Overview
● The initial stage of the establishment of the Indian Steel Company was when The Bengal Iron and Steel Company in 1875 employed advanced techniques in the production of pig iron. The official endowment of the Indian steel industry was the Tata Iron & Steel Company (TISCO) in Bihar in 1907. Further with the establishment of the Steel Authority of India Ltd. (SAIL) in 1973, the Indian Steel industry was extended and intensified.
● In 2019, India was the second-largest steel producer around the globe, with a production of 111.2 million tonnes. The domestic availability of raw materials and cost-effective labor has stimulated the growth rate in the Indian steel industry. India’s crude steel and finished steel production grew to 108.5 MT and 101.03 MT in 2020, respectively. Crude steel production declined by 7% y-o-y in September 2020, opposed to a 43% y-o -y decline in June 2020.
Source: Moneycontrol
● Steel consumption declined by 11.4% lesser than the June quarter. During 2016-2020, India’s finished steel consumption increased at a CAGR of 5.2% and reached 100 MT. Steel consumption increased by 96% in September 2020 quarter compared to June 2020 quarter. Production of crude steel rose by 59% q-o-q in the second quarter of 2021.
● The uppermost five integrated steel companies estimate 60% of the whole steel production. From April to September 2020, production of crude steel and finished steel had fallen by 22% and 26%, respectively and consumption of finished steel declined by 30.6% compared with the corresponding period of 2020.
Source: SteelMint
● The outbreak of the COVID-19 pandemic followed by a nationwide lockdown had critically influenced the demand and making of steel in India in the first quarter of 2021. However, the recovery has been more notable for bigger companies where due to the financial volatility, smaller companies have seen irregular recovery during the first quarter of 2021.
What is the trade scenario of the Steel Industry in India?
● During February 2020, the exportation of finished steel fell by 17.8% and reached 0.570 MT. Due to the increase in the domestic price, the exportation declined sharply. However, during the same period, the import was higher by 0.169 MT in comparison to the export. From April- February 2020, India imported 6.39 MT finished steel products as opposed to 7.13 MT with a 10.4% drop over CPLY. A decline was witnessed in imports from Vietnam and the maximum decline was witnessed in Japan.
Source: SteelMint
● On the other hand, exports of finished steel have witnessed a declining inclination since October 2019. However, India persisted to be an exclusive exporter in steel for the seven consecutive months i.e. August 2019 to February 2020. From April 2019 to February 2020 steel exports recorded a vital growth of 34.9% over CPLY with a trade surplus at 1.39 MT. Korea remained to be the prime exporter to India followed by China and Japan. Vietnam was also one of the leading destinations of Indian steel exports by considering for approximately 29% of total steel exports. During February 2020 approximately 60% of total exports accounted for by Vietnam, UAE, and Nepal with a share of 28.3%, 15.8%, and 14.8% respectively. During February 2020, Indian iron ore exports at 2.05 MT diminished by 28%.
Source: Economic times
● The outbreak of COVID-19 had severely impacted the demand for iron ore in the market. In February 2020, Indian iron ore exports to China at 1.71 MT declined by 35%. Domestic steel companies sharply increased the export of steel products primarily semi-finished products during May and June 2020 due to a drop in domestic demand and comparatively stabler demand from China and other export destinations. The increased demand in steel demand by China and Vietnam is the more accelerated recovery of these countries from the Covid-19 pandemic.
How will the Covid-19 crisis impact steel prices?
● During January 2020, there were a sharp increase in both iron ore lumps and fines prices which prevailed in the next month of the fiscal year. The production and manufacture of iron ore witnessed an increase due to the anticipation of supply disruption to the expiry of mining leases in March 2020. Up to March 2020, 40% of the Domestic iron ore prices remained firm, due to a more deliberate ramp-up of mines in Odisha.
● On the other hand, international iron ore price has increased in the last three months from an average of USD 108.5 per DMT in July 2020 to USD 123.8 per DMT in September 2020.
Source: Mint
● In February 2020, international iron ore prices declined by 6% as opposed to the last month. This drop in prices is due to the restrained demand and lowering consumption of steel due to the outbreak of the Covid-19. Australian coking coal expectations have increased to USD 138 per tonne in October 2020 up from USD 107 per tonne in August 2020.
● Domestic steel companies have been constructing steel prices given the shrunken supply in the domestic market, developing demand, and firm global prices. Domestic HRC prices averaged above Rs 41,700 per tonne in September 2020 as opposed to Rs 35,400 per tonne in June 2020. Prices of TMT are more high-priced at Rs 35,975 per tonne in September 2020 as opposed to Rs 34,725 per tonne in June 2020. At present, domestic HRC prices are at a small premium to shipped steel prices.
Source: Economic times
● In February 2020, with a rise in coking coal prices simultaneously with the absence of active imports from China between the Covid-19 outbreak, Indian steelmakers inflated steel prices.
● Transportation of Iron ore across major ports excluding exports, in India, declined by 18% to 7.6 mt in August 2020 as corresponding 9.3 mt in July 2020. India's largest iron ore manufacturing state, Odisha registered total merchant iron ore dispatches at 3.4 mt in August 2020, down 25% versus 4.6 mt in July 2020. Coking coal prices which had diminished sharply since March 2020 have regained over the last two months.
Source: S&P Global
What are the Prospects of the Steel Industry in India?
● Iron and Steel exports reached 7.606 million tonnes, a majority of 52.9% opposed to 2016, and the imports stood at half a dozen 0.097 million tonnes, a majority of 10.9% opposed to the year 2016. India’s share in China’s steel imports reached 63% in volume terms, but the same in value terms accounted for only 23% of the total imports in March and April 2021. According to the data from Icra’s research, China imported nearly 2.29 million tonnes of iron and steel from April to May. India's exports of semis and finished steel to China reached 1.44 mt.
Source: Consultancy.in
● In 2020, India’s steel demand is anticipated to suffer a sharp drop of 18 %. As per Worldsteel, international steel demand is foreseen to record 6.4 %to 1,654 million tonnes (MT) due to the COVID-19 pandemic. According to the Department for Promotion of Industry and Internal Trade (DPIIT), the Indian metallurgical industries drew Foreign Direct Investment (FDI) to the tune of US$ 13.40 billion from April to March 2020.
● In developed economies, steel demand is anticipated to fall by 17.1 % in 2020. India is likely to suffer an 18% loss in demand which is foreseen to recover by 15% in 2021. As per Worldsteel, the steel demand globally is expected to resume by 3.8% to 1.717 MT in 2021. Both India and China are expected to recover faster than other economies. Also, India permits 100% FDI in the steel industry sector.
Summary
The domestic steel market in India has improved in the preceding three months due to an increase in demand from automotive and domestic appliances. However, the market for steel from the construction sector remains weak. Higher regional prices and cutting domestic supply due to increased export bookings by domestic steel mills have produced an increase in prices of Indian hot-rolled coil (HRC) steel. A surge in domestic consumption will benefit all the major steel companies in India.