Steel gets big boost as govt steps in to sup­port de­mand


Resource Digest - - CONTENTS -

With the Real Es­tate Reg­u­la­tion Act com­ing into ef­fect from May 1, 2017, the de­mand for steel is likely to in­crease, mostly com­ing from govern­ment spend­ing on in­fra­struc­ture, rail­ways and roads

In a way, 2005 was the year of mem­o­randa of un­der­stand­ing (Mous) for steel. Mega-green­field projects were set to add more than 100 mil­lion tonnes (mt) of ca­pac­ity. So, when the govern­ment came out with the Na­tional Steel Pol­icy the same year that set a goal of 100 mil­lion tonnes in pro­duc­tion by 201920, it was seen as an easy tar­get.

To­day the in­stalled ca­pac­ity in In­dia, the third largest steel pro­ducer glob­ally, is 122 mil­lion tonnes. How­ever, even though In­dia has sur­passed its tar­get ca­pac­ity, the util­i­sa­tion in the sec­tor is 75-80 per cent. In that back­drop, how re­al­is­tic is the tar­get of a 300 mil­lion tonnes ca­pac­ity by 2030, as set by the Na­tional Steel Pol­icy 2017?

The real chal­lenge is con­sump­tion, says Steel Author­ity of In­dia Chair­man P K Singh. “The govern­ment in­tends to take ca­pac­ity to 300 mil­lion tonnes by 2030 and we re­quire a good pol­icy for that. We will not achieve that kind of ca­pac­ity un­less we have strong foun­da­tions for it. To­day, pro­duc­tion is around 90 mil­lion tonnes; for three times that pro­duc­tion, we need sound poli­cies," adds Singh. The pol­icy strikes the right chord by high­light­ing the po­ten­tial that In­dia of­fers in terms of growth in per capita con­sump­tion of steel, which at 61 kg is way be­low the world av­er­age of 208 kg.

Ra­jiv Ku­mar, vice-pres­i­dent of Tata Steel’s Kalin­gana­gar plant, points out that in Tier II cities, the per capita con­sump­tion is 160-170 kg but in the vil­lages, it is around 30 kg.

The govern­ment is do­ing its bit to boost con­sump­tion by com­ing out with a pol­icy to pro­vide pref­er­ence to domestically man­u­fac­tured iron and steel in govern­ment pro­cure­ment. The pol­icy is ap­pli­ca­ble in all govern­ment ten­ders where the price bid is yet to be opened. Also, with the Real Es­tate Reg­u­la­tion Act com­ing into ef­fect from May 1, 2017, the de­mand for steel is likely to in­crease. Ac­cord­ing to CARE Rat­ings, most of the de­mand, how­ever, will come from govern­ment spend­ing on in­fra­struc­ture, rail­ways and roads.

“Cur­rently around 40 per cent of the coun­try’s steel con­sump­tion is from the con­struc­tion and in­fra­struc­ture sec­tors, which is ex­pected to in­crease to around 60 per cent by 203031," CARE Rat­ings said in its re­port.

In­fra­struc­ture spend­ing would have a two-fold im­pact on the in­dus­try, points out JSW Di­rec­tor (Com­merce & Mar­ket­ing) Jayant Acharya. “On the one hand, it would boost steel con­sump­tion; on the other, it would cre­ate the en­tire ecosys­tem re­quired for en­hanced ca­pac­ity."

Each tonne of steel re­quires three tonnes of raw ma­te­ri­als, 300 mil­lion tonnes of steel would mean 900 mil­lion tonnes of raw ma­te­rial. Rail­ways, ports, in­fra­struc­ture would have to have that kind of han­dling ca­pac­ity. The pol­icy en­vis­ages an ad­di­tional em­ploy­ment of 1.1 mil­lion, de­pend­ing on the de­gree of em­ploy­ment.

De­spite low con­sump­tion and land ac­qui­si­tion hur­dles, steel mak­ers will con­tinue to add new ca­pac­ity. There is the added con­cern that the 300 mil­lion tonne ca­pac­ity takes into ac­count green­field projects where land might prove to be a ma­jor a hur­dle. Ac­cord­ing to the Na­tional Steel Pol­icy, the land re­quire­ment is es­ti­mated to be 91,000 acres, fac­tor­ing in green­field ex­pan­sion.

“I don’t know whether there will be a pos­i­tive land ac­qui­si­tion pol­icy, go­ing for­ward. The steel in­dus­try re­quires a lot of land," says Ku­mar.

But even if green­field projects hit the land hur­dle, there is no doubt that pri­mary pro­duc­ers are likely to go ahead with brown­field ex­pan­sion to keep their mar­ket share in­tact.

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

There are, how­ever, other ifs and buts. To achieve a ca­pac­ity of 300 mil­lion tonnes would mean an ad­di­tional in­vest­ment of Rs 10 lakh crore. Al­though brown­field ex­pan­sion would re­quire less in­vest­ment than green­field, it would still be sig­nif­i­cant.

Ac­cord­ing to the RBI’S Fi­nan­cial Sta­bil­ity Re­port, the stressed ad­vanced ra­tio was the high­est for ba­sic me­tals and their prod­ucts at 42.9 per cent as of Septem­ber 2016. “There­fore, the bank­ing sys­tem has not been lend­ing much to the in­dus­try which has to de­pend pro­gres­sively on the bond mar­ket," the re­port said.

But with im­proved cash flows on the back of the var­i­ous govern­ment mea­sures and a global de­mand re­cov­ery, the in­dus­try ap­pears to be get­ting back on its feet.

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