MUMBAI (NewsRise) -- India is considering a raft of measures, including increased spending on new infrastructure, to boost sagging domestic consumption of steel as Asia’s third-largest economy contends with a demand slowdown that has cast a shadow over alloy makers such as Tata Steel and JSW Steel.
Officials at the steel ministry are set to meet their counterparts at the road ministry and the National Highways Authority of India next week to discuss new projects that envisage building 100 bridges using stainless steel, according to a top government official.
“Government expenditure in the steel sector is set to expand,” Additional Secretary at the steel ministry, Rasika Chaube, told NewsRise in New Delhi. “Areas like urban infrastructure and urban transport will all draw from this sector.”
India aims to spend $1.4 trillion on infrastructure as part of its plan to be a $5 trillion economy by fiscal year 2025. Chaube said steel will account for 60% of the contribution of infrastructure sector spending.
The government move comes at a time when the industry is grappling with shrinking demand. India’s gross domestic product expanded at the weakest pace in five years in April-June as banks tightened credit in the face of ballooning bad debt. The slowdown posed major hurdles to several industries such as automobiles and construction, prompting companies to cut production and fire employees. Falling prices have also pushed several steel makers to the brink of credit downgrades and losses.
According to Care Ratings, growth in demand for steel in India is set to slow down to 5% to 6% in this fiscal year ending in March from 8.8% in the previous year.
The slowing demand weakened the outlook for steel prices over the last three quarters, eroding the margins of top steel makers such as Tata Steel and JSW Steel. The operating earnings per ton for Tata Steel fell to 6,155 rupees ($86) in the quarter ended in September from 10,394 rupees at the end of March.
This is mainly led by lower-than-expected demand in the domestic housing, construction, and automotive sectors -- all of which are linked to the growth slowdown and reduced availability of retail financing that India is currently facing, S&P Global Ratings said Friday. The rating agency said it expects large steelmakers in India to proactively slow down their capacity addition plans in response to a weak price outlook. S&P also lowered Tata Steel’s outlook to stable from positive, citing the weak prices.
JSW Steel has said it will miss its sales and production target for fiscal year 2020 by 3% and has had to cut its capital expenditure by a third, blaming the credit squeeze and weak government expenditure, according to a Reuters report.
The impending entry of ArcelroMittal, the largest steel producer in the world, into India with a 10 million-ton plant is set to further aggravate the competition in the sector. On Friday, India’s Supreme Court cleared the way for the company to take over bankrupt Essar Steel, bringing the curtains down on a legal battle that extended for more than two years over an insolvency resolution process.
Edelweiss Research expects steel prices to decline 6% to 8% in fiscal year 2020 and 8% to 10% in 2021.
Meanwhile, the government is also considering removing the 2.5% basic customs duty on raw materials like nickel and chrome used in the production of stainless steel to ease the cost of manufacturing, Additional Secretary Chaube said.
She said the industry is also aiming to become a net exporter of stainless steel soon, even as India turned a net importer of the alloy in the fiscal year 2019 for the first time in three years after demand for high-quality steel surged.
New Delhi has also ring-fenced the sector with levies to curb cheap imports from China and other Southeast Asian countries.
“We are aware of the problem. We will continue to give support to the sector,” Chaube said.
--Shivangi Acharya and Dhanya Ann Thoppil