Metals have been one of the core drivers of the economy and have been a key to industrialization. India has long realized the importance of this metal in the development of the nation and therefore has taken many measures to promote its growth and development. The result of the continuous measures of the nation as a whole led the country to achieve the merit of being the second largest producer of steel in the world. However, there is still a long way to go and reach more heights.
Given below are the highlights of the steel sector in India and related details including the top stocks from this sector that can make a good addition to any portfolio.
Sector overview
The per capita consumption of steel in the country has seen a year-on-year increase on account of various factors. The abundance of iron ore in the country, as India has the fifth largest iron ore reserves, is one of the key advantages for the steel sector in India. By January of FY22, steel production in India had already reached 98.39 MT in the case of crude steel and 92.82MT in the case of finished steel.
On the other hand, the consumption of steel in the country also increased and stood at 86.3MT up to January in FY22. The growing production of steel in the country has also impacted its exports which have increased by 121.6% in 2021 from the previous year 2020.
The demand for steel comes from various sectors, the dominant being the construction sector. The other sectors that generate demand for steel are Railways, Automobiles, Capital Goods, Consumer Goods, and Intermediate Products.
The recovery period post the pandemic has also contributed to the growing demand and the sector is therefore estimated to grow at a CAGR of approximately 5% year on year and contribute about 2% to the GDP of the country.
Read more: Top 5 stocks in financial services sector
Government initiatives
The government has time and again taken many initiatives that help in boosting the demand for the sector or ensure the development of necessary infrastructure for the same. Some of such initiatives include
- Setting up of the Steel Research and Technology Mission of India (SRTMI) by the Ministry of Steel with an initial corpus of Rs. 200 crores. This facility will be set up in a public-private partnership for innovation in the field of the iron and steel industry.
- Raising import duty on steel products by 2.5% each twice to safeguard the local industry from cheap imports.
- Allocation of Rs. 47 crores to the Ministry of Steel for creating infrastructure and manufacturing to boost the economy.
- Launch of ‘Mission Purvodaya’ in 2020 for the development of eastern states of India (Odisha, Jharkhand, Chhattisgarh, West Bengal, and the northern part of Andhra Pradesh) by establishing an integrated steel hub centered in Kolkata, West Bengal as Eastern India has the potential of adding more than 75% of the incremental steel capacity.
- Approval of PLI (Production-Linked Scheme) by Union Cabinet in July 2021 for specialty steel which is expected to attract investments worth US$ 5.37 billion. The is will also lead to the expansion of specialty steel capacity by approximately 25 million tonnes to 42 MT by FY 27.
- An MoU was also signed between Russia and India to carry out R&D in the steel sector and for the production of coking coal (an essential input in the production of steel).
Investments in the steel sector
Investments in the steel sector have seen major highs which have also led to an increase in the production of steel as well as its demand. Between April 2000 to December 2021, the Indian metallurgical industries have attracted huge investments for the sector to the tune of US$16.1 billion. The demand for steel is also set to increase by 17% approximately up to 110 tonnes on account of the growing demand in construction activities. Some of the key investments in the steel sector are highlighted below.
- The decision of Tata Steel to increase the capacity in the Kalinganagar steel plant up to 8 million tonnes with an investment to the extent of US$3.64 billion
- Increase in the production capacity of SAIL up to 50 MTPA by 2025 with a total investment of approximately US$24.88 billion.
- Arcelor Mittal Steel signed a deal worth Rs. 50,000 crores in March 2021 with the Odisha Government to set up a steel plant in the state.
- JSW steel also has taken steps to increase the production of steel in their Vijayanagar plant up to 17 MT every year by the end of FY2024.
- In April 2021, the South Korean Ambassador announced the setting up of an integrated steel plant in Odisha. The project is worth an investment of US$12 billion making it the biggest FDI project in the country.
- In June 2021, Tata Steel announced a collective investment of US$8.09 billion from various steel companies over 3 years making it the biggest private sector investment in recent years.
- October 2021 also saw an announcement of US$19.9 million from JSW Steel to build a steel plant in Jammu and Kashmir. This investment is aimed to boost manufacturing in this region.
- ArcelorMittal and Nippon Steel Corp. have also announced a joint venture in October 2021 in order to expound their operations in the country with an investment of approximately US$13.34 billion over a period of 10 years.
Challenges faced by the steel sector
- Availability of finance
The steel industry is a highly capital-intensive business. It requires huge capital investments for setting up steel manufacturing or production plants. This requirement can be fulfilled only through borrowed funds which increases the cost of capital as compared to other countries like China, The USA, Japan, etc. More, over, steel is also often considered to be cyclical stock and in a downtrend, when the demand for steel is lower, the cost of production and finance eats away the profits leaving little to no profit margins for the companies.
- Logistics
India is set to increase the production of steel with the growing demand for the commodity. India has already achieved the merit of being the second largest producer of steel, in the world but the domestic and international demand for the commodity is set to grow further on account of growing urbanization in the country and across the globe. In order to meet the growing demand, logistics poses a huge hurdle.
In India, the majority of the steel plants are located inland which means that railways are the most feasible option for transporting finished products and raw materials across the country as well as to ports for export. However, even today, railways face huge infrastructure issues which further hamper the effective transportation of goods. The excessive freight cost further adds to the final price of the product making it less competitive as compared to other international players.
Therefore, there need to be significant changes and improvements in the railway policies and infrastructure to remove the logistic constraints for the steel industry thereby helping the industry as a whole to realize its goal of increasing the production capacity to meet the current and future demand more efficiently.
- Raw material availability
The raw material needed for the production of steel is mainly iron ore and coking coal. While India has an abundance of iron ore, the requirement for coking coal is largely met through imports from Australia. This increases the ultimate cost of production and eventually the finished product. Another hurdle faced by the sector due to imports is the fluctuations in the supply of coking coal as well as its prices. To curb this, India needs to ramp up the mining of coal in the country.
Jharia region in the Eastern Part of the country has huge coal reserves of approximately 19.4 billion tonnes and is the only source of coking coal in the country. However, the infrastructure for efficient mining is still a huge hurdle for India.
Hence, the Jharia fields need to be developed with a better resolve and with a faster growth trajectory to meet the goals of increasing the steel production capacities. The development of this region will also benefit the locals and improve their standard of living.
- Environmental and energy concerns
Along with being capital intensive, the steel industry is also the second biggest consumer of energy in the world. The increase in the carbon footprint of the steel industry and its impact on the environment is often objected to by environmentalists. India, therefore, needs to move towards energy-efficient sources for the production of steel while efficiently using the latest technologies for the same.
To improve the carbon footprint of the steel sector, the Government of India has drafted stringent norms focusing on environmental guidelines which are set to become stricter in the future. These norms may also lead to squeezing out small players in the industry as they may not be able to cope with these stringent norms. This can also harm the targets under the National Steel Policy, 2017 laid out by the Government.
Therefore, the industry as a whole needs a detailed analysis of the carbon footprint and the viable measures that can be taken to reduce the same without harming the overall production and the targets set for the industry for the overall progress of the nation.
Future projections
The National Steel Policy has set a target for the industry to have a[production capacity of 300 million tonnes by FY27. There are a lot of sectors that are dependent on the progress of the steel sector in the country. Understanding this importance, the government has included benefits and strong policy decisions in various initiatives like Make in India. The increasing exports from the sector have the potential to help the country improve its trade balance. The need of the hour for the industry as a whole has to take efforts and improve the industry competitiveness as well as take better advantage of the iron ore reserves and the coal reserves in the country.
Top stocks in the steel industry as per market capitalization
Some of the top stocks in the steel sector in terms of market capitalization and their key details are mentioned below.
- JSW Steel
This company is the largest steel company in India in terms of market capitalization and was incorporated in 1994. The company has the merit of being the largest steel producer in India. JSW Steel has the largest steel plant in the country with a capacity of 12 MTPA and aims to scale its capacity to 45 MTPA in the next decade. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 1,62,800 crores |
| PE Ratio | 10.44 |
| Return on Equity | 23.88 (March 21) |
| Promotor’s Holdings | 45.02% |
| Share price | Rs. 673.40 |
| Dividend Yield | 2.58% |
- Tata Steel
Tata Steel was set up in 1907 and has the merit of being Asia’s first integrated private steel company. The company has its presence in every stage of steel manufacturing right from the mining of iron ore to the distribution of the finished product. The company has set the target of increasing its domestic steel capacity to 30 MTOA by FY 2025. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 1,37,574 crores |
| PE Ratio | 3.53 |
| Return on Equity | 37.88 (March 21) |
| Promotor’s Holdings | 33.92% |
| Share price | Rs. 112.55 |
| Dividend Yield | 0.45% |
- Hindalco
This company was formed in 1958 and is part of the Aditya Birla Group. Hindalco is the third largest company in the steel sector in terms of market capitalization and is majorly engaged in the production of Aluminium and Copper. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 98,438 crores |
| PE Ratio | 6.54 |
| Return on Equity | 20.15 (March 21) |
| Promotor’s Holdings | 34.64% |
| Share price | Rs. 438.05 |
| Dividend Yield | 0.91% |
- Jindal Steel
Jindal Steel is the fourth largest company in terms of market capitalization and has a global presence through its subsidiaries in countries like Australia, Botswana, Indonesia, Mauritius, Mozambique, South Africa, Tanzania, Zambia, Madagascar, and Namibia. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 42,589 crores |
| PE Ratio | 5.53 |
| Return on Equity | 17.8 (March 21) |
| Promotor’s Holdings | 60.44% |
| Share price | Rs. 417.55 |
| Dividend Yield | 0.00% |
- SAIL
This is a Public Sector Company and one of the largest steel-making companies in India. SAIL is the fifth largest in terms of market capitalization. The production of steel is carried out in 5 integrated steel plants and 3 specialty steel plants that are primarily located in the eastern and central regions of the country. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 34,366 crores |
| PE Ratio | 3.65 |
| Return on Equity | 25.1 (March 21) |
| Promotor’s Holdings | 65% |
| Share price | Rs. 83.15 |
| Dividend Yield | 10.5% |
Conclusion
Steel industry is one of the many pillars for the growth and progress of a nation, especially a developing nation. The government initiatives and the private sector inputs have helped the sector boost the demand within the country as well as internationally. The focus of these initiatives is to ensure effective utilization of the resources and to remove the constraints that hamper the progress of the sector as a whole.
FAQs
Metals have been one of the core drivers of the economy and have been a key to industrialization. India has long realized the importance of this metal in the development of the nation and therefore has taken many measures to promote its growth and development. The result of the continuous measures of the nation as a whole led the country to achieve the merit of being the second largest producer of steel in the world. However, there is still a long way to go and reach more heights.
Given below are the highlights of the steel sector in India and related details including the top stocks from this sector that can make a good addition to any portfolio.
Sector overview
The per capita consumption of steel in the country has seen a year-on-year increase on account of various factors. The abundance of iron ore in the country, as India has the fifth largest iron ore reserves, is one of the key advantages for the steel sector in India. By January of FY22, steel production in India had already reached 98.39 MT in the case of crude steel and 92.82MT in the case of finished steel.
On the other hand, the consumption of steel in the country also increased and stood at 86.3MT up to January in FY22. The growing production of steel in the country has also impacted its exports which have increased by 121.6% in 2021 from the previous year 2020.
The demand for steel comes from various sectors, the dominant being the construction sector. The other sectors that generate demand for steel are Railways, Automobiles, Capital Goods, Consumer Goods, and Intermediate Products.
The recovery period post the pandemic has also contributed to the growing demand and the sector is therefore estimated to grow at a CAGR of approximately 5% year on year and contribute about 2% to the GDP of the country.
Read more: Top 5 stocks in financial services sector
Government initiatives
The government has time and again taken many initiatives that help in boosting the demand for the sector or ensure the development of necessary infrastructure for the same. Some of such initiatives include
- Setting up of the Steel Research and Technology Mission of India (SRTMI) by the Ministry of Steel with an initial corpus of Rs. 200 crores. This facility will be set up in a public-private partnership for innovation in the field of the iron and steel industry.
- Raising import duty on steel products by 2.5% each twice to safeguard the local industry from cheap imports.
- Allocation of Rs. 47 crores to the Ministry of Steel for creating infrastructure and manufacturing to boost the economy.
- Launch of ‘Mission Purvodaya’ in 2020 for the development of eastern states of India (Odisha, Jharkhand, Chhattisgarh, West Bengal, and the northern part of Andhra Pradesh) by establishing an integrated steel hub centered in Kolkata, West Bengal as Eastern India has the potential of adding more than 75% of the incremental steel capacity.
- Approval of PLI (Production-Linked Scheme) by Union Cabinet in July 2021 for specialty steel which is expected to attract investments worth US$ 5.37 billion. The is will also lead to the expansion of specialty steel capacity by approximately 25 million tonnes to 42 MT by FY 27.
- An MoU was also signed between Russia and India to carry out R&D in the steel sector and for the production of coking coal (an essential input in the production of steel).
Investments in the steel sector
Investments in the steel sector have seen major highs which have also led to an increase in the production of steel as well as its demand. Between April 2000 to December 2021, the Indian metallurgical industries have attracted huge investments for the sector to the tune of US$16.1 billion. The demand for steel is also set to increase by 17% approximately up to 110 tonnes on account of the growing demand in construction activities. Some of the key investments in the steel sector are highlighted below.
- The decision of Tata Steel to increase the capacity in the Kalinganagar steel plant up to 8 million tonnes with an investment to the extent of US$3.64 billion
- Increase in the production capacity of SAIL up to 50 MTPA by 2025 with a total investment of approximately US$24.88 billion.
- Arcelor Mittal Steel signed a deal worth Rs. 50,000 crores in March 2021 with the Odisha Government to set up a steel plant in the state.
- JSW steel also has taken steps to increase the production of steel in their Vijayanagar plant up to 17 MT every year by the end of FY2024.
- In April 2021, the South Korean Ambassador announced the setting up of an integrated steel plant in Odisha. The project is worth an investment of US$12 billion making it the biggest FDI project in the country.
- In June 2021, Tata Steel announced a collective investment of US$8.09 billion from various steel companies over 3 years making it the biggest private sector investment in recent years.
- October 2021 also saw an announcement of US$19.9 million from JSW Steel to build a steel plant in Jammu and Kashmir. This investment is aimed to boost manufacturing in this region.
- ArcelorMittal and Nippon Steel Corp. have also announced a joint venture in October 2021 in order to expound their operations in the country with an investment of approximately US$13.34 billion over a period of 10 years.
Challenges faced by the steel sector
- Availability of finance
The steel industry is a highly capital-intensive business. It requires huge capital investments for setting up steel manufacturing or production plants. This requirement can be fulfilled only through borrowed funds which increases the cost of capital as compared to other countries like China, The USA, Japan, etc. More, over, steel is also often considered to be cyclical stock and in a downtrend, when the demand for steel is lower, the cost of production and finance eats away the profits leaving little to no profit margins for the companies.
- Logistics
India is set to increase the production of steel with the growing demand for the commodity. India has already achieved the merit of being the second largest producer of steel, in the world but the domestic and international demand for the commodity is set to grow further on account of growing urbanization in the country and across the globe. In order to meet the growing demand, logistics poses a huge hurdle.
In India, the majority of the steel plants are located inland which means that railways are the most feasible option for transporting finished products and raw materials across the country as well as to ports for export. However, even today, railways face huge infrastructure issues which further hamper the effective transportation of goods. The excessive freight cost further adds to the final price of the product making it less competitive as compared to other international players.
Therefore, there need to be significant changes and improvements in the railway policies and infrastructure to remove the logistic constraints for the steel industry thereby helping the industry as a whole to realize its goal of increasing the production capacity to meet the current and future demand more efficiently.
- Raw material availability
The raw material needed for the production of steel is mainly iron ore and coking coal. While India has an abundance of iron ore, the requirement for coking coal is largely met through imports from Australia. This increases the ultimate cost of production and eventually the finished product. Another hurdle faced by the sector due to imports is the fluctuations in the supply of coking coal as well as its prices. To curb this, India needs to ramp up the mining of coal in the country.
Jharia region in the Eastern Part of the country has huge coal reserves of approximately 19.4 billion tonnes and is the only source of coking coal in the country. However, the infrastructure for efficient mining is still a huge hurdle for India.
Hence, the Jharia fields need to be developed with a better resolve and with a faster growth trajectory to meet the goals of increasing the steel production capacities. The development of this region will also benefit the locals and improve their standard of living.
- Environmental and energy concerns
Along with being capital intensive, the steel industry is also the second biggest consumer of energy in the world. The increase in the carbon footprint of the steel industry and its impact on the environment is often objected to by environmentalists. India, therefore, needs to move towards energy-efficient sources for the production of steel while efficiently using the latest technologies for the same.
To improve the carbon footprint of the steel sector, the Government of India has drafted stringent norms focusing on environmental guidelines which are set to become stricter in the future. These norms may also lead to squeezing out small players in the industry as they may not be able to cope with these stringent norms. This can also harm the targets under the National Steel Policy, 2017 laid out by the Government.
Therefore, the industry as a whole needs a detailed analysis of the carbon footprint and the viable measures that can be taken to reduce the same without harming the overall production and the targets set for the industry for the overall progress of the nation.
Future projections
The National Steel Policy has set a target for the industry to have a[production capacity of 300 million tonnes by FY27. There are a lot of sectors that are dependent on the progress of the steel sector in the country. Understanding this importance, the government has included benefits and strong policy decisions in various initiatives like Make in India. The increasing exports from the sector have the potential to help the country improve its trade balance. The need of the hour for the industry as a whole has to take efforts and improve the industry competitiveness as well as take better advantage of the iron ore reserves and the coal reserves in the country.
Top stocks in the steel industry as per market capitalization
Some of the top stocks in the steel sector in terms of market capitalization and their key details are mentioned below.
- JSW Steel
This company is the largest steel company in India in terms of market capitalization and was incorporated in 1994. The company has the merit of being the largest steel producer in India. JSW Steel has the largest steel plant in the country with a capacity of 12 MTPA and aims to scale its capacity to 45 MTPA in the next decade. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 1,62,800 crores |
| PE Ratio | 10.44 |
| Return on Equity | 23.88 (March 21) |
| Promotor’s Holdings | 45.02% |
| Share price | Rs. 673.40 |
| Dividend Yield | 2.58% |
- Tata Steel
Tata Steel was set up in 1907 and has the merit of being Asia’s first integrated private steel company. The company has its presence in every stage of steel manufacturing right from the mining of iron ore to the distribution of the finished product. The company has set the target of increasing its domestic steel capacity to 30 MTOA by FY 2025. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 1,37,574 crores |
| PE Ratio | 3.53 |
| Return on Equity | 37.88 (March 21) |
| Promotor’s Holdings | 33.92% |
| Share price | Rs. 112.55 |
| Dividend Yield | 0.45% |
- Hindalco
This company was formed in 1958 and is part of the Aditya Birla Group. Hindalco is the third largest company in the steel sector in terms of market capitalization and is majorly engaged in the production of Aluminium and Copper. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 98,438 crores |
| PE Ratio | 6.54 |
| Return on Equity | 20.15 (March 21) |
| Promotor’s Holdings | 34.64% |
| Share price | Rs. 438.05 |
| Dividend Yield | 0.91% |
- Jindal Steel
Jindal Steel is the fourth largest company in terms of market capitalization and has a global presence through its subsidiaries in countries like Australia, Botswana, Indonesia, Mauritius, Mozambique, South Africa, Tanzania, Zambia, Madagascar, and Namibia. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 42,589 crores |
| PE Ratio | 5.53 |
| Return on Equity | 17.8 (March 21) |
| Promotor’s Holdings | 60.44% |
| Share price | Rs. 417.55 |
| Dividend Yield | 0.00% |
- SAIL
This is a Public Sector Company and one of the largest steel-making companies in India. SAIL is the fifth largest in terms of market capitalization. The production of steel is carried out in 5 integrated steel plants and 3 specialty steel plants that are primarily located in the eastern and central regions of the country. The key details of the company are tabled below.
| Category | Details |
| Market Capitalization | Rs. 34,366 crores |
| PE Ratio | 3.65 |
| Return on Equity | 25.1 (March 21) |
| Promotor’s Holdings | 65% |
| Share price | Rs. 83.15 |
| Dividend Yield | 10.5% |
Conclusion
Steel industry is one of the many pillars for the growth and progress of a nation, especially a developing nation. The government initiatives and the private sector inputs have helped the sector boost the demand within the country as well as internationally. The focus of these initiatives is to ensure effective utilization of the resources and to remove the constraints that hamper the progress of the sector as a whole.
FAQs
JSW Steel is the top steel-producing company in India.
Steel stocks along with stocks belonging to stocks belonging to cement, construction, and capital goods sectors are classic examples of steel stocks.
The construction sector contributes to the maximum demand for steel in India.
The National Steel Policy is the draft vision document for the outlook of the industry in the next decade. It sets the goals for the industry with a vision to maximize the utilization of resources as well as remove the constraints that limit its progress. The policy ultimately aims to not only meet the local demand for steel through its domestic industries but also to increase steel exports by gradually increasing the production capacity in the country.
