High raw material costs take the sheen off stainless steel industry

High raw material costs prove a major hindrance in producers' efforts to increase per capita use

In both carbon and stainless steel, per capita use in India trails the world average of 208 kg and 6kg, respectively by distressingly long margins. The country’s continuing disappointing record in the application of steel, particularly away from urban centres is because only a handful of companies in the private and public sectors are engaged in aggressive market promotion. The national steel policy has formulated a strategy to lift the per capita consumption of steel from the present 62 kg to 160 kg by 2030-31. No doubt, this will be a good crack at raising steel application. But our 2030-31 use target will still be way behind the current world average of 208 kg.

As for stainless steel, India with an output of 3.6 million tonnes (mt) in 2017 holds the second position in the chart of producing nations next to China which made 25.77 mt or 53.59 per cent of world production of 48.08 mt. The joint plant committee of steel ministry says Indian demand will climb to 5.6 mt by 2022. In anticipation that --  on account of its special attributes of anti-corrosion, excellent strength-to-weight ratio, ductility, aesthetic appeal and a very long maintenance-free life --  the application of stainless steel will grow rapidly beyond traditional kitchenware, the industry has taken capacity to close to 6 mt.

In the industry’s capacity-building drive, Jindal Stainless Limited (JSL) has stayed in the forefront with combined capacity of 1.6 mt at its two plants at Jajpur in Odisha and Hisar in Haryana. “Our strategy is to grow capacity at Jajpur in phases and use our Hisar unit for developing special grades of stainless steel that will lead to import substitution and at the same time give JSL the benefits of making high margin products. By this financial year end, our melt capacity at Jajpur will be up to 1.1 mt from 800,000 tonnes through debottlenecking. We have land and infrastructure to make Jajpur finally a 3.2 mt plant,” says JSL managing director Abhyuday Jindal.

In the meantime, a major development in the local industry is the start of construction of a 2 mt integrated stainless steel unit in Gujarat by China’s Tsingshan Holding Group that will claim an investment of Rs 150 billion. The plan is to make mainly 304 series hot-rolled products as well as cold-rolled items for selling in India and in east and southeast Asia where the demand growth is outpacing that in the rest of the world. Based on expectations that India’s rapid economic growth could only brighten the outlook for stainless steel production and demand, Tsingshan entertains high hopes for the $2.3bn venture that will likely come on stream in five to six years.

The Chinese company’s bullishness about India finds confirmation in Jindal’s observation that “the country’s use of stainless steel should continue to grow at an annual rate of over 10 per cent” as the metal is finding increasing application in architecture, building and construction (ABC) and automotive, railway and transport (ART) sectors.  Jindal is hopeful that it will not take India many years to catch up with global average per capita use of stainless steel. But what at the same time is not to be lost sight of is China’s per capita use of 14.35 kg and double of that in some developed economies.

Stainless steel is three times more expensive than carbon steel. Shouldn’t that be a hindrance in promoting the use of stainless steel in areas where cost often overrides other considerations? “Food, dairy, pharmaceutical and distillery industries are mandatorily required to use stainless steel. But for application in other areas, stainless steel stands to win hands down if only the users will go by life cycle cost norms. On sustainability grounds too, stainless steel scores high since it is 100 per cent recyclable and it retains all its properties on recycling,” says Jindal. In the making of stainless steel through high-powered electric arc furnaces, the principal feedstocks are stainless steel scrap and ferronickel. For such scrap, the country is almost 75 per cent dependent on imports, scrap generation here being small. This is because use of the metal beyond kitchenware has started gaining in pace only in the past one decade whereas its life is over 30 years. India’s scrap imports rose to 892,598 tonnes in 2017-18 from 796,586 tonnes in the previous year.

An import duty of 2.5 per cent on scrap has put local manufacturers of the metal at a cost disadvantage of about Rs 1,500 a tonne vis-a-vis China and other producing nations from where there is a major inflow of stainless steel in India defying a slew of tariff barriers. Metal imports have rendered a large chunk of the local industry capacity idle. Incidentally, stainless steel makers in China, South Korea and the European Union have the benefit of nil import duty on scrap. As if this was not enough, the industry here also has to bear an import duty burden of 2.5 per cent on ferronickel, imports of which jumped to 155,318 tonnes last year from 62,769 tonnes in 2016-17.

All industry pleadings for waiver of import duty on scrap and ferronickel have not yielded any result. But there is now hope. Steel secretary Aruna Sharma says: “Logic supports the relief that the industry wants. After detailed scrutiny, our ministry has forwarded the recommendation for zero import duty on scrap and ferronickel to the finance ministry.” Sharma feels that total duty waiver on the two major raw materials will give Indian stainless steel makers the wherewithal to restrain imports. What, however, defies logic is as to why basic customs duty (BCD) on stainless steel flat products be at 7.5 per cent when it is 12.5 per cent on other steel products. BCD on flat stainless steel ranges from 10 per cent in China to as high as 14 per cent in Brazil.

As the industry waits for relief, Sharma thinks capacity utilisation will get a major boost if the Indian cities will install stainless steel pipeline for water distribution as Tokyo and Seoul have already done and builders in the country’s long coastline of 7,517 km will start using stainless steel rebars. In agreement with Sharma, Jindal says the use of stainless steel pipes will cut “water leakage from 40 to 2 per cent and the pipes will remain maintenance free for over 30 years.” Similarly, the use of stainless steel rebars should prolong the life of structures for up to 125 years.