19 August 2018

Company-Tata Steel

Riding on hope

 

While steel continues to be a major economic determinant in India’s GDP growth, the sector awaits  a positive push through policy reforms and increased spending on infrastructure and urbanisation activities.

 

Steel plays a vital role in the development of construction and infrastructure segments. The sector has been one of the key contributors to the economy. Based on the pick-up of Indian economy in FY15, the country’s GDP growth was estimated to be over 7.5 per cent and the growth in steel demand at ~6 per cent. Given, the current macro-economic scenario and recent downward revision of GDP growth from 7.6 – 7.4 per cent by the Reserve Bank of India (RBI), the steel demand is expected to remain subdued at ~3-4 per cent. Owing to such market situation, the steel imports are expected to surpass the 10 MT mark of last year. As such, the net imports have already crossed 3.4 MT in H1 FY16. With continued imports and new capacities by domestic players in H2, the capacity utilisation is expected to remain under pressure.  
Today, players involved in India’s steel segment are highly dependent on imported coking coal, which accounts for a large portion of their raw material cost. While India is rich in iron ore reserves, the increase in steel production has resulted in depletion of reserves. Also, some reserves are in forest land or tribal land which increases the R&R cost appreciably. In such a scenario, Indian steel players are adopting several technologies for efficient use of raw material. Most of the domestic manufacturers are coming up with beneficiation plants to use lower Fe grades and pellet plants to use iron ore fines. Steel manufacturers are also adopting alternate iron making technologies such as MIDREX, which allows use of gases from Coke Oven or COREX or Producer gas from thermal coal, which is easily available in India.

 

DEMAND DRIVERS
Construction and infrastructure sectors prevail as the key demand drivers for the steel segment and consume more than 60 per cent of the total steel output. In addition, automotive and capital goods exist as the other two major demand driving segments and consumes about ~20 per cent. Proactive project initiatives, policy and infrastructure spending by the government will provide a boost to the sector. However, the real estate construction segment still needs liquidity in order to post a healthy steel demand.
The recent 20 per cent provisional safeguard tax imposed on imports of HR coil steel of width greater than 600 mm is a welcome step taken by the Indian government to save the domestic steel industry. However, considering the continued drop in product prices from Chinese, Korean, Japanese and Russian steelmakers, this tax looks insufficient and, as such, needs to be hiked to protect the domestic steel industry. Also, since safeguard duty is imposed on HR coil imports only, imports of other products such as HR sheets and plates, cold rolled and galvanized products continues resulting in an almost inverted price structure. Hence, the scope of safeguard tax needs to be expanded to the complete range of import sensitive products.

 

TECHNICAL SURGE
When compared with global steel players, domestic manufacturers are still lagging in terms of products and operating efficiencies. Recently most of the domestic manufacturers have started to install larger blast furnaces to enhance their productivity and reduce coke consumption. To enhance productivity and CRCA with uniform mechanical properties, steel makers are increasingly adopting Continuous Annealing Line (CAL) than the earlier Batch Annealing Furnace (BAF) technology. Also near shape casting by Compact Strip Plant (CSP) for Hot Rolled Coil or a Beam-Blank caster for structural not only improves yields but also reduces energy consumption substantially.
Owing to its technical supremacy and ability to deliver high quality products, Tata Steel grew its deliveries in H1 FY16 despite the subdued demand. The company expects to continue serving its customers at the same rate from its production facilities at Jamshedpur. Also in FY16, Tata Steel plans to commission all the facilities of the 1st phase of 3MTPA capacity at Kalinganagar, Odisha.

 

RESPONSIBLE REFORMS
India is currently the 3rd largest steel producer in the world and aims to become second largest by 2025 with about 300 MTPA capacity, as targeted by the Ministry of Steel. To achieve this ambitious target, India needs to create demand on the one hand by investing in infrastructure, increasing urbanisation and supporting steel industry to grow faster. Focus also needs to be relied upon providing level playing fields on a par with China, Japan or Korea – by reducing the cost of capital and simplifying processes for land acquisition, raw material allocation, debottlenecking and reducing logistics and transportation costs, etc. MMDR Act, Land Acquisition Bill, GST implementation, Environment Clearance, etc are the key regulatory issues influencing steel industry. In addition, government also needs to boost investments in the infrastructure and industrial sector to revive the steel demand. Implementation of all such favourable reforms only can bring a faster and sustainable growth in India’s steel sector.

 

The opinions/views in this article have been contributed by Tata Steel Ltd

 




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