INDIA - AN EMERGING LEADER IN STEEL

In an exclusive interview, the Union Steel Minister is all confident of government’s infrastructure push including railways to provide much-needed filip to India’s steel demand. With agility & initiatives to become globally competitive, the country will also emerge as the 2nd largest steelmaker in the world in 2017.

The woes of the global steel industry are one too many, and prolonged. With demand and consumption having taken a strong hit over the past couple of years and meek signs of revival, progress of steel sector in most countries in the world is impeded. These countries are forced to cut down capacities, recede operations and lower targets, including China. In the given scenario, India’s big 300 million tonne steel production by 2025 target seems mighty ambitious, yet fathomable.

Bear on Moody’s conclusions contained in its report released in November 2016, “Steel – Asia 2017 Outlook – Weakening Production and Earnings Keep Outlook Negative”.

“For 2017, we see India as the only area of strength – with rising demand and protectionist measures in place”, said Jiming Zou, Moody’s Vice President and Senior Analyst. “In India, growing domestic demand, minimum import prices and anti- dumping duties will support steel producers, but the increase in their steel production will not offset the fall in regional production”, the report said. The country accounts for only about 8% of Asian steel production.

And on this excerpt from a report by Livemint in September 2016 that says, “At a time when a surplus is forcing steel mills to close around the world, India’s debt-laden producers are ramping up to supply more of the metal than ever. Steel Authority of India Ltd, Tata Steel Ltd and JSW Steel Ltd—which all posted losses last year—are targeting record output in 2016 and want to almost triple capacity over the next decade. They expect demand in the world’s third- largest producing country to grow at about quadruple the current rate as Prime Minister Narendra Modi embarks on huge investments in new railroads, highways and ports, including USD 44 billion pledged for this year.”

 

India’s steel production is growing at an annual rate of 6%, making it the only country where the future of the steel industry doesn’t appear too gloomy. The good news is that even post demonetization, the grounds of growth haven’t become too shaky. Certainly there is an impact on transactions and thus on demand and consumption, but the overall sentiment for the growth of Indian steel industry remains positive.

Capacity Expansions

India’s aim to become the 2nd largest crude steel producer in the world is only getting stronger by the day. Following Prime Minister Narendra Modi’s push on infrastructure spending and the Make in India campaign, India is set to see huge capacity additions by the major steelmakers in the coming years. Let us take a look.

NMDC’s 3 mnt pa Nagarnar Steel Plant

The largest state-run iron ore miner, as part of its expansion, value addition and forward integration plan is developing a 3 mnt pa green field steel plant in Nagarnar in Bastar region of Chhattisgarh. As reported on 1st Jan’17, a budget outlay of INR 39.64 billion, has been provided for NMDC Ltd. NMDC is expected to carry out load trials at the plant by December 2017, official sources informed.

SAIL’s Massive Expansion Plans

SAIL, the largest state-run steel producer, is set to increase capacity to 15.5 mnt from the existing 13 mnt in the fiscal starting April 1. Further, the company will boost production to 20 mnt by 2020. After this ramp up, SAIL expects to produce more of structural steel, which gives higher margin than its existing productportfolio. SAIL’s sales are expected to go up 10% to 14 mnt in FY17. On the same lines, Tata Steel’s Kalinganagar steel plant, JSW Steel’s expansion to 17 mnt from 12 mnt, Bhushan Steel’s expansion to 5.5 mnt are major capacity additions among others to the total tally of India’s steel capacity.

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India’s total steel production capacity in FY17 stands at 120 million tonnes. With the ongoing projects, the capacity is expected to reach up to 142 million tonnes by FY20.

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Integration

Consolidation of the industry has been on the cards for the past couple of years. 2016 saw a host of mergers and acquisitions in the Indian steel industry. Forward and backward integration has been sought after as a remedy to save margins, ease operations and to quicken expansions. Tata Steel acquiring BRPL for its pellet plant in late December last year is an example. In May 2016, JSW Energy agreed to buy out a 1000 MW power plant owned by JSPL in Chhattisgarh for INR 40 billion. Recent reports suggest ongoing discussions on JSW Energy acquiring Monnet’s 1050 MW coal fired power plant in Odisha at Angul. Domestic steel major SAIL in November entered into a pact with South Korean giant Posco for technical collaboration for operational improvements. Most recently, SAIL is in preliminary discussions with Nippon Steel & Sumitomo Metal Corp and Kobe Steel on various areas of operations of steel plants.

With more high profile mergers and acquisitions expected in 2017, the Indian steel industry appears to be catching up on the idea of integration to get rid of debt laden and obsolete capacities to improve production volumes.

Import & Export

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The Indian government took heed to the plight of the domestic steel producers facing the onslaught of cheap steel import from China and initiated numerous protective measures to help the industry. MIP, safeguard duty, anti dumping duty, BIS certification helped bringing cheap steel imports in check. Import declined from 8.17 mnt in 2015 to 6.51 mnt in 2016. In FY16, total steel import stood at 8.72 mnt, which is expected to decline to 5.33 mnt by the end of FY17. Export increased from 3.8 mnt in 2015 to 5.31 mnt in 2016. In FY16, 3.47 mnt steel was exported. Total export in FY17 is expected to touch 5.82 mnt, up 6.7% from last year.

Production & Consumption

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In 2016, India beat its previous year’s figures of crude steel production by over 5 million tonnes. Total production in 2015 was 90.44 mnt and 95.78 mnt in 2016. Production in FY17 is expected to reach 88.74 mnt, up 8.45% from 81.82 mnt in FY16. While production has been increasing and we are in the race to become the #2 producer in the world, India’s steel consumption is seen as a negative parameter in the growth story. India’s per capita steel consumption is yet only 61 kg and needs significant climbing to support the increasing production. The government has planned huge spending in the construction, infrastructure and railways to increase steel consumption. Recently, the Union Minister said – Railways alone can consume a million tonne steel a year, 10% of the country’s total steel production ie usage of steel in high-speed rails and new German LHB coaches made of stainless steel.

Reforms & Protection Measures

2016 was the year of reforms in the Indian steel industry. BIS norms were laid and production of steel adhering to those norms was made mandatory. Import of steel was also restricted to such overseas firms that had acquired the BIS license to export to India. This reform sought to bring consistency and improvement in steel quality to compete with international standards. Further, in an attempt to remove the stigma of using steel produced by primary steelmakers in government projects and provide equal opportunity to all steelmakers, the classification of steelmakers as primary, secondary and integrated was scrapped by the government. In May, the government removed the differential railway freight for transport of iron ore and pellets for domestic use and exports. The reform gave much-needed boost to iron ore exports.

Various protection measures were put in place by the government in 2016. Anti-dumping duties on China, US and other countries proved to be great relief from cheap imports. MIP imposed on certain steel imports in February last year for a period of 6 months was later extended and is currently in place until Feb 2017. MIP checked much of cheap steel incoming to India. Safeguard duty is another measure taken by the government to protect the industry. The government’s efforts to soothe the ailing industry in 2016 were laudable.

10 Birender SinghWith 2016 ended, Steel 360 reached out to Chaudhary Birender Singh, Union Minister of Steel, Government of India for his ministry’s outlook on the Indian steel industry in 2017. Excerpts follow.

Q. How do you see demonetization impacting the steel industry in short as well as long run? Will it affect the government’s plan of building steel capacities?

A. Uniquely among the steel manufacturing countries, India has developed strong secondary sector steel manufacturing capabilities, with over 50% of production in this unorganized sector. At the moment, demonetization has impacted some plants in the secondary sector and has made a short term impact on construction, which would indirectly impact steel demand. However, this would only be a temporary phase. The system is expected to adapt fast and the gains from the demonetization drive in the medium term will far out-weigh the short term dip in steel demand.

Q. Where is the demand for steel expected to come from? What could be new avenues for steel consumption?

A. Indian steel industry is already in expansion mode. The older steel plants are being modernized and expanded and newer green field plants are also coming up with state-of-the-art technologies. India has overtaken USA to become the world’s third largest steel producer in 2015. However, per capita steel consumption is still quite low ie 61 kg as against the world average of 208 kg. The low consumption no doubt indicates huge growth potential for Indian steel industry. In addition to this, increasing GDP and the expectedly growing urban infrastructure and manufacturing sectors indicate that demand is likely to remain robust in the years ahead.

Creation of steel demand in the country is one of the major tasks to be undertaken. To drive steel demand, the ministry has identified construction and manufacturing sectors like rural development, urban infrastructure, roads & highways, railways etc to be the key focus areas and will take necessary steps to achieve the same by diverting consumers’ focus from non-steel intensive to steel intensive products. Innovation and R&D can endeavor to replace products like plastics, carbon fibre and glass with light weight and high strength steel.

Q. While MIP has been extended further for six months; the industry is seeking more protection from the government. What could be the next probable measures?

A. MIP was a temporary protection for the severely distressed domestic steel industry until permanent measures were imposed by the government. With anti dumping and safeguard measures in place, MIP is being gradually phased out. Next move would be to focus on quality steel and demand revival.

Q. India’s steel sector still accounts for 28% of banks’ stressed loans. How can the ministry come over this situation and bring about a revival in the steel sector?

A. With respect to the issues related to stressed loans in steel sector, Ministry of Steel believes that the recent changes in various schemes as notified by RBI will provide suitable relief to domestic steel players. The ministry is also continuously working in association with banks and will take further measures as necessary.

In addition to this, the ministry is also working for the revival of demand in the country and is continuously exploring new avenues in discussions with various ministries.

 

There is no point in carrying out research & development for the sake of it. There has to be a linkage to marketability of projects being undertaken. R&D for developing new technologies and products has to be driven by the future value of the outcomes. Till the time, the R&D in steel industry in India attains international levels; we should undertake international collaborations and adopt the best & most efficient technologies. R&D should not be limited to little tinkering here and there to improve quality and so on. Let us think big in terms of transformational technologies and new breakthroughs. 

 

 

We are also looking at the rationalization of duties/taxes to improve competitiveness of the domestic steel sector.

However, the steel industry in India also needs to be more agile and has to take initiatives to become competitive and strong. We have been telling the industry representatives to work on ways and means to strengthen the steel companies and to aim for attaining international benchmarks in production, quality and service.

Q. Do you still see a future for the small & medium scale steel plants in India?

A. Yes, definitely there is a bright future for these players as well but they have to be more transparent in their operations and have to follow the quality norms set forth by the government. Providing competitive rates within the quality specifications should be the focus of Indian small and medium scale industry that serves the basic needs of every citizen. Their scale of operations may be small but they are the closest to the end users. Hence, they have to flourish.

Q. What is the progress with respect to drafting of the new steel policy?

A. The ministry is taking all the necessary measures to address the current challenges in steel industry and is evaluating the existing National Steel Policy in terms of present context, with special focus on moving towards greener technology. It is expected to be released early next year.

Q. What is your outlook for 2017?

A. Steel industry in India can further increase the momentum of growth in steel exports from the country, by utilizing demonetization as a blessing in disguise. There is a huge potential for benefiting from steel demand in South East Asia and Middle East, which Indian steel companies can take advantage of in the present scenario.

India with 87.5 mnt of crude steel production during January–November 2016 is the third largest in the world after China and Japan. With estimated demand growth and continued capacity expansion by private and public sector steel companies, we expect India to emerge as the second largest crude steel producer by the end of 2017.

2016 played havoc with raw material prices, demand and was full of reports on anti dumping duties being slapped on various countries. We saw major capacity cuts in steel production and low capacity utilization. Also, 2016 was the year when demonetization trumped any other global news. 2017 has just begun and is already offering much to look forward to. With consolidations in the line and results of demonetization awaited in the year, the steel industry is bracing itself to withstand a lot more.

Source: Steel 360 Magazine Jan’17 Issue