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India is the world’s second largest steel producer and exporter. According to the Ministry of Steel’s provisional report, India produced approximately, 110.4 million tonnes (MT) of steel in FY23. However, steel export in the country touched five years low. According to a report by Reuters, India shipped 6.7 million tonnes of finished steel in FY23, registering a decline of 50.2%. What may have caused such a steep decline? This article will touch upon the overview of Indian steel exports, opportunities and challenges in the steel sector.
Overview of steel export
India’s steel industry has grown gradually to become a net exporter of finished steel. It means that India exports more steel as compared to its imports. According to IBEF, India’s steel exports accounted for 17.1 MT in 2020 while the country exported 13.5 MT of finished steel in 2022.
As per IBEF, Vietnam was the top destination of Indian steel exports with exports of 1.70 MT, while UAE stood at the second position in FY 2022.
Opportunities in steel export
The Government of India is aggressively taking steps to increase the production of steel and has taken favourable steps for the sector. Here are some of the government initiatives that are working in favour of steel exports and creating export opportunities.:
- National Steel Policy: This is one of the most important steps taken by the government in favour of the steel industry. The National Steel Policy aims at holistic growth of the steel industry in India and envisions to achieve production 300 MT of steel by 2030. Moreover, the policy expected that Indian steel export will reach 24 MT by 2030-31.
- Foreign trade agreements: According to IBEF, India’s exports increased in 2020 due to foreign trade agreements signed by the government of India with the countries such as Japan, South Korea, and so on. As the government continues to forge new tie-ups, a new window of opportunities is created for steel manufacturers.
- Slashed export duty: In order to encourage Indian exporters, the government of India completely slashed the export taxes of 15% on steel, in 2022. This has given a big relief to the Indian steel exporters.
- PLI Scheme: In 2021, the government of India has approved Production-linked Incentive (PLI) Scheme for speciality steel. The scheme aims at bringing in investment of around ₹40,000 crore while a capacity addition of 25 MT for speciality steel. This will further create opportunities in the sector of exporting speciality steel. The government expects that the export of speciality steel will reach 5 million tonnes by 2026-27.
- BIS standards: Under BIS quality certification process, 145 Indian Standards (IS) for steel and steel products are published. These are to maintain quality control of steel and steel products.
Some of the other efforts by the government for Indian steel exports include collaborations with educational and other institutions for ensuring techno-economic performance of steel facilities, enabling joint ventures with global leaders for technology transfer, etc.
Challenges in steel exports from India
Although the government of India is ensuring its support to steel manufacturers to enhance exports, some challenges remain.
- Fluctuating demand: One of the key challenges faced by the Indian steel industry is fluctuating steel demand and its prices. This creates hurdles for steel manufacturers to predict demand. This may result in a delay in production.
- Disrupted supply chain: Disruptions and challenges in the steel supply chain is one of the greatest hindrances to seamless international trade. Foreign trade depends on multiple aspects. External factors such as policy changes, wars, events such as COVID-19 induced lockdowns, and so on affect exports to a great extent.
- Logistics: Most of the steel plants in India are based inland. Road transport is not a viable option for transporting bulk commodities such as steel. As a result, steel makers have to be dependent on railways to move steel from the plant to the port city for exports. Railway transport comes with its set of challenges such as delays due to route rationalisation, lack of infrastructure to handle bulk commodities, and so on.
- Disruption is raw material supply: Steel manufacturing requires iron ore and coal. Since coal is imported from the international market, its supply chain remains disrupted due to multiple factors. This not only impacts the production of steel but also affects the quality of steel produced. It means that the produced steel may be uncompetitive in the international market.
- Digitalisation: Giants in the steel industry may have adopted digitalisation. However, small steel makers are still in behind in this race. It affects badly on their performance and hence impacts exports too. Lack of visibility on real-time data, accurate demand prediction, etc., may affect steel exports adversely.
Decarbonisation and Indian steel exports
The road ahead for Indian steel exporters does not look too rosy. Apart from the challenges mentioned above that the challenge of decarbonisation hovers strongly around the steel industry. The steel industry is considered the second most energy-intensive industry.
Against this backdrop, European Union (EU) is expected to a charge tariff on carbon emissions of imported steel from 2026. This step is a part of the Carbon Border Adjustment Mechanism (CBAM). These charges are expected to be equal to the carbon price paid by European producers in the EU carbon market. gainst this background, it is important to note that the average emission by Indian steel makers is around 2.06 tonnes CO2 behind 1 tonne of steel while the global average is 1.45 TCO2 per tonne. This can be one of the main roadblocks for the Indian steel exporters exporting to the European markets.
In order to take advantage of opportunities present in the international markets, Indian exporters need to brace themselves and take measures for decarbonisation. Today there are integrated and mini steel plants in India to cater to the local, domestic and global markets using new technology (i.e., electricity in mini steel plants instead of blast furnaces as used in integrated mills) to conserve energy.
Apart from that export is heavily dependent on international political conditions too. Conditions such as changing policies may present opportunities while sometimes may create roadblocks. Moreover, a trend of deglobalisation is noticed on world over, which impacts exports adversely.
On the positive side, steel is a versatile material and is used in many industries. The role of steel in construction is undeniable. Also, steel is a crucial material in the automotive industry, which is disrupted by on-going technological advancements. Therefore, steel makers need to ready themselves for the future. Here are some of the steps steel makers can take to embrace an uncertain future.
- Invest in digitalisation
- Focus on decarbonisation
- Keep a constant eye on changing policies
- Learn about the latest steel technologies and adopt ones that make business sense