About the Steel Sector
Steel, an alloy of iron, boasts remarkable strength and use cases across sectors, from skyscrapers to scalpels. It is iron, infused with a dash of carbon (though less than 2%). Tiny amounts of other elements like chromium can grant it further powers, like resisting rust or becoming super strong. The raw materials that are used in steelmaking include iron ore, metallurgical coal, and scrap steel. Integrated steelmaking is a 2 step process involving:
- Blast Furnace (BF)
- Basic Oxygen Furnace (BOF)
Blast furnace (BF) uses inputs such as coke, iron ore, sinter, and limestone to produce pig iron. Basic oxygen furnace (BOF), on the other hand, involves further purification of pig iron to produce molten steel or crude steel.
Steel can be used in a variety of sectors such as automobiles, defence, construction, home appliances, machinery, furniture, ship-building, etc. Key drivers of the steel industry are technology, manufacturing method, operational integration, and operating efficiency. The steel industry is quite capital-intensive and has a fairly high fixed-cost base. A steel-maker can control cost by maximising capacity utilisation.
India is the world’s second-largest producer of crude steel. It produced an 125.32 MT of crude steel and 121.29 MT of finished steel in FY23. In October 2021, the Union government announced guidelines for the Production-linked Incentive Scheme (PLI) for speciality steel production. Under the Union Budget 2023-24, the government allocated ₹70.15 crore to the Ministry of Steel.
Future Outlook of the Steel Sector
In a country like India, where the government is going through an expansion phase in infrastructure and defence spending, steel is a vital resource. India’s finished steel consumption is expected to increase to 230 MT by 2030-31 from 119.17 MT in FY23, i.e. at a CAGR of 14.09%. Simultaneously, India’s steel production is estimated to grow 4-7% to 123-127 MT in FY24. India is home to fifth-highest reserves of iron ore in the world. Easy availability of cheap manpower and availability of abundant iron ore reserves make India competitive in the global steel market.
Things To Consider Before Investing in the Steel Sector
- Global and Indian steel market outlook: Delve into industry reports and expert projections to understand anticipated growth rates. Focus on companies operating in downstream sectors poised for significant expansion. Remember, external factors like fluctuating raw material costs such as iron ore, can influence profitability.
- Company-specific financials: Scrutinise the financial health of potential investments. Analyse profitability, cash flow management, and capital efficiency to gauge their operational robustness.
- Mapping the Indian steel market: Identify the major players and their respective market shares.
- Investment horizon and objectives: Are you seeking short-term gains or long-term capital appreciation? Choose companies that align with your timeframe. For long-term growth, prioritise businesses with established market positions and robust long-term expansion plans.
How To Invest in Steel Stocks?
Investing in Steel stocks via Angel One is easy. Simply follow these steps:
- Log in to your Angel One account.
- Click on the search icon and look for your desired Steel stock.
- Now, place your buy order. Simply click on the ‘Buy’ button, enter your desired quantity, and select the order type.
- To complete your transaction, click on the ‘Buy’ button.
If you don’t have a Demat account with Angel One, you can open one for free online within minutes.
