India set to beat Japan in steel output, become second largest producer

At the Third position in steel output over the last three years, India is within striking distance of dislodging Japan as the second largest producer of steel. However, the jump would still leave it far behind China which, with 831.7 MT, accounted for 49.2% of the global output of 1,692 MT in 2017.

The gap in production between Japan and India was almost reduced to naught in the first month of the current year. This followed a consistent pattern since 2013 when Japan’s output of 100.5 MT of steel was a good 29 MT higher than India’s. The gap came down to 3.4 MT in 2017 — Japan produced 104.7 MT of steel last year compared to India’s 101.4 MT. Significantly, while India’s output grew 6.2% in 2017, Japan’s fell marginally in the year.

It was in 2015 that India had grabbed the third slot in steel output from the United States. Analysts believe India will go past Japan’s production by a significant margin in the current year. This is because while Japan’s output has been declining for the last several years, India’s has been growing steadily. Significantly, the National Steel Policy approved in May last year targets an installed capacity of 300 MT by 2030-31, from 130 MT at present.

The target is not a very stiff one though the debt-ridden sector would need around Rs 10 lakh crore to fund the proposed expansion. The industry also needs to be competitive, to check cheap imports flooding the domestic market, as happened in 2015. The government has had to take several steps in the last two years to restrict imports and improve the capacity utilisation of companies, which had fallen to 76% in FY17 from 89% in FY07. Measures like an increase in import duty, a minimum import price regime, safeguard duty, anti-dumping duty bore fruit when India’s imports came down by 36.6% in 2016-17 over 2015-16 even as exports grew 102%.

To prevent the recurrence of an import glut, Steel Minister Chaudhary Birender Singh said at a recent round table organised by FE, “Indian companies need to have raw material linkages at affordable prices.” His ministry was committed to providing appropriate policy support for addressing challenges in areas like logistics, raw material securitisation, etc., he added. However, Goldman Sachs, in a recent report, was not as positive about growth in the industry’s capacity, saying “capacity additions are likely to be limited, driving utilisation higher.”

In what augurs well for the sector though, consumption has grown, after being anaemic for several years. Ratings agency ICRA has said, “domestic steel demand growth has improved. This improvement was supported by sustained buoyancy in the automobile sector and recovery in growth rates in the construction and capital goods sectors. Going forward, we expect the domestic consumption growth to remain favourable on the back of the government’s thrust on infrastructure, in particular towards affordable housing, power transmission and the railways in the Union Budget 2018-19.”

Source: Financial Express