India's infrastructure investment is projected by the government to grow by 43pc in the 2020-21 fiscal year starting 1 April, which should support steel demand and lift prices.
Infrastructure spending by central, state governments and the private sector is forecast to total around 19.5 trillion rupees ($272bn) in 2020-21 compared with estimated spending of Rs13.63 trillion in 2019-20. Delhi has projected total infrastructure spending of $1.4 trillion from 2019-20 to 2024-25.
Domestic steel prices have increased in the past few weeks on anticipation of stronger steel demand from infrastructure projects and tracking global price trends. Prices of rebar have increased by around 18pc since late October to Rs38,000/t on 2 January, while the hot-rolled coil price has increased by around 7.5pc to Rs36,500/t on 27 December.
Infrastructure building has been the primary driver of Indian steel demand for the past few years as the real estate sector has been sluggish since the demonetisation of 500 and 1,000 rupees currency notes in November 2016 that hit the mostly cash-based property market. Industrial demand for steel has remained weak for over a year as automobile production fell most months.
Delhi has also projected infrastructure spending at Rs18.96 trillion in 2021-22, Rs13.8 trillion in 2022-23, Rs12.78 trillion in 2023-24 and Rs11.05 trillion in 2024-25. Projects worth around Rs12.21 trillion have been not been allocated to any specific fiscal year yet.
Of the total $1.4 trillion worth of projects, around 42pc of projects are currently under construction, 19pc are in development stage and 31pc are at a conceptual stage. The government did not offer details on the remaining 8pc.
The largest part of spending will be on power sector projects at around 24pc during 2019-25, while roading will account for 19pc, urban development 16pc and rail 13pc. Federal and state governments will fund 78pc of these projects with the rest being funded by the private sector.
Development of rail networks and stations, power transmission and distribution work, ports, airports and urban infrastructure development projects such as building water and sewerage pipelines could be the main sources of steel consumption. A government programme to build houses and toilets in rural areas and building of schools, hospitals and colleges as part of social infrastructure development will also consume steel.
Federally-funded steel projects have to buy domestically-produced steel for projects funded by state governments, while the private sector does not have such a mandate.
By Prasenjit Bhattacharya
