Steel Capacity Seen At 240 Mt A Year By 2020

Steel Capacity Seen At 240 Mt A Year By 2020 If all of the proposed capacity expansion and greenfield ventures announced by various domestic and international steel manufacturers in the country see the light of the day, India will achieve a capacity of over 240 million tonne per year by 2020. Compare this with China's present capacity which is already at 349 million tonne. The draft National Steel Policy 2004 of the steel ministry had set a target of 110 mtpa by 2019-20 and the figure does seem conservative. India produced 38.1 mt in 2005. The growth of the steel markets is directly linked to gross domestic product as steel consumption follows GDP movement in absolute. Various estimates based on different assumptions of domestic demand throw up consumption figures that vary between 92 mt by 2020 at a compounded annual growth rate (CAGR) of 7 per cent to 195 mt at a CAGR of 12.5 per cent. Industry experts say that a GDP growth rate of 8 per cent will result in the steel market growing at 12 per cent. Such simplistic calculations may, however, not reflect the complete story as the sector grows in spurts. Considering the Chinese example, the country produced about 67 mt of steel in 1990, which was scaled up to 126 mt ten years later. In the period between 2000 and 2005, its production went up to 349.4 mt with an addition of a whopping 68.9 mt only in 2005 and China is on its way to clocking 400 mt this year. Whatever may be India's production figures in 2020, the signs are ominous. The big question is when will the tipping point occur to spiral production? India's infrastructure sector is expected to grow at a compounded annual growth rate (CAGR) of 15 per cent with $191.51 billion already committed into the sector over the next five years. Of this, $69 billion will come from the government as part of the 11th Plan. Construction also grew by 12.6 per cent between 1999-00 to 2005-06 and is poised for further growth in the next decade. While India's per capita consumption of steel currently stands at around 35 kg per person and the world average is about 180 kg, China's average is 220 kg. Hugely urbanised countries, such as Taiwan, have a whopping per capita consumption figure close to 1,200 kg, while developed nations usually sustain a figure over 300 kg. "Rapid urbanisation is going to drive domestic consumption in the next few years as steel is a city-centric commodity. Consumption will depend on the rate of urbanisation, and this will also drive up the per capita consumption of steel in the country," said a steel industry expert. Other demand drivers like the increasing gross savings rate and fixed capital formation rate coupled with the young demographic profile of the population will spur growth as will the growth of the auto industry and the manufacturing sector. "If India can sustain 10 per cent growth in services, 12 per cent industrial growth and 3 per cent in agriculture for the next 15 years, then 220 million tonne by 2020 seems likely, but this can only be sustained by a very strong urbanisation drive," said an industry official. The ore rich states of Orissa, Jharkhand and Chattisgarh have signed a slew of pacts with steel corporates for the setup of projects in these states but this is not the first time this has happened. Back in the 90's too, there was a similar exodus focused on Orissa with a host of proposals for steel plants to be setup that included the likes of Tata Steel and Kalinga Steel floated by Swaraj Paul. Of these, only Nilachal Ispat Nigam Ltd (NINL) and Mideast Integrated Steels Ltd have seen the light of day. While environmental issues claimed some projects, others got stuck in local opposition to land acquisition or the lack of a transparent mining policy that could assure the supply of iron ore. Some others suffered from the lack of infrastructural support. Steel analysts say that the given the cyclical nature of the demand in the industry, players jump in when the going is good but by the time the projects fructify, demand is on the downside so the ventures get postponed or shelved. "The steel outlook for the next one year remains strong but with China becoming a net exporter of steel there may be a supply glut in the international market after that. It would be interesting to see how many of the MoU's signed actually fructify after that," said Vineet Nigam, Asst General Manager (Steel), ICRA.