background paper - steel

2© Confederation of Indian Industry

Content

Sectoral Snapshot The Potential Current Growth Drivers Major Challenges faced


Sectoral Snapshot

3rd Largest Globallyby production capacity (~110 million tonnes)

2% Sector’s

Contribution to GDP

100% FDI allowed under

automatic route

~6.7% Sector’s

Contribution to Industrial GDP

7.3% CAGR of

domestic demand between 1991 – 2016

~600,000employment generated

by sector

Source: IBEF; Joint Plant CommitteeFDI – Foreign Direct Investment


Advantage India

Reason 1

Government boost to Infrastructure & Rural spending (220% over last 5 Yrs average) Rs. 3.4 Lakh crs in Infra up 28% YoY Rs. 2.87 Lac crs for rural spending up

(FM Budget Speech)

Reason 2

Significant reserves of natural resources:

Iron Ore reserves 31 Billion Tonnes Coking Coal reserve 34 Billion Tonnes

(Source: Platts)

Reason 3 Significant growth expected in key

demand sectors such as infrastructure, auto and railways

Reason 4

Favorable demographics : Young Population Skilled man power Long coastal line

Potential Production expected to increase to 300 MT by 2025 Low per capita steel consumption at 64 kg vs global average of 220 kg (Source Primary Data) Growing middle class & rapid urbanization; high potential rural demand Government focus on infrastructure development & manufacturing led growth


Current Growth Drivers

Policy and Eco-system

• Policies designed for fair and open trade: Iron ore export duty 0% below 58% Coking coal has low import duty of 2.5%

• Policies creating level playing field: Minimum Import Price on 173 lines of steel

products Safeguard duty on Hot rolled coils

• FDI: Given “High Priority” status with 100% FDI through automated approval route

• Fair presence of public & private sector players leading to healthy competition

Industry Evolution and Capabilities• 110 MT Crude Steel capacity

• Indian Steel Mills ranked amongst Top-10 world class steel makers for operational excellence, cost competitiveness and sustainability by World Steel Association (WSA)

• New & modern mills are capable to produce all grades & qualities of Steel as per International standards like Hardened-Quenched (HT-QT) & Tempered Bars, Boiler Quality, etc

• Capability to cater to demand for specialty steel for Auto, Defense, Electrical and Marine sectors

Market• Indian steel demand grew modestly by 4.5% in FY 2015-16 to 80.5 million tonnes• Likely to grow by 5.4% to 84 million tonnes according to Short Range Outlook (WSA) CY 16 and 88 MT

in CY 17


Major Challenges faced by sector

Internal Challenges Inconsistent availability of indigenous Iron Ore (Both Quantity and Quality) Low contribution of manufacturing sector in GDP: 17%, (vs. 36% in China; 35%

in Thailand) Inadequate and under-developed infrastructure (Ports and Rail) resulting ion

high logistic cost High cost of finance

External Challenges Surplus steel production capacity and low capacity utilizations across

geographies Slowing international demand (-3% de-growth in CY2015 and -0.8% de-growth

in CY2016E) Surging steel imports from China, especially commodity grades• Geopolitical tensions – disrupting free global trade and investments• Imminent threat of heightened trade barriers (tariff and non-tariff) and market

access

background paper - steel

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