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India on the path to become world’s next steel powerhouse – EY report

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Delhi, 4 February 2013 — India is increasing its presence in the global steel market as a result of domestic steel consumption and has seen a rapid rise in production as well over the past few years, according to a new EY report, Global steel: A new world, a new strategy

India stands to be the fourth largest producer of crude steel and the largest producer of sponge iron in the world, states the report.

The annual report, released today, says the country’s steel production is expected to grow by around 60 million tonnes during the 12th FYP (2011–12 to 2016–17) owing to the rising middle-class population and urbanization in India.

Anjani Agrawal, India Metals & Mining Leader, EY says, “India’s domestic steel consumption will continue to grow steadily for several years into future — driven by urbanization, favorable demography, GDP growth, refocus on industrialization and stepped-up investments in infrastructure”.

The current challenges, while posing constraints on supply side, do offer opportunities for players both local and global, he adds.

Globally, steelmakers will need to focus on restoring and maintaining value to survive 2013 and position for growth in the future, says the report. Excess steelmaking capacity globally will remain the biggest issue for the sector this year – but the operating environment should improve from 2014.

“Overcapacity in the Chinese steel industry is a global concern which has resulted in depressed prices not only globally but in India. Steel makers in India are suddenly faced with rising prices of domestic raw iron ore while international prices continue to decline”, says Agrawal.

Mike Elliott, EY’s Global Mining & Metals Leader, says steelmakers will need to focus on strategic cost reductions and assess optimal capital structure. The report also questions the assumption that vertical integration in the sector adds value.

“The big challenge for steelmakers in 2013 is how to be cost competitive while maintaining enterprise value,” Elliott says.

Despite increased demand for steel and the removal of some older steelmaking capacity in 2012, the level of excess capacity is greater now than it was 12 months ago, due to the continued growth in new steelmaking facilities. Capacity utilization rates in the sector remain below 80%, rising to more sustainable levels from 2014.

Strategies for acceleration – Outlook for India

Despite the challenges that the Indian steel industry is going through, there is a major opportunity to be seized by the Indian and global steel sector players. The report suggests a list of comprehensive strategies that could be adopted by India to be the next powerhouse of steel.

Indian steel industry is passing through a margin squeeze and phase of distress needing restructuring. “For us to emerge successful, concerted efforts will be required from all stakeholders-central and state governments, planners, policy makers, mining industry, service and technology providers and host communities”, says Agrawal.

The long-term outlook for steel demand in India is quite robust due to increasing demand from several sectors. Though there could be supply constraints in India in 2013, steel prices are likely to remain under pressure due to a steady stream of imports. The new capacity in India will be vertically integrated and have the ability to use fines as raw material, concludes the report.

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