Nepal making efforts to strengthen economy, boost steel demand

• Steel industry facing the brunt of oversupply
  
  
• Govt gives high priority to infrastructure development
  
  
• More infra projects in pipeline
  
  

Morning Brief: The Nepal government is proactively stressing on infrastructure development to increase steel demand. Indeed, steel is one of the key sectors fuelling growth and development of this Himalayan kingdom. It contributes around 11% to the country's gross domestic product (GDP) - the second-highest after agriculture.

In the inaugural session of SteelMint Events' 2^nd Nepal Trade Summit, Narayana Kaji Shrestha, Deputy Prime Minister of Nepal and the Chief Guest, stressed on the role of steel in the development of the country, adding that the government has given high priority to the development of transportation, highways, railways and waterways. "It plans to build 15-km-long blacktop roads, 300 road bridges, 2,000-MW of electricity from hydropower projects and 100 km of high-voltage transmission lines each year. It has also begun construction of expressways, tunnels and flyovers. To achieve such a plan, the construction and manufacturing sectors, especially steel and cement, must flourish", he emphasised.

"The Nepalese steel industry has good growth potential and needs to be more competitive on sustainability, technology, pricing aspects etc. to reduce dependence on imports," he added.

The keynote speaker, Madhu Kumar Marasini, Secretary, Ministry of Industry, Commerce and Supplies, Nepal, emphasised that the government is committed to reviving capital expenditure to increase steel demand which will benefit this industry.

Sharing his views on the government's plans and steel sector's contribution to Nepal's economy, Pradeep Shrestha, Vice President, Confederation of Asia Pacific (Chamber of Commerce and Industries), Managing Director, Panchkanya Group, Nepal, corroborated, "The government is putting a lot of emphasis on the construction sector. This sector is the one that is supporting the country's economy with the employment being generated, taxes being paid, banking loans and support to the transport sector."

Oversupply - the biggest concern

The Nepalese steel industry is facing several challenges which are leading to slow growth. Among these, the key issue is overcapacity.

"After the 2015 earthquake, the number of installed rolling mills rose from 16-17 to 28-29 as steel market participants were positive about demand growth. However, consumption did not grow as per expectations," said Ujjwal Shrestha, Executive Director (ED), Panchkanya Group, Nepal.

Industry seeks govt support for demand boost

Speaking on the demand-side challengesVishal Patwari, Director, Jagdamba Enterprises, Nepal, said, "The steel sector seeks the government's support to boost consumption. Stable government, policy implementation and infrastructure projects can help this industry grow."

With the government offering export incentives, Nepalese steel mills have started exporting TMT rebars to India, he said.

Answering a question on the contribution of the steel industry to Nepal's GDP, Patwari highlighted government's policies and their implementation.

IF mills double in a year

Steel is manufactured in Nepal using two different processes. One is through the induction furnace route and the other is by directly importing billets and processing and refining them in domestic mills.

While talking about steel capacities, Ujjwal Shrestha said the number of induction furnaces (IF) in Nepal have doubled currently. He said, "Since last year, there has been a change in the government's policy wherein it has prioritised local billets manufacturing. In the last one year, there has been a significant increase in the number of IF mills. At present, there are 13-14 installed mills (on trial and running) compared to 7 a year ago. We are hoping for a positive outcome of the steel policy and infrastructure spend by our government."

An investment of a total NPR 8.44 billion has been made in a new steel plant as well as in the few mills that are currently operational, SteelMint notes.

However, the country still continues to import billets from India. Nepal's billets imports in 2022 were recorded at 0.46 mnt, down sharply by 58% y-o-y compared to 1.09 mnt in 2021. India was the largest exporter at 0.45 mnt followed by Indonesia at 0.01 mnt.

According to Subhendu Khandai, General Manager, International Trade Division, SAIL India, "Billets imports into Nepal will still continue, the volumes may come down though. The reason is that wire rod-grade low carbon billets may not be immediately available for melting in Nepal. Also, prime billets which are used to make premium steel products will also have to be imported."

Raw material sourcing options in Nepal

Nepal is a key importer of steelmaking raw materials and the steel mills here look towards neighbouring India for sourcing of the same.

Speaking on raw material sourcing by Nepalese steelmakers,Anurag Sharma, Director and Business Head, Jagdamba Steels, Nepal, said, "With rising melting capacities, Nepal's sponge iron imports are expected to reach 800,000 t this fiscal year."

However, the main concern with sponge iron is its quality. To make good quality steel, sponge iron should have low sulphur and phosphorous content, he added.

As for scrap, Nepal looks to other countries due to export restrictions in India and for pig iron, again India is the largest export market,Sharma said.

Talking on the raw material consumption outlook, specifically sponge iron, Abhijit Sur Roy Chowdhury, Head, Iron Ore Trading (Minerals), Tata International Limited, India, said, "Nepal's sponge iron consumption is currently approximately 0.5-0.6 mntpa. This figure is expected to rise to 0.9 mnt by FY26."

The combined consumption of sponge iron, scrap and pig iron by FY26 should be at 1.8 mnt levels, he said.