How did Indian iron and steel industry perform in CY24?

• BigMint's flagship Steel Composite Index drops 8% y-o-y
  
  
• Steel imports record a sharp increase of 22% y-o-y
  
  
• Crude steel production may reach 165 mnt in CY'25
  
  

Morning Brief: By all accounts, the Indian steel industry is shining but, in many ways, growth in demand and production is projected to remain modest in calendar year 2024 (CY'24) in contrast with the buoyancy and momentum witnessed in CY'23. BigMint data showcases this stark reality.

Pre-General Election market slowdown in the beginning of 2024 (Q1 and over half of Q2) combined with global slowdown and steep capital costs, weak steel demand in key geographies and, crucially, high inflows of cost-competitive steel imports into the domestic market weighed on the steel sector's performance in the year gone by.

Softening steel output, consumption

As per BigMint projections, crude steel production is expected to show a far more sedate growth in CY'24 as against the previous year. While crude steel production in CY'23 had increased by 13% y-o-y, output in CY'24 is expected to reach around 148 mnt, an increase of 6% y-o-y, as per provisional data.Likewise, domestic demand for steel, although showing steady growth at around 9% on the year, is projected to have softened compared with over 13-14% growth seen in CY'23.

As per market reports, the industry's overall capacity utilisation might fall to below 80% in FY'25 for the first time since the COVID pandemic.

Steel Composite Index down 8%

BigMint's flagship India Steel Composite Index, a barometer of the domestic steel market, fell by 8% y-o-y in CY'24 due largely to the pressure of imports on domestic prices. Earnings of the integrated producers edged down as the share of imports is largely titled toward the flats segment - over 90%.

For most of the year, domestic flat steel prices were higher compared with landed prices of imports from China, Japan, etc.

The longs segment, although bearing the brunt of overall subdued market conditions both at the domestic and global levels, performed comparatively better on solid fundamentals emanating from the drive to propel infrastructure and construction activities, as well as cost-effective strategies such as increased use of DRI over imported ferrous scrap.

Changing dynamics of steel imports, exports

Our data shows that total imports of steel into India in CY'24 is projected to reach around 10 mnt, an increase of 22% y-o-y. While this may not be significant in terms of total domestic consumption, certain segments/grades have been disproportionately affected.

The Steel Ministry's proposal of a 25% safeguard is under consideration. However, there remains a lingering worry related to imports, especially from FTA countries.

The pressure on the steel industry intensified especially because of a projected 5% decrease in steel exports y-o-y. This was largely due to stiff competition from low-cost exporters globally, and in key steel consumption hubs - India's main export markets.

Raw materials landscape

Changes in iron ore market

Although consistent domestic iron ore production was witnessed in CY'24, production growth was impeded by the high royalty and taxation regime. This is likely to affect production from the auctioned mines.

Production of iron ore increased by around 2%, as per provisional data, while exports of both iron ore and iron pellets are slated to fall by 14% y-o-y. This is mainly because China, which accounts for over 90% of India's exports, is emitting weak demand signals.

The transient phenomenon of iron ore imports, mainly by the western India-based producers, has to do with both grades as well as costs, especially those associated with logistics.

Domestic coal production rises

While India's coal production increased over 7% y-o-y to more than 1 billion tonnes (bnt), dearth of domestic high-grade coal necessitates imports, especially of metallurgical coal which are slated to rise by around 5% on the year.

India's dependence in this sphere is slated to decrease gradually with the ambitious efforts of the government to raise production to 140 mnt by 2030. However, the demand for PHCC will likely remain, although global scarcity in this segment might drive prices higher.

Thermal coal imports might show a decline, despite the government's mandate to the ICBs to continue blending till end-February 2025, owing to higher domestic production. With 4 GW of thermal capacity being added domestically, imports will continue at a stable pace.

Scrap in steelmaking

While around 93% of iron production in India happens through either the BF or DRI route, the future lies with scrap which holds the key to low-emissions production - an opportunity that can be unlocked by domestic steel producers.

Thanks to the government's efforts to streamline the domestic scrap sector, and the gradual adoption of scientific scrap processing techniques propelled by conducive government policies, domestic ferrous scrap generation is poised to rise around 20% y-o-y.

However, the de-growth in scrap imports is because of higher reliance on DRI, even in traditionally scrap-based markets, largely due to cost factors.

Outlook

BigMint projects India's crude steel production to reach around 165 mnt in CY'25, with consumption increasing to 152 mnt.

Per capita consumption of steel of around 98 kg, as per latest Steel Ministry figures, is still quite low compared with the global average of around 220 kg. But consumption is expected to experience a sustained boost from the infrastructure segment.

The major steel producers in the country are expanding capacity. So, production will receive a boost.

Moreover, government policies, especially PLI, SIMS and BIS QCO certification are expected to boost domestic capacity for special steels and create conditions for real import substitution.