Steel and Pipe Industry

A Industry Analysis

Global Economic Overview

Global economy rebounded well in 2021 from its Covid-induced historic decline. Despite the worsening pandemic dynamics at the start of year and eventual lockdown in many parts of the world, the world GDP grew by 5.9% (est.) in 2021. Gradual unlocking of economy, accelerating vaccination, dropping infection rate during majority part of H2 2021 and government stimulus in many countries, all played its role in supporting the economic revival. However, emergence of Covid-19 new variants (Omicron) and its rapid spread towards the end of 2021 again presented an uncertainty about when pandemic going to end. Consequently, IMF in its October 2021 forecast, did a downward revision in global GDP growth by 0.1% against its July 2021 forecast. As per IMF, the world GDP is estimated to have grown at 5.9% in 2021. The low base effect also translated in higher rate of growth in 2021.

In current year, the geopolitical event and changes in world economic dynamics shaping as a result ongoing Russia-Ukraine war threaten to derail the global GDP growth in 2022. US ban on Russian oil, natural gas and coal coupled with UK and EU announcement to wean themselves off from Russian oil has potential to intensify oil supply in global market and accelerate the already high global inflationary pressure. It will be noteworthy to know that Russia account for 12% of global oil output and 17% of natural gas output and it may take some time to ramp up alternative supply due to sudden ban on consuming Russian oil & gas. Prior to Russia- Ukraine crises, the international oil prices were already at risk of hitting new high due to tight supply of crude oil as OPEC plus countries refuse to increase output while major oil supplier such as Qatar, Saudi Arabia, and the UAE do not have significant capacity to increase supply at short notice. Also, their output is already reserved for trade partners or domestic consumption. Disrupted business operation, supply chain disruption, elevated crude oil prices, surging freight cost, inaccessibility of critical raw material and insecurity risk may aggravate food and fuel prices. In addition to above, Russia’s unknown response to tightening western sanction is another major risk to global GDP growth. As per IMF most recent outlook released in January 2022, the global GDP is projected to grow by 4.4% in 2022. 

Hit by the coronavirus pandemic and subsequent lockdown, India’s annual GDP growth shrunk by 6.6% in FY 2021 as compared to a 3.7% y-o-y growth in the previous year. As per Mospi advance estimates, despite the adverse effect of second wave of COVID-19 and associated localized lockdowns, the Indian economy rebounded well in FY 2022 and is estimated to have grown by 8.9%. The country is set to overachieve its export target despite the supply chain disruptions posed by COVID-19 restrictions, skyrocketing freight charges and container shortages.  

On quarterly basis, the country recovered well from the Covid slump as it registered healthiest ever quarterly GDP growth of 20.33% in Q1 FY 2022 on y-o-y basis. Though much of this sharp surge in GDP growth is attributed to the low base-effect (as country observed a contraction of nearly 24% in GDP during Q1 FY 2021). While a surge in the Delta variant during the second wave of pandemic starting from end of February and strengthening till May 2021 was a drag on the overall economic recovery. On sequential Q-o-Q basis, India’s GDP fell by 17% in Q1 FY 2022 as compared to the previous quarter output (Q1 FY 2022 change over Q4 FY 2021). Major relaxations in Covid-related restrictions and government relief measure such as INR 6.29 trillion stimulus package for the pandemic hit sectors, higher healthcare spending, accommodative policy rate etc. supported economic recovery in the subsequent quarter. During Q2 FY 2022, broader economic indicators bounced back above pre-pandemic level which was well captured in the improved quarterly result announcement of the corporates. Other economic indicators such as increase in bank credit growth and higher m-o-m GST collections from August 2021 onwards too indicated economic recovery. With over INR 1.3 trillion for the second straight month, the GST collection in November 2021 grew by over 25% (y-o-y) while it was 27% higher than the FY 2020 collection. In the quarter ending 30th September 2021, the country’s GDP grew by 8.4% on yo-y basis against 7.4% decline in the same quarter in the previous fiscal. On sequential basis, it registered 10% growth over the previous quarter. The y-o-y growth moderated in subsequent quarter (Q3 FY 2022) to 5.4% due to the weaning impact of high base effect. 

Sectoral analysis of GVA data based on advanced estimates reveals, growth returning higher to pre-pandemic level in FY 2022. GVA in the industrial sector and services sector both strengthened during FY 2022 while agriculture sector GVA observed some moderation in yearly growth.

In the industrial sector, growth across major economic activities such as mining, manufacturing and construction sector surged, and registered a growth of 12.6%, 10.5% and 10% in FY 2022 against a decline 8.5%, 7.2% and 8.6% in FY 2021, respectively. Within industrial sector, only utilities sector observed growth single digit y-o-y growth of 7.8%, although it was higher than the decline of 3.6% registered in the previous year.  

Talking about the services sectors performance, with major relaxation in covid restriction, progress on covid vaccination and living with virus attitude, business in service sector gradually returned to normalcy. Economic recovery was supported by the service sector as individual mobility returned to pre-pandemic level. The worst hit trade, hotel, transport, communication, and broadcasting segment registered 11.6% y-o-y growth in FY 2022 as compared to 20% contraction registered during FY 2021. 

India’s Economic Outlook  

The ongoing spread of Omicron ba.2 in many parts of the world and recent external risk shaping up due to Russia-Ukraine crises have potential to restrain the pace of economic recovery especially in the manufacturing sector. Profitability of businesses are under pressure. The high-risk averseness of foreign investors, volatility and sharp downward movement in rupee, surge in commodity prices and the consequent rise in interest rates will impact India’s short-term growth. Though in immediate term, the balance of risks facing the Indian economy are tilted to the downside, but various structural measure introduced by the government post Covid to revive 2.10% 5.52% 3.32% 3.27% 5.3% -1.4% -3.3% 10.3% 7.2% 6.3% -7.8% 8.6% 5.8% 3.8% -4.8% 8.3% FY2019 RE FY2020 RE FY2021(PE) FY2022(AE) Sectoral GVA Growth (at constant prices 2011-12) Agriculture Industry Services GVA 8 economy is going to have a long-lasting impact on India’s growth story. The new free trade agreements that India has inked with UAE and is likely to forge with several countries such as UK and Australia along with the PLI scheme would provide a boost to India’s export. Effective implementation of various policies such as Amtanirbhar Bharat, Gati Shakti for multi-modal connectivity and the National Monetization Pipeline (NMP) to finance infrastructure creation, will determine the future roadmap of India’s growth story. If implemented well, it will have a crowd in effect on private investments and help India to move closer to its target of reaching USD 5 trillion GDP goal by 2024. For CY 2022, backed by the supportive structural reforms, IMF in its latest economic outlook review (Jan 2022) have projected India to continue growing at 9% while growth outlook for many other major countries excluding Japan was revised downwards. 

Global Stainless-Steel (SS) Industry  

Stainless Steel is a value-added product with high corrosion resistant properties. Higher levels of Chromium and additions of other alloy elements (Nickel, Molybdenum, etc.) enhance the corrosion resistance. Compared to traditional steel, stainless-steel has higher resistance to corrosion, superior aesthetic finish and higher life span. These features have helped in increasing the popularity of stainless -steel across the world. High recyclability, resistance to corrosion and low maintenance properties has made stainless steel a preferred metal for application in diverse  sectors railway,  metro  project, process  industries, bridges,  nuclear, airport, transportation, and kitchenware. Based on the content of alloying elements stainless steel is segregated into three series: 200 series, 300 series and 400 series. With 55% share, Cr-Ni grade (300-series) account for majority share in overall SSproduction. 

Production and Consumption Pattern  

Global stainless-steel melt shop production grew by 10.6% to 56.3 Mn Tonnes in 2021 compared to ~50.9 Mn Tonnes in 2020 (Source: International Stainless-Steel Forum). In 2021, China with over 54% share in global SS production observed moderate 1.6% growth in 2021 against 2.5% y-o-y increase in the previous year. Talking about India’s position in the global stainless steel market, India with average 7% share in global SS steel output (during 2016-20), remained the second largest stainless-steel producer behind China till 2020. In 2021, the global SS production composition is believed to have changed as Indonesia, the fourth largest SS producer was expected to replace Japan and India to become the second largest SS producer globally. Industry Sources suggest, Indonesia with estimated SS output of 4.2 Mn tonnes in 2021 observed nearly 75% annual growth against 5.7% increase in 2020 while India’s SS output was estimated to be 3.5 Mn Tonnes. With 3.5 Mn tonnes SS output, India’s share in world SS output is estimated to have gradually reduced from 7.3% in 2016 to 6.2% in 2021.  

Globally, cold rolled flat products are the largest produced stainless steel products in the world, followed by hot rolled coils, and steel wire rods & bars. According to International Stainless steel Forum, cold rolled flat products account for approximately 47% of the total stainless steel trade in the world. Hot coils, Semis-flat, Semis-long, hot bar/wire rod, cold bar/wire, hot plate &sheet are the other SS intermediary products traded globally. 

Metal products – manufacturing of kitchen utensils and home ware – is the largest end use of stainless-steel, both globally as well as in India. In India, 12% of the stainless steel is used in construction and infrastructure, 13% in automobiles, railways and transport (ART), 30 % in capital goods and 44% in durables and household utensils and 1% in others. 

Indian Scenario  

The Indian stainless-steel sector, the second largest producer ( till 2020) and consumer in the world, has a total manufacturing capacity of more than 5 Mn tons of stainless steel annually. Since 2011, stainless-steel production has increased at a CAGR of 7.8% per annum from ~2.16 Mn Tonnes in 2011 to 3.93 Mn Tonnes in 2019. Barring 2020 for pandemic led decline, India’s stainless-steel (SS) production has increased steadily between 2014-21. In 2020, India stainless steel production observed a decline of 19.4% over 2019 owing to Covid-19 pandemic induced depressed market condition. However, the industry rebounded well in CY 2021 where India’s annual domestic stainless-steel production was estimated to have reached 3.5 Mn tonnes, registering 10.4% y-o-y growth.  

SS production and consumption observed a V-shape recovery where volume improved gradually with phasewise unlocking of the economy on the back of government stimulus and efforts put in place by the industry stakeholder. Flat products, which include steel slabs, sheets, plates, and coils account for 75% of total stainless steel products in the country.  

Despite being one of the largest producers as well as consumers of stainless steel, the per capita stainless steel consumption in India remains low. India’s per capital stainless steel consumption has increased from 1.2 kg in2010 to 2.5 kg in 2019, however, its consumption is comparatively much lower compared to the world average of 6 kg per capita, This low consumption pattern is an indication of the inherent opportunities existing in the sector. 

Steel Pipes & Tubes  

Globally, 10% of the steel produced is estimated to be converted to tubes. Higher demand for oil & gas and chemical & petrochemical industry– two of the largest consumers of steel pipes and tubes – is driving the demand across the world. Steel pipes and tubular products are broadly classified into the following six types:  

Standard Pipe: There are three different types of standard metal pipes - welded (ERW Pipe), seamless pipe, and galvanized pipe.  

Line Pipe: Used primarily in oil and gas applications. Line pipe includes ERW, FW, SAW and DSAW Pipe. They are manufactured to API 5L specification and are available in X42, X50, X60 etc. grades.  

Oil Country Tubular Goods (OCTG): This includes drill pipes, tubing and casing and are primarily used in drilling and completion of oil and gas wells. OCTG are produced by ERW and seamless manufacturing.  

Pressure Tubing: Pressure tubing are produced using seamless manufacturing and are used for industrial and pressure application.  

Mechanical tubing: These are used for mechanical and structural application and are produced by ERW and seamless manufacturing. They conform to ASTM specification.  

Structural Tubing: These are used for support or retention purpose and are produced by ERW manufacturing. These are available in round or square and are largely used in construction, for fencing and other miscellaneous support needs. 

Pipe Manufacturing  

The two most common types of pipes are welded pipe and seamless pipe, both of which are available in carbon steel and stainless steel. They are part of tubular goods, which are manufactured to different specifications and standards. Pipes are sold by ‘nominal pipe size’ in sizes from 1/8” to 72”.  

Welded Pipes: Welded pipe is manufactured using the following three process– ERW (Electric Resistance Welded) pipe, Furnace Weld (FW) also called as Continuous Weld, and Submerged Arc Weld (SAW), also known as DSAW. Most common specification for welded carbon steel pipe is A53. Welded SS Pipe is made to specification ASTM A312 and A358. A312 is the most common specification for SS pipe. Welded stainless pipe is made from 1/8" to 24" NPS (Nominal Pipe Size).  

Seamless pipes: Seamless pipes are manufactured using a process that requires no welding. They are made from steel billets and have uniform structure and strength across the entire pipe body because of which they can withstand high pressure, temperature and stress, as compared to welded pipes, wherein the strength of the pipe is somewhat limited to the strength of the weld joint. These are used in applications which require properties of high anti-corrosion and an ability to withstand high pressure. Most common specification for seamless carbon steel pipes is A106B and for seamless stainless steel pipes is A312. Seamless stainless steel pipe is made to specification ASTM A312 and A376. A312 is also the most common specification for seamless SS pipe. Seamless SS pipe is made from size 1/8” to 14” nominal. 

LSAW pipes, made from steel plates, are also used in high pressure applications. On the other hand, HSAW and ERW pipes, made from HR coils, are used in low pressure application areas.  Generally, LSAW, HSAW and seamless pipes are used in the oil and gas industry for exploration and transportation. Typically, ERW, HSAW and seamless pipes are used in the non–oil segments such as water and sewage, engineering, process industry, power plants, autos and metros, among others.  

Basis raw material, steel pipes and tubes segment industry is primarily classified into–  Stainless steel:

Seamless and welded, ERW SS Pipes. Most common stainless material used in pipes manufacturing is 316 and 304 material grades.  

Carbon steel: These are further divided into– i) Submerged arc welding (“SAW”), which includes LSAW & HSAW; ii) Electric welded resistance (“ERW”), which includes Black pipe, DI Pipes, GI pipe, GP, and hollow section; and iii) Seamless.  

Stainless steel is iron based alloy containing a minimum of 16% chromium and Nickel being another important alloying element in stainless steel pipe. In many applications, stainless steel welded, and seamless pipes are used due to good resistance to corrosion, perform at high temperature, clean look, and low maintenance cost. Due to its general corrosive resistant and other attributes, stainless steel is used to manufacture SS High Precision and Heat Exchanger Tubes, SS Stainless Steel Hydraulic and Instrumentation Tubes. SS seamless pipes and SS welded and box pipes. These pipes and tubular product find diverse application in chemical plants, oil & gas, fertilizer, capital engineering good -heat exchangers, pressure vessel, process industry, automotive, pharmaceutical, paper & pulp, power plant, dairy, and food industries, amongst others. 

Global Stainless - Steel Pipes & Tubes Industry 

Globally, the SS pipes and Tube industry was estimated to be valued at nearly USD 32.4 billion in 2019 contributing 23% share in global pipes& tubes industry. In coming years too, the SS pipe & tube is expected to observe a stable growth of 4% through 2025 with the total market size estimated to cross USD 40 billion. 

Indian Steel Pipes and Tubes Industry

Since 2000, steel production in the country has seen a phenomenal increase as the sector witnessed high investments in capacity addition as well as technology upgradation. In 2018, India surpassed Japan to become the second largest steel producer in the world, after China. According to World Steel Association (WSA), India produced 118.13 Mn tons of crude steel in CY 2021 and accounted for 6.1% production.

In 2021, India’s crude steel production registered a robust yoshare in global crude steel y growth of 18% against 10% contraction in the previous year while it grew at a CAGR of 4% between 2017 is also the seco21. On consumption side, India nd largest consumer of finished steel. The emergence of a middleclass consumer segment has altered the consumption landscape in India, and with it the industrial production.

The country’s overall finished steel consumption in India is estimated to have be en growing at 7% per annum since 2016 till 2019 to reach 102.6 Mn Tonnes but in 2020, it dropped by 14% against 6% yoy growth in 2019. International statistics indicates steel pipes & tube segment constitute ~8% share of the total steel consumption. Subd ued industrial activity, and economic uncertainty have dampened the demand scenario, leading to lower consumption.

However, economic recovery in 2021 points towards rising consumption of finished steel, consequently driving the steel production. During 10M FY 2022, the country’s finished steel production was 21.06% higher than previous year output and it stood at 93.3 Mn tonnes while its consumption was ~15% higher and stood at 86.83 Mn tonnes. Presence of such a vast primary steel manufacturing infrastruc ture has also helped in the growth of secondary and finished steel products. In pipes& tubes segment, India has emerged as one of the major producers of steel pipes, after Europe and China.

The country has a welldeveloped steel manufacturing industry capa ble of manufacturing crude steel to value added steel products, including pipes & tubes. Availability of raw material, cheap labor, and ability to produce steel at a low cost have supported India’s progress in the steel pipes and tubes industry.

As per ind ustry sources, the country’s current manufacturing capacity of steel pipes and tubes stands at around 21.5 million tons which is further split into welded, seamless, and casted pipes with respective capacities of 16.3 million tons, 1.5 million tons and 3.7 million tons. Within welded pipes segment, ERW capacity is estimated at 9.5milliontons and SAW pipes at 6.80 million tons

Annual production of steel tubes & pipes 2020-21 FY 2022 Est. in India is estimated to reach 6.22 Mn Tonnes in FY 2022 while apparent consumption2 is estimated at 5.55 Mn Tonnes, but it continued to remain lower compared to the prepandemic level (FY 2020). Rising output is backed by resuming demand recovery in the ma jor end user industry demand. The country’s 10M FY 2022 steel pipes & tubes output was up by 8% while its consumption was up by 4% on yoy basis to reach 5.18 Mn Tonnes and 4.63 Mn Tonnes, respectively. In the previous year, both the output and consumptio n of steel pipes & tubes in India observed decline on the back of spread of covid 19 pandemic. Excluding FY 2021, the production and consumption of steel pipes& tubes in India has steadily grown at a CAGR of 5.8% and 7.4%, respectively. Incremental demand originating from infrastructure, water transportation mainly driven by Jal Jeevan Mission, construction, oil exploration, industrial application, and expansion of gas pipelines such as city gas distribution and national gas grid, amongst others has support ed the growth of Indian pipes & tubes industry.

Domestic Industry Size

Due to diversified application in several industries, steel pipes and tubes industry is one of the important segments of the Indian steel sector. However, it accounts for just 8% sh are in the overall steel consumption basket which translate into consumption ranging from nearly 6.7 million tons to 8 million tons in the last five years while a few industry experts also suggest the actual usage of steel pipes & tubes in India to be abou 13 million tons. In value terms, the size of the Indian steel pipes & tube industry is estimated at nearly INR 550 t 12-- 600 billion. With nearly 10 kg per capita consumption (PCC), steel pipes & tubes consumption in India is less than half of the global av erage(2122 kg PCC) and about one fifth of the Chinese (55 60 kg PCC) which indicates huge opportunities for growing penetration of steel pipes & tubes in the Indian market.

Export and Import of SS Pipes & Tubes

India has continued to remain a net importer of SS pipes and tubes during the years 201621 where import value observed uneven growth in response to domestic demand scenario. Consequently, SS pipes & tubes import value declined at 1% C AGR during FY201621 to settle at INR 14.6 billion in FY 2021 while import volume declined at8% CAGR to settle at 55.5 thousand tons in FY 2021. During 10M FY 2022, India continued to remain a net importer by volume but by value it emerged as net exporter which depicts the influence of mild appreciation in rupee value that translated in lower import bills.

Growth Drivers For The Industry

• Growing real estate industry
• Growing per capita income
• Shifting from unorganised to organised
• Govt focus on infrastructure
• Urbanisation
• Increasing discreasioary spending

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