Growth will be faster

Interview with R.S. Pandey, Union Secretary for Steel.

R.S. PANDEY, Union Secretary for Steel, expects a period of sustained growth for the industry, assuming that the sector is able to iron out pressing issues such as coking coal supply and the incorporation of next-generation technology. He discusses the industrys prospects in this interview. Excerpts:

What future do you see for the steel industry in the next five to seven years?

The industry is poised for impressive expansion and growth in the next few years. Against the present capacity and production of 60 million tonnes and 53 MT respectively, we expect the capacity to grow to about 124 MT by 2011-12. Assuming the capacity utilisation is at 90 per cent, the production in 2012 should be of the order of 110 MT.

We have seen a healthy growth in consumption, at about 10 per cent annually, in the past three years. The production growth, too, has been of a similar order, although the sector has seen a dip in production growth rate to about 6 per cent in 2007-08 but that is because the major plants are already at over 100 per cent capacity utilisation. And capacity expansion in the steel industry has a long gestation period. But from this year onwards the growth will be faster, and by 2015 India will be the second largest producer of steel in the world as against its fifth position at present.

What is the role of SAIL in the context of an increasingly deregulated iron and steel sector in India?

SAIL is the industry leader since it is the largest producer in the domestic steel industry today with an output of 13 million tonnes of steel, which is more than double the output of its nearest competitor. Although a public sector company, it operates in the deregulated environment in which the entire industry is. The focus of SAIL today is on modernisation, capacity expansion, reaching the rural population through a wider and deeper distribution network, and an emphasis on CSR [corporate social responsibility] and sensitivity to consumers concerns.

The issue of steel export duty has come up once again with the rollback. What is the expected outcome?

After the recent order, the current position is that the duty on export of long products, such as TMT bars, and semi-finished products is 15 per cent; there is no export duty on flat products such as HR [hot-rolled] and CR [cold-rolled] coil/sheets, galvanised products, pipes and tubes. This can be understood in the context of the fact that flat products account for 4 MT out of our total exports of 5 MT.

The flat products manufacturing base also consists of a small number of major producers who have reduced domestic prices suo motu and have assured the government that they shall exercise self-restraint on exports. In addition, a good quantity of flat products export is against imported input materials. Keeping these factors in view, the export duty on flat products has been withdrawn.

In the case of long products, there are a large number of producers, exports have been traditionally much less, and rods and bars are the common mans items as well. A 15 per cent duty on exports of iron ore, which was imposed recently, will support the long-term competitiveness of the steel industry by facilitating the conservation of quality ore, which is Indias strength. It will also help in resource mobilisation for the government.

How serious is the problem of lack of quality coking coal in India? Could this have an effect on sectoral growth?

Coking coal shortage domestically and the abnormal hike in its prices internationally is a very serious matter. At present India imports 70 per cent of its coking coal requirements. The prices of coking coal have been rising steadily. This year, the prices have risen from below $100 a tonne to over $300 a tonne on long-term contracts. Given that one tonne of steel requires a tonne of coking coal, the rise in coking coal prices has worked as a cost-push factor on steel prices.

How are you going to tackle this issue?

This will require a multipronged approach. We are in talks with Coal India Limited regarding the operationalisation of the Jharia coalfields. The problem of the underground fires in Jharia needs to be addressed urgently. A proposal has been submitted and we are hopeful that a solution will be found soon.

Apart from that, SAIL, RINL [Rashtriya Ispat Nigam Ltd.], NMDC [National Mineral Development Corporation], NTPC and Coal India Limited have come together to set up a special purpose vehicle [SPV] called Coal Venture International. This SPV has been tasked to acquire coking coal assets abroad. We are currently looking at such opportunities in Australia, Canada, Africa and some countries in the former USSR [Union of Soviet Socialist Republics].

We are also encouraging companies to enter into long-term supply contracts to secure a continuous supply of good quality coal. Spot-purchase prices are always higher, so a long-term contract would insulate steel companies from uncertainties to some extent.

Finally, we also need to consider alternative technologies that have a lower dependence on coking coal. As coking coal becomes more scarce and expensive, we will be forced to change our methods of steel production. We have already seen new technologies in some plants in the country, and hopefully this trend will increase.

Given the number of MoUs signed by State governments, particularly Orissa and Jharkhand, fears have been voiced about the availability of enough ore to meet the conditions of the contracts. Are such fears justified?

The availability of iron ore is not a problem. These States have plenty of ore; however many mines are non-operational because of litigation. A large number of claimants and relatively limited number of blocks has meant that allocation has been a highly contested domain.

State governments also have to expedite the process of making recommendations. The National Mineral Policy is under review and is expected to improve the system of allocation to avoid such problems in future.