India: H1 challenging but not a cause for concern, says SteelMin

• Govt concerned about escalating raw material prices
  
  
• Focus is on domestic production rather than exports
  
  
• Global protectionist approach to scrap a cause for concern
  
  
• Prices not likely to come down in near future
  
  
• Potential will lie in domestic consumption in H1FY'23
  
  

The first half (H1) of this year will be challenging but not a cause of concern, said Ruchika Chaudhry Govil, Additional Secretary, Ministry of Steel, Government of India.

The government's cause of concern is more for raw materials prices - coking coal saw an astronomical rise from January 2021 till now. This will keep production costs high, especially for integrated steelmakers. The raw material securitisation which the country desperately needs is making the situation more complex," she emphasised. Ms Govil was speaking at Engage 2.0, a recent SteelMint-organised webinar.

"We also need to focus on the extraneous circumstances like Covid, and the aggressions that are complicating the steel scenario," she added.

On domestic demand versus exports...

The government is more focused on increasing domestic consumption of steel, although 2021 was a good year in terms of exports, Govil observed.

Domestic infrastructure projects like GatiShakti, National Infrastructure Pipeline, Awas Yojana and Nal Se Jal programme etc should increase domestic demand. Therefore, steelmakers will see Therefore, steelmakers will see a major portion of production getting consumed domestically..

It must be ensured that the infra projects get adequate steel for consumption and that only "the extra amount could be exported. Exports focus is more by the private sector", she said.

On scrap...

India's 7 million tonnes of scrap imports is a concern because "everybody is becoming protectionist about scrap". Scrap flows have reduced and in future these will continue to do so. "To counter that, GoI has come up with ELV and steel scrap recycling policy and is hoping to generate more scrap and get it into the production process. We hope scrap generation process will be more efficient and we will be able to supply more to the secondary and integrated sectors," she said.

Outlook

Going ahead, Ms Chaudhry Govil said, "We do not know how long the pandemic and global tensions will continue. Things are getting more complex with the energy and raw material price crisis. Prices have gone up tremendously and we do not see them going down anywhere in the near future.

Production costs are going up tremendously, pushing up steel prices. This will have a deep impact on consumers as it is difficult to predict whether these will flatten out or grow further," she indicated.

The focus in the near future will be on reducing carbon emissions and on green steel.

With speciality steel, reduced Co2 emissions and increased production, the steel industry has got its path well charted out and the ministry is ready to give any policy support, she emphasised.

However, Govil said, in H1FY'23, the potential will lie in domestic consumption because of the various infra projects mentioned.

But having said this, 2021 surprisingly turned out to be a good year for Indian steelmakers. We saw our highest level of production ever done at 118mnt as WSA says.

Going ahead, we don't how long the pandemic and the global tensions will continue.

Things are getting more complex with the energy and raw material price crisis. Prices have gone up tremendously and we don't see them going down anywhere in the near future.

The production costs are going up tremendously, pushing up steel prices. It will have a deep impact on consumers as it is difficult to predict whether these will flatten out or grow further.

India wants to be an efficient and competitive steel sector and wants more for global players but with a huge potential of domestic demand.

In Covid times, exports went up because domestic demand slowed down.

In past two years, we saw a good export push. Indian mills grabbed every opportunity and kept up production for both domestic and exports market. India not only exported finished products but also semis when required but did not reduce production. So, exports did well for the country.

In H1FY'23, the potential will lie in both the areas of domestic consumption because of the above-mentioned projects. Indian steel industry has become mature enough to respond to the competitive pressure.

China has seen reduced demand and production in the past year because of its blue sky policy. How it will respond this year to the reduced production, whether it will increase production in the light of reduced consumption in the country or whether exports will be increased is something that we will have to see in H1FY'23.

But while production had gone down, Indian producers saw good exports.

Our cause of concern is more for the raw materials prices whether it is coking coal that saw an astronomical rise in from January 2021 till now. This will keep production costs high especially for integrated steelmakers.

Our 7 mnt imports of scrap is also a concern because everybody is becoming a protectionist about the scrap. Scrap flows have reduced and in future it will continue to be. To counter that, the GOI has come up with ELV policy, steel scrap recycling policy and is hoping to generate more scrap and get it into the production process. We hope scrap generation process will be more efficient and we will be able to supply more to the secondary as well as integrated sector.

The government is focussed in giving the required push for better production by 2030. The government is focussed to increase its per capita consumption and therefore the production capacity of steel must reach 300 mnt.

Adding focus to that, the recently launched PLI scheme also talks about how in 5-7 years, we must have speciality steel to reduce imports for the country, how the PLI scheme must do import substitution and if there is possibility to increase exports.

We also need to focus on the extraneous circumstances like Covid, aggressions that are complicating the steel scenario. The raw material securitisation which the country desperately needs is also making the situation more complex.

As far as exports are concerned, the Indian steel industry is mature enough to deal with this. The first priority would be meeting the local demand because the country has so much happening in infrastructure currently, We don't see any waning of demand because of the infra push. The budget itself was so focussed on infrastructure growth. We talk about capital expenditure which focuses on steel demand going up and up. It might be at a higher cost because prices of steel both long and flats have gone up but because we are so much focussed on the growth engine (capex and infrastructure), demand in the country will be there.

I feel H1 will be a challenging time but not be a cause of concern.

The focus in the near future will be on reducing carbon emissions and on green steel.

With speciality steel, reduced CO2 emissions and increased production, the steel industry has got its path well charted out and the ministry is ready to give any policy support, any narrative that needs to be taken forward.