Indian steel market only bright spot amid global slump

Indian steel demand is expected to remain firm in the second half of the financial year as higher inflation, a looming recession and an energy crisis in Europe plague the global steel industry.

The World Steel Association has projected India's steel demand growth at 6.1pc for 2022 and 6.7pc for 2023 in its short-range outlook this week. India's growth figure has been slightly revised down for this year from the April outlook, but it is still the highest among top global steel consumers.

"While economists are talking about a recession in western countries, for India the debate is about the magnitude of economic growth rate in FY23. Because of strong linkages between steel and the underlying economy, we have a positive outlook for steel demand in India in FY23," Indian credit rating agency Icra group senior vice-president and head of corporate sector ratings Jayanta Roy said.

"India's demand impetus is coming from government capex such as roads, railways and water and sanitation projects, and there is a revival in the auto sector too. This will take steel demand growth to around 7-7.5pc in this fiscal year as we had projected in the beginning of the year. On the other hand, weaker Chinese property markets, soaring energy costs in Europe and a fear of recession in the EU and US will keep steel demand subdued in the rest of the world," Roy said.

Worldsteel projects global steel demand to fall by 2.3pc this year to 1.79bn t, with Chinese demand declining by 4pc this year and EU demand falling by 3.5pc.

Domestic steel demand eased earlier in the fiscal year as prices touched an all-time peak and with the seasonally weak monsoon season, but consumption is expected to pick up pace with lower steel prices and the upcoming peak construction period.

"There is no reason to doubt that India's infrastructure demand will be very strong in the second half of the fiscal year," a senior official from a major infrastructure firm said, adding "steel prices have come down substantially and although they have not come down to old levels, they are reasonably okay for us to carry on with our projects and National Infrastructure Pipeline spending will continue to boost steel demand."

India's domestic hot-rolled coil price at 56,500 rupees/t on 21 October is lower by 28pc since a record peak of Rs78,500/t in early April, while domestic blast-furnace grade rebar prices at Rs56,000/t have dropped by 26pc from April's all-time high of Rs76,000/t.

Domestic passenger vehicles sales in the April-September period registered record-high sales in the first half of the financial year at 1.94mn units, according to Society of Indian Automobile Manufacturers (Siam).

"Every month we are seeing improved demand. There are many committed infrastructure and construction projects, but people had stopped working as it was economically unviable, but now the pent-up as well as future demand is there," a company official from a major steelmaker said.

"In the second half we'll not only see robust domestic demand, but international demand can come up too and our capacity utilisation will also be much better," the official added.

India's finished steel exports have plunged by more than 50pc on the year in the April-September period owing to the imposition of export tax in late May, but production and consumption have increased by 8pc and 11.5pc on the year, respectively, during the same period.

"Hypothetically, even if export taxes are removed, international markets are not there to buy. There is no ray of hope coming from anywhere so the challenge with exports will remain, but it's a blessing in disguise that our domestic markets are strong and we do not have an inventory overhang," a major steel exporter said, adding "we might have a slight correction in prices going forward but demand will be good."

By Sumita Layek