Ch 2: Growth and Evolution

Growth:

India’s finished steel production growth decelerated to 4.1 per cent in 2013-14
vis-a-vis 7.9 per cent in 2012-13 and 14.7 per cent in 2011-12. The deceleration
was led by poor growth in demand from the user industries and constrained
availability of the key raw material, iron ore. We expect the growth in finished
steel production to advance to 5.6 per cent in 2014-15.

India’s real consumption of finished steel grew by just 0.6 per cent in 2013-14,
according to Joint Plant Committee (JPC). Driven by rising infrastructure
development and increasing demand from the automotive industry, demand
for steel is expected to improve in 2014-15. We expect steel consumption in
India to grow by 5.5 per cent to about 78 mt in 2014-15.

The industry’s current installed steel manufacturing capacity is more than

sufficient to meet the projected demand. Besides, an additional 25.6 million
tonnes of capacity is lined up for commissioning during 2014-15. Hence, the
industry is expected to operate without any capacity constraint.

India largely imports its coking coal requirement from Australia. As per the
Bureau of Resources and Energy Economics, Australia, world’s metallurgical
coal prices are expected to decline by 5.5 per cent to average at USD 150 per
tonne for the year 2014. Production from a number of new and expanded
mines that have been commissioned recently, such as BMA’s Daunia and Rio
Tinto and Mitsui’s Kestrel mines in Australia, are expected to increase the
country’s coking coal output.

India is estimated to have turned net exporter of steel in 2013-14. It is likely to

maintain the momentum in 2014-15 as producers are contemplating increasing
exports against the backdrop of huge capacity additions and moderate growth
in consumption. India’s steel exports are expected to be around 9.3 mt in
2014-15, as against imports of 6.5 mt.

1) Introduction
India is the world’s third-largest producer of crude steel (up from eighth in
2003) and is expected to become the second-largest producer by 2016. The
growth in the Indian steel sector has been driven by domestic availability of
raw materials such as iron ore and cost-effective labor. Consequently, the steel
sector has been a major contributor to India’s manufacturing output.

The Indian steel industry 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.

 Market Size:

Steel production capacity of the country expanded from about 75 Million

Tones Per Annum (MTPA) in 2009-10 to about 90.5 Million Tones (MT) in 2014-
15.

India produced 7.4 MT of steel in the month of June 2015 reporting the third
highest production level globally which was 0.8 per cent higher than the
country's steel production in the same month last year.

The steel sector in India contributes nearly two per cent of the country’s gross
domestic product (GDP) and employs over 600,000 people. The per capita
consumption of total finished steel in the country has risen from 51 Kg in 2009-
10 to about 59 Kg in 2014-15. India's steel consumption for FY 2015-16 is
estimated to increase by 7 per cent, higher than 2 per cent growth last year,
due to improving economic activity, as per E&Y's 'Global Steel 2015-16' report.

 Investments:

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 metallurgical industries attracted foreign direct
investments (FDI) to the tune of US$ 8.7 billion, respectively, in the period April
2000–May 2015.

Some of the major investments in the Indian steel industry are as follows:
Posco Korea, the multinational Korean steel company, has signed an
agreement with Shree Uttam Steel and Power (part of Uttam Galva Group) to
set up a steel plant at Satarda in Maharashtra.

SAIL plans to invest US$23.8 billion to increase the steel production to 50

MTPA by 2025.

ArcelorMittal, world’s leading steel maker, has agreed a joint venture with
Steel Authority of India Ltd (SAIL) to set up an automotive steel manufacturing
facility in India.

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.

Public sector mining giant NMDC Ltd will set up a Greenfield 3-million tone
per annum steel mill in Karnataka jointly with the state government at an
estimated investment of Rs 18,000 crore (US$ 2.8 billion).

JSW Steel has announced to add capacity to make its plant in Karnataka the
largest at 20 MT by 2022.

 Government Initiatives:

The Government of India is aiming to scale up steel production in the country

to 300 MT by 2025 from 81 MT in 2013-14.

The Ministry of Steel has announced to invest in modernization and expansion

of steel plants of Steel Authority of India Limited (SAIL) and Ashtray I spat
Nigam Limited (RINL) in various states to enhance the crude steel production
capacity in the current phase from 12.8 MTPA to 21.4 MTPA and from 3.0
MTPA to 6.3 MTPA respectively.

The Ministry of Steel is facilitating setting up of an industry driven Steel

Research and Technology Mission of India (SRTMI) in association with the
public and private sector steel companies to spearhead research and
development activities in the iron and steel industry at an initial corpus of Rs
200 crore (US$ 31.67 million).
  Some of the other recent government initiatives in this sector are as
follows:

Government has planned Special Purpose Vehicles (SPVs) with four iron ore
rich states i.e., Karnataka, Jharkhand, Orissa, and Chhattisgarh to set up plants
having capacity between 3 to 6 MTPA.

SAIL plans to invest US$ 23.8 billion for increasing its production to 50 MTPA
by 2025. SAIL is currently expanding its capacity from 13 MTPA to 23 MTPA, at
an investment of US$ 9.6 billion.

A Project Monitoring Group (PMG) has been constituted under the Cabinet
Secretariat to fast track various clearances/resolution of issues related to
investments of Rs 1,000 crore (US$ 152 million) or more.

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
per cent.

Innovation potential:

Indian steel update

India is currently the fourth-largest producer of steel after China, Japan and
the US. Rising domestic demand by sectors such as infrastructure, real estate
and automobiles has put the Indian steel industry on the world map. Growth in
the private sector is expected to be boosted by new policies on Make in India,
import of foreign technology and foreign direct investment (􀀾DI). The
Government has mooted a perspective plan to boost domestic steel capacity
to 300mt per annum by 2025. In tandem, with a strong economic outlook and
plans to expand steel production, it is likely that India will be on a fast track
growth path in steel production to be the second-largest steel producer within
a few years. Indian steel companies have made investments of US$35.4billion
over the last seven years, 7 and after inordinate delays on account of regulatory
constraints; the worst in the Indian steel sector appears to be over. We should
see the rate of project execution and commissioning pickup, aided by new
Policy measures and a supportive regulatory environment.
Comparing India’s growth to China in terms of per capita steel
Consumption and GDP per capita PPP, Indian steel production
Could pick up signi􀀾cantly in the near future.
Steel demand in India is showing signs of rebounding after the
Slowdown of the last two years. Cyclicality might be at work,
But key demand trends are looking encouraging:

 Automotive sales growth has rebounded strongly in

20142014.

 Inflation has moderated, giving comfort that interest rate

Cuts are around the corner.

Industrial production and GDP are recovering.

In 2014, India’s steel consumption is forecast to grow 5% to 83mt and by
another 4.8% to 87mt in 2015. Government investment in public infrastructure
projects, including dedicated freight networks and ongoing rapid urbanization,

Will underpin this growth. To cater to this rising demand, Indian steel players
have made heavy investments over the last two to three years. Indian steel
capacity is, therefore, expected to rise from 99mt in 2013 to about 125mt in
2016, registering a CAGR growth of 8.8%. Simultaneously, production and
consumption of steel is expected to increase by a CAGR of 5.2% and 5.6%,
respectively, over 2013–16E. The less-than-proportionate rise in domestic
demand may lead to deterioration of capacity utilization rates intermittently.8
The recent Supreme Court decision to de-allocate the coal blocks has created
disruption in the coal supply chain for captive power and coking coal. However,
following the judgment, the Government is moving quickly on allocation of
mines on a competitive bidding basis. There has been an increase in exports
from China to India. Annualizing the current imports per month, India will be
importing about 4mt in 􀀾Y15E, making up about 5% of total steel production in
the country. Since there is no strict antidumping policy, these imports have the
potential to impact domestic pricing and plant utilization rates signi cantly.

Technological innovation

As the global steel sector remains fragmented, with the top global companies
accounting for only 17% of all crude steel production in 2013, steel operators
are always vulnerable to new market entrants. As a result, operators are
seeking to use innovation as a tool for differentiation and extension of their
competitive position.

Economic conditions of steel industry;

Global Scenario:

In 2014, the world crude steel production reached 1665 million

tones (mt) and showed a growth of 1% over 2013.

China remained the world’s largest crude steel producer in 2014

(823 mt) followed by Japan (110.7 mt), the USA (88.2 mt) and India
(86.5 mt) at the 4 th position.

WSA has projected Indian steel demand to grow by 6.2% in 2015

and by 7.3% in 2016 as compared to global steel use growth of 0.5%
and 1.4% respectively. Chinese steel use is projected to decline in
both these years by 0.5%.

Per capita finished steel consumption in 2014 is estimated at 217 kg

for world and 510 kg for China by WSA.
Domestic Scenario

 The Indian steel industry has entered into a new development stage
from 2007-08, riding high on the resurgent economy and rising demand
for steel.
 Rapid rise in production has resulted in India becoming the 3 rd largest
producer of crude steel in 2015 and the country continues to be the
largest producer of sponge iron or DRI in the world.
 As per the report of the Working Group on Steel for the 12 th Five Year
Plan, there exist many factors which carry the potential of raising the per
capita steel consumption in the country. These include among others, an
estimated infrastructure investment of nearly a trillion dollars, a
projected growth of manufacturing from current 8% to 11-12%, increase
in urban population to 600 million by 2030 from the current level of 400
million, emergence of the rural market for steel currently consuming
around 10 kg per annum buoyed by projects like Bharat Nirman,
Pradhan Mantri Gram Sadak Yojana, Rajiv Gandhi Awaas Yojana among
others.
 At the time of its release, the National Steel Policy 2005 had envisaged
steel production to reach 110 million tonnes (mt) by 2019-20. However,
based on the assessment of the current ongoing projects, both in
Greenfield and Brownfield, the Working Group on Steel for the 12 th
Five Year Plan has projected that domestic crude steel capacity in the
county is likely to be 140 mt by 2016-17 and has the potential to reach
149 mt if all requirements are adequately met.
 The National Steel Policy 2005 is currently being reviewed keeping in
mind the rapid developments in the domestic steel industry (both on the
supply and demand sides) as well as the stable growth of the Indian
economy since the release of the Policy in 2005.

Production
  Steel industry was de-licensed and de-controlled in 1991 & 1992
respectively.
 Today, India is the 3 rd largest producer of crude steel in the world.
 In 2014-15, production for sale of total finished steel (alloy + non alloy)
was 91.46 mt, a growth of 4.3% over 2013-14.
 Production for sale of Pig Iron in 2014-15 was 9.7 mt, a growth of 22%
over 2013-14.
 India is the largest producer of sponge iron in the world with the coal
based route accounting for 90% of total sponge iron production in the
country.

Industrial Trade Policy:

The New Industrial Policy Regime:

The New Industrial policy opened up the Indian iron and steel
industry for private investment by (a) removing it from the list of
industries reserved for public sector and (b) exempting it from
compulsory licensing. Imports of foreign technology as well as
foreign direct investment are now freely permitted up to certain
limits under an automatic route. Ministry of Steel plays the role of a
facilitator, providing broad directions and assistance to new and
existing steel plants, in the liberalized scenario.

The Growth Profile:

(I) Steel: The liberalization of industrial policy and other initiatives taken by the
Government have given a definite impetus for entry, participation and growth
of the private sector in the steel industry. While the existing units are being
modernized/expanded, a large number of new steel plants have also come up
in different parts of the country based on modern, cost effective, state of-the-
art technologies. In the last few years, the rapid and stable growth of the
demand side has also prompted domestic entrepreneurs to set up fresh
Greenfield projects in different states of the country.

Crude steel capacity was 109.85 mt in 2014-15 and India, which emerged as
the 3 rd largest producer of crude steel in the world in 2015 as per ranking
released by the WSA, has to its credit, the capability to produce a variety of
grades and that too, of international quality standards. The country is expected
to become the 2 nd largest producer of crude steel in the world soon, provided
all requirements for creation of fresh capacity are adequately met.

(ii) Pig Iron: India is also an important producer of pig iron. Post-liberalization,
with setting up several units in the private sector, not only imports have
drastically reduced but also India has turned out to be a net exporter of pig
iron. The private sector accounted for 91% of total production for sale of pig
iron in the country in 2014-15. The production for sale of pig iron has increased
from 1.6 mt in 1991-92 to 9.7 mt in 2014-15.

(iii) Sponge Iron: India is the world’s largest producer of sponge iron with a
host of coal based units, located in the mineral-rich states of the country. Over
the years, the coal based route has emerged as a key contributor and
accounted for 90% of total sponge iron production in the country. Capacity in
sponge iron making too has increased over the years and stood at 46.23 mt in
2014-15.

Demand Analysis:

Demand determination:

Price:

Income:
Replacement:

Product: