industry poised for growth ?
good” factors which was started by the NDA government is no more in existence
because every new government starts with his own way of perception and
take initiatives of their own choice. The “feel good” factor appears to
have ended in both segments i.e. the economics and the politics. It is
also true that this “feel good” factor is more visible and probably true
for the Indian Steel Industry then for any other sector of the economy.
The Indian Steel Industry has seen a dramatic turnaround during the last
1 ½ years after a prolonged period of stagnation.
Reflecting back on the “bad patch” through which
the Indian Steel Industry has gone through during the last few years,
one can safely assert that the Steel Industry in India has today emerged
far more resilient and stronger after having faced such a difficult down
turn. It has been a great learning experience on how to manage an industry
during adverse conditions. Most producers took this as an opportunity
for restructuring their business and financial portfolios, take up seriously
an exercise of effective cost cutting, bringing about substantial techno-economic
improvements and make efforts towards becoming lean and efficient organisations.
In order to remain competitive, steel companies adopted the mantra of
striving towards becoming ‘low cost producers’. In doing so, the Indian
Steel Industry has silently moved towards becoming globally competitive.
The product mix has shifted focus from targeting low end commodity steel
to high end specialized products. A realisation has emerged that steel
companies in India can no longer survive by merely focusing on domestic
demand. The industry has lapped up the opportunities thrown open by globalization
of steel markets.
India ranks 8th in 2003 in terms of world crude
steel production, with a production figure of 33 MT of crude steel. The
Indian steel industry is divided broadly into following types of plants:
* Six large public sector plants and one private sector plant on traditional
* Three newer plants set up in the post liberalization period
* Large number of EAF/ IF units producing semi-finished steel
* Large no. of rolling mills and steel processing units
* Merchant Pig Iron and Sponge Iron plants About 2/3rd of the production
is through the BF-BOF route, which is the mainstay of the industry. High
power tariffs and scarcity of scrap has been hampering the growth of EAF/IF
sector. The older plants have been modernized over the last decade and
new steel plants set up with state of the art technologies. Indian steel
industry is age old yet modern, with latest technologies such as:
* 2/3rd production by Concast
* Wider use of secondary metallurgy
* Use of COREX process
* Thin slab casting
The world steel market is, today, driven
by a spurt in demand that has emerged in China. It is being contemplated
that Chinese apparent finished steel consumption during 2003 would be
in the region of 230 to 240 million tonnes. Seen against a crude steel
production level of 220 MT during 2003, China was net importer of roughly
35 to 40 million tonnes of steel during the year 2003.
The buoyancy in the Indian Steel Market is a
combination of demand for exports, mainly to China, and also a positive
outlook in certain sectors of the Indian Economy. There has been a perceptible
growth in the construction, automobile, capital goods, consumer durables
and the manufacturing sectors. Construction demand has been very strong
and evaded the adverse impact of monsoon this year. The construction demand
has also encompassed Plates, a flat category, leading to spurt in demand.
The Plate Mill of Bhilai Steel Plant, which was suffering for domestic
orders for last 15 years, is now fully booked and operating above capacity.
The rising construction demand has also narrowed the price differential
between Longs and Flats.
Passenger car sales have registered a growth
of 26% in April-November 2003 over the corresponding period last year.
Capital goods sector has shown an impressive growth as well. The BSE capital
goods index has more than doubled from 877 to 2360 during the last calendar
Consumer durables which had shown a negative
growth of 6.5% during the period April to November 2002 have shown a positive
growth of 6.1% during the same period in 2003.
The buoyant steel market is expected to take the
consumption to over 30 million tonnes of finished steel during this year,
which is a growth of 5-6%.
Looking at the prolonged period of depression
and dramatic turn around of Indian steel industry, several issues have
surfaced, which can be valuable learning points, such as:
* Steel Market is now truly globalised and events in one part are reflected
elsewhere in the world.
* The global steel industry had been plagued by chronic over capacity
which results in depressed prices during downturns.
* Being fragmented in nature, the bargaining power of individual producers
disappears at the slightest sign of depression. * The industry is cyclic
* In spite of the cry of globalisation from the most industrialised countries,
protectionism can raise its head during sluggish market conditions.
* Regional consolidation of capacities is driven by adverse market conditions.
Depressed steel markets brought the focus on
customer orientation in a big way. Most steel companies have revamped
their production and marketing systems to upgrade quality, improve deliveries
and enhance customer service. Long term arrangements have also been worked
out by steel producers and consumers to minimize the impact of steel cycles
on both sides.
However, there has been concern expressed by
the steel consumers lately on rising steel prices. The prices had dipped
to such absurd low levels that the recovery was to be disproportionate.
Steel prices, which were peaking, are still within the long term band
and lower than the last boom in the first half of 1995. The steel intensity
in the various end products makes a small impact in the overall value.
Most steel producers and customers are already discussing to minimize
any long term adverse impact of current prices on either side.
Although the cost information is not easily available,
the estimates show that Indian steel industry is one of the most cost
competitive in the world. The cost advantage mainly flows from the cheap
and high quality iron ore which is at landed cost of US$ 10-12 per tonne
for units with captive source and US$ 24-25 per tonne for the units with
non captive sources. India’s cost advantage in labour (wage/ hour), is
nullified by low manpower productivity and high financial expenses. The
power tariff is also very high in India. In spite of these disadvantages,
India is amongst the cheapest producers of hot metal in the world and
also reasonably competitive up to crude steel stage. Cost build up is
high in steel processing activities primarily due to high power and energy
Encouraged by the buoyant demand, most steel
companies have drawn ambitious expansion plans to take advantage of the
market opportunities which has been discussed in brief in one of the articles
published in the issue already in your hand.
This phenomenal increase in the capacity
on the drawing board of all major steel producers would, on a rough estimate,
will take the current crude steel making capacity of 37 MTpa to about
60 MTpa over the next decade. This is going to put tremendous pressure
on the input and infrastructural resources. The country is blessed with
large iron ore reserves but their development and exploitation would require
huge resources. The issues of environmental impact of exploiting the virgin
areas will have to be addressed. The country is not so blessed in terms
of energy resources for steel making.
The discovery of natural gas and prospects of
natural gas pipe lines from neighboring countries may open new avenues
of energy for steel industry. However, coking coal is expected to remain
a serious constraint and risk factor for Indian steel plants operating
on BF route. The Coking coal supplies from the public sector coal companies
have been declining over the years, leading to higher imports.
The steel industry need to remain competitive
by improving efficiencies across the entire value chain in an integrated
manner. Therefore, logistics will be an important area of management for
steel industry. This would involve development of ports, easing transportation
to and from ports, rationalization of inland freight charges and higher
road movement facilities.
There is no doubt that Indian steel has
a bright future and the country has a potential to become a leader in
the steel sector with the projected consumption to double by 2011 and
100 million tonnes by 2018. The axis of steel growth is gradually shifting
from the developed economies to developing economies of Asia. India is
likely to be next growth story after China. Since half of the Chinese
steel production is based on imported iron ore, it is doubtful if this
can be sustained on a long term basis at iron ore at US$ 60 c&f. India
is well placed to meet future demand of not only growing Chinese economy,
but also other countries in South East Asia because of its high competitiveness.
It makes tremendous business sense to set up steel making facilities in
India and finishing facilities in the consuming countries.
A look at the strengths and weaknesses of the
industry shows that strengths and opportunities are much higher than weaknesses
and threats. This gives the signal for Indian steel industry to adopt
an aggressive business approach and emerge as a major global player over
India has won a commendable niche in the present
global steel business. However, complacency should be avoided. As ore
reserves are not inexhaustible and the fossil fuel reserves, particularly
coal reserves, are depleting, it is necessary for the metallurgists and
the mining experts to deliberate and plan for optimal conservation of
the dwindling reserves. It is of utmost importance to harness technologies
that will increase yields and allow the economic use of inferior grades
India produces 89 minerals out of which
4 are fuel minerals, 11 metallic, 52 non-metallic and 22 minor minerals.
India ranks 3rd in the production of coal & lignite, 4th in iron ore,
and 6th in bauxite and manganese ore.
The iron & steel industry is primarily raw material
based. About three to four tonnes of raw materials are required to produce
one tonne of steel in an integrated steel plant. The technology of extraction,
enrichment and beneficiation of minerals used by this industry has undergone
significant improvements over the years. The fortunes of steel industry
are affected in a variety of ways by the quality of raw materials in a
region. The choice of technology for the manufacture of steel, its impact
on the environment, product mix planning and overall competitiveness are
all dependent on raw material sourcing.
As for the global steel scenario, the International
Iron & Steel Institute has estimated that the global crude steel production
had for the first time, exceeded 900 million tonnes in 2002. The maximum
growth of 11.6% was witnessed in the Asian region and particularly production
in China surged by over 20% in 2002.
In step with the good performance of the global
steel industry, the Indian steel industry also fared reasonably well during
2002-03. The total finished steel production recorded an impressive growth
of 9.9% during the year 2002-03 and reached 33.6 million tonnes. During
the last year 2003-04, the finished steel production from April-November
2003 is around 22.8 million tonnes which is 6.2% higher than the production
of the corresponding period last year. Today, India is the largest producer
of sponge iron in the world with production of around 6.53 million tonnes.
In the area of international trade the domestic
steel industry exhibited an equally promising performance. The export
of finished steel during 2002-03 was to the tune of 3.7 million tonnes
showing a growth of almost 37% over the previous year. In addition, the
domestic industry was also able to export 0.5 million tonnes of semis
during 2002-03 compared to 0.28 million metric tonnes during the previous
year. Import of finished steel at 1.6 million tonnes during 2002-03 showed
a growth of 22% over the previous year.
The year 2002-03 has been the year of spectacular
achievement for the steel industry. This performance has been sustained
and further improved during the year 2003-04. In the current year, all
the steel plants have been able to increase their production and improve
their bottom lines. By and large, the consumers are also getting their
full requirement of iron and steel with ease.
All developmental activities are basically
aimed at the betterment and benefit of mankind. As the country has progressed
towards industrialization, the problems relating to environment and conservation
of Raw Materials assume increasing significance. Therefore, along with
the developmental activities, care has to be taken to effectively tackle
these problems. Fortunately, right from the beginning of planned growth
of iron and steel industry, adequate emphasis has been given to these
India, with a convincingly strong growth potential
has an abundant share of iron ore of reasonably good quality. The country
is endowed with significant mineral resources and the mineral industry
constitutes an important segment of the country’s economy. This is a Rs.
50,000/- crore industry contributing 2.3% to GDP & 11% to the country’s
total industrial production. India produces around 7% of the world coal
and 6% of iron ore. We are today the 3rd largest exporter of iron ore
after Australia & Brazil.
The iron ore production in India, which was 5 million
tonnes in 1957, has risen to 88 million tonnes in 2002-03. It met the
requirement of domestic steel industry to the tune of 41 million tonnes
and the balance 47 million tonnes was exported. Out of the total capacity
for iron ore production of around 90 million tonnes per annum, the capacity
in captive and non-captive sources is around 33 million tonnes and 57
million tonnes, respectively.
Iron ore demand in the country is increasing.
This, coupled with substantial increase in export of iron ore and fines
to China, have fueled prices of iron ore in the country. The estimated
iron ore demand (including export) by the year 2011-12 will be around
150 million tonnes. This demand can be met by creating additional mining
capacity of 60-65 million tonnes by 2011-12. It would require matching
infrastructure facilities like Power, Surface Transport and Port Handling.
The present infrastructure will not be able to take care of the requirement
of the anticipated enhanced domestic demand. In fact, this area would
require more attention so that iron ore industry can grow to its full
The quality requirements of the steel plants
have become increasingly stringent over the years. The captive mines,
which were set up in the fifties and sixties, do not have adequate beneficiation
facilities to meet these stringent requirements. Concerted efforts are
therefore needed to introduce state of the art beneficiation technologies
and scout for newer deposits with better quality to meet the demand of
The demand for superior grade fluxes with low
silica levels has also been growing. Iron making limestone with silica
up to 3.5% maximum and steel making limestone with silica up to 1.5% maximum
are today’s requirement. Iron making limestone is sourced through Kuteswar
and Nandini mines while the steel-making grade is sourced through non-captive
mines from Rajasthan or even through imports.
A major chunk of dolomite requirement is met
through non-captive sources in central India.
The consumption of coking coal in India is around
25 million tonnes. While only 8 million tonnes are available through indigenous
sources, 17 million tonnes are imported. Availability of the desired quality
of coal, cost, usage levels, yield of Blast Furnace coke in Coke Ovens
and coke consumption of iron making are some issues which influence the
coal management strategies involving improvement in quality of coals;
formulation of coal blends using cheaper imported coals and improvement
in coke making technology. Recently, government
has abolished 4% special additional customs duty. This will lower the
cost of imported coking coal as also of metallurgical coke, which is primarily
imported by mini blast furnace-based pig iron plants. These plants have
been importing 95% of their met coke requirements from China. In the last
20 months the price of met coke has increased more than 3 times. It is
an alarming situation and has severely eroded bottom lines of these units
and foundry units, which are facing substantial increase in the price
of pig iron. Adequate availability of non-coking coal both in terms of
quality and quantity for the production of sponge iron is another issue,
which requires immediate attention. In recent times there has been phenomenal
interest in setting up of sponge iron units in the country. Recently,
basic custom duty on non-coking coal has been reduced from 25% to 15%.
In addition to this, 4% SAD has also been abolished. This decision of
the Government will go a long way in helping the healthy growth of Indian
iron and steel industry.