Metals are essential building blocks for a country’s infrastructure. These fuel industrial progress and foster technological breakthroughs, which are imperative in driving development and building economic prosperity. India has a significant advantage where it concerns the metal and mining industry. Blessed with an abundance of natural reserves, we have a rich variety of mineral deposits that serve as core ingredients in the production of key metals.
The continuing expansion of the Indian economy and the government’s focused emphasis on infrastructure development have increased production and consumption capacity of these key metals. For instance, India is the second largest producer of crude steel in the world,[i] with production levels reaching 124.7 MT in 2022.[ii] These trends also pave the way to capture a larger share of the global demand.
Where India scores
The indigenous availability of primary production inputs—such as high-grade iron ore, bauxite, zinc ore and non-coking coal—gives India a competitive advantage when it comes to the production and export of key metals. Additionally, the country also enjoys significant labour advantage on account of its relatively younger workforce. These have led to rising manufacturing capabilities and a growing global presence.
Over the past few years, India’s iron and steel exports have shown steady trends, reaching a peak value of USD21.1 billion in 2021.[iv] Although slumping in 2022—owing to the imposition of export duty and weakening global demand—the value of exports remained higher than the pre-pandemic levels, underlining India’s growing potential.
Similarly, the export value of other key metals—such as aluminium, zinc and copper—has grown steadily. For instance, from USD5.1 billion in 2018 to USD9.5 billion in 2022, exports of aluminium and its products have increased substantially.[v] Exports of zinc and its products—which were valued at USD1.35 billion in 2022—have also increased by about 84 per cent since 2018.[vi]
Although India has been a net importer of copper in recent years—due to reduced production capacities—the export value has stayed consistent, avoiding any volatile fluctuations. In 2021, exports of copper and its products were valued at USD2.3 billion—highest since 2018—showcasing signs of recovery. While weakening global demand caused a slump in 2022, exports value still maintained the second highest position over the last five years.[vii]
A step towards being globally competitive
Demand for these key metals in international markets is rising. For instance, steel’s global demand is expected to grow by more than a third till 2050.[viii] With countries favouring near-shoring and friend-shoring policies to strengthen raw material supply chains, India has an opportunity to increase its global supply. Trade agreements can be one more way of maximising metal exports. Emerging economies with a relatively higher rate of output generation can prove to be attractive market destinations for India’s key metal exports.
While Indian producers can tap on these potential markets, there are certain complexities that need to be addressed to make our exports more attractive.
- The raw material puzzle: Ensuring supply chain stability of key raw materials used in the production cycle of metals is critical for any country aiming to be globally competitive. In India, the rising cost of critical raw materials and import dependency has significantly added to the overall cost of production, making domestic output less attractive in the overseas markets. For instance, our copper industry relies heavily on the import of raw materials, such as copper concentrate, to match its production requirements. Also take the steel industry’s example. Indian steel producers are heavily dependent on imports of coking coal—a primary raw material used in the production process—as the domestic market offers limited availability. Similarly, being an energy-intensive industry, aluminium production in India also requires uninterrupted supply of coal to power its smelters, which accounts for 40 per cent of the total production cost.[ix] Given this, global supply chain disruptions significantly impact overall prices of metals produced in India.
Hence, the industry can focus on securing the supply of key raw materials and depressurise input costs. For instance, a recently formed PSU—created to explore, identify and acquire international mines—is a good step in ensuring raw material supply. Besides this, increasing domestic explorations of primary raw materials, such as coking coal and mineral ores, and expediting the identification and operationalisation of potential mines can help in reducing import dependency. - Mapping efficient logistics: Managing logistics is a complex challenge in India—be it ensuring regular transportation of bulk raw materials, such as mineral ores and coal, or transportation of finished products from the centres to the ports. For instance, according to a NITI Aayog report, the freight cost of transporting one tonne of steel from Jamshedpur to Mumbai is an estimated USD50, against just USD34 for the same quantity from Rotterdam to Mumbai.[x] This highlights India’s logistical inefficiencies, which is one of the main drivers of domestic production cost being 5 to 10 per cent higher than the global average.[xi] In India, the bulk of metal-related logistical requirements are carried out by railways, which are currently facing infrastructural constraints. With the introduction of the National Logistics Policy (NLP), India’s transportation woes should improve with logistics costs—which is currently around 14 per cent of the GDP[xii]—expected to reduce significantly. Timely implementation of action plans underlined under the NLP can reduce overall costs and make exports more competitive.
- Technology drive for sustainability: Global trading mechanisms are changing given the stronger push for sustainability. Recently, the European Union announced its Carbon Border Adjustment Mechanism (CABM) framework—aimed at increasing sustainability by imposing a fee based on carbon emissions related to certain imports—which will lead to taxation on certain imports, such as steel, aluminium and cement. Post implementation, as India has one of the highest emission intensities among major exporters, Indian producers will face additional tariffs up to 20 to 35 per cent on each consignment of steel and aluminium.[xiii] Thus, decarbonisation becomes a priority and industry stakeholders, along with the government, need to take active measures to decarbonise this energy-intensive sector. Exploring alternate fuel technologies—such as green hydrogen—or use cases of emerging technologies in the production process can help in achieving greater operational and energy efficiencies, thereby reducing input costs. There’s also the option of smart factories and automated production processes, which help in critical resource monitoring while simultaneously improving overall safety standards. In the long run, with a sustained and collaborative industry effort, decarbonisation of this hard-to-abate sector can be achieved, which can make India more competitive in the global market.
So, while India has been having good years in export performance, addressing these challenges will further expand our exports basket and increase the contribution of the metal segment.
Sources:
[i] Iron & Steel Industry in India, IBEF, July 2023, accessed on 3 August 2023
[ii] Annual Report 2022–2023, Ministry of Steel, 20 June 2023, accessed on 8 August 2023
[iii] UN Comtrade Database, accessed on 8 August 2023
[iv] UN Comtrade Database, accessed on 8 August 2023
[v] UN Comtrade Database, accessed on 8 August 2023
[vi] UN Comtrade Database, accessed on 8 August 2023
[vii] UN Comtrade Database, accessed on 8 August 2023
[viii] Iron and Steel Technology Roadmap, International Energy Agency, October 2020, accessed on 3 August 2023
[ix] Coal Supply to Non-Power Sector May Be Kept Suspended, Energy Asia, 14 October 2021, accessed on 3 August 2023
[x] Need for a New Steel Policy, NITI Aayog, 2019, accessed on 3 August 2023
[xi] Achieving Green Steel Roadmap to a Net Zero Steel Sector in India, The Energy and Resources Institute (TERI), 2022, accessed on 3 August 2023
[xii] National Logistics Policy, Press Information Bureau, 11 December 2019, accessed on 3 August 2023
[xiii] The EU Carbon Border Adjustment Mechanism: New Green Trade Restrictions to Impact Businesses in India, India Briefing, 10 May 2023, accessed on 3 August 2023
A version of this article was published on Nov 02, 2023 by Financial Express Online
