Is 300 mt steel capacity by 2025 an achievable target?

Even the most hardened optimist will find it difficult to visualise India, which managed to raise crude steel production by only 2.3 per cent to 83.2 million tonnes (mt) last year, lifting steel capacity to 300 mt by 2025. Local steel demand is hardly growing and steel product prices are leaving little margin for producers. While the market has sapped enthusiasm of most steelmakers to grow capacity in a hurry, land acquisition challenges and regulatory issues continue to hold back many announced projects from taking off. Frustrated by delays in getting regulatory clearances and iron ore mines, Lakshmi Mittal had said some time ago: "India is not my top priority for investment."

In the meantime, Mittal's company, ArcelorMittal, in partnership with Nippon Steel & Sumitomo Metal, has bought a 5.3-mt steel finishing mill at Calvert in the US from ThyssenKrupp for $1.55 billion. In another significant partnership with Hunan Valin, ArcelorMittal commissioned a 1.5 mt high-strength automotive steel plant in China's Hunan province last year. The lesson is, whatever be the potential of the Indian market, foreign groups will want government decisions on land acquisitions and iron ore linkages in reasonable time for them to work here. Mittal revealed his waning investment interest in India in March 2013. His group has since made a breakthrough in the protected Chinese steel industry and also gained a firm foothold in the US automotive steel segment. The loss is India's.

South Korean Posco's plan to build a 12-mt steel plant in Odisha has been hanging fire since June 2005. The world was greatly positive about steel till the worst ever global financial crisis of 2008 dealt a blow to all commodities.

Remember, Mittal Steel bought Arcelor and Tata Steel acquired Corus in close succession in June 2006 and January 2007, respectively? Steel's gung-ho period soon thereafter came to an end. India failed to get foreign direct investment (FDI) in steel in any meaningful way during the industry's best times because of regulatory bottlenecks. What does not portend well for steel capacity growth is shelving of 10 mt Salboni project of JSW Steel in West Bengal for two reasons - failure to arrange iron ore supply from neighbouring states and local government not according independent power producer status to the company's proposed thermal plant. The company also drew a blank in Jharkhand where it wanted to build a 10-mt mill. However, with JSW's entrepreneurial spirit getting the better of setbacks in two eastern states, the company claims to be staying on course to lift capacity from close to 15 mt to 40 mt by 2025. Doubling of the Vijaynagar mill capacity to 20 mt and making Dolvi a 15-mt unit helped by large parcels of land that came with acquisition of Welspun Maxsteel will bring JSW close to its 2025 target.

Being the chairman of government-owned Steel Authority of India Limited (SAIL), Chandra Shekhar Verma is under the compulsion to make optimum use of huge surplus land with some of its integrated mills to pack in a whole lot of extra capacity to become a 50-mt group in 10 years. Industry leaders such as Tata Steel, Essar and Jindal Steel and Power, too, have rolled out major credible expansion programmes. Even then, 300 mt is too big a realisable target by 2025. Growing capacity through blast furnace-cum-basic oxygen furnace route is highly capital intensive and long gestation proposition. Moreover, since steel production through this conventional route requires the use of metallurgical coal not adequately found in the country, government policy should be oriented to simultaneously give a push to making of sponge iron on a large scale for use as feedstock by electric arc furnaces (EAFs) and induction furnaces (IFs).

In India's steel production, the share of EAFs is 23 per cent and that of IFs is 34 per cent. A point of concern is production of both gas-based and coal-based sponge iron continues to fall. Sponge iron makers are not enjoying priority in gas and coal allocation, their overall capacity use has slipped below 50 per cent. Many units are either closed or sick. "This, however, should not be the case since the country owns the world's fifth largest coal reserves. Virtually free of tramp, high degree of metallisation and negligible presence of sulphur and phosphorous make sponge iron ideal feed material for EAFs and IFs. Moreover, this intermediate product is an excellent substitute for steel melting scrap for which we are very largely import dependent," says Usha Martin managing director Rajeev Jhawar.

HURDLES TO SUCCESS

• Local steel demand is hardly growing and steel-product prices are leaving little margin for producers
   
• While the market has sapped enthusiasm of most steelmakers to grow capacity in a hurry, land acquisition challenges and regulatory issues hold back many announced projects from taking off
   
• Mittal revealed his waning investment interest in India in March 2013
   
• South Korean Posco's plan to build a 12-mt steel plant in Odisha has been hanging fire since June 2005
   
• India failed to get FDI in steel in any meaningful way during the industry's best times because of regulatory bottlenecks