Aiming High

Focus / Aug 31 2012

India is making an all out effort to build its infrastructure comprising ports, roads, highways, power, railways etc. The infrastructure development involves lot of construction activities wherein the vital component is Steel. Be it bridges, railways, real estate, automobile, civil aviation, petrochemicals, irrigation, telecom towers, power sector, the use of steel is everywhere and growing day after day. The growth of urban centers is providing impetus to the use of steel. It’s an essential material which is used for building housing, mass transportation facilities and passenger carriers. The construction sector is the major user of Steel. As per rough estimates 42 per cent of world steel production is used by the construction sector. The trend favouring corporate’s choice for pre-engineered buildings at factory location also adds up the increased usage of steel.

Steel consumption

As per 2010 figures, the per capita steel consumption is 55 kg for finished steel. Comparing the world average of 206 kg and those of developed countries as 324 kg, the per capita consumption of India is quite low. But the consumption is on the rise due to large scale development activities. The use of steel is critical to the development of Infrastructure in India. Steel is a de-regulated sector in India. The steel demand in India is growing at an average rate of 10 per cent and is likely to reach 12% in the near future as compared to the average annual growth of 8% achieved between 1991-92 and 2010-11. In order to meet the demand from domestic consumers, steel production capacity in India must increase at an average rate of 10-15%.

Production Figures

India is endowed with significant iron ore reserves, estimated at 25 billion tonne. However, the proven economically mineable reserve is only 7 billion tonne, of which the high reserve grade is only 1.3 billion tonne. The Steel Ministry expects India to become the world’s second largest producer of steel by 2013. The country has an installed annual production capacity of 120 million tonne. India has the fourth largest steel sector in the world, both in terms of capacity and production. The capacity is expected to be over 150 million tonne by 2020. Crude steel production grew at 8% annually (CAGR) from 46.46 million tonne in 2005-06 to 69.57 million tonnes in 2010-11. Production for sale of finished steel stood at 66.01 million tonne during 2010-11 as against 46.57 million tonne in 2005-06, an average annual (CAGR) growth of 7%. Production for sale of finished steel stood at 66.01 million tonne during 2010-11 as against 46.57 million tonne in 2005-06, an average annual (CAGR) growth of 7%.

Iron Ore Supply

As per Steel Ministry, the production of iron ore is more than total estimated domestic consumption by the iron and steel industry. The domestic steel making industry is dependent on iron ore lumps. India doesn’t have enough beneficiation and pelletisation to use fines, and low-grade ore which are also produced during mining. The coking coal is mostly imported by the steel plants in India. The Government has set up a Special Purpose Vehicle (SPV) called “International Coal Ventures Ltd.” comprising of SAIL, RINL, CIL, NTPC and NMDC for acquisition of coal mines in overseas territories.

Booster Needed

According to Federation of Indian Mineral Industries (FIMI), there is no real shortage of iron ore as per stock figures at mine heads. Quoting data from Indian Bureau of Mines, FIMI claims that as on March 31, 2012, mine-head stocks added up to 123.5 mt and production to another 169.66 mt. They are pointing fingers at the Government for creating an artificial barrier through high export duty at 30% and freight charges. FIMI claims the shortage to as ‘state-induced’ supply crunch in iron ore. Export of finished steel during 2010-11 stood at 3.36 million tonne while imports during 2010-11 stood at 6.54 million tonne..Due to export duty at 30%, the exports are down by 42 % in the last two years. In the two years since the last quarter of 2009-10 there has been a cumulative increase in railway freight of 126%, which translates into 40% of realization on iron ore. Easing of 30% export duty and levying import duty on iron ore pellets is sought by FIMI to boost sectoral growth

Industry Challenges

• Land Acquisition has become a major challenge for setting up new steel plants. Steel Majors like Posco and ArcelorMittal are struggling till date to sort the land acquisition issues.
• To avail steel products, good distribution network is missing in Rural India.
• To boost further growth, the steel industry should focus on innovation by promoting research and development activities to increase productivity and optimum energy efficiency levels.

Investment Estimates

Going by the estimate of Rs 4,000 crore investment per million tonne of additional capacity, The intended steel capacity build up is likely to result in an investment of Rs 8,70,640 crore by 2020. Most of these investments are likely to flow in states of Orissa, Jharkhand, Karnataka, Chhattisgarh and West Bengal.