Posted on 21 Feb 2017
Excess capacity in steel is a real threat perceived by the major global steel producers. In most of the forums including in G-20 meet, this particular aspect finds a place for discussion. India is planning to take the second spot surpassing Japan in crude steel production by 2017-end by adding another 7-8 million tonnes of steel from the brown field expansion by Sail, Tata (Kalinganagar, Jamshedpur), JSW, JSPL (Angul, Raipur), Essar (Hazira).All these expansions are already staggered primarily due to poor growth in domestic steel market.
Meanwhile, the spate of anti-dumping and countervailing duty measures by US, EU, Vietnam, Turkey, Malaysia, Indonesia and Brazil against Chinese exports have made a little more space available for Indian steel producers to capture a higher share in the overseas market. During the first 10 months of the current fiscal, steel exports from India has reached 6.9 MT, a growth of 74% over last year.
Thus, while export growth would be a great reliever for capacity expansion in Indian steel industry, most of the augmented production must get absorbed in the indigenous market. The current status of the critical segments for steel use and the future potential, the emergence of new application areas as the country progresses into the next decadal phase pose an interesting analysis.
The infrastructure and construction (including real estate, pipe line construction) segment accounts for around 60-62% of total steel consumption in the country. There is endless requirement of investment in this segment. Thus this year’s budget provision of R3,96,135 crore of investment for infrastructure is encouraging as the public investment in various infrastructure components provides the crowd in effect on private investment which is languishing in the recent period.
For instance, in the road sector with a budgetary provision of R64,900 crore from the government is likely to usher in private sector participation through the PPP mode. It is becoming incumbent on the part of the government to further restructure the PPP mode to attract private investment. The extension of national highways provides opportunities of more steel use in areas like ROBs, flyovers and crash barriers.
For particular stretches at critical locations, the concrete pavement or more use of Continuous Reinforced Concrete Pavement (CRCP) would make the roads maintenance free and cost effective in the long run.
It is also to be appreciated that more expansion of infrastructure network would invariably contribute to more use of pre-fabricated steel structures, box girders, engineering machineries and equipment including electrical components. The consumer durable and capital goods sectors together accounting for nearly 21-23% of steel consumption in the form of engineering and machinery segments are interconnected with expansion of infrastructure sector. In the recent period (April-December 2016), while consumer goods sector has clocked a growth of 5.0%, the corresponding growth in capital goods sector is down at (-) 17.3%.
The declining share of fixed capital formation as a percentage of GDP from 34.3% in FY12 to 29.3% in Q2 in FY17 (advance estimates) indicates a dire need to enhance flow of investment in infrastructure. The government has taken appropriate steps to boost FDI flows in the country in real estate and defence procurement. The entry of private domestic players in defence equipment and procurement has facilitated private investment and led to procurement of high value and new dimensions steel from the indigenous sources. Indian players SAIL, Essar Steel, JSW and JSPL have developed API, Nace, DMR-49, Q&T Plates to cater to the specialty requirements which was hitherto getting imported.
The automobile segment accounting for 9-10% of total steel consumption in the country is perhaps the one segment that offers stiff challenges to the hot and cold rollers in the country.
The high value steel like EDD, IF, Bake Hardening, Dual Phase, light gauge excellent finished coils and sheets required by the sector is not yet fully met by the domestic players. With the success of the recent product development activities undertaken by the domestic steel producers and the stabilisation of a number of service centres set up to supply customised products to the auto sector would eliminate the need for imports.
The Railway and shipping sectors accounting for around 3% of total steel is attracting investment from World Bank and ADB in DFC, Metro Rails and development of industrial corridors. The residual 2-3% of steel use by the packaging sector depends on increasing supply of Tinplates and SS grade. Lastly, the demand for all these segments crucially hinges on investment in infrastructure.
