Steel Industry

STEEL INDUSTRY

PROJECTS TODAY DECEMBER 20132266

Shaky present, but reassuring future

Steel Industry:

26-31] PT Profile_Steel Industry.qxp 12/5/2013 4:09 PM Page 26

PROJECTS TODAY DECEMBER 2013 27

teel consumption in the first six months of the

current fiscal 2013-14, remained flat, showing a

meagre year-on-year growth of 0.8 per cent. The

consumption of finished steel, the core component of the

steel industry, also showed a slight rise to 36.58 million tonne

during the April-September period of the current fiscal, as

compared to the 36.28 million tonne consumed during the

same period a year ago.

The falling demand from the two major steel consuming

sectors - Automobiles and Real Estate, led to the overall poor

performance of the steel sector. Auto industry has been

struggling with lacklustre demand since the last fiscal with no

signs of respite in the near future. In case of Real Estate,

including commercial Building sector, the problem is that of

piling up inventories, which has considerably slowed down

the launch of new projects.

At the beginning of this fiscal, World Steel Association (WSA)

had pegged India's steel demand growth rate for the year at

5.9 per cent. However, owing to the constraints faced by steel

using sectors, WSA later slashed its projection to 3.4 per cent.

Thus as compared to the 2.6 per cent growth rate seen in the

last fiscal, India's steel demand is projected to grow by 3.4 per

cent to 74 million tonne, with hopes pinned on investment

activities stirring up the auto and real estate sectors over the

coming months.

Current industry sceneThe 12th Five Year Plan (2012-2017) envisages the steel sector

touching 142.3 million tonne capacity by 2017 from the current

capacity of 85 million tonne. However, going by the current

economic slowdown, it is evident that the sector is most likely

to miss the target by a huge margin.

Lack of growth in steel demand has put downward pressure

on steel prices, forcing a majority of steel producers to defer

their expansion plans.

Apart from lacking demand pull, procedural delays in

receiving environmental clearances, land acquisition, raw

material linkages, etc have also thwarted India's capacity

addition plans through greenfield and brownfield projects.

A major blow to the steel sector came in July 2013 when global

steel giants, Arcelor Mittal and POSCO, abandoned their plans

of setting up mega steel projects in India, citing land

acquisition issues and stiff opposition from locals.

ArcelorMittal abandoned its 12 million tpa steel project in

Orissa due to inordinate delays, problems in acquiring land

S


STEEL INDUSTRY


and securing iron ore linkages. In 2006, ArcelorMittal had

signed an MoU with the Orissa state government for setting

up a 12 million tpa steel unit near Paradip in Keonjhar

district of Orissa involving an investment of `40,000 crore.

The company required around 8,000 acre of land to set up

the steel unit, a captive power unit and a township. The land

acquisition process was underway till 2009, after which the

project was put on hold due to a decline in global demand

for steel and difficulties in securing mines and other

licenses.

South Korean steelmaker, Posco, abandoned its six million

tpa finished steel project worth `32,336 crore in Gadag

district of Karnataka because of stiff protests from local and

religious communities which stalled the land acquisition

process. The project had received in-principal approvals

from State High Level Clearance Committee (SHLCC) in 2010

and had made some progress till 2011. However, since then

the land acquisition was suspended. The project was to be

supported by a 400 MW coal-based power unit.

Other steel projects, accounting for a total of 85 million

tonne of capacity, have also been stuck for want of land,

water, environment and forest clearances.

Indian producers hope that the domestic economy will

quickly regain momentum so that their growing output is

absorbed by local demand, which would obviate the need

of facing intense competition in sluggish international

markets.

Retailing steel garners focusWith demand for steel slowing down due to a slump in

construction activity in the main cities, and lower sales of

automobiles and consumer goods, some of the major steel

producers have come out with the novel idea of supplying

steel products directly to the end users through company-

owned retail shops.

One company which has taken a pioneering step towards

expanding retail outlets is JSW Steel. Over the next five

years, JSW Steel plans to open as many as 5,000 shops in

rural and semi-urban India to sell custom made steel. The

company aims to have 450 low-investment, franchisee-

model outlets by the end of FY14. The company currently

has 425 shops covering 600 districts. JSW will either open

JSW Shoppe, its organised retail brand, or a smaller format

of Shoppe, which will cater to the demand emerging from

rural India.

Essar Steel, which was the first one to enter the retail steel

segment and set up its organised steel shops, currently has

a network of 68 Essar Hypermart stores and about 300

franchisee outlets.

Rashtriya Ispat Nigam has tied up with 761 dealers across

the country to supply TMT (thermo-mechanically treated)

rebars to the rural consumers.

Jindal Steel & Power has adopted what is known as a two-

tier model comprising distributors and dealers. They have

covered all the districts in the country, through a network of

450 distributors and about 1,000 dealers.

SAIL's retail channel is expected to increase more than two

fold and handle steel products of more than one million tpa

from the current level of around 0.5 million tpa. SAIL has

about 2,900 dealers in 611 districts across the country. The



company outlets have been given a distinct identity as

'Apna SAIL Shops' and act as retail outlets for the company,

Even while the companies are rapidly expanding their

presence in the rural landscape with their own retail chains,

these outlets still contribute only a very small part of their

total sales.

Retail steel consists mainly of construction products like

corrugated roofs, bars and rods. So far, retailing forms only

a small part of the total steel market, with roughly 25 per

cent of the big steel companies' production going to the

retail sector.

Even though retail lacks the scope of profit compared to

conventional markets, the segment is expected to offer

longer term benefits. Especially in times of economic

slowdown, the retail segment can provide the much

needed cushion for steel companies.

The rural-urban mix may not change significantly for these

companies for years to come but still these stores are

important as they help in pushing the company's brand

name deeper into rural pockets. Organised retail is

helping steel companies maintain and sustain their

volumes, and supports growth in semi urban and rural

areas providing year-on-year growth in times of slowdown

and volatility.

New Steel ProjectsIn the twelve months ended 30 September 2013, a total of

112 fresh projects worth `6,809 core were announced in the

Iron & Steel industry. Most notable amongst these was the

Hot Rolled Coils project by Uttam Galva Steels worth `1,400

crore. The three million tpa project is proposed to come up

at Kalinganagar in Jajpur district of Orissa. Among the other

large steel projects, those of Allied Strips, Bajran Steel and

Mackeil Ispat are notable ones.

Allied Strips proposes to set up a galvanized pipes project

worth `980 crore at Gollapuram in Anantpur district of

Andhra Pradesh with a capacity of 4.93 lakh tpa.

Shri Bajran Steel and Power proposes to set up a one million

tpa finished steel project at Beoharai in Shahadol district of

Madhya Pradesh. The project is estimated to cost `780

crore.

Mackeil Ispat & Forging will invest `500 crore to expand the

capacity at its steel melting shop at Durgapur in Bardhaman

district of West Bengal by 0.3 million tpa.

Growth in ProjexThe five year trend in projex investment in the Iron & Steel

industry indicates a fall in the last two years. The fresh

investment which reached its peak in 2011 at `629,614 crore,

has been failing since then to reach `482,049 crore by 2013.

Trend in project execution The trend in projects under execution suggest a revival in

project execution after a steep fall in 2012. After peaking at

`279,142 crore in 2011, the total amount of projex under

execution fell to `236,534 crore in 2012. But the under-

execution investment has improved to `272,081 crore by

September 2013.

With hopes of economic downturn bottoming out in the

second half of the current fiscal, many steel companies

have started chalking out future expansion plans.


STEEL INDUSTRY


Tata SteelTata Steel, the flagship company of Tata Group, is setting up

a six million tpa integrated steel plant at Kalinganagar

Industrial Complex near Duburi in Jajpur district of Orissa.

The company is implementing the project in phases,

wherein the first phase, estimated to cost `25,000 crore,

with a capacity build-up of three million tpa, is underway,

which is likely to be operational by March 2015. The

company is currently constructing the first module of the

project on 1,700 acre of land it has in its possession, with

plans to scale up the capacity to six million tonne as and

when it takes possession of the rest of the 3,500 acre it has

been allotted.

Tata Steel is also implementing a 50,000 tpa ferro alloys

plant and 0.4 million tonne bar mill at Gopalpur in Ganjam

district of Orissa. The project, estimated to cost `1,000 crore

is likely to be commissioned by FY15.

Jamshedpur Continuous Annealing & Processing Company,

a joint venture between Nippon Steel & Sumitomo Metal

Corporation and Tata Steel is undertaking the construction

of a 0.6 million tpa continuous annealing and processing

line. Currently work on the project is running as per

schedule.

JSW Steel JSW Steel is expanding the production capacity of its steel

unit at Vijayanagar, Toranagallu in Bellary district of

Karnataka. The capacity of 10 million tpa will be achieved in

two phases as follows:

In Phase-I - the capacity will be expanded from four

million tpa to seven million tpa

In Phase II - the capacity will be expanded from seven

million tpa to 10 million tpa

The project also includes facilities such as beneficiation

plant to be implemented in two phases; a pellet plant; and

a 300 MW captive power plant. The project is estimated to

cost `10,000 crore and is likely to be commissioned by

March 2015.

Jindal Steel & PowerJindal Steel & Power (JSPL) is setting up an integrated steel

plant with a capacity of three million tpa along with a 1,320

MW captive power plant at Patratu in Jharkhand. The

company has already commissioned 1.6 million tpa wire

and bar mill and the balance facility is likely to be

commissioned by June 2015.

JSPL is also setting up a six million tpa steel plant at

Kerjenga near Angul in Orissa. JSPL has already

commissioned 2.5 million tpa capacity out of six million

tpa in the first phase of the project. Work on the 3.5 million

tpa of the project is likely to be commissioned by

December 2015.

Posco IndiaPosco of Korea, had proposed to set up an eight million

tpa steel plant in Paradip, Orissa, for which the company

had signed an MoU in June 2005 with the state

government to set up the project, envisaging an

investment of `12,000 crore in the first phase. Due to

various regulatory delays, the company could not

commence the construction activity of the project. The

MoU expired in June 2010 and the company is pursuing its

renewal.



As of October 2013, the company was yet to get captive iron

ore mines even though the state government has

recommended a prospecting licence for Khandadhar mines

in the Sundergarh district. Posco's other steel sector

investment is in Maharashtra, where it is setting up a cold

rolled steel plant with a capacity of two million tpa at

Mangaon in Raigarh district of the state.

Steel Authority of India (SAIL)SAIL intends to ramp up its capacity to 50 million tpa by

2025, entailing an investment of `1.5 lakh crore. SAIL is

close to achieving 24 million capacity with its ongoing

modernization and expansion work scheduled for

completion in 2014.

The investment will be funded through internal accruals

and debt.

In 2014-15, SAIL plans to spend `3,300 crore on its Bhilai

steel plant, as part of its ongoing `72,000 crore

modernisation and expansion programme to take its

capacity to 24 million tpa from 14 million tpa now. The

company also plans to invest `2,234 crore in its Rourkela

steel plant, `1,280 crore in IISCO plant, `800 crore in

Durgapur plant, and `860 crore in the Bokaro plant.

Rashtriya Ispat Nigam (RINL)The central government owned company has embarked on

a major expansion project at its plant in Viskhapatnam. The

company intends to attain 10 million tpa capacity, entailing

an investment of `20,000 crore.

RINL is currently implementing the expansion phase-wise,

wherein, under the first phase of the expansion, the

capacity is being ramped up from three to 6.3 million tonne

with an investment of `12,500 crore.

Further, RINL has also decided to invest approx `23,000

crore on the next phase of the expansion, which would give

it an additional four million tonne capacity.

Along with the first phase of expansion, which is at

stabilisation stage, RINL is also investing about `7,500 crore

on capital repairs of Blast Furnaces Krishna and Godavari

and other facilities, opting for pulverised coal injection to

substitute blast furnace coal, upgrading three converters,

and increasing techno-economic parameters of Steel Melt

Shop-1. All these initiatives will increase the capacity by one

million tonne, thereby taking the production to 7.3 million

tonne by 2014.

MescoMesco Steel has proposed to ramp up its steel making

capacity at its Kalinganagar plant in Orissa. Mesco will

invest `8,000 crore to take the capacity from the current 1.2

million tpa to 3.5 million tpa. This will be Phase-II of the

project and will be completed in five years. In Phase-I,

Mesco had invested `2,500 crore to set up the 1.2 million

tpa Kalinganagar steel plant at Jajpur district in Orissa.

OutlookPMO has set out a vision of enhancing India's steel-making

capacity to 300 million tpa by 2025 from the current 85

million tpa, which would call for investment of over $200

billion. As per the current scenario with subdued project

investment in the first two years, where even the 12th five

year plan target of 142 million tpa seems out of reach,

achieving 2025 target seems difficult. However, policy

logjam is expected to be a passing phase and surge in steel

demand following resurgence in infrastructure investment

in the remaining three years of the 12th plan and during a

more ambitious 13th Plan, would probably help a speedier

progress in steel capacity build-up.

Thus, the Steel Ministry has asked states to come up with

land and ore availability plans for setting up ultra mega

projects that would enable reaching the 300 million tpa

capacity by 2025. Talks are also proposals for setting up an

entity or special purpose vehicle (SPV) on the lines of Power

Finance Corporation (PFC) to fund mega steel projects.

The Steel Ministry has also mooted a proposal for a joint

venture (JV) between iron ore miner, NMDC and Orissa

Mining Corporation (OMC) to offer stronger iron ore supply

linkages to domestic steel producers.

The Ministry could also facilitate setting up of

manufacturing units for equipment required in steel plants

and reduce dependence on imports of such items, which

may save $120 billion in forex outflows for adding this

additional capacity.

Overall, with the per capita consumption of steel placed at

only around 51.7 kg, as against the world average of 202.70

kg, there is tremendous potential for improvement in the

domestic steel consumption given the economy's large

untapped markets, especially in rural areas, as also

investment imperative on infrastructure inadequacies.

Globally, we expect to see continued recovery in steel

demand in 2014 with the developed economies,

progressing further into positive growth and developing

economies consolidating their rates. Steel production

during January-October 2013 was 3.2 per cent higher,

compared to around 0.6 per cent in the corresponding

period of 2012.


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