Is it time to get real about India's steel plans?

The government may struggle to find 91,000 acres of land to pack new 175 mt capacity

By any reckoning, it will be an uphill task for India to build steel capacity of 300 million tonnes (mt) by 2030 against the current 125 mt or so. In fact, if any proof of that is needed, the confirmation came from the government itself when earlier in the year the steel policy was revised principally to give the industry an extra five years to achieve the targeted capacity. 

The roadblocks to achieving the ambitious 300 mt capacity that will put India well ahead of every other major steel producing country except China are one too many. 

But the main hurdle will be to find 91,000 acres of land to pack new 175 mt capacity to be built both by way of expansion of operating mills and setting up of green-field ventures. The revised policy says the steel ministry will “coordinate” with state governments where new mills are proposed for “timely availability of litigation-free lands.” The proof of effectiveness of the Centre-state coordination will be in allocation of big parcels of land in single lots for mills to be built using the blast furnace-basic oxygen furnace (BF-BOF) route. 

Two examples can be cited to show that even when in possession of land, agitations by locals, often inspired by vested interests, either lead to exit of promoters or cause unconscionable delays in the project. One, South Korean Posco, which proposed to build a 12 mt steel complex in Paradip in Odisha employing Finex technology that dispenses with the use of coking coal and lump iron ore, recently told the state government to take back the 2,700 acres given to it for the project. This was another major blow to foreign direct investment (FDI) in steel. Earlier, the world’s biggest steel group, ArcelorMittal, too had abandoned its mega Odisha project citing, among other reasons, opposition from local residents holding back land acquisition. 

Two, it took a decade for Tata Steel since the signing of an MoU with the Odisha government to commission the 3-mt first phase of the 8-mt mill at Kalinganagar. Delays were caused by long protests, which would often turn violent. 

Taking a different route

Not many will have the patience and negotiating skills of Tata Steel to overcome the Kalinganagar kind of resistance. Capacity building by way of greenfield BF-BOF integrated steel plant (ISP) route having proved highly time consuming, “rapid growth should be beckoning secondary steel producers (SSPs) by way of installation of electric arc furnaces (EAF) and electric induction furnaces (EIF) in different parts of the country,” says Deependra Kashiva, executive director of Sponge Iron Manufacturers Association (SIMA). 

The principal advantage of making steel through the secondary route is that land, and also capital requirement, is much less than what BF-BOF entails. Since there is no use of coke in secondary steelmaking, space need not be provided for coke oven batteries where metallurgical coal is converted into coke. The principal feedstock for EAFs and EIFs in India is direct reduced iron (DRI), also known as sponge iron. This intermediate material is produced by way of direct reduction of iron ore, which may come in the form of lump, fines or pellets, to iron by a reducing gas secured from natural gas or non-coking coal. India has both coal and gas-based sponge-iron-making capacity, but a lot more of the former.  

The other feedstock for EAFs and EIFs is scrap. With scrap imported from the US, UAE and Europe, quality is not an issue — fluctuation in prices is. India imported an estimated 6.25 mt of scrap in 2016. But the scrap of local origin is invariably of indifferent quality with tramps such as antimony, lead, arsenic and tin found in it in unacceptable degrees. This cannot be otherwise since what is available locally is a mix of discarded automobiles, electrical machinery and factory rejects. 

Tramps disturb surface quality and mechanical properties of steel products. No wonder, then, with supply of steel from local mills growing at a much higher rate than consumption, secondary producers will be at a disadvantage if they slip on quality. The steel market with supply abundance is increasingly demanding higher quality. 

This then should work to the advantage of sponge iron makers who at this point are utilising less than 40 per cent capacity. Explaining why DRI, an important component of secondary steelmaking, has the potential to replace scrap, an industry official says: “Compared with scrap, DRI is virtually free from tramp elements. It is an iron source uniform in composition. Moreover, it has an associated energy value in the form of combined carbon, which boosts furnace efficiency.” 

The Indian steel industry has a unique profile in terms of diversity of production routes. At the beginning of 2017, ISPs with 50 mt had a 40 per cent share of the total industry capacity, EAFs with 36 mt had a 29 per cent share and EIFs with 38 mt had a 31 per cent share. The country has about 1,400 rerolling units which make ready-for-use steel products, mainly TMT bars from semi-finished steel bought from ISPs and SSPs. 

The funding constraints

The 2017 policy promises to brave out the challenges of mobilisation of natural resources, finance, infrastructure and skills to achieve the 300 mt capacity target over the next 13 years. But how will banks be enthusiastic about any further major exposure to the sector when steel remains among the biggest contributors to their non-performing assets?

Moreover, a weak market over the years has weakened the ability of public sector steelmakers to mobilise funds to support the capacity growth expected of them. Even now when global steel outlook has improved, Indian producers are finding it hard to transact business after prices are raised. 

The policy has left it for further discussion as to what will be the respective share of the primary and secondary sectors in the targeted steel capacity. Policy-makers want to know for sure to what extent the HIsmelt technology, developed by Rio Tinto, and Posco’s Finex process will finally find application in India. The two technologies, which allow making of iron with iron ore fines and non-coking coal as feedstock, are ideal for India, which is becoming increasingly dependent on coking coal import to support operation of BF-BOF units, says RK Sharma, secretary general of Federation of Indian Mineral Industries.