Supply gaps seen persisting as steel demand set to grow 16%

Supply gaps seen persisting as steel demand set to grow 16%
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First Published: Thu, Aug 30 2007. 12 41 AM IST
Updated: Thu, Aug 30 2007. 12 41 AM IST
New Delhi: Demand for steel in India will grow at 16% on the back of a construction boom, higher than the 8-12% estimated by the government, and infrastructure bottlenecks could prevent the country from meeting this demand, despite a large number of announcements of capacity addition by steel companies.
The 16% number is part of a recent report issued by brokerage Credit Suisse Securities Ltd. According to the report, the building sector in the country is growing at 61% a year with some $1 trillion (Rs41.2 trillion) worth of outstanding projects.
However, a report from the steel ministry says India’s advantages in the steel business—access to iron ore, low-cost labour and skilled engineers—could slow progress if construction of rail lines and roads falters, impeding the capacity expansion plans of steel companies.
The report has been prepared by the steel ministry’s economic research unit ahead of a meeting of officials of infrastructure-related ministries such as railways, roads and ports that will monitor upcoming steel projects at the behest of Prime Minister Manmohan Singh. The group will monitor projects involving capacity creation of more than three million tonnes (mt) a year.
According to the ministry’s report, the problem could surface in the long term. The report says that capacity creation and expansion plans of integrated steel producers such as Tata Steel Ltd in Jharkhand, Steel Authority of India Ltd in Salem, and Bhushan Steel Ltd will take off on time and that total production may exceed the 70mt target set for 2011-2012.
However, concerns abound on whether India will be able to meet the expected demand of 166-177mt by 2020 because of poor rail, road and port connectivity.
About $350 billion has been allocated for infrastructure projects during the 11th Plan (2007-12).
The report says that the state of the road and rail network in states such as Orissa, Chhattisgarh and Jharkhand, where most planned steel mills are located, could drive up costs for steel companies and, in some cases, even delay some projects.
Only two of 11 railway projects have been completed in Jharkhand in the five years to 2007, despite the state spending around Rs1,334 crore of the Rs3,472 crore allotted for this. Similarly, in Chhattisgarh, only five out of 14 railway projects have been completed.
It takes four tonnes of raw materials such as iron ore and limestone to make a tonne of steel. Going by this estimate, more than 600mt of these raw materials will have to be ferried to these upcoming plants to produce at least 150mt of steel.
About 90% of raw materials used in steelmaking are transported by rail, while 70% of finished steel is ferried by roads. While the main highway arteries planned by the National Highways Authority of India will ease part of the congestion pressure, rail and state roads will need attention.
At present, density of roads in all the three states is low, according to the report. Orissa’s road density is higher at 152km per 100 sq. km than the national average of 74km, but only 22% of its roads are surfaced. Jharkhand’s is 14.4km per 100 sq. km; and Chhatisgarh’s around 26km. The report says that the problem can be solved through public private partnerships.
Steel companies also need to be close to modern ports, and some of them have sought to achieve this by building ports themselves. Tata Steel and Larsen & Toubro are building an all-weather port in Orissa that is expected to handle 25mt of cargo a year and be ready by 2011.
Posco-India Pvt. Ltd, an arm of Korean company Posco, is also building its own port in Orissa.
Around 175 proposals to build steel plants at a cost of Rs3-3.5 trillion have been signed in the past few years. The steel ministry’s report show that between 1991 and 2005, only a fraction of the projects involving Orissa, Jharkhand and Chhattisgarh were implemented. The proportion was 5.15% of projects signed in Orissa; 7.29% in Jharkand; and 4.06% in Chhattisgarh.
Although Jharkhand and Chhattisgarh were formed in 2000, data takes into account plants that were meant to come up in areas that eventually came under these states. The national average is 9.18%.
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First Published: Thu, Aug 30 2007. 12 41 AM IST