The new steel policy will help boost production but the government must also take measures to ease the sector's debt burden and logistical bottlenecks for it to work, steelmakers said.
The industry will turn around in 2017-18 and the single biggest challenge is going to be how banks can support steel producers, said Ravi Uppal, managing director and group chief executive officer of Jindal Steel and Power Ltd, in an interview to BloombergQuint. The government has to think in terms of interest subvention to core sector industries like steel, hydro-power projects, thermal projects, only then will they see more investment coming in, he said.
“Otherwise, the load of interest is quite crippling and they (banks) have to extend the (loan) term before they give the funding. That has to also happen,” Uppal said.
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Steel sector is one of the largest contributors to Indian banks' bad loans with the industry going through a lean phase. Uppal said global steel prices more than halved in five years to 2015 on falling demand. In India, the prices fell by nearly a third from March 2011 to January 2016, according to the Bloomberg Hot Rolled Domestic Commodity Index. The prices have since more than doubled in the country.
The government's National Steel Policy 2017 aims to triple steel production capacity over the next 13 years. The Union Cabinet has also approved a proposal giving preference to locally made steel in public sector projects. India is poised to overtake Japan as the world's second largest steelmaker riding on Prime Minister Narendra Modi's focus on housing, roads, ports and railways.
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Preference To Domestic Steel
The growth in steel production in financial year 2016-17 came largely on the back of exports, which rose to 8.2 million tonnes. Uppal said the government is very mindful that the demand must grow and preference to domestic steel will support the industry.
Sajjan Jindal chairman and managing director of JSW Group, India's largest steelmaker, agreed. Preference to domestic steel for government projects a positive step and the national steel policy will have a positive impact on economy at large, he tweeted.
Pref to dom steel for govt projects a positive step.National Steel Policy will have a + impact on eco at large @PMOIndia @ChBirenderSingh
Highlights of new Steel Policy
-Buy Indian
-Melt & Manufacture in India
-Raw material securitisation
-Imports substitution
-Enhance demandThe government has extended the anti-dumping duty on certain steel products to discourage cheaper shipments from China and South Korea, which led to a fall in imports and made India a net exporter of steel in financial year 2016-17.
Which is why RK Goyal, managing director of Kalyani Steels Ltd., feels that preference to locally manufactured steel will not make much of a difference as long as anti-dumping is there. “After the anti-dumping goes away, there will be some difference,” he said.
Low Per Capita Consumption
India's per capita steel consumption of 61 kilogram is less than a third of the global average. The new policy aims to boost it to 160 kg by 2030-31.
Most of the demand will come from urbanisation, said Goyal. Per capita steel consumption in rural areas is just around 10-15 kg and more and more people will be moving to urban areas, leading to more construction, he said. “We expect consumption growth to continue between 8 to 10 percent, and that can consume most of the increased capacity,” Goyal said.
T V Narendran, managing director, India and South East Asia, Tata Steel, said the new policy would help pave the way for India to realise its potential by creating modern infrastructure. “The focus on infrastructure-led growth will not only support the demand growth of steel but will also help achieve world-class cost efficiencies outside our factory gates.”
Easing Bottlenecks
The policy aims to boost domestic production of raw materials such as coking coal to reduce its dependence on imported coal by half.
The government has to make sure to intensify the mining of domestic coal, said Uppal. “We want many more companies to do the mining, set up washeries and make coal available.” he added.
Right now 70 percent of the coking coal is being imported from Australia and South Africa, that can be replaced by the local and can be made competitive.”
Kalyani Steels' Goyal said the government must open many more mines, which will take care of pricing as supply goes up. “And (it has to) make mining simpler, easier, and free from bureaucratic processes. This will help the industry and it will make India more competitive.”
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