Posted on 13 May 2024
Indian steel demand is expected to increase by 5-7% in the next 12-18 months, outpacing China, according to a Moody’s steel sector report.
India's strong steel demand growth is attributed to faster economic and population growth, the rising pace of industrialisation and urbanisation, and supportive government policies in the country, notes Kallanish. The latter include increased spending on infrastructure and domestic manufacturing incentives.
Comparatively, Chinese steel demand is forecasted to drop slightly during the same period due to sluggishness in the property sector, and weakness in regional and local government fiscal strength.
India’s current per capital steel consumption stands at 70-80kg, indicating a higher growth potential compared to China’s 660-670 kg.
India’s real GDP is forecasted to increase 6.6% year-on-year for the fiscal year ending on March 2025 (FY25), and 6.2% y-o-y in FY26, while China’s is expected to rise by 4% y-o-y each in 2024 and 2025.
China’s overcapacity and cheaper coking coal import costs pose a challenge for India, especially amid India’s capacity growth, and could hurt Indian steel prices. India mainly imports Australian coking coal, which is more expensive than the Russian and Mongolian coking coal imported by China.
“China's overcapacity and high production drive rising exports that will increase steel supply and suppress prices in the region. Strong demand from India will likely stimulate Chinese steel exports to the country. This, combined with capacity additions in India, will hurt steel prices in India. Still, as in the past, anti-dumping duties offer some protection,” says Moody’s.
India’s steel market structure, iron ore reserves and better credit metrics compared to China, however, give the Indian steel sector an edge.
“India’s concentrated steel industry enables better pricing discipline and allows steelmakers to focus on improving operational efficiency and product quality. In a consolidated industry, major companies have higher visibility on market production levels and demand. They can adjust output depending on demand and avoid overproduction that leads to lower prices,” Moody’s notes.
“In contrast, fragmentation in China's steel sector spurs competition, which can lead to overproduction even in periods of low demand as steelmakers fight for market share. This can result in oversupply and hurt prices,” it continues.
Due to India’s abundant iron ore resources, it will have a higher degree of vertical integration at Indian steelmakers' operations, thus garnering better profit margins than Chinese producers. The better credit metrics are due to the expectation of Indian steelmakers being able to maintain higher margins and lower leverage than Chinese steelmakers in the next 12 months.
Source:Kallanish
