The Indian steel industry, which was riding the commodities boom over
the past four years, is currently grappling with slowing sales in international
markets and weak demand locally. Is it prompting lenders to tighten credit disbursals?
Steel consumption is closely related to the growth of the economy. The demand for steel in India continues to be strong and growing. Also, the government of India has increased the import duty on HRC steel from 5 per cent to 7.5 per cent, which offers protection to domestic industry from dumping from international markets and provided stability to domestic prices.
Likewise, the increase in export duty on iron ore fines from 20 per cent to 30 per cent has indrease availability of iron ore fines for domestic industry at competititve cost.
The RBI and Government of India are taking steps to improve India liquidity in the economy to sustain the growth in the economy. We do not see any move from lenders to restrict credit disbursals, which would be counterproductive. However, considering the stage of global economy, not much new investments are being planned in the steel industry this moment.
In spite of economic slowdown globally, the steel sector has continues to post robust growth. India produced 72.2 million tonnes of steel in 2011. What are your expectations until 2017, the end of the 12th plan?
We are bullish on the growth story of steel in India. That there is going to be an increasing demand for steel in the coming years is quite clear. Investment worth $1trillion is planned in infrastructure alone during the 12th Plan period and steel would be a key commodity for this.
D.R.S Chaudhary, the new steel secretary, has stated that the steel sector would grow at 10 per cent per annum and that the government would ensure that the enablers are in place for this to happen. Steel producers have already announced capacity expansions to meet the burgeoning demand.
However, clarity in government policies and their execution in spirit will play the defining role. The challenges are the land acquisition issues being faced by all steel majors for capacity expansions, allotment of mining leases, transparent and straight-forward mining sector regulation, and streamlined forest and environmental clearance mechanism. The government and the industry need to work closely together to resolve such issues.
What is needed for the growth of a self-reliant, globally competitive steel sector in India?
We have communicated to the ministry on the various policy issues that need addressing for the growth of a self-reliant steel sector in India. There is a need to focus on the upstream end of steelmaking segment. Raw material availability at a competitive cost will define long-term growth trajectory of steel. Hence, raw material linkages in terms of mining leases are critically important for value adders like integrated steel plant.
Delays in capacity expansion projects, which are a norm today, need to be controlled. These delays generally arise because the prerequisites, before stating construction, take a long time to materialise. Value addition o raw materials withing the country, through processes such as beneficiation, should be encouraged.
Also, to encourage use of low quality iron, there should be a differential royalty regime, meaning that royalty should be lower on iron fines which are low quality coal and iron ore, which the government should facilitate actively.
Cost of production of steel is skyrocketing with the unavailability of raw materials including iron ore and coal.
It is true that steel producers are facing cost pressures due to rising material costs. However, we need to devise innovative ways to deal with it. Using alternative technology can help. For example, at Essar Steel, we are planning to beneficiate low grade iron ore fines in Odisha, which are available at a lower price, and increase the iron content so that it can be used economically in our iron making furnaces.
Similarly, we have commissioned the Corex modules that use non coking coal directly, so the dependence on high priced coking coal / coke is reduced.
What are your expectations from the new National Steel Policy?
We are looking forward to the new National Steel Policy. We expect that the new policy will remove or clarify the existing policy bottleneck and spur steel production in India. We hope that the challenges, as outlined earlier, will be adequately addressed through appropriate policy formulations.
The MMDR Bill, 2011 is an important step in changing the mining landscape and spur investments in India. Considerations such as royalty issue, seamlessness in moving from ones form of concession to the next, guarantee of security of tenure, transferability of concessions, and prompt disposal of applications need to be addressed on priority for an efficient act.
Are Chinese companies tough competitors for you?
Availability of cheap imports is a matter of concern. The government should take appropriate fiscal measures to safeguard the interests o the industry. A level playing field should be ensured. India should not be made a dumping ground for steel.
