‘India needs a steel vision’
December 18, 2004

Domestic steel consumption, this year, has grown by 8%. Memories of excess-capacity, low demand and poor realisations in the steel industry have faded away rather quickly aided by the surging oftake and consequent jump in realisation. With the Indian economy expected to grow at a sustained pace of around 7% to 8%, demand for steel is likely to remain high and according to experts like Mr B Muthuraman, managing director, Tata Steel, the challenge in the near future will be to make steel available to the consumers.

The scorching pace of demand growth have brought to focus issues of significant importance which if let unattended could affect supply and turn India import dependent.

Long-term perspective
If India has to graduate to higher production levels, a new thinking is required in the immediate future, says Mr Muthuraman. They involve issues such as environment, raw material availability, water etc. Presently, India mines about 60 million tonnes of iron ore per annum. To meet the growing demand for steel, the quantity of iron ore that needs to be mined will have to jump sharply to 200 million tonnes by the year 2020. This, according to Mr Muthuraman, would require changes in mining laws, forestry laws etc.

With large quantum of iron ore lying beneath the forests, there is a need to plan in advance. There is a need to create forests today so that 30 years later the iron ore deposits lying beneath the forests can be mined without having to lose the overall forest cover in the country, he said. If this is not done now, then the steel industry in the country could face shortage of raw material. Water management is another area that policy makers and the steel industry needs to focus.

For every tonne of steel produced, six tonnes of water is consumed and over 20 times that quantum is in circulation. ‘‘We need a steel vision for the country’’ says Mr Muthuraman.

Global demand
Globally the steel industry has entered a new era. Unlike in the last 25 to 30 years when steel consumption grew at just 2%, the next two decades is likely to witness sharp upward swing is steel consumption and prices, he says. This is because the most populous nations are now driving the steel demand and their consumption will continue to rise rather sharply for the next couple of decades or more before stabilising to the level of developed world.

According to Mr Muthuraman, in developed world where major infrastructural developments are complete the average per capita consumption has settled at 300 kgs after touching much higher levels. This is true with US, Europe, Japan etc. In these economies the per capita consumption rose sharply to about 600 kgs to 700 kgs level when they executed major infrastructure projects and then stabilised at current levels. Same is expected out of China which is presently driving demand, opines Mr Muthuraman.

China’s per capita consumption today is 212 kgs. This is expected to more than double in the next 15 years. Similarly India’s steel consumption will move up sharply and these two populous economies will keep the demand going, he adds.

Steel prices
Steel prices in the next 10 years will be higher than those in the last 10 years. The reasons, in Mr Muthuraman’s views are manifold. Unlike in the second half of the previous century, there is no mad capacity creation that is happening. ‘‘It is more demand driven,’’ he adds and this will mean that possibility of low prices is remote. There could be other problems too. There are two ways of making steel. One is through the integrated plant route and the other is through electric arc furnaces which use steel scrap as raw material.

Both these methods have a 50:50 share. Typically as a thumb rule, a steel consumed 15 years ago will be available as scrap today. Steel consumption 15 years ago is far lower than today’s scrap demand and this would mean that scrap prices would move up. Also in the last decade and half, very little investments have been made in the iron ore and coal mines the worldover as the steel industry grew at a very slow pace.

The mines had expanded only marginally to meet the modest increase in demand. But suddenly the demand has shot up and investments in mines made recently would take atleast five years to fructify. Till then prices of coal and iron ore will continue to increase and remain high.