India to become second largest steel producer by 2012

August 16, 2010 8:46 am

Over the last few years, the steel industry in India has made tremendous advancement. Supported by the strong demand in the field of infrastructure and other steel-based manufacturing segments, the steel industry has emerged as one of the fastest growing sectors. 
 
According to the Minister for Steel, Virbhadra Singh, “During the last one year, while action on many of the crucial agenda items were completed, those involving long term targets like the modernization and expansion programmes of PSUs like Steel Authority of India (SAIL) and Rashtriya Ispat Nigam Limited (RINL) are also at an advanced stage of progress. India is the third largest producer of crude steel in the world, surpassing developed countries like USA and Russia”.
 
The Minister also said, “Indian Steel Industry contributes to nearly two percent of Gross Domestic Production (GDP) and employs over 5 lakh people.  The Steel sector continues to be one of the major contributors to national exchequer and in 2009-10 up to end of third quarter (April-December’ 2009) the net profit earned by all the profit making PSUs taken together was to the tune of Rs. 8008.57 crore”.
 
In 2009-10, the Steel Sector was able to make a recovery after the sluggish growth on account of global downturn and adverse market condition of 2008-09.  The resurgence in automotive appliances, capital goods and construction sectors has directly contributed to this positive performance. According to PIB, during the year, the industry achieved a total capacity utilization of 88.9% showing increase in production of crude steel (by 10.7%) and finished steel (by 4.4%) as well as consumption (by 7.9%). The year 2010-11 has begun on a note of optimism for the steel sector and especially for the major PSUs under the Ministry’s administrative control like SAIL, RINL and NMDC Ltd.
 
Production
The National Steel Policy 2005 had projected an annual steel consumption growth of 7% based on a GDP growth rate of 7-7.5% and production of 110 million tonnes of crude steel by 2019-20. The ministry of steel projected that the growth trends are likely to be exceeded and it is envisaged that in the next five years, demand will grow at higher annual average rate of over 10% as compared to around 7% growth achieved between 1991-92 and 2005-06.
 
According to the Annual Report 2009-10 on steel industry published by the Ministry of Steel, the production for sale of total finished steel at (alloy + non-alloy) was at 38.961 million tonnes during April-November, 2009 as against 38.024 million tonnes in corresponding period of 2007-08, a growth of 2.5%. India also maintained its lead position as the world’s largest producer of direct reduced iron (DRI) or sponge iron. Sponge iron production for sale was 20.8 million tonnes in 2008-09 which was higher by 2.1% over 2007-08.
 
The Minister for Steel said, “India is expected to become the second largest steel producing nation by 2012 with a targeted production capacity of 120 million tones”.
 
Consumption
According to a latest research report “Indian Steel Industry Outlook to 2012”, published by RNCOS, the Indian steel industry has made a rapid progress on strong fundamentals over the past few years. Manufacturing, housing and infrastructure are some of the important fields that are closely associated with steel consumption in India. In the recently announced budget, the Indian government has funded many infrastructure development and modernization of urban and rural areas projects and most of these projects are expected to be completed by 2012-13, which will enable steel consumption to grow at around 8.3% by FY 2013.
 
The report reveals that the Indian steel industry is still struggling to tap the huge market potential. In 2008-09, per capita steel consumption in urban areas was estimated at 145 Kg, whereas in rural areas the figure stood at only 3 Kg. However, in the 11th Five-Year Plan, a great emphasis has been given to the infrastructure developments in the rural areas, but still majority of developments will take place in Tier-1, 2 and 3 cities of the country, which will ultimately uplift the per capita steel consumption in urban areas.
 
The year end review by ministry reveals that the consumption of total finished steel (alloy+ non-alloy) was at 34.304 million tonnes during April-November, 2009 as against 33.995 million tonnes in corresponding period of 2007-08, a growth of 6.8%.
 
Investment
During the year 2009-10, 222 Memorandum of Understanding (MoUs) have been signed by the investors with various State Governments for setting up additional 276 million tonnes of steel capacity in the country. Major investment plans are in the States of Orissa, Jharkhand, Karnataka, Chhattisgarh and West Bengal.
 
Performance of PSUs
Steel Authority of India Limited (SAIL): SAIL, the leading steel-making company in India, is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL has posted an 18% rise in profit after tax (PAT) during the second quarter during the current fiscal at Rs. 1,700.24 crore. The rise helped the company achieve its highest-ever net profit of Rs. 3,225.36 crore for the first half of the fiscal, 14% higher than the comparable period last year.
 
NMDC Ltd: According to NMDC, 8.38% divestment of NMDC is completed in March 2010, which fetched the Government of India a sum of about Rs. 10,000 crore. The present shareholding pattern is: 1,95,567 Shareholders, with Government of India holding about 90%, i.e. 357 crore shares, and the public, including financial institutions, holding about 10%, i.e. 40 crore shares.  The market capitalization is about Rs. 1,05,402 crore. In 2009-10, NMDC has been able to make a sale of about 25 million tonnes of iron ore, and the turnover touched Rs. 6239 crore, with a PBT of Rs.  5207 crore
 
Manganese Ore (India) Limited (MOIL): MOIL, a Miniratna Category – I, PSU under the Ministry of Steel, Government of India, declared 200% interim dividend for the year 2008-09. According to MOIL, this was the highest ever interim dividend pay out by moil since inception.
 
Major initiatives by the Ministry of Steel
Administrative and fiscal action to manage inflation in the steel sector: During 2009, the Government took a number of fiscal and administrative steps to contain steel prices. Central Value Added Tax (CENVAT) on steel items has been reduced from 14% to 10% with effect from February 2009 and Countervailing duty (CVD) on Thermo Mechanically Treated (TMT) bars and structural reintroduced with effect from January 2009.
 
Increase Budget Allocation for Infra sector: In the Union Budget 2010-11, Rs. 1,73,552 crore has been provided for infrastructure development which accounts for over 46% of the total plan allocation. The allocation for road transport has been increased by over 13 per cent from Rs. 17,520 crore to Rs. 19,894 crore. These allocations have increased the demand of steel and boosting the industry.
 
Mega Expansion Plans for PSUs: The Steel PSUs SAIL, RINL and NMDC Ltd. are in the midst of huge expansion plans. The major thrust of the modernization and expansion plans is to adopt the best modern technology, which in addition to being cost effective should also
be energy efficient and environment friendly.
 
Review functioning and objectives of smaller PSUs: The Minister of Steel said, “In the past we have been discussing major PSUs like SAIL, RINL, NMDC and MOIL which are Maharatna, Navratna and Miniratna companies under the Ministry. There is a critical need to review the functioning and objectives of smaller PSUs with a view to maximizing their efficiency and synergies and benefits of scale”. The government has constituted a Committee to review the structuring, functioning and objectives of HSCL,
MSTC, FSNL and KIOCL and it submitted its report on 2nd September, 2009.  The ministry has taken-up the findings/ recommendations with the concerned PSUs for examination.
 
Hindustan Steelworks Construction Ltd. (HSCL) is one of the major construction agencies in the Public Sector established in 1964 to mobilize indigenous capability for putting up integrated steel plants in the country.  As the company grew in resources and expertise, it diversified in other areas like Power Plants, Mining projects, Irrigation projects including Dams and Barrages, buildings and Commercial complexes, rural roads, highways, flyovers, infrastructure for educational institutions, health centers and hospitals etc.  In 1999-2000, the Government sanctioned restructuring package which, inter-alia, included waiver of outstanding interest on Government loan. After the implementation of restructuring package, HSCL started generating operational profit from 2002-03.  HSCL further improved its performance during 2009-10 by generating an operational profit of about Rs.69 crores  with a turnover of about Rs.800 crores. 
 
Metal Scrap Trading Corporation Ltd. (MSTC), set up in 1964 as a regulatory body for export of ferrous scrap, is a leading e-Commerce service provider in the country and the only PSU to do so.  Another major activity of MSTC Ltd. is to provide working capital to various industries, by way of letter of credit support.  From 1998-99, MSTC has consistently improved its performance both in terms of volume of business and net profit.  MSTC was awarded Mini-Ratna Category-I status. MSTC has recorded a continuous year to year growth in profit for past 10 years and the Profit After Tax (PAT) in 2009-10 at Rs. 95 Crores was all time high. 
 
Heckett Engineering Company of USA, predecessor of FSNL commenced operation in India in 1957 and had been undertaking the job of recovery and processing of scrap in the Steel Plants.  FSNL was incorporated in 1979 as a Government of India Company, under Ministry of Steel with the main objective to take over the running business of Heckett Engineering Company and to carry on the business of processing of Steel Mill Slag and other refuse for the recovery of iron and steel scrap and other metallics and to render all kinds of service to the manufacturers of steel and iron.  FSNL became a wholly owned subsidiary of MSTC Ltd. in June, 2002.  At present FSNL is operating in 9 units both Public and Private Sector steel plants. The turnover of the company has been consistently increasing during the last 5 years from Rs. 106.93 crores to Rs. 158.61 crores in 2009-10.  FSNL has been making profits consistently.  The profit Before Tax of the company during the year 2009-10 was Rs. 5.76 crores compared to Rs. 4.31 crores during 2008-09.
 
Future Outlook
Focus on increasing steel production capacity: Addressing the 23rd meeting of the National Steel Consumers’ Council, the minister of steel said, “The massive technology change in industrial production that has taken place in the past few decades has almost completely changed the way steel industry does business today. We need the new technology by which we can produce better quality steel on low cost. The Government is trying to acquire new technology from South Korea and Japan. Government is also aiming to double the steel production from present 60 million tonne to 120 million tonne by 2012”. The Government is planning to expand steel production through brown field and green field projects.  The POSCO Project in Orissa will produce 12 milliom tonne and two projects of Arcelor Mittal in Orissa and Jharkhand with the capacity of 12 million tonne each.