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India Steel2012

India Steel2012

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Published by: José Gregorio Freites on Sep 23, 2013
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Indian steel supplement
From the arrival of the Qilin in Nanjing, who were thought to herald the absolute harmony of the Yongle Emperor, to Halley’s Comet fore-telling the victory of William the Conqueror,portents of prosperity have transcended history and culture. Today, the conventional assessment of acountry's performance begins with reference toits Gross Domestic Product (GDP). GDP, how-ever, is a rather turgid measurement.Examining a country's steel industry provides amore dynamic and expansive means of fore-casting its economic future. Steel consumptionper capita is directly related to the condition in which a population lives: it can be broken downregionally to depict discrepancies in economicdevelopment, it reflects patterns of urbanisa-tion, infrastructure spend, the state of industry and manufacturing capacity. “Steel productionand consumption is accepted as a barometer of any country’s progress,” says Dr AmitChatterjee, consultant and former advisor tothe managing director of Tata Steel, Jamshedpur.In the case of India, an examination of thesteel industry is particularly instructive. Thecountry is now the world’s third largest steelconsumer yet, while production has increasedsteadily since economic liberalization, con-sumption per capita in India remains remark-ably low. Average Indian steel consumption in2011 stood at around 55kg per person per year,compared to the global average of 206kg andmore than 500kg in mature economies coun-tries such as the USA and Japan. What is espe-cially relevant is that rural Indians, who consti-tute more than 70% of the country's popula-tion, consumed on average just 9.78kg in 2011according to Sushim Banerjee, director generalof Institute for Steel Development and Growth(INSDAG). For India to truly become a globalleader in steel production, it must access itsdomestic market; meaning this figure has toincrease drastically.In a sense, China’s Qilin has already arrived.China reported produced of 695.5Mt of crudesteel in 2011 (this figure being only that official-ly recorded) compared to India’s 72.2Mt in thatcalendar year (
Table 1
). Once skyrocketing,China steel demand is expected to decelerateand the steel rolling industry is expected toexperience stable but comparatively lowergrowth from 2012 to 2016.Despite the obvious growth potential of Indian steel production and consumption, thetrajectory of the country's steel industry over thenext few years is more difficult to predict. Onthe one hand, India has signalled its intentthrough investing heavily in giant steel mills,continuous modernisation and the upgrading of old plants. Expectations are tempered, however,by concerns over access to raw materials, a com-plex land allocation process, and questions overthe ability of India’s infrastructure to keep up.
 A roadmap to success
Economic reforms in 1991 ushered in a new eraof growth and new capacity was piled ontoIndia’s steel scenario. Yet despite a successionof high profile investment announcements, thepace of development, especially relative to thatof China, did not befit that of a waking giant. Although India’s impressive economic growthrate made the country appear an ideal destina-tion for FDI, discouraged investors repeatedsimilar complaints: infrastructure was absent;
*Global Business Reports
India rising: Can India’s steel industry deliver on years of promise?
Steel – The gateway to India’s industrialisation
Built in the days of the British Raj, the‘Gateway to India’ is an impressivemonument on the shore of the then city ofBombay – present day Mumbai – andremains a symbol to welcome foreigninvestment into India
Picture courtesy of Flickr:Himanshu Sarpotdar
India has seen crude steel productionincrease by 47Mt or 174% since the startof the 21st century an average annualincrease in output of 14.5%. It nowranks as the fourth largest producer inthe world. Much of this growth hascome from the private sector which nowaccounts for three-quarters of total pro-duction. This Special Report compiled inIndia by Global Business Reports revealesthrough interviews with key industrialplayers how this remarkable growth hasbeen achieved. Additional articles reviewIndia’s passion for small and large scaleDRI plants, its vast ore reserves but trou-bled development of these and how a105 year old steel site has moved intomodern times.
By Joseph Hincks andPavlina Pavlova *
Dr Amit Chatterjeeformer TechnicalDirector Tata Steeland recently retiredadvisor to the MD
Steel Times International – July/August 2012 –
– July/August 2012 – Steel Times International
Indian steel supplement
 ArcelorMittal and Posco’s monumentalinvestments reflected the optimistic climate in which they were conceived. However, as of February 2012 neither project had begun sub-stantial construction and, at the time of writing,Lakshmi Mittal has suspended activities on allproposed projects in India and Posco is stillawaiting the land allocated to its mill to beapproved pending various counter claims andenvironmental concerns.In Posco’s case, of the 4004 acres requiredfor the project 3586 acres belong to the stateand approvals pertaining to forested land inparticular have been shunted back and forthbetween the federal and state governments.“There is no point in selling India as an invest-ment destination at Davros when the invest-ments which have already come are facing mul-tiple problems and not able to move forward,” vice president corporate affairs Posco India, Vikash Sharan, told journalists in January 2012. Although in many ways India’s democraticapproach to land allocation is to be lauded, thegovernment must be seen to be taking stepstowards streamlining the process if it expects togarner future greenfield project investment.“Land acquisition is a problem and is themain reason for investors shifting their focus tobrownfield projects. The governments of thefive or six states that are major steel producersneed to make brave decisions, otherwise India will not have an industry. We are hopeful of apractical approach being taken,” India’s govern-ment supported Joint Plant Committee told us.In February 2012, signs were emerging thatPosco could soon see a resolution to some of these land issues, and there are hopes that thenew steel policy will expedite a more efficientapproach to land acquisition. Purshopam Agarwal, vice president, projects advisory andstructured finance, of SB Capital Markets atthe State Bank of India is optimistic aboutfuture foreign investment in the country. “Ithink we will see more foreign steel players inIndia in the near future,” said Agarwal.“Everybody is eyeing India in terms of furthergrowth in business. With some more clarity interms of policy issues, I am hoping more andmore players will be interested in coming here.”
Coking coal
Land access issues may have accounted for thedelays in India’s greenfield projects, but they  were not the sole constraint on the Indian steelindustry’s growth in 2011; a look at the produc-tion figures of India's largest steelmakers in2011 reveals that constraints were felt even by long established plants (
Table 3
).India has abundant thermal coal resources, yetdeposits of coking coal are scarce. Most of thecountry’s coke requirement, a vital input for theconventional blast furnace method of steelmak-ing, is met by imports of hard coals for coking.Modern steel producers have always beensomewhat vulnerable to raw material price fluc-tuations but in 2011, high coking coal prices,driven by factors such as the Queensland floodsand augmented by the depreciation of theIndian rupee, exerted particular pressure onsteel industry profit margins.“The recent depreciation of the rupee hasresulted in a spike in coking coal prices in Indianrupee terms at about INRs.23000/t ($408.5)compared to about INRs19000/t (US$337.4) inthe corresponding period last year,” the StockMarket Review reported in December 2011.“Higher raw material prices are expected tokeep the cost of production high even in the weak demand scenario and may make it difficultfor companies to pass on the higher cost to con-sumers. This is likely to put pressure on the mar-gins and cash flows largely in the case of non-integrated companies.”Indian steel producers have moved to insu-late themselves from the effects of coking coalprice volatility in two distinct ways: throughbackward integration, acquiring coking coalassets domestically and overseas, and throughinvesting in technology. As part of its moderni-sation programme, for example, India’s largeststeel producer state-owned Steel Authority of ports and roads were needed; and things in thecountry just happened too slowly.In 2005, the Indian Government, in its new role as a facilitator, came up with a directivethat promised a solution: The National SteelPolicy 2005. The policy envisaged steel produc-tion reaching 110Mt by Financial Year (FY)2019-20 with an annual growth rate of 7.3%. The 2005 Steel Plan was largely successfuland by 2007 new investment had propelledIndia towards becoming the fifth largest pro-ducer of steel in the world and the largest pro-ducer of direct reduced iron (DRI, also referredto as sponge iron) in the world. At the time of writing, the National SteelPolicy 2005 was being reviewed in light of therapid developments on both the supply anddemand side of the domestic steel industry. Thenew steel policy, released in June 2012, will setproduction targets far exceeding those of the2005 plan.Based on an estimated infrastructure spendof nearly US$1tr, the projected growth of India’s manufacturing industries, an increase inthe country’s urban population to 600 millionby 2030, and the emergence of the rural marketfor steel consumption, the Ministry of Steel’s Working Group on Steel for the 12th Five YearPlan April 2012-17 has projected that crudesteel capacity in India is likely to reach 140Mtby FY2016-17. Furthermore, memorandums of understanding (MoUs) signed by private pro-ducers with the various state governments indi-cate that capacity might exceed 200Mt by 2020.“The next five year plan includes infrastruc-ture investment, financed by taxes on the steelindustry, and commitment to research anddevelopment,” the Joint Plant Committee toldus. “In general, we expect demand to grow ataround 8.5%, although this year the manufac-turing sector slowed down slightly and growth will only be around 6%.”
Table 2
shows apparent steel consumption(ie Production + Imports – Exports) of carbonsteels since 2000. Consumption has grown overthe period by 36.5Mt or 130% an average annu-al growth in demand of 10.8%.
Raw materials for steelmaking
India’s growth prognosis should, in theory,prove a huge spur for foreign direct investment(FDI) in the steel industry. Yet a simplisticinclusion of just infrastructure plans anddomestic market potential is not enough; anexamination of industry sentiment elicits amore multifarious response. Indeed, each oneof the vital ingredients for steelmaking – iron-ore, coking coal, and, we must not forget land,– is in its own way, compromised in India.
Back in 2005, Lakshmi Mittal, the head of the world’s largest steel company ArcelorMittalrescinded on an alleged promise he had madenever to do business in his own country andflew into the state of Jharkhand to announce a$9bn investment to build a greenfield steelplant with a 12Mt/y production capacity. In June of the same year, the South Korean com-pany, Posco, the world’s fifth largest steelmaker, signed a MoU with the Orissa (now renamed Odisha) government for an eventualinvestment of $12bn for setting up a steel plantin the state. At the time, this represented thelargest FDI in Indian history.
Financial yearQuantity(April-March)(Mt)Table 1 Crude steel production in India(Million metric tonnes in Financial Year)
Source: Joint Plant Committee (JPC
(p) Provisional
ProductProduction% changefor saleover prev FTable 3 Saleable product in FY 2011-12 (kt)
Cold Pig Iron*58811.66of which ISPs502(-)13.30Secondary53793.32Less IPT/Own consumption98(-)2.97
Production for sale57831.74
Sponge Iron (DRI)24834(-)2.00of which ISPs----Secondary24834(-)2.00Less IPT/Own consumption44621616.15
Production for sale20372(-)18.78
Carbon Finished Steel779469.33of which ISPs17577(-)3.27Secondary6036913.64Less IPT/Own consumption901627.96
Production for sale689307.28
Notes: *Surplus of steel making requirements supplied to foundries.Source : Joint Plant Committee (P) = Provisional
Financial yearQuantityTable 2 Apparent steel consumption ofcarbon steels by Financial Year (Mt)
*ProvisionalSource Steel Scenario Yearbook 

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