With its large quantity of quality iron ore (hematite) on the one hand and equally prolific local consumption besides the demand for exports of ore (to China, Japan, Malaysia and Indonesia) and finished steel (to Middle-East, Europe and Turkey), India is well placed on both fronts. Add to that the burgeoning production capacity within the country, with newer steel plants likely to ramp up production to 300 million tonnes (mt) by 2030. 

If the outlook seems rosy, the path is challenging as it has its share of thorns that become apparent only on closer examination. Of the drawback that India faces precipitating  a crisis ever so often, the following stand out: 

On the input front 

Rising input costs in the form of coal, coke and nickel 

Coal has always been India’s Achilles’ heel as feedstock for captive and public power plants and a reducing agent in blast furnaces. Multiple factors, including the Ukraine conflict, have seen prices soar to $400 per tonne (from close to $300 nearly a year ago). This rise has added massively to production costs. 

Nickle, an essential raw material in the production of food-grade stainless steel (and India sees a surge in the food industry!), has seen prices rise to $100,000 in March that today has cooled to the range of $35,000 per tonne. Most of the stuff comes from Russia, which has been affected by the conflict and resultant embargo. Prices as such may not reduce beyond a point. 

Though not directly related to production in any material way, diesel affects logistics costs, adding to production costs as a component. And diesel in India in the recent past has only seen an enormous jump adding to the supply cost (both ways, in input and output costs) and exacerbating the raw material crises. The Ukraine crisis could offset diesel prices, with Russia selling crude oil in distress. But with the government holding prices, no advantage could emerge.  

On the output front (that hikes input costs) 

Loss of markets in Europe is due to reduced industrial consumption brought about by the Ukraine crisis. 

Electricity prices in Germany reached €280/MWh in early December 2022 and are likely to hit €3050.01 /MWh in 2023 and €7125.86 /MWh in 2024. No industry can survive in Europe at such prices, leading to the collapse of an important market for Indian steel. With the crises likely to last for some time with no viable energy alternative, India’s steel price volatility is expected to remain. 

Indian realty, a significant consumer yet to come to pre-Covid levels 

The recent withdrawal of export duties on steel made a welcome development, given that local consumption in realty, a major consumer, had been sluggish due to the Covid-induced lockdown- despite the embargo. With newer restrictions likely to come back due to the pandemic’s resurgence, domestic demand- other than government-funded infrastructure building, is expected to be patchy. 

China in the throes of the Covid virus 

China’s zero-tolerance for Covid through ill-conceived ideas of complete shutdowns will see the country back into another recession, leading to severely reduced demand for Indian ore and steel. Add to this their property industry, one of the biggest beneficiaries of Indian steel, becoming an intractable mess. Put together, what it does to Indian steel is bring unprecedented volatility and uncertainty. 

What then, is the silver lining to this moribund state?  

Quite a few! 

India’s not being affected much (till now) by the Covid crises brewing in China! Like it or not, we shall grow (by ourselves and as an alternative to China) and, hopefully, our demand for steel. 

America is likely to have a booming economy- despite the happenings in Europe and Taiwan. It could translate into India quenching its steel needs- instead of China. 

Growth in demand in South and South-East Asia. ASEAN countries could increase their steel demand by 5%, with most demand coming from Thailand and Indonesia. With China in the dole drums, India could benefit the most.  

Persian Gulf going strong! Russia being pushed into a corner due to the Ukraine crisis, it’s the turn of the Middle East as the main energy source. With added production and places like Dubai and Muscat going thru a building boom, Indian steel has an assured future! 

The author is Managing Director, Neo Mega Steel