CHAPER-II

OVERVIEW OF IRON AND STEEL INDUSTRY

Introduction

Steel is crucial to the development of any modern economy and is

considered to be the backbone of human civilisation. The level of per capita
consumption of steel is treated as an important index of the level of socio-
economic development and living standards of the people in any country. It is a
product of a large and technologically complex industry having strong forward
and backward linkages in terms of material flows and income generation. All
major industrial economies are characterised by the existence of a strong steel
industry and the growth of many of these economies has been largely shaped by
the strength of their steel industries in their initial stages of development.

Steel industry was in the vanguard in the liberalisation of the industrial

sector and has made rapid strides since then. The new greenfield plants
represent the latest in technology. Output has increased, the industry has moved
up in the value chain and exports have risen consequent to a greater integration
with the global economy. The new plants have also brought about a greater
regional dispersion easing the domestic supply position notably in the western
region. At the same time, the domestic steel industry faces new challenges.
Some of these relate to the trade barriers in developed markets and certain
structural problems of the domestic industry notably due to the high cost of
commissioning of new projects. The domestic demand too has not improved to
significant levels. The litmus test of the steel industry will be to surmount these
difficulties and remain globally competitive.

Historical Perspective

The finished steel production in India has grown from a mere 1.1 million
tonnes in 1951 to 31.63 million tonnes in 2001-2002. During the first two
decades of planned economic development, i.e. 1950-60 and 1960-70, the
average annual growth rate of steel production exceeded 8%. However, this
growth rate could not be maintained in the following decades. During 1970-
80, the growth rate in steel production came down to 5.7% per annum and picked
up marginally to 6.4% per annum during 1980-90, which further increased to
6.65% per annum during 1990-2000. Though India started steel production in
1911, steel exports from India began only in 1964. Exports in the first five
years were mainly due to recession in the domestic iron and steel market.
Once domestic demand revived, exports declined. India once again started
exporting steel only in 1975 touching a figure of 1 million tonnes of pig iron and
1.4 million tonnes of steel in 1976-77. Thereafter, exports again declined to
pick up only in 1991-92, when the main producers exported 3.87 lakh tonnes,
which rose to 2.79 million tonnes in 1995-96 and 3.3 million tonnes in 2001-02.
 The growth in the steel sector in the early decades after Independence
was mainly in the public sector units set up during this period. The situation has
changed dramatically in the decade 1990-2000 with most of the growth
originating in the private sector. The share of public sector and private sector in
the production of steel during 1990-91 was 46% and 54% respectively, while
during 2001-02 the same was 32% and 68% respectively. This change was
brought about by deregulation and decontrol of the Indian iron & steel sector in
1991.

A number of policy measures have been taken since 1991 for the growth
and development of the Indian iron & steel sector. Some of the important steps
are (a) removal of iron & steel industry from the list of industries reserved for the
public sector and also exempting it from the provisions of compulsory licensing
under the Industries (Development & Regulation) Act, 1951, (b) deregulation of
price and distribution of iron & steel, (c) inclusion of iron and steel industry in the
list of high priority industries for automatic approval for foreign equity investments
upto 51%. This limit has been since increased upto 100%, (d) lowering of import
duty on capital goods and raw materials etc.

Growth of the Indian Steel Sector after Liberlisation

Finished Carbon Steel

The Indian steel sector was the first core sector to be completely
removed from the licensing regime as well as pricing and distribution controls.
This was done primarily because of the inherent strengths and capabilities
demonstrated by the Indian iron and steel industry. The growth rate in 1995-96
was a phenomenal 20%. During 1996-97, finished steel production shot up to a
record 22.72 million tonnes with a growth rate of 6.2%, while in 1997-98, the
finished steel production increased to 23.37 million tonnes, which was 2.8% more
than the production of the preceding year. The growth rate decreased drastically
in 1997-98 and 1998-99 being 2.8% and 1.9% respectively. The growth rate in
2001-2002 was 4.29% with the total production touching 31.63 million tonnes.
The production of finished steel during April –December, 2002 has been 23.83
million tonnes, which is 6.3% higher than the production during the
corresponding period of 2001-02.

Details of total production of finished carbon steel and the share of main
and secondary producers in it from 1991-92 onwards are set out in the following
table:
 Production of Finished Carbon Steel (In million tonnes)

Year Main Secondary Total

Producers Producers
1991-92 7.96 (55%) 6.37 (45%) 14.33
1992-93 8.41 (55%) 6.79 (45%) 15.20
1993-94 8.77 (57.6%) 6.43 (42.4%) 15.20
1994-95 9.57 (53.8%) 8.25 (46.2%) 17.82
1995-96 10.59 (49.5%) 10.81 (50.5%) 21.40
1996-97 10.54 (46.4%) 12.18(53.6%) 22.72
1997-98 10.44 (44.6%) 12.93(55.4%) 23.37
1998-99 9.91 (41.6%) 13.91(58.4%) 23.82
1999-2000 11.20 (41.9%) 15.51(58.1%) 26.71
2000-2001 12.49 (43%) 16.78(57%) 29.27
2001-2002 13.05 (42.6%) 17.58(57.4%) 31.63
2002-2003 10.38 (44%) 13.45(56%) 23.83
(Till December,
2002)
(Figures in bracket indicate the percentage share)

Pig Iron
Alongwith the production of steel, the production of pig iron in the country
has also increased. The details since 1991-92 are as under :-

(In million tonnes)

Year Main Secondary Producers Total
Producers
1991-92 1.485 0.102 1.587
1992-93 1.679 0.165 1.844
1993-94 1.977 0.273 2.250
1994-95 2.005 0.780 2.785
1995-96 1.735 1.060 2.795
1996-97 1.733 1.557 3.290
1997-98 1.760 1.687 3.447
1998-99 1.354 1.644 2.998
1999-2000 1.245 1.900 3.145
2000-2001 0.970 2.430 3.400
2001-2002 1.016 3.055 4.071
2002-2003 0.810 3.075 3.885
( Till Dec.
2002)
Sponge Iron

During the early 90s, the sponge iron industry had been specially
promoted so as to provide an alternative to steel melting scrap, which was
increasingly becoming scarce. The production of sponge iron (Direct Reduced
Iron - DRI) during the period 1991-92 to 2002-03 was as under:-

(In million tonnes)

Year Production % increase
1991-92 1.31 -
1992-93 1.44 9.9
1993-94 2.40 66.7
1994-95 3.39 41.3
1995-96 4.40 29.8
1996-97 5.01 13.8
1997-98 5.35 6.78
1998-99 5.11 -4.48.
1999-2000 5.18 1.37
2000-2001 5.44 5.01
2001-2002 5.66 3.99
2002-2003 4.50 ----
(Till
December
2002)

As per the International Iron and Steel Institute, India has emerged as the
largest producer of sponge iron in the world in 2001. Production of sponge iron
in the country as an alternative feed material to steel melting scrap, which was
being imported hitherto in large quantities by the Electric Arc Furnace Units and
the Induction Furnace Units, has resulted in considerable savings in foreign
exchange.

Apparent Consumption of Steel

Apparent consumption of steel is arrived at by subtracting export of steel

from the total of domestic production and adding the import of steel in the
country. Change in stock is also adjusted in arriving at the consumption figures.
It is also treated as the actual domestic demand of steel in the country. Details of
year-wise apparent consumption of finished steel since 1990-91 are given in the
table below :-

(In million tonnes)

Year Apparent
Consumption
1990-91 14.37
1991-92 14.83 (3.2%)
 1992-93 15.00 (1.2%)
1993-94 15.32 (2.0%)
1994-95 18.66 (21.8%)
1995-96 21.65 (16.0%)
1996-97 22.13 (2.2%)
1997-98 22.63 (2.6%)
1998-99 23.54(4.02%)
1999-2000 25.01(6.24%)
2000-2001 26.53(6.08%)
2001-2002 27.44(3.39%)
2002-2003 20.65(5.0%)
(Till December,
2002)
(The figures in brackets indicate the% percentage increase
over the previous year.

The apparent consumption of steel did not show any substantive increase
in 2001-2002 mainly due to slowdown being faced by some of the steel using
industries like automobile and engineering industries and construction. With the
revival of demand for automobile and engineering goods and general
improvement in the economy, it is expected that consumption of steel will
increase further.

India’s per capita crude steel consumption, as per the latest available
figures is 27 Kg, which is far below the level of other developed and developing
countries – 472.4 kg., 428.6 kg. and 128 kg. in USA, EU and China respectively.
With the ongoing economic liberalisation resulting in faster economic growth,
steel consumption is expected to increase rapidly.

Long Term Demand-Availability Projections of Finished Steel

In order to have a long term perspective to facilitate planning, a Sub-

Group on Steel and Ferro Alloys was constituted for the steel sector under the
aegis of the Planning Commission. The Sub-Group deliberated upon all aspects
including supply-demand projections for finished steel during the period 2001-02
to 2011-12. Considering a GDP growth rate of 6.5% as realistic during the 10th
Plan, the Sub-Group has projected the demand of finished carbon steel in the
country to rise as follows:-
(In million tonnes)
Year Forecast of demand for
Finished Carbon Steel
2001-02 28.24
2002-03 30.01
2003-04 31.91
2004-05 33.92
2005-06 36.05
 2006-07 38.22
2007-08 40.74
2008-09 43.30
2009-10 46.03
2010-11 48.93
2011-12 52.01

Import and Export of Iron and Steel

(a) Import of Steel

Import in steel sector has been mainly in plates, hot rolled coils, cold rolled
coils and semis. Import of steel (carbon, alloy and stainless ) during 2002-03
(upto December, 2002) was about 0.72 million tonnes. Import of steel (carbon,
alloy and stainless) during 2001-02 was about 1.50 million tonnes, which was
17.43% less than imports in 2000-2001.

The total import of steel, pig iron and scrap during the last five years and
value thereof was as under :-

Import of Steel, Pig Iron & Steel Scrap

(Quantity in million tonnes)
(Value in Rupees crores )
Category 1998-99 1999-00 2000-01 2001-02 2002-03
(Provisional)
(Upto Jan., 2003)
Qty. Value Qty. Value Qty. Value Qty. Value Qty. Value

Saleable 1.652 2459.00 2.200 2930.00 1.885 2712.00 1.501 2260.00 1.470 2286.00
Steel
Pig Iron 0.002 2.00 0.003 2.00 0.002 2.00 .002 2.36 0 .001 1.48

Steel 0.880 478.00 1.076 584.00 1.512 945.00 1.980 1206.00 1. 225 820.00
Scrap
Total 2.534 2939.00 3.279 3516.00 3.399 3659.00 3.483 3468.36 2.696 3107.48

(b) Export of Steel

The general policy and procedures for export and import of iron and steel,
ferro alloys and ferro scrap are at present decided by the Ministry of Commerce
in consultation with the Ministry of Steel. In a momentous move to push exports
aggressively, Government of India has announced several measures in the new
Five-year Exim policy (2002-07), which is in effect from 1st April 2002. These
include the removal of quantitative restrictions on exports save in respect of a
few sensitive items; permission for setting up overseas banking units in Special
Economic Zones (SEZ); retention of duty-neutralisation instruments including
Duty Entitlement Pass Book (DEPB) and other export promotion schemes.

The most important move in the new Exim Policy is the reduction of
transaction time for exporters by introduction of a new eight-digit commodity
classification in line with imports. Under Advance Licensing, the new policy
abolishes Duty Exemption Entitlement Certificate (DEEC) Book, a practice
followed since 1975. The policy also withdraws Advance Licence for annual
requirements. Exporters can now avail Advance Licence for any value.

The Union Ministry of Commerce & Industry has recently gone in for a
hike/ revision in the DEPB rates for steel exporters, covering exports of
galvanised products, hot rolled coils and cold rolled coils. For HR coils, the rate
has been revised to 15%, while for galvanised plain/galvanised coated and cold
rolled, the present rates are at 17% and 18% respectively. DEPB Scheme has
been made further attractive by including SAD in DEPB with effect from 1st April,
2002.

India’s major market for steel and steel items include USA, Canada,
Indonesia, Italy, West Asia, Nepal, Taiwan, Thailand, Japan, Sri Lanka and
Belgium. The major steel items of export include HR coils, plates, CR and
galvanized products, pipes, stainless steel, wire rods and wires. With the fall in
prices along with depressed domestic demand, India has been increasing
exports to overcome the excess supply situation. This has resulted in anti-
dumping actions being taken by developed countries like USA, EU and Canada.

The trade action by some countries against Indian steel industry has, to
some extent, affected India’s exports to these countries. The Government of
India and the Indian steel producers are trying to combat such actions despite
such efforts being very expensive and involving time-consuming procedures.

Details of the quantity and value of steel, pig iron and sponge iron
exported from the year 1998-99 are given in the table below:

Item 1998-99 1999-2000 2000-01 2001-02 2002-03**

(Apr.-Dec.02)

Saleable Steel 2.400 3.340 2.570 3.300 2.750

Pig Iron* 0.276 0.290 0.232 0.312 0.351
Sponge Iron* 0.169 Nil Nil Nil Nil
Total 2.845 3.630 2.802 3.612 3.101

*Source DGCI&S ** Provisional

Current Global Scenario

In the year 2000, the World Crude Steel production was 848 million
tonnes, showing an impressive growth of 7.6% over the previous year. The
world steel consumption also rose by almost 8%. The international steel trade
constituted around 303 million tons or 40.5% of the production. In 2001 and
2002, world crude steel production was 833.70 million tonnes and 886.70 million
tonnes, respectively.

The following significant developments have been witnessed recently in

the global steel scenario:

- There has been a spate of mergers and acquisitions all over the world in
the steel industry. This is a relatively new development in the steel
industry and is not confined only to companies within the same country but
often involved cross border acquisitions and mergers.

- China has emerged as the most vibrant market for steel production and
consumption.

- The crisis of excess capacity and prevalence of market distorting practices

in the global steel market has induced protectionist measures from a
number of steel trading countries. To address these issues a series of
high level inter-governmental meetings have been held under the
auspices of the OECD.

- In March 2002, the US President announced imposition of temporary

safeguard measures on import of key steel products into USA.

- In retaliation in respect to the US action, EU has also imposed provisional

safeguard measures against import of certain steel products.

- China, Canada and Thailand etc. have initiated safeguard investigations

against import of steel products into their countries.

Domestic Steel Sector Scenario

The iron and steel sector has been experiencing a slowdown in the last
few years. The steel market remained sluggish and price levels of steel and steel
products remained stagnant. This stagnancy resulted in steel companies
registering net losses. However, steel prices started to pick up from April 2002
and this upturn is expected to help steel companies to reduce their net losses.
The growth of steel sector is dependent upon the growth of the economy in
general and the growth of industrial production and infrastructure sectors in
particular. The major reasons for the slow growth in the steel sector during the
last few years include: -
 (a) Cost escalation in the input materials for iron and steel

Power tariff, freight rates, coal prices etc. have been under the
administered price regime. These rates have been frequently enhanced, thereby
contributing to the rise in input costs for steel making.

(b) Continuous reduction in import duty on iron and steel

After liberalisation, import duty rates on iron and steel items have been
gradually reduced over the years. This has opened up the domestic iron and
steel sector to international competition. The extent of changes brought about in
the customs duty of some of the items of steel since 1993-94 are given below:

(Import Duties % Ad valorem )

Item 1993- 1994- 1995- 1996- 1997-98 1998- 1999- 2000-01 2001-02
94 95 96 97 99 2000
HR COILS 50% 40% 30% 25% 25% 25% 25% 25% 25%
CR COILS 75% 50% 40% 25% 30% 30% 35% 35% 35%
Plates 75% 50% 40% 30% 30% 30% 35% 35% 35%
Bars/ Rods/ 85% 50% 40% 30% 30% 30% 35% 35% 35%
Structurals

Measures taken by Ministry of Steel to boost Demand

The Ministry of Steel has been making all out efforts to help the domestic
steel sector to overcome the problems faced by the steel industry and boost
demand for steel in the steel consuming sectors. These include:-

(a) Establishing Training cum Service institutes

The Ministry has endeavored to promote research and developmental

efforts by industry as well as provide technical support and trained manpower to
the steel producing and consuming sectors. The following institutes have been
set up:-

(i) The Institute for Steel Development and Growth (INSDAG), Kolkata (West
Bengal):- This is meant to promote usage of steel primarily in the
construction industry by producing working designs and updating
Engineering College syllabi.

(ii) Biju Patnaik National Steel Institute, Puri (Orissa):- This has been set
up for providing training-cum-service promotion for the industry.

(iii) National Institute of Secondary Steel Technology(NISST), Mandi Govind

Garh (Punjab):- This is primarily meant to promote upgradation of
manpower in the secondary steel industry.
(b) Campaign for increasing demand for Steel

The Development Commissioner for Iron & Steel (DCI&S) has launched a
National Campaign for increasing the demand for steel, in non-traditional
sectors, particularly in the construction, rural and agro-based industrial
sectors. In this connection, a conference was held on 21.9.2002 jointly
organised by Ministry of Steel and Ministry of Rural Development for promotion
of use of steel in the rural markets. Various measures were suggested to
increase the use of steel in the rural areas. It was decided that the cooperation
of Ministry of Surface Transport, Ministry of Tribal Affairs, Ministry of Finance,
Ministry of Small Scale Industries & Agro and Rural Industries, Ministry of
Consumers Affairs and Public Distribution and Planning Commission may be
obtained for the mission.

(c) Reduction in Power & Rail Tariffs

In order to make despatches of iron and steel material more attractive

through the railways, the Railway Board has been requested to consider lowering
the classification of steel; give freight discount to bulk users and to bring down
freight rates of iron and steel commodities.

(d) Reduction in input costs

The Ministry of Steel has been able to rationalise the classification of

coking coal in consultation with the Coal Ministry so as to reduce the impact of
royalty payable on this basic raw material. Import duties on several raw
materials used by the steel industry have been reduced steadily over the past 4 –
5 years.

(e) Strengthening of Anti Dumping mechanism

The Directorate General of Anti-Dumping And Allied Duties under the

Ministry of Commerce is the ‘Designated Authority’ to initiate necessary action
for investigation and subsequent imposition of anti-dumping duty when there is
sufficient evidence of imports being dumped in India.

A recent study by the Metal Bulletin Review reveals that in case of flat
products, almost every steel producing country has either an anti-dumping case
instituted against it or has started a case against exporting countries. As the
consumption in India was increasing with the increase of domestic availability,
the steel exporters particularly from the Russian/CIS countries have been
depressing the Indian market by unduly cheap exports through dumping. India
has already imposed anti-dumping duties mainly on HR products imported from
these countries. Apart from the flat products, there has been imposition of anti-
dumping duties on certain grades of alloy and non-alloy steel billets, bars and
rounds from China and Russia.
(f) OECD Meetings

The crisis of excess capacity and prevalence of market distorting practices

in the global steel market has induced protectionist measures from a number of
steel trading countries. To address these issues, a series of High Level Inter-
Governmental meetings have been held in which representatives from countries
accounting for nearly 95% of the total steel production have been participation.
These meetings serviced by the OECD Secretariat are being held in pursuance
of President Bush’s initiatives for a multilateral steel capacity. These initiatives
are being supported by major steel producing nations including the European
Community and Japan. Five High Level Meetings have already been held.

India has a number of concerns with regard to the modalities of excess

capacity reduction and enforcement of disciplines in the steel market. India has
not forecast any closure of surplus steel capacity. It has been pointed out that our
installed capacity which had reached around 40 million tonnes per annum in the
mid to late nineties, is now estimated to be around 33-34 million tonnes against
domestic demand of around 29 million tonnes. This is largely on account of
closure of units in the secondary sector due to operation of market forces. The
other participating countries have, however, forecast closure of excess capacity
to the extent of 95-100 million tonnes by 2010 and furnished detailed break down
of likely closure by 2005. The Working Group on Capacity, established during the
third High Level Meeting, will monitor these market forecasts.

Future Prospects

With the onset of liberalisation, the steel industry has to gear-up, not only
to meet domestic competition, but also the global competition in terms of product
range, quality and price. The growth of the steel sector is intricately linked with
the growth of the Indian economy and especially the growth of the steel
consuming sectors. India has become self-sufficient in iron and steel materials in
the last 3-4 years. Exports are rising and imports are taking place mostly in a
few specialised categories. Production and production capacities are increasing.
The position needs to be further consolidated and issues affecting production
and consumption need to be resolved on a continuous basis. At the same time,
productivity of our steel plants must be maintained at levels close to international
standards. The Ministry of Steel continues to play an active and major role in
helping the steel industry to overcome bottlenecks in the growth of this sector.

Steel Exporters Forum

The Ministry of Steel has set up a Steel Exporters Forum in February 1998
with a view to fulfil the long felt need of the producers and exporters from the iron
and steel sector and also to resolve issues, problems and bottlenecks faced by
them in exports. The Chairman of the Forum is the Development Commissioner
for Iron and Steel. All major steel producers/associations are its members.
Representatives of the Ministries of Finance, Railways and Surface Transport are
also its members in addition to the Ministry of Steel.

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