Press release

11 Sep 2020

Digital adoption and sustainable government initiatives can fast track Indian steel industry’s recovery post COVID-19 – EY report

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EY India

Multidisciplinary professional services organization

India, 11 September 2020: Resumption of construction activities through Unlock 4.0 following stringent lockdowns due to Covid-19 , speedy execution of the  infrastructure projects, adequate incentivization for adoption of digital technologies and rationalizing duties and taxes are expected to strengthen domestic demand and make Indian steel globally competitive, according to a latest EY - CII report Securing a robust and sustainable future for the Indian Steel industry’, launched today at the  CII – Steel Mart 2020.

Speaking at the launch, Paresh Vaish, Partner, Business Consulting, EY India and Member, Steering Committee – Steel Mart, said, “The COVID-19 impact has triggered a sharper digitalization adoption curve across industries and now is the time when Indian steel makers should enhance the penetration of the digital solutions as a key enabler for efficiency, quality and reducing the operating cost. Moreover, there is an urgent need to start investing progressively on green and clean technologies to cut down carbon emissions, and hence, significant incentives need to be provided to both large and small steel plants by the government.”

According to the report, the key challenge that lies ahead for the Indian steel industry, already impacted by suppressed steel prices and escalated input prices, is to restore profitability and cash flows, before capacities can be augmented. High power costs in India and limited availability of some of the essential raw materials such as high-grade lumpy Manganese ore and Chromite, coking coal, steel grade limestone, refractory raw material, nickel, ferrous scrap, among others., make the steel industry less competitive and attractive as a commodity in comparison with other substitutes. Steel players must deploy the latest management techniques to make their capital deployed more efficient with shorter time returns to investments, says the report.

“Domestic demand will remain subdued until sectors such as auto, infrastructure, real estate construction, electronics and consumer durables post a sustained recovery. Consumption of long steel products, primarily used in buildings, construction and capital goods sectors are expected to have a faster recovery as compared to flat steel, where the demand is consumer-driven through end user segments like automotive and domestic appliances,” added Saurabh Bhatnagar, Partner and National Leader, Metals & Mining, EY India.

In line with the National Steel Policy which envisages a capacity augmentation to 300 million tonnes by 2030, major steel players will add capacity, as per their announced plans. According to the report, fiscal incentives linked to capital, expenditure and sales can act as enablers for players to set up steel mills. Reduction of taxes and cess on steel manufacturing inputs like iron ore and coke for domestic consumption and the introduction of Border Adjustment Tax on import can be introduced less than or equal to the indirect levies by the government to provide a level playing field for domestic steel manufacturers. Furthermore, to capture the projected steel demand in India, the steel manufacturers will have to calibrate their choice of capital spend with the right technologies and right quantities.

The report also stated that there is a need for continued and rapid investment to fund research on steel as a key sustainable substitute of wood, plastic, concrete and aluminum. Adoption of digital technologies has emerged as a key lever for a sustainable growth. While larger steel players have made good progress on this front  with technologies such as  digital twin of blast furnace  for optimizing operations in real time, artificial intelligence and advanced analytics based digital tools for core operational areas like procurement and supply chain to improve working capital, enhance service levels and save costs, the smaller units are lagging  behind. Here, adequate incentivization by the government will help to ensure quick adoption of digital technologies by small and mid-sized steel manufacturers, thereby, enabling higher productivity and transparency.

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