Rising Imports Test Resilience Of India's Steel Industry

Strong domestic demand remains a bright spot for Indian steel producers, even as an influx of cheaper imports has increased pressure, according to Crisil. Economic growth significantly drives steel demand, given its extensive application across various industries. And this has been the case for India, it said.

India turned net importer of steel in fiscal 2024, which last happened in financial year 2016. This shift in status indicates a reversal in the balance of trade for the steel industry, with a deficit of 1.1 million tonne. The dramatic increase in imports was mainly led by weak global markets and competitive Chinese steel.

In fiscal 2016, the surge in imports was mainly attributed to a global steel glut. Steel was being exported by China and other countries, often at rates which were below the cost of production.

A similar scenario was observed in the previous fiscal in India, wherein imports from China led the pack. This was mainly due to poor housing sector in China, which led to weak steel consumption, thereby pushing steel firms to look outside China for boosting volume growth.

India’s steel consumption has been increasing steadily, reflecting the country’s expanding infrastructure and related sectors, Crisil said in a report.

Steel consumption in the country surged by 13.6% to reach 136 million tonne in fiscal 2024, buoyed by robust expansion in infrastructure projects and a significant uptick in finished steel production, which climbed by 12.7% to 139 million tonne. This upward trajectory underscores India's growing appetite for steel, fueled by accelerating industrialisation, urban development, and government initiatives, it said.

India's steel demand is poised to grow between 5-7% over the next 12-18 months, outpacing a slight decline expected in China, Moody's said. Similarly, India Ratings and Research expects growth in domestic demand to match with capacity additions across steel producers.

ICICI Securities Ltd. projects an 8-10% year-on-year growth in domestic steel consumption for fiscal 2025, supported by potential reduction in coking coal costs and sustained high levels of capital investments by key players over the coming years.

In fiscal 2022, India enjoyed a significant surplus in steel exports due to favourable realisations overseas. However, starting financial year 2023, exports began to decline following the imposition of export duties on iron and steel products, aimed at enhancing domestic availability and stabilising prices.

Indian exports of finished steel reached approximately 7.5 million tonne in fiscal 2024, reflecting an 11.5% year-on-year increase from a lower base. Flat products dominated the export volume, with the European Union emerging as the largest market, Crisil said. Top export destinations included Italy and Belgium, followed by Nepal and the United Arab Emirates.

In the ferrous space, ICICI Securities' key picks includes Jindal Stainless Ltd., Jindal Steel & Power Ltd., and JSW Steel Ltd. Kotak Institutional Equities also sees a 17% upside potential in Jindal Steel & Power and retained a 'buy' rating.