The outlook for India’s secondary steel sector is “...grim” because of concerns over the quality of its production and the fact most construction projects, being state-led, stipulate steel procurement only from primary steelmakers. This is according to CRU consultant Arshiya Sibia.

India’s secondary steel sector, accounting for 35% of national crude steel production, comprises small producers who use direct reduced iron in induction furnaces to produce steel. It is the marginal supplier to the Indian market, helping to determine prices, as, with high production costs compared to primary producers, it enters or leaves the market depending on prices, Sibia says.

India’s secondary producers have switched to using pellet instead of lump for DRI production as the former’s price has dropped. However, merchant pellet producers in India use low-grade fines as a feedstock since they lack beneficiation capability.

“Anecdotal information suggests that this pellet-based sponge iron is being rejected by steel producers on the grounds of poor quality,” Sibia says in a report seen by Kallanish. “Since the Fe content of pellet-based sponge iron is typically low... 78-84% Fe... induction furnace producers could look to offset poor quality sponge iron by increasing the amount of ferrous scrap in their steelmaking mix, yet for most producers importing scrap may not be an economical alternative.”

“There are concerns regarding the ability of secondary steel products to meet BIS standards and secondary products are often criticised on the grounds of both dimensional accuracy and chemical composition,” Sibia continues.

“The situation for secondary producers is further aggravated by the Ministry of Steel's requirement for state projects to procure only from primary steelmakers,” Sibia observes. “As most of the demand for secondary steel is driven by construction which is mostly state led, state projects, such as 'the smart city plan', a proposal to urbanise almost 100 cities in India, may not hold demand potential for the secondary sector.”

If secondary steel demand remains weak, pulling prices below variable production costs, secondary producers will exit the market, shifting the 'price determining' role to the next highest-cost primary producer, Sibia concludes.