During 2012, India maintained its ranking as the 4th largest steel producing country in the world behind China, Japan and the US with a crude steel production of 76.7 million tonnes (MT) representing a 4.3% growth over 2011. The Indian steel industry continued to showcase trends of higher consumption of finished steel and continued to be a net importer on account of increased demand for special grades of steel in the country. India's current per capita finished steel consumption at 57 kg is well below the world average of 217 kg. With rising income levels expected to make steel increasingly affordable, there is vast scope for increasing per capita consumption of steel.
Being a core sector, steel industry tracks the overall economic growth in the long term. Also, steel demand, being derived from other sectors like automobiles, consumer durables and infrastructure, its fortune is dependent on the growth of these user industries. The Indian steel sector enjoys advantages of domestic availability of raw materials and cheap labour. Iron ore is also available in abundant quantities. This provides major cost advantage to the domestic steel industry.
The Indian steel industry is largely iron-based through the blast furnace (BF) or the direct reduced iron (DRI) route. Indian steel industry is highly consolidated. About 60% of the crude steel capacity is resident with integrated steel producers (ISP). But the changing ratio of hot metal to crude steel production indicates the increasing presence of secondary steel producers (non integrated steel producers) manufacturing steel through scrap route, enhancing their dependence on imported raw material.
With trade barriers having been lowered over the years, imports play an important role in the domestic markets. Currently India is net importer of steel.
The demand is derived from sectors that include infrastructure, consumer durables and automobiles.
Barriers to entry
High capital costs, technology, economies of scale, government policy
Bargaining power of suppliers
Low for fully integrated players who have their own mines for raw materials. High, for non integrated players who have to depend on outside suppliers for sourcing raw materials.
Bargaining power of customers
High, presence of a large number of suppliers and access to global markets.
High, presence of a large number of players in the unorganized sector.
The world Gross Domestic Product (GDP), as reported by the International Monetary Fund, witnessed a moderate growth of 3.2% in 2012 as compared to a growth of 4.0% in 2011. While the growth in the advanced economies was 1.2% in 2012 in contrast to 1.6% in 2011, growth in the emerging and developing economies fell to 5.1% in 2012 compared to 6.4% in 2011. There was a noticeable slowdown in the emerging market and developing economies during 2012, a reflection of the sharp deceleration in demand from key advanced economies. Global prospects have improved but the road to recovery in the advanced economies is still uncertain and volatile.
World crude steel production grew at 0.7% reaching 1547 MT in 2012, as per World Steel Association (WSA). The growth in production, coming mainly from Asia and North America, was considerably subdued as compared to 7.3% growth in 2011. Japan, the second largest steel producer in the world, after China, recorded negative 0.4% growth in crude steel production in 2012 over 2011. US produced 88.7 MT of crude steel in 2012, growing at 2.7% over 2011.
Of the BRIC nations, only Brazil recorded a decline in crude steel production in 2012 at -2%; Russian and Indian crude steel production grew by 2.2% and 5.6% respectively. China accounted for 46% of the world's total crude steel production in 2012, reaching 716.5 MT, an increase of 2% over 2011. The European Union saw crude steel production decline by -4.7% in 2012 to 169 MT As per WSA estimates the global steel demand during 2012 grew by around 1.2% to 1413 MT, moderating from a 7.3% growth in 2011. It is expected to grow by around 3% to 1454 MT in 2013.
The Indian metals and mining sector is currently facing a multitude of challenges like weak macro environment, leveraged balance sheets and heightened regulatory risks. The sector has suffered valuation de-rating since FY12 due to various factors like environmental and regulatory concerns, cost increases, delayed projects and high interest rates.
Government delays in allocating coal blocks for captive consumption by steel manufactures is seriously hurting the competitive edge of Indian steel sector. The same story is with iron ore. There are delays in allocating iron ore mines as well as approval for mining licenses. As a result no new investment on the ground in the steel sector is happening to add new steel capacities.
Looking ahead, modest pick-up in global steel demand is expected in 2013. Global steel usage is forecasted to increase by 2.9% to 1.45 billion tonnes in 2013, following the slower than expected growth in 2012. Demand is likely to improve faster in emerging markets. Steel use in China, the largest steel producer and consumer, is expected to grow by 3.5% in 2013 to 668.8 MT following a 2% increase in 2012. There are trends of demand recovery in the property sector and the demand for infrastructure has also been strong since June, 2012. However, underlying demand in the EU is not expected to improve much in 2013 despite moderate restocking seen in the beginning of the year. Overall, steel demand is expected to remain weak due to the continuing economic crisis in the developed countries and the structural shift in the Chinese economy. Moreover the world is reeling under the pressure of large surplus capacity which will remain a serious cause of concern, especially in times of subdued global demand.
Going forward, as GDP growth in India weakened more than expected in 2012 on account of stalled investment against the backdrop of tightening policies, widening trade and fiscal deficit, high inflation and weak FDI inflows, FY13 was a year of subdued activity for steel using sectors in particular the auto segment. It is expected that 2013 will continue to remain a challenging year for the automotive sector as high interest rates and fuel expenses will continue to act as a drag on demand. However, the construction sector remained relatively resilient in 2012 and is expected to remain stable
Steel demand in India has remained sluggish so far in 2013 amidst weak activity and poor sentiment; however, activity is expected to accelerate modestly in the coming years. Steel demand is expected to grow by 5.9% to 75.8 MT in 2013 following 2.5% growth in 2012. Strengthening domestic consumption and improving external conditions will help underpin the growth of steel using sectors..