Silver lining for Indian steel       

When Chaudhary Birender Singh became steel minister in the National Democratic Alliance government in 2016, the industry was going through a rough patch, mainly due to dumping of cheap sub-standard steel from China, and imports from Japan and South Korea. Now, things are looking up. Timely interventions by the steel ministry such as imposition of anti-dumping duties and minimum import price, and an uptick in global demand have revived the sector. Prices of steel products have stabilised, steel-making capacity and production are growing, and private steel producers are reporting profits. The 72-year-old Singh says now the focus is on investing in research and development, being globally competitive both in cost and quality, and increasing the production of high-grade steel. Excerpts from an interview:

Can you give us some details about why the steel industry went into such a slump and how you scripted a turnaround in just two years?

Steel is one of the most important sectors among the eight core industries. It contributes 2% to the country’s gross domestic product (GDP), employing nearly 500,000 people directly and 2 million indirectly, and is highly capital-intensive. Before entering into any discussion on the turnaround of the sector, it is important to realise why the industry went through such a rough patch between FY12 and FY16. The most important factor was overproduction and excess capacity creation by Chinese steel manufacturers. China was producing nearly 25-30% more steel than what it was consuming, and hence was dumping all the excess steel mostly in India and in other countries, too. So, it was not a problem for India only but was turning out to be a universal crisis. What helped Chinese steel manufacturers was a 25% subsidy given by its government. The problem was further accentuated because both developed and developing nations had cut down on their consumption because of the adverse impact of the great financial crisis of 2007-08. For instance, while the Indian steel industry was growing at 5.3% in FY15, both China and Japan reported negative growths of 5.4% and 7% respectively in the same year. Prices of steel in India fell by nearly 42% from ₹36,000 per tonne to ₹21,000 per tonne and production too started to decline. The other reason was that banks had gone out of their way to provide loans to the big integrated steel plants, which failed to perform according to expectations or assessments made by the lenders.

When the Narendra Modi government came to power, it took several measures to provide immediate relief to the industry and drew up a long-term plan to revive the sector, including the announcement of the National Steel Policy of 2017. As an immediate measure, the ministry decided to impose a minimum import price (MIP) on imported products to stop the inflow of cheap but substandard steel from China into the country. Other steps like levying an anti-dumping duty were available, but they were put off because they would have taken some time because it is a quasi-judicial process—they require investigation in the home country. But after nearly eight months, several products were brought under the anti-dumping duty. All these measures, including the imposition of safeguard duty and countervailing duty, helped to bring down the imports from 11.7 million tonnes to 7.6 million tonnes—a reduction of nearly 35%. And within the next one-and-a half to two years—2016-17 and 2017-18—there was a turnaround in the steel sector with steel production going up from 89 million tonnes in FY15 to 134 million tonnes in FY18. Steel exports, too, went up a massive 136% and India became a net exporter of steel for the first time in FY18.

How is the steel industry faring today?

India’s per capita steel consumption has jumped from 58 kg to 68 kg in the past three years (as of March 2018) as against 50 kg to 58 kg in seven years (before 2015). Hence, the government has set an ambitious target of 300 million tonnes of crude steel production by FY31 in its National Steel Policy. It expects steel demand to jump to 255 million tonnes and the per capita steel consumption to 158 kg. Steel production today is 134 million tonnes, demand around 110 million tonnes, and per capita consumption 68 kg. Prices of steel products today range from ₹35,000- 41,000 per tonne, which is good. Reaching the target of 300 million tonnes would require an investment of ₹10 lakh crore by the country.

Are you satisfied with what the steel sector has achieved so far?

Not really. As steel minister, I am not happy with the fact that only 1.67% of our total production is going into exports. To sustain our position as a net exporter, we need to export at least 4-5% of our total production. But that is only possible if the country can produce value-added, high-grade steel that is used in automobile, defence, aerospace and nuclear establishments, and is globally competitive both in terms of quality and cost. After all, India is already becoming a hub for the auto sector with experts predicting that after five years nearly 28% of all cars will be produced in India. I am not impressed with the amount of crude steel that the country produces. What we need is higher production of high-end steel because that is the steel of the future. We are very clear that the country should either go in for technology transfer for production of high-grade steel in India through the foreign investment route or integrated steel players should enter into joint ventures with global players to get the necessary technology, if they cannot develop it on their own. For me, consumption and production are not really a subject of worry, but global competition is, since other countries too will be raising their capacities.

What are the different challenges that the ministry faces in making the domestic steel sector globally competitive?

The biggest worry is about the supply of raw materials for the steel industry. For instance, we have to import nearly 80% of the coking coal, mostly from Australia, for our production. There are two main players of coking coal in the world, who call the shots in terms of pricing. Sometimes it is $70 per tonne and the next morning it has jumped to $200 per tonne and then comes down to $160 a tonne after a few days. Such kind of volatility in prices disturbs steel manufacturing and plays havoc with their earlier estimates. I have called for a new technology to reduce the dependence on coking coal. But it will take time. In the meantime, we have decided to search for new mines and restart some of the old ones in Mozambique from where 25% to 30% of the coal can be used as coking coal. That process has been going on for the past four to five months, but that is not enough. Again, under the National Steel Policy of 2017, we are focussing a lot on the installation of top-end washeries at pitheads of the mines, and the use of Corex technology [a greener process to produce steel] to reduce the use of coking coal.

Even in the case of iron ore, which is easily available in India, there is a lot of emphasis on pelletisation—converting iron ore into pellets—in the National Steel Policy. We have asked all the players, including public sector units like Steel Authority of India, to set up pelletisation plants and to make the best use of pellets. I have been told that Tata Steel plants use 40% of pellets in place of coking coal. Similarly, Jindal Steel and Power has set up a Corex technology plant that does not require coking coal at all. And if the players are forced to import, then the only way they can remain globally competitive is to be highly efficient in their operations.

How are you assessing the financial health of the steel sector today?

Even today the banking sector is apprehensive about lending to the sector because at a time nearly ₹8 lakh crore of stressed assets—about 27-28%—was due to the steel sector. But all the 27% stressed assets belonged to the larger integrated plants and not the secondary players. The non-performing assets (NPAs) of the secondary steel manufacturers were less than ₹2,000 crore. I want the banking sector to start lending to the secondary steel manufacturers.

It is interesting that while the banks, which are under the finance ministry, lend, it is the steel ministry that is being asked to sort out the problem... take some action. In fact, we had started restructuring loans of the steel sector some two years before the Insolvency and Bankruptcy Code (IBC) came into existence and we were able to restructure loans worth ₹47,000 crore. And when the IBC process was announced of the 12 bankrupt companies, among the top six, five were steel companies. It was the best time for the steel sector because the turnaround and restructuring in the steel sector was already on.

The acquisition of bankrupt Electrosteel has been done and also that of Bhushan Steel. The original bid of the Tatas for Bhushan Steel, which had run up a debt of ₹44,000 crore, was to pay ₹35,200 crore to the bank, provide 12.2% equity to the lenders and ₹1,200 crore to operational lenders. Hence, banks may not have to take large haircuts as expected.So, there is a huge demand for the steel mills of the bankrupt companies.

What are your main priorities for the steel sector?

I want to give the highest priority to R&D and innovation. If we lack in these two areas, we will never be globally competitive, nor become one of the strongest economies of the world. Hence, the ministry has created an umbrella institution called Steel Research & Technology Mission of India (SRTMI) to focus on high-end research, and has already put funds at its disposal. It is not a completely new initiative, but we are ensuring that the knowledge available in various institutions like academic institutions, research labs of various steel companies, and individuals working on various projects is made available to all. This organisation will have representatives from secondary steel producers, integrated steel players, public sector entities like Steel Authority of India and even consumers, because they are the most important. Having a good brand and credibility is clearly not enough; you need to publicise your innovations so that more and more people come to know about them. I believe that SRTMI will make these innovations happen.

How are you ensuring that the regular boom-and-bust cycle of the global steel sector doesn’t impact India?

It can only be achieved by making steel the material of choice for the infrastructure sector since 75% of the country’s infrastructure is still to be developed. We have amended the General Financial Rules of the country to include the life cycle cost of a project, while awarding any infrastructure project. It will make steel an instant success because it provides a longer shelf life and lower maintenance cost for most projects like steel-intense roads, bridges, prefabricated buildings, water storage tanks, etc. Moreover, as consumption grows, so will the demand and production of steel. After several years, many countries of the African continent, too, will require huge amounts of steel for infrastructure development, and India should be in a position to provide that steel. I am highly optimistic about the future of steel but the only issue is that we have to be ahead of the curve as far as R&D is concerned.

We have also launched a preferential policy treatment for the domestic steel manufacturers called “domestically manufactured iron and steel products” in government contracts, which run into thousands of crores. As long as the domestic players meet the required quantity and quality standards—the technical specifications—they would be given preference in government procurements. The government has also set up a standing committee, headed by the steel secretary, to ensure that the policy is strictly followed and complaints of domestic players are resolved in a time-bound manner. It has already helped the government save nearly ₹5,000 crore in the first year. These measures will help the domestic players get major contracts from public sector units like Oil and Natural Gas Corp, Indian Oil, Hindustan Petroleum, GAIL, etc. for building pipelines, crude terminals, refineries, etc. Similarly, railway tracks, especially along the coast (because steel is rust free) and steel coaches, which will be launched later will also help the domestic industry. Flagship programmes like 100 smart cities, Housing for All, Atal Mission for Rejuvenation and Urban Transformation and high-speed bullet and metro trains will all contribute hugely to increasing steel demand in the country.

What will be the role of public sector companies like Steel Authority of India in the future?

Public sector companies like Steel Authority of India and Rashtriya Ispat Nigam will continue to be relevant for India because of the size of the country’s population, and because they have some vital social responsibilities under the Indian Constitution. These companies have other responsibilities too—they have to start competing with integrated private sector players, too, and not just the secondary steel manufacturers. They also need to change their mindset and become far more efficient. I believe the government’s duty is to make these units more robust and competitive not just because they have certain social responsibilities but were launched when very few businessmen wanted to enter the core sectors.

(This article was originally published in the September 2018 issue of the magazine.)