Posted on 10 Apr 2025
Morning Brief: The Indian steel industry retained its general growth momentum in the just-concluded fiscal year 2024-2025 (FY'25). But the pace of growth was moderated by the slowdown in global steel demand, decline in Chinese crude steel production, as well as free inflow of steel imports into the fast-growing domestic market.
The continuous inflow of imports affected the primary producers more than the secondary steel sector, but sentiments in China and the rest of the world impacted domestic market dynamics and prices.
Slower growth in steel production
As per BigMint projection, crude steel production in India is expected to increase by 6% y-o-y in FY'25 to reach 152 million tonnes (mnt) from 144 mnt in the preceding fiscal. Notably, crude steel production had increased more sharply - by over 14% y-o-y - in FY'24. Steel production, including alloy, non-alloy, semis and stainless steel may edge up by 4% y-o-y to 145 mnt.
Interestingly, the route-wise projection of crude steel production in FY'25 shows that the BF-BOF sector churned out around 62 mnt, with its share in overall production decreasing from 43% in FY'24 to 41% in FY'25.
The growth in volumes is expected to come from the induction furnace route, with production increasing by 8 mnt y-o-y, and its share in total output rising to 38% from 32% in FY'24.
Although total production from EAF mills stood unchanged y-o-y at 32 mnt in FY'25, its share decreased to 21%.
Steel consumption
Domestic steel demand is estimated to touch 149 mnt in the just-concluded fiscal, a growth of 9% y-o-y from 136 mnt in FY'24. Again, the pace of growth slowed down compared with 13% in FY'24 which can be attributed largely to the uptick in pre-General Election spending on infrastructure.
While infrastructure and construction account for around 63-65% of India's steel demand, general engineering, automotive, consumer goods, railways, etc. are the other major steel consuming sectors.
Steel composite index down 7%
BigMint's flagship India Steel Composite Index, a barometer of the domestic steel market, is likely to fall by 7% y-o-y in FY'25 due to the pressure of imports on domestic prices. Earnings of the integrated producers edged down as the share of imports was largely titled toward the flats segment - over 90%. For most of the fiscal, domestic flat steel prices were higher compared with landed prices of imports from the FTA countries, as well as China.
As prices were affected, the capacity utilisation of the primary producers was likewise impacted, as is borne out by the stagnant level of steel production from the BF-BOF route. However, the recommendation of a 12% provisional safeguard duty on flat steel imports towards the fag end of the fiscal provided some support to domestic prices and offered mills the opportunity to raise prices.
The longs segment, although bearing the brunt of overall subdued market conditions both at the domestic and global levels, performed comparatively better as it was not directly affected by increasing imports.
The government's infrastructure drive, the massive public spending announced in Budget 2025 for large connectivity projects and urban redevelopment, with an allocation of over INR 11.5 lakh crore for capital expenditure to propel infrastructure, kept the market fundamentals rock solid.
In the face of declining domestic steel prices, producers in the secondary sector opted for cost-effective strategies such as maximizing the usage of DRI in steel production as against scrap, and also increasing the usage of domestic scrap versus imported material.
Steel trade dynamics
Imports: Steel imports into India in FY'25, as per provisional data maintained with BigMint, is expected to edge up to 9.8 mnt compared with 9.1 mnt in the preceding fiscal, an increase of 8% y-o-y. While the total volume of imports is just about 6.5% of domestic steel consumption, higher inflow of certain flat steel products and grades hit the primary producers hard.
South Korea, China and Japan were the leading importing countries. Steel imports started to moderate towards the end of the fiscal prior to, and after, the safeguard duty announcement.
Exports: The all-round pressure on the integrated steel producers intensified in FY'25 due to the rapid drop in steel exports, with data projecting a decline of nearly 30% y-o-y to 6.7 mnt. Notably, a historically high level of steel exports by China was seen during much of the fiscal, with Chinese suppliers edging out domestic mills in terms of costs in key markets such as the Middle East and Vietnam. Weak global demand amid oversupply also weighed on exports.
Raw materials landscape
Iron ore market: Domestic iron ore production is estimated to have increased by 6% y-o-y to reach 295 mnt parallelly with rising demand from the steel sector. Production increased with new output entering the market after successive rounds of auctions in different states, the operationalisation of auctioned greenfield and existing mines in key producing states, and expansion of EC limits of major miners.
However, domestic miners faced a huge setback due to the sharp decline in exports of iron ore fines and pellets in FY'25, with provisional data showing a drop of 36% y-o-y. This was mainly due to the softening of Chinese demand amid declining crude steel production and high inventories. Weakening of global iron ore prices also weighed on exports. China accounts for over 90% of India's exports.
The expected surge in iron ore imports, though negligible in terms of quantity, was due to the geographical location of certain mills, preference for particular grades, and high costs of domestic logistics.
Domestic coal production: India's coal production crossed the 1 billion tonne-mark for the first time on higher production from the State-owned as well as captive and commercial miners. This explains the decrease of 9% y-o-y in non-coking coal imports which are estimated to drop to 167 mnt in FY'25.
On the other hand, metallurgical coal imports (including PCI) are projected to rise by a moderate 4% y-o-y amid stagnant steel production through the BF-BOF route.
Scrap generation: Provisional data show that India's ferrous scrap generation is likely to rise by 7% y-o-y to 32 mnt compared with 30 mnt in the preceding fiscal. Boosting scrap generation through upgradation of domestic recycling infrastructure and bolstering end-of-life scrap processing are key pillars of government policy.
Scrap imports for steel production, on the other hand, are projected to drop sharply by 16% y-o-y to around 8.4 mnt in FY'25 on higher uptake of domestic scrap, partial replacement of scrap by domestic ore-based metallics due to cost consideration and easier availability, and decline in scrap exports by key supplying countries.
Outlook
Domestic steel prices witnessed a late uptick in FY'25 following the recommendation of a safeguard duty on imports of flat steel, and this momentum in expected to continue into Q1FY'26, with more price hikes in the pipeline.
On a positive note, exemption from the EU's anti-dumping ruling and the increasing likelihood of steel production cuts in China are likely to raise India's steel export prospects, although no sharp recovery seems to be in sight.
The proposed 12% duty will naturally increase the viability of domestic steel compared to imports. Moreover, non-tariff restraints such as mandatory BIS certification for imports, the Steel Import Monitoring Scheme (SIMS) etc. will further impede the flow of imports.
This is expected to give a fillip to higher domestic capacity utilisation, especially by the primary steel producers, amid expanding steelmaking capacity. BigMint projects India's crude steel production to reach around 165 mnt in CY'25, with consumption edging up to 152 mnt.
Source:BigMint
