Editorial April 2019

 

Dear Readers,

A few years back, Ministry of Steel (Govt of India) set a target of creating 300 mtpasteel making capacity by 2030-31 and this attracted various types of reactions from different sections within iron & steel industry of the country. Present steelmaking capacity of the country is around 135 mtpa. Thus to achieve 300 mtpa capacity, the country has to create around 165 mtpa capacity in around 12 years, i.e. around 13 mtpa of capacity addition every year.

Few analysts felt that this figure of 300 mtpa is quite ambitious and cannot be achieved while others felt that maybe this is a bit hard to achieve the target but it will help the industry to think in a positive direction and will surely provide a much required forward push. This also manifests the government’s position and its willingness to help the industry to grow. I definitely see a point in this.

We all know that to produce a tone of finished steel, three tons of raw materials have to be moved. Thus to move 900 tonnes of raw materials and 300 tonnes of finished steel, we need really huge infrastructure and transport facilities. Further, along with the finished steel capacity, the raw materials (such as iron ore, coal & coke, ferroalloys, lime etc.) availability has to be geared up. Another issue related to this acquisition bill. Greenfield steel plants require big land mass and unless this bill is passed, required land availability may not be possible. Brownfield expansions have their own limitations of land and thus can contribute only marginally to capacity creation. The last and most important point is building and running these steel plants. While there are not enough companies to design, erect and commission a steel project, there is also a huge gap in terms of technical manpower required to run the plant. Metallurgists are in a smaller number when compared to all the engineering branches. Even today, it is extremely difficult to find an experienced metallurgist to run a steel unit. To summarize, there are challenges to overcome in order to achieve the target of 300 mtpa, but again, not impossible. Nobody can deny that the overall performance of the national economy will have a very big impact on the prospects of the iron & steel sector.

My point is slightly different. ‘Steel’ being an intermediate product, should not have any ‘target’ of its own. It should only have a capacity ‘projection’ depending on the estimated demand from the user sector. While doing the projections calculations also, many ‘experts’ merely add the future capacity expansion plans of individual companies and arrive at the final capacity figure. The correct methodology should be to study various user sectors, estimate their growth rates, estimate their future demand of steel, consider an export-import factor in the light of the global economy and then finally arrive at the future estimated demand projection. In my opinion, such an exhaustive exercise only can give us a fairly realistic picture of the future growth of iron & steel industry in the country.

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October Editorial 2018

In 2017, Indian economy was shadowed by demonetization in the first half and the implementation of much awaited GST.As mentioned in my last piece, one may debate on the long term utility of these measures but on a short term basis the economy did get a big jolt. Organized part of iron & steel industry did not get much affected by demonetization and infact it gained a little bit from GST implementation. Now in 2018, Indian economy seems to have recovered from these tremors and is cruising forward. The GDP growth rates of the first two quarters of 2018 (7.5 % and 8.2 % respectively) are quite encouraging for the economy as well as for the iron & steel industry. A good GDP growth rate always encourages the industry and in turn helps the steel demand to rise.

If one looks at the user industry sectors of steel, there too a positive sentiment is prevailing. Infrastructure sector which consumes maximum steel, is growing at a steady speed. Many mega projects have now shifted from drawing boards to the sites. They are expected to give a big boost to steel demand in the country. As regards construction, one may develop a feeling that it is stagnated in big metros. Yes, it may be the case but look at tier II and Tier III cities. They are growing at amazing speed and eating lot of steel in the process. Auto industry too is growing at a decent speed and creating a good demand for flat steels (body) and long products (auto parts). Of course experts feel concerned about the auto steel demand on a long term basis when electric vehicles will be popular. In any case, today all seems to be well.

 

Today, one of the major concerns of the industry is rising oil prices. It makes the transport more costly and affects all the products, industrial as well as household. As we all know, for producing a tone of steel three tones of raw materials are required. Thus in totality, four tones are transported. With these facts in mind, one can imagine the impact oil price rise is going to have on iron & steel industry.

If the industry has to progress, technology should provide the push and the direction for this transition. For the last few years, we have been talking about automation, robotics in steel sector. Now the concept of ‘smart manufacturing’ or ‘industry 4.0’ is getting popular. With implementation of this, one can not only monitor but also effectively and efficiently manage his factory by using an app on his mobile phone. I feel now is the time Indian iron & steel industry should look for such technological upgradation so as to improve on quality, productivity and overall efficiency of the plant.

 

If the industry has to progress, technology should provide the push and the direction for this transition. For the last few years, we have been talking about automation, robotics in steel sector. Now the concept of ‘smart manufacturing’ or ‘industry 4.0’ is getting popular. With implementation of this, one can not only monitor but also effectively and efficiently manage his factory by using an app on his mobile phone. I feel now is the time Indian iron & steel industry should look for such technological upgradation so as to improve on quality, productivity and overall efficiency of the plant.

Editorial September 2018

In 2017, Indian economy was shadowed by demonetization in the first half and the implementation of much awaited GST. As mentioned in my last piece, one may debate on the long term utility of these measures but on a short term basis the economy did get a big jolt. Organized part of iron & steel industry did not get much affected by demonetization and infact it gained a little bit from GST implementation. Now in 2018, Indian economy seems to have recovered from these tremors and is cruising forward. The GDP growth rates of the first two quarters of 2018 (7.5 % and 8.2 % respectively) are quite encouraging for the economy as well as for the iron & steel industry. A good GDP growth rate always encourages the industry and in turn helps the steel demand to rise.

If one looks at the user industry sectors of steel, there too a positive sentiment is prevailing. Infrastructure sector which consumes maximum steel, is growing at a steady speed. Many mega projects have now shifted from drawing boards to the sites. They are expected to give a big boost to steel demand in the country. As regards construction, one may develop a feeling that it is stagnated in big metros. Yes, it may be the case but look at tier II and Tier III cities. They are growing at amazing speed and eating lot of steel in the process. Auto industry too is growing at a decent speed and creating a good demand for flat steels (body) and long products (auto parts). Of course experts feel concerned about the auto steel demand on a long term basis when electric vehicles will be popular. In any case, today all seems to be well.

 

Today, one of the major concerns of the industry is rising oil prices. It makes the transport more costly and affects all the products, industrial as well as household. As we all know, for producing a tone of steel three tones of raw materials are required. Thus in totality, four tones are transported. With these facts in mind, one can imagine the impact oil price rise is going to have on iron & steel industry.

If the industry has to progress, technology should provide the push and the direction for this transition. For the last few years, we have been talking about automation, robotics in steel sector. Now the concept of ‘smart manufacturing’ or ‘industry 4.0’ is getting popular. With implementation of this, one can not only monitor but also effectively and efficiently manage his factory by using an app on his mobile phone. I feel now is the time Indian iron & steel industry should look for such technological upgradation so as to improve on quality, productivity and overall efficiency of the plant.

 

If the industry has to progress, technology should provide the push and the direction for this transition. For the last few years, we have been talking about automation, robotics in steel sector. Now the concept of ‘smart manufacturing’ or ‘industry 4.0’ is getting popular. With implementation of this, one can not only monitor but also effectively and efficiently manage his factory by using an app on his mobile phone. I feel now is the time Indian iron & steel industry should look for such technological upgradation so as to improve on quality, productivity and overall efficiency of the plant.

Editorial August 2018

The iron & steel sector in India seems to be slowly gaining momentum. Finished steel consumption and demand are growing steadily which is reflecting positively on capacity utilization of steel plants. The price curve too is showing a gradual increase which means the conversion margin at every stage is reasonable.

Though steel user sectors such as infra, construction, auto, engineering are putting up impressive performance month after month and are providing support to the demand curve, in my opinion, this is not enough to have a sustainable growth. The real and biggest trigger for steel demand comes from mega infra projects undertaken by the centre or state government and this has not yet picked up as expected. Still the overall capacity utilization of Indian plants is below 80 % and there is a lot of ground to be covered.

Steel Ministry has made a projection of steel making capacity to be enhanced to 300 mtpa by 2031 from the present level of around 130 mtpa. This also means that with around 80 % capacity utilization, the steel production has to reach to 240 mtpa from present level of 102 mtpa. On consumption front, if the Indian economy grows by near double digit rate, then the steel consumption can rise to that level but it is not only consumption estimate which will decide the fate of such ambitious projection. The whole system has to gear up to that level. The raw materials, plant equipments, plant builders, logistics, technical manpower, everything has to increase three times the present level and this is a real huge task and challenge. A lot of technological upgradation is also needed at various stages in iron & steel making and for that purpose, our R & D institutes have to gear up. India has a great history of metallurgical advancements but unfortunately in the present era, we are lagging behind the developed world in this very subject.

On policy front too the industry needs support. Firstly, land acquisition bill. Unless it is in place no Greenfield expansion is possible and as we all know brownfield expansion has land limitations. Industry is struggling to get this bill passed by the parliament but till date the issue is fluid. Further, because high cost of power and finance, Indian steel price can be never competitive in a global marketplace. Now, these are old issues but still not resolved. One has to understand that steel prices do have a big effect on a lot of industry verticals and by making it higher, we are putting the viability of not only steel but many other industries under question. One more issue is logistics support. We all know that to produce a tone of steel, four tones have to be moved. It is government’s responsibility to provide logistic support (roads, rail and sea route) I do agree that the process of building the infrastructure is being carried out with a great speed in last few years but still a lot of ground is yet to be covered. Unless infrastructure is in place, iron & steel industry cannot progress. Something has to be done about it.

Overall, I am quite bullish on the fortune of Indian iron & steel sector and would certainly bait my money on it !

 

Editorial July 2018

Today, India is the fastest growing economy attracting many international companies, financial institutions etc. It is natural that these companies would want to participate in the growing Indian economy. The fiscal 2017-18 was shadowed by currency ban first and then implementation of much awaited GST. One may debate the long-term necessity of these measures but its tremors felt immediately by the economy. Thus last fiscal performance of Indian economy was somewhat depressed. But now the industry and the economy seems to have recovered from the jolt and look, last quarter growth of Indian economy was 7.5 %. Further, it is expected that GDP growth for the next quarter will be better than this. This is surely a very encouraging signal for the economy as well as the industry. It also ensures a positive industry sentiment and an attractive environment for overseas companies and capital.

Here is a catch. A good GDP growth is good but not enough for a healthy growing economy. Let me explain this. GDP only tells you how much the economy has earned but it does not tell you who contributed to this earnings. Thus a handful big companies doing superlative performance may boost the GDP while rest of the economy may still be struggling. I think the Indian growth story is somewhat similar to this. Few mega companies are doing extremely well while most of the other companies, especially from MSME sector are fighting for survival. We all know that MSME sector is the backbone of any economy. It rolls the maximum capital and it generates maximum employment. Unfortunately this very sector is struggling for its existence. Stagnated markets, no access to soft capital, severe competition especially from China. This is the reason why Indian GDP growth is not accompanied by a similar growth in the employment index.

The situation in Indian steel industry is bit different. Here, the big ones are facing big problems (of course with few exceptions) and the small ones are sailing comparatively smoothly. I do not mean they have no problems but then one has to accept the cyclic nature of this industry. The secondary steel producing companies, somewhat smaller than the big ones, have emerged as the most important and relevant segment within the iron & steel sector.  They are contributing highest in terms of tonnage and also the employment generation. These mid cap companies are indeed the backbone of Indian steel industry.

Editorial – June 2018

Last year was quite eventful one for the Indian iron & steel sector, full of ups and downs and filled with enormous uncertainties. Let’s have a look.

Though the availability of vital raw materials has improved over past 2/3 years, depressed oil prices and overall subdued environment on a global level has to have its effect on every country’s economy. In today’s networked world, no country can progress in isolation. India too was affected by the global slowdown which has now been referred to as ‘New Normal’.

Nevertheless, India’s auto sector has been putting up an impressive performance for the last few years and continues its upward path this year too. We all know that only about 12 % of steel produced in India goes for auto industry and majority (about 60 %)is  consumed in infrastructure building. Thus it is evident that the fortune of iron & steel industry in India is firmly tied up with the infra and construction sectors. Building of roads, bridges, ports, airports, metro projects, dams etc. will consume huge amount of steel and thus will give a boost to steel demand in the country. For India, most period in the last year was under the influence of demonetization and implementation of newly framed Goods & Services Tax (GST). Though one can argue on the long term benefits of these steps, they naturally affected the performance of atleast first three quarters of the fiscal 2017-18. The industry somewhat recovered and stabilized by the end of 2017 and thus the Indian economy grew at the rate of 7.5 % during Jan-Mar 2018. Further, during this period the steel industry went through a huge transition as regards financial and ownership restructuring. This uncertainty too played a sizable role in slowing down the pace of the industry.

Now that the Indian steel sector has crossed most of these hurdles in the growth path, one can be little more optimistic for the coming period. Also, the central government’s focus on MSMEs and Steel Ministry’s efforts to upgrade and help secondary steel sector should put the Indian mills in a position to cater to the growing steel demand in the country. As such India is seen as one of the few growing economies in the world and a lot of overseas companies want to enter into this growing market. I feel that India is in the right place at the right time. Only time will tell how much benefit it can extract out of this situation !

 

Editorial May 2018

As we all know, majority of steel produced all over the world is mild steel, I mean it is non alloy steel. It is used extensively in construction activity and infrastructure projects. When the steel / steel components are required to possess special properties, specific alloying elements are added at the time of melting. These special steels are used for intricate applications such as automobile parts, engineering equipment, springs, bearings, fastners etc.

Special steels industry in India has come a long way. conventionally mini steel plants employing electric arc furnace supported by LRF used to produce such steels. Capacities of such mills used to be small and even the demand was limited to mostly automobile sector. This scenario started changing after Indian economy adopted liberalisation and globalisation as its basic philosophy. Many overseas automakers set up their manufacturing / assembly lines in India. The then Indian government made it mandatory for these automakers to gradually shift to Indian auto components. This gave a big boost to Indian auto component industry and naturally demand for special steels increased substantially. Many big steel plants started producing these value added steels to achieve higher turnover and profits. Let me caution you, special steels production requires thorough knowledge of metallurgy and very tight control over the process and parameters.

Today, almost all the major international automakers are present in India. The auto sale in India has been increasing continuously for the last few years and it is expected that this trend will continue for some more years. Further, special steels demand is increasing in the sectors like power plants, engineering, infrastructure etc. For the last few years, Indian government has been trying to reduce its dependence on imports in the defence sector. This is opening up huge opportunities for special steel applications in this so far untapped industry. This is the reason along with the traditional scrap + sponge based mini steel plants, a lot of integrated plants are also entering in the special steels business.

The only threat to special steels sector seems to be from electric cars. It is expected that Indian roads will be crowded with these cars in next decade or so. If this happens, the vehicle will no more require today’s complicated engine and the demand of special steels may reduce drastically. It is also predicted that such cars will take many  years to develop supporting infrastructure for the usage of such cars. Let’s see how the future unfolds !