Context: According to the recent ‘Steel Outlook 2023-24’ report released by Deloitte – raw material availability will be the key challenge for the steel industry.
India became independent in the middle of 20th century and looked to become self-reliant under its newly adopted model of a mixed economy. Simultaneous development of the primary, secondary, and tertiary sectors was necessary to achieve the goal at hand. Steel acted as a vital link between these sectors, serving as both a raw material and intermediate product. The extensive usage of steel in various complex industries that deal with reactive and non-reactive elements is due to its high corrosion resistance.
The manufacturing sector benefits significantly from the properties of steel, such as immense strength, low weight, durability, and ductility, which come at a low cost. India’s economic growth owes much to the immense contribution of steel, as evident from the similar growth patterns of steel production and GDP in the country. This dependence on steel is highlighted by the rise in national consumption of finished steel, which increased from 6.5 MT in 1968 to 98.71 MT in 2018.
Facts about Steel Industry:
- Steel industry contributes slightly more than 2% to the GDP of the country.
- The steel industry employs nearly half a million people directly and two million people indirectly.
- The output effect of steel on Indian economy is approximately 1.4x with an employment multiplier of 6.8x.
- World Steel Association, estimated that for every two jobs created in the steel industry, 13 more jobs are created across the supply chain.
- Currently India, is the world’s second largest producer of crude steel.
- India was a net exporter of finished steel in the year 2022.
Production in India:
Growth Prospects of the Indian Steel Industry:
In the last 10-12 years, India’s steel industry has experienced significant growth fuelled by consistent domestic demand. Production has surged by 75% while the domestic steel demand has increased by approximately 80% since 2008.
Government introduced the National Steel Policy in 2017, which envisions the growth trajectory of the Indian steel industry till 2030–31.
Features of National Steel Policy 2017:
- Steel-making capacity is expected to reach 300 million tonnes per annum by 2030–31.
- Crude steel production is expected to reach 255 million tonnes by 2030–31, at 85% capacity utilisation.
- Production of finished steel to reach 230 million tonnes, assuming a yield loss of 10% for conversion of crude steel to finished steel – that is, a conversion ratio of 90%.
- With 24 million tonnes of net exports, consumption is expected to reach 206 million tonnes by 2030–31.
- Per capita steel consumption is anticipated to rise to 160 kg.
- An additional investment of INR 10 lakh crore is envisaged.
Challenges of Steel Industry:
- Finance: Steel is a capital-intensive sector and around INR 7,000 crore is required to set up 1 tonne of steel-making capacity through the greenfield route. The cost of financing any expansion or new steel capacity is usually through borrowed capital. In India the cost of finance is extremely high compared to the cost of finance in countries like China, Japan and Korea. Moreover, steel demand is cyclical and during a downturn, the return on investments gets eroded.
- Logistics: Indian steel makers face significant challenges in managing their logistics requirements, which can be arduous and expensive. This is primarily due to the nature of the raw materials required for steelmaking, such as iron ore and coal, which are both bulk minerals. Steel itself is also a bulk commodity, which makes transportation of both raw materials and finished steel to demand centres a difficult task. Despite railways being the preferred mode of transportation for steel makers, they encounter significant infrastructure limitations that add to the complexities of managing logistics for Indian steel makers.
- Tax, duties and cess: Government has recently lowered corporate tax rates to 25%, there are certain non-creditable taxes, duties and cesses, specifically paid by the steel sector, which reduce the competitiveness of Indian steel products in the international market.
- Raw materials: India’s rich deposits of iron ore and coal are offset by the country’s insufficient reserves of coking coal. To achieve its goal of 300 million tonnes of steel-making capacity, as outlined in the National Steel Policy, India plans to rely heavily on the blast furnace method, which necessitates the use of coking coal. However, India’s reliance on imports from Australia to meet its coking coal demands is subject to fluctuations in supply and price due to unpredictable weather patterns.
- Environment and energy consumption: Increasingly, environmental concerns are taking centre stage and the Indian steel industry is not immune to this trend. The steel industry is energy-intensive and is the second biggest consumer of energy globally. This leads to a higher carbon footprint and also affects the immediate environment.