India's crude steel production may rise 7% in Q1FY'25; growth via BF route flat

• States provisionally record nominal y-o-y growth
  
  
• Growth through EAF route shows highest growth
  
  
• Subdued demand, prices keep production muted
  
  

Morning Brief: India's crude steel production is expected to increase by around 7% to 36.5 million tonnes (mnt) in the first quarter of financial year 2024-25 (Q1FY'25) from 34 mnt seen in the same quarter of the previous fiscal (FY'24).

The key producing states are likely to show nominal growth in Q1 y-o-y, as per data collated by BigMint, with the top five registering around 7.5% increase to around 24 mnt (22.5 mnt).

State-wise production

The state which traditionally leads the country in terms of steel production, is Odisha. In Q1FY'25, its output is expected to increase 6% to 6.6 mnt (6.2 mnt in Q1FY'24).

Jharkhand follows with an expected 9% increase to 5.1 mnt (4.7 mnt). Chhattisgarh comes third with 4.6 mnt (4.3 mnt). Maharashtra will take the fourth slot with a provisional 4.1 mnt (3.8 mnt), followed by Karnataka with 3.8 mnt (3.5 mnt). West Bengal is likely to record a 12% growth to 2.9 mnt (2.6 mnt) with Gujarat at 7th rank with 2.6 mnt (2.3 mnt).

Segment-wise break-up

Data shows that the blast furnace route of production dominates. But its y-o-y growth may be flat at 15.3 mnt (15 mnt in Q1FY'24). The electric arc furnace segment is seen spearheading growth, by possibly rising 13% to 8 mnt (7.1 mnt). The induction furnace space is also set to expand to 13.1 mnt (11.9 mnt), a y-o-y increase of 10%.

Combined growth from the EAF-IF segments is set to rise around 12% to 21 mnt (19 mnt).

It is interesting to note that the share of BOF fell to 43% in FY'24 from FY'23's 46%. The EAF share had remained flat at 22%. But the IF share had increased to 35% from the previous fiscal year's 32%.

This indicates that Q1FY'25 may see a marginal slowing of production through the blast furnace route with emission targets gaining growing prominence.

Factors impacting India's crude steel production in Q1

Demand subdued, mills opt for maintenance: Crude steel production rose nominally on the back of somewhat subdued demand in Q1. In finished steel, rebars found themselves on a stronger wicket from Q4 (January-March) of FY'24 onwards. The initial part of the year saw finished inventories piling up amid tepid demand and slackening sales. This led tier-1 mills to opt for maintenance schedules and production cuts from January onwards - initiatives which bore fruit from March onwards and into Q1. This led to some inventory depletion in Q1, especially supported by some pre-election restocking as buyers wanted to avoid poll-related liquidity crunches and supply disruptions.

In flats, the mills focused on domestic sales since prices remained competitive when pitted against export offers. Domestic trade-level HRC prices averaged INR 53,500/t ($640/t) against $573/t FOB in export offers.

DRI production rises slightly: The EAF-IF segment saw their share increasing amid marginally higher production of sponge iron, which is a key feed for these mills. India's sponge iron production rose slightly to 12.30 mnt in Q1FY'25 against 12.15 mnt in Q1FY'24. The higher production also eased prices slightly y-o-y from INR 28,800/t ($345/t) in Q1FY'24 to INR 28,300/t ($339/t) in Q1FY'25. But, DRI consumption from the mills remained more or less stable at around 12 mnt amid the subdued demand.

Outlook

India's crude steel capacity is slated to rise to 184 mnt in CY'24. Another 17 mnt of crude steel capacity is expected to be added in CY'24, especially from some of the major mills. These will mainly be through the blast furnace route, having been conceived earlier, much before the decarbonisation drive had gained currency.

A demand upturn is expected in Q3 (October-December) which will support the capacity additions.