India's Steel Industry Poised For Rapid Growth

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According to the International Iron and Steel Institute (IISI), the global steel industry will see another strong year in 2008. The first quarter of the year has already reported production of about 341 million metric tons, which is 5.6% higher than last year's first-quarter production. IISI estimates that global steel use will grow to 1.3 billion metric tons in 2008, an increase of 6.7% over 2007. Steel use in India is expected to increase 8.9% in 2008 and 12.1% in 2009.

India's steel-production capacity is expected to reach 60 million metric tons by 2010 and 100 million metric tons by 2018, provided that capacity-expansion plans by leading steel companies materialize over the next decade. If successful, India will become the second-largest producer of steel.

Several foreign companies have already invested, or have shown an interest in investing, in India's steel industry. South Korean steel giant Pohang Iron and Steel Company (POSCO) (Pohang, South Korea), signed a memorandum of understanding with Orissa's state government in 2005 to build a $12 billion steel project in the state. The project has faced numerous hurdles over the years, but is now set to take off.

ArcelorMittal (Luxembourg City, Luxembourg), the world's largest steel company, will invest about $25 billion in India's steel industry. Of that, $20 billion will be used to set up two 12 million-metric-ton steel-production units in Orissa and Jharkhand. The Orissa unit is expected to be commissioned by 2011-12.

Over the next decade, Xindia Steels Limited (Bangalore, Karnataka), a joint venture between partners in China, India and the U.S., will invest more than $2 billion in Karnataka to set up an iron ore pelletisation unit followed by a steel plant. This is, by far, China's largest investment in India.

However, the frequent increase in domestic steel prices is a matter of concern for India's government. Prices increased 60% last year, and such increases have played a major role in the recent rise in inflation. In an attempt to curb this rise, the 5% import duty on mild steel and pig iron has been canceled. The revenue loss incurred by this is expected to be neutralized by the 10% export duty imposed on finished and semifinished steel products. A higher export duty will also ensure the availability of steel for domestic users.

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