New Delhi, Feb 24: Despite being the fifth largest steel producer in the world, India's per capita steel consumption is one of the world's lowest, a recent survey said. According to Indian Chamber of Commerce's (ICC) report: 'Indian Steel Scenario', India's position in steel production will get stronger with time, buoyed by increasing development in order to support the growing needs of the vast nation.
However, in comparison to the developed countries, the per capita finished steel consumption, in kilograms, is very low in the country. It is even lower to the neighbouring country China. The report added while China has seen a significant growth in steel consumption in the last decade, India still has a long way to go.
With a strong economy, amongst the fastest growing in the world, and with rising income levels and consumer spending patterns, India's steel appetite is likely to match the developed countries in the next one to two decades.
'' India's rapid economic growth is being built on a frame of steel and the industry will continue to play a very vital role in the overall growth of the country. Soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put the country's steel industry on the world steel map,'' the survey noted.
The report pointed out that the finished steel production has witnessed an increasing rate of growth in India. The production of finished steel grew by 16.5 per cent, from 44.5 million tonnes (MT) in 2005-06 to 49.4 MT in 2006-07. The finished steel production trend in the country, as estimated by the Joint Plant Committee (JPC) of Ministry of Steel, says that by 2015-16, India would become the second largest steel producer globally with an annual production of 137 MT.
Subsequently, India is expected to reach 220 MT of steel production by 2020. To achieve these targets for steel production, the Government needs to ensure that the Indian steel industry remains competitive.
In the steel industry, cost is the main driver for competitiveness, and 60-80 per cent of the cost of production is contributed by raw materials, mainly iron ore and coal.
Hence, to ensure a competitive steel industry the Government must ensure availability of low cost raw materials, the report added.
''The integrated steel plants in India that were set up many decades ago were able to secure raw material deposits in the form of mining leases in India for both iron ore and coal. However, the newer generation of steel plants has been unable to get the same advantage and are dependent on sourcing of these raw materials from stand-alone mining companies,'' it said.
''While historically, the gap between cost of mining and market prices ensured normal profits for both industries, we are now into a peculiar situation, '' the report said, adding that in the case of iron ore, most of the public sector mining companies have started fixing the price of their iron ore (sized ore and fines) on the basis of spot tenders and such prices are kept valid for a very short period of one to three months.
Small sponge iron producers and merchant exporters of iron ore have of late been quoting exorbitant prices in these tenders. As a result, even the public sector mining companies are not willing to commit supplies to domestic iron and steel industry under long-term contract.
The report said the iron ore industry is generating nearly as much profit as the steel industry, with the latter contributing much more significantly in terms of investment, revenue and employment generation.
While China has low cost coking coal available to itself, allowing it to balance the high price of iron ore, India is largely dependent on imports of coking coal.
Hence, the Indian steel industry is subjected to high prices of coking coal as well as iron ore, reducing its competitiveness.
According to the report, worldwide there are 800 billion tonnes of iron ore resources, containing more than 230 billion tonnes of iron. Among the largest iron ore producing nations are China, Brazil, Australia and India.
Despite being the largest producer of iron ore globally, China does not export any iron ore and instead imports more than 50 per cent of its iron ore requirement for its steel plants.
Being the exception, India is exporting more than 50 per cent of its iron ore production despite having lower per capita reserves of iron ore compared to China. Unlike Brazil and Australia, India is home to 1.2 billion people. Its potential steel demand over time is pegged at 220 MT by 2020, though this can be considered conservative in view of the fact that China's steel production has already touched 500 million Tonnes per annum.
Though India has large deposits of iron ore, there are some issues being faced in the utilisation of these deposits. A large number of deposits have been taken away by the large public sector mining companies who are developing the deposits largely for their commercial interest rather than for promoting any value addition within the country.
Due to several other factors, the government cannot allot several iron ore deposits for development of captive mines by companies who have actually progressed in development of their iron and steel projects.
The concern of the Indian Iron and Steel Industry is not just the misinterpretation of the absolute size of India's iron ore reserves, but more significantly how long the reserves would sustain against peak iron and steel consumption rates.
Most developed countries have a per capita steel consumption of 300 to 400 kg per person per year. For India, this would mean an annual steel and iron ore consumption of about 500 million tonnes and about 700 to 750 million tonnes per year respectively.
Last year, the country exported about 90 MT of iron ore, having grown three-fold from its level of 32 MT in the year 2000.
If iron ore exports are not phased out, then Indian reserves would last only 20 to 25 years.
There are two possible scenarios going forward. Under the first scenario, iron ore exports from India allowed to continue unabated with domestic availability of iron ore continues to be unstable and costly, making Indian steel industry uncompetitive.
Under the second option, iron ore exports curbed and phased out in order to promote value-addition, Indian steel industry developing and contributing to investments, revenue and employment generation.
While scenario one may appear more lucrative in the short term, the long term interest of the nation lies in scenario two.
India's urge to export iron ore should therefore be tempered by the economic benefits of converting it into iron and steel at home and the domestic need for the resource caused by the country's own graduation to being a big steel consumer, the report emphasised.