Steel Industry Analysis

ALWAYS – INVEST IN WHAT YOU KNOW & WHAT YOU CAN UNDERSTAND. DEVELOP CURIOSITY AS A TRAIT

Must know facts:

China remained world’s largest crude steel producer in 2016 (808 mt) followed by Japan (105 mt), India (96 mt) and the USA (79 mt).

World Steel Association has projected Indian steel demand to grow by 6.1% in 2017 and by 7.1% in 2018 while globally, steel demand has been projected to grow by 1.3% in 2017 and by 0.9% in 2018. Chinese steel use is projected to show nil growth in 2017 and decline by 2% in 2018.

Influencing Factors for price change:

Individual stocks in Steel industry is best judged when benchmarked against – ‘NIFTY METAL’ indices.

Monitor prices of raw materials – Pellets are used as raw material in steel industry, so there is plenty of need for GAS for burn pellets to convert them into steel. Brazil is the biggest exporter of pellets, so keep tab on any export/import policy changes.
Nickel, Coking Coal – This is a primary raw material. If the price increases, if the price increases, its passed across levels of supply zones.
Track for availability of Pig Iron (blast furnace) & Soft Iron (Iron ore is cut using gas).
Any major Investments in steel, mining & metallurgy sectors. News from Ministry of steel – National Steel policy released every year.
Government spend on Infrastructure projects and restarting road projects is aiding the boost in demand for steel. National Steel policy released by government every year.
Last but not lest – Resolving NPA problem in steel sector is very important. So any news will have a great impact.

Understanding the Industry:

The Indian steel industry has entered into a new development stage, post de-regulation,

riding high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the 3rd largest producer of crude steel in 2015 as well as in 2016. The country was the largest producer of sponge iron or DRI in the world during the period 2003-2015 and emerged as the 2nd largest global producer of DRI in 2016 (after Iran). India is also the 3rd largest finished steel consumer in the world and maintained this status in 2016. Such rankings are based on provisional data released by the World Steel Association for the above year.

Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices are determined by the interplay of market forces. Domestic steel prices are influenced by trends in raw material prices, demand – supply conditions in the market, international price trends among others. Currently, GST of 18% is applicable on steel and there is no export duty on steel items. The government has also imposed export duty of 30% on all forms of iron ore except low grade iron ore lump & fines and iron ore pellets both of which have nil export duty.

For your information: (most debated question)

What is the difference between iron and steel?

The difference is percentage of carbon, the main alloy element. Those irons containing less than 2% carbon are known as steels while those containing more than 2% carbon are known as pig iron. Pig iron is obtained from iron ore by processing it with coke in a blast furnace. This pig iron is then further processed to reduce the carbon content in different furnaces to obtain steels. These steels can be then further processed to obtain alloy steels, stainless steels by adding elements such as silicon, manganese, chromium, nickel, etc.

Estimated Market Size:

Industry dynamics including demand – availability of iron and steel in the country are largely determined by market forces and gaps in demand-availability are met mostly through imports.

India’s crude steel output grew 5.87 per cent year-on-year to 101.227 million tonnes (MT) in CY 2017. Crude steel production during April-December 2017 grew by 4.6 per cent year-on-year to 75.498 MT.

India’s finished steel exports rose 102.1 per cent to 8.24 MT, while imports fell by 36.6 per cent to 7.42 MT in 2016-17. Finished steel exports rose 52.9 per cent in April-December 2017 to 7.606 MT, while imports increased 10.9 per cent to 6.096 MT during the same period.

Road Ahead:

The Government has also announced a policy for providing preference to domestically manufactured Iron & Steel products in Government procurement. This policy seeks to accomplish PM’s vision of ‘Make in India’ with objective of nation building and encourage domestic manufacturing and is applicable on all government tenders where price bid is yet to be opened. Further, the Policy provides a minimum value addition of 15% in notified steel products which are covered under preferential procurement. In order to provide flexibility, Ministry of Steel may review specified steel products and the minimum value addition criterion.

Top Stocks in the industry:

Tata Steel, JSW Steel, SAIL, Jindal Stainles, Technocraft India,

(Please note above stocks are not recommendations, they are purely for information purpose only)

Information Source / References: IBEF, Ministry of steel (Steel sector overview, July 2017), The Economic Survey 2016–17 & 17/18, Agricultural and Processed Food Products Export Development Authority (APEDA), Department of Commerce and Industry, Union Budget 2017–18, Press Information Bureau, Ministry of Statistics and Programme Implementation, Press Releases, Media Reports,

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