Indian refractory makers with a turnover of around a billion dollar are the David compared with the Goliath of the steel industry. The industry’s largest Steel Authority of India Ltd (SAIL) alone is nearly a $10-billion enterprise. But unlike in the case of David, refractory makers do not have the benefit of divine intervention. It is, therefore, not surprising that they find it eternally frustrating to include incremental costs on raw materials account in their product prices.
Steel groups do complain all the time about escalating prices of iron ore and metallurgical coal. For the former, they are largely import dependent. They, however, end up footing the inflated bill for such inputs at a time when resources are getting increasingly concentrated in a few global giants like Vale, BHP and Rio. A new dimension is also getting added to raw materials supply side with China, in search of security lapping up resources wherever available, including the most disturbed parts of the world.
Not only is the steel industry’s parsimony in defraying the incremental cost of making refractories, which provide high temperature insulation, particularly on raw materials is squeezing the margins of refractory producers but they also are made to wait up to six months and more for bill settlement. This is in spite of refractories accounting for just two per cent of steel making cost.
Indian Refractory Makers Association (IRMA) says its constituents are caught between the devil and the deep sea. Refractory makers depend on imports and mostly from China for some of the critical raw materials. But China is pursuing a policy of discouraging selling of raw materials in the world market in favour of local value addition. No surprise then, our steelmakers have ended up importing large volumes of refractories from China taking advantage of our incredibly low tariff wall.
IRMA is at a loss to understand why should refractories and their raw materials be inviting identical import duty denying in the process local manufacturers a “level playing field.” Some of our refractory makers have, therefore, set up shop in China because of easy availability of critical raw materials there at prices bearing a big discount over what they cost here. No wonder, refractory units in China have cost advantage over their Indian counterparts.
Indian units in China have found it a paying proposition to participate in refractory exports to this country. In fact, they account for about 25 per cent of our refractory imports from China. Last year, of the total Indian refractory consumption of 4,480 tonnes, imports accounted for 1,277 tonnes. Besides the steel industry alone accounting for over 75 per cent of total refractory consumption, the other users are cement, non-ferrous metals and glass industries.
As imports are disconcertingly high, the local industry with capacity of nearly 2.4 million tonnes is using it to only about 60 per cent. In the meantime, however, a number of units, unable to procure enough orders from local steelmakers and also at the same time hit by high raw materials cost, have perished. The capacity available with the industry can support steel production of 100 million tonnes. Incidentally, with our steel industry using better and better technology, refractory consumption per tonne of steel made is down to about 12 kg from 30 kg a decade ago. Some new generation steel mills here are using just about 7-8 kg refractory for making a tonne of the metal.
Local industries, whether in our country or the US or the EU, are in the habit of lodging complaints with the authorities about dumping when they fail to compete with suppliers from abroad. In recent years, no country has invited as much wrath as China for alleged dumping of all kinds of industrial and consumer goods. According to IRMA, if the US and also the EU have found it right to put an anti-dumping duty on some Chinese refractory items, why should India be fighting shy in revisiting an import duty structure causing harm to the domestic industry.
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It remains a subject of conjecture if India would be able to build steelmaking capacity of 200 million tonnes by 2020 and 500 million tonnes by 2050. Whatever that may be, conditions should be favourable for supporting industries like refractory to grow and prosper along with steel. India has a long tradition of making refractories coming in many types and shapes. It is also said to be doing a good job as a total refractory solutions provider. This is an area where many Chinese suppliers are found wanting. The point is why should we be allowing our refractory industry’s strength to be compromised for some short-term gains that local steel units make by way of imports and also denial of fair prices for indigenous refractories.
Refractory makers admit that the low margins they operate with are not allowing them to make sufficient investment in R&D, essential for developing value added raw materials from domestic sources and also new products. After all, raw materials and energy account for 60 per cent of refractory production cost. Human resource development is also becoming a casualty because of fund constraint.