Metals Industry

• Overview of metals industry in India
• Current state and performance
• Outlook

Overview and Performance

Basic Metals & Metal Products industry is one the largest industry in India. India ranks 2^nd in crude steel production globally with an output of 111.2 Million Tonnes in 2019. Crude steel production and finished steel production stood at 108.5 MT and 101.03 MT, respectively, in FY20. In FY20, India’s iron and steel export were valued at US$ 9.28 billion (~INR 699 billion). Aluminium is the second most important metallic industry in the country with a production of 3.65 MT in FY20. Aluminium export from the country reached 1.50 MT in FY19 and 0.52 MT in FY20. In value terms, aluminium export from the country stood at US$ 20.18 million (~INR 1,520 Mn) in FY20.

The metal industry is crucial for the Indian economy as it meets the requirements of a wide range of industries including engineering, electrical and electronics, infrastructure, automobile and automobile components, packaging etc. Since India holds a fair advantage in cost of production and conversion costs in steel and alumina, it is a net exporter of both the commodities.

The metal sector is highly dependent on bank credit due to its capital-intensive nature of operations. As of FY20, the metals sector contributes 11.2% of the total credit outstanding under Industrial category in India.

Due to the introduction of Insolvency and Bankruptcy code, there has been a sharp rebound in releasing of stressed assets in metal sector. The two largest stressed assets resolution were Essar Steel Ltd. and Bhushan Steel Ltd. with a combined debt of US$ 12.35 Bn (INR 930 Billion) and recovery amount of US$ 10.41 Bn (INR 784 Billion). This marked a huge recovery rate of 84% and gave a fillip to the banking sector. This also led to a decline in Gross NPA levels of Metals industry at 16.2% during March-20, from the levels seen above 30% in March-19.

However, the ongoing sluggish economy and the ensuing Covid-19 pandemic led to a bleak demand scenario for the metals industry along with other sectors in the short term. This led to a slow offtake in capacity expansion plans of metal producers leading to a moderate demand for credit in metals industry, which declined of 5.25% during the year FY-20, however the growth of 5.3% during March-2020 quarter on account of lower risk weights has alleviated growth concerns to some extent.

The demand for metals has been increasing steadily in India due to its low per capita steel consumption. India’s per capita finished steel consumption was 74.3 KG in 2019, which is meagre as compared to China’s 663 KG and below World average of 229.3 KG during the same period. The low base effect along with Governments’ renewed thrust on infrastructure bode well for the overall metals industry. The metal index performed poorly due to its cyclical nature and high volatility in raw material prices such as iron ore and coal during 2015 and 2018 along with trade tension between US and China on account of steel and aluminum tariffs.

Outlook

Construction sector in India is going to be a major demand driver of steel in India, fueled by Government initiatives such as ‘Make in India’, ‘Smart Cities’ and ‘Affordable Housing’ as well as building of industrial corridors. National Mineral Policy 2019 has also been launched for transparency, and better regulation and enforcement within the sector. India consumed 100 MT of steel during financial year ended March 2020. However due to the slowdown in economy caused by Coronavirus, there has been considerable fall in demand by 22% on YOY basis for March 2020. ICRA expects a further fall of 20% in FY 2020-21 and has thus revised its outlook from stable to negative for the steel industry. The demand is expected to be slow in the short term until the pandemic subdues. However, the long-term outlook continues to remain positive with IMF expecting the Indian economy to experience a sharp bounce back from the pandemic with a 6% growth rate projection in 2021.