India's ferrous scrap consumption in steel making to remain flat y-o-y at 28 mnt in FY23

• GST drive hits local generation, collection
  
  
• Indian scrap imports hit 6-yrs high
  
  
• Share of sponge, pig iron seen rising
  
  

Morning Brief: India's ferrous scrap consumption in steelmaking for the financial year 2022-23 (FY23) is likely to remain stable y-o-y as per data maintained with SteelMint. Volumes, by the end of CY23, are likely to touch almost 28 million tonnes (mnt) - quite similar to 26.74 mnt recorded in FY22. However, India's crude steel production is expected to rise to 126 mnt by end of the current fiscal against 120 mnt in the previous fiscal.

Factors capping increase in ferrous scrap consumption

• GST drive leads to lesser domestic scrap availability: Scrap generation within India has come under pressure this fiscal due to the government's efforts to increase accountability and increase revenue collection. It set in motion a drive to bring unofficial transactions within the GST ambit. As a result, the unorganised scrap generation segment went into a tizzy and stopped transactions in many regions, especially northern India. This led to a sharp drop in local scrap generation and collection.
  
  

The GST drive also led to squeezed liquidity in the market as trade in semis and finished slowed down amid price volatility.

• Increased preference for cheaper imported scrap: The country showed an increased appetite for imported scrap, which also led to a drop in consumption of the domestic material. For instance, data reveals that imported scrap volumes over April-December, 2022 amounted to almost 7 mnt against less than 2.50 mnt for the same period in FY22. Traditional ferrous scrap buyers like Turkey, South Asia and Southeast Asia eschewed procurement due to various challenges. Suppliers, saddled with inventory, sold cheap to Indian buyers. In fact, India became the second-highest ferrous scrap importer in 2022, after Turkey.
  
  

Crude steel output up

Crude steel production in FY23 is expected to go up 6% y-o-y to around 126 mnt although scrap consumption will remain range-bound. Thus, to address the additional crude steel production, the usage of metallics like DRI and pig iron by the electric arc furnaces (EAFs) and induction furnaces (IFs) is seen going up to 73% from 69% in FY22. It is widely known that both scrap and metallics are used as feedstock in the EAF-IF route of steel-making. Thus, to make up for the shortfall in scrap availability, furnaces will opt for higher share of metallics, it seems.

Outlook

Mills are lobbying with the government to get the 18% GST on ferrous scrap reduced to 5%. However, since the recently-unveiled Union Budget 2023-24 did not mention any such changes, efforts will continue for such incentives, SteelMint understands.