The major issues that the Indian iron & steel industry has been facing for the last couple of years has been summarized below.
1. Cheap Imports: Indian ports have been stormed with cheaper steel from many neighboring nations especially China, Korea and Russia. The government of India imposed a provisional safeguard import duty for 200 days on some steel products in September 2015 and last month set a floor price (minimum import price) on imports to deter Chinese and other suppliers to kill the domestic steel industry. The DG Safeguards imposed Final Safeguard Duty on HR Coil (600 mm & above size) up to March 2018.
2. Raw Material Troubles: With an extended fall in steel prices globally, steel making raw materials have been in a tough spot. Most of the material offers touched an all time low in a decade and trading below or close to breakeven. The implosion in prices is attributed to large oversupply of the raw material and prolonged dullness in Chinese economy; which also resulted in high over capacity in steel and losses. Few of the largest iron ore miners namely BHP Billiton, Vale, Rio Tinto had to cut down their expansion plans and have shifted focus to low-cost mining assets.
Steelmaking coal from Australia (which exported about 188 mnt of Met coal in FY15) also felt the blow with slowing demand from China, as Beijing tackles its dangerous air pollution levels.
3. Changing Government Policies: Ever since the new government came to power in India, the policies related to mining including past allotment of crucial raw materials like Iron ore & Coal were overturned impacting large steelmaking capacities.
4. Low Capacity Utilization: Easy availability of cheaper imported steel products, extended raw material issues related to availability and prices of ores and coal, reduced operating margins etc the steel industry in India has been on an average operating at about 60% capacity utilization level.
5. Inferior Product Quality: The secondary steelmaking route may not be comparable to the blast furnace route of steelmaking when it comes to quality. As a matter of fact, more than 50% of steel in India is made through the secondary route. Low amount of interest in modern technologies and weak infrastructural facilities lead to a process of steel making which is more time consuming, expensive and even yields inferior quality products. Such a situation has also forced us to import better quality steel from abroad.
6. Power Problems: Owing to lower production of coal by Coal India Limited (which controls around 82% of total coal production of India) compared to demand, sufficient quality & quantity of coal does not reach the thermal power producers across the nation. This has resulted in low power being produced and owing to high amount of transmission losses; the power cost in the last 2 years has also gone up substantially.
7. Lack of Capital: The iron & steel industry is highly capital intensive and not for the feeble hearted. To remain competitive both domestically and globally, a steelmaker has to keep updating & upgrading its facilities and process which demands large amount of reinvestment. With the expected improvement in the market scenario in FY17, the banks should be back to business soon.
8. High Interest Cost: With increased business risks and high fiscal deficit, the interest cost in India compared to other developing nations is higher resulting in heavy burden for the borrower.
9. Short-term View of a Steelmaker: Between 2005 & 2010, small steelmaking and rolling units were set up left right and centre across India. This was largely to benefit from the high margins in the business and high demand for steel. A steelmaker will have to keep a long term view in perspective to be able to benefit from the huge growth plans of the present government.
10. Outdated Technologies: Throughout the 1960s and up to the oil crisis in mid-1970s, Indian steel industry was characterized by a high degree of technological efficiency. This technology was mainly from abroad. But during the last 2 decades, steep hike in energy costs and increase in other input costs, margins in steel has reduced to a good extent.
This resulted in lower levels of investment in technological developments. Consequently, the industry lost its technology edge and is now way behind other steelmaking countries in this regard. Material value productivity in India is still very low.