Consumption grew 8% by March 2010
With strong demand in automobile, infrastructure and housing sectors, consumption grew eight per cent in the FY ended March 2010. A report by Projectvendor

An Overview

With Indian economy expected to return to the high growth path within a year or so and with the government determined to keep up the pace of investment in the infrastructure, the demand for steel is expected to move up in the coming years at a faster rate.

To meet the increased demand for steel and take advantage of the situation, while the existing steel majors are expanding their capacities on large scales, small and medium companies have draw up big investment plans too. The expanding market for steel and huge iron ore deposit reserves has also enticed a couple of foreign steel majors to invest in India.

Another reason which raised the confidence levels of steel investors was the fact that during the global economic slowdown period, when steel production across the Western countries declined, India recorded a growth of 2.8 per cent in 2009. China was the only other country to record a positive growth during the period.

Global Scene

According to the International Iron & Steel Institute in 2009 the world crude steel output was 1,277 million tonne indicating a fall of 3.9 per cent when compared with the preceding years output figures of 1,329 million tonne. Given the slow recovery seen in the developed economy the output is expected to remain subdued in the next couple of years.

Among the major steel producing countries, China retained its position as the largest crude steel producer by producing 567.8 million tonne in 2009. It was followed by Japan (87.5 million tonne) and USA (58.2 million tonne). However, other than China, Japan and USA both recorded fall in production.

Among the steel producers Arcelor-Mittal was the largest steel producer in the world with a production of 79.5 million tonne in 2009. Baosteel of China and POSCO of South Korea followed rank with production figures of 31.3 million tonne and 31.1 million tonne respectively. Tata Steel with a total production of 20.5 million tonne ranked 7th.

Indian Scene

During 2009-10 India produced around 60 million tonne of steel and consumed around 56 million tonne. Between 2004 and 2010 steel production increased at an average rate of 5.7 per cent and consumption increased by 7.9 per cent.

According to the National Steel Policy announced in November 2005, the overall steel production in the country is expected to rise from the current level of 44.54 million tonne to over 110 million tonne by fiscal 2020. Domestic steel demand is expected to grow by over 7% on a compounded annual basis over the next 15 years and export of steel products are also expected to register a steep growth from 4.35 million tpa in 2006 to 26 million tpa by 2020. 

India accounts for around 5 per cent of the global steel consumption. Steel consumption grew 8 per cent in the fiscal year ended March 2010, due to strong demand from automobile, infrastructure and housing sectors, as per the steel ministry.

Projects Investment in Steel

The total quantum of investment lined up in steel industry indicates the confidence of project promoters about the high growth expected in this industry in the coming years. As of September 2010, there were 923 projects in the steel sector intending to set up capacities in the Primary (Sponge Iron, Pig Iron), Crude Steel, Secondary and Alloy Steel sectors.

In all there are 110 mega size steel projects at various stages of implementation, entailing an investment of `4,89,801 crore.

Iron ore rich states in the eastern India and Karnataka have cornered most of the steel projects. Jharkhand which enjoys the largest iron deposits in India has bagged 70 steel projects entailing an investment of `112,106 crore. Orissa has attracted 96 steel projects with a total investment of `108,614 crore Karnataka which recently started attracting mega steel projects, as of September 2010 has 111 projects at various stages of implementation. Among the mega proposals the state has managed to attract include proposals from Arcelor-Mittal and POSCO whose similar size projects in Jharkhand and Orissa respectively have not made much progress for various reasons.

Chhattisgarh and West Bengal are the other two states to attract sizeable investment in the form of mega projects.

By Ownership

Interestingly, among the Indian steel companies, not only the existing large players like Tata Steel, Essar, JSW, Jindal Steel & Power, Bhushan Steel, etc are expanding their respective capacities by many folds, but the small and medium size steel companies like Aaress Iron & Steel, Adhunik Corpn, Bramhani Inds, Jai Balaji Inds, RM Steel, Welspun Power, etc are also setting up large capacity Greenfield projects.

Of the seven foreign owned projects two each were by Ispat Industries, Arcelor-Mittal and POSCO. Steel Authority of India, Rashtriya Ispat Nigam and NMDC account for bulk of the investment in the steel sector. These three companies together intends to add 17.7 million tonne new steel manufacturing capacity in the next couple of years.

Capacity Additions: 2011-2015

A ProjectsToday special study indicates that the fiscal 2010-11 will see a subdued capacity addition of 7.2 million tpa. This will be followed by a 16.7 million tpa of capacity addition in 2011-12. The subsequent two years will see healthy capacity additions of 28.64 million tpa and 20.2 million tpa.

If most of the projects gets commissioned by 2015 the total steel manufacturing capacity of the country will cross 150 million tpa by 2015.

Outlook

Land acquisition problem is the common hurdle faced by almost all private mega steel projects. Identifying and taking possession of unencumbered land is the one issue state government have to tackle  on war footing, if they want the mega steel projects to fructify on their land.

Another major issue is the assurance of supply of raw materials like iron ore, coal through allocation of captive mines, on time. The inordinate delays in getting forest clearance and environmental clearance have really tested the patience of most of the promoters in this sector.

Last but not the least is the Naxalite menace in states like Chhattisgarh, Jharkhand, Orissa and West Bengal, which also reflects the policy lacuna in the rehabilitation of tribals in these states. If the state and Union government together take care of the above hurdles, the total steel manufacturing capacity of India will cross 150 million tonne mark by 2015 and the 300 million tonne mark by 2020.