Steel sector to bounce back to robust growth in 2021

New Delhi, March 30 (SocialNews.XYZ) After a brief lull in 2020 pushed by the pandemic and the lockdown that affected all industries, the Indian steel industry is expected to bounce back to a robust growth phase in 2021.

Steel is regarded as an essential commodity as it is the backbone of the manufacturing industry. Recovery in demand is already visible in the construction, automobile, and white goods segments. This is expected to continue in the first half of 2021 as pent-up demand will also be met.

The construction sector, which includes both infrastructure and real estate, contributes about 62 per cent of the total steel demand. Both these sub-segments are witnessing demand revival which is expected to become stronger in 2021, especially as the government loosens its purse strings and spends more on infrastructure projects.

The automobile sector contributes nine per cent while the consumer durables segment's contribution is six per cent. While the second half of the year is expected to see growth tapering a bit, there will be healthy demand in steel-using industries which will bring in good tidings for the Indian steel sector.

Says Arnab Hazra, Economist and Deputy Secretary-General of the Indian Steel Association (ISA), "Consumption of finished steel had reached 102.6 million tonnes in 2019. We had predicted steel demand to decline by around 20.2 per cent to 81.9 million tonnes in 2020. However, now in 2021, we foresee a strong rebound in steel demand. We expect steel demand to increase by around 22 per cent to touch the 100 million tonne mark once again. As the economy and economic growth recovers, steel demand from capital goods, construction machinery, mining equipment, and electrical machinery is expected to show strong recovery."

Sectors like capital goods, construction machinery, electrical machinery, and mining equipment contribute about 10 per cent to steel use. The Railways, an important steel using sector, has seen the strongest growth in the last few years. This growth trend is likely to continue in 2021. However, paucity of funds could deter new projects and thereby dampen the steel demand that is traditionally witnessed by this sector. The Railways contribute about seven per cent to India's overall steel usage.

The remaining six per cent is contributed by the intermediary or packaging sector, which, in turn, depends on both the auto sector and exports. Demand in this sector is likely to touch 2019 levels -- of around six million tonnes.

While it is largely believed that the steel industry, like other industries in India, suffered heavily during the 69-day nationwide lockdown, steel companies, using the blast furnace route never halted production during this period. The bigger and integrated steel producers who use the blast furnace or blast oxygen furnace route, cannot be shut down indiscriminately. There are huge costs involved in shutting down as well as restarting these blast furnaces. So, the bigger steel players had to continue producing steel even during the lockdown. Thankfully, there was demand from the Chinese market which proved to be the succour.

Says Dr. Aruna Sharma, former Secretary of Steel - Government of India, "The Budget for 2020-21 has recognised the fact that focus on infrastructure will boost the economy. Steel and cement are major inputs for infrastructure. With the concept of 'lifecycle' in General Financial Rules (GFR), the shift in government spending is more on steel structures in 100 years life span and negligible maintenance. The consumption of steel per capita moved from 46 kg to 57 kg in seven years. This increased to 74 kg in just four years since 2016. India being a low infrastructure country, needs lots of structures to be built by 2030, and consumption is targeted to reach 160 kg per capita. Thus the consumption scenario is upscale. With the manufacturing of steel, opening up of coal mines, and iron ore mines being operative and coal prices becoming stable, all-steel manufacturers have expansion plans. Thus the steel manufacturing capacity will increase from a decent 142 million tonnes to 175-200 million tonnes in coming three years and rise to 300 million tonnes."

With visible signs of a revival in steel demand and improvement in capacity utilisation, the impact of Covid-19 is unlikely to see having any kind of impact on the steel sector going forward. This has been the trend not just in India, but worldwide as well. China, which is the largest steel producer in the world, is likely to cross the one billion metric tonne mark for the first time.

While there will be a revival in demand for finished steel, the Indian steel industry is likely to face other challenges in 2021. These will primarily be on the trade front and because of the plethora of levies being faced by the steel industry. The sector's costs have been affected by high logistics costs, high finance costs, and levies outside GST, including royalty, District Mineral Fund, Electricity Cess, and Clean Energy Cess. According to the Niti Aayog, these levies amount to around $80 per tonne of steel produced. Along with the high logistics and finance costs, Indian steel mills pay over $100 in levies compared to their peers worldwide.

Says Dr. Sharma, "What is needed is continued boost to infrastructure, ensuring duty structure is logical and not knee jerk (case of removal of duty on stainless steel that will have an adverse impact) and credit availability. Special steels are also looking forward to taking advantage of production-linked incentives. India is already number two and is set for a higher trajectory. It needs responsive problem-solving policies in mining and steel to make that happen."

While the steel industry is on the threshold of a demand revival which will be profitable for the industry, the government needs to provide a level playing field to this sector and reconsider the levies being paid by this sector so that it can compete globally and continue to contribute to India's GDP.

Source: IANS