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Capacity augmentation - A possible outline of steel supply road map-The 18th China(Guangzhou ) Int¡¯l Casting product Exhibition
5/4/2017 casting expo-Die-casting expo-foundry expo |
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Mr Sushim Banerjee DG of Institute of Steel Growth and Development in his personal capacity wrote for Financial Express that a steady rise in steel prices (except the downtrend in the last few days) and the clamour for inventory building by some segments of the user industry coupled with release of annual report cards by the major players showing an improved performance in Q4 has recommenced the arguments in favour of capacity augmentation in steel in India from the current level of 126 MT to 300 MTs in the next 14 years. This has been envisaged in the draft National Policy on steel 2017 document and appears to be a favourite topic for discussion except for the doubt for the terminal year of achievement.
The growth in steel capacity at an annual average rate of 7% in the next 14 years involves both brown field and green field expansion. For the major players, SAIL, Tata Steel, RINL, Essar Steel, JSW and JSPL, the next two years are to be seen as a period of consolidation of the enhanced capacities. Even at the current capacity level, a full capacity utilisation for the major steel producers in public and private sector would imply an additional availability of 3.03 MT of crude steel from SAIL, 2.3 MT from RINL, 0.8 MT from Tata Steel, 4.6 MT from Essar Steel, 1.9 MT from JSW and 1.4 MT from JSPL, totalling thereby 14MT of crude steel or around 13.3 MT of additional finished steel in the market. The current capacity utilisation of IF units is only 70%. A 10% more capacity utilisation of IF units (a possible scenario if fresh investment in various infrastructural projects generate more demand for rebar, wire rods and structural steel) would make available additional 3.4 MT of finished steel in the market.
Subject to a stable trend of apparent steel consumption growing at around 6% (from the present level of 2.6%) in FY18, 7% in FY19 and 8% in FY 20 and even assuming this highly optimistic level of capacity utilisation, the supply would fall short of demand by around 3 MT by 2019-20. If the demand persists, it would either lead to marginally higher flow of imports compared to the present level or a higher level of capacity utilisation by domestic players. Thus a stable demand growth for steel in the next 3 years may not necessitate a fresh capacity addition by domestic steel producers and only a higher level of capacity utilisation would enable the country to meet the emerging demand.
The incremental steel demand from FY20 onwards at an annual average rate of 8% can for the first few years be met from the brown field expansions to be under taken by the major steel producers. As per the provisional chart, a conservative estimate (60% of the plan) of the brown field expansion that is more cost effective and does not require fresh acquisition of land, elaborate environmental clearances except from the local state governments, involves around 20 MT from SAIL, around 7 MT from Tata, approx.16 MT from JSW both at Bellary and Dolvi, around 8 MT from RINL and approx.3 MT from JSPL (Raipur and Angul) aggregating around 51MT of finished steel for the market. By that time another10% additional capacity utilisation from small and medium enterprises including the IF units would add approx. 3 MT of finished steel in the market. This would suffice the estimated demand of 151 MT of finished steel calculated at CAGR of 8% during FY20 to FY25.
Thus the supply scenario is not so disastrous as it is perceived currently. It is indeed imperative for Indian steel industry to survive and grow with reasonable EBITDA that a concerted plan is implemented to achieve first the 100% capacity utilisation of the installed capacity and second to plan for the smooth execution of all brown field expansion plan which would enable them to cater to the market demand that emerges at around 150 MT by FY25. In the post FY25 scenario, the demand growth would have to be met by green field expansion of capacity that also includes expansion by SAIL, Tata, JSW, JSPL, NMDC and others.
The caveats for this scenario analysis are a steel-intensive developmental plan by the government for enhanced investment in infrastructure and construction and implementation of planned levels of activities in manufacturing sector comprising of capital goods, shipping, consumer durables, railways, defence, roadways, automobile and packaging.
-The 18th China(Guangzhou ) Int¡¯l Casting
product Exhibition
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