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Regulatory measures do cause delay in commissioning of projects

Regulatory measures do cause delay in commissioning of projects

Domestic iron ore scenario has recently improved and at present, iron ore is available. This is reflected in the softening of prices in the last few days, says CS Verma, Chairman, Steel Authority of India, speaking with Sumantra Das.

How do you see steel demand in FY 2013-14?
Steel demand is function of overall growth in economy. For 2013-14, various agencies have estimated a GDP growth of 5.7-6.5 per cent. At the forecasted GDP growth rates, steel consumption in the country is expected to grow at around 7 per cent in the current fiscal year. Against finished consumption of about 74 million tonne (mt) in 2012-13, it is estimated that around 80 million tonne of steel demand will be there in 2013-14. With many expansion programmes fructi­fying this year, the domestic capacity is expected to touch 100 mt of crude steel by end of the current fiscal. In other words, for a period of next 2-3 years, demand for steel is likely to be more or less in sync with the supply capabilities.

Are you considering price hikes and can consumer markets absorb these without affecting demand?
Price is dependent on many factors viz, demand-supply scenario, raw material prices, international prices etc. Given the projected demand-supply balance of steel in India, we expect to see a stable regime for steel prices, in the short to medium term.

Do you think policy issues, moderation in industrial activity and hardening interest rates impacted the industry?
The steel industry is highly capital intensive sector. The Working Group on steel industry for the 12th Five Year Plan has pegged an investment of Rs 2.5 lakh crore in the sector up to 2017 for adding 60 million tonne per annum (mtpa) capacity. According to industry thumb-rule, around $1 billion is needed for creating 1 mtpa capacity, which would call for an investment of $110-120 billion in the country’s steel sector in the next 6-7 years. Hence, large amount of funds needs to be invested for a long time before return starts coming in. Incidentally, steel industry is also highly diversified industry with stiff competition among players for market share. Regulatory measures do cause delay in commi­ssioning of projects due to which cost of the project goes up. Similarly, interest rates in India being much higher than other countries, also add to cost. Overall, these factors have the effect of slowing down the expansion of the Indian steel sector.

Is lack of domestic raw material hampering business of non-integrated players?
Domestic iron ore scenario has recently improved and at present, iron ore is available. This is reflected in the softening of prices in the last few days. The iron ore production in 2012-13 is pegged at around 140 mt, while the steel industry has a requirement of 110-115 mt of this input, at present. With the imposition of 30 per cent customs duty on export of both iron ore lumps and fines, the bulk of production in India is available for indigenous use. The country witnessed low iron ore exports in 2012-13, estimated at close to 18 million tonne (mt), a decline of 69 per cent over the previous year. India had exported 61.8 mt of iron ore in 2011-12. With the ban being lifted on category-B mines, supply of iron ore is likely to increase in near future, thus adding to the ore available for non-integrated players.

India has limited capacity for value addition of iron ore fines which are available in plenty. However, IndiaÂ’s current pellet-making capacity which is around 35 mt is set to go up to 50 mt in next two years.

Given the slowdown in infrastructure project execution, will consumption growth fail to match the capacity growth?
Capacity growth in steel sector has been planned by the major steel producers of India. Of late, project investment has declined causing deceleration in steel consumption. The growth in Gross Fixed Capital Formation (GFCF) to GDP ratio has become negative from FY12 and projected to remain negative till FY14. However, government has taken proactive measures, with the Cabinet Committee on Investment (CCI) clearing many projects recently. This is expected to boost industrial activity leading to pick up in steel use.

Which are the issues hampering Indian steel industry growth?
Apart from land issues and inadequate iron ore linkages etc, steel industry is suffering from high logistics cost on account of both railways and roads. Cost of power is high as compared to developed countries and China. Of late, availability of quality manpower – both technical and non-technical is also posing problem in steel industry. Law and order in mine area and poor state of dispute resolution process is also affecting the steel industry.

Do you think SAIL will be able to achieve its target in the current situation?
As the Indian steel market is poised for growth and no problem is foreseen on the raw material front for us, SAIL should be able to achieve the targets in the current fiscal.

What are your plans to deal with volatility in coking coal prices? Given that international miners are pushing for contracts of increasingly shorter duration, how can steel producers hedge against this volatility?
I see a stable price regime for coking coal, in the short term. The general practice for coking coal purchase in Asia is quarterly contracting, barring a few coal suppliers who go for shorter contracts. We do not see much change in this trend.

Please brief us about the Corporate Plan 2020?
The Corporate Plan 2020 or popularly referred to as SAIL Vision 2020 provides a road map for the future strategic direction of the organisation. The Indian economy has entered a steel-intensive phase of growth where infrastructure development, construction, rapid urbanisation and fast pace of manufacturing will boost steel consumption. To remain the market leader, SAIL has set a target of at least 30 per cent market share which translates to a production capacity of around 45 million tonne of saleable steel by 2020. SAILÂ’s Vision 2020 is currently being finalised keeping in view steel demand and consumption scenario, availability of raw materials, logistics and infrastructure support and most importantly availability of funds. This Vision 2020 document will envisage the strategy, facilities and investment required to realise the massive target of 45 mt of crude steel production.

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