India's steel still stealing the show

Dr B K Mukhopadhyay

The going is good indeed! During the first five months of this calendar year, India has achieved the third position in the global steel production. India envisages achieving a steel production of 300 million tonnes by 2025 and the steel ministry is working out an action plan and strategies to achieve this target!

So far, India was the fourth largest steel producer in the world only after Chi, Japan and the US, as against its 8th position in 2003. India continues to maintain its lead position as the world’s largest producer of Direct Reduced Iron (DRI) or Sponge Iron.

What is the exact position now?

Actually, after a disastrous run in the last decade and also initial years of this decade, our steel sector has clearly rebounded – top global companies evincing deep interest to put up large integrated units here. If the current trends are of any indication global steel capacity is likely to continue to grow since a number of Governments have been continuously encouraging investors in the steel industry mainly to meet the infrastructure needs. Strong demand is also emating from industrial sector’s expansion. Therefore thanks for the booming infrastructure especially in emerging economies!

Now, the steel sector contributes nearly 2 percent of the country’s GDP and employs over 6 lakh people. Going by the current estimate of Rs. 4000 crore investment per million ton of additiol capacity, the steel sector is expected to witness an estimated investment of Rs. 870640 crore by 2020.

It is good to observe that the older steel plants are being modernized and expanded. The recently opened India’s largest blast furce with a capacity of 4,160 cubic metres at IISCO steel plant in Burnpur, West Bengal, adds further hopes. Major private steel companies have also signed MOUs with the steel ministry for SRTMI and will fincially contribute the initial corpus of Rs.200 crore.

It has been a fact that India continues to be a low steel consuming country at just 60 kg per capita compared to the world average of 216 kg. Though the per capita consumption of total finished steel in the country has risen from 51 kg in 2009-10 to around 60 kg in 2013-14, yet the low consumption, in turn, indicates huge growth potential for the Indian steel industry.

There is a Government thrust especially in the are of R&D. Indian steel industry’s R&D has to focus more on producing value added products to lessen imports. It has rightly been located that to sustain the long-term growth of the Indian steel industry, problems in raw material area need to be addressed to utilize low grade ore and high ash coal through research and development (R&D) and technology interventions. To give an impetus to R&D of tiol importance, the Ministry of Steel is contributing up to 50 percent of the corpus required for setting up the new institution SRTMI.  The Government has also issued an advisory to all the large steel companies to step up R&D and enhance R&D investment up to one percent of their sales turnover. SAIL has a corporate R&D centre at Ranchi. RINL is also expending R&D infrastructure. Large private sector companies have also setup good R&D facilities for addressing their problems.

SAIL [Steel Authority Of India Limited], one of the able mahabarats, has been doing pioneering works on this score.  The steel giant has its presence felt in over 600 districts of the country through its network of stockyards. It is on an aggressive drive to expand its market reach in the country as well. The company had been building its dealer networks and also setting up new stockyards in the country. In order to make its steels available at the door steps of customers and increase the steel consumption in rural areas it has set up such stockyards in states like Jharkhand and Bihar. SAIL also had the right objective to set up mills near consumption centres - in states where it had no manufacturing presence. This would definitely help the company to expand the reach.  

Accordingly, the Steel Ministry decided to set up a total of ten steel processing units across the country and each such unit is slated to come up near consumption centres in industrially backward districts. In this case the processing unit [mills] will be using the basic steel manufactured by the big plants of SAIL and then converting the same into items of use.

Though SAIL would take up this initiative of its own without creating a different company for execution of the same, yet TATA Steel – the competent largest private sector steel company set up a separate joint venture company to spearhead the initiative of setting up - such steel service centres.

However, on this score, the O E C D alyses must be taken very seriously in as much as it has cautioned of growing risks to the intertiol steel market. The indication clearly states that while world demand for steel would continue to expand favourably, growing economic risks associated with housing market and associated other problems cloud the outlook at least partially. Continued capacity expansions as observed in many parts of the world could well impact on the price front if demand growth slows down significantly. As capacity expansion continues to be there, abrupt slowdown in global demand have the potentialities to create trade friction to the detriment of the long term health of the steel industry.

The future success of the steel industry obviously depends on the ability to mage the entire supply chain – right from backward integration to forward linkages. The importance of downstream products are also no less – ball bearing rings, alloy steel bearings [ used in two wheelers, fans and motor pumps ],  ferro-manganese and ferro-chrome,  cold rolled steel products,  galvanized steel sheets, etc. Steel is and will be in much demand in the sectors like the aerospace, construction, automotive, railways as well as in consumer products.

Last but not the least - though the large scale operations would help in getting a footprint in newer markets [viz. U S, Europe and Cada] it should not be forgotten that raw material availability continues to be a matter of big concern. Acquiring of more iron ore and coal mines around the world is no child’s play. In fact the raw materials prices in the recent past have risen to new heights as steel production continues with the upswing trends.

This is high time that a reasoble decision is taken so far as exporting of our ore reserves is concerned. The country’s own demand has been and would go up in the coming years. Quality of ores [hematite variety especially] is also one of the bests. So, why not steadily put an end to exporting of such items.  Mineral policy should be a realistic one. But till now nothing of that sort in the comprehensive sense has been clearly located. It is high time that before entering into long term contracts we must be able to project and realise the position.  

To conclude in the line of World Steel Association - ‘From dawn to dusk, steel surrounds our daily lives. Whether you’re waking up, keeping time, getting in or logging on, steel is there making your everyday activity possible.

(The Writer, a noted Magement Economist, and an Intertiol Commentator on Business and Economic Affairs, attached to the West Bengal State University, can be reached at m.bibhas@gmail.com)