In Commodity News 27/05/2015
Steel sector plays a very important role in the development of any modern and emerging economy. The per capita consumption of steel is generally accepted as a yardstick to measure the level of socio-economic development and living standards of its countrymen. As such, no developing country can afford to ignore the steel industry. The Indian steel sector is very modern with state-of-the-art steel mills. It has always strived for continuous modernization and up-gradation of older plants and higher energy efficiency levels. These features of the industry have made India the world’s fourth largest producer of steel and the country is poised to move to second position in steel production in the next 10 years. The Indian steel industry is divided into primary and secondary sectors. The primary sector comprises a few large integrated steel providers producing billets, slabs and hot rolled coils. The secondary sector involves small units focused on the production of value-added products such as cold rolled coils, galvanised coils, angles, columns, beams and other re-rollers, and sponge iron units. Both sectors cater to different market segments.
Performance of the industry
India is the fourth-largest producer of crude steel (up from eighth in 2003) and is slated to become the second-largest steel producer by 2016, as large public and private sector players strengthen steel production capacity in view of rising demand. The market value of the Indian steel sector is expected to reach $95.3 billion by FY16. Driven by rising infrastructure development and growing demand for automotives; steel consumption is expected to reach 104 million tonnes (MT) by 2017. Meanwhile, the industry capacity is expected to increase to 112.5 million tonnes by FY16. Total domestic demand for steel estimated at 113.3 million tonnes per annum (MTPA) by 2016-17.
Production and Consumption
Real consumption of steel in the last fiscal stood at 76.35 million tonnes, an increase of 3.1 per cent over the year-ago period. Meanwhile, India’s total steel production rose by 3.3 per cent to 90.55 million tonnes in FY 15 as compared to 97.67 million tonnes in last fiscal. Of total, the integrated steel plants (SAIL, RINL, TSL and other ISP) together produced 46.48 million tonnes in 2014-15, which was a growth of 2.9 per cent compared to last year.
Hot metal production stood at 46.13 million tonnes, a rise of 7.3 per cent. Pig iron production clocked 22.1 per cent rise at 9.70 million tonne in FY15. The steel sector contributes nearly two per cent in the country’s GDP and employs over six lakh people. India has already overtaken the US to become the third- largest steel producer in the world with a production of 14.56 million tonnes in first two months of the year.
Imports and Exports Scenario
Domestic steel industry is going through tough times, mainly due to a decline in demand in China, the world’s largest steel producer. Importing steel from China was cheaper than producing it in India and this led to imports, especially in the second half of 2014. But since the first quarter (January-March), imports have been on decline, an assuring sign for the domestic steel industry. India’s steel imports jumped 51.6 percent to 0.76 million tonnes (MT) in April compared with the year-ago period. However, on a sequential basis, the imports declined 9.4 percent from March this year. Import of total finished steel, at 0.761 million tonnes in April 2015, saw a growth of 51.6 percent over April 2014 and decline by 9.4 percent over March 2015.
Meanwhile, India has imported 9.32 million tonnes (mt) of steel items in 2014-15, up around 71 per cent year-on-year. This has been the highest import of steel items in the past five years. However, the export of steel items dropped 8.1 per cent to 5.5 mt. The production of finished steel at 90.55 mt, was up 3.3 per cent, and consumption at 76.35 million tonnes increased by 3.1 per cent. The figures indicate reduction of insularity of the Indian steel market and increase in global competitive pressure.
Improving infrastructure development to boost steel demand
Infrastructure sector is the main growth deriver for steel industry in India as it accounts for around 60% of the total domestic steel consumption. Growing economy leading to increase in the flow of goods has spurred increases in rail, road and port traffic in India, necessitating constant improvements in country’s infrastructure. Further, country’s capacity to absorb and benefit from new technology and industries depends on the availability, quality and efficiency of more basic forms of infrastructure including energy, water and land transportation. Development of the infrastructure (construction) sector is crucial to the growth of Indian economy. In spite of steady performance of core industries (infrastructure index) over the past few years, India’s infrastructure facilities, including transport, sanitation and electricity, are still estimated to be inadequate for its population, thereby presenting a challenge for sustainable economic growth. However, the government of India is taking various measures to develop the country’s infrastructure. The Government has set a massive target for doubling investment in infrastructure to $1 trillion (Rs 40.9 trillion) during the 12th Plan period (2012–2017) from Rs 20.5 trillion in 11th five year plan. The recent spurt given to infrastructure sector is likely to drive the steel demand in the country.
Government initiatives
The Government has taken the following steps to make the steel industry globally competent:-
• An Inter Ministerial Group (IMG) has been setup in the Ministry of Steel for coordination and expediting implementation of various investment projects in the steel sector.
• A Project Monitoring Group (PMG) has been constituted under the Cabinet Secretariat to fast track various clearances / resolution of issues delaying the investments of Rs 1000 crore or more in the manufacturing / infrastructure sector including the steel sector. This would ensure that steel production capacities come up quickly and minimize cost and time over runs.
• To increase domestic value addition and improve iron ore availability for domestic steel industry, duty on export of iron ore has been increased to 30% and export duty at 5% ad-valorem has been imposed on export of iron ore pellets.
• The Government has reduced Special Additional Duty on import of melting scrap on iron and steel form 4% to 2% in the Union Budget 2015-16.
Investments in the sector
Steel industry and its associated mining and metallurgy sectors have seen a number of major investments and developments in the recent past. According to the data released by Department of Industrial Policy and Promotion (DIPP), the Indian mining and metallurgical industries attracted foreign direct investments (FDI) to the tune of $1,669.49 million and $8,527.34 million, respectively, in the period April 2000-February 2015.
Some of the major investments in the Indian steel sector:
• JSW Steel has announced to add capacity to make its plant in Karnataka the largest at 20 million tonnes by 2022.
• Tata Steel has planned to commission 3 million tonnes of capacity in its Odisha plant and plans to add another 3 million tonnes at the plant in near future.
• Iran has evinced interest in strengthening ties with India in the steel and mines sector, said ambassador of the Islamic Republic of Iran, Mr Gholamreza Ansari in his conversation with Minister of Steel and Mines Mr Narendra Singh Tomar.
• SAIL, the country’s largest steel maker, has charted investment of Rs 1,50,000 crore till 2025 to ramp up steel production from 24 million tonnes to 50 million tonnes.
Recent development
Steel Companies inks pact to set up SRTMI:
Major Indian Steel Companies have signed a memorandum of agreement with Ministry of Steel for setting up of Steel Research & Technology Mission of India (SRTMI) in New Delhi. It makes a new beginning in the R&D in steel sector of the country. The joint initiative of steel industry and government will definitely yield results, if same enthusiasm and spirit is maintained at all times. In a country like India where majority of population comprises of youth, steel industry can play a major role in creating employment. The SRTMI is an industry-led initiative in association with the Steel Ministry to promote collaborative research programmes in steel sector, which aims at increasing investment on Research & Development in the steel sector from present level of 0.2-0.3% of turnover progressively towards the international benchmark of 1-2% of turnover.
Steel Ministry facilitating special purpose vehicles with mineral-rich states:
The Steel Ministry is in the process of facilitating setting up of special purpose vehicles (SPVs) with mineral-rich states of Odisha, Chhattisgarh, Jharkhand and Karnataka. Besides, state-owned iron ore miner NMDC’s wholly-owned steel plant in Nagarnar (Chhattisgarh), which is being set up with an investment of Rs 15,525 crore, will be operational by December 2016.
Overseas projects of Steel PSUs
International Coal Ventures (ICVL), which is a consortium of Steel Authority of India (SAIL) and other promoter companies (i.e. Rashtriya Ispat Nigam, NMDC, Coal India and NTPC Ltd.), has acquired an operating coking coal mine and two other coal assets in Mozambique for $50 million as a strategic investment for ensuring long term security in supply of essential raw materials for the steel making promoter companies. 11 Indian nationals are presently employed in these projects. Meanwhile, NMDC has a Gold project in Tanzania, investments in Legacy Iron Ore, Australia and a joint venture company in South Africa. The total investment in these projects is around Rs 207 crore. 3 executives from NMDC are presently employed in these projects.
Outlook
India is expected to become the world’s second largest producer of crude steel in 2015-16, moving up from the fourth position, as its capacity is projected to increase from 100 million tonnes to about 112.5 million tonnes in 2016. Also, India has set an output target of 300 million tonnes of steel by 2025. Meanwhile, demand has started to pick-up at the ground level as enquiries are going up, orders are fructifying. Demand from auto and capital goods segment too are showing improvement. On the concern side, cheap Chinese steel has forced some domestic mills to cut prices and post losses in recent quarters. In order to cut losses in coming months, companies are taking various efforts on the cost front to maintain margins. Nevertheless, domestic steel prices are likely to go up by 5-10% during FY16 which will help steel companies to improve their margins.
