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Steel Sector Analysis Report 

[Key Points | Financial Year '18 | Prospects | Sector Do's and dont's]

  • 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.
  • In FY18, India's finished steel consumption grew at a CAGR of 5.6% during FY08-FY18 to reach 90.6 MT. India's crude steel and finished steel production increased to 102.3 MT and 104.9 MT in FY18, respectively. In FY18, the country's finished steel exports increased 17% year-on-year to 9.6 million tonnes (MT), as compared to 8.2 MT in FY17. Exports and imports of finished steel stood at 1.3 MT and 1.89 MT, during Apr-Jun 2018.
  • Further, India was the only major steel consuming market globally, which saw a demand escalation. However, the country suffered from an unprecedented inflow of steel imports from China, Japan, South Korea, and Russia. South Korea and Japan benefitted due to the free trade agreement with India. The result was that the domestic industry was forced to take a series of price cuts, leading to a severe margin squeeze for domestic steel companies.
  • Steel prices are now increasingly aligning to global export prices as markets strike a balance between imports and domestic demand. China's waning demand and resultant rise in exports poses a risk to leveraging improving domestic demand in South Asia and Europe. Further, movement of currencies against the US dollar would also have a significant impact on the movement of global steel and raw material prices.

How to Research the Steel Sector (Key Points)

  • Supply
  • With trade barriers having been lowered over the years, imports play an important role in the domestic markets.
  • Demand
  • 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.
  • Competition
  • High, presence of a large number of players in the unorganized sector, imports from China, Russia and FTA Countries such as Japan and South Korea.

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Financial Year '18

  • Total crude steel production in India has increased at a CAGR of 5.4% during FY12–FY18, with country’s output reaching 103.1 million tonnes per annum (MTPA) in FY18.
  • The country remained the third largest crude steel producer in 2017, as large public and private sector players increased steel production in view of rising demand.
  • Moreover, capacity has increased to 138 million tonnes (MT) in FY18 while in the coming ten years the figure is anticipated to rise to 300 MT of steel. Steel demand in the emerging and developing economies excluding China, which accounts for 30% of world total, is expected to grow by 4.9% in FY18.
  • In FY18, the country’s finished steel exports increased 17% year-on-year to 9.6 million tonnes (MT), as compared to 8.2 MT in FY17.
  • During the same period, the country’s finished steel imports rose 3.5% year-on-year to 7.4 MT, as compared to 7.2 MT in FY17.
  • Exports and imports of finished steel stood at 3.7 MT and 4.7 MT during Apr-Oct 2018.

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Prospects:

  • India is expected to overtake Japan to become the world's second largest steel producer soon. The National Steel Policy, 2017, has envisaged 300 million tonnes of production capacity by 2030.
  • In 2018, steel consumption of the country is expected to grow 5.7% year-on-year to 92.1 MT.
  • Huge scope for growth is offered by India’s comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors.
  • Companies in the steel industry are investing heavily in expanding their capacity. Major public and private companies, including Tata Steel, SAIL and JSW Steel, are expanding their production capacity.
  • The capital goods sector accounts for 11% of steel consumption and expected to increase 14-15% by 2025-26 and has the potential to increase in tonnage and market share.
  • The infrastructure sector accounts for 9% of steel consumption and expected to increase 11% 2025-26.
  • In FY18, passenger traffic at Indian airports stood at 308.7 million and number of operational airports stood at 100 in September 2018. Estimated steel consumption in airport building is likely to grow more than 20% over next few years.

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Related Links for Steel Sector
Quarterly Results | Sector Quote | Over The Years

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