Budget expectations: Steel sector

21 Jan 2022 , 04:27 PM

“The global steel industry witnessed an unexpected V-shaped recovery since the third quarter of CY2020 as a combination of concerted fiscal and monetary policy actions by governments and central banks across the globe injected record liquidity into the global economy to stimulate growth. While China led the first leg of the recovery in global steel markets in CY2020 and the early part of CY2021, going forward, the sustenance of the upcycle in the second leg would hinge on the healthy demand momentum outside China.

In India, domestic steel demand in H2 FY2021 rose a healthy 16.6% year-on-year (YoY). However, in the current fiscal, the demand recovery, post the monsoon, has been slower than expected, contracting by 5.7% YoY in October-November of FY2022 over the same period last fiscal. This suggests that demand from the infrastructure and construction sectors, which account for around 60% of the domestic steel demand, have slowed down in recent months. Therefore, a higher budgetary allocation in the steel-intensive infrastructure and transportation projects could provide a fillip to domestic steelmakers.

On the raw material side, the country’s scrap supply chain, which feeds mills producing steel through the electrical route, remains fragmented and unorganised, leading to high import dependence. Though the Government has recently notified the Vehicle Scrappage Policy 2021, there is a demand from industry players to further increase the incentives for scrapping old vehicles so that domestic supplies improve meaningfully. Additionally, the infrastructure for scrap segregation and recycling is inadequate at present, which makes the case for targeted capital subsidy to incentivise the private sector for investing in this segment.

India has announced its target to be carbon-neutral by 2070, which would need carbon-intensive sectors like steel to invest in cleaner methods of steelmaking like electric arc furnace (EAF), Corex, Finex or hydrogen-based iron-making plants. India’s National Steel Policy of 2017 projects 60-65% of the country’s steelmaking capacity in FY2031 to be from the cost-efficient blast furnace route, which unfortunately has a large carbon footprint. However, given the country’s carbon neutrality targets, fiscal incentives in cleaner steelmaking technologies could help the steel industry reduce its carbon footprint.”

Source: ICRA

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