Is Indian Steel Sector Back On Growth Track?

The recently released official data shows that Indian crude steel production witnessed 4.6 per cent increase at 8.45 million tonnes (MT) in July as against 8.082 MT during same month a year ago.

The steel sector in India that has been under stress due to lack of demand is finally picking up. The steel ministry has set an ambitious target of taking the country's steel output to 300 MT by 2030-31 from 100 MT, at present, and is taking various measures to boost the sector.

India is the third largest producer of crude steel in the world after China and Japan. The country is now aiming to grab the second spot. The government has also approved the National Steel Policy 2017 in this regard.

Atanu Mukherjee, President, M N Dastur told “It certainly looks like that we are beyond the bottom of the cycle and the industry is stabilizing with domestic consumption picking up - albeit slowly. While the steel demand growth in the past quarter and last year is indicative of a modest expansionary trend, the durability and strength of the demand growth are yet to be established. However, current levels of steel growth do not afford the sustained volume increase and pricing power required to offset the NPA problem where the distressed firms have ballooned up the debts to unsupportable levels. NPAs will thus need to be written down, the distressed companies will need to be restructured through bankruptcies and the banks recapitalized.”

However, the steel sector in India is seen as a ‘bright spot’ for global steel output growth by various reports. The firms like Steel Authority of India (SAIL) and Tata Steel are expected to drive the steel output growth, according to the report by BMI Research, a Fitch group company. "The government has been spearheading the push towards the boost in steel production capacity, with upgrades being made to existing steel mills and state-owned companies stepping in to build new steel plants," the report said.

The slowdown in private investment has also pushed the sector backward substantially. “Write-downs and recapitalizations will allow the banks to start lending and accelerate the private sector investments which are the engines of investment driven growth for the nation. As the stalled capital investment cycle restarts one will likely see strong and sustained demand growth in steel and the industry should see its growth rate return to normal levels consistent with the country's GDP growth. That said, this period of inflection is probably an opportune time for profitable and healthy steel companies to start planning for capacity expansions through new investments or by acquiring distressed assets,” added Mukherjee.

According to an IBEF report, “Driven by rising infrastructure development and growing demand for automotive, steel consumption is expected to reach 104 MT by 2017.” Since India’s economic growth is contingent upon the growth of the Indian steel industry, it will be crucial to see if this growth sustains for a long period.