Steel Industry Poised for Growth

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Steel Industry

Cold rolled steel product
Cold rolled steel product | Source
A steel plant in Britain
A steel plant in Britain | Source

Steel Industry has short term problems

Factors ailing steel industry

There are two major factors ailing Indian steel companies. The falling rupee against the dollar is making it difficult to import coal. Steel Authority of India Ltd, the largest Indian steel company depends on imports to the extent of three fourths of its coking coal requirement. Secondly, the availability of coke itself has become a question mark. New coal mines are not permitted to be opened citing environmental factors. Spot purchase of coking coal is becoming costlier. But one soothing factor for the steel industry is the softening of the coking coal prices in the global markets in the second quarter ending 30.09.11. Steel companies cannot pass on the hike to the users as demand is also under pressure. In the last four months, Rupee has depreciated by nearly 20% against the dollar.

Second half may be better than the first half

Growth rate in Indian economy has dropped to 6.9% from the earlier 8% plus. There is a sharp fall in industrial production also in the last six months. Earlier, it was estimated that demand for steel will be at a healthy 12% this fiscal year. Now the estimate has been pruned down to 6%. Even this 6% growth is because of the hope that the government will accelerate infrastructure, construction and road projects as this fiscal year is the terminal year of the 11th Five Year Plan. All these projects involve consumption of steel to a sizeable extent. The government needs to hurry through to fulfil the targets set out in the 11th Plan. In 2010, steel industry grew by 9.6%.

Long term outlook for steel industry is bright

But in the long term, the outlook for steel industry is bright. For example, Steel Authority of India is expanding its capacity from the current 12.84 million tonnes per annum to 40 million tonnes per annum. In the first half of the current fiscal year, steel production in India grew by 8.5% to 32 million tonnes. Demand increased by 0.6% for non-alloy carbon steel and by 1.8% for steel. The Index of Industrial Production (IIP) registered a growth of 5% in the first half. In the same period last year, IIP registered a growth of 8.2%. Manufacturing grew by 5.4% in the first half as compared to a growth of 8.9% in the corresponding period of the previous year. The reason for the drop in demand for steel is that two of the vital sectors that use steel namely automobiles and real estate are very much affected because of high interest rates. Reserve Bank of India keeps on raising interest rates while framing its monetary policy in the name of attacking the inflation. Automobile sales dropped by about 24% last month November. Past trend indicates that steel industry had done well in the second half compared to the first half.

India will be the second largest producer of steel in 2016

India is the fifth largest producer of steel in the world. India is set to become second largest steel producer in the world by the year 2016. By 2020, India’s steel producing capacity is expected to cross 200 million tonnes per annum mark. But industry experts are confidant that the production will cross 300 million tonnes per annum. In 2001, per capita steel consumption in India was at 26.8 kg. It increased to 43.4 kg in 2007. The world average is 194.3 kg. USA has an average of 354 kg and Germany has 463 kg. For producing steel of 300 million tonnes per annum in 2020, the coal requirements will be in the order of 150 MT. Apart from the steel industry, there are other industries like soda ash, foundries, chemical units etc that need coal and coke. Therefore there will be an acute short supply of coal and coke in the immediate future.

Coke is the main ingredient in steelmaking.

Blast furnace route is the most preferred way of steel making in India. Steel industry needs coking coal to melt the iron ore haematite in the blast furnace and finally convert it into steel. For producing one tonne of coal, approximately 0.6 tonnes of coking coal is needed. This requires in turn one tonne of metallurgical coal. The available coal deposits in India are sufficient for more than hundred years of use but the quality is inferior as the coal has high ash content. Therefore for producing good quality steel, invariably import of coking coal has to be resorted. But fortunately, the available coking coal resources in the world are sufficient to cater to the usage at the current rate of consumption for another 125 years.

Overcapacity in steel industry?

ICRA has estimated that there may be overcapacity in steel industry in the medium term. About 25 million tonnes of capacity will be added to the steel industry in the next 18 to 24 months. India produced 68 million tonnes of crude steel in 2010. The demand for steel had been growing in double digits before the global economic crisis set in. Capacities were planned when the demand was robust. 24 companies have been permitted to recommence mining operations in Karnataka State. Mining in the State was banned because of the scandal that was unearthed involving the Reddy brothers and the erstwhile Chief Minister B S Yeddiyurappa. This will improve the fortunes of Indian steel industry.

Overseas interest in Indian steel industry

Finland’s stainless steel major Outokompu is reviving its plans to set up a steel plant in India. The plant may be set up in the western region where demand for steel is at a maximum in India. Mumbai, the financial capital of India is also in the western region. The company is planning to produce steel that is not produced by other manufacturers in India namely the special steel that is used in power plants, refineries etc. According to the data supplied by the raw material suppliers like Rio Tinto and BHP Billiton, there was a robust demand for steel globally till September this year. The main reason for this is the Chinese demand for steel. China continues to be the global driver of steel industry. Chinese production of steel in September was 16.5% more than in the corresponding period of the previous year. The most surprising thing was that even the European Union reported normal growth of 4.3% in its steel industry for the month of September inspite of the Eurozone crisis.

Cheap iron ores are available in Eastern India

The Commerce Ministry has recommended imposing anti dumping duty on hot rolled flat products of stainless steel of ASTM Grade 304 from South Africa, European Union, Taiwan and USA. This move was made by the government in response to a petition submitted by Jindal Steel Ltd. Jindal Steel was one of the steel companies affected by the ban on mining of iron ore in Karnataka State. Now the steel companies in Karnataka are looking for cheaper and better iron ore from Eastern region of India. The companies are targeting ore from Jharkhand and Orissa. The Supreme Court-constituted monitoring committee has assured steel industry that weekly e-auction of iron ore will be conducted. But the prices in the e-auction are ruling firm.

Secondary steel makers are affected

Steel industry saw a price hike by the manufacturers in the middle of October to offset high input costs. The hike was upto Rs.750 per tonne. But with sluggish demand, it is not clear whether the price hike is sustainable. India is hosting worldsteel-46 next year in October 2012 in New Delhi. WSA represents 170 producers accounting for eighty five per cent of world steel production. As India is becoming a significant player in the world steel industry, its hosting of the event comes as no surprise. But whether this meet can solve the problems of secondary steel producers in India is doubtful as the organisation is dominated by big players. Secondary steel producers use induction/electric arc furnace to produce steel. They use scrap iron as the raw material. As big players like SAIL and RINL expand their capacities, the secondary players are affected. Most of the incremental capacities of big steel companies are coming in South East India. The secondary steel makers in this region will be affected to the maximum extent.

India to become a net steel exporter

In the next couple of years, India may turn into a net steel exporter. Right now high chrome prices are curtailing steel production to a sizeable extent. The only solution for high input cost is to form an alliance of manufacturers of steel to bid for a financial stake in a mineral asset or in case of raw materials like chrome, to negotiate prices. India is attracting foreign steel companies also. China Steel Corporation plans to invest $178 million in a new steel plant to be set up in Gujarat. This is the second largest investment in India by Taiwan and the plant will produce electrical steels. From January next year, quality assurance marking will be made compulsory for steel goods. It is like hallmarking in gold ornaments. This move will hit the secondary steel producers and small producers hard.

Auto industry gearing up

Indian auto industry is gearing up to become sixth largest in the world. Steel producers like SAIL, Tata Steel, Essar Steel and JSW are gearing up to cater to the increased demand of steel from the automobile sector. Producers are investing in fresh cold rolled capacity. Shanghai rebar steel futures are a good guide to gauge the price of steel in the immediate future. It is now showing a negative trend in prices. Steel producers in India are now focusing on rural areas in order to increase their sales. Rural houses are experiencing prosperity due to abundant rainfall in the last five to six years. This has left surplus income in the hands of villagers in India.

Steel industry is optimistic for medium and long term

But if RBI continues to raise interest rates in the name of attacking inflation, then infra projects will slow down, resulting in less demand for steel and cement. In fact it is happy news that inspite of difficulties, steel industry in India managed to grow by 1.8% in the first half of the current fiscal year. Foreign Institutional Investors (FIIs) have pruned their holdings in steel companies due to weak profit outlook on higher input costs. But steel industry is taking an optimistic view for the medium and long term by expanding its capacity.

Steel Industry in India

Wonder Technology in 1000 AD

Pig iron is the iron with most impure form. Carbon is the main impurity in iron. Stainless steel consists of very less carbon. That is it is almost pure. Wrought iron is the purest form of iron. It is interesting to note that pure iron does not rust. But it is very difficult to produce pure iron that does not rust. Indian engineers succeeded in producing such a pure form of iron in Qutab Minar in Delhi when the Delhi Sultanates were ruling Delhi thousand years back. It is a tourist attraction today.

Manufacture of Steel

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Comments 1 comment

martellawintek 4 years ago

well gerry i shouldnt give it out but here is there link

and some info , there very helpfull ,say marta put you on

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