Punjab's steel mills lose their competitive edge

Mandi Gobindgarh houses around 400 induction furnaces and steel re-rolling mills, which employ over 500,000 people

Mandi Gobindgarh, also known as the 'steel city of Punjab' is losing its sheen. Despite high consumption of steel in the state, which is pegged at around five million tonnes per annum, most steel mills are running at around 40 per cent of their respective rated capacities owing to problems like the strengthening of the dollar over the past year, erratic supply and high cost of power, and rising input costs. As a result, the rising demand for steel and iron is being catered to by manufacturers located in iron ore-rich states like Chhattisgarh and Orissa.

The city houses around 400 induction furnaces and steel re-rolling mills, which employ over 500,000 people. The cluster of small and medium-scale steel units is around 50 years old, and caters to the construction and light engineering sectors.

Speaking of the industry's challenges, the president of Hero Steels, D K Sindhwani, told Business Standard, "Punjab is not naturally endowed with rich iron ore and coal deposits like East or South India. So, steel units are dependent on scrap, which is largely imported. The depreciation of the rupee against the US dollar has resulted in a significant increase in the cost of imported steel melting scrap, which is a major input in secondary steel production. Above all, the poor proximity to ports and higher transportation costs are a double disadvantage."

According to another industrialist, "most steel mills are running at 40 per cent of their respective capacities because of poor power supply, rising input costs and high labour costs. The power outages in Punjab are resulting in production losses and forcing many mills to work only single shifts." Many steel mills are unable to execute orders on time owing to irregular power supply and labour shortages.

Steel industry insiders said that in the past few years many units had either closed down or diversified into other businesses. Even existing units find it difficult to sustain operations, the officials added, because they are forced to sell their products at the lower prices charged by manufacturers located outside Punjab. As a result, their margins have come under pressure over the past year.

Further, in the past few years, steel mills in Himachal Pradesh have developed a competitive edge over Punjab's steel mills owing to the tax benefits they enjoy, and are catering to Jammu & Kashmir and Haryana. Steel units in Himachal Pradesh are concentrated around Kala Amb. Steel mills that have production facilities in Himachal Pradesh include the Amba Group, Jai Bharat Steel and SPS Group.

Industrialists pointed out that another major problem being faced by Punjab's steel mills is the lack of upgradation in technology, owing to a lack of awareness of modern techniques used in steel re-rolling.