<article><p class="lead">Infrastructure projects will underpin Indian steel demand in the coming year, with exports also set for a year-on year rebound. But the rise in shipments will depend on the level of resurgence in demand in overseas markets.</p><p>India's finished steel exports surged to 10.8mn t in the 2020-21 fiscal year, and hit a record high of 13.5mn t in the 2021-22 fiscal year, according to the steel ministry's joint plant committee (JPC) data. The record exports from April 2021-March 2022, or the 2021-22 fiscal year, were on account of two major factors — severe waves of Covid-19 infections in India and additional European demand following the start of Russia-Ukraine conflict in February 2022.</p><p>Exports were curtailed in 2022 <a href="https://direct.argusmedia.com/newsandanalysis/article/2334201">because of the rollout of a 15pc export tax in May</a>, which was <a href="https://direct.argusmedia.com/newsandanalysis/article/2392833">withdrawn in November</a>. Finished steel exports during April-December fell by 54pc on the year to 4.74mn t. Poor overseas steel demand coincided with the period of the tax imposition, with domestic hot-rolled coil prices trading at a premium to European prices over October-November. </p><p>Export volumes are expected to rise year-on-year, but are unlikely to match the record shipments registered in the 2020-21 fiscal year.</p><p>Steel production in India is also set to climb in the coming year, with domestic mills likely to bring on line additional capacities of 15-20mn t by the 2024 fiscal year. Steel output during April-December rose by 5.7pc on the year to 87.9mn t despite mills carrying out maintenances during the period of export tax. </p><h3>Domestic steel demand poised to rise</h3><p class="lead">Domestic steel prices have rebounded this month because of expectations of a pickup in demand during the January-March period, which is typically the peak demand season in India. </p><p>The removal of Covid-19 curbs in China and the rollout of policies to support the country's property sector also pushed up Chinese and regional steel prices. India's finished steel imports rose last month to their highest since August 2019, at 653,000t. Market participants are already seeing a decrease in import volumes offered, following the rebound in regional steel prices.</p><p>Infrastructure growth in India is expected to boost domestic steel demand, with the government's key pre-general election budget for the 2023-24 fiscal year likely to be focused on infrastructure. The budget will be announced next month. The construction sector accounts for 62pc of steel demand in the country.</p><p>India's infrastructure projects include the Pradhan Mantri Awas Yojana housing project, Bharatmala highway project, Sagarmala port infrastructure project, Jal Jeevan Mission water project, the Udan airport project, and the expansion of a gas pipeline network. All these projects come under the National Infrastructure Pipeline 2019-2025. </p><p>Automobile demand is also expected to increase. India's passenger and commercial vehicle sales rose by 26pc from the previous year to 4.73mn units during January-December 2022, according to the Society of Indian Automobile Manufacturers. </p><p>India <a href="https://direct.argusmedia.com/newsandanalysis/article/2409843">surpassed Japan as the third-largest automobile market</a> in calendar 2022. The automobile sector accounts for just under 10pc of steel demand in India.</p><h3>Exports an uphill task</h3><p class="lead">A strong revival in India's shipments is dependent on global steel demand, especially Europe, where price realisations for sellers have been higher than in other main export markets in southeast Asia and the Middle East.</p><p>Prices in Europe have found a floor following steel production cuts in the region and a milder winter. The current rebound in European prices is pivoted on supply cuts by European mills, but further cuts may prove to be challenging as they will further raise the cost of production. The milder European winter has also alleviated gas cost pressure on mills, but those could be challenged again in the winter of 2023, by when European mills would have faced over a year without Russian gas and coal supply. </p><p>The European Commission expects inflation levels to remain high and economic activity to be subdued this year.</p><p>JPC data shows that Europe accounted for 24pc of India's steel exports in April-November 2022, a similar share as in the same period a year earlier. Southeast Asia was the destination for 27pc of India's exports in the period, compared with 33pc in the same time the previous year. The Middle East accounted for 24pc of the exports in April-December 2022, compared with a 17pc share a year earlier.</p><p>Weak demand from Europe and Vietnam means India will continue to find other markets to export to, but high volumes will pose a challenge.</p><p class="bylines">By Sumita Layek and Deepali Sharma</p></article>
