State of the steel sector

State of the steel sector

India is the world’s second-largest producer of crude steel with an output of 125.32 million tonne (MT) of crude steel and finished steel production of 121.29 mt in FY23. Its finished steel consumption is anticipated to increase to 230 MT by 2030-31. However, domestic steel producers are affected ...

India is the world’s second-largest producer of crude steel with an output of 125.32 million tonne (MT) of crude steel and finished steel production of 121.29 mt in FY23. Its finished steel consumption is anticipated to increase to 230 MT by 2030-31. However, domestic steel producers are affected by the surge in imports. According to CRISIL, imports may touch the 6 MT mark (from 1.2 MT) this fiscal. So, what should be done to navigate a balance between domestic manufacturing fortification and managing the influx of imports? For some answers, and to learn more about measures to reduce the carbon footprint of the steelmaking process in India, the use of green hydrogen and the Budget 2024 wishlist, CW spoke to manufacturers and end-users for their perspectives. “With steel demand growing along with the GDP, there is a huge potential for steel consumption in the world’s largest populated country. India’s crude steel production in 2023-24 may be an impressive 135 MT compared to 127.2 MT in 2022-23, with an expectation of almost doubling crude steel capacity in the next seven to eight years. Also, Tata Steel, JSW, JSPL, SAIL and AM/NS and ambitious secondary producers are planning expansions,” says Rajesh Vijayavergia, Consultant and ex-Executive Director (Operations), Steel Research and Technology Mission of India. Commenting on worldwide steel consumption, he added, “Today, steel consumption is around 1.8 billion tonne annually, roughly 222 kg of steel per person each year. However, there are huge regional differences in consumption patterns. While the apparent steel use per capita is 310 kg in Europe, it is around only 30 kg in Africa. Per-capita steel consumption in India is about 84 kg. For the expected global population of almost 10 billion in 2050, at today’s apparent steel use per capita, the requirement will be around 2.2 billion tonnes (BT). If we assume a surge in steel demand per capita in populous regions such as India or Africa, steel requirement could be up to around 2.75 BT per year by 2050. More steel needs to be produced, but with reduced CO2 emissions.” Steel dumping The surge in steel imports, termed by the Indian Steel Association as “dumping of steel products” from China, raises apprehensions for domestic steel producers. “The Government should increase the import custom duty on finished steel products to help Indian manufacturers leverage the market capex and compete with Chinese exporters,” says Vivek Kejriwal, CMD, Sunvik Steel. “The export duty on raw materials like iron ore should also be increased to reduce the cost of raw material domestically.” “To mitigate steel imports, several measures can be adopted, including tariff rate quotas and obtaining prior approval from the Bureau of Indian Standards (BIS),” says Ashish Gupta, Chief Executive Officer - ESL Steel, Vedanta Group. “These safeguards mirror the European Union's quota system, designed to regulate the influx of imports. Beyond these measures addressing the pricing of imported raw materials, providing import duty benefits could enhance cost-competitiveness against Chinese steel prices. Indian steel producers must prioritise process and utilisation efficiency to lower production costs while maintaining steel quality to remain competitive. The recent advancements in digitalisation within the steel sector, supported by artificial intelligence (AI), offer a promising avenue for the Indian steel industry. By leveraging these technologies, the industry can enhance quality and production cost-efficiency, ultimately reducing dependence on Chinese steel.” In terms of eliminating the need for imports, Chandresh Mehta, Executive Director, Rustomjee Group, says, “Maharashtra has reputed steel re-rolling mills located in Jalna, Nashik, Nagpur and Wada that produce A1 grade Thermax quality TMT steel in FE500, FE500D and FE550 variations. These mills fulfil the requirements of the MMR region and eliminate the necessity to explore the option of importing steel. We prioritise domestic sourcing for several reasons. Ensuring quality control is crucial to meet local standards and avoid construction issues. Foreign suppliers may also cause potential disruptions in the supply chain. Additionally, India epitomises a robust domestic steel sector that provides employment to millions of people. Opting for unrestricted imports could potentially harm these businesses, leading to job losses and closures. By sourcing steel domestically, we actively contribute to the sustenance and growth of the Indian steel industry. Importing steel also contributes to carbon emissions through transportation. Hence, prioritising local production aligns with our environmental sustainability goals.” The PLI scheme The Government’s Production-Linked Incentive (PLI) scheme has great potential to elevate the quality and variety of steel produced in India to meet the demands of diverse industries, as Gupta explains. “The scheme's focus on specialty steel production encompasses categories such as coated/plated steel products, highest strength/wear-resistant steel, specialty rails, alloy steel products, steel wires and electrical steel. In addition to financial incentives and investment commitments, the Government is actively considering PLI 2.0 to ensure a stable supply of raw materials for the sector. This holistic approach underscores its determination to address the entire value chain and create a conducive environment for the steel industry's sustainable growth. Additionally, the PLI should focus on technology adaptation for greener steel production and reducing the reliability of imported coal for steel production.” Asked whether the PLI scheme requires increased budgetary allocations, Kejriwal responds, “Yes, an increased budget allocation will help manufacturers go for expansion and directly or indirectly support the economy and employment in the country.” The end-user perspective “The steel sector is a crucial component of India's economy and the real-estate segment is one of the key drivers of steel demand with a significant portion being consumed in the construction of residential and commercial buildings, infrastructure projects and industrial facilities,” says Saket Mohta, MD, Merlin Group. “Our projects in Pune are progressing at a rapid pace and the requirement for steel is huge. Currently, we are able to meet the demand with domestic steel companies. However, the overall Indian steel industry has experienced a demand surge that aligns directly with the overall GDP growth with a consumption growth rate of around 15 per cent year on year (yoy) in the first 10 months of the year. Steel demand registered a growth of about 10 per cent during FY23 when consumption touched 120 MT.” The SME perspective “As we continue to witness remarkable recovery in the Indian economy with consolidation in manufacturing, a significant portion of SMEs [small and medium-sized enterprises] in the iron and steel sector are not only recovering, but growing at a faster rate than pre-COVID times,” says Indranil Dutta, Chief Executive Officer, Datre Corporation. “Infrastructure in a high-growth space, particularly railways and ports enables connected smaller players to grow fast. With raw material stabilising, companies, especially smaller ones in the foundry industry, need to address new challenges to expand at a rapid space to support OEMs that are overloaded with orders.” “Apart from the skill gap, diverse electricity tariffs across states fail to provide a level-playing field to the secondary steel sector, which banks heavily on energy to run its production.” In Dutta’s view, “While incumbent environmental, social and governance (ESG) and Industry 4.0 sound quite attractive, actual implementation will always remain a challenge for SME to spare finance separately. It is more prudent if big industry houses use their expertise to guide their critical component supply partners to mitigate these challenges. Otherwise, expected growth may always remain on paper as SMEs have limited space to act upon, thus also missing a great opportunity of a big group to service the global market that could add up in their respective value chain.” Privatisation “Privatisation is good as it brings in healthy competition and internal quality and services become better,” says Kejriwal. “Efficiency and innovation cost optimisation are a direct result of privatisation.” For his part, Gupta says, “Enterprises should be run efficiently irrespective of ownership and capital must also be utilised efficiently.” Reducing carbon emissions Carbon emissions in India are among the highest worldwide primarily as we use raw materials like iron ore and coal instead of scrap or other alternatives. “The blast furnace-basic oxygen furnace (BF-BOF) route accounts for 75 per cent of global steel production and is heavily reliant on fossil fuels like coal and coke,” says Gupta. “Globally, the steel sector contributes 8 per cent of total carbon dioxide emissions worldwide. In India, the steel sector alone contributes 12 per cent of the country's CO2 emissions, with an emission intensity of 2.55 tCO2/tcs compared to the global average of 1.8 tCO2/tcs. To reduce emissions to the 1.8-2.0 level, while specific actions in BF-BOF route steelmaking are crucial, additionally, the direct reduction furnace-electric arc furnace (DRI-EAF) route, using natural gas for DRI production, contributes to emission reduction. Overall, enhancing raw material quality, optimising process parameters and leveraging digitalisation and AI for data analysis are pivotal in achieving the target emission level of 1.8-2.0. Initiatives like perform, achieve and trade (PAT) and steel recycling policies will play crucial roles in the short term.” So, what prevents the large-scale utilisation of technologies such as injection of reformed coke oven gas (COG) and carbon capture and use and storage (CCUS), which aim to lower the emission intensity of blast furnaces? “The new technologies add an extra cost burden. Most of the times, manufacturers have to cut down the profit margin or incur losses initially so they refrain from adopting new technologies,” responds Kejriwal. “Moreover, lack of awareness and expertise adds to non-implementation of new methods.” Innovative global technologies According to the World Steel Association, CCUS technologies can be retrofitted into existing systems to cut carbon emissions, which are projected to touch 8 BT by 2050. Also, Japanese steel major Nippon Steel Corporation is working on ‘Super COURSE 50’, a technique to reduce carbon dioxide emissions by using heated hydrogen. It has already reported a 22 per cent reduction in carbon dioxide emission and is targeting an over 30 per cent reduction by 2023. The Japanese industry's second project, SCOPE 21, enables use of large amounts of non-coking coal for higher plant productivity. Green Hydrogen and Green Steel Green hydrogen (GH2) is another eco-friendly alternative that is being widely discussed as a replacement to coal. “Produced through the electrolysis of water using renewable electricity, green hydrogen stands as a beacon of sustainability,” says Gupta. “Green hydrogen needs a lot of R&D along with a huge capex investment,” according to Kejriwal. “It can be an alternative fuel to partly replace coal but there will be technology requirements at the plant level as well. It is the future.” “To combat climate change, steel must become green,” affirms Vijayavergia. “Use of hydrogen in steelmaking will reduce around 28 tonne of CO2 for every tonne of hydrogen. By 2050, almost 40 per cent (approximately 850 MT) of world crude steel will still be produced using the conventional route. So improvement of blast furnaces into low CO2 emission operation is the key challenge to decarbonise the steel industry.” The Budget wishlist “The raw material import process should be more business-friendly and import duty should be reduced for raw material,” says Kejriwal. Future demand for steel Demand for steel grew 10-12 per cent in 2023 and continues to rise. “Considering investments by the government in infrastructure, housing and projects like ‘Make in India’, Gati Shakti and PMAY, steel consumption is projected to grow at a CAGR of 7-7.2 per cent,” predicts Gupta. “The per-capita steel consumption is expected to increase from current 87 kg to 160 kg by 2030-31, signalling a bright future for the Indian steel sector.”

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