Industrial Economist (IE): How have the steel sector and SAIL performed during the year?
C S Verma (CSV): Steel consumption in India during Apr12-Jan13 decelerated 4.1 per cent as compared to growth of 6.3 per cent during the same period last year. The impact of economic slow down has affected the steel industry also. Almost 90 per cent of steel consumption is in infrastructure, construction, engineering, capital goods and the automotive sector. Growth in housing construction has come down from 8 per cent to 6 per cent. The automotive sector has also slowed down. But in spite of challenging conditions in global markets, domestic producers have increased exports this year which is a positive. Also, price of coking coal, one of the main steel making raw material, has come down compared to last year.
IE: In this time of general inflation could you contain steel prices?
CSV: Steel prices are a function of demand and supply. Globally economic slowdown has adversely affected most markets with prices on a downtrend. In India there has been a decline of almost Rs 4000 - Rs 4500 per ton in the prices of steel products in the last 12 months.
IE: Your suggestions for expanding capacity and stimulating demand?
CSV: Capacity addition is done keeping in view, long term demand projections. Also, gestation period from planning to execution of projects in steel industry is 5 years.
India is ultimately a demand centre for steel. Hence, future demand for steel in India is likely to absorb the additional quantities planned under the capacity expansion programme. The current capacity utilisation in the country is approximately 80 per cent. Fresh capacity expansion is interlinked with land acquisition and raw material linkage issues.
The government is already taking up these issues on priority which should help in faster capacity addition. Steel industry is capital-intensive and hence providing cheaper fund to steel sector would help in faster capacity addition. It is estimated that a Rs 65,000 crore fund is required per year in order to reach 300 million tonnes of steel capacity by 2025. Steel demand is a function of investment in infrastructure and construction. As new projects take off, steel demand would follow.
IE: What is the role of technology in improving productivity?
CSV: Technology plays a critical role in the steel industry. The amount of energy required to produce a tonne of steel has been reduced by 50 per cent in the last 30 years. These days, there is higher emphasis on beneficiation of ore so that domestically available resources are utilised to the full potential. New technology is also being employed to use coal in place of coking coal. Another area where technology plays important role is in minimising carbon footprint and maximising energy conservation as steel making is a highly energy consuming industry. More and more steel users, especially, automotive and other high end users are demanding light weight steel with higher strength. New technology is being used to develop such steel for high end applications.
IE: Your estimate on the state of the industry in 2015.
CSV: By 2015-16, India is expected to become the second largest steel producer in the world. Consumption will touch 100 million tonnes. India is also expected to become net steel exporting country by that time. Both steel production and consumption are moving towards emerging economies while developed world is slowly losing its share. The domestic steel industry is still in a growing stage and expected to reach a capacity of 149 million tonnes by end of the 12th Five Year plan. Long term growth story of India is still intact and it is expected that the steel industry in India would be one of its major drivers of growth, as it happens in any developing economy.