Global and Indian steel industry and its role in the development of economies

01 Apr 2020

Steel is used in almost every aspect of our lives from cars to refrigerators to washing machines to roads, bridges, ships, airplanes, etc, and extensively in engineering and construction work. Therefore, production and consumption of steel can be directly linked to the socio-economic development of a country. Steel has played a crucial role in the development of many large economies.

Steel consumption significantly depends on the overall performance of the economy (GDP) and more specifically on investments made in infrastructure like railways, ports, roads, airports and housing.

At the global level, 3.6 per cent growth in GDP for the period of around three decades was associated with 3 per cent growth in steel consumption. The GDP of India grew from 1990 to 2018 at 6.6 per cent and its steel consumption grew by 6 per cent in this period.

India: 3rd largest steel consumer

India is the third largest finished steel consumer in the world and is likely to surpass US to become the second largest in 2019. However, the per capita consumption of crude steel in India stood at just 77 kg in 2018 against the world average of 240 kg. This is consistent with India's low income per capita. India's low steel consumption partly reflects its limited urbanisation but also indicates the high potential that exists given that it has potential to grow by 8-9 per cent per annum given the lacunae in the infra space. This strong growth potential can be reached in terms of consumption, although the speed of this increase will largely be determined by the rate at which India urbanises and industrialises.

Steel has played an important role in the development of the Indian economy. India’s crude steel consumption rose from 22 million tonne in 1990 to 105 million tonne in 2018. According to the Ministry of Steel, the sector contributes around 2 per cent of the country's GDP and employs around 25 lakh people in steel/allied sectors. Evidently, the steel industry is important for the country because it has one of the highest economic linkages in overall GDP.

Steel demand in India is expected to grow driven by various government-led initiatives in affordable housing and infrastructure sector, coupled with robust growth in automotive and capital goods segments. Also, the NSP is expected to encourage domestic production of steel and reduce imports. This is expected to benefit the domestic steel companies. Lower exports from the world’s second largest steel producer are a cause of concern. The domestic steel industry has the potential to be a net exporter. This is possible if the government looks at rationalising the cost structure, develop efficient logistics and infrastructure, and make funding available at cheaper rates. As China enters a phase of moderate growth in steel demand, India is expected to have healthy domestic demand for steel given its low per capita steel consumption and low income per capita and scope for urbanisation.

CARE Ratings’ ‘Global and Indian Steel Industry’ report studies the trend in the global and Indian steel industry during the period 1990-2019. It looks at the trend in global steel production, consumption and capacity and the movement in prices of steel and raw materials over this period. The study further dwells into the problem of global overcapacity of steel and measures taken by the countries to address the same. It also takes a look at the measures taken by the Indian government to contain the flow of cheap imports into the country, resolve the NPA problem and policies measures that helped in growth of Indian steel industry.

Read more in the report on the trend in the global and Indian steel industry!

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