Steel demand to stay robust as infra spend to rise 11% in FY25 irrespective of Lok Sabha election outcome: S&P Global

  • Regardless of the Lok Sabha Election 2024 results, spending on infrastructure, which accounts for 25-30 per cent of steel demand, is expected to increase by 11 per cent year on year in the fiscal year 2024-2025.

Nikita Prasad
First Published28 May 2024
An iron and steel foundry worker of Tata Steel walks by the 'G' blast furnace at the company's Jamshedpur plant. Photographer: Santosh Verma/Bloomberg News
An iron and steel foundry worker of Tata Steel walks by the ’G’ blast furnace at the company’s Jamshedpur plant. Photographer: Santosh Verma/Bloomberg News

India's domestic steel demand is expected to remain robust for the next 10 years, driven by infrastructure investments. Irrespective of the outcome of the ongoing high-stakes Lok Sabha election, spending on infrastructure—which accounts for 25-30 per cent of steel demand—is expected to go up by 11 per cent year on year in the fiscal year 2024-2025. 

According to S&P Global, the outlook for steel demand in the country looks bright, irrespective of the outcome of the general elections in June. This estimate is based on the expansion plans initiated by major steel producers.

Also Read: Vietnamese steel, shoes and other imports get stuck in India’s quality red tape

Sources told S&P Global that steel demand is expected to remain at high levels for at least the next 10 years. "We would expect the Indian government to continue its policy of supporting the domestic steel industry which is an important component of (the current) Prime Minister Narendra Modi's Make in India programme," said Paul Bartholomew, Lead, Commodity Insights Metals Analytics.

"Even if the incumbent government doesn't come back to power, there would be minor hiccups in policy for the near term, but steel markets seem to be comfortably placed for the mid-to-long long term going ahead," a Mumbai-based trader told S&P Global. India is expected to continue with its current export policy on iron ore despite secondary steelmakers' demands for an export ban.

S&P Global also found that irrespective of the outcome of ongoing elections in India, no major policy changes are expected as the country looks to maintain its economic priorities and keep the conversation moving on energy transition.

This means India is expected to continue boosting spending on infrastructure, manufacturing, and construction in the coming years. All factors point to improved demand for steel, iron ore, coking coal, and scrap. India also aims to secure critical mineral resources like lithium in its broader clean energy plans.

Iron and coking coal demand

India's iron ore shipments to China are at elevated levels, causing price volatility and putting pressure on the margins of secondary steelmakers, who typically do not have integrated operations. As iron ore exports rise, the secondary steelmakers seek a limited supply or pay higher prices for premium ore.

‘’The usage of low-grade iron ore, which India typically exports, is not high in the country. The lower grade iron ore, particularly that which has sub-58 per cent iron content, is not useful for India,'' said Anil Patro, India Country Head at Ashon International, a global commodities trading company.

Also Read: Steelmakers to be given incentives to use domestic coking coal

Secondary steel producers have been lobbying for an export duty on low-grade iron ore, but according to S&P Global Commodity Insights, this is unlikely to happen as major steel players are also exporting this material from their mines.

As iron ore production is set to rise in the coming years, any incoming government would push for finalising the policy on beneficiation -- a process that boosts iron ore content through concentration -- of low-grade iron ores.

The push for infrastructure means India's coking coal demand is also expected to rise in the coming years. According to commerce ministry data, India's coking coal demand has risen 10 per cent from 51.3 million tonnes (mt) in 2019 to 56.5 million mt in 2023, driven by robust infrastructure growth and related steel demand strength.

Domestic mills have ongoing expansion projects, with India aiming to reach 300 million mt of steel production capacity under the National Steel Policy 2017. This will keep the demand for coking coal high as the country relies on imports of key raw materials, according to S&P Global.

Livemint reported in 2023 that the steel ministry started industry consultations to frame India’s first stainless steel policy. The policy will aim to raise domestic capacity by nearly fivefold by 2047, from the current 6.6 million tonnes (mt) to 30 mt.

India imported a record 12.11 million mt of ferrous scrap in 2023, up sharply from 8.37 million mt in 2022, according to commerce ministry data. The demand for imported scrap is expected to improve once the election results are announced on June 4 and buyers focus on pre-monsoon season restocking, according to market participants.

Lithium demand

India has also been making a push towards securing vital resources for its clean energy ambitions. This includes mineral lithium, which has been included under the critical minerals list of at least eight major global economies, including India. Lithium is used to build electric vehicles and energy storage systems, making it a key mineral in energy transition efforts.

"I suspect we will see further auctions of mining rights, and promotion of domestic processing development will move forward full steam ahead," said Cullen Hendrix, senior fellow at Peterson Institute for International Economics.

The current government is following what looks like an "emerging playbook for large emerging markets: don't leave money on the table in terms of downstream processing. Seek to ensure Indian lithium is processed in India for the benefit of India's downstream green energy industries," said Hendrix.

In 2023, India discovered about 5.9 million mt of lithium ore in Jammu and Kashmir. As most of those deposits are clay deposits, their processing is seen as more challenging than that of brine or hard rock deposits.

Even as commercial solutions to extract lithium from clay deposits emerge in a few years, India will begin real mining. Until then, according to S&P Global, the country must explore partnerships to secure lithium supplies.

India in January signed a lithium mining agreement with Argentina, the world's leading holder of lithium-based resources, which is likely to play a crucial role in driving energy transition efforts and ensure a resilient and diversified supply chain for critical and strategic minerals essential for domestic industries.

Even as the election outcome holds the key to how various policies will shape the next five years, according to S&P Global, India is likely to continue developing its critical mineral supply chain and fuelling its economy through capital spending.

 

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