All large and economically developed countries have gone through a period of solid phase in steel- dominated growth. This was true for the United States, Europe, Japan, South Korea and now China. Both China and Korea, during their ‘nation-building phases,’ increased their Apparent Steel Usuage (ASU) per capita by four times over the 2012 – 13 period.
India is no exception. With favourable demographics, an expanding middle class, rapid urbanisation and a supportive government reform agenda, this is a growth model India will emulate. The per capita consumption of steel in India is 60 kg compared to the world average of about 220 kg. Developed economies start with a low per capita steel consumption. Later the consumption rises to a level of 400 – 600 kg when the country is in an infrastructure growing mode. Finally, it tapers off to a range of 200 – 300 kg when the country is fully developed. The sustainable level of consumption is 250 kg because of the replacement demand. The replacement constitutes consumer goods, automobiles or replenishment of the housing and infrastructure stocks, with not much significantly added in the form of new fixed capital assets. According to most estimates, infrastructure assets such as roads, railways, ports and airports alone account for 65 per cent of the steel consumption in India.
Import surge threatens domestic market
India’s steel sector currently has a capacity of 110 million tonnes and the Government of India envisages increasing this to 300 million tonnes by 2025. However, this is being threatened by a sudden surge of imports over the past 12 months as China’s over-capacity in steel and Japan and Korea’s predatory pricing search for new markets. The Indian market provides that opportunity.
During 2014 – 15, import of steel increased by 71 per cent, from 5.45 Mte to 9.32 Mte. A destination-based analysis shows China, Japan and Korea accounted for 76 per cent of the total imports in India. During the first quarter of 2015-16, imports have increased by 53 per cent to 2.5 Mte, this time from a higher base.
With this surge in imports and a tepid domestic demand, the Indian steel industry has had to bear the brunt of a sharp drop in steel prices over the past few months.