Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Industry / Manufacturing/  Makeover for Varanasi drives steel recovery in India
BackBack

Makeover for Varanasi drives steel recovery in India

Varanasi is one of the 100 places earmarked to get an upgrade under the Smart Cities project, which could lead India to triple its steel production by 2030

A low consumption base, and the promise of a government-backed boom in construction, has prompted a flurry of expansion plans as steel prices recover from a slump in 2015. Photo: BloombergPremium
A low consumption base, and the promise of a government-backed boom in construction, has prompted a flurry of expansion plans as steel prices recover from a slump in 2015. Photo: Bloomberg

Mumbai: The world’s oldest living city is getting a makeover.

Varanasi, Hinduism’s holiest site on the Ganga river in northern India, is one of 100 places earmarked to receive trillions of rupees to transform their aging infrastructure and become ‘smart cities’, replete with affordable housing, improved sanitation, and better transportation. To build it all, India plans to triple its steel-making capacity, making it the world’s second-biggest producer, trumping Japan, and reviving an industry that a year ago was on its knees.

“India is one of the bright spots for the global steel industry," said Bijoy Thomas, a senior analyst at India Ratings & Research, the local unit of Fitch Ratings, by phone from New Delhi. “We have a very low base of per-capita consumption and the nation is on the path to development."

India used about 63kg of steel per person in 2016, compared with 493kg in China, according to the World Steel Association. That low consumption base, and the promise of a government-backed boom in construction, has prompted a flurry of expansion plans as steel prices recover from a slump in 2015.

India’s biggest producer, JSW Steel Ltd, plans to build two new plants of 10 million tonnes each in the resource-rich states of Odisha and Jharkhand, and spend billions more expanding its existing mills in an effort to double its size by 2030. Rival Tata Steel Ltd has sought environmental clearances to expand its two plants in India by 4 million tonnes a year.

India’s ambitious plans could force the country increasingly to turn to global markets to get enough coking coal and iron ore, Thomas said.

Pink City

Among the cities due for an upgrade are Jaipur, a favourite stop for tourists who come to view its pink stone palaces, and the nineteenth century battlegrounds of Kanpur and Lucknow. But Varanasi, also known as Benares, is especially symbolic of Prime Minister Narendra Modi’s plan to transform India.

Continuously inhabited since the 11th century B.C., the city of 1.2 million people is Modi’s political base. Its narrow lanes wind their way to ancient sandstone palaces above the famous ghats or riverfront steps, where the Hindu faithful burn funeral pyres or come to wash away their sins in the sacred river. About 6 million tourists visit the city every year, but it lacks basic urban facilities like a proper sewage system.

The local government has a Rs2,500 crore ($390 million) plan to build affordable houses, bury the millions of wires and cables that clutter the streets, install solar panels and upgrade the ghats by 2020-21. There are also plans for a metro system, part of a new urban rail policy approved earlier in August that would bring new subways to 15 Indian cities and expand networks at 12 others.

All of it will require millions of tonnes of additional steel.

India’s steel consumption could almost triple to as much as 240 million tonnes by 2030, with the majority being used in construction, according to Sanak Mishra, secretary general of the Indian Steel Association. He predicts India will overtake the US as the world’s second-biggest consumer in 2018.

“The Indian steel story is a growth story," said Mishra, who previously ran the Indian projects of ArcelorMittal, the world’s biggest producer. “India is one of the few major economies where steel use has not matured."

Even so, like many of Modi’s ambitious plans, the national steel policy has a challenging target. To meet it, capacity would need to grow at a 6.4% annual rate, requiring around $140 billion of investment, according to ICRA Ltd. Given the weak financial health of many domestic players, and the Reserve Bank of India’s (RBI) efforts to clean up bad loans, banks may be reluctant to lend the money, the local unit of Moody’s Investors Service said on 24 August.

‘India growth’

The growth in demand will come with a caveat “that the government’s policies are supportive of all these investments," said Vishal Kulkarni, a Singapore-based analyst at S&P Global Ratings. Steel demand will rise, “but it will not be like China growth, it will be more like India growth."

The government has earmarked a total of Rs1.9 lakh crore ($30 billion) for 90 cities so far, with some money coming from the central government and an equal amount contributed by state or local governments, the ministry of urban development said in June.

For most local municipalities, that means borrowing. In the western city of Pune, home to the grand Aga Khan Palace, the Pune Municipal Corp. priced a Rs200 crore bond in June, the country’s first municipal bond since the regulator cleared the way for such sales in 2015.

More cities will follow. The program could push the volume of municipal debt issued to as much as Rs40,000 crore in the next five years, India Ratings said in June.

That’s highlighted concerns about the nation’s borrowings, just at a time when the US Federal Reserve is making money more expensive overall.

India’s general government debt level is “significantly" higher compared with similarly rated countries, Moody’s Investor Service has said. There’s also the risk of a blowout in India’s current account deficit, which the International Monetary Fund projects to be at its widest since 2013, when the Fed first signalled tightening after years of unprecedented stimulus.

Investors, so far, aren’t spooked. Pune got bids worth six times the amount it was offering. That’s encouraging for steelmakers, both in India and abroad, who are coming out of the worst price meltdown in decades.

A glut in global supply, record imports of cheap steel and weak demand saw the profitability of India’s mills slump in the 2015-16 financial year. At the same time, a government crackdown on dubious practices in the mining industry disrupted local coal and iron ore supplies.

Indebted steelmakers including Essar Steel India Ltd, Bhushan Steel Ltd and Monnet Ispat & Energy Ltd joined a list of companies under insolvency proceedings as part of RBI’s move to clean up bad loans.

The government responded with a slew of protectionist measures against steel imports, leading local producers to increase output to record levels.

Accelerating demand from infrastructure, construction and auto-making will see India’s steel output record average annual growth of about 9% between 2017 to 2021, according to BMI Research.

The expansion could turn India into a net importer of iron ore within two years, said Ashok Kumar, Tata Steel’s chief technology officer of process.

The rebound has also fuelled speculation for mergers and acquisitions. JSW Steel said it is seeking to pick up some assets to add capacity. At Tata Steel, which has been trying to sell its unprofitable European business, new chairman Natarajan Chandrasekaran said the company would focus on its domestic market, given the current stage of development of the Indian economy and likely growth path in the next decade.

In Varanasi, mayor Ram Gopal Mohley is betting that the support of the nation’s charismatic prime minister will help push forward renovation that has been needed for so long.

“Development of the city’s overstretched infrastructure will be a hard job, but the willpower is there and with Modi leading the way, he will ensure that modern development will go hand in hand with conserving our heritage," he said. “The city needs the change." Bloomberg

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 29 Aug 2017, 11:09 AM IST
Next Story footLogo
Recommended For You
Manufacturing Stocks
₹557.550.52%
ITC
₹4280.13%
₹2,987.85-0.37%
₹152.852%
Switch to the Mint app for fast and personalized news - Get App