India’s Steel Trade Deficit Surges

Aug 7, 2024

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Context:

India’s steel trade deficit increased to ₹6,704 crore in the first quarter of fiscal year 2024-25 (Q1 FY25), due to substantial rise in imports and decline in exports.
This marks a shift from the previous year, where India reported a surplus of ₹3,698 crore in Q1 FY24.

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Finished steel imports were valued at ₹17,341 crore ($2,079 million) whereas finished steel exports were valued at ₹10,636 crore ($1,275 million).
This reflects a widening gap compared to a deficit of ₹4,282 crore at the end of May 2024, indicating a nearly 60% increase in just one month.

Decline in Export Volumes and Rising Imports:

During Q1 FY25, India experienced a 38% year-on-year decline in finished steel export volumes, totaling 1.3 million tonnes (mt).

The surge in imports was particularly pronounced from:

China: Imports increased by 40% in volume to 0.572 mt, making it the largest supplier, with import values reaching approx. $677 million.
Japan: Saw a 170% rise in imports to 0.5 mt, valued at $435 million.
Nepal: Emerged as a notable supplier with a 69% increase, albeit from a low base, totaling 30,000 tonnes valued at $27 million.

Market Dynamics: The Steel Ministry’s report attributes the pressure on steel prices to several factors, including:

In FY24, India started off as a net exporter in Q1. However, in Q2 and Q3, it became a net importer, as per economic survey 2023-24.

This was driven by price differentials between international and domestic prices of finished steel.
Low prices in the international market reduced profit margins for exports and made imports affordable, affecting trade balance in steel.
However, import dependence on coking coal (essential raw material for steel production) rose from 56.1 MT in FY23 to 58.1 MT in FY24.

Steel Industry in India:

India is the world’s second-largest producer of crude steel.
The output of crude steel stands at 125.32 MT and finished steel production at 121.29 MT in FY23.
Annual steel production is expected to surpass 300 million tonnes by 2030-31. The crude steel output reached 255 MT, and the finished steel production hit 230 MT at 85% capacity.
India’s finished steel consumption reached 119.17 MT in fiscal year 2023 and increased to 138.5 MT in fiscal year 2024.
Companies selected under the Production-Linked Incentive (PLI) scheme are projected to invest US$ 1.2 billion in speciality steel production. This is to raise nearly US$ 1.9 billion by the end of FY24.
Over the 10-12 years, India’s steel industry has grown substantially, with production rising by 75% since 2008 and domestic demand climbing by nearly 80%.
According to the Economic Survey 2023-24, iron and steel contribute approximately 47 percent of all inputs to the building and construction sector. The steel sector achieved the highest levels of production & consumption during FY24.
The steel industry and its associated mining and metallurgy sectors have seen major investments and developments in the recent past. Data from the Department for Promotion of Industry and Internal Trade (DPIIT) shows that from April 2000 to March 2024, Indian metallurgical industries received US$17.51 billion in FDI.

Some of the Government initiatives in the sector are as follows:

PLI scheme for speciality steel: To expand capacity by 25 MT, reaching 42 MT in FY27, up from 18 MT in FY21. Attracted investment of ₹15,519 Crore till May 24, Economic survey 2023-24
Mission Purvodaya: To accelerate the development of eastern states of India through the establishment of an integrated steel hub in Kolkata, West Bengal.
The Ministry of Steel, India, signed a Memorandum of Cooperation (MoC) with Japan’s Ministry of Economy, Trade and Industry to enhance the steel sector through joint activities under the India–Japan Steel Dialogue.
The National Steel Policy (NSP) 2017: Targeting 300 MT of steel-making capacity and 160 kg per capita consumption by 2030-31.
The Government increased import duties on most steel items twice by 2.5% each and imposed anti-dumping and safeguard duties on steel products.
To boost the steel sector and achieve a self-reliant India, the Government established the Nagarnar Steel Plant in Bastar district in 2023.

Conclusion:

This situation highlights the competitive pressures faced by Indian steel manufacturers, particularly from Chinese steel products, which are often offered at lower prices in key export markets.
The shift from a net exporter to a net importer of steel reflects broader trends in domestic demand and international competition.
This necessitates strategic adjustments within India’s steel industry to enhance export competitiveness while managing import levels.

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