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Fulfilling India's ambitions

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India’s steel secretary Aruna Sharma is making a strong pitch to dispel misgivings by steel consumers that under pressure from local steelmakers the government will protect them from foreign competition by putting high tariff barriers in place.  “The steps taken so far by way of safeguard duty, minimum import price and finally anti-dumping duty on 127 steel items for a period of five years are all in response to injuries caused to local producers by imports at less than production costs in countries of origin. Our tariff initiatives
are all WTO compliant,” Sharma told Metal Market Magazine.

She says that the country is committed to free trade in steel, which is “proved by our exporting nearly 10% of our production and importing 9% of our consumption.” Between April and November of financial year 2017-18, India’s exports were up year-on-year by 57.1% to 6.639 million tonnes and imports  by 16.9% to 5.534 million tonnes.  The period saw the country increasing production of finished steel by 5.1% to 69.604 million tonnes. Under the twin disruptive impacts of demonetisation and the introduction of goods and services tax, steel consumption grew by only 4.2%.

Both Steel Authority of India Limited (Sail)chairman P.K. Singh and Tata Steel managing director T.V. Narendran consider low demand growth in the first eight months of 2017-18 to be a blip. But steel demand, according to them, will improve significantly as a result of the government finally giving a major push to infrastructure projects.

“The country is targeting a high rate of sustainable economic growth. To make that happen, it has to overcome infrastructure deficit. In infrastructure projects, 40-50% spending will be on steel. That should propel the growth of steel industry,” says Sharma.

The steel policy announced in May last year has given the industry a target to achieve a 300 million tpy capacity and production of 255 million tonnes by 2030-31, leading to a “robust per capita consumption of 158 kg.” No less ambitious is a policy direction that the industry should acquire world class technology by way of its own R&D and foreign collaborations. The objective is to meet the country’s growing requirements for high-grade automotive, electrical and special steels by domestic production.

Sharma is dismissive of those questioning the achievability  of policy targets on grounds of difficulties in land acquisition, protests by locals facing eviction and the states no longer in a position to offer iron ore deposits as an encouragement to investors in the new regime of compulsory auctioning of all natural resources. “We are in the process of taking our steel capacity to 151 million tonnes by 2020 from 126 million tonnes now.  From my interactions with managements of integrated steel mills, electric arc and induction furnaces, I’m convinced that we are on course to achieve the 2030-31 capacity target. Simultaneously, iron ore mining and ferro-alloys production in the upstream will be raised to meet full future demand of steelmakers,” says Sharma.

The government says that it will stand by the industry in its pursuit of major capacity growth by ring-fencing it from “predatory imports.” In defense of tariff measures, Narendran says the industry has every right to seek protection for its massive investments in capacity building. His stand is particularly relevant since Tata Steel has committed an investment of $3.667 billion to expand the capacity of its steel complex in Orissa’s Kalinganagar by 5 million tpy to 8 million tpy in four years. Kalinganagar’s expansion is designed to meet the country’s growing demand for top-grade automotive and other high-value-added flat-rolled steel. It is part of the company’s plan to double capacity to 26 million tpy in the next five years.

Acquisitions
After the merger of its European steel business with ThyssenKrupp, Tata Steel’s “strategic priority” is to rapidly grow capacity in India with a focus on making the steels for which the country is import-dependent. Chairman Natarajan Chandrasekaran says: “The company is open to both organic and inorganic growth.” Tata Steel will be in competition with other bidders for the 10 million tpy Essar Steel.

A number of heavily indebted Indian steel groups are facing insolvency proceedings. Encouragingly for lenders, well performing steel companies such as JSW Steel have emerged as a potential buyer of insolvent groups. In addition to its quest for acquisition, JSW has formed a subsidiary to fast track the building of a 12 million tpy mill along with a 900 MW power plant, a 32 million tpy pellet plant and a captive port – all at Paradip in Orissa.

Sail, which will be completing its $11.25 billion modernization and expansion program this year, has yet to decide whether it should join the trend for acquisition. “Our priority now is to give a push to making value-added differentiated products that will command premium prices. We have a target to completely phase out production of semis that now constitute over 10% of our steel sales in the next three years,” says Singh.

As steel supply exceeds demand, Sail has realized the importance of last-mile connectivity. “We shall have a chain of service centers across the country to offer end-consumers steel in sizes that they need,” says Singh. But all this work will not be a distraction for Sail to pursue its goal of becoming a group with a capacity of over 50 million tpy by 2030-31.

By: Kunal Bose


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