The Metal Bulletin (MB) annual listing of the world’s top steelmakers in terms of their liquid metal production is routinely awaited with much curiosity. This is because the ranking reflects changes in geographical pattern in steel production like untamed capacity growth in Asia as producers in the European Union (EU) are required by demand fall to idle more capacity. The 2011 list with a cut-off point for inclusion at an output of over two million tonnes (mt) is a handy way of tracking swapping of positions among the featured 128 groups. That the estimated crude steel capacity of about 90 mt in India remains largely fragmented is borne out by only six groups finding places in the MB listing. However, one significant capacity consolidation happened in December 2010, when JSW Steel acquired the debt-ridden Ispat Industries to put it back on the rails.
Benefits of capacity consolidation in terms of adjusting production to changing demand, resilience in product pricing and raw materials procurement at best prices are widely known. In fact, driven by this consideration, New Delhi has visited the subject more than once. But every time it has drawn a blank. A case of economic reason falling a victim at the altar of narrow politics. Like Andhra politicians will not countenance the thought of Vizag Steel, which though fully owned by the central government, being merged with Steel Authority of Indi a Ltd (SAIL). Not very long in the past, we saw the country’s leading mineral group, NMDC, scuppering attempts by Vizag Steel to unite the two corporates under one roof. In a major restructuring move, the government wanted Vizag Steel, which is badly in need of ownership of iron ore deposits, to acquire Odisha-based Neelachal Ispat. Besides owning a 1.1-mt integrated steel unit, the Odisha company has ownership of 110 mt of high quality ore. But, MMTC, with its ownership of 49.78 per cent of Neelachal playing hardball, Vizag Steel is getting nowhere. At the present share valuation, MMTC is not ready to part with Neelachal. Till the issue is resolved, Neelachal will be denied funds and management inputs for its restructuring and expansion that Vizag Steel is ready to provide. So, while on the one hand, the family-controlled steel groups abounding in the country remain not enthusiastic about consolidation, in the public sector domain, politics and in the case of Neelachal inter-ministerial problems are playing spoilsport.
China, for the size of its steel industry, needs very fast capacity consolidation. Besides capacity fragmentation, the Chinese industry’s problem has been compounded by the presence of 110 mt of dispensable capacity. No doubt because of the nature of the regime in China, it has had a measure of success in capacity consolidation and also weeding out uneconomic and environment damaging capacity. But what has been achieved falls way short of the target. Many private Chinese steel groups, to avoid becoming takeover targets, grew capacity at a breakneck speed. For example, Rizhao Steel grew capacity 10-fold to 12 mt in eight years. Further, Anshan Steel’s much-hyped merger with Benxi Iron and Steel has been hitting one bureaucratic hurdle after another.
Even then, if any country can throw up a steel group with the capacity of 100-mt plus to match ArcelorMittal, then it has to be China. In the MB listing, Hebei Iron with production of 59.19 mt in 2011 is next only to ArcelorMittal with output of 91.89 mt. The gap between the largest and the second biggest producer is huge. But a takeover or two, maybe nudged by Beijing, will see the world’s next 100-mt group emerging in China. Thanks partly to capacity consolidation, of the first 10 places in the list, Chinese groups occupy five.
China’s Shandong Iron lost the 10th MB slot to Tata Steel by less than half a million tonnes. The Indian group’s climb to that height was, however, due to its 2006 acquisition of Corus, in a dramatic shoot out with rival bidder CSN of Brazil. Besides Tata Steel, the other Indian groups finding places in the MB chart are SAIL (13.8 mt), JSW (7.43 mt), Essar Steel (4.35 mt), Vizag Steel (3.192 mt) and JSW Ispat (2.39 mt). In view of India targeting steel production of up to 200 mt by 2020, in which leading local groups will be making major contributions by way of expansions, the future MB listings will see Indian ones already there moving up in ranking, while there will be many new entrants.
MB bemoans that Indian per capita consumption of steel at 55 kg in 2011 is way behind the world average of 206 kg, not to mention China’s 427 kg in a progress from 72 kg in 1995. It, however, says in the same breath that “with its population size approaching that of China, it evidently has the potential for substantially greater steel consumption, and for becoming a China-style hotspot for steel in future”. Multinational investments in steel like Tata Steel buying Corus have become the order of the day. No doubt, for India to become the next steel hotspot, it will have to facilitate realisation of projects proposed by the likes of Posco and ArcelorMittal.