India’s steel industry today faces challenging market conditions arising out of a global steel glut. In an freewheeling interaction with The Dollar Business, Chaudhary Birender Singh, Union Minister of Steel, GoI, talks at length about the government’s initiatives and plans to overcome global challenges while fueling growth and enhancing competitiveness of Indian steel industry.
Interview By Kanchi Batra | May issue 2017 | The dollar Buisness
TDB: Exports from the iron & steel industry are on the rise. What policy changes have facilitated this?
Chaudhary Birender Singh (CBS): Over the last two years, the government has taken several targeted interventions in the form of trade remedial measures such as imposition of minimum import price (MIP), anti-dumping duty, safeguard duty, etc., and strategic interventions such as an increased focus on the expansion of the MSME sector, raw material security, enhanced R&D activities, reduction in import dependency & cost of production to tackle the global glut in steel industry.
At the same time, 100% FDI through the automatic route has been allowed and large infrastructure projects in the public-private partnership (PPP) mode are being formed. Together, these steps have resulted in improved capacity utilisations, increased cash flows and profit margins for steelmakers, reduced imports and significantly high exports. We also hope that the new National Steel Policy (NSP) will encourage the industry to reach global benchmarks. Similarly, policy clarity and stability in the leasing of mines and forest clearances are also bound to benefit the sector.
TDB: According to Steel Ministry data, exports surged by almost 78% y-o-y during the first 11 months of FY2017, while imports plunged by 39%. Can we expect this trend to continue?
CBS: The growth has been sustained in the 12th month of FY2017 as well. All the strategic interventions taken by the Ministry of Steel during FY2017 has led to a series of milestones and achievements in the sector, including an increase in crude steel production by 8.5% y-o-y in FY2017, increased cash flows and profit margins for steelmakers, reduced imports by 37% y-o-y and increased exports by 97% y-o-y. These developments have provided some relief to the domestic industry. We believe this trend will continue in FY2018.
TDB: The MIP on steel was withdrawn in February this year. Will the safeguard duties also be withdrawn?
CBS: MIP was notified under exigent circumstances to counter the then (during 2014-16) existing challenges of increasing cheap imports, decreasing prices and to suitably act against the predatory pricing strategy of major steel-manufacturing countries. MIP was being gradually phased out and was finally withdrawn on February 4 this year, leaving only other trade remedial measures such as anti-dumping duty and/or safeguard duty notified by the designated authority based on the petitions filed by the industry. Under the current circumstances, it is necessary to continue with such measures, else all the benefits accrued by the industry so far will be neutralised.
TDB: India’s current per capita steel consumption stands at 60 kg, which is well below the global average of 208 kg. What are we doing to leverage this enormous growth potential presented to the industry?
CBS: Indian steel industry is already in expansion mode. Older steel plants are being modernised and expanded and newer greenfield plants with state-of-the-art technologies are also coming up. India overtook US to become the world’s third largest steel producer in 2015. India is now poised to emerge as the second largest steel producer after China over the next 12-18 months. Steelmakers are adding capacities in anticipation of upcoming demand given the government’s enormous focus on infrastructure sector, which has a budget outlay of about Rs.4 lakh crore for FY2018. However, per capita steel consumption is still quite low as against the world average, which no doubt indicates a huge growth potential for our steel industry.
Against this backdrop, the Ministry of Steel will make the best use of the ‘Make in India’ initiative. Under this initiative India is expected to witness significant investments in infrastructure, automobile, shipbuilding and power sectors, which, in turn, will stimulate steel demand. The ministry will also promote India-made steel in infrastructure development and construction.
Alongside the impetus on increased steel usage in any upcoming development activities, these factors will further boost the demand for steel in the country. With weak global economic prospects, the Indian steel industry will have to depend on the growth of domestic consumption for its future. It is expected that the per capita consumption of steel will rise to about 160 kg by 2030-31.
TDB: The steel industry presently contributes just about 2% to India’s GDP. What initiatives is the government taking to increase its share?
CBS: Construction, infrastructure and automobiles are India’s largest steel consuming sectors. Total real consumption of steel is estimated at 81.5 million metric tonne (MMT) in FY2016 and is expected to reach 104 MMT by FY2017, driven by rising infrastructure development and the growing demand for automotives. Based on higher demand requirements from construction and other steel-intensive sectors, the government aims to double the consumption of steel and alloy steel to by 2020. We believe all these factors will increase the usage of steel across industry segments, in the process increasing the steel industry’s contribution to the country’s GDP.
TDB: Is our industry focussing on product development to produce better and more value-added steel?
CBS: Product development is a major challenge being faced by the Indian steel industry. Even though leading Indian steel companies have in the recent past carried out some significant R&D work in the areas of raw material beneficiation, agglomeration and product development, the major focus of R&D has been limited to day-to-day operations and hence there has been a lack of disruptive innovations. Indian steelmakers need to evolve a time-bound action plan to enhance their R&D expenditure to at least 1% of the turnover.
In the coming years, production of value-added, front-end and strategic products will be facilitated through the acquisition of foreign technology by setting up joint ventures or subsidiaries of foreign companies or by indigenous development. Measures will also be taken to ensure the development of a variety of special steel alloys.
TDB: What are you doing to encourage Indian companies to set up environment-friendly scrap-based steel production units?
CBS: Scrap-based steel plants are environment-friendly, energy-efficient and cost-effective. These will have the capability to produce high-quality steel, a pre-requisite for our ‘Make in India’ initiative. The Ministry of Steel is currently looking at the cost-benefit analysis of setting up scrap-based steel plants in North and West India as these regions have the required amount of scrap and are import hubs too.
Simultaneously, the ministry has also set up MSTC-Mahindra Intertrade state-of-the-art auto shredding plant, which is likely to be functional in 2018. This joint venture (JV) between MSTC Ltd. and Mahindra Intertrade Ltd. will be India’s first greenfield auto shredding and recycling facility. Additionally, MSTC Ltd. and Ministry of Steel have jointly launched an e-platform called ‘MSTC Metal Mandi’ under the ‘Digital India’ initiative to facilitate the sale of finished and semi-finished steel products.
TDB: What operational challenges does the industry face and how do you plan to alleviate them?
CBS: Recently, multiple issues have adversely impacted the steel sector, like the cancellations of iron ore and coal mine allocations, delays in land acquisition and environmental clearances, which led to many of the projects to incur significant cost and time overruns. Additionally, companies also face substantially increased operating expenses due to increased logistics and raw material costs.
To give an impetus to the industry, the Ministry of Steel has already drafted a preferential policy for Domestically Manufactured Iron & Steel Products (DMI&SP) which is applicable to all government departments, ministries and agencies/entities. The policy mandates that preference be given to DMI&SP in government procurement. This policy has been envisaged to promote growth and development of domestic steel industry and reduce the inclination to use low-quality, low-cost imported steel in government-funded projects. The policy is currently in the final stages of its approvals and will be notified soon.