Understanding the Low Demand For Steel In India Dr Susmita Dasgupta, Joint Chief Economist, JPC Author, Economics of the Indian Steel Industry. United Kingdom. 2017. For Metal Junction, Kolkata 7th of June 2018

Excess Production of Finished Steel (Mild) in thousand tonnes Year Production for Sale Apparent Consumption Excess Production 2002-03 35410 28897 6513 2003-04 38584 31169 7415 2004-05 41318 34389 6929 2005-06 44390 39185 5205 2006-07 50196 44328 5868 2007-08 56075 52125 3950 2008-09 57164 52351 4813 2009-10 60624 59339 1285 2010-11 68620 66421 2199 2011-12 75696 71021 4675 2012-13 81681 73483 8198 2013-14 87675 74096 13579 2014-15 91457 76993 14464 2015-16 90981 81521 9460 2016-17 101805 84042 17763 Source: JPC and ERU

Year Estimated Demand by assuming 9.1% GDP growth (most conservative). Planning Commission In million tonnes Fructified Demand 2011-12 66.5 71.02 2012-13 73.3 73.84 2013-14 80.8 74.10 2014-15 89.1 76.99 2015-16 98.3 81.52 2016-17 108.3 84.02 Source: Report of the Working Group on Iron and Steel for the 12th Five Year Plan (2012-2017). Planning Commission.

State of Excess Production of Mild Steel   Net Stocks Net Imports Excess Production Excess Production as Percentage of Production % Total Availability With Stocks as % of Demand 2002-03 -272 -2996 6513 18.39 111.23 2003-04 32 -3295 7415 19.22 113.32 2004-05 175 -2272 6929 16.77 114.05 2005-06 225 -628 5205 11.73 112.25 2006-07 -38 -457 5868 11.69 112.12 2007-08 95 1952 3950 7.04 111.51 2008-09 283 1402 4813 8.42 112.41 2009-10 1103 4131 1285 2.12 110.99 2010-11 -64 3027 2199 3.20 107.77 2011-12 547 2275 4675 6.18 110.56 2012-13 -1023 2557 8198 10.04 113.24 2013-14 -412 -535 13579 15.49 117.05 2014-15 1603 3724 14464 15.82 125.70 2015-16 1290 7633 9460 10.40 122.55 2016-17 1415 -1016 17763 17.45 121.61 Source: JPC and ERU

Elasticities and Intensities of Steel In GDP Elasticity of Production with GDP Constant Elasticity of Production With GDP Current Elasticity of Consumption with GDP Constant Elasticity of Consumption with GDP Current 2002-03 2003-04 1.13 0.75 0.99 0.65 2004-05 1.00 0.54 1.47 0.78 2005-06 0.53 2006-07 1.37 0.79 2007-08 1.26 0.74 1.89 1.11 2008-09 0.29 0.12 0.06 0.03 2009-10 0.70 0.40 1.55 0.88 2010-11 1.48 -0.14 1.34 -0.12 2011-12 1.54 0.00 1.04 2012-13 1.77 0.67 2013-14 0.64 0.18 0.07 2014-15 0.05 0.23 0.21 2015-16 -0.07 -0.02 0.26 Source: National Accounts Statistics, JPC and ERU

Assessment of Excess Capacity in Thousand Tonnes Assuming 100% Capacity Utilization BSP DSP RSP BSL ISP ASP VISL RINL Tata Steel Majors EAF/Corex Induction Furnaces Total 2002-03 -308 94 425 690 53 125 -11 -346 -598 310 1760 3506 5700 2003-04 -818 43 328 606 79 93 -20 -493 -724 662 1354 4073 5183 2004-05 -657 -4 297 525 163 84 -9 -542 -103 323 574 3907 4558 2005-06 -1129 1 239 132 86 -34 -584 270 192 237 5207 4711 2006-07 -874 233 -90 293 28 -41 -587 -174 1340 2004 4110 6326 2007-08 -1130 -112 -193 42 77 -40 -219 -13 1862 1549 3932 5988 2008-09 -1258 -84 -183 783 83 66 23 -53 -646 4582 467 4126 7906 2009-10 -1183 -164 -228 761 100 29 15 -295 3852 62 5976 9162 2010-11 -1404 -159 -260 768 89 34 10 -325 -56 3884 -192 7302 9691 2011-12 -976 -270 713 170 27 -218 -328 8525 1845 7081 16491 2012-13 -1083 -232 -309 603 365 103 54 -161 1470 7116 2315 8260 18501 2013-14 -1211 -217 -391 584 373 112 105 -292 445 7232 3584 8915 19239 2014-15 -882 -261 1608 529 2359 130 72 -386 269 4188 8511 16137 2015-16 -1133 -173 1670 968 1629 143 76 2659 -360 11309 22727 11504 51019 2016-17 -812 -240 1468 1206 1106 146 2338 812 5507 5410 12649 29669

Let us look at the capacity plans of 2015-16 (Source: IBEF, January 2016) Company Existing Brownfield Greenfield Status JSPL 4.5 1.6 7.5 NCLT Bhushan Steel 5.6 3.9 Bhushan Steel and Power Limited 2.5 Electrosteel 1.7 2.51 Visa Steel 0.5 1

Conclusions Demand may well be overestimated. Please note that steel has a life cycle of at least 15 years, money spent on steel may not be spent again before 15 years. The value of steel relative to the value of the uses is declining with technology sophistication, you pay more for the sophistication and less for the material input.

Is the demand for steel that great? Say, investment in infrastructure is USD 192 bn. Say 15% of this consists of cost of steel, which is USD 28.8 bn. At Rs 67 to a USD, this is 1929.6 bn At Rs 45,000 per tonne, we have 43 million tonnes of consumption only.

The demand for steel due to modernization in 2015-16 In 2015 FE, there were 19.46 two wheelers and three wheelers, 3 million passenger vehicles and 0.7 million commercial vehicles, consuming only 10.5 million tonnes of steel. Similarly, consumer durable market at USD 20.6 billion consumed no more than 2 million tonnes of steel. The spending on infrastructure in 2015 FE was USD 149 billion only. This translated to hardly 21 million tonnes of steel. Together, they constitute only 34 million tonnes of steel. In that year, India produced 91 million tonnes of steel and consumed 84 million tonnes of the same. 50 million tonnes was the regular market.