Global production of crude steel in the first seven months of 2012 has grown only 1% over the corresponding period last year. China is strongly placed at the top of the table, followed by Japan, US, India, Russia and South Korea. If we exclude China from the table, Japan exceeds US production by nearly 10 million tonne, and US from India by 9 million tonne. Then the differential comes down to 3 million tonne between India and Russia and less than 1 million tonne between Russia and South Korea.
As US steel industry is continuously running at about 75-76% capacity utilisation, the commissioning of fresh capacities of around 10 million tonne through brownfield expansion should take India cross US by 2014 and take the coveted third position in global steel production. And if the capacity creation activities by both brownfield and greenfield route, even at 60% activation, materialise, India would reach the second spot only by 2020.
The process of capacity augmentation in the country is, however, contingent on the resolution of a number of critical aspects concerning land, raw material linkages and speedy clearance by the government agencies both at the centre and the states and also the political and economic stability of the country. Recently, SAIL chairman has drawn our attention to two specific issues that may facilitate the process of capacity creation.
A back of the envelope calculation shows that we would need at least R5,000 billion in the next 10 years? time to fund 100 million tonne of steel capacity. Ranking of project profitability being the basic criterion of extending loans, the ability of Indian capital market including the FDI inflows, to provide funds for steel industry are severely limited. The need for a separate Steel Finance Corporation (SFC) on the lines of a few other sectors is long overdue. The coverage of SFC may subsequently be extended to embrace mining exploration and sourcing activities also as viability of any steel project is inseparably connected with mining linkages.
Adequate caution needs to be exercised so that any subsidised credit for setting up steel plant does not come under the purview of antitrust laws or attract WTO provisions of actionable subsidies.
The second issue relates to inability of machinery and equipment sector to cater to the major needs of steel plant equipment like blast furnaces, coke ovens, converters, sintering plants, beneficiation plants etc. It is an irony that despite massive modernisation in 1990s, Indian capital goods industry never took up the challenge. Heavy Engineering Corporation and MAMC were left to languish except recent steps taken to revive HEC.
Meanwhile apart from the reputed Voest Alpine and Paulworth, China has emerged as a major low cost supplier of steel plant equipment. The estimated order load for the machineries and equipment in the next few years should be adequate to make an investment for setting up a unit. Alternatively, an assembly plant for the same in India with Indian partners may set the ball rolling. These two are important issues, among many others, on which Indian steel industry must submit a consolidated proposal for consideration of the government which is eager to perform the role of a catalyst in capacity building for the next decade.
The author is DG, Institute of Steel Growth and Development. The views expressed are personal