by Kunal Bose

Much good will befall the Indian steel industry, which has been given a capacity growth target of 300mt (million tonnes) by 2025, if prime minister Narendra Modi’s ‘Make in India’ programme is pursued with vigour backed by local and foreign direct investments. In his first year in office, Modi had made quite a few trips abroad in the west and in the east. While our prime minister has been eminently successful in raising the profile of the country in the world, a common theme in all his foreign itineraries was to create excitement about the potential of manufacturing sector in India. The challenge is now in converting that excitement into foreign direct investment. This has started happening earlier than expected. Of all manufacturing sectors, automobiles are so far faring the best in attracting FDI (foreign direct investment), creating big potential demand for steel and aluminium.

A high point of Modi’s visit to South Korea was announcement by Hyundai Motor chairman Chung Mong Koo that his company was in contemplation of building a third automotive plant in India. Success in manufacturing and marketing cars from small to medium to premium ranges over nearly a decade and a half and the positives of India becoming a more and more important automobile hub are the reasons for

Hyundai to think of a third plant here. Keen to expand Hyundai’s profile beyond automobile, Chung said “we hope to further expand in India in areas such as shipbuilding, construction and railway.” All the proposed ventures will boil down to using large quantities of flat and long steel products as they will create large numbers of direct and indirect employment requiring various skill sets. No doubt global interest in India has revived in a significant way with Modi’s accession to power on 26 May last year. What in particular is helping to win the confidence of foreign investors is New Delhi’s promise of a “stable, predictable and transparent taxation system” and fast tracking of major project approvals.

Hyundai’s third plant proposal and prior to that major investment decisions by Maruti Suzuki, Ford and Honda are all expression of faith in the new India story. In a remarkable feat, the Indian automobile industry raised exports of vehicles by 15% to 3.5 million units during 2014/15 defying flat demand in many markets. In a few months, the country will be ready with the automobile mission plan for the period 2016–26 under the ‘Make in India’ umbrella. But a consensus is already there in government and industry circles that India’s car market has the potential to grow to six million plus units by 2020. Assuming that on average a car weighs 1,300kg and in India steel mostly finds use in its making unlike in the US and Europe where aluminium, composites and plastics are making steady inroads as replacement materials, the automobile sector here will continue to flourish as a major steel consumption point.

Naturally, Steel Authority of India Limited (SAIL) chairman Chandra Shekhar Verma is pinning high hopes on the whole transport sector, including automobile industry for steel

demand generation. Ahead of his signing memorandum of understanding with ArcelorMittal for producing high quality automotive steel in India in a joint venture,Verma told this DCI correspondent “in auto grade steel local producers are required to do a lot more on quality and innovation fronts. This is leading SAIL to explore the possibility of tie-ups with an automotive steel leader. What is the point in developing the technology
that already exists somewhere else.”
The technology that India needs in automotive steel as car makers become more and more demanding are globally available with only a few like ArcelorMittal, Nippon Steel & Sumitomo Metal Corporation and Posco. SAIL tie-up with ArcelorMittal will prove highly beneficial for both.
Earlier Tata Steel made a tie-up with Nippon Steel and JSW Steel with JFE Steel Corporation.

As steelmakers in the public sector are arming themselves with more capacity and enlarging their value added products portfolio, the government at this stage is required to sufficiently raise steel import duties and also initiate anti-dumping measures on some products, particularly stainless steel so that arrivals of foreign origin steel in large quantities are discouraged. Sharp corrections in steel prices in the country in the last few months had got much to do with imports surge, especially from China, Japan and South Korea. Arguably, it is time New Delhi brought to bear upon Japan and South Korea that steel needed to be taken out of the comprehensive economic partnership agreements (CEPA) that India had signed with them. CEPA provides for yearly reduction in Indian duties on steel imports from the two Far Eastern countries till these become nil by 2016/17. This is a concession which India is no longer in a position to extend. The reason is that the country is investing heavily in creating new steel capacity, while demand growth for the metal has remained low. (World Steel Association found Indian steel demand growing 1.8% in 2013 and then 3.4% in the following year.)

SAIL alone is in the final stages of completing investment of Rs72,000 crore to lift hot metal capacity from 14.4mt to 23.5mt. Moreover, the blueprint for further expansion of SAIL capacity to 50mt by 2025 is being made ready. Like SAIL,Vizag Steel in the public sector and several leading steelmakers in the private sector are engaged in creating new capacity in most cases using best technologies and plant and machinery available anywhere in the world. But domestic capacity growth in times of subdued economic activity and demand restraining steel imports are inflicting injuries on Indian steel industry. In this country’s bilateral trade with China of $70.59 billion in 2014, recording a year-on-year rise of 7.9%, India had a trade deficit of $37.8 billion. During his recent visit to China, prime minister Modi told his Chinese counterpart Li Keqiang that the trade deficit issue needed to be addressed. China reining back on steel exports to India could mark the beginning of correcting trade imbalance.

Modi has given a call to investors from all over the world to “come, make in India; come, manufacture in India. Sell in any country of the world, but manufacture here.” What holds promise for the country’s manufacturing industry and steel and other metals in the upstream is that Modi’s ‘Make in India’ campaign has struck the right chord among investors abroad. Much benefits will befall the local steel industry if railway minister Suresh Prabhu manages to mobilize funds to give shape to the proposal to raise track length by 20% from 114,000km to 138,000km, annual freight carrying capacity to 1.5 billion tonnes (bt) from 1bt and daily passenger carrying capacity by 9 million to 30 million over the next five years. As the world’s second-largest railway network found in India expands, demand will be made primarily on Bhilai Steel to supply increasingly large quantities of extra long rails allowing safe movement of wagons and coaches running at higher speeds and with bigger loads.

In the nation’s drive to have a high degree of self-reliance in defence, the steel industry is rightly seeing a window of opportunity. During a recent visit to Rourkela Steel Plant where a newly commissioned mill is making 4.3m- wide plates, Modi said stepped up local defence production, including tanks and warships would “generate good demand for plates and other steel products.” India is the world’s largest buyer of weapons accounting for about 15% of global arms imports. It cannot be otherwise since the country is nearly 70% import dependent for defence wares. India has a programme to spend over $130 billion over the next seven years to equip the army with modern weapons.

In its pursuit to reduce import dependence on defence procurement, New Delhi as part of the ‘offset policy’ requiring at least 30% local procurement of value of defence contracts is pushing potential suppliers of military hardware to manufacture parts and components here in partnership with Indian companies. Such JVs are expected to make defence components for domestic and world markets. A steel ministry official says, “unlike sectors like infrastructure and construction, defence procurement generally remains immune to GDP growth. So local steelmakers will be assured of steady demand from military hardware manufacturers for a wide range of products and also in large quantities.” The steel industry globally is going through hard times in spite of major falls in iron ore and metallurgical coal prices. India is no exception. But the future of the industry here is bright since for many years, the country will have to invest heavily to build urban and rural infrastructure and expand the manufacturing sector to become a major supplier of a wide range of products to the world. In all such endeavours steel will be much in demand.