Why India is emerging as a saviour for flagging global steel demand

Construction boom and buoyant outlook have set off a flurry of activity that is set to translate into a 6.7% jump in demand next year

Construction workers set up steel scaffolding for a road project in Mumbai, India. AFP

With China’s massive construction sector still struggling and the US and Europe probably heading into recessions, India has emerged as a saviour for flagging global steel demand.

Poised to overtake China as the world’s most populous country next year, India is in the middle of a building boom. Prime Minister Narendra Modi is seeking to modernise roads, rail networks and ports in an attempt to vie with China as a manufacturing centre.

That is set to translate into a 6.7 per cent jump in steel demand to about 120 million tonnes in 2023, according to the World Steel Association, the highest growth among major economies.

India, which also had a similar expansion this year, overtook the US to become the world’s No 2 steel consumer after China a couple of years ago.

“The nation-building phase of any economy requires a lot of steel and commodities,” said Jayant Acharya, deputy managing director at JSW Steel, the nation’s biggest producer.

India is going through that phase in this decade, and it could boost the country’s steel consumption to more than 200 million tonnes by 2030, he said.

The buoyant outlook has set off a flurry of activity. ArcelorMittal Nippon Steel India, a joint venture between India’s Mittal family and the Japanese producer, has plans to more than triple capacity to 30 million tonnes in the coming decade.

South Korean steel maker Posco Holdings and Indian tycoon Gautam Adani, Asia’s richest person, are also exploring plans to set up mills in the country.

India produces the vast majority of the steel it uses but it is also being forced to import more to meet the surge in demand.

Inward shipments rose by 15 per cent in April through to October, from a year earlier, to 3.1 million tonnes, according to government figures.

Local producers are becoming worried about the flood of cheap imports as demand dries up in traditional steel producers.

China accounted for more than a quarter of imports in October while some Russian steel is also reaching India, the government data shows.

The quality of some of the steel coming in is “substandard”, said AK Hazra, deputy secretary general of the Indian Steel Association, which has requested authorities look into the matter.

“We are just asking that imports should be at competitive and international prices and the quality should adhere to Indian standards,” he said.

Despite the strong growth, India is still well behind its rival Asian powerhouse in terms of total steel consumption. Demand for next year will be less than a seventh of China’s 914 million tonnes, according to the World Steel Association data.

How fast India can narrow the gap will depend on the success of Mr Modi’s construction programme, with the Ministry of Finance estimating $1.4 trillion of funding will be needed for the National Infrastructure Pipeline through 2025.

China’s real estate problems and the lingering impact of Covid-19 will keep its steel demand suppressed next year, said Jayanta Roy, senior vice president at Icra, the Indian unit of Moody’s Investors Service.