- Polices conducive to growth are need of the hour
- Secondary sector needs hand-holding
- Alternate fuel technologies can reduce dependence on coal
Morning Brief: India has already hit the halfway mark of the 2030 target of 300 mnt of steel production capacity and consumption of 160 mnt. Where do we move from here in the coming eight years?
At the session on “India’s Steel Demand & Production Outlook-2030,” held at the 5th Indian Iron Ore & Pellet Summit and India Coal Outlook Conference, organized by SteelMint in New Delhi recently, three steel industry veterans explored key points on the road to the production and consumption milestones to be achieved by the 2030 deadline.
“The challenge is, can India prove that till 2030 and beyond the industry will be no more cyclical?” asked Dr. Aruna Sharma, Practitioner Development Economist & Policy Advisor and ex-steel secretary. She feels, there may be troughs and peaks but these will not be so severe as to push the industry into NPAs and make it cyclical. “Having said that it requires signs that policies are conducive towards this movement and there are no impediments toward achieving this goal and if any, then these need to be addressed immediately”, she stressed, setting the tone for a focused discussion that ensued.
Demand to ride infrastructure
She reminded that the Budget is definitely putting a strong focus on infrastructure, with an allocation of INR 6 lakh crore. “Various models of infrastructure development are also emerging, which can accelerate growth. India has no option but to invest in infrastructure if we want to attain the 5-trillion economy target,” she said.
V.R. Sharma, Vice Chairman, JSPL, too stressed that infrastructure has to be given a boost because globally very little steel is consumed by the masses – around 25% in terms of consumer goods. Around 75% is consumed by the infra sector. “If, by 2030, the government spends around INR 40 lakh crore, then steel consumption will surely increase. But despite India slated to become the largest country in terms of population by 2023, it is a little difficult to consume 300 mnt unless there is support from the government. If INR 40 lakh crore investment in infra happens then we can reach 220-plus mnt,” he said.
Aruna Sharma corroborated: “India will meet the 300 mnt but the denominator is not just population but one that contributes to the consumption.”
Alok Sahay, Secretary General, Indian Steel Association, speaking in terms of capacity, said India will be adding 30 mnt every year, which is already under way. By 2030, if the announced plants come along, it will mean 50 mntpa capacity addition.
By that analogy, India would be looking at 180 mnt by 2025 and 230 mnt by 2030 which will lead to a surplus within the country. But the pandemic has changed the matrix, with mostly all the consuming sectors reporting negative growth vis-a-vis pre-pandemic levels.
“In terms of investment commitments, within the manufacturing sector, steel has been committing the highest, at 37% of the total investment commitments in manufacturing in the last financial year,” said Sahay.
Secondary sector needs a leg-up?
V.R. Sharma, while saying 300 mnt by 2030 is not too big a target and is achievable, raised several pertinent questions. “The question is do we need 300 mnt? We envisaged out of this 300 mnt, 50-60 mnt will be absorbed by the capital goods and machinery manufacturing sector, 20 mnt will go into direct exports and 200 mnt will be consumed within the country. The question is where are we? The five large mills produce around 58 mnt and are collectively planning to reach 115 mnt by 2030.”
Sharma further asked, “But what will happen to the smaller mills, which are struggling today? They produce around 45 mnt but from 4 mnt per month their production volume has reduced to 2 mnt per month.”
He pointed to the problem of resources, ie, coal and power and the unaffordable prices of iron ore. “Despite imposition of the export duty on iron ore and pellets, they (secondary sector) are unable to get the price for ore they were looking at to meet domestic steel demand. Thus, we feel, while 115-120 mnt will be contributed by the large mills, 75-80 mnt will come from the MSMEs or mills with 2 mtpa production capacity. These add up to 200 mnt. The balance 100 mnt is expected to come in from FDI. We expect the Japanese, Koreans and others to set up plants in India,” Sharma observed.
Aruna Sharma agreed that the secondary sector has to contribute 50% of it. Fall in this sector is worrisome and policies have to solve their problems, she said.
Enablers and Impediments
V.R. Sharma reminded of factors that will aid production and consumption growth. “The war has closed down most steel mills in Ukraine and adversely impacted steel mills in the EU and UK,” he said.
Another factor is the recession in China’s real estate industry. China is aiming to reduce its crude steel production from around 1.60 billion tonnes to 700-800 mtpa in the future. He added that the more China reduces production, the better it is for India in reaching 300 mnt.
Sharma also indicated that going forward, thanks to technological developments, there will be less consumption in terms of tonnage but not in terms of length or specifications. For instance, X100, X120 line pipes have seen a reduction in thickness by 33-34% compared to X70. Compared to X55, the reduction is almost 50%. “Thus, in terms of tonnage consumption is less but in usage, better quality is available at a little higher price,” he said.
Speaking in terms of impediments, Aruna Sharma raised a key question. Did the export duty bring down prices? Did the export duty imposition, aimed at reducing prices, actually have a negative impact? “Are we losing that 8% export market?” she asked.
ISA’s Alok Sahay said the vision of the National Steel Policy was that at least 15% of the production must go into exports. “If we want to increase our domestic capacity we need to keep on exporting,” he stressed, reminding that Indian domestic prices are one of the lowest in the world and when the export duty was levied, prices had already touched $100/t below the peak levels seen in April. “Thus, in a double whammy, the duty was imposed in a falling market. The post-duty fall was steep but then globally prices had also dropped – US prices had fallen 41%, and Northern EU by 43%,” Sahay informed.
Aruna Sharma reasoned that the export duty actually had no correlation to sliding steel prices, which became a global phenomenon and were a function of falling coking coal prices. She warned that the export duty will hit capacity building programmes since this was a safety valve for Indian mills when the country was under a lockdown. “These impediments will only slow down 2030 targets,” she warned, adding that it is important, at this juncture, to formulate policies that will have an accelerating effect on production and consumption.
Taking a call on coal
All three red-flagged coal issues, saying thermal coal will be diverted towards power generation. Where coking coal is concerned, India produces around 25 mnt while 60 mnt is imported, including PCI and this trend will continue since most of the new capacities being added are through the blast furnace route. However, V.R. Sharma warned, if in the future, coal producing countries are banned from exporting, pressured by global anti-coal lobbies, where will India source from? The answer lies in alternate fuel technologies like coal-to-gassification from indigenous coal. “We will have to convert coal to synthesis gas and coal to hydrogen, methanol, ethanol — to the last carbon value chain. India stands a better chance of being self-reliant in this,” he said.
It is clear that may be till 2025 India will be coking coal-dependent but will have to parallelly start working on syngas by using the excellent thermal coal available.
“Producers are setting up capacity ahead of demand. An unstable policy regime has one very big risk. Investors will be wary whether their investment is getting into a risky area,” warned Sahay.
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