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Must-read overview: Can steel companies strengthen your portfolio?

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Part 7
Must-read overview: Can steel companies strengthen your portfolio? PART 7 OF 13

Why India could become the world’s new steel giant

The Indian economy: A snapshot

India is the third-largest consumer of steel. It consumed 79 Mt of steel in 2013. As per Onicra, which is a credit rating agency in India, the country is expected to be the second-largest consumer by 2016. Per-capita consumption in India is among the lowest globally. India is the world’s second-most-populated country, after China. It’s part of the BRIC economies, which also include Brazil, Russia, and China. These are emerging economies that are moving toward development.

Why India could become the world&#8217;s new steel giant

India: Trends in per-capita steel consumption

If you look at yearly changes in per-capita consumption in India, you see there’s been a downturn in recent years. Take a look at the graph above. The business climate wasn’t favorable. Companies were shying away from capital investments and increasing capacities.

After the recent elections, there has been a regime change in the country. The new government focuses on structural reforms. The following factors are expected to aid steel consumption in India:

  • Infrastructure spending: India lacks basic infrastructure amenities. The government has announced its intent to improve this. A lot of key projects, like high-speed railways linking major cities, highway construction, and housing for all citizens, have been planned by the new government.
  • Rising disposable incomes: The current GDP per capita (PPP) in India is only $5,148. This is more than half of China’s. While we don’t mean to suggest that this number is converging anytime soon, India has been on a rising trajectory. Rising income increases the demand for automobiles and other appliances. This in turn increases demand for steel.
  • Urbanization: Rising incomes and better job opportunities mean people are moving to cities. This is leading to demand for housing, which increases steel consumption.

India remains a silver lining for the steel industry. Increasing steel consumption in the world’s second-most-populous country would be a key driver for companies and ETFs like Arcelor Mittal ADR (MT), United States Steel Corporation (X), Nucor Corporation (NUE), Reliance Steel & Aluminum (RS), and ETFs like the SPDR S&P metals and mining index (XME).

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