STEE DREAM

Domestic powerhouse or China's export playground? Only time will tell

Buoyed by strong domestic demand and anticipation of easing raw material prices, blue-chip steel companies in India are outpacing the broader market. Tata Steel, JSW Steel, Jindal Steel and Power, and Steel Authority of India (SAIL) have all witnessed a stellar rally of 40% in the past six months, compared to a more modest 25% gain for the Nifty 50 index. This outperformance reflects optimism within the steel sector.

However, near-term challenges cloud the positive outlook for the domestic steel industry. Despite recent gains, data reveals a worrying trend: India transitioned from a net steel exporter (FY16-17) to a net importer (FY23-24). This trend is expected to continue in FY24-25, with import figures for April ‘24 and May ‘24 already up 20% year-on-year at 1.14 million tonnes.

India’s steel demand has a healthy outlook, driven by expectations of policy reforms and continued government spending on infrastructure. This is particularly significant given the recent slowdown in steel demand from major players like China, the US, and Europe.

Nevertheless, the key challenge for both the global and Indian steel sectors lies in managing the influx of excess steel from China.

THE CHINA FACTOR

China dominates global steel production, accounting for roughly 55% of the world’s annual output of 1,900 million tonnes. This translates to a high level of domestic consumption, with each person in China averaging roughly 700 kilograms of steel use per year. However, despite this substantial consumption of 950 million tonnes every year, China still produces more steel than it uses. This surplus is then exported to the global market.

China’s efforts to curb steel production for environmental reasons seem to be falling short. Despite earlier indications to limit production to 2022 levels, China’s steel output in 2024 is projected to remain around 1,020 million tonnes, same as last year’s figures.