Contemporary challenges faced by the Indian steel industry

India is the 3rd largest producer of iron ore and the main supplier to leading markets, including China. In terms of quantities mined, we stand only after Australia and Brazil. On the world map, we thus are a formidable producer of some of the best iron ore. Our eastern parts being entirely iron-country, iron-ore extraction forms a significant source of income here. And yet, we stand nowhere in the world reckoning when it comes to producing and using specialized steel. The reasons behind this apparent mismatch include the following reasons:

Significant investments needed to set up modern steel-making plants

According to a PWC report of 2019, a 1-tonne capacity plant in the green-field category would take anywhere close to INR 7000.00 crores to set up. With modest means due to low per-capita incomes, few Indian entities can build large plants to take advantage of economies of scale using the equity route. Most plants thus depend upon debt financing and borrowings. Finances being expensive in India compared to other countries, including China, Korea, and Japan, a part of the inflated cost invariably devolves onto product costs (close to USD 40.00 per ton), making the final product expensive and thus uncompetitive. Add to that the problem of steel having a cyclical demand in India. The monsoons put the brakes on construction, the primary consumer of steel. In these months, one must keep the steel plant running with low to no income. In a severely tight situation, such constant leaks can cripple units into closure, as was the case in 2018 when many steel units downed shutters with lengthy bankruptcy proceedings taking place later.

Low per capita consumption due to overall poverty 

An overview by the Ministry of Steel under the Government of India (JPC: up to March 2020) found that against a world average per capita consumption of 224.5 kgs, India’s was a mere 75 kgs. China’s was a hefty 590 kgs. This is partly due to India’s low per-capita income of USD 1961.42 in the year 2021, against China’s USD 12556.00 in the same period. With such a dismal consumption, the incentive to set up huge plants (of the likes of Posco of Korea) to take advantage of economies of scale does not exist.

Low investment in technology

It’s a known fact that India invests much less than the world in technology, research, and development. The same applies to steel manufacturing and consumption and has been the case for decades. One of the outcomes has been the relative unattractiveness of the sector vis-a-vis others among young engineers. With precious little research being done by the government or the private sector, India depended heavily on international research and technology, which comes with heavy bills and adds to costs. That apart, the technology used in India till recently was heavy on power consumption, extremely polluting, and consumed large quantities of water.

However, things are changing within the country, with the government insisting that steel units adhere to world environmental standards. This development could bring multiple positives, including:

• Lesser power consumption with the reuse of waste heat for thermal power
• Better usage and lower wastage when extracting steel from ore
• Lower water consumption in steel making
• Better usage of slag in fields like construction.

Shortage of power, a much-needed resource in steel production

Steel-making is a power-intensive business, and India is a power-deficit country despite a large number of PPAs being signed in the mid-90s and early 2000s. The deficiency of electricity puts India at a disadvantage when it comes to producing steel the way it wants to. There might be some respite with the right mix of renewables and thermal power. But it may still take some time to come up to expectations. The only way out till then would be using costly captive power plants.

Costly coal imports from Australia

India’s relation to coal vis-à-vis iron ore remains inverse. There is much less coal for every tonne of iron-ore mined, which calls for coal imports to keep captive power plants running. Australia and Indonesia are two major areas that supply coal to India. Of these, Australia has been hiking coal prices which directly affects the price of iron and steel in India.

India is yet to adopt steel in construction the way the west does.

Despite its large population and every incentive to explore newer ways of construction, India sticks to its time-tested use of concrete in most constructions. The west, the Gulf, and other settled markets use much more steel to build columns and structures. The latter helps reduce the weight of constructions, takes much less time to put together, needs much less maintenance, and can rise high in the sky while taking the steel along. Examples abound, including the Eiffel Tower of Paris, the Empire State Building of New York, the Taipei 101 Tower in Taiwan, the U.S. Steel Tower in Pittsburgh in the U.S., the Shun Hing Square Tower in Shenzhen in China, and the most famous of them all, the Burj Khalifa of Dubai.

It’s a given that India too would have its share of high-rises. The question, and more so for the steel industry, is when.

India isn’t doing badly for its size, population, and complexity. That said, a country of its size and ambitions ought to consume a lot more steel to bring the industry to par with the world and reap all the benefits of using the metal. That may still take a while for conditions to fall in place, and make the needful happen.