People And Their Problems

New Delhi, 20 January 2007

Steel Industry

Ambitious Expansion Plans Ahead

By Dhurjati Mukherjee

Steel has been in the news. This exceptionally versatile metal has developed over the years and its industrial and other usages have increased greatly. Delving into history, one finds that the first great steel industries of Britain, Germany and the United States of America were based on and located near their iron ore and coal mines. But, by the later half of the 20^th century, they had largely run out of iron ore. Similarly, the Soviet bloc countries believed steel was a foundation of socialism and built-up over-sized steel industry.

Growing competition has led to the consolidation of industries in the old industrial countries. Primary steel producers have been buying local mills to use them fir re-rolling ingots. In India, the Tatas have been quite active in this regard. In recent times, China emerged as the biggest producer making a third of the world’s steel.     

In consonance with projected 8+ per cent GDP growth rate targeted for the next decade, the country’s metal production industry, particularly steel, is expected to grow at a blistering 10 per cent annually. After Australia and China, India is destined to become a major steel manufacturer in the international scenario. The agreement signed by Pohang Steel Company (Posco), the world’s fifth largest steel maker, to set up a $ 12 billion (Rs 51,000 crores) steel plant in Orissa, is a case in point as it will turn out 12 million tonnes of steel compared to SAIL’s present production of 13 million tonnes.

After the first phase of the project is completed in 2010, the company will produce 4 million tonnes of steel and the entire project will be completed in 2016 with the production reaching 12 million tonnes. The investment deal is significant in the history of world’s steel industry as it is the first time that a steel maker is building an integrated steel plant adopting the Finex technology, which is the next generation eco-friendly iron-making process that allows the direct use of cheap iron ore fines and non-coking coal feedstock. However, the project has also generated some controversy as the Korean company has been allowed to export 30 per cent of the 600 metric tonnes high alumina-content iron ore allotted to it.

All this clearly shows that India has emerged as a major player in the world steel industry. With iron ore reserves of 13 billion tonnes – 4 per cent of global resources – India ranks fifth in the world after China, Japan, the USA, Russia and South Korea. Jharkhand, Orissa and Chattisgarh, among themselves, account for 57 per cent of the reserves in the country. However, most of this has gone untapped so far.

Apart from the abundant ore reserves, the country’s other attraction is its geographical proximity to China, which consumes one-fourth of the one billion tonnes of steel the world produces every year. Moreover, India is well equipped with technology, management and scientifically qualified manpower to meet the challenges of steel making in the coming decades. As such, global majors like Mittal Steel, Pohang Steel of South Korea and Bao Steel of China are queuing up to invest in India while domestic players are also seriously exploring the need to increase capacity.

According to experts, Indian production, currently 42 million tonnes, will touch 80-110 million tonnes by the year 2015 if the 8 to 10 per cent growth is achieved. The Ministry of Steel has however set a modest target of 100 million tonnes by 2020. Meanwhile, the merger of IISCO with SAIL should further boost up the steel major and help the integrated company could go in for further expansion and development.

Around Rs. 5000 crores will be invested in Burnpur and about Rs. 2800 crores in IISCO’s collieries and iron ore mines. Chiria mines, Asia’s largest ore reserves, will soak up a little over Rs. 2000 crores but its rich reserves could raise the capacity of Bokaro Steel plant to 10 million tonnes, according to SAIL Chairman, V. S. Jain. This could rival Mittal’s plans to set up a 10 million tonnes mill at Chaibasa in Jharkhand.

There are also plans of SAIL’s merger with Vizag Steel to create an entity that will immediately place the new Indian steel-making giant among the world’s top 10 in terms of manufactured steel. If this matures, the combined turnover of the two behemoths will be in the region of Rs 38,000 to Rs. 40,000 crores or nearly $ 10 billion with a crude steel production of 15.8 million tonnes presently which may go up substantially in the coming tears because of already finalized expansion programmes of Vizag Steel.

Meanwhile, Tata Steel is planning to set up three Greenfield facilities in Orissa, Chattisgarh and Jharkhand. These facilities would have an aggregate capacity of 23 million tonnes and that the units coupled with other strategic acquisition opportunities could see the company invest Rs. 70,000 crores in the next decade. Tata Steel has plans to attain global scale with output exceeding 30 million tonnes. 

One may mention here that over the Plan periods, steel has been accorded the pride of place in our planning strategy. The strategy has been to increase production and productivity through modernization, expansion and induction if new technology. Modernization has been more or less completed in the public sector steel plants while the private ones are also being encouraged to induct technology to compete in the international market. And the development of ultra high-powered electric-arc furnaces and reliable continuous-casting machines provide a low-cost route for the production of such structurals. In fact, there is lot of emphasis on R&D to improve quality standards and become cost competitive in the international market.

With increase in production, the demand of ore is expected to reach around 150-160 million tonnes with another ten years or so. Current production figures match that as domestic producers consume around 50-60 million tonnes. But whether exports of ore in future would be allowed is very much on the Centre’s agenda. “There is a strong case to protect the resources for the domestic industry”, an expert on mineral industry pointed out, while also maintaining that the decision to allow Pohang to export ore from India every year may not be a correct decision. “With the existing consumption, the proven reserves might last another 50 years”.

One of the demands of the steel industry has been that iron ore should be given to steel plants exclusively for captive mining. The main justification is that the iron ore reserves in the country being limited, these are needed by the growing domestic industry. The Government has been trying to formulate rules to curb the rich States’ power to dole out preferential treatment to companies, which set up plants within their territories. It is understood that the Hoda Committee would not allow such incidents to be replicated. However, it is quite clear that the three ore-rich States cannot be prevented from promoting steel plants in their own States rather than allowing parties to set up plants in other States. The Jharkhand Chief Minister recently regretted that though the State has 37 per cent of the country’s mineral resources, 54 per cent of the people are below the poverty line.

The importance of steel in the country’s growth cannot be doubted. It is thus imperative that in any strategy about the steel sector, the following needs to be seriously considered: the future demand for ore as more and more producers, both Indian and foreign, are attracted to set up units; prospects of encouraging domestic producers, specially the PSUs, to increase production for export; seeking tie-ups with foreign firms for both production and export; and formulating plans for employment generation, thereby gearing up development and alleviating poverty in the ore-rich States of Jharkhand, Orissa and Chattisgarh.

As is agreed by one and all that in this age of industrialization, steel has a crucial role to play. The demand for steel is increasing worldwide at an annual rate of 7 to 8 per cent per annum while production is likely to increase by 4-5 per cent, according to a report released by the Associated Chamber of Commerce & Industry. Steel consumption is expected to grow especially in the newly independent states of the former Soviet Union as well in OECD (Organization of Economic Cooperation & Development) economies. Moreover, steel prices have at a quite time high having increased by around 250 per cent over the last two years. Experts feel that it would increase further in the coming years because of higher input costs and other factors.

India has the potential to become the second or third largest steel-producing nation in the world and optimists believe that it should be possible to achieve it in the next 15-20 years or so. The country should take advantage of its rich reserves and, instead of exporting ore, evolve plans to export the end product for higher gains. There is huge potential for India to tap the Asian and African markets for increasing exports of steel products and this has to be pursued in the coming years. However, to compete globally in a big way, there is need to be give more attention to R&D in the steel sector so that Indian products could compete favourably with those from Japan, South Korea and China.

It is expected that the National Steel Policy, which is eagerly awaited, would take into consideration the above facts while envisaging the 110-million tonnes target set for the year 2020. Investments of around Rs. 230,000 crores would be required to step up the output to the projected level though, of course, 10 lakh direct and indirect jobs will be generated. In the coming years, the international community will be keenly watching policies from India and China, two major steel markets with high growth potential.---INFA

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