Indian firms are estimated to have churned out a record amount of steel in the year that ended in March as the government took steps to protect steel makers, construction activity rebounded and China shut down illegal factories.
India produced 86.7 million tonnes (mt) in the nine months to December from 73.96 mt in the previous year, according to provisional figures from the steel ministry. Exports rose to 7.6 mt from 4.98 mt in the previous year.
India, in fact, has been a net exporter of steel for the past 13 months and has surpassed Japan to be the world’s second largest exporter.
Last year’s National Steel Policy that projected crude steel production capacity will increase to 300 mt per year for 2030-31 from 100-120 mt now came on heels of the government introducing a minimum import duty (MIP) on certain steel products, and an anti-dumping duty on products from China and European countries. The duty on Chinese products was later extended to five years.
Across the northern border, the Chinese seem no longer interested in keeping open capital-intensive units that are racking up losses. In 2016 and 2017, it phased out 115 mt of capacity and is aiming to further cut production by 30 mt in 2018. Marginal producers fell afoul of the country’s new environmental norms and have been shut down.
Indian steel makers have made the most of this. JSW Steel (with a capacity of 18 mt) and Jindal Steel and Power (8.6 mt) recorded their highest ever quarterly and monthly crude steel production, respectively in the March quarter; Tata Steel (13 mt) was hampered by a temporary technical snag at its Kalinganagar blast furnace but crossed the 3 mt mark for the quarter. At 12.48 mt for the year, it recorded its highest ever output for the full year FY18.
A report by brokerage Jefferies earlier this week estimated Indian steel firms would report strong Q4 results, led by stronger domestic steel prices. “We expect operational income (Ebitda) at Tata Steel and JSW to grow 18% QoQ (quarter-on-quarter). Volumes will remain flat at SAIL, but it will benefit from stronger long product prices.”
“Domestic demand for steel has bounced back over the past year, growing at 7.6% y-o-y. This growth has been supported by a strong pick-up in infrastructure execution in the past year. JSW Steel, for instance, saw sales of its long products grow 11% y-o-y,” said Noel Vaz. an analyst at IIFL Securities.
Long-steel products are bulky and difficult to ship. So, as local construction activity has increased—especially of highways, bridges and metro lines—contractors have had to depend on locally made long-products to meet demand. Till last year, long steel sold at a discount of 15-17% to flat steel. The gap has since narrowed to 10%.
“Long steel includes categories like TMT bars, which goes into construction and infrastructure. Given that the government has set aside Rs14.3 lakh crore towards infrastructure expenditure, we see this momentum is likely to sustain with steel production growing at over 5% over the next two years,” Vaz added.
In a 13 April interview, Seshagiri Rao, joint managing director of JSW Steel, said the firm is working on changing its product mix to hedge against price volatility in the future.
“Part of our Rs26,800 crore capital expenditure plans will go into expanding downstream capacity, for high-end value products like tin plate. By 2020, we want value-added products to account for 5mt in capacity.”
Tata Steel declined to comment.
While the top six producers account for half of all steel manufactured in India, the rest of the business remains fragmented, making it ripe for consolidation.
Some of this has already played out at the bankruptcy court with battles being waged for control of distressed steel assets that can be picked up cheap. UK’s Vedanta Resources has bought out Electrosteel; Bhushan Steel has gone to Tata Steel and Monnet Ispat to JSW.
Essar Steel—with 10 mt of capacity—is seeing the bitterest three-way battle yet, between NuMetal-JSW, ArcelorMittal and Vedanta.
Jefferies forecasted steel demand to grow at a 7.2% annual average over FY18-20.
“We’re going to see a lot more efficiency in the domestic steel industry. Large producers—especially those with assured access to iron ore – will benefit disproportionately from this,” said Vaz.