With SAIL capacity to steel by 60-70%, chairman worried by demand scene

Steel maker SAIL, which has reached the last leg of its Rs 70,000 crore modernisation programme, on Sunday said that post-modernisation, there would be 60-70 per cent jump in production capacity which is a challenge for the PSU as demand for domestic steel remains weak. Modernisation at the Bhilai Steel Plant (BSP) of India's largest steelmaker was likely to be over in the next few months and with this, the entire process of modernisation will be complete, SAIL Chairman P K Singh said.

"Except Bhilai, modernisation everywhere else is complete," Singh said. Bhilai Steel plant (BSP) is the largest facility of the state-run steel giant. "We will be under the process of ramping up our production. Our capacity will also find a 60-70 per cent jump. That is a real challenge for the company. To ramp up, produce, and sell. That is the biggest issue for the company," the chairman said, voicing concerns.

Steel Minister Chaudhary Birender Singh recently inaugurated the new Universal Rail Mill (URM) at SAIL's Bhilai Steel Plant and flagged off the first rake from the new mill, he said. The Rs 1,200-crore URM will take BSP's total capacity to produce rails at 2 million tonnes per annum (MTPA), which will be the largest rail production capacity in any single location for a plant the world-over.

Elaborating, he said that the company had a production growth of 17 per cent in the last calender year and he expects an output growth of 15-17 per cent this year as well. "This extra production, which is coming particularly when the demand is not growing....There lies the challenge," he said.

The production is growing almost 7-8 per cent but demand is growing by 3 per cent, he said adding the per capita consumption, which is at 61 kg, needs a rapid push. "We are also driving mass scale campaign where we are meeting various ministries, consumers, various users to increase the steel consumption. We are also getting a lot of help from the government," he said.

The Chairman said that to overcome the challenges, a massive communication exercise is being undertaken right from the top and more than 20,000 employees have been covered under it. SAIL is optimistic that it will yield positive results. In a bid to to boost steel consumption in the country, he said, there is a need to improve the use of steel in proportion with cement -- a key building material.

"In our country, there is one of the lowest steel-cement ratio. That (India's steel-cement ratio, in terms of usage) is only 0.3 whereas in the advanced countries, it is 1 or more than 1 and in some it is 1.5:1." Crude steel production of SAIL, which was at 14.3 million tonnes (MT) in FY'16, would increase to 21.4 MTPA post expansion in FY'17.

The PSU's saleable steel production, which was at 12.4 MT in 2015-16, would augment to 20.2 MTPA post expansion in 2016-17. The company's hot metal production, which stood at 15.7 MT in FY'16, would reach 23.5 MT post expansion in FY'17.

Singh added that in the upcoming budget the clean energy cess on coking coal should be withdrawn and the import duty on metallurgical coal should also become nil. "We also expect reduction in railway freight for the steel industry in the upcoming budget and increase of spending on infrastructure sector," he said.

Singh said that he also expects promotion of steel intensive infrastructure in order to increase the consumption of the alloy in the country. The Steel Ministry, in its recommendations to the Finance Ministry, has also sought to bring down the import duty on coking coal, an essential ingredient for steel production. The import duty on coking coal is 2.5 per cent now.

A Parliamentary committee had earlier suggested removal of 2.5 per cent duty on import of coking coal and scrapping of clean energy cess of Rs 400 a tonne, as these measures hinder competitiveness of domestic steel firms. The government will present the Union Budget 2017-18 on February 1.

Meanwhile, growth in internal demand, implementation of government schemes and new measures will play a vital role in reviving the domestic metals industry in 2017, a report said. "The Indian metals industry passed through a period of turbulence in 2015 and 2016. However, the government's recent measures to curb imports and introduction of price floor on select existing imports will play a major role in enabling the revival of the domestic metals industry," Dun & Bradstreet (D&B) said in its report on 'Metals and Mining sectoral outlook 2017' said.

The metals and mining industry predominantly derives its demand from growth of sectors such as infrastructure, construction, automobile, power and electronics, etc. The most significant growth opportunity going forward is expected to come from government schemes such as "Make in India", "Smart Cities" program, 100 per cent rural electrification and "Housing for All", it said. The report pointed out that the low cost imports have adversely impacted the domestic steel industry. In 2016, the world steel production remained flat as compared to the previous year. All the major steel producing countries in the world have registered a decline or significant reduction in production, with India being the only exception.

For the period January-October 2016, crude steel production in India increased to 79.2 million tonnes, registering a growth of 6 per cent, as compared to the corresponding period in the previous year. However, the unfavourable market for steel globally has negatively impacted the Indian steel industry too.

The implementation of the Minimum Import Price (MIP) on select steel imports played a vital role in protecting the domestic players, the report added. The oversupply of steel in India will deeply hinder the ability of domestic manufacturers to increase prices, thereby likely impacting their growth during 2017.

The government's strong focus on increasing manufacturing in India through its 'Make in India' campaign and expected increase in infrastructure spending for roads, rail and ports are expected to boost demand for steel in India, D&B report said.