India's steel demand to grow as China's declines: Moody's

India's steel demand prospects are stronger than China's because of its faster GDP growth, nascent economic development stage and supportive government policies, according to Moody’s Ratings. 

China and India are the two largest steel-producing countries in the world. Together, they accounted for around 60% of global crude steel production in 2023.

Stronger economic and population growth as well as a rising pace of industrialisation and urbanisation will drive steel demand growth in India, says Moody’s.

“We expect India’s steel demand will grow 5%-7%, while China’s steel demand will decline slightly over the next 12-18 months,” the rating agency says.

“India has higher growth potential for steel consumption given its much lower per capita consumption of steel at 70-80 kilograms (kg), vis-à-vis China's at 660-670 kg,” the report says.

China’s overcapacity and India’s capacity growth will likely hurt steel prices, according to Moody’s. “China's overcapacity and high production drive rising exports that will increase steel supply and suppress prices in the region. Strong demand from India will likely stimulate Chinese steel exports to the country. This, combined with capacity additions in India, will hurt steel prices in India. Still, as in the past, anti-dumping duties offer some protection,” the rating agency notes.

India’s concentrated steel industry enables better pricing discipline and allows steelmakers to focus on improving operational efficiency and product quality, as per Moody’s. “In a consolidated industry, major companies have higher visibility on market production levels and demand. They can adjust output depending on demand and avoid overproduction that leads to lower prices. In contrast, fragmentation in China's steel sector spurs competition, which can lead to overproduction even in periods of low demand as steelmakers fight for market share. This can result in oversupply and hurt prices,” it says.

India's government policies continue to drive consumption growth for steel. During the interim budget for India's fiscal year through March 2025, the government increased its allocation for infrastructure spending by 11% to ₹11.1 lakh crore (3.4% of GDP). This includes an allocation of about $30 billion each for railways and highways.

The government also continues to provide incentives to spur domestic manufacturing in 14 sectors, including auto and electronics, under its production-linked incentive (PLI) scheme established in 2020. While these incentives have yet to materially spur increased growth in manufacturing, they may serve to accelerate further investments going forward in the context of the ongoing shift in regional and global supply chains.

Construction demand for homes is also supported by the government's existing Pradhan Mantri Awas Yojana program that targets to build 20 million homes for the rural poor over the next five years. During the interim budget for fiscal 2024-25, the government also announced its plan to launch a scheme to help the middle-class buy or build their own homes.

Moody’s says abundant iron ore resources in India allow for a higher degree of vertical integration at Indian steelmakers' operations that underpin better profit margins than those of Chinese producers. “However, China has an advantage over India in coking coal import costs. China imports mostly from Mongolia and Russia, whereas India buys mostly Australian coking coal, which is more expensive,” it says.