February 1, 2024

2024 Procurement Outlook for Structural Steel for CPOs of Infrastructure Project Developers in India

2024 Procurement Outlook for Structural Steel for CPOs of Infrastructure Project Developers in India

Picture this: In 2023, navigating the procurement of steel TMT bars was like steering through a financial maze. The prices varied significantly – 10mm GBR TMT bars were between Rs. 68,000 and Rs. 72,000 per tonne, while 8mm Tata TMT Bars stood around Rs. 56/kg. 

Forecasting TMT bar prices for the 2024 procurement outlook is difficult due to unpredictable changes in demand, supply dynamics, and global economic trends. However, projections suggest that there may be occasional price decreases in the upcoming months, although the market is anticipated to experience consistent growth until 2031. Let us cooperate to address these issues and make educated purchase decisions in 2024. 

Cost Drivers Affecting the Steel Supply Chain in 2024 

Raw Material Cost 

During 2024, the steel supply chain went through tough challenges. It was influenced by rising prices of raw materials like iron ore and scrap metal and geopolitical events such as the Ukraine War and trade sanctions. For 2024, we expect a 3.2% increase in raw material costs in the first five months. This scenario directly impacts steel production costs and final product prices.  

Electricity Cost  

Despite growing energy prices, particularly electricity, the World Steel Association predicts a moderate % growth rate of 2% in 2024 for TMT steel procurement in India. This challenge is offset by robust domestic and foreign demand. Government policies and initiatives will be instrumental in shaping the steel sector’s future.  

Coking Coal Cost 

Coking coal costs are poised to rise due to the Ukraine war and disruptions in Central Asia, impacting TMT steel production expenses.  

For the 2024 procurement outlook, Hard coal is anticipated to cost 202.6 USD/MT, while semi-soft coal will cost 144.1 USD/MT.  

The Ukraine situation may cause logistical issues that disrupt global steel demand and supply networks, resulting in shortages and higher prices.  

Additionally, imports, influenced by global trends and trade policies, will significantly shape TMT steel prices.  

Logistics Cost 

Logistics and fuel prices are key factors influencing final costs. Fluctuations in these areas, particularly fuel prices, significantly affect TMT rod production costs, as outlined by Captain TMT.  

Gasoline and diesel prices may fall before the 2024 Lok Sabha elections, alleviating this effect. The TMT steel bar business is also growing due to rising demand for inexpensive reinforcing bars.  

Project Finance Cost 

In 2024, project finance costs in India’s TMT steel sector are poised to rise due to increased interest rates, inflation, and currency fluctuations, impacting capital and operating expenses. This scenario could elevate TMT bar production costs, as IMARC Group and CivilSite highlighted. Various economic factors will influence loan terms from banks and financial institutions and will affect the steel sector’s cash flow and pricing strategies. Additionally, these costs will influence investment decisions, impacting the sector’s competitiveness and market share, as noted in Economic Times and Moneycontrol reports.  

Working Capital Cost 

In 2024, India’s TMT bar producers can expect reduced working capital costs. Driven by strong demand in infrastructure and realty, as noted in The Hans India, improved sales and cash flow will lessen reliance on external financing. Enhanced production capacities will reduce inventory costs, improving working capital efficiency. Government incentives and policies, detailed by IMARC Group and Economic Times, will further aid in easing financial constraints, bolstering the sector’s economic footing. 

Labour Cost 

In 2024, India’s TMT steel bar production faces potential cost increases due to rising labor costs, including wages and benefits. This surge could elevate production costs, squeezing profit margins and competitiveness. Additionally, a skilled labor shortage may impact productivity and innovation, influencing supply-demand dynamics in the procurement industry. Labor cost changes will also be crucial in the sector’s investment decisions and technology adoption. 

O&M Cost 

Operating and Maintenance (O&M) costs in India’s TMT steel bar sector are projected to rise in 2024 due to increasing energy prices, labor costs, and stringent environmental regulations. This increase could lead to higher production costs, impacting profit margins and competitiveness. Furthermore, efficiency issues in steel plants and equipment due to aging or technical challenges may affect productivity and market dynamics, influencing key decisions in technology adoption and investment strategies within the sector. 

Steel TMT Bar Procurement Solutions for CPOs of Infrastructure Project Developers 

Spend Analytics for Cost Optimization 

Navigating the procurement of Steel TMT bars, crucial for infrastructure projects and accounting for a significant 40% of construction costs, requires strategic approaches for cost optimization. Spend analytics offers a comprehensive view of spending patterns, which is crucial for identifying cost variations and potential savings. Implementing this can lead to an average of 6% savings on total spending. 

Site Aggregation for JIT Supplies 

Site aggregation for Just-In-Time supplies is another effective strategy. Consolidating demands across sites not only reduces transportation and handling costs but also aligns with JIT principles, potentially saving up to 10% on logistics costs. 

Local Sourcing for Logistics Cost Reduction 

Lastly, local sourcing significantly reduces logistics expenses, supporting community relations and reducing environmental impact. As per a McKinsey study, this approach can reduce logistics costs by 15-20%. 

Conclusion  

The 2024 procurement outlook for TMT steel bars presents a complex blend of challenges and opportunities. Strong demand and possible cost reductions in working capital and labor support the sector despite variable raw materials, electricity, coal, logistics, project finance, and O&M costs. These dynamics require strategic measures like expenditure analytics, site aggregation, and local sourcing to save money and increase efficiency. For competitive advantage, infrastructure project developers must react to these developments. Explore Moglix Business for TMT steel bar procurement solutions.