“India will be the next landmark on the global steel landscape, with leading producers, investors and suppliers keen to participate in the Indian steel dream.”
Anjani K Agrawal, Indian Mining & Metals Leader, EY
With its large steel industry and strong economy, India is poised to become a dominant player in the global steel sector. Its economy now accounts for almost 12% of global GDP, up from 6% in 2003, and it is likely to grow to 24% by 2020.
The Indian steel industry has already witnessed robust growth during 2005–2010, with production (crude steel) and consumption (finished steel) registering growth of 7.7% and 7.1%, respectively.
In 2010, India was the world's fifth largest producer of crude steel, with domestic production growing at a rate of 9.5% between 2000 and 2010. Even in 2010, the steel sector witnessed steady growth and exceeded the pre-crisis level.
During the recent financial crisis, the Indian steel sector remained resilient due to strong domestic demand from Indian end users.
Strong domestic demand drivers in India
The construction and infrastructure sector is India's largest steel consumer, accounting for 61% of total steel consumption in FY09, and future demand looks strong.
Source: “Steel products”, Opinion, Crisil research, accessed 21 February 2011
Infrastructure: the key driver of steel consumption in India
Between FY09 and FY10, infrastructure development increased the demand for long steel by 8.6%, but flat steel by only 3.2%. This trend is likely to continue in the short term, as investment grows in this sector.
According to India's Planning Commission projections, total investment in the infrastructure sector in the Eleventh Five-Year Plan (2007–2012) will be around INR20.6 trillion (US$444.8b) and the Twelfth Five-Year Plan (2012–2017) forecasts investment of approximately INR45 trillion (US$971.7b).1
Investment in infrastructure
Power and pipeline construction in particular will be important drivers of steel demand. During the Tenth Five-Year Plan (2002–2006), demand for power increased at a rate of 6.2% and availability by 5.8%, creating a power deficit.
Demand for steel is also expected to come from the huge network of pipelines to be laid over the next few years for oil and gas transportation, with the network for liquid fuel transportation likely to grow from the present 16,800km to 22,000km in 2014.
In addition, the shipbuilding industry is likely to undergo a fast growth cycle further pushing up demand for steel.
Opportunities across the infrastructure sector
Automotive is the next manufacturing hub
The sector, which grew by 27% in FY09 and 26% in 2009–2010, is likely to continue to enjoy double-digit growth as the launch of low-cost passenger cars expands the market. With many automobile manufacturers increasing capacity and (or) establishing manufacturing operations in India, demand for the high-quality, value-added steel segment will see immense growth.
Capital goods sector to accelerate demand for steel
This sector, which currently accounts for 11% of steel consumption, has the potential to significantly increase in tonnage and market share. For example, in China, machinery production alone accounts for more than 100 million tonnes of steel per year.
Outlook for domestic steel demand
Domestic demand for steel is anticipated to grow by around 12% in the next two years on the back of forecast strong GDP growth, with long steel in greater demand than flat steel, although both are set to increase. The short-term demand forecast for both long and flat steel suggests growth of about 10-12% and 9-10%, respectively, over the next two years.2
Estimated growth in steel demand
Source:“Opinion, Steel products”, CRISIL Research, June 2010
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1Conversion rate as at 21 March 2011
2“Steel products update”, CRISIL Research, June 2010