India, China drive growth in global steel consumption

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31 May 2010

The first decade of the present century is a watershed in the annals of Indian steel industry. The global recession and the severe financial meltdown in late 2007 completed the process of shifting the fortunes of global steel from the advanced developed markets of USA, EU, Japan, South Korea and Russia to East and South Asia. It is heartening to note that the current growth in global steel consumption and production is driven by only China and India.
In 2009, the global crude steel production had dipped by 8.7% compared to previous year and the major steel-producing countries such as the USA, Germany, Russia, Brazil, Japan and South Korea had witnessed a drop in production as high as 26-36%. China experienced a growth of 13.5%, followed by India’s 2.7%.
The latest projection of steel consumption by the World Steel Association shows that while India with a consumption of 45.6 million tonnes in 2006 occupied the fifth position among the top 10 countries, it would move up to third position in 2011 with 71.6 million tonnes of finished steel. A number of major players are coming forward to tie up with Indian counterparts to produce value-added steel to cater to the growing demand in the country.
Tata BlueScope Steel has been formed for coating and painting facility at Jamshedpur. Bluescope Steel of Australia is a world leader in building, construction and automotive sectors, producing coloursteel, zincalume and galvaspan steel. The collaboration between these two producers would enable the Tatas to meet the demand in coated and painted sheet arising in consumer durable, industrial construction and auto sectors. There is not less than around 3 million tonnes of demand for coated sheets in auto, construction and consumer durables.
The Tatas have also set up a joint venture with Nippon Steel for production of auto grade cold rolled products by a continuous annealing and processing line with a capacity of 6,00,000 tonnes. The joint venture presupposes transfer of technology for auto grade CR, including skin panels and high-tensile steel. The production is slated to commence by 2012-3. The current demand for CR coils/sheets from the auto and consumer durable sectors of around 4-4.5 million tonnes for extra deep drawing, fully aluminium killed, non-ageing variety, blemish-free steel is met partially by the domestic cold rollers and partially from imported sources. Last year, approximately 8, 80,000 tonnes of CR coils/sheets were imported mainly from South Korea, Japan and Russia.
There is a marginal shortage of auto grade sheet, particularly auto body sheet, in the country. The imported sheets are preferred for their top class surface finish and internal properties. Auto sector, especially passenger cars, two-wheelers and commercial vehicle segments, is exhibiting exceptionally strong growth (more than 25% in April-Jan ‘10). A number of global auto majors have set up production facilities in the country.
Apart from serving the domestic market, the emerging markets in other countries have attracted domestic auto manufacturers to export cars. India’s auto component manufacturers have already made a significant presence in the developed markets due to their innovative designs, reasonable price range and prompt delivery schedules. Thus, steel requirements by these sectors would continue to grow.
Keeping in view the sustained demand pattern, Essar Steel has recently acquired the Precoated Steel of Pune which has got a coating line of 4, 00,000 tonnes and CR mill of 6,00,000 tonnes capacity. Essar Steel is among the very few producers who use near infra red (NIR) technology for colour coating which extends the life of the product. With this acquisitions, Essar takes its capacity for cold rolling to 2 million tonnes.
Collaboration has recently been concluded between JFE Steel of Japan and JSW Steel on production of auto grade steel. JFE, born out of the merger of Kawasaki Steel and NKK Corporation of Japan, would be taking around 14% of equity share in JSW which is planning to set up a 10 million tonnes steel plant in West Bengal. They would be producing HR/CR/galvanised steel and afterwards steel for diverse purposes like energy reduction, environmental programmes, sourcing of raw materials would be made available.
SAIL and Posco had earlier entered into a strategic alliance between themselves. As part of this agreement, Posco would be giving Finex technology, for making iron, that does not require coking coal and can use fines which is available in abundance in India. This technology is very cost-effective.
SAIL would also be producing, with the technological help from Posco, the higher grades of electrical steel for electrical equipment sector (like M-36/M-27) etc. It is well known that Posco’s greenfield project of 12 million tonnes capacity at Orissa is held up due to innumerable problems relating to land acquisition.
Similar approach was recently taken by another global major, ArcelorMittal, which has so far been unsuccessful with any progress of their greenfield steel plant of 12 million tonnes capacity in Jharkhand. It had become a co-promoter of Uttam Galva steels, a prominent producer of CR, GP and colour coated steel by taking about 34% of share and ultimately planning to take 44.2% share of the company valued at Rs 500 crore.
ArcelorMittal is planning to set up a greenfield plant in the state of Karnataka, in which case the HR facility in the new plant may provide backward integration for CR and GP products of Uttam Galva. There are also some talks of ArcelorMittal joining hands with SAIL in the greenfield steel project at Bokaro in Jharkhand.
Let us look at some of the immediate positive factors. First, there is enhancement of goodwill and brand image. Second, the foreign player would be able to leave its footprint on Indian soil, taste the market dynamics including forays into the typical supply chain management before embarking on an independent venture. Third, steel produced in the new plant may serve the needs of their mills abroad in a much more cost-effective manner. Fourth, the value-added products of the new mills in India would require superior grade of substrate materials (for instance, higher grade HR for superior quality CR and GP) thereby, allowing higher capacity utilisation of their mills abroad which are suffering due to lack of consistent demand in advanced countries.
Fifth, as import of basic steel on a continuous basis may not be a permanent solution, it would prompt backward integration efforts in India in the coming years. Sixth, it would provide relief to the indigenous partner by not looking for costly fund sourcing for modernisation or expansion. Seventh, the marketing of the end products would get a big boost with addition of one of the pioneers among the global steel producers. Eighth, the value-added steel products would create a niche market in India and would lead to innovativeness and sophistication in pattern of demand.
Indian steel is poised for a big push as increasing demand from the infrastructure and processing industries coupled with easy and consistent availability of steel suiting to the emerging new segments would take the country to a greater height of economic development and inclusive growth.

Source: Economic Times India