Brownfield growth key to Indian steel target of 300 mt

India’s top steelmakers — SAIL, JSW Steel and Tata Steel — have added capacities totalling 16.7 million tonnes (mt) in the last decade, 21 per cent of the country’s capacity addition during the period, by sweating existing land assets.

If 91,000 acres is required for India to achieve the steel capacity of 300 mt, factoring in the greenfield route, it might be prudent for the industry to consider brownfield. Much of the growth for these companies, going forward also, would come from brownfield expansion. Greenfield investments occur when a company begins a new venture by constructing new facilities, while in the case of brownfield investments, a company or government purchases an existing facility to begin new production.

JSW Steel has added eight million tonnes in seven years, Tata Steel about 3.2 mt and public sector major Steel Authority of India Limited (SAIL), 5.5 mt. Tata Steel, however, has already secured environment clearance for another one-million-tonne expansion at Jamshedpur, which would take the total capacity to 11 mt.

Jayant Acharya, director commerce and marketing, JSW Steel, said the capacity at the company’s Vijaynagar plant, in Karnataka, was now 12 mt and it can be scaled up to 16 or 20 mt.

JSW has set a target of achieving the capacity of 40 mt by 2025. “The next 10 mt will come from Vijaynagar and Dolvi plants. Another 20-30 mt will be either greenfield or could be mostly acquisitions,” elaborated Acharya.

Tata Steel has just set up a greenfield plant at Kalinganagar, Odisha. The first phase capacity would be three million tonnes. Peeyush Gupta, vice-president – steel market and sales, Tata Steel, said the Kalinganagar ramp-up has been better than envisaged. “Increased volumes from Kaliganagar has helped Tata Steel,” he said.

In the second phase, Tata Steel could take the capacity at Kalinganagar to five million tonnes and in future, it is possible to scale it up to 16 mt. Tata Steel’s capacity across Jamshedpur and Kalinganagar is 13 mt. SAIL has increased capacity over the past decade by about 5.5 mt. It is in the middle of another growth phase and by 2018-19 the capacity would go up to 22 mt, from the current level of 19 mt. All through the brownfield route. A longer term goal is to ramp up capacity to 50 mt. Brownfield expansion has its advantages. According to Indian Steel Association Secretary General, Sanak Mishra, 60 per cent of the capacity addition in the last decade has been through the brownfield route.

Apart from easing the land issue, the cost structure in brownfield is typically lower and approvals are faster. Yet, brownfield is unlikely to take India to its 300-mt goal by 2030.

“Brownfield will have its limitations. So, while greenfield may have a lower ratio, larger companies will ultimately have to fall back on greenfield. Also, land for brownfield may have to be acquired additionally by many. So, land at competitive cost will remain a key criterion. 300 mt is a difficult task with environmental, investment cost and other issues,” an industry representative said.

On average, the rate of creation since 1991 has been four million tonnes per year. To create 180 mt in 13 years may be trying. The current installed capacity is 122 mt.