Industry
Do crashing steel prices spell a rusty outlook for India?
Summary
- In 2023-24, steel imports surged 38% at 8.3mt outpacing exports which grew 11.5% at 7.5mt making India a net importer for the first time since 2018-19.
Steel prices in India have fallen to a three-year low, indicating increasing stress for domestic producers in a market that has been a rare global bright spot. Mint looks at the reasons for this fall, its impact on the economy and what the domestic industry should do.
By how much have steel prices fallen?
The benchmark per tonne price of hot rolled coil steel—used in automotive, railways, agriculture and mining industries—in Mumbai has fallen to ₹50,900 this month, the lowest since September 2020 when prices were at ₹49,200 per tonne. The current price is nearly 33% less than the peak of ₹76,000 per tonne of April 2022. Similarly, prices of cold rolled steel—used in construction and home appliances, has declined to ₹58,200 per tonne—down 32% from the peak of ₹86,300 of April 2022. As a cyclical industry, pricing crests and troughs are normal, but prices have now fallen for three consecutive months.
What has caused this decline?
Oversupply in global markets due to tepid demand has resulted in an increase in steel imports by India combined with a fall in exports. This created a glut in the domestic market, putting prices under pressure. In 2023-24, steel imports surged 38% at 8.3 million tonnes (mt) outpacing exports which grew 11.5% at 7.5mt making India a net importer for the first time since 2018-19. The trend has worsened in the current fiscal year. A major reason for the fall in global steel prices is overcapacity in China due to weak macroeconomic conditions especially real estate and an overall tepid outlook for growth for the global economy.
Is China dumping steel again?
China is the world’s largest producer of steel, accounting for more than 30% of imports in India in Q1 of this fiscal year, up from 28.5% on-year. India’s consumption growth—steel demand expected to grow 8.2% in 2024 and 2025—makes it an easy target to divert any excess capacity. The domestic industry has been claiming China has resorted to predatory pricing.
Also read | Steel prices dip to the lowest in 3 years, hurt by Chinese oversupply
How can the domestic industry protect itself?
In the middle of the previous decade, dumping from China severely impacted domestic players, forcing the government to slap anti-dumping duties. Citing the rise in imports this time, the industry has been asking the Centre to do the same. The three top steelmakers in India—JSW, Tata Steel and SAIL—reported a steep fall in Q1 net profit. The situation is likely to reverse with the onset of the festive season as prices are expected to bottom out, but continued rise in imports could undermine that possibility.
What does it mean for the economy at large?
A prolonged slump in steel prices will upend the steel investment cycle and derail India’s ambition to scale up annual steel production capacity to 300mt by 2030. With the decline in profitability as an initial warning sign, continued pressure on margins could lead to a recurrence of pain, spreading to parts of the economy like mining and banking. Low prices are at the same time beneficial for user industries like construction and automobiles, but a protracted downturn will impair the country’s overall growth story.
