to remain static over 2022-23 at around 50%.
4. Infrastructure impact on steel
There is a strong government push for infrastructure-led growth. In FY2023 government capex is expected to reach the average annual run-rate targeted in the National Infrastructure Pipeline (NIP). Government capex is expected to grow at a CAGR of 14.4% over FY2013-2022 and 32.8% in FY2021-FY2023.
Infrastructure contributes 61% of steel demand. Overall demand from various government infrastructure projects is 180 mnt.
India’s National Infrastructure Pipeline (NIP) is in line with the vision of the Sustainable Development Goals (SDGs) adopted by all 193 member nations of the United Nations General Assembly in 2015 –intended to be achieved by 2030. Thus, NIP’s origin can be traced back to 10 years, although it was launched in 2019 with an allocation of INR 111 lakh crore over FY2020-2025 across 12 sectors with the highest share for energy. The top six sectors – energy, roads, urban infra, railways, irrigation and rural infra contribute 84% of the NIP.
Urban infrastructure contributes 65% of total GDP, with 1,362 projects allocated and capex of INR 19.20 lakh crore.
When will the Indian economy move from its current fourth place to become the third-largest construction market globally after the US, China and Japan? NIP will boost infra construction and propel India into the top 3 league in the coming 7-8 years. No other country is spending INR 111 lakh crore, till 2025 expect, maybe, China.
However, some feel, the investment ratio in NIP among Centre, states and private sector is lopsided. It has to be evenly distributed across the country if India wants to touch $5 trillion.
Yet others feel the infrastructure push is there but the results are yet to be seen in the way we want to. For instance, the US has 64 lakh km of roads, India similar. But we have 1.4 lakh km of highways, whereas the US has much more motorable roads.
There is a need to create a strong energy-gas grid. A disruptor in the form of hydrogen is coming up but as of now India is very much on the energy-gas platform.
5. Importance of manufacturing in GDP
Stress should be on manufacturing for a country like India where population is high and income low. Germany, despite the negative headwinds, is still stable because of the higher percentage of manufacturing in its GDP. India’s share is low despite the increase from 12% to the present 15% a few years ago. If manufacturing’s share is increased to 20% – per capita income and infrastructure development will speed up, which, in turn, become propellers of economic growth.
The steel industry is front-loading capex because 3-4 years are required for steel production to start so that India becomes ‘atmanirbhar’ in steel.
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