How GDP growth influenced the Steel Industry
VRKP Steel
in Blog, Construction Trends, Steel Applications, Steel Industry, Steel Manufacturing, TMT Bars, VRKP Steel Industries
It is widely acknowledged that GDP is primarily composed of three main sectors: agriculture, industry, and service. Although each sector contributes a percentage to the economy, some are of the view that the contribution of each sector influences the growth path of the commodity sector. In theory, steel use in the agriculture sector is more than its part in the service sector, but neither of these sectors stacks up to its role in the industry sector, which is made up of mining and quarrying, manufacturing, electricity, gas and water supply, and construction.
In the last year, the Indian economy reached a new and is expected to have an upswing, a trend which can be found reflected in the steel industry. Let us see how this information holds up.
Past GDP Analysis
Looking through the last three years of GDP analysis, we can see that the share contributed by the industry sector remained constant at 30-31% for the last few years, while agriculture decreased, and the service sector increased. However, steel consumption in the subcontinent has increased, from 7.9% in FY18, to 8.8% in FY19, and is expected to be 4.5% in FY20. This can be explained by rising steel intensity in the industry sector.
Private Consumption
The share of private consumption in GDP has been in the 56-56.7% range in the last three years. A part of this expenditure includes consumer durables, automobiles, and real estate purchases. The amount of steel content in these purchases faces stiff competition from materials like plastic, aluminum, and concrete.
This is possibly because the long-term advantage of steel use in life cycle cost analysis isn’t fully appreciated, especially by real estate developers and consumers. However, it makes sense to opt for more sustainable assets, like steel, which would last for the next few decades, and save on public investment for maintenance of these assets.
Government Consumption
Although the share of government consumption in GDP has risen 10.2% in FY18 to 10.6% in FY20, the creation of sustainable infra assets continues to be a stiff challenge for the steel industry.
The construction of office buildings and residential quarters for government employees; beautification of the cities, including flyovers, etc. fall under government consumption, where steel would be a standard pick of material.
Infra Investment
While investment expenditure went up to 14.5% during FY 18 and 19, its growth rate was only 1.9% in FY 20. Infra investment, such as railways, roads, ports, airports, irrigation, energy, housing, mining, oil and gas, are a key component in improving the steel industry.
Since projects usually last around three to four years, an increase in infra investment as a percentage of the GDP can have a huge impact in boosting the steel manufacturing sector.
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