India’s domestic steel demand and production unlikely to be impacted in FY22: Moody’s Investors Services

In a report published recently, Moody’s Investors Service has said the combination of steady progress in vaccinating people and rising government spending on infrastructure will support a sustained recovery in Indian economic activity. This, in turn, will give a fillip to demand for steel and cement required for infrastructure building and construction activities.

Besides Moody’s, which foresees a high single-digit percentage growth in Indian steel use, the World Steel Association in its latest global demand forecast for the metal says after significant demand destruction of 12.9% in 2020 due to Covid-induced lockdown, the world’s second-largest steel producing country will experience demand growth of 6.8% in 2022 following strong recovery in the past year.

Steel majors such as Tata Steel, JSW Steel, JSPL, ArcelorMittal Nippon Steel and government-owned SAIL produced more in the three months to December, both on the quarter-on-quarter and year-on-year bases.  For example, JSW’s third quarter production of 5.35 million tonnes (MT) was up 6% on the previous three month output. As for Tata Steel, there was a rise of 1.5% QoQ in crude steel production to 4.80 MT in the December 2021.

This, however, was not the case in 2020 when Indian crude steel production, according to the WSA, at 99.6 MT was down 10.6% over 2019. Logistics were in disarray and mobilisation of manpower became an insurmountable challenge. Domestic demand contraction during the first Covid-19 lockdown found local steelmakers becoming aggressive exporters to clear stocks. The country’s finished steel exports during 2020-21 were a record 10.785 MT, against 8.3 MT in 2019-20. Exports of semi-finished steel were up an impressive 133% at 6.6 MT.

At the same time, however, the country was required to import 4.75 MT of some high-grade steel for which domestic capacity needs to be built. Hopefully, the production linked incentive (PLI) scheme for the industry will lead to filling capacity gaps in specialty steel and also lead to enhancement of production from 18 MT to 42 MT in five years. The scheme, for which the government has made an outlay of Rs 6,322 crore, hopefully will incentivise the industry to make an investment of at least Rs 40,000 crore to build specialty steel capacity.

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