Domestic Metal Space: Initial green shoots of better performance that lies ahead

BSE Metal Index was one of the major gainers and was up 2% during the past week. It was broadly tracking expectations over mortgage interest rate cut in China (of ~80 bps, on outstanding housing loans) and government filing review plea against recent Supreme Court Ruling allowing states to tax minerals mined in the state.

Government stated that allowing states to tax minerals mined in the state will have a negative macro implication for the country given the growing infrastructure development needs domestically and potential lack of uniformity of tax rates. We expect a relief on this front.

In a separate development, as per media sources, government has extended anti-subsidy duty by imposing countervailing duty between 12% and 30% on the imports of welded stainless-steel pipes and tubes from China and Vietnam for the period of next five years. This move offers relief to the domestic stainless-steel industry, which has been struggling with low-cost exports from China and Vietnam

In a separate development, as per media sources, steel ministry has formulated a plan envisaging $283 billion spend (~₹ 23.7 lakh crore) for decarbonisation of domestic steel industry.

The steel industry accounts for 10-12% of India’s total emissions. Therefore, the sector’s decarbonisation is imperative for India to meet its climate goals.

The Indian steel industry is constrained to use coal-based blast furnaces and rotary kilns for steelmaking due to a lack of affordable alternatives including scrap. Consequently, the emission intensity of steel produced in India, at 2.54 T CO2 /T Crude Steel (tCO2 /TCS), is significantly higher than the global average of 1.91.

As part of decarbonisation efforts, it envisages increase the renewable energy penetration in the sector from 7.2% in FY22 to 43% by FY30 at a capex outlay of ~₹ 74,000 crore ($9 billion). 43% RE penetration in the steel sector by 2030-31 will lead to an emission reduction of 8% from 2.54 to 2.35 tCO2 /tcs.

Within this it also envisages, USD $150 billion (~₹12.6 lakh crores) to be allocated towards process transition cost. With one of the transitions involves shifting from coal-based production to green hydrogen with natural gas as an intermediary fuel. The natural gas-based steel production has ~30% lower emission than coal gasification and rotary kiln-based production processes.