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Riding on strong demand outlook, the steel industry is likely to witness close to 20 million tonne (mt) capacity addition, mostly through brownfield expansion, over the next four-to-five years.
The country’s installed capacity at present is close to 133 mt, and the production stood around 104-105 mt compared to a domestic demand of 94-95 mt in 2017-18.
According to Jayanta Roy, senior vice-president, corporate sector rating, ICRA, a majority of the expected capacity addition in the next three-four years would be by way of brownfield projects. “Land acquisition is a problem area in the case of greenfield projects. Most of the ongoing steel projects are brownfield expansions in nature,” Roy told BusinessLine . Moreover, companies would also try to ramp up production from assets acquired through the resolution process under Insolvency and Bankruptcy Code (IBC) at the earliest so as to capitalise on the improved demand for steel — both in domestic and international markets — and firm prices.
According to Roy, IBC proceedings have opened the scope for consolidation in the steel sector which may lead to better economies of scale, synergies in raw material procurement and better pricing power for manufacturers.
Despite a lack of project spending by the private sector, the government’s infrastructure push in road, rail and other projects and rising consumer spending are likely to keep steel consumption growing at 6-7 per cent in the medium term.
The domestic steel consumption, which grew by 7.9 per cent in FY-18, was up by nearly 9.2 per cent in the first quarter of the current fiscal backed by a steady demand from the automobile sector and improving offtake by the construction sector. Roy expects the sector to clock 6-7 per cent growth in FY19.
The price of domestic hot rolled steel increased by 14 percent from around ₹40,000 a tonne in end December 2017 to ₹45,500 at present. The increase is attributed to demand pull, buoyant international prices, a depreciating rupee and cost pressures due to higher iron ore prices.
Moving forward, the sustainability of international steel prices at current levels would depend to a large extent on the domestic demand growth in China, he said.
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