India has every reason to be ambitious about steel. The world has accepted that if this country gets its act together in the form of harmonious acquisition of large parcels of land by groups intending to build 10- to 12-million-tonne steel complexes, and giving sanction to iron ore mines linkages without foot-dragging, then the next burst of steel capacity creation will happen here, after China. Transparency and professionalism should also be brought to bear upon the process of environment sanctions and forest clearances.
Steel Minister Virbhadra Singh is pitching for making India the world’s second-biggest steel producer, next only to gargantuan China, by 2015 and then hit capacity of 200 million tonnes by 2020. Ambition is no doubt a virtue, but cynics refer to China’s growing steel capacity by as much as 300 million tonnes in a recent six-year period, when capacity accreted here by 20 million tonnes.
The doubters concede India’s advantage of owning iron ore reserves of 25 billion tonnes and that too of high quality. At the same time — despite all the reforms — they point to regulatory hurdles, lack of supportive infrastructure for big greenfield ventures and India’s dependence on imports for the costly coking coal. But has not Gujarat NRE Chairman Arun Jagtramka shown the way to tackle the perennial coal and coke concern by acquiring deposits in Australia and elsewhere?
Steel Authority of India Ltd Chairman Sushil Roongta used the recent ‘Global Steel Conclave’ in Goa to say the country’s steel demand will rise to 200 million tonnes in another 10 years, if it records a compounded annual growth rate (CAGR) of 12 per cent. A CAGR of 13 per cent will take the demand to 221 million tonnes by 2020. In a place like India, where the growing emphasis will be on infrastructure development and urbanisation, the growth in the use of steel should remain a few percentage points ahead of the gross domestic product’s progress. The government is appreciative of the Roongta thesis — “let the supply side be strengthened, demand will automatically follow”.
What needs to be recalled in this content is the low steel intensity of the Indian economy, unlike China where the per capita steel use is 320 kg, thanks to the unwavering thrust on strengthening infrastructure and house building. We are not in the same bracket as China, where crude steel production grew 13.5 per cent to 567.8 million tonnes in 2009, when world output was down 8 per cent to 1.22 billion tonnes. What is, however, no mean achievement for us is to be the only other exception to grow production by 2.8 per cent to 56.6 million tonnes last year.
It is in anticipation of the steel intensity of our economy growing rapidly from now on, that investors rushed in to sign as many as 222 memorandum of understanding (MoUs) for building 276 million tonnes of new capacity. Not that all who signed MoUs are serious or have capacity to pursue big money steel projects. At the same time, as Roongta said, none of the groups with right credentials had “abandoned plans to build new mills. In fact, they are back in action post the economic slowdown. I will say emphatically that 200-million-tonne capacity here is achievable and it has to be achieved.”
Roongta is right. Neither ArcelorMittal, which is seeking a strong foothold here by way of building two Greenfield steel complexes of 12 million tonnes each, nor Posco, which is braving one roadblock after another since it proposed to build a 12-million-tonne mill in Orissa in June 2005, will beat a retreat, whatever the odds. Same is to be said about our own Tata Steel, JSW, JSPL and Essar, which besides adding capacity through the brownfield route, have also ambitious Greenfield programmes.
Using the brownfield route, SAIL — blessed that its complexes are spread over 130,000 acres leaving considerable room for growth — will be lifting crude steel capacity to 46.9 million tonnes by 2020. Roongta informs that this will be further enhanced to 60 million tonnes through a combination of new ventures and acquisitions. Tata Steel envisions steel-making capacity in excess of 50 million tonnes in the next few years. Creation of new capacity will get a boost with improvement in steel margins. Banks will automatically take their cue and will be inclined to fund steel-capacity growth.
Roongta thought aloud at the conclave whether the industry would find enough skilled hands to run and manage the projected incremental capacity. At this point, however, an immediate concern of older groups like SAIL and Tata Steel will be to protect themselves from “silver tsunami” — a description inspired by novelist Martin Amiss. Social mores here being what they are, the dependence is more on natural separation than on any forced VRS to tackle the greying workforce. But ITIs and similar such institutes will have to make enormous efforts to turn out sufficiently large skilled manpower to support the expanding steel industry.
