India’s Steel Sector Grows Even as China Prepares to Ramp Down

by Sohrab Darabshaw on AUGUST 31, 2016

The onward march of an “aggressive” China, the world’s biggest supplier and consumer of steel, has virtually come to a halt in recent times due to a variety of reasons, but India’s steel sector has picked up speed, both in steel output and demand.

A fresh report by Moody’s Investors Services said demand in India is set to outstrip the region’s average. It said the need for steel in India would outpace the regional average as the country’s GDP growth of around 7.5% in 2016 and 2017 was the highest in Asia.

As reported by MetalMiner, China’s steel production was predicted to contract this year and shrink even further in 2017. Li Xinchuang, Vice-chairman at the China Iron & Steel Association explained that was due to a drop in local demand.

So when the red dragon’s huffing and puffing, what’s added speed to the elephant?

Here’s why:

India’s reform and policy support for infrastructure and manufacturing, as well as increasing urbanization is driving steel consumption.

The Indian government’s protectionist measures over the last two years like anti-dumping tax are bearing fruit.

Recent commissioning of capacities by big producers such as Steel Authority of India Limited, JSW Steel and Tata Steel.

Moody’s said the profitability of Indian steel companies such as Tata would outperform that of regional peers owing to increasing domestic demand and measures like minimum import prices.

Why is India’s Steel Sector Growing?

India accounts for 8% Asian production.

The main difference between China and India today is infrastructure, say analysts. While growth in China’s manufacturing, housing and other steel reliant sectors has plateaued, the same in India have just started to rise. There’s also heavy demand for automobiles in India, leading to its strong performance in steel sector.

India’s crude steel production grew 8.1% in July compared to the corresponding period a year ago.

For the region, though, while Indian and Southeast Asian demand will rise, it may not be enough to offset the decline in China, which accounts for about 70% of Asian steel consumption, the Moody’s report said.

The CISA has partially blamed rising protectionism from Southeast Asia and European countries against cheap supplies for the slowdown in Chinese steel sector, but Indian analysts have countered that by saying almost every country has done so.

Why is Chinese Production Set to Fall?

A brief spark of hope sprang up when reports came in of Chinese steel prices going up by 42% so far in 2016, following six straight annual falls. Analysts, though, are not hopeful of any kind of a short-term turnaround in the Chinese steel situation in spite of this.

China is still sitting on a huge surplus, one reason why it started to aggressively ship steel at cheaper rates before being halted in its tracks by anti-dumping duties.

In fact, when the July figures for India’s steel export-imports came in, imports had fallen by a significant 46% to 0.561 million metric tons from a year ago while the country’s steel consumption was marginally up by 1.1% at 6.289 mmt during the same period.

Imports are still on the higher side and maybe the July figure is an early sign of a turnaround. According to provisional data by the Indian government, India imported 11.71 mmt of steel in financial year 2015-16, whereas exports of the metal was around 4 mmt.

Are Tariffs Helping?

But India and its steel producers are also waking up to the fact that long-term protection for domestic steel copanies was not the way out, as it would only hurt consumer sentiments. If India, currently, the number three steel-producing nation, was to get competitive and chin up to China in this sector, it needed to withdraw the anti-dumping tax, etc., and go bullish on exports. This would simultaneously ensure that Indian steel, and not the cheap Chinese substitute, was also specified and used by domestic consumers. Getting the pricing just right was the key.

New Roadmap

The Indian government is preparing a road map for the steel sector, though it’s not keen to reveal the details. Indian Minister for Steel Chaudhary Birendra Singh told the Press Trust of India that the over $100-billion domestic steel sector needed to enhance its efficiency in the long run to be globally competitive.

He told the news agency that he had asked the industry to be ready to face competition and to perform. India’s role as a major steel producer was important, and it was sustainable only when and if the sector kept track of the global market trends and quality standards, while simultaneously ensuring consumer protection.