INDIA ELECTIONS: How the 2024 polls could impact India's top 5 steel, metals markets

India's ambitious growth plans, which require continuing investments in infrastructure, are expected to fully support the country's metals demand.

Irrespective of the outcome of ongoing elections in India, no major policy changes are expected as India looks to maintain its economic priorities and keep the conversation moving on energy transition, industry sources told S&P Global Commodity Insights.

This means India is seen to continue to boost spending on infrastructure, manufacturing and construction in the coming years -- all factors pointing to improved demand for steel, iron ore, coking coal and scrap.

The country is also aiming to secure critical mineral resources like lithium as part of its broader clean energy plans.

Infrastructure to continue driving steel demand

Steel consumption is expected to be strong in the coming years, driven by infrastructure investments.

Spending on infrastructure, which accounts for 25%-30% of steel demand, is expected to go up to 11% year-on-year in fiscal year 2024-2025 (April-March), according to the current government's interim budget announcement.

"We would expect the Indian government to continue its policy of supporting the domestic steel industry which is an important component of [the current Prime Minister] Narendra Modi's Make in India program," Commodity Insights Metals Analytics Lead Paul Bartholomew said.

The outlook for steel demand in the country looks bright, irrespective of the outcome of the general elections in June, sources said, citing evidence from the massive expansion plans major steel producers have initiated with one western India-based producer. Sources expect demand for steel to remain at high levels at least for the next 10 years.

"Even if the incumbent government doesn't come back to power, there would be minor hiccups in policy for the near term, but steel markets seem to be comfortably placed for the mid-to -long long term going ahead," a Mumbai-based trader said.

Iron ore policies seen unchanged amid industry discord

India is expected to continue with its current export policy on iron ore despite demands of an export ban by secondary steelmakers.

India's iron ore shipments to China are at elevated levels, causing price volatility and putting pressure on the margins of secondary steelmakers, who typically do not have integrated operations. As iron ore exports rise, the secondary steelmakers have to vie for limited supply or pay higher prices for premium ore.

But industry sources said usage of low-grade iron ore, which India typically exports, is not high in the country.

The lower grade iron ore, particularly that which has sub-58% iron content, is not useful for India, said Anil Patro, India Country Head at Ashon International, a global commodities trading company.

As a result, exports of low-grade ore would continue, another source said.

Secondary steel producers have been lobbying for an export duty on low-grade iron ore, but it is unlikely to happen as major steel players are also exporting this material from their mines, a source with an iron ore beneficiation plant said.

As iron ore production is set to rise in the coming years, any incoming government would push for finalizing the policy on beneficiation -- a process that boosts iron ore content through concentration -- of low-grade iron ores.

Coking coal to follow steel cues

The strong push for infrastructure means India's coking coal demand is also expected to rise in the coming years, according to industry sources.

India's coking coal demand has risen 10% from 51.3 million mt in 2019 to 56.5 million mt in 2023, driven by robust infrastructure growth and related steel demand strength, according to Indian commerce ministry data.

Domestic mills have ongoing expansion projects, with India aiming to reach 300 million mt of steel production capacity under the National Steel Policy 2017. This will keep coking coal demand high as the country is reliant on imports of the key raw material, sources said.

Scrap imports to improve as lowering emissions high on agenda

While conventional steel raw materials see an expected rise amid potential policy continuity, India has committed to net-zero goals and will need other means to lower emissions from its steel industry. This includes low-carbon electric arc furnaces that use scrap as a raw material to produce steel.

Indian demand for seaborne shredded containerized scrap is expected to improve in the near- term as buyers resume restocking after the elections, sources told Commodity Insights.

"Buyers have been focused on hand-to-mouth procurement and there will be demand in the near-term as they need material," an India-based trader said.

Platts, part of Commodity Insights, assessed imported containerized shredded scrap at $412/mt CFR Nhava Sheva May 24, down $3/mt on the week.

India imported a record 12.11 million mt of ferrous scrap in 2023, up sharply from 8.37 million mt in 2022, according to commerce ministry data.

Demand for imported scrap is expected to improve once the election results are announced on June 4 and buyers focus on pre-monsoon season restocking, market participants said.

Eyes on strengthening lithium supply chain

India has been making a strategic push towards securing vital resources for its burgeoning clean energy ambitions. This includes mineral lithium, which has been included under the critical minerals list of at least eight major global economies, including India.

Lithium is used to build electric vehicles and energy storage systems, making it a key mineral in energy transition efforts.

"I suspect we will see further auctions of mining rights and promotion of domestic processing development will move forward full steam ahead," said Cullen Hendrix, senior fellow at Peterson Institute for International Economics.

The current government is following what looks like an "emerging playbook for large emerging markets: don't leave money on the table in terms of downstream processing. Seek to ensure Indian lithium is processed in India for the benefit of India's downstream green energy industries," Hendrix said.

India in 2023 discovered about 5.9 million mt of lithium ore in the Jammu and Kashmir union territory. But as most of those deposits are clay deposits, their processing is seen as more challenging than the deposits found in brine or hard rock deposits.

As commercial solutions to extract lithium from clay deposits emerge in a few years, India will begin real mining, according to sources. Until then, India has to explore partnerships for securing lithium supplies.

India in January signed a lithium mining agreement with Argentina, the world's leading holder of lithium-based resources, in a move India's mining minister Prahlad Joshi said will play a crucial role in driving energy transition efforts and ensure a resilient and diversified supply chain for critical and strategic minerals essential for various domestic industries.

Even as the outcome of the elections holds the key to how various policies will shape the next five years, India is expected to continue developing its critical mineral supply chain and fueling its economy through capital spending, a trend that will further bolster India's influence in global metals and minerals sectors over the coming years.

Additional reporting by Anirudh Iyer, Rituparna Nath, Viral Shah, Sumita Layek