India started to expand domestic mines in 2023 as the country looks to accelerate its Vision 2047 which was published this year after being announced in 2017 with a first draft in 2022.  India’s potential for a burgeoning steel industry has long been in the pipeline, but is the latest GDP data indicating the turning point?

India aims to attain a high middle-income status by 2047, marking the centenary of its independence, as one of the world's fastest-growing economies. Simultaneously, India is dedicated to preparing its ongoing progress to confront the complexities posed by climate change. This commitment aligns with its overarching objective of accomplishing net-zero emissions by 2070.

Steel production often operates as a gauge of economic development, positioning a country to effectively address the needs of its expanding and dynamic economy. As a major steel industry player and in alignment with Vision 2047, India is actively advancing its steel and stainless steel infrastructure to support this developmental trajectory.

Steel

In 2017, India’s government began plans to double steel capacity to 300Mtpy by 2030, with steel production aimed at 255Mtpy to meet an expected domestic demand of 230Mt. India’s steel industry has evolved significantly over time. It began with the establishment of Tata Iron and Steel Company (TISCO) before independence, followed by the creation of major public-sector plants like Bhilai, Bokaro, and Rourkela post-independence.

The formation of the Steel Authority of India Limited (SAIL) in 1973 further shaped the sector. Economic liberalization in the 1990s led to privatisation, modernisation, and global integration. The National Steel Policy introduced in 2017 aimed to tackle challenges and boost growth, emphasising increased capacity, resource efficiency, sustainability, research, and global competitiveness.

India's steel production has undergone significant expansion since the year 2000. During that time, India, which was ranked 9th globally in steel production based on World Steel Association rankings, progressed to become the second-largest producer of crude steel by 2018, achieving an output of 106Mt. China’s steel industry growth has far outweighed that in India which has led to over 50% of global crude steel being produced in China since 2013. China's steel production is maturing and in line with the country’s 14^th Five-Year Plan, output peaked in 2020 (against the odds of COVID-19 lockdowns) and has plateaued at between 1.0-1.1Bntpy.

Project Blue’s base case sees steel production in China maintain a plateau in the short to medium term, with a slight year-on-year growth expected in 2023. Structural growth in steel output is expected to shift to other Asian countries, with India the largest component of that, however, our base case sees India’s steel production reach 188Mt by 2033. India’s steel consumption per capita is around 90kg compared to nearly 800kg for China, a differential that suggests a strong upside for India’s steel industry overall. India’s economic growth is also forecast to exceed China’s with an average GDP growth of around 6% for the next five years while China’s economic growth is forecast to decelerate significantly in the course of the decade. However, the structure of the Indian economy is very different from China's, with a higher consumer spending component and a lower gross capital formation. Although India could gain market share in some domains, we do not believe that India has the vocation to quickly replace China as the ‘workshop of the world’. India’s main hurdles are inadequate logistics, high poverty, lack of skilled labour, corruption and rigid regulations.

In terms of steel production and consumption per capita, we see India more aligned with Brazil (145kg/capita) rather than China or Korea, given its service-oriented economy. However, with India’s low steel production both in absolute and relative terms, it will be the country with the largest increase in steel production this decade and next. Other countries include Vietnam, Indonesia, Iran and Brazil. Meanwhile, steel production in China will gradually begin to decline in the coming years after its plateau.

Stainless steel

Stainless steel forms part of India’s strategy to reach its Vision 2047. As outlined by the Indian Government's targets, stainless steel production is aiming at a 70% increase by 2030, reaching 7Mt. This expansion will be facilitated by increasing the installed capacity from 6.8Mt to 9.4Mt, with improved capacity utilisation.

India's contribution to global stainless steel production sits at around 7-8%. China continues to dominate the global stainless steel production landscape, holding a significant share of nearly 60% of the total production in 2022. According to Project Blue, China is expected to continue to drive the majority of stainless steel growth, which forms part of its 14^th Five-Year Plan agenda. Several new projects are already underway in China, including a single 7Mtpy project, equivalent to India’s total market target by 2030.

Stainless steel production in mature economies, especially in the EU, has been flat and with energy crises has struggled to maintain market share. Other growth poles for stainless steel include Indonesia, which through export bans on nickel ores has incentivised significant Chinese investment to build out the second-largest stainless steel after commissioning only five years ago, quickly taking over India in 3^rd position. While other stainless steel producers are joining China’s ambition in Indonesia, China continues to lead the way in international investments outside of its borders. The latest news on a new plant slated to come online this year is Tsingshan’s integrated stainless steel plant in Zimbabwe.

While structural changes in China’s overarching crude steel industry are opening up a competitive space, India will find the international stainless steel industry a harder nut to crack.

Ferroalloys

India is a significant global producer and exporter of ferroalloys, such as HC FeMn and SiMn, used mainly in the steel industry. To meet India's Vision 2047 steel targets, manganese demand will increase from 6,318ktpy (contained Mn) to 9,615ktpy (contained Mn) by 2030. India is one of the largest exporters of SiMn (largely exported to Italy and Japan) and has an existing alloy capacity sufficient to support the country's growth, allowing for the redirection of production to domestic markets.

Indian manganese ore producers have already started expanding their mines to meet growing domestic demand. The planned growth in ore output in India suggests that the expected capacity will only meet 65% of the required amount, resulting in a 4Mt gap that needs to be filled by imports.

South Africa is a major exporter of medium-grade manganese ore, accounting for over 30% of manganese supply to China. As China's steel industry reaches a plateau, South African miners will be looking to other markets to continue a growth trajectory that benefits from the world’s largest manganese reserves – the Kalahari Manganese Fields. If India manages to achieve strong steel output growth, South African mines are likely to form part of the value chain.

Turning to stainless steel, the chromium value chain joins that of manganese. India's high-carbon ferrochrome (HC FeCr) production capacity is more than capable of supporting the country’s planned expansion of domestic stainless steel production. The country is already a major exporter of HC FeCr, which is mainly sent to the UAE, and as with manganese alloys, these could be redirected to support a domestic market – a common theme in India’s raw material strategies.

Can India outperform expectations?

India's growth plans for steel are unlikely to be hindered by ferroalloys, but the increased demand may impact the availability of ferroalloys for international markets. India aims to become a key player in the global steel market to mitigate the foreign exchange risk in the industry, particularly for coking coal.

Europe has been importing HC FeMn from India since 2020 due to supply shortages within the EU  for the steel sector. However, as India gears up to export its steel output to international markets, it finds itself navigating the intricate realm of regulatory frameworks. Foremost among these challenges are the impending Carbon Border Adjustment Mechanism (CBAM) regulations instituted by the EU, a significant trading partner. Beyond Europe, Japan, a crucial importer of Indian steel and alloys, could potentially follow suit with comparable regulations.

This regulatory landscape adds a layer of complexity to India's global steel export ambitions, especially with concerns from historical trends of how the domestic market will grow, necessitating adept manoeuvring to ensure continued success amidst evolving international trade dynamics. As such, Indian steel producers are calling for counter-tariffs and taxes to support the growing industry.

With China facing structural challenges, including an ageing population, low domestic consumption, a chronic problem with its property market and uncertain geopolitics, India could appear as a prime candidate to attract foreign investments.

Its competitive advantages are a young population and a large domestic market. However, India has also structural issues, which have capped its potential in the past and may well do the same in the future. Logistics and infrastructure are some of them, which create serious obstacles to the development of a large-scale export manufacturing hub. Red tape, corruption, bureaucracy and a rigid regulatory environment are another one. Although India’s strong demographics could be seen as an advantage, it is offset by a relatively high illiteracy rate and poverty when compared to China. In terms of ‘ease to do business’, the World Bank ranks India 63^rd compared to 31^st for China.

Although we do not believe that India will become ‘the next China’, India’s economy could keep focusing on sectors such as computer software and hardware, drugs and pharmaceuticals, trading or chemicals such as fertilisers. These four sectors accounted for more than 75% of the foreign direct investment inflows in India’s FY2023. The service sector has been a major component and contributes to about 50% of the country’s GDP. Whether India will be able to shift its economy to more industry and manufacturing will largely depend on political decisions and future opportunity costs. But such a change will take time.