Healthy Steel Industry Essential for Quicker Growth & Development

Healthy Steel Industry Essential for Quicker Growth & Development

Dr B K Mukhopadhyay

(Dr BK Mukhopadhyay, a Noted Management Economist, an International Commentator on Business and Economic Affairs, can be reached at m.bibhas@gmail.com)

Let us start with a bang following the line of Brussels-based WSA [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’ - an observation by World Steel Association – something to remember.

Global Scenario

Though steel is a critical industry worldwide, and steel products are a heavily traded commodity, yet in recent years, market changes, shifts in import and export levels, and weakness in the global demand for steel have negatively impacted steel industries across the world. Along with shifting trade patterns, world benchmark steel prices have been trending downward since early 2011, and the financial outlook for many steel companies has also declined.

As of now four of the world’s ten largest steel producing countries are in Asia and Oceania: China, Japan, India, and South Korea. Especially China is the world’s largest steel producing country and accounted for nearly half of global production at around 49.5 per cent — a total of around 804 million metric tonnes. Japan ranked second at 6.5 per cent of global production or around 105 million metric tonnes production, followed by India (5.5% or 89.4 million metric tonnes), the United States (around 5 per cent or 78.8 million metric tonnes), and Russia (4.4 per cent or 70.9 million metric tonnes).

Among eight world regions, Asia and Oceania produced 1.12 billion metric tonnes of steel in 2015, accounting for 69 per cent of the 1.6 billion metric tonnes of global production. The European Union (28) was the second-largest steel producing region in 2015 with a 10 per cent share of production (166 million metric tonnes), followed by North America with a 7 per cent share (111 million metric tonnes) and the Commonwealth of Independent States (CIS) with a 6 per cent share (102 million metric tonnes).

The Indian Scenario

India seemed to have lived up to Moody’s Investors Service assessment which referred to it as “the only bright spot in region,” while analysing J SW Steel’s performance in a recent report.

THE INDIAN STEEL: A QUICK LOOK

· Infrastructure, oil and gas and automotives would drive the growth of the industry.

· Steel production in India is forecast to double by 2031, with growth rate expected to go above 10 per cent in FY18.

· To achieve steel capacity build-up of 300 million tonnes per annum (MTPA) by 2030, India would need to invest US$ 156.08 billion by 2030-31.

· Ministry of Steel plans to set up Steel Research and Technology Mission in India to promote R&D activities in the sector.

· As of 2017, India is the world’s 3rd largest producer of crude steel (up from 8th in 2003). India’s steel production in 2017 stood at 101.4 MT.

· National Steel Policy (NSP) implemented to encourage the industry to reach global benchmarks.

Rosy Days Ahead?

India envisages achieving a steel production of 300 million tonnes by 2025 and it is good to note that the Steel Ministry is working out an action plan and strategies to achieve this target. The older steel plants are being modernized and expanded - recently opened India’s largest blast furnace with a capacity of 4,160 cubic metres at IISCO steel plant in Burnpur, West Bengal. But 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 intervention. Indian steel industry’s R&D has to focus on producing value-added products to lessen imports.

All of the large steel companies have to step up R&D and enhance R&D investment up to one per cent of their sales turnover. Works are on in SAIL having corporate R&D centre at Ranchi. RINL is also expanding R&D infrastructure. Large private sector companies have also set up good R&D facilities for addressing their problems. To give an impetus to R&D of national importance, the Ministry of Steel is contributing up to 50 per cent of the corpus required for setting up the new institution SRTMI. Major private steel companies have also signed a memorandum of understanding with the Steel Ministry for SRTMI and will financially contribute the initial corpus of Rs.200 crore.

Side by side, it is better to remember that India is a low steel consuming country [the per capita consumption of total finished steel in the country has risen from 51 kg in 2009-10 to about 60 kg now, compared to the world average of 216 kg]. Of course, the low consumption no doubt indicates huge growth potential for the Indian steel industry.

Still the Indian steel sector contributes nearly 2 per cent of the country’s GDP while employing over 6 lakh people.

Drive Cautiously Bumps Ahead

Though the large-scale operations would help in getting a footprint in newer markets [viz. U S, Europe and Canada] 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 material prices in the recent past have risen to new heights as steel production continues with the upswing trends.

As per current thinking on this score: Despite significant investments to increase production of some raw materials, trade distorting exports restrictions as well as infrastructure problems in some of then raw materials markets, the sector has the potential to forge ahead.

The O E C D analyses must be taken very seriously in as much as it has cautioned of growing risks to the international 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 manage 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.

The end-use markets would continue to extend heavy support. Along with being a widely-traded commodity, steel would also be consumed in many-end use markets. Steel produced globally will continue to be used in the building and infrastructure sector [Viz housing, rail, bridge, and green energy construction. It is to be noted that the mechanical equipment and automotive sectors together still account for roughly 30 per cent of steel demand, followed by metal products (consisting of consumer and other goods) and other transport (including shipbuilding and trains).

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