Background paper - Steel

1. Steel

2. © Confederation of Indian Industry
Content
 Sectoral Snapshot
 The Potential
 Current Growth Drivers
 Major Challenges faced
2

3. © Confederation of Indian Industry 3
Sectoral Snapshot
3rd Largest Globally
by production capacity
(~110 million tonnes)
2%
Sector’s
Contribution to GDP
100% FDI
allowed under
automatic route
~6.7%
Sector’s
Contribution to
Industrial GDP
7.3%
CAGR of
domestic demand
between 1991 – 2016
~600,000
employment generated
by sector
Source: IBEF; Joint Plant Committee
FDI – Foreign Direct Investment

4. © Confederation of Indian Industry 4
Advantage India
Reason 1
Government boost to Infrastructure &
Rural spending (220% over last 5 Yrs
average)
 Rs. 3.4 Lakh crs in Infra up 28% YoY
 Rs. 2.87 Lac crs for rural spending up
(FM Budget Speech)
Reason 2
Significant reserves of natural resources:
 Iron Ore reserves 31 Billion Tonnes
 Coking Coal reserve 34 Billion Tonnes
(Source: Platts)
Reason 3
 Significant growth expected in key
demand sectors such as infrastructure,
auto and railways
Reason 4
Favorable demographics :
 Young Population
 Skilled man power
 Long coastal line
Potential
 Production expected to increase to 300 MT by 2025
 Low per capita steel consumption at 64 kg vs global average of 220 kg (Source Primary Data)
 Growing middle class & rapid urbanization; high potential rural demand
 Government focus on infrastructure development & manufacturing led growth

5. © Confederation of Indian Industry 5
Current Growth Drivers
Policy and Eco-system
• Policies designed for fair and open trade:
 Iron ore export duty 0% below 58%
 Coking coal has low import duty of 2.5%
• Policies creating level playing field:
 Minimum Import Price on 173 lines of steel
products
 Safeguard duty on Hot rolled coils
• FDI: Given “High Priority” status with 100% FDI
through automated approval route
• Fair presence of public & private sector players
leading to healthy competition
Industry Evolution and Capabilities
• 110 MT Crude Steel capacity
• Indian Steel Mills ranked amongst Top-10 world
class steel makers for operational excellence, cost
competitiveness and sustainability by World Steel
Association (WSA)
• New & modern mills are capable to produce all
grades & qualities of Steel as per International
standards like Hardened-Quenched (HT-QT) &
Tempered Bars, Boiler Quality, etc
• Capability to cater to demand for specialty steel for
Auto, Defense, Electrical and Marine sectors
Market
• Indian steel demand grew modestly by 4.5% in FY 2015-16 to 80.5 million tonnes
• Likely to grow by 5.4% to 84 million tonnes according to Short Range Outlook (WSA) CY 16 and 88 MT
in CY 17

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Major Challenges faced by sector
Internal Challenges
 Inconsistent availability of indigenous Iron Ore (Both Quantity and Quality)
 Low contribution of manufacturing sector in GDP: 17%, (vs. 36% in China; 35%
in Thailand)
 Inadequate and under-developed infrastructure (Ports and Rail) resulting ion
high logistic cost
 High cost of finance
External Challenges
 Surplus steel production capacity and low capacity utilizations across
geographies
 Slowing international demand (-3% de-growth in CY2015 and -0.8% de-growth
in CY2016E)
 Surging steel imports from China, especially commodity grades
• Geopolitical tensions – disrupting free global trade and investments
• Imminent threat of heightened trade barriers (tariff and non-tariff) and market
access