BUDGET EXPECTATIONS: STEEL

17 Jan 2023 , 12:16 PM

The Government’s policy on capex is a key driver of steel demand from the infrastructure vertical. In the last three years, the Government’s capex has been surging at a compounded annual growth rate (CAGR) of over 30%. In FY2024, maintaining the momentum in the Government’s capex drive will be a key factor, which can partly insulate the domestic steel industry from the full effect of the ongoing global growth slowdown.

Coal is a key cost driver for the steel industry, and the sector has been facing rake and coal shortage for more than a year. Consequently, domestic steel players became increasingly reliant on costlier imported coal, which has hit their profit margins. Therefore, decisions to raise coal allocation to the steel sector and increase rake availability would help improve the industry’s cost competitiveness.

On the trade front, given the expected weakness in steel demand in other key markets, global steel trade flows can be redirected in greater volumes to growing markets like India, keeping imports at an elevated level in FY2024. Consequently, any policy announcement that incentivises use of domestically-produced steel would boost domestic steelmakers.

In the PLI scheme on special steel, the Government has approved 67 applications from 30 companies, having an investment commitment of Rs. 425 billion. While the scheme had a budgetary outlay of only Rs. 63.2 billion, given the encouraging response, a higher budgetary allocation for incentivising investments in the steel sector would also augur well for the industry.