Indian steelmakers’ expansion spree seen relying on local demand, says S&P

The country’s top producers estimated to spend US$100b for their growth ambitions.

As India’s top five steel producers embark on an expansion spree, the industry will increasingly rely on local demand to absorb the incoming supply as international markets shift to less carbon-intensive steel, S&P Global Ratings said.

S&P estimated a total of US$100b or US$13b each year for the next seven to eight years need to be deployed to reach the expansion goals by Tata Steel, JSW Steel, Jindal Steel and Power, ArcelorMittal Nippon Steel India, and Steel Authority of India.

The spending requirement is more than twice the US$6b the five producers jointly spent for the fiscal year ended 31 March.

The firms aim to more than double their production capacity from about 97.2 million tons per annum currently to 205.6 million tons yearly by 2030. The planned expansion in the next three years seems “manageable” although the 2030 target is an “uphill task,” according to the rating agency.

S&P said the country’s infrastructure sector will play a key role in absorbing the incoming supply with the Indian government having laid out a US$1.2t infrastructure spending plan from 2020 to 2025.

“The sharp increase in infrastructure spending under the NIP (National Infrastructure Pipeline) should boost domestic steel demand… This should support their growth plans over the next three years,” it said.

The stream of new supply will likely be produced using traditional blast furnaces as the country’s rich iron reserves are enough to supply the raw materials needed for the new blast furnaces. 

Although its prolonged use will keep Indian steel exports’ carbon emission elevated and put them at a disadvantage in international trade as many countries move toward net zero.

For instance the European Union, the largest importer of Indian steel, is set to slap a tariff on carbon emissions from steel imports from 2026.

“In our assessment, domestic demand should be able to absorb the incremental supply,” S&P said. “However, the industry could be left with overcapacity of more than 10 million tons in the event demand fails to pick up as we anticipate.”