Globally, supply would continue to exceed demand: Chandra Shekhar Verma

Interview with Chairman, Steel Authority of India Ltd

At a time when global steel demand is under stress, public sector undertaking Steel Authority of India Ltd (SAIL) is spending Rs 61,000 crore to expand its hot metal production capacity to 23 million tonnes a year (mtpa) by 2014-15 from 14 mtpa in 2012 -13. Chairman Chandra Shekhar Verma, in an email interview with Abhineet Kumar, talks about the rationale behind the expansion and the opportunities the company plans to tap with the increased production. Edited excerpts:

What do you think of the global steel consumption environment? What is the gap between demand and supply and by when is demand expected to exceed supply?

Growth in global steel consumption slowed to about three per cent in the years following the financial meltdown of 2008, compared to six per cent in the previous five years. In 2012, growth in finished steel consumption was virtually flat, at one per cent. The forecast for growth in steel demand this year is three per cent. Global crude steel capacity is about two billion tonnes. From the beginning of this year, capacity utilisation has ranged between 75 and 80 per cent. At a global level, supply would continue to be more than demand, as capacity additions continues, primarily in emerging economies. The trend is led by China and India.

The company had missed an opportunity in the last cycle, when China’s growth fuelled demand. Does it expect such strong demand to return in the next three-five years?

The last cycle led by China was in 2003-2008. SAIL’s projects were conceived and finally, approved progressively only by around 2010. As steel projects have long gestation periods and take longer to be implemented, the projects taken up by all the steel majors could not benefit from the last demand surge. This was also the reason why India turned a net importer of steel from 2007 to 2008. While a similar surge may not happen at the global level, prospects for the Indian steel industry continue to be very good. The domestic market would continue to provide space for growth for local producers.

What is the demand-supply gap in India and how do you see it panning out in the next two-three years, considering SAIL, Tata Steel, etc, are on an expansion mode?

The current tough economic conditions are temporary. I have always maintained India is the demand centre for steel, as the country is poised for growth across sectors. The Centre has planned capital expenditure of $1 trillion to create infrastructure in the country. Considering this, India is expected to have a prolonged run of high growth in steel consumption — seven-nine per cent for the next 10 years or so. This would make India the fastest growing major steel market globally. India is also set to emerge as the second-biggest consumer and producer of steel in the next five years. Anticipating this growth, all Indian companies have opted for expansion; many international majors also plan to operate in India. SAIL is already in the process of completing its modernisation and expansion programme, which would increase its capacity to about 23 million tonnes (mt) of hot metal by 2014-15 from 14 mt in 2012-13.

SAIL has been criticised for not meeting its expansion targets. How are the efforts different this time?

Implementation of the modernisation and expansion plan has been affected primarily due to unforeseen soil conditions, leading to under-estimation of quantities, local disturbances such as the Jhoraburi issue in the case of the IISCO Steel Plant at Burnpur, and logistics problems, owing to the brownfield nature of the job.

SAIL has taken various proactive steps to expedite project works. These include enhancing delegation of powers, implementation of the integrated project management system, strengthening of project management organisation, assistance to contractors in form of steel, pipes and other SAIL products, provision of space for fabrication yard to facilitate the contractor in fabricating structures and reducing transportation delays. This makes me confident we would be able to avert delays.