Steel industry’s challenge to pursue growth and stability

While the steely industry was dormant in various aspects for a long time, it gave a trailblazing show in the year 2020. With the steel prices soaring high and pent-up demand for various sectors like automotive, construction, etc. the growth of steel industry as well its players individually has been spectacular. However, it is important to note that these shimmering growth rates currently are calculated on a very low base of 2020, when the pandemic hit the world, and everything came to a halt. The challenge for the industry begins now to sustain the growth and achieve stability in this dynamic environment and not just retain the tag of a cyclical commodity.

The industry overall is going through anomalous situations. Though there has been progress on several fronts, it is not entirely competitive with global standards. Like the prices of domestic flat category surged upto 47% but on comparing then with global prices, you will find that they are still trading at a 10% discount. The price gaps between structural grades like HRC and CRC are abnormally wide. Further, some of the top steel demanding sectors like Automobiles and Consumer durables are unable to achieve their projected sales and hence being forced to undergo a production cut leading to a reduction in steel demand.

One of the sectors that have emerged as the biggest consumer of steel is the infrastructure sector. With government stimulus favouring infrastructure and multiple infrastructure projects lined up, the demand for steel from this sector is going to be trending upward for quite some time. From constructing roads, highways to airports etc., this sector is geared up for expansion, being a positive indicator for growth in steel demand. However, the steel industry is a highly cost intensive industry. The operating costs are of fulfilling such high demands of steel across geographies significantly increasing costs of operation, especially logistics. Thus, the profitability for the players will be very low compared to their huge top line growth.

Also, demand for steel has gone up on a global level. Hence, foreign countries are offering lucrative rebates and schemes to Indian steel players to export steel products. This can create a shortfall of steel in the country for domestic consumption. One of the other challenges is that the prices for raw materials also keep increasing thus making production costs costlier for steel manufacturers. Additionally, Indian steelmakers have limited capacities that are unable to fulfill the humongous steel demand. And the cost of setting up additional capacities is very high which the unorganized sector and sometimes even the organized sector finds it difficult to incur.

With the global climate concerns arising, the steel industry also needs to shoulder the responsibility of innovating eco friendly production processes, as steel production results in emission of high amounts of harmful gases. Doing research & development, innovating, and altering processes results in high capital expenditure for steelmakers.

The steel sector as a whole is a very complicated sector. Though it has huge potential and is an important indicator of economic development, there are multiple challenges faced by the industry to achieve growth and stability and maintain the same. With government support through reforms, the sector can be driven out of several challenges and convert into one of the most successful industries.

?

?

?