Fishers have started appearing in the global economy and that makes H2 forecast gloomy for the steel sector. Despite record crude steel numbers in the first 7 months of this year up by more than 7 % YoY, but with the major chunk of growth coming from china, it does not forbid well for some of the region and the countries.

Situation remains very hazy in the Europe as more and more bad news related to debt crisis are coming everyday. And to top it up the MENA crisis also continues unabated. At this point of time we certainly have a downward tendency.

Amount of crude steel in India is increasing at much faster pace than the growth in consumption. As we are expecting more capacities to come in near future, India is likely to become net exporter of steel and Indian steel mills will have to look out to sell their products rather than cutting production.

That brings about some very important questions that how competitive Indian mills are with respect to the traditional supplies from China, Ukraine and Russia etc in terms of costing, in terms of product range etc.

Mr PK Misra steel secretary with the government of India in an exclusive interview with Mr Nishith Sharma of SteelGuru.com has shared his views.

Edited transcript

Q – With the signs weakness appearing in the global economy, the picture is becoming hazier. With every passing day we are hearing something, which are not very positive. This reminds us of the mayhem which had happened in second half of 2008. So probably we would like to understand your views that how Indian steel mills, should be looking at the situation and trying to take some action so that 2008 is not repeated?

A – I agree that there are signs of concern in the western economic system. More so in Europe than in America, because I think that American financial system has probably learnt its lesson after 2008 problems. Yes, this is something that needs to be watched. So far any steel demand is concerned, I think that there has been a slow growth on demand than was anticipated by us, possibly because of the slow down in the economic growth which has occurred this year in the 1st quarter.

But the signs are that the steel production is still fairly buoyant and according to our estimates from Joint Plant Committee, the crude steel production in India has gone up by about 9.8% in this financial year. On the other hand the demand has gone up by 1.6%. But the fact that the steel companies are continuing to produce at higher levels, shows that there is a latent demand that they are anticipating.

Secondly, as you know that this is the monsoon period and construction activity is normally subdued. And construction activity normally picks up from sometime around 1st week of October, when monsoon cease. It is only than that we get to watch how fast the steel demand grows in India.

Moreover, typically the steel demand in India peaks around the last quarter of the financial year and that is the time to watch. Also of course in the 3rd quarter, so we are going to watch with great interest the 3rd quarter for signs of demand picking up. I am quit hopeful that the things will pick up. Whether the steel demand will go up by about 10% or so, as happened in the last few years, is to be watched. We are still hopeful that we will be still of that order.

Q - But with the government clamping down to curb the inflation and the interest rates are going up, the mood amongst the consumers still needs to be watched carefully?

A- As you know that about 50% to 55 % of the demand for steel is from the infrastructure sector. The infrastructure spending by the Indian government in the current year is going to be of a higher level. Also, of late, I think that there is a little bit of pick up of demand in the real estate sector. In spite the high interest rates, the prices of the properties are rising. That shows that the demand is picking up. I think that perhaps with such high interest rates there would be inflationary impact for automobiles and consumer durables. But overall, if the construction sectors demand goes up substantially, I think that the overall steel demand will pickup in India.

Q - We would like to understand the situation with the changing equation of what India would be producing and consuming. If you look at the numbers from the JPC India remains a net importer of steel so far, but the gap between imports and exports in the last 5 months has come down to mare 90,000 tonnes per month as against to more than 500,000 tonnes in this period of last year. And we also understand that more capacities are still yet to come, may be in the next 6 month, 1 year 2 year. In that situation you probably it would be prudent for Indian mills to start looking at other markets in a very focused way. What would you advise?

A- Yes, certainly this question was asked to me about the same time last year when India was a net importer of steel and in the first four months of the last financial year there was increase in imports. At that time I told that capacities were going to be added and ultimately at the end of this financial year we would not be very heavily deficit. That was proved right. I feel the same way again.

There is going be large addition in the steelmaking capacity, especially through the blast furnace route by major steel companies in India. We are expecting that the total capacity for steel making in India at the end of this financial year should be about 90 million tonnes or more. Therefore, I think that there is a good scope for Indian steel companies to step up their export efforts and go into foreign markets.

In the entire year, we should be actually seeing exports matching import and perhaps next year we could be net exporters. So, I think steel industries in India are poised to become good exporters and they should try for that.

Q - The next question is the competitiveness of the Indian mills, in terms of their product range, which can be probably matched with the Chinese and Ukrainian & Russian suppliers. But what about the costing aspect as all the three regions, they have different cost parameters. While Ukraine and Russia have both domestic iron ore and cooking coals, India has iron ore & imports cooking coal and China imports more of iron ore?

A- I think that this is an important issue. Many countries have natural advantage of having both the raw materials which go into steel making like Ukraine and Russia and therefore obviously their products have been traditionally cheaper. China has lot of cooking coal. On the other hand, especially in the blast furnace route we have to import a lot of cocking coal whose prices in the recent past have been at record high levels impacting the Indian steel industry profitability.

But in spite of the cost pressures, prices of steel have not gone up so substantially as they should have. So, some of the costs are being observed by the steel industries in India. And perhaps this also shows that they maybe increasing efficiencies and economies of production. We, as the ministry of steel, would like to encourage this trend for the Indian companies to be more efficient. We would like them to be faster on the uptake on market conditions.

And as the Indian steel industry matures and becomes larger these things are naturally going to happen as a result of size. For instance, some of our companies like TATA Steel JSW and Essar have recently expanded capacities and some are in the process including SAIL & RINL. Hopefully this year RINL would be able to commission their 3rd blast furnace, which will take up their capacity from present of about 3 million tonne s to about 6.3 millions tonnes.

Now with these increasing capacities obviously these companies become a little more efficient.

Also coking coal prices seem to be declining. Therefore we are actually not very badly off to face the competition from the lower cost steel producers in other parts of the world.

Q - In the month of June there was a draft circular issued on the steel product quality. It prohibits manufacturing, storing, selling steel products which are not BIS compliant in anyway and specific mentioned include certain products like electrical steels and structural steels and rebar etc.?

A- Let me first clarify that this order is not yet been issued. It was only notified for likely issues. Right now we have notified the world trade organization and there is a waiting period of 60 days, which is in sometime in October. Thereafter we propose to issue a steel control order and then it will take 6 months to take effect from the date of issue.

The general purpose behind this is that we need to encourage quality as India matures as a steel maker. High quality steel making has to be internationally competitive. Also we have to protect the consumer from steel products which are not conform into standards and can lead to problems for them.

We know that there certain small scale units which will have some problems with this order but we are expecting them, in the period of 6 months, to change over the technology. And technologies do exist for making better steel. You can choose the product mix or you can add more scraps. There are various technologies including refining technologies, which are available even for the induction furnace sector which accounts for a good amount of our production.

Some of them have already improved their technologies and some are in the process of doing so. Other, we hope will also do so as we give 6 months time for this order to take effect.

But this is something which is needed. It’s the need for the future for the Indian steel industry to become more efficient, more conforming to international standards, so that there is a general quality consciousness in steel making in India. In the long run if you want to become the net exporters of quality steels, we will have to be conscious of quality, so this is something we have to do for the future too.

Q - Almost all Indian steel majors are going in for technology collaboration with some overseas partner for developing auto grades. If you recall, this was this nemesis of US steel industry Certainly we need auto grade steel, but we still continue to import lot of high end steel products in niche segments other than auto grade. Probably we need to develop competence there as well?

A- I, certainly agree with what you say. I think we need to get more quality steel making to India. Off course, new products, which are emerging in the market like extra strong steel & super strong steel etc including electrical steel, auto grade steel is now coming in a big way as in India as you said. But auto grade is now evolving to higher grades of extra strong steel and so on.

Now many of the Indian steel majors have already had tie ups with certain foreign companies for producing higher grades of steel, more specialized steel, niche steel. We encourage this strength because ultimately if we are going to emerge as the 2nd largest steel producers in the next 2 or 3 years we need to add all these quality steel products to our portfolio.

We should also become major exporters of the steel because that will give us better economies of scale. Higher production leads to better economy of scale and better steel making would also lead to higher exports.. So in a nutshell I would say that as the Indian industry expands going into 2020, where we expect to make about 200 million tonnes of steel, we also need to upgrade the quality we need to get into more products. We need to make almost every product that can be used in the country and perhaps exported too.

Q - Information plays a very big role in conducting the business and understanding the situation. If you look at the developed country like USA and Europe etc they have very good information systems available on the steel sector. Even china has a very good information system. When India is poised to become a steel super power in coming years do you feel that we should also take this as a priority issue to create a robust system?

A- Certainly, the more knowledge you have, the better placed you are to take informed decisions and make the best decision.

Now towards this, objective of the JPC, which is currently is the official body for collection of statistics under the ministry of steel, I have asked them to go for a survey and also talk to the steel industries as to what kind of information they should collect which is beyond but they are collecting today. I have also asked our economic research unit the ERU to also discuss with industry to what areas they should need to work, which are more relevant to the steel industry.

So these interactions are going to take place.

We will welcome ideas and suggestion as to what kind of further information gathering like what are the industries that we need to add and to refine the process to make it more automatic, make it more online.

We would also like to design some software which will enable people to put the information on to the JPC without any interventions. I think all this will probably lead to better flow of information better quality of information and larger set of information which will be useful for the steel industry.

Q - Indian steel industry is in a very defragmented state as we have more than 1000 or 1200 steel makers. Many of them do not even have emails etc. It is going to be a challenging task. Probably a joint effort from the industry side is required to achieve this?

A- We are getting quit a lot of cooperation from the Indian steel industry as a whole. For collection statistics we hope to enhance this cooperation by engaging with them and interacting with them more frequently, holding seminars and any other innovative tech…. methods if we can employ to get the information.

I agree that with the large number of steel producers this is characteristic and we have to be content with that. But I think that there will be ways of getting around this problem and I am sure we will be able to find the solution after having these consultations with the industry.