Monday, July 24, 2017

Table of Contents for Special Focus- STEEL





Special Focus - STEEL

Steeling for the future

JANAKI KRISHNAMOORTHY on the challenges emerging from the growing mismatch between India’s consumption of steel and the actual production

It requires nerves of steel to be in political power and even more steel to power the country’s economy forward.

Both seem to be true in the case of the Narendra Modi led National Democratic Alliance government ever since it has been catapulted into the political hot seat. With the government going to town with its intent to fast track stalled projects and build infrastructure across the country to take the country back on the growth path, steel provides the answer.

But with India’s steel demand growing faster than its production – the latter is facing intense pressure due to shortage of raw materials like iron ore and coal linkages not to mention problems stemming from closure of mines in states like Karnataka, Goa and Odisha – it has led to the ogre called worry taking over.

More so after global advisory firm Ernst & Young in a recent study predicted India's steel consumption to grow in excess of 5 per cent in the calendar year 2014, to 83 million tonnes from the 79 million tonnes consumed in the previous year. It is easy to understand the alarm with the surplus of steel inventory likely to decline by 50 per cent to a mere 1 million tonne this year as compared to 2 million tonne in the previous year.

 

IRONIES ABOUND

Today India is the fourth largest producer of crude steel in the world and is expected to become the second largest by 2020. Yet the per capita consumption of steel in India is only around 60 kg, much lesser than the per capita consumption of the world which is at 225 kg. The reasons are not hard to find. As demand for steel is essentially a derived demand, any fall in the growth of major consuming sectors like real estate, infrastructure, automotive, industrial machinery will directly impact the demand for steel. The construction industry, particularly the infrastructure sector has not been growing as envisaged. Another major reason is the limited awareness about the advantages of using steel in construction among the stakeholders. Apart from the low domestic demand, land acquisition, environmental regulations, inadequate infrastructure and logistics, lack of modern technology are proving to be the major stumbling blocks for the steel manufacturers.

In terms of techn-economic efficiency of operations too, the country’s steel making units are nowhere near their global competitors states the report of the Working Group of Steel Industry for the 12th Five Year Plan (WGSI). “The industry continues to be characterised by low labour productivity, high energy consumption levels, heavy dependence on imported technology, low priority for research and development initiatives and diversification” points out the WGSI report.
However the Working Group also predicts that the domestic consumption will grow steadily in the years to come on the back of several factors like rapid urbanisation, GDP growth, re-focus on industrialisation and stepped-up investments in infrastructure.
With the government announcing plans to set up industrial corridors, raise 100 smart cities and increase the national housing profile there are admittedly huge possibilities. A lot of the projects are ripe areas for steel construction. For any kind of quick construction as happened in China, steel is the ideal material. Further with people beginning to realise the benefits of steel especially with today’s shortage of labour and materials like sand, steel is assuming significance.

Gautam Suri, CTO and Co-Founder, Interarch Building Products Pvt Ltd, is led to say, “There is so much work to be done on infrastructure where steel has an increasing role to play. With steel usage in India still very small compared to the rest of the world in all areas of construction, the market is wide open.”

It is easy to see why companies are increasingly investing in their manufacturing facilities with an eye on the future. Interarch, for example, has already upped capacities at its production sites at Uttarakhand – Pantnagar and Kichha-and Sriperumbudur near Chennai. The Noida based company is also thinking of adding another facility in Gujarat.

 

BARRIERS TO STEEL

The advantages of having a steel structure or building are far too many. Primarily, speed and quality of construction are the top two benefits. In addition steel buildings are fire, earthquake and cyclone resistant and require little maintenance. They are more amenable to creative designing and offer more flexibility in alterations. The steel production causes less pollution compared to other materials including cement. Steel can be recycled and its value generally appreciates over time. The usage of steel in construction though is yet to assume significant proportions. While the industrial segment is more inclined towards steel, it is yet to make inroads in other sectors. Internationally use of steel in infrastructure projects have grown but in India the trend is still towards reinforced and pre-stressed concrete. Even pre-engineered steel structures have a wide potential but as of now they are being used largely in the construction of warehouses, factories, aircraft hangars, stadiums, metro stations, airports etc.

That is also a zone where the application of stainless steel comes into play. Says Yatinder Pal Singh Suri, Country Head for India, Outokumpu, “The importance of stainless steel in particular cannot but be underlined in the context of the durability they provide to structures. I think the market will grow with some education of the benefits. With considerable investments happening in building infrastructure the acceptance of using stainless steel as a sustainable material, to gain low life cycle cost, is picking up and that is god news.”

But stainless steel has a niche application – unlike the more widely used carbonised steel – and is not expected to make much of a difference nationally at least for the present in view of the limited awareness and due to the Indian proclivity to ponder over the cost factor. Admittedly a major reason for the restricted use of steel is its high price. But this is only one of the many challenges steel producers have to counter.
 

COUNTERING CHALLENGES

Steel industry requires high initial capital requirement which increases with the kind of technology that needs to be procured. The rate of borrowing for capacity expansion in India is very high compared to other countries. Foreign Direct Investment in the steel sector has been lagging behind, despite keen interest shown by some global steel majors. Steel related sectoral caps of the banking sector, norms related to external borrowings are other issues that need a review. Development and growth of infrastructure sector is also critical for the growth of the steel industry. According to WGSI there is an urgent need for expansion of port capacity to handle the raw materials and finished goods of steel sector. “The steel plants which are likely to come on stream in twelfth plan period will need to transport 85 to 90 million tonnes of iron ore from the mines and also deliver 45 to 50 million tonnes of finished steel from steel plants to distribution centres. Therefore, there is an immediate need for substantial up-gradation of infrastructural facilities,” says the report.

 

Evidently the Government has an important role to play here in terms of policy measures, providing infrastructure facilities, ensuring availability of critical inputs like iron ore, coal, gas and power etc. The government policy framework, while giving top priority to meeting domestic requirements, should also consider export possibilities as there is an enormous potential here.

 

FUTURE OUTLOOK

Very obviously comprehensive measures will have to be adopted by all stakeholders including steel manufacturers. Some of the suggestions put forward by industry professionals include customising products that are relevant to latent rural demand, optimising the product mix to meet the shifting composition of steel demand for diverse applications in emerging sectors, improving the logistics infrastructure to handle both inbound and outbound traffic of steel industry, boosting investors’ confidence for sourcing fund requirements and adopting new technologies for increasing efficiency etc.

Says Alakesh Roy, Managing Director, Zamil Steel, “We are looking to diversify our portfolio. So we are trying to evolve ourselves as a solutions provider and not just as a pre-engineered building supplier. Therefore we are augmenting our skills or technologies to cater to the hot rolled structures and high rise structures.”

The report too emphasises on these issues: “Amongst the critical issues highlighted in the recommendations are that of acquisition and conservation of critical raw materials for the industry, promoting the development of infrastructure linkages through coordinated efforts across sectors and encouragement for innovative R&D projects consistent with existing resource endowments through the ongoing scheme for promotion of R&D in steel sector”    

 

Despite all the above factors, industry professionals predict a bright future for the century old Indian steel industry. But this future without doubt will be fraught with challenges confronting them will require more than nerves of steel.

 

 

 

Steel Scenario Today

  • India is the fourth largest crude steel producer in the world and is expected to be the second largest producer by 2020
  • The per capita consumption of steel in India is 60 kg as compared to the world per capita consumption of 225 kg
  • Private sector accounts for 75 percent of total crude steel output compared to 37 percent  in 1992-93 and 80 percent of total finished steel output compared to 67 percent in 1992-93.

 

 

Indian Steel Industry - Performance Trends (2006-2011)

  • Crude steel production grew at the rate of 8.2 percent per annum from 50 .817 million tonnes in 2006-07 to 78.001 million tonnes in 2010-11
  • Production of finished steel grew at an annual rate of growth of 5.8 percent  from 52.53 million tonnes in 2006-07 to 66.01 million tonnes in 2010-11
  • Consumption of steel exceeded production and grew at an annual rate of 8.8 percent  from 46.78 million tonnes in 2006-07 to 65.61 million tonnes in 2010-11.
  • Export of steel reached a peak level of 5.24 million tonnes at the end of tenth five year plan. In the Eleventh plan period, exports of steel started slowing down and recorded negative growth rate of 9 percent per annum, from 5.08 million tonnes in 2007-08 to 3.46 million tonnes in 2010-11
  • Net imports of steel fluctuated between a low of 1.40 million tonnes in 2008-09 to 4.13 million tonnes in 2009-10

Source : Report of the Working Group of Steel Industry for the 12th Five Year Plan




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