A recent estimate has put the global excess capacity in crude steelmaking at 542 million tonne (mt). Of this, a major part (around 46%) is accounted for by China, followed by Europe (around 20%), CIS (arou-nd 15%) and Japan (around 12%). India is among the very few countries where consumption growth rate till the other day had exceeded the growth rate in production, which implies that potential consumption in the country warrants capacity augmentation and not elimination of surplus capacity. But it is also true that periodic fluctuation in demand in specific categories may create a temporary surplus scenario.
Currently this applies to HR coils and plates as the end using segments like tubes and pipes, white goods, shipbuilding, heavy machinery and power equipments are passing through demand contraction. The fresh capacities for which investments are being made are in the cold rolled products earmarked to serve the demand of the auto sector, cold rolled grain oriented sheets for making transformers, TMT bars for the real estate sector and commercial complexes. In the last category, despite significant capacities having been installed by the small and medium enterprises, the rising awareness for quality products has prompted some of the major manufacturers to add capacities in long products.
The import arrivals in H1 of 2013-14 shows that CR products, CRGO sheets comprise around 30% and 5% of the total imports and hence provide scope for domestic players to create capacities for import substitution and not suffer from lack of demand. It is also necessary that adequate backward facilities in the form of hot strip mill with state-of-the-art technology (compact strip processing or thin slab casting) are installed.
Keeping in view the present thrust on capping CAD, the installation of HR facilities may be a better option than importing special grade HR coils on a long-term basis to roll auto grade CR and CRGO sheets. SAIL has announced plans for new HSM and CRM at RSP. The new CRM by Tata steel, new CRGO facilities by JSW in collaboration with JFE would be meeting the rising demand in these two categories.
As regards global demand for TMT and structurals, fresh capacities are created in Saudi Arabia, Egypt, East and South Africa and Turkey. In China, the present capacity in long products at 180 mt is being increased to 190 mt by 2020. All this implies that if indigenous demand for long products in India lags behind installed capacity due to lower growth in capital formation in construction, which is primarily contribu-ted by delayed commencement of projects, the surplus capacity thus thrown up may face stiff challenges in global markets, if offered as exports. China is offering TMT bar at $495/t fob, export price of CIS is at $575/t fob, Turkey which is the major supplier to West Asian markets is offering reinforced bars at $612/t fob and India?s domestic price is $485/t (taking advantage of rupee depreciation).
The value added products and flexibility in product-mix in tune with market requirements would fetch a reasonable margin on the back of a subdued demand scenario.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal