By SUDEEP AGGARWAL
A look at the Indian steel industry: Outlook, challenges and solutions
Ever since the dawn of the industrial revolution in India, steel has been one of the most widely used metals. The level of its usage as a raw material or an intermediate product has been the core indicator of the state of the economy in the country.
Most of the infrastructure development projects in India have used steel as the main raw material. Therefore, it would not be an exaggeration to say that the Indian steel industry has played a pivotal role in the progress of the nation and is expected to continue doing so in the future as well.
Outlook & Trends
The Indian steel industry has significantly consolidated its production capabilities in the last decade. Consequently, India is presently the second-largest producer of crude steel globally, with annual production levels at around 110.9 million tonnes (MnT) in the year ended March 31, 2019.
Global production trends:
The annual production of crude steel globally reached new heights of 1,808 MnT in 2018-19 as compared to 1,690 MnT in 2017-18. As a matter of fact, the steel industry, over the last 50 years, has registered impressive growth globally. China is the largest producer of steel, with 51.3% of the global supplies originating from the country. India is a distant second with a 5.9% contribution to the global steel market.
With India and China being two of the fastest-growing economies, the consumption of steel is expected to be driven by the two Asian giants for the next few years. As India allows for 100% FDI in the steel industry, huge investments are expected from the leading foreign countries. It is important to mention that FDI in steel was pegged at 0.4% of the GDP in India, with the major reasons being the availability of state-of-the-art machinery and the latest technologies.
National Steel Policy:
In order to support the incredible potential displayed by the Indian steel industry, the government envisaged the National Steel Policy in 2017, which outlines the industry’s expected trajectory till 2030-31.
The key highlights of the policy are:
- Crude steel production to reach 255 MnT by 2030-31.
- Finished steel production to reach 230 MnT by 2030-31.
- Investments of INR 10 lakh crore in the steel industry by 2030-31.
- Net exports of steel to cross 24 MnT by 2030-31.
Indian consumption trends in steel:
As per a detailed analysis by the Indian Steel Association (ISA), the demand for steel in India can be categorised into the following sectors:
- Railways: 3%
- Capital goods: 15%
- Intermediate products: 6%
- Construction: 62%
- Automobiles: 9%
- Consumer durables: 5%Challenges
While the Government of India has been offering steady support to the Indian steel industry, it is facing many challenges as well.
- High-value investments:
Setting up a steel plant requires huge capital investments. As per the latest estimates, for setting up a steel plant of 1 tonne capacity, almost INR 7,000 crore are required. Consequently, entrepreneurs need to borrow funds from financial institutions. High interest rates against business loans in India result in higher interest costs, which consequently push up the prices of steel by almost USD 30 per tonne.
Moreover, cyclical disruptions in the steel industry further exert a strain on the finances.
- Logistical challenges:
Unlike other Asian countries, where steel plants are located near seaports, most of the Indian steel plants are located inland. As a result, transportation of the raw materials and finished products is to be done through the railway network. As per NITI Aayog, in addition to being slow, commercial railway transport is expensive also, thus, adding almost USD 25 to the per tonne cost of steel. With the steel industry in India expected to grow manifold in the coming years, having a cost-effective and quick mode of transportation is essential.
- Irregular supply of coking coal:
As per the National Steel Policy, growth in the annual production of steel will be largely powered through the blast furnace production method. This requires almost 180 tonnes of coking coal. Presently, India purchases its coking coal from Australia, but the supply is hampered by variations in weather as well as forex rate fluctuations.
While India has huge reserves of coking coal in the Jharia coalfields, it needs to be developed before coal extraction can be ramped up.
- Additional tax burden:
As per a report shared by NITI Aayog, additional taxes, cesses and duties result in the increased cost burden of almost USD23 per tonne on finished steel. In a competitive international market, this price difference is restricting the growth of the Indian steel industry.
- Environmental concerns:
Indian steel production is still being carried out through traditional methods, which are not energy-efficient. As a result, the carbon footprint of the Indian steel industry is much higher, resulting in adverse effects on the environment. Aggressive investments in eco-friendly and energy-efficient production methods are required to keep up with the ambitious plans of the Indian steel industry.
While the challenges faced by the Indian steel industry are ominous, the opportunities available are equally lucrative.
- Internet of Things (IoT):
IoT-enabled sensors can be placed inside the manufacturing equipment that needs to operate at a certain temperature or within specified parameters. These sensors can send alerts to the maintenance team when the performance deviates from the specifications. This will help reduce downtimes, energy consumption and overall maintenance costs.
Moreover, IoT can enable remote monitoring of the equipment, thus, powering automation of critical processes.
Robots can be used instead of humans while working in potentially dangerous situations inside a steel plant. Moreover, robots are known to be more accurate and consistent with their performance and can continue to work without any breaks. As a result, labour costs will be reduced, and production output will be increased.
Commercial drones can be used to monitor the production process, check the quality of raw materials and finished products without causing any disturbance. This will also reduce the chances of any downtime by ensuring timely inspections of otherwise inaccessible environments.
- 3D printing:
3D printing is another upcoming technology that holds a lot of promise for the industry. Companies are in the process of integrating 3D printers for essential tasks like production of steel-related parts, on-demand production of parts, easy prototyping and optimisation of the supply chain.
- Artificial intelligence (AI):
Artificial intelligence is indeed the biggest technological innovations of the last decade and offers great potential for the steel industry as well. Some of the applications of AI in the steel industry can be in the fields of supply chain monitoring, predictive analysis for raw material requirements, monitoring the performance of machines, ensuring predictive maintenance.
Covid-19 Impact On Indian Steel Industry
When the initial impact of the coronavirus was felt, experts thought that it is an opportunity in disguise for Indian steel makers. Afterall, China, the biggest manufacturer of steel globally, was grappling with this crisis and the impact of COVID-19 was worst felt in the Hubei region, which is the biggest steel processing centre in China.
It was expected that the supply gap due to interrupted supplies from China can be filled by the Indian steel industry and India could gain the traditional Chinese markets such as the UAE, Vietnam, Saudi Arabia and several others. Consequently, leading Indian steel manufacturers were looking to increase their production. As a result, Indian steel exports grew to 7.2 MnT in January 2020, a 40% increase in 10 months.
But ever since the coronavirus pandemic hit India as well as several other countries, the outlook for the global steel industry looks somewhat bleak. Weak demand will subsequently result in lowering of the prices, which will hit hard the already struggling Indian steel manufacturers, including Tata Steel and JSW.
Moreover, with predictions by the IMF of the global economy entering into recession, the steel industry in India as well as globally will require heavy capital infusion to be able to regain the pre-coronavirus position. The real magnitude of the impact of COVID-19 on the steel industry can be gauged only after normalcy returns, which might, in fact, take several months, if not years.
With a contribution of more than 2% to the GDP, the Indian steel industry plays a pivotal role in the progress of the economy. With the government introducing policy level initiatives like Make in India and the National Steel Policy, the future bodes well for the metal.
But the challenges posed by a global market are too ominous to be ignored. So, investment in the improvement of the infrastructure and integration of the latest technologies are the ways ahead for India’s steel industry.
Sudeep Aggarwal is Partner at Ferro Steel Solutions, a Tata Steel distributorship dealing in all varieties of steel in the Haryana region. He has been a mentor in the Tata Steel GEN-Y Club and has experience working with Corus, UK.
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