Chinese steel companies look to Modi’s smart cities for sustenance

India's infrastructure development plans, including the recent cabinet nod for setting up 100 smart cities across the country will come as a big boost to Chinese steel makers that are trying to cut bloated inventories.

For Chinese steel makers starved of orders from both within and outside the country, the Modi government's plan to create a 100 new cities comes as a blessing in disguise.

According to urban development minister Venkaiah Naidu, the once-in-a-generation urbanisation drive under Prime Minister Narendra Modi is expected to attract over Rs2,00,000 crore investments.

With India's urban dwellers doubling to more than 800 million by 2050, a scale of mass urbanisation only seen before in China, Modi has vowed to construct 100 "smart" cities by 2022, an infrastructure project some estimate would cost $1 trillion.
 
"As India build new roads, office blocks and cities, its steel consumption growth will put the country at the top of the list of the world's 10 biggest steel users this year and the next", according to the World Steel Association.

Demand from China and the United States, the two largest consumers, is forecast to either fall or stay flat.

Outside China, India is the best bet for Chinese steel mills. The sector in China has been saddled by excess capacity of around 300 million tonnes, three times the annual output of Japan, the world's No 2 producer after China.

The glut grew more pronounced last year as a slowing economy cut China's steel consumption for the first time since 1981.

"The China slowdown will give India an opportunity to emulate China's progress over the last few decades and emerge as a major global steel player in its own right," said analyst Manoj Mohta at CRISIL Research.

As India urbanises and industralisation advances, infrastructure investment will rise 43 per cent to about $472 billion over the next five years compared with the five years before.

"India's steel consumption grew 2.2 per cent last year to 75.2 million tonnes. Demand may rise 6.2 per cent this year and 7.3 per cent in 2016", the World Steel Association says.

In the fiscal year ended 31 March, India's steel imports jumped 71 per cent to 9.3 million tonnes, most of which were from China.

Cheap Chinese steel has forced some Indian mills to cut prices and post losses in recent quarters.

Steel Authority of India (SAIL), Tata Steel, JSW Steel, Essar Steel, Jindal Steel and Power (JSPL), Bhushan Steel and Visa Steel are planning to expand their combined capacity by 9 per cent in the fiscal year started last month to compete with low-cost imports.

Meanwhile, Prime Minister Narendra Modi's three nation official visit to China, Mongolia and the Republic of Korea from 14 to 19 May 2015, is widely expected to give a boost to investments in India's infrastructure.

The prime minister will visit Xian, Beijing and Shanghai from 14 - 16 May 2015. He will hold bilateral meetings with China's leadership and participate in cultural and business events. PM will attend an event organized by the Indian community in China.

Prime Minister's official engagements in Mongolia will be on May 17, 2015.This is the first ever visit by a Prime Minister of India to Mongolia.

Prime Minister's visit to Republic of Korea will be on 18 - 19 May 2015. PM will hold bilateral discussions with President Park Geun-hye and meet with important business leaders in Seoul.