India's Steel Industry Prepares for Massive Growth

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Researched by Industrial Info India (Delhi, India)--The Indian steel industry is poised for major growth in the next 10 years. India's Ministry of Steel believes that India could become the second-largest producer of crude steel in the world by 2015-16. The National Steel Policy (NSP), drafted in 2005, forecasts a compound annual growth rate (CAGR) of 7.3% per year in steel sector through 2019-20. The NSP estimates that India will produce 110 million tons of steel by 2019. The policy suggests that India will import 2 million tons, export, 4 million tons and consume 90 million tons.

There are three major driving factors for growth in the steel industry: increased demand within the country, a robust growth of industrial and infrastructure sectors, and a huge opportunity for exports. The estimated urban per capita consumption, which is about 77 kilograms, is expected to reach 165 kilograms in 2019-20, an annual CAGR of 5%. Growth is expected in construction, automobile manufacturing, oil and gas transportation, and infrastructure development. The growth of export steel from India has been about 10% for the past decade. It is expected to reach about 13% in the coming decade. The government wishes to encourage strategic alliances with buyback arrangements and dedicated export production through 100% export-oriented units.

The majors drivers of growth in the rejuvenated Indian steel industry are domestic and foreign steel majors undertaking projects that are either under implementation or in the proposal stage. These include both greenfield and brownfield projects across the country.

The major steel companies that are either constructing or expanding existing capacities in the public and private sector, with an estimated investment of $238 billion, are Tata Steel Limited (BSE:500470) (Mumbai), Steel Authority of India Limited (BSE:500113) (New Delhi), Rashtriya Ispat Nigam Limited (Visakhapatnam), POSCO India (Bhubaneswar, Orissa), JSW Steel Limited (BSE:500228) (Mumbai), Arcelor-Mittal (NYSE:MT) (Luxemburg) and others. These projects are part of more than 200 memoranda of understanding signed by various states for capacity addition of around 276 million tons.

In order to support production of 110 million tons by 2019, the Indian Steel industry would have follow these broad production requirements :

• Iron ore - 190 million tons per year
• Coking coal - 70 million tons per year
• Non-coking coal - 26 million tons per year

To ensure the availability of 190 million tons of iron ore, the government intends to create additional mining capacity of about 200 million tones. The government will continue the policy of captive mining leases for private players.

Because of the poor quality of prime coking coal in India, domestic production has to be blended with imported coal. Currently the steel industry imports about 19 million tons of coking coal annually, and procures 7.5 million tons from indigenous sources, including captive mines. By 2019-20, about 70 million tons of coking coal will be required, of which 85% will have to be imported.

The government will have to make the coal sector more market driven and provide captive coal blocks to steel plants. There has been a decline in the production of non-coking coal in India. The growth rate of coking coal production has fallen from 6.5% in the 1980s to 4.7% currently. The power plants are thus planning to import large quantities of thermal coal.

Thus, major trends in the Indian steel industry seem to be:

• Investments in research and development in the steel industry will rise substantially.
• The government will take a proactive position to ensure policy implementation.
• In order to attain the required additional steel production capacity, the government will require $51 billion. The government will encourage direct foreign investments to attain this amount.
• The government will encourage modernization of the steel industry to achieve high levels of efficiency and productivity.
• The government will facilitate the creation of additional capacity and remove procedural and policy bottlenecks for the availability of inputs such as iron ore and coal.
• The Indian steel industry will have major cost advantages due to cheap labor and a low cost of production.

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