How Russia-Ukraine war may strengthen Indian steelmakers

Call it blessing in disguise or something else! Sanctions on Russia, in the wake of the ongoing Russia-Ukraine armed conflicts, may come in handy to the Indian steel makers. The recent developments could actually open new export opportunities for Indian steel mills in geographies like Europe, the Middle East and the US, which could face supply shortages in the near term. This is of course notwithstanding the fact that the imposition of sanctions on Russia to impact domestic steel companies in terms of elevated input costs for some time till raw material trade flows readjust. Being the fifth largest global coal producer, Russia accounted for nearly 10 per cent and nearly 17 per cent of the international trade in metallurgical and thermal coals respectively in CY20.

Significantly, Russia and Ukraine are the 5th and 12th largest steelmakers in the world respectively (apart from supplying several steelmaking raw materials), cumulatively accounting for around 10 per cent of the global steel trade. Going by the current estimates, nearly 45 per cent of the steel production from Russia and around 75 per cent from Ukraine are exported to other nations. This is expected to lead to regional steel supply shortages as Russian mills brace for sanctions and Ukrainian steel production gets severely disrupted by the conflict. Therefore, in the export markets, leading Indian steel companies can expect to see some market-share gains if they can further increase their capacity utilisation levels.

Indian steel makers can actually cash in on the reduced market access for Russian steel mills and thereby increase their footprints in European and Middle-Eastern countries. Mind you that CIS countries together export nearly 22-23 million tonne of steel annually. That's not all. Indian companies even look at the US and eye a much larger slice of the US steel pie. This is because Russia, otherwise, is the key and the largest supplier of steel to the US. This is, if it happens, going to be very significant as the presence of Indian steel players in the US market at present, is incidentally (read ironically) nothing to write home about. However, the experts feel that the extent of export would be limited by the already high capacity utilisation levels of leading steel companies in India. This possibility to higher exports to European and the US market is also to be seen in the light of the fact that domestic steel demand has just recovered from the Covid setbacks and started to register a healthy sequential pick-up from December 2021 as construction activity gathered momentum. Monthly domestic steel consumption crossed 10 million tonne in January 2022, the highest level recorded in the last eleven months and after a gap of eight years, with the industry's capacity utilisation poised to touch 80 per cent in FY2023 again, new investment activity has also seen a rebound as lenders redraw their negative list for sectors following the earnings surge of steel companies. What is needed is steely ambition on parts of the Indian steel makers.