India is currently the world’s
8th largest steel producing country – with nearly 33 million
tonnes of crude steel output in 2004 – and is increasingly being
talked of as the next China. With a 12 percent increase in supply in
the first half of this year, Indian steel production is growing
strongly. Now the government is working on plans for a massive
expansion. But, unless Indian demand also rises quickly, excess
capacity will develop and put pressure on world markets.
The Indian government’s new National
Steel Policy has not yet been approved, but steel minister Ram Vilas
Paswan recently revealed its broad outlines to parliament. The chief
goal is to increase steel production to 110 million tonnes by the
2019/20 financial year. This would mean tripling the current rate.
Because the government no longer regulates
the steel sector, as it did until the early 1990s, it does not
actively plan or implement steelworks expansions – other than at
the state-owned companies. It now sees its role as facilitating
growth by removing impediments and bottlenecks, particularly on the
supply side of the industry.
So the new policy will include a series of
measures designed to improve the availability of raw materials such
as iron ore and coal. It will also encourage the creation of
infrastructure such as the roads, railways and ports that will be
required to support the steel industry’s growth.
Iron ore supply is a sensitive issue in
India. The country has large reserves of high-grade material, but
some of the mining, processing and transport facilities are
inadequate. The government is expected to take steps to restrict
exports in order to ensure a sufficient supply to the expanding
India is currently the world’s third
largest iron ore exporting nation – behind Australia and Brazil
– and local traders have been largely responsible for the
development of a substantial spot market to cater for Chinese
demand. This business may be curbed if the ore is needed to keep
domestic mills supplied.
Coal is a different matter. India has large
reserves of coal, but the quality is such that it needs to be
blended with imports of high-grade coking coal to produce adequate
blast furnace feed material. From time to time, a shortage of coking
coal has constrained Indian steel production; hence the government
is encouraging steel companies to secure supplies by investing in
coal mines abroad. Tata Steel recently bought a stake in an
Many Indian steel makers already have plans
to raise their production in line with the government’s target.
State-owned enterprises, Sail and Vizag, propose adding a total of
about 14 million tonnes of annual capacity by 2010/12. Tata Steel is
raising output at its existing works from 5 million tonnes per year
to 7.5 million tonnes per year and is also contemplating a new works
of 5 million tonnes annual capacity. Many other private sector steel
companies are implementing plans for multi-million-tonne expansions.
The government says it also wants to
attract more foreign investment in steel. The biggest foreign-backed
project so far is Posco’s intention to build a new plant in
eastern India to take advantage of local iron ore. This unit will
have an initial capacity of 3 million tonnes per year, rising
eventually to 12 million tonnes annually. Among the other companies
looking at investing in India is Mittal Steel, the world’s largest
producer, which is domestically owned.
The government acknowledges India’s low
per capita steel consumption – less than 30kg compared with the
world average of about 150kg – and says it wants to stimulate
growth in demand to improve the quality of life, especially in rural
areas. So the new steel policy will include measures to strengthen
distribution channels, to develop new steels suited to rural needs,
and promote the use of the material generally.
India’s per capita steel consumption has
increased by close to 50 percent in the last ten years. But a lot
more will have to be done if it is to grow in line with production
– as this means rising threefold in the next 15 years. India has
China for a model, but it remains to be seen whether such
large-scale advances in demand are achievable.
It is relatively straightforward to install
new steelmaking capacity, but not easy to develop new markets to
consume it. The clear danger is that India will build up a large
additional steel producing potential without having a comensurate
domestic market. The country could then become a significantly
bigger exporter, with potentially disruptive consequences for steel
markets in other regions of the world.