After relaxation in lockdown guidelines it seems the steel sector is going through an upswing phase, what is your current take on the steel sector?
Indian steel demand was estimated to fall by around 20% and global by around 10% due to the Covid-19 crisis in FY21 as users were impacted and there were supply chain disruption problems, along with slow demand recovery and labour shortage. The steel sector was expected to revive after H1FY21 on account of various government initiatives and when restrictions on the Covid-related lockdown are lifted; green shoots were visible, reflecting demand revival, particularly in Q2FY21. Steel prices also grew by 5-10% for various products during H1. Overall demand is gradually expected to improve further in the successive quarters ahead.
How will be demand offtake in the remaining quarter of the current financial year?
While Q2FY21 numbers are not fully available yet, we expect a 5-10% improvement in demand in Q2 and 20-25% in Q3 and Q4 each during FY20-21.
What is your assessment for the next financial year 2021-22 for the steel sector? Where will the maximum demand for the industry come from?
Demand is expected to grow and should be around 25% higher over 2021. Demand is expected to come from the construction and infrastructure, engineering and fabrication, and automotive sectors in that order.
Production and consumption of steel are widely regarded as an indicator of economic progress. The progress of the steel sector depends on government policies and projects. How can the government hand-hold the industry to propel the sector?
The government can give it a significant push and encourage the faster implementation of infrastructure projects. This is the best way in the short run as fiscal impetus is difficult due to existing deficits. In the medium and long term, the government should take initiatives to reduce freight costs through the faster implementation of water ways and contain rail freight hikes.
The steel industry is going through a consolidation phase. How beneficial is this for the growth of the steel sector?
Consolidation will bring in economies of scale (like China has) and the operational and marketing synergies of manufacturers' production capacities in different plants. The industry has good growth potential for the export market besides domestic, and consolidation will enhance production capacities and volumes, and as a result, reduced costs, which is the key need for the Indian steel industry to become competitive globally.
Though Indian steel industry has shown tremendous progress, the latest being JSPL’s contribution in manufacturing world-class rails for high-speed trains including bullet trains, it still has a long way to go to flood the world market. Your take on this
With the improvement in technology, supply chain and production cost efficiency, the potential of the steel industry is slated to grow in domestic and export demand, and the production capacity is expected to reach 300 mn tons p.a. by 2030-31 +/- few years, as targeted.
What are the challenges faced by the industry?
Managing direct costs particularly raw material and freight. High freight costs, impacted by increasing diesel prices, constitute a challenge to manage, particularly when the Indian steel industry is majorly dependent on road transport, which is the most expensive among water, rail and road transport. One tonne of steel produced requires three times the volume of raw material to be transported, which again involves the cost of transporting the heavy-weight finished product. Thus, managing this cost is very important, particularly in new capacities and expansions. With the industry being highly capital-intensive in nature, managing finance costs is also challenging. Technology upgradation and the penetration of automation is another challenge in existing capacities.
How receptive is the Indian steel sector to Digitization, IoT, Robotic process automation (RPA), Automation, Artificial Intelligence, data analytics? Has the industry benefited by adopting these technologies?
The industry is receptive, but penetration in automation is low, and the transition is slow, more so in the unorganised and SME segments, which accounts for a third of the existing production capacities. The benefits are not yet visible fully and may come through in future. The new production capacities to come up at a large scale during the next decade are expected to dovetail automation and the above technologies in the manufacturing processes right from the planning phase.
How does the remedial ‘anti-dumping duty’ imposed by the government for cheap import of steel benefits / affects India steel sector in the long run?
Anti-dumping duties imposed by the government have certainly helped increase steel demand and have also kept domestic prices competitive against imported steel prices by a few thousand rupees per tonne, depending on the product. The government’s restrictions need to continue in order to keep China, which has 10 times the steel production capacity of our country and lower costs, off the fence.
