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India’s steel plans may prove too ambitious

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The government may struggle to find 91,000 acres of land to pack new 175 mt capacity

Kunal Bose  April 17, 2017 Last Updated at 10:55 IST

Steel

Steel

By any reckoning, it will be an uphill struggle for India to build capacity of 300 million tonnes (mt) by 2030 against the current about 125 mt. In fact, the confirmation came from the government when earlier in the year the policy was revised principally to give the industry an extra five years to achieve the target. The roadblocks to achieving the ambitious capacity that will put India well ahead of every other major producing country except are one too many.


The main hurdle will be to find 91,000 acres of land to pack new 175 mt capacity to be built both by way of expansion of operating mills and setting up of green-field ventures. The revised policy says the ministry will “coordinate” with state governments for “timely availability of litigation-free lands.” The proof of effectiveness of the ministry-state coordination will be in allocation of big parcels of land in single lots for mills to be built using the blast furnace basic oxygen furnace (BF-BOF) route.


Even when in possession of land agitations by locals, often inspired by vested interests, can lead to delays or the project getting scrapped. Thus, Posco, which proposed to build a 12 mt complex in the port city Paradip of Odisha, recently told the state government to take back the 2,700 acres given to it for the project. Earlier, ArcelorMittal, the world’s largest group, too abandoned its mega project citing, among other reasons, opposition from local residents holding back land acquisition.


It took Tata a decade since the signing of an MoU with the government to commission the first 3-mt phase of its 8 mt mill at Kalinganagar. Delays were caused by long protests, which would often turn violent. But how many groups will have the patience and negotiating skills of Tata to overcome such resistance?


Capacity building by way of green-field BF-BOF integrated plant (ISP) route having proved highly time consuming, “rapid growth should be beckoning secondary producers (SSPs) by way of installation of electric arc furnaces (EAF) and electric induction furnaces (EIF) in different parts of the country,” says Deependra Kashiva, executive director of Sponge Iron Manufacturers’ Association (SIMA).


The principal advantage of making through the secondary route is that land and capital requirement is much less than what BF-BOF entails. Since there is no use of coke in secondary steelmaking, space is not to be provided for coke-oven batteries where metallurgical coal is converted into coke. The principal feedstock for EAFs and EIFs in India is direct reduced iron (DRI), or sponge iron. This intermediate material is produced by way of direct reduction of iron ore by a reducing gas secured from natural gas or non-coking coal. India has both coal and gas-based sponge iron making capacity, but a lot more of the former.  


The other feedstock for EAFs and EIFs is scrap. With scrap imported from the US, UAE and Europe, quality is not an issue – fluctuation in prices is. India imported 6.25 mt of scrap in 2016. But the scrap of local origin is invariably of indifferent quality. The market with supply abundance is increasingly becoming highly demanding.


This then should work to the advantage of sponge iron makers who at this point are using less than 40 per cent capacity. Explaining why DRI, an important component of secondary steelmaking, has the potential to replace scrap, an industry official says: “Compared with scrap, DRI is virtually free from tramp elements. It is an iron source uniform in composition. Moreover, it has an associated energy value in the form of combined carbon, which boosts furnace efficiency.”


The Indian industry has a unique profile in terms of diversity of production routes. At the beginning of 2017, ISPs with 50 mt had a 40 per cent share of the total industry capacity, EAFs with 36 mt had a 29 per cent share and EIFs with 38 mt had a 31 per cent share. The country has about 1,400 rerolling units which make products, mainly TMT bars from semi-finished bought from ISPs and SSPs.


The 2017 policy promises to brave out the challenges of mobilisation of natural resources, finances, supporting infrastructure and skills to achieve the 300 mt capacity target over the next 13 years. But how will banks be enthusiastic about any further major exposure to the sector when remains among the biggest contributors to their non-performing assets?  Moreover, a weak market over the years has weakened the ability of public sector steelmakers to mobilise funds to support capacity growth expected of them. Even now when global outlook has improved, Indian producers are finding it hard to transact business after prices are raised.


The policy has left it for further discussion as to what will be the respective share of the primary and secondary sectors in the tar-Your data has been truncated

India’s steel plans may prove too ambitious

The government may struggle to find 91,000 acres of land to pack new 175 mt capacity

The government may struggle to find 91,000 acres of land to pack new 175 mt capacity

By any reckoning, it will be an uphill struggle for India to build capacity of 300 million tonnes (mt) by 2030 against the current about 125 mt. In fact, the confirmation came from the government when earlier in the year the policy was revised principally to give the industry an extra five years to achieve the target. The roadblocks to achieving the ambitious capacity that will put India well ahead of every other major producing country except are one too many.


The main hurdle will be to find 91,000 acres of land to pack new 175 mt capacity to be built both by way of expansion of operating mills and setting up of green-field ventures. The revised policy says the ministry will “coordinate” with state governments for “timely availability of litigation-free lands.” The proof of effectiveness of the ministry-state coordination will be in allocation of big parcels of land in single lots for mills to be built using the blast furnace basic oxygen furnace (BF-BOF) route.


Even when in possession of land agitations by locals, often inspired by vested interests, can lead to delays or the project getting scrapped. Thus, Posco, which proposed to build a 12 mt complex in the port city Paradip of Odisha, recently told the state government to take back the 2,700 acres given to it for the project. Earlier, ArcelorMittal, the world’s largest group, too abandoned its mega project citing, among other reasons, opposition from local residents holding back land acquisition.


It took Tata a decade since the signing of an MoU with the government to commission the first 3-mt phase of its 8 mt mill at Kalinganagar. Delays were caused by long protests, which would often turn violent. But how many groups will have the patience and negotiating skills of Tata to overcome such resistance?


Capacity building by way of green-field BF-BOF integrated plant (ISP) route having proved highly time consuming, “rapid growth should be beckoning secondary producers (SSPs) by way of installation of electric arc furnaces (EAF) and electric induction furnaces (EIF) in different parts of the country,” says Deependra Kashiva, executive director of Sponge Iron Manufacturers’ Association (SIMA).


The principal advantage of making through the secondary route is that land and capital requirement is much less than what BF-BOF entails. Since there is no use of coke in secondary steelmaking, space is not to be provided for coke-oven batteries where metallurgical coal is converted into coke. The principal feedstock for EAFs and EIFs in India is direct reduced iron (DRI), or sponge iron. This intermediate material is produced by way of direct reduction of iron ore by a reducing gas secured from natural gas or non-coking coal. India has both coal and gas-based sponge iron making capacity, but a lot more of the former.  


The other feedstock for EAFs and EIFs is scrap. With scrap imported from the US, UAE and Europe, quality is not an issue – fluctuation in prices is. India imported 6.25 mt of scrap in 2016. But the scrap of local origin is invariably of indifferent quality. The market with supply abundance is increasingly becoming highly demanding.


This then should work to the advantage of sponge iron makers who at this point are using less than 40 per cent capacity. Explaining why DRI, an important component of secondary steelmaking, has the potential to replace scrap, an industry official says: “Compared with scrap, DRI is virtually free from tramp elements. It is an iron source uniform in composition. Moreover, it has an associated energy value in the form of combined carbon, which boosts furnace efficiency.”


The Indian industry has a unique profile in terms of diversity of production routes. At the beginning of 2017, ISPs with 50 mt had a 40 per cent share of the total industry capacity, EAFs with 36 mt had a 29 per cent share and EIFs with 38 mt had a 31 per cent share. The country has about 1,400 rerolling units which make products, mainly TMT bars from semi-finished bought from ISPs and SSPs.


The 2017 policy promises to brave out the challenges of mobilisation of natural resources, finances, supporting infrastructure and skills to achieve the 300 mt capacity target over the next 13 years. But how will banks be enthusiastic about any further major exposure to the sector when remains among the biggest contributors to their non-performing assets?  Moreover, a weak market over the years has weakened the ability of public sector steelmakers to mobilise funds to support capacity growth expected of them. Even now when global outlook has improved, Indian producers are finding it hard to transact business after prices are raised.


The policy has left it for further discussion as to what will be the respective share of the primary and secondary sectors in the tar-Your data has been truncated

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Kunal Bose

Business Standard

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