MUMBAI (NewsRise) -- India is poised to surpass the U.S. to become the world's second-largest steel consumer behind China in two years, as rapid pace of urbanization and rising government spending on infrastructure will boost demand for the alloy, the Indian Steel Association said.

India's annual steel consumption will cross 100 million tons by March 2019 from 83.9 million tons in the financial year ended in March, Sanak Mishra, the industry's body's general secretary, said in an interview.

Steel production in Asia's third-largest economy rose to a record 101.3 million tons last year as Tata Steel, JSW Steel and state-run Steel Authority of India boosted output, betting on a surge in local demand amid Prime Minister Narendra Modi's push to promote local manufacturing. India also imposed several curbs on the import of cheap supplies to help domestic steel makers last year. With imports falling more than 36%, India also became a net exporter of the alloy for the first time in more than three years.

Mishra said he expects the government to step up spending on infrastructure, ahead of the general elections in 2019, causing a further spurt in demand for steel.

"Between 2017 and 2019, there will be hectic economic activity in India," he said. "That will be primarily centered on a lot of construction in rural India."

According to media reports, the south Asian nation is considering using local steel in government infrastructure projects worth billions of dollars this fiscal year. India has already earmarked a record $59 billion to be spent this year on steel-intensive projects such as ports, roads, railways and power.

The move to introduce a new nationwide Goods and Services Tax that replaces a host of state levies later this year will also spur consumption, making transportation of raw materials and finished steel easier, Mishra said.

According to the World Steel Association, India's steel consumption is likely to hit 94.9 million tons by the end of 2018, compared with China's 667 million tons and 97.1 million tons of the U.S. "After the demonetization shock, the Indian economy is expected to resume growth, although on a slightly weakened basis," it said in a statement on Friday.

India had in November abruptly recalled high-value notes that accounted for 86% of the currency in circulation to crackdown on corruption. The move created a cash shortage in the economy, shrinking consumer spending, before partly rebounding earlier this year.

To be sure, the industry is bracing for some near-term challenges to production after a powerful cyclone in Australia imperiled the supply of coking coal -- a fuel used to fire blast furnaces at steel mills -- doubling its prices. Analysts warn that the supply disruption may have dire consequences on the steel output for April-June.

"The wider ramifications of coking coal supply disruption in Australia have been that the smaller steel players are now unable to run their steel plants at normal capacity," brokerage Edelweiss Research said in a note to clients. "Even the larger steel players are not running their steel plants at targeted levels, resulting in potentially lower steel volumes in the first quarter of this fiscal year."

Steel Association's Mishra expects the shortage of the raw material to increase the cost of production and damp prices in the short term, but remains confident of production climbing another 8% to 10% this fiscal year. By the end of this fiscal year, the strong pace of growth will help India surpass Japan to become the largest producer of the alloy after China, he added.

He also expects India's steel consumption to more than double by the end of the next decade.

"The growth in economy and the necessity to have rapid growth of infrastructure to support the economy will drive consumption demand to 240 million tons by 2031," Mishra said.

--Dhanya Ann Thoppil