India's economy is largely domestic consumption led and accordingly it has been less affected by the deceleration in global economic growth when compared to other countries. Exports account for 14% of GDP, while much of its growth is based on services, 54% of GDP. Nevertheless, the economic slowdown in the country started to surface in late 2008. GDP in the fourth quarter of 2008 grew at 5.3%, compared to 8.9% for the same period in 2007.
Agriculture decreased by 2.2% in the third quarter of 2008, in comparison to the growth of 6.9% in the same period of 2007. Construction sector declined slightly with a growth of 6.7% in the third quarter as compared to the growth of 9% last year. There has been a decline in the growth of production index to 3% for the period of April-December 2008, in comparison to 8.7% registered for same period of the previous year. On the other hand, automobile production grew by 2.7% for the period of April 2008 – February 2009 as compared to a decline of 2.8% in the previous year.
The economic growth forecast made by the Prime Minister's Economic Advisory Council was 7.1% for fiscal year 2009. IMF, in its World Economic Outlook, estimated India's GDP growth at 5.1% (revised from the previous forecast of 6.3%).
Domestic steel demand
Despite the strong adverse impact of global economic meltdown, Indian steel demand remains better than in many countries. The construction industry is expected to rise further due to the government's stimulus plan. The automotive sector is doing well. Hence, it is expected that domestic steel demand is going to recover soon and for the long term as well. According to the World Steel Association, India's apparent steel use is forecasted to reach 53.5 million tonnes in 2009, a 1.7% increase from 2008 and is expected to reach 58 million tonnes in 2010, an increase of 8% y-o-y.
Domestic steel production
Capacity expansion projects are still on track. Although some projects have been delayed, there have been no announcements of cancellation of major projects. For example, Korea's POSCO has delayed its 12 mtpy steel mill but there is neither cancelation nor scaling down of its plan. JSW Steel will continue its expansion plan with a new three-million tonne blast furnace which will make it the largest blast furnace operator in India.
Steel producers in India are, however, not immune to the global economic downturn and have instituted production cuts. According to the World Steel Association, crude steel production in India registered a slowdown in the fourth quarter of 2008 with a growth rate of 0.3% and dropped significantly in the first two months of 2009 to 8.67 million tonnes, a decline of 8% y-o-y. However, due to a rising demand in the country, steel producers are expected to return to normal operations very soon. Industry analysts pointed out that inventory levels of steel firms increased in October- November 2008 as demand has weakened. Nonetheless, there are indicators that inventory levels have dipped recently. Thus, steel production is expected to return to normal levels in the first quarter of the fiscal year 2009.
Iron ore and scrap
India has large iron ore reserves and is a net exporter of iron ore, particularly to China. According to Steel Business Briefing, India's iron ore production was 123 million tonnes in 2003-2004 and nearly doubled in volume to 204 million tonnes in fiscal year 2008. About half of its production is exported and nearly 80% of which is to China. However, domestic supply for iron ore is expected to become increasingly tight, especially with foreign companies such as Arcelor Mittal, Sinosteel and POSCO investing in the country to secure iron ore supply.
As for scrap, most of the demand comes from a large number of small induction furnace based producers and the supply is mainly from domestic railways which supplied up to 1.1 million tonnes of ferrous and non-ferrous scrap in 2008/9. Moreover, hundreds of re-rollers producing long products for the construction sector also supply bundles of scrap to the domestic steel industry annually. India's imports of scrap registered nearly 3 million tonnes a year. Major sources of scrap import were the United Arab Emirates, US and South Africa. Ferrous scrap demand in India remained healthy and is expected to be steady throughout year 2009.