Steel in India to witness a boom

Steel is crucial to the development of any modern economy and is considered as the backbone of human civilization. The level of per capita consumption of steel is treated as an important index of the level of socio-economic development and living standards of the people in any country. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. All major industrial economies are characterized by the existence of a strong steel industry and the growth of many of these economies has been largely shaped by the strength of their steel industries in their initial stages of development.  With the Indian economy poised for its next wave of growth under the reforms being unleashed in the last one year, there lies tremendous opportunity for the Indian steel industry to prosper and grow exponentially. 

Now, coming to the policy side, the steel ministry has already set an ambitious target of taking the country’s steel output to 300 MT by 2030-31 from 100 MT, at present, and is taking various measures to boost the sector.  Moreover, the sector is feeling bullish after the GST rollout. Players in the sector have opined that with GST, the steel sector has become quite organized and the unorganized players are left with no choice but to move to the organized form of doing business. Moreover, GST has abolished the special additional duty on imported goods which was a very cumbersome procedure.

On the global front, there’s been a keen tussle on between the four steel producing giants (the U.S., China, Japan and India), with the latter already the world leader in stainless steel production and the third largest crude steel producer. For example, India had overtaken Japan to become the second-largest crude steel producer in the world after China in 2016, according to the International Stainless Steel Forum. The country’s stainless steel production had gone up to 3.32 MT for 2016, approximately 9% more than the 3.0 MT achieved in 2015.

It certainly looks like that the steel sector in India is beyond the bottom of the cycle and the industry is stabilizing with domestic consumption picking up - albeit slowly. While the steel demand growth in the past quarter and last year is indicative of a modest expansionary trend, the durability and strength of the demand growth are yet to be established. However, current levels of steel growth do not afford the sustained volume increase and pricing power required to offset the NPA problem where the distressed firms have ballooned up the debts to unsupportable levels. NPAs will thus need to be written down, the distressed companies will need to be restructured through bankruptcies and the banks recapitalized.

In a nutshell, the steel industry in India will continue to serve as stimulus to national development and economy booster  to industrial development of a country. The industry will serve as the backbone of industrialization of New India if all the necessary parameters are put in place. The benefits of having a stable and organized steel industry will translate to a robust sustainable country.