Focus on value chain

Updated: Jan 28 2005, 05:30am hrs
fe-ICRA Snapshot

The Indian steel industry ranks eighth in the world with an annual production of 31.8 million tonne per annum. It accounts for 3.3% of world steel production

As a market, India presents a good potential with a low per capita consumption level (around 20 kg as against 80 kg in China, 405 kg in Malaysia and 925 kg in South Korea)

The steel industry can be broadly categorised into the following segments:

Primary producers: Three integrated steel producers (ISPs) - Steel Authority of India Ltd, Tata Iron and Steel Company Ltd and Rashtriya Ispat Nigam Ltd .

With nine operational units between them, they use coke oven-BF-BOF route to convert iron ore into steel

Secondary producers: These are the mini steel plants, which make steel by melting scrap or sponge iron or a mixture thereof in an electric arc furnace or an induction furnace . There are approximately 190 EAF units and 950 IF units.

Small sector standalone processors: These include small standalone units for making pig iron and sponge iron, hot and cold rolling units, re-rollers, galvanising and tin plating units

The sector directly accounts for about 1.3% of GDP. It also has a bearing on how consumer goods and downstream infrastructure sectors develop. Further, with a share of approximately 10%, the sector is amongst the largest excise duty contributors to the exchequer. The industry provides employment to a large workforce (approximately 0.4 million directly), with the integrated steel plants accounting for a 40% share

Globally, the steel industry is mature exhibiting high degree of cyclicality. It is on an upswing since the last couple of years resulting in firming up of steel prices and hence improvement in the profitability of steel companies. However, the growth in profitability is lower than the growth in steel prices due to rise in raw material prices. China has been a major driver of global demand. While China may become a net exporter of steel in due course, steel prices may not decline sharply due to the cost push impact on account due to a shortage of iron ore/coke and firmation of demand in other parts of the world

CEO SPEAK
India is now looked upon as a resurgent economy closely following China. While the customs duty on steel products has been reduced to 5%, there are some input items like ferro-alloys, zinc and nickel on which the customs duty remains high at 15%. The rationalisation of duty level on such items needs to be looked into.
VS Jain, Chairman, SAIL
fe Perspective

In the background of a global rise in steel prices, a better way to mitigate its impact on the domestic market is to lower import duties across the steel value chain inputs as well as finished steel. Imposing price controls without compensating companies for the loss is not an advisable practice

CII suggestions

Reduce import duties on graphite electrodes (above 24 in size) from 15% to 10%

Halve import duty on furnace oil to 10% and cut it on limestone to 5%

Extend provision for warehousing without payment of excise to steel manufacturers

FICCI Wishlist

Reduce excise duty on steel from the current 12% as total taxation (including state levies) works out to 24%

Cut import duties on cold rolled/hot rolled steel, alloy steel and die steel for use by the automobile industry to 5% from 15%