With the rise of China, the steel market has experienced reawakening like never before. China is presently the largest steel consuming and producing country in the world. China's rapid industrialisation and frantic urbanisation, coupled with extensive industrial development in the other BRIC (Brazil, Russia, India and China) nations, has meant a reinvigoration of the steel industry and a renewed interest in steel, iron ore and coking coal by the investing community. Liberalisation of the economy in India for foreign direct investment (FDI) has been the major growth driver for the development of steel industry in India.
In order to be efficient, these countries developed their infrastructure so as to reduce the costs on transportation and manufacturing. This also led to massive investments in R&D and development of cost efficient technologies, which were transpired to electronics, automobiles and other advanced industries. The governments have played active role in the rapid industrial development of the Asian countries as is evident that mammoth steel projects have been pursued as state projects. The South Korean government has been flexible in shifting development policies from light industry (manufacturing of apparel and shoes) to heavy and high value-added industries such as automobiles and electronics, demonstrating its high capacity to adopt timely strategies and mobilise new technologies in response to the dynamically changing global market.
India
The post-deregulation period has seen significant changes in the structure of the Indian steel industry in terms of ownership. Capacity creation during the last decade after deregulation has taken place entirely at the behest of the private sector. As a result, there has been a noticeable shift towards the private sector both at the crude and finished steel stages. In the post deregulation years, the secondary sector has doubled its contribution to crude steel production from 23% to 48% and for finished steel from 45% to 64%, respectively. Liberalisation of the foreign trade regime has had a favourable effect on the development of steel industry in India.
Structure of steel industry in Asia
There are three stages in steel making - iron making, steel making and rolling to finished goods, and accordingly the steel industry in Asia is divided into these three types of firms. The firms that have all the three facilities under a single unit are called integrated steel plants and these should have minimum economies of scale to achieve financial viability. These firms mainly follow the Blast Furnace –Basic Oxygen Furnace route wherein they can utilise the wastes from the intermediate units and achieve cost efficiencies.
There is another type of firm that uses the direct methods for steel making, wherein iron ore is directly reduced to sponge iron using natural gas or low quality coal and then processed in Electric Arc Furnace or an Induction Furnace to cast steel into semi finished steel. The steel is then rolled to the desired products long or flat from the semi finished billets/blooms and slabs, respectively.
The third type of steel works is the rolling firms, which buy the semi finished steel from the market to be rolled to the desired finished goods and further make value additions such as galvanising, tube making, colour coating, pipe making and the like.
Advent of new production technologies has brought about a significant change in the route-wise composition of the steel industry.
In the ongoing economic crisis in the developed world, the Chinese government is silently acquiring and securing its raw material requirements, especially high grade iron ore and coal assets across the globe. India, on the other hand, is busy in resolving its own internal matters with respect to mining and land acquisition bills.
Demand creators for the steel industry in Asia
Leading economic sectors like ship building, engineering goods, automobiles, infrastructure and others have simultaneously acted as key centres of capital accumulation, bases for a series of linked industries, sources of technological and organisational innovations that spread to other sectors, and models for firms and for state-firm relations in other sectors.
There is an increasing demand for steel by the developing countries for its infrastructural projects. According to a projection, India alone will need US$1 trillion to develop its infrastructure in the next 5 years. Out of this, steel will have a substantial portion. Step up in infrastructure development will lead to increase in the GDP, followed by investments in automobile, electronics and other advanced industries.
Challenges
Apart from improving overall efficiency of operations, the measures that can improve the energy efficiency of steel making in India substantially need to be undertaken. Average energy of the major steel plants in India works out around 28 GJ/tonne as compared to the practical minimum of 19.59 GJ/tonne.
Besides the coking coal shortfall in the major Asian countries, other bottlenecks for the growth of the industry include inadequate infrastructure in railways, roads and ports, especially in India. This leads to delays in rake movement, congestion and pile up of inventory at ports. Other challenges include land acquisition delays and environmental clearances, which need focus for the accelerated growth of Indian steel industry.
India is suffering from good quality coal resources and government policy deficit on various issues. Consensus must evolve around socioeconomic and environmental challenges, keeping in mind the windows of opportunity for growth. The industry need to be further supported by the government, with policy changes planned in iron ore and coal mining towards competitive bidding and transparent allocation of mineral licences. The beneficiaries of this policy change will be both Indian organisations as well as global stakeholders.
Future outlook
The industry will be faced with important constraints and challenges over the next
 decade including a rising and volatile steel price, shortages of inputs, overcapacity, growing protectionism, inflation and economic stagnation in advanced economies. While metal price fluctuations have also become increasingly aligned with levels of industrial activity in emerging Asia, rising metals’ intensities of production will be a more important factor behind the increase in prices. The growth of the steel sector will continue due to rapid economic development and strong domestic demand from China and India. FDI will play a very important role in future development of the steel industry in the developing economies due to capital intensive nature of the industry. Among the political risk components, factors such as government stability, socio economic conditions, investment profile, internal conflict, external conflict, corruption, religious tensions, democratic accountability and ethnic tensions will go a long way in the development of the industry.
For long-term sustainable development, domestic steel enterprises will have to put a cap on their production output. To protect the environment, elimination of production methods, which use outdated technology, and technological upgrading are essential. Setting up the international platform for exchanging technology, and the system to promote and spread the technologies of energy saving and environment protecting, including Coke Dry Quenching and Top –gas Recovery Turbine, is inevitable.
As observed earlier, the governments of the respective countries will have to play a major role in ensuring the smooth flow of FDI, development of infrastructure, reward for cost efficient and less polluting technologies and co-operation amongst the neighbours to achieve division of labour and thus economies of scale.
K G Mantri is the senior vice president - Corporate Affairs at Man Industries. |
The world steel market is estimated to be worth US$1.317 trillion for the year 2011. In the year 2010, the world crude steel production was 1414 million metric tons (mt), in which Asia had a major share of 65.5% at 881.2 mt. China, Japan and South Korea formed the top producers of steel in Asia, with India also adding significant numbers.
