How steel can become the next oil for India

Nov 28, 2013

This year's rise in the current account deficit, the associated impact on the economy and subsequent measures to control the deficit beg the question: apart from oil (and gold), are there other import categories that could derail us in the short-to medium term?

One can't help but think about steel as a possible candidate. On the face of it, this hypothesis is untenable. While both oil and steel are expected to witness continued demand growth, the comparison ends there. India is among the lowest-cost producers of steel and has the potential to emerge as a regional hub.

Sample this: India is home to the fifth-largest reserves of high-grade iron ore and has vast reserves of coking coal. Together, these minerals form the key inputs into steel-making, accounting for over 50% of the total cost of finished steel. With access to cheap labour and technically qualified engineers, and with over half a century of iron- and steel-making expertise in the nation, certainly India should be expected to have a vibrant, not to mention selfsufficient, steel industry.

Strong domestic demand is expected to underpin the growth of the industry in India. While the current demand growth is below the trend in recent history, given India's stage of economic development, we estimate India has the potential to consume about 250 MT of steel per annum by the middle of the next decade. However, will India be able to feed the demand through local production and build a thriving steel industry? The period between 2005 and 2008 witnessed a series of capacity announcements .. 

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