While examining the steel industry in India, two dissimilar facets catch attention: the growing production and the dependency of the steel producers on imports of Coking Coal, a vital ingredient in steel production.
The steel industry in India is relevant globally as the country is regarded as the third largest steel producing nation in the world—behind Japan and China. Interestingly, Japan’s second position is under threat as India is poised to occupy that position, pushing Japan off to the third. The difference in steel production between India and Japan is not significantly large. India hitherto produces around 95 MnT of steel, while the production in Japan is at around 103 MnT, accounting for a difference of around 8 MnT.
With the aggressive steel production capacity expansion in India in place, the production capacity in the country is expected to reach around 300 MnTPA by FY30. The initiatives of raising the production capacity in the country have merits as the steel is consumed domestically and also in foreign countries.
India’s position as a steel exporter will strengthen further in the future as the Chinese government has implemented a slew of steel capacity cuts to reduce atmospheric pollution. The production cuts in China will shrink its export supply and the corresponding global demand is likely to shift towards other steel producing nations, such as India, which is speculated to play a major role in the global steel market, worth around USD 900 Bn.
The moot question is: is the government doing enough to nurture the globally relevant industry in the country? The steel industry, nevertheless, is among the core industries in India with a contribution of nearly 2% to the country’s GDP.
Looking at the Coking Coal import dependency and the apathy of the government towards the burning issue, it seems that the burden of substantial cost pressure sustained by the country’s steel makers has not been considered for an immediate solution. The coal imports in India are subjected to an import duty of 2.5%; and despite many succeeding requests by the industry to the government to eliminate the duty, no action has been actuated.
The coal import dependency of the steel producers also exposes them to the volatility in prices of the coal in the international markets, predominantly in Australia, where the frequent supply disruptions cause the coal prices to rise abruptly every now and then, forcing the country’s steel makers to bear the brunt.
In India, despite availability of a huge Coking Coal reserve of around 34.40 BnT, the production is less as the coal quality is inferior, mainly due to the possession of high ash content; rendering the coal as unfit for steel making.
Therefore, in a country in which there is no adequacy of domestic Coking Coal, and at the same time, the steel industry is making rapid strides, the imposition of 2.5% import duty on the imports of the coal is clearly not reasonable. In other words, the duty is unfriendly to the industry, and the removal of which will apparently bring in at least some relief to the steel producers in the country.
So, should the duty be withdrawn? The Finance Ministry has to answer it in the next budget.
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