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Budget 2020: Infra push, relief for auto sector can boost demand for steel, says industry

A road map to revive auto sector and govt's infra push may act as antidotes to the steel sector’s woes.

, ET Bureau|
Last Updated: Jan 12, 2020, 06.15 AM IST
Yes, the budget could at best provide succor to the sector. But in the longer term, a more holistic approach is required to make it stronger.
For several hours daily, KG Murlidharan walks up and down the 4 km rail mill at the Bhilai Steel Plant. The mill that produced a 130 metre rail, the world’s longest in a single piece, is now stepping up its production to cater to the Indian Railways’ (IR) growing demand for steel.

“In April, we produced an average of 176 pieces per day. In December, the daily production rose to 226,” said Murlidharan, the general manager helming the operation of the mill, a new addition to the plant that has supplied steel to many iconic ventures, including moon mission Chandrayaan 2 and the nation’s first indigenous aircraft carrier, INS Vikrant.

Ahead of the budget, scheduled to be presented on February 1, top managers of the plant want Finance Minister Nirmala Sitharaman to announce a road map of hefty spending on infrastructure, which in turn will invariably boost demand for steel.

Talking to ET Magazine, Chief Executive Officer of Bhilai Steel Plant Anirban Dasgupta says the steel sector bottomed out sometime in October, and things are looking up now. He says the economic slowdown will only have a marginal impact on his company, a subsidiary of state-owned Steel Authority of India Limited, thanks to its near monopoly in the supply of rails for IR’s tracks.

“Indian Railways is our biggest client. It consumes about 30-32% of our total production. Thanks to the doubling and tripling of lines, the Railways’ appetite for steel continues to be robust. So, we are largely insulated from the economic downturn,” says Dasgupta.

If the budget cuts customs duty on import of coking coal, he says, it will substantially lower input cost. In Bhilai plant, about 90% of coal is imported, mainly from Australia, as India lacks good quality coking coal. Significantly, 70% of the plant’s total cost on raw materials is incurred in buying coal.

The turbulence in two sectors, automobile and real estate, has dragged down the steel sector in the previous three quarters. The auto sector consumes about 15% of India’s steel produce, and in terms of sentiments, it acts as a barometer for steel. The only positive, though, is that steel prices rose during the last two months, albeit marginally.

At this juncture, as Dasgupta explains, the entire steel industry is waiting for car sales to pick up — including those factories that have no exposure to the auto sector. “Auto sales have a pull factor. If the sector does well, steel prices will rise, and that benefits everyone,” he adds.

But the need for more spending on infrastructure cannot be downplayed. “We expect a continuation of investments in infrastructure sector. Also, a stimulus for consumption in rural sector will spur growth in steel,” says PK Rath, chairman and managing director of Rashtriya Ispat Nigam, estimating that the sector may witness a healthy growth of 7% during the next fiscal year.

Yes, the budget could at best provide succor to the sector. But in the longer term, a more holistic approach is required to make it stronger. After all, the per capita steel consumption in India is abysmally low at 65 kg, as against 400 kg in China. The National Steel Policy of 2017 envisages that by 2030-31, India needs to have 300 million tonnes of capacity, up from the current 140 million tonnes.

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