Indians wait patiently as steel moves to front of queue

To their surprise, delegates and speakers flying into Mumbai last month for Platts Steel Markets Asia conference were witnesses to history in the making. Ten days earlier, on November 8, the Modi government had launched a “demonetization” drive, the core of which was the gradual removal of Rupees 500 and Rupees 1,000 notes from circulation.

The surprise announcement led to long snaking queues in front of ATMs as Indians waited (mostly patiently) to change their bundles of old notes. Yet the public’s response was generally calm.

Photo by Charlotte Rao

“Fear turned to acceptance,” quipped a Chinese delegate.  She might have added the word “quickly” as people seemed to recognize and support Modi’s aim of transforming the country’s economy into a cashless one where payments made via credit cards, mobile phones and Paytm (online payments) are the new norm.

It was a shock to the system but one the population seemed to embrace with minimal rancor, as our China delegate observed. Other attendees were impressed with the efficiency they witnessed as Mumbai raised its standards of ease of doing business, despite the cash crunch.

The economy should be able to move to cashless transactions within a month, forecast Dr. Aruna Sharma, secretary at India’s Ministry of Steel. She expects the demonetization drive to bring about more transparency to India’s steel markets, she told Platts.

Exhibiting similar zeal, though not about currency but about consumption, were leading Indian steelmakers Steel Authority of India Limited and JSW Steel whose presenters promised their audience the Indian government’s Make in India campaign will drive up steel demand as manufacturers step up. The campaign aims to raise the percentage of the manufacturing sector in the country’s GDP from the current 17% to 25% by the year 2025.

“We see steel demand rising by 5.4% y-o-y this year and by a further 5.7% in 2017,” said SAIL chairman P.K. Singh. Few other countries the size of India will achieve anything like such growth for the foreseeable future, with the notable exception of China.

New Delhi maintains that India continues to target crude steel production of around 300 million metric tons/year by 2025, from the current 90 million mt produced in the year to last March.

However, the Make in India initiative will help drive steel consumption to a realistic figure of 200 million mt/year by 2025 from the 80 million mt during the year ended March, predicted Jayant Acharya, commercial director JSW Steel.

Rising demand from sectors such as automobiles, auto component manufacturing, building construction, roads, railways, oil and gas development and defense manufacturing will further drive steel consumption, Acharya said. The potential for investment in India’s infrastructure alone is estimated to be about $1.7 trillion, he told delegates.

Demand for steel products such as hot rolled coils, rebars and structurals is likely to rise due to such public works projects. A residential housing block typically requires 1,000-2,000 mt of steel per block, said Ajit Shenoy, procurement general manager at Mumbai-based Hindustan Construction Company.

Similarly, a power transmission project of 400 kvA spanning 200 kms requires about 7,000 mt of steel, he told delegates. New Delhi aims to raise per capita power consumption fourfold to 4,000 MW by 2030. However, it takes about nine months from the launch of a project for this to translate into steel supply business, Shenoy told Platts.

Most delegates approached by Platts agreed that growth in Indian steel consumption is likely to be visible only in 2018.