Steel sector’s ‘secondary’ priorities
Secondary steel producers are crucial to achieving India's 2030 production target, but they haven’t received the attention they deserve
Even while the secondary producers had a share of 57 per cent of India’s crude steel production of 101.4 million tonnes (mt) in 2017, their presence in the industry has always been overshadowed by a few, but very large in capacity, integrated steel mills using the blast furnace-basic oxygen furnace (BF-BOF) route. It will be noticed that any discussion on steel in newspapers and other platforms centres on the challenges before integrated producers at the near exclusion of the secondary sector.
It is only now that the secondary sector comprising electric arc furnaces (EAFs), induction furnaces (IFs), stand alone rolling mills and makers of pig iron and direct reduced iron (DRI), also known as sponge iron, has started claiming some serious attention of the authorities. This is because no way the country will be anywhere near the 300 mt steel capacity by 2030-31 as projected by the 2017 national steel policy unless the secondary sector comes to a position to make a contribution to the industry’s growth. A capacity of 300 mt will enable the industry to make crude steel of 255 mt and finished steel of 230 mt by 2030-31, when per capita use of the metal is set to rise to 158 kg from the present 62 kg against the world average of 208 kg.
At January 2017 Indian steel capacity of 125 mt, BF-BOF route producers had a share of 40 per cent, IFs 31 per cent and EAFs 29 per cent. In case everything unfolds according to the policy, which, however, does not look probable, then the BF-BOF route will contribute anything between 60 and 65 per cent to steel capacity and production by 2030-31 and the secondary sector between 30 and 35 per cent. The kind of capacity envisaged for BF-BOF route will be realisable provided some mega greenfield projects take shape overcoming all odds and public and private sector groups are not found wanting in implementing the announced ambitious brownfield capacity building targets.
Hopefully, steel companies going through insolvency resolution will find their capacity considerably enhanced under new management. For example, ArcelorMittal President Aditya Mittal says he sees scope for running Essar to its rated capacity of 10 mt against current annual production of 5 mt. Moreover, Mittal sees possibility of building a steel mill at Paradip in Odisha where Essar pellet plant capacity is being doubled to 12 mt. The pellet plant draws high grades of iron ore from the beneficiation unit at Dabuna through a 253 km slurry pipeline.
Whatever may be the capacity development claims for the integrated sector, there remains a question mark on their realisation. Compared to the BF-BOF section of the industry, the assumed capacity growth for the secondary steel sector in the next 12 years is modest. Assuming that the secondary sector will constitute 35 per cent of the steel industry in 2030-31, its capacity will need expansion by 31 mt to 105 mt. But one wonders how many of the 47 EAFs and 1,128 IFs will get bank loans to fund expansion considering that the steel industry stands as the largest contributor to banks’ non-performing assets.
Striking a positive note, however, steel minister Birender Singh says that from among the secondary sector, the government will choose 50 units as “smart producers” whose products conform to the standards laid down by the Bureau of Indian Standards and are found at a par with the best in the industry. “Even though nearly 28 per cent of stressed bank assets is on steel account, I’m hopeful banks will favourably consider lending credit to smart secondary producers at concessional rates.” Moreover, the credit profile of a good number of secondary steel units has undergone improvement, thanks to steel realising good prices since the past two years and demand improvement for their products, particularly in non-metropolitan areas.
An integrated steel group official says: “The government is welcome to support the secondary steelmakers. But it must ensure in the first place that operation of IFs and the coal-based DRI units in the upstream becomes environment friendly. Take China, which in the pursuit of supply side reform of steel and cleaning up of fouling factories forced the closure of lower end IFs.” In a year since the crackdown, rebar prices are up close to 40 per cent. This is luring many of the shutdown IFs to return to production. Provincial authorities in China are bent on ensuring that only those IFs which have cleaned up their act during the shutdown period light up furnaces.
As a signatory to the Paris climate treaty, India has made commitment to cut the carbon emission intensity of its GDP by 33 to 35 per cent by 2030 from the 2005 level. India has nearly 7 per cent share of global CO2 emissions, next only to China and the US. In its drive to cut carbon footprint, one of the principal focus areas is secondary steel sector, particularly IFs and coal-based DRI plants. Steel secretary Aruna Sharma says IF and DRI operation in the country is rapidly becoming environment friendly, thanks to government surveillance. Equally importantly, since refining capabilities of most IFs in India leave much to be desired, they, as the steel policy says, need to be equipped with “consistent and cost effective refining methods... to produce high quality steel.”
The government favours building of new IF capacity for more than one reason. First, IF operation does not need any use of coking coal for which the country during 2017-18 is likely to be import dependent for more than 50 mt against 41.6 mt last year. Second, IFs work independently of pellet and DRI units in the upstream and rolling mills in the downstream to make finished steel products. Therefore, their requirement of land is limited. We have seen some proposed integrated steel mills getting scuppered for not being able to acquire large parcels of land.
Third, since IFs can easily be set up in different parts of the country supported by independent DRI plants and rolling mills, they have the potential to boost steel demand in still largely unexplored markets like rural centres. Fourth, as director general of Federation of Indian Mineral Industries RK Sharma points out, “bigger the operation of IFs, greater will be the use of iron ore fines relieving the mines of mountains of accumulated fines causing environmental hazards.” Finally, IFs are the source of long steels which will be needed in growing quantities in building and construction sectors.