INFRASTRUCTURE CHALLENGES INFRASTRUCTURE CHALLENGES OF INDIAN STEEL INDUSTRYOF INDIAN STEEL INDUSTRY

M. K. Deshmukh et alDirector (Engineering)

MECON Limited, Ranchi 834002, India

2nd India Steel Summit, 8TH August, 2008. New Delhi organized by ASSOCHAM

PREAMBLEPREAMBLEIndian steel industry is going to expand very fast&Ministry of Steel, Government of India is foreseeinga huge steel market of around 200Mt ahead (by 2020)(In fact optimistic projection is even 300 Mt)....The supply side also supposed to match the Demand side..

Here, the thought process begins on some crucial issues

Infrastructure constraints! .. How to meet those? Without those where will we land up?.

What needs to be done to bring the success for Indian steel industry by 2020? .

This presentation deals with some such queries

European Union (25)23%

Other Europe3%

C I S5%

North America 18%

South America3%Africa

2%

Middle East2%

China13%

India3%

Other Asia27%

Ocenia1%

Huge changes have been taking placeHuge changes have been taking placea cleara clear--cut shift in demand from cut shift in demand from the developed to the developing worldthe developed to the developing world....

Global Finished Steel ConsumptionGlobal Finished Steel ConsumptionChina dominated the demand side of the steel marketChina dominated the demand side of the steel market

European Union16%

Other Europe3%

C I S4%

North Amerca14%

South America3%

Africa2%

Middle East3%

China33%

India4%

Other Asia17%

Ocenia1%

Finished steel consumption : World 1995 - 658 Mt, 2006 - 1113 Mt CAGR (1995-2006) : China 13.6%, India 7.6%, Middle East 9.5%, World 4.9%

1995 2006

European Ubion (25)24%

Other Europe3%

C I S10%

North America 16%

South America5%

Africa2%

Middle East1%

China13%

India3%

Other Asia22%

Ocenia1%

Global Crude Steel ProductionGlobal Crude Steel ProductionCrude steel production increased in India and substantially Crude steel production increased in India and substantially

increased in Chinaincreased in Chinaagain, China is the Leaderagain, China is the Leader..

European Union16%

Other Europe3%

C I S10%

North Amerca10%

South America4%Africa1%

Middle East1%

China34%

India4%

Other Asia16%

Ocenia1%

Middle East 1%

South America 5%Africa 2%

4%Africa 1%

Middle East 1%

Crude steel production, World : 1995 - 752 Mt, 2006 - 1244 MtCAGR (1995-2006) : China - 14.5%, India - 7.7%, Middle East - 5.8%

World 4.7%

1995 2006

Iron OreSAIL, TISCOhave captive

mines

Iron ore mine leases to

other producers

NMDCKIOCLSesa Goa

Pig ironMini Blastfurnaces

NINL KIOCLOTHERS

SAIL, RINL

Sponge IronGas based : Essar, Ispat Ind,Vikram Ispat

Coal based :Sponge ironproducers (JSPL, Bhusan etc )

Steel ProductsSAIL, TISCO,RINL, JSWL,ESSAR, IIL etc.

EAF (smaller)& IF / re-rolling units

Indian steel industry structureIndian steel industry structure

Supply side of the market : Existence of twin structureSupply side of the market : Existence of twin structureNonNon--flat products market is highly fragmented. Flat products market flat products market is highly fragmented. Flat products market is consolidatedis consolidated

010

20

30

40

50

60

1980

-81

1982

-83

1984

-85

1986

-87

1988

-89

1990

-91

1992

-93

1994

-95

1996

-97

1998

--99

2000

-01

2002

-03

2004

-05

2006

-07

`

``

The Demand Side : Pattern of finished steel The Demand Side : Pattern of finished steel consumption in India 1980consumption in India 1980--81 to 200681 to 2006--0707

D

e

m

a

n

d

(

M

t

)

54.6(2007-08)

14.9

(1993-94)8.4CAGR

4.5%

CAGR

8.3%

There is a dip in 1993There is a dip in 1993--94 & upturn in 200294 & upturn in 2002--03 in the pattern of 03 in the pattern of finished steel consumption in Indiafinished steel consumption in India

CAGR

12.3%

2007

-08

Forecasts on steel demand for IndiaForecasts on steel demand for India

0

50

100

150

200

250

2006-07

2011-12

2019-20

D

e

m

a

n

d

(

M

t

)

48.7

Demand projections were made using econometric Demand projections were made using econometric modellingmodelling technique. Separate technique. Separate demand functions were fitted to historical data for all major cademand functions were fitted to historical data for all major categories of steel tegories of steel products. The products. The best fitted models best fitted models (selected on the basis of R(selected on the basis of R22 and tand t--test of the test of the parameters) were used for making projections. Categoryparameters) were used for making projections. Category--wise demands were added to wise demands were added to obtain the total demand.obtain the total demand.

84.5, 80

200.2

(180 200)

Ministry of steel, Government t. of India

12.5

2.95

4.62.93.8

31.7

56.8

108.8

230.8

25.1

A. Main producers

Steel Authority of India Ltd.

Rastriya Ispat Nigam Ltd.

Tata Steel

Essar Steel Ltd.

Ispat Industries Ltd.

Jindal South West

Sub-Total (A)B. Smaller EAFs / IFs

Total

The Supply side : ProducerThe Supply side : Producer--wise crude steel capacity in wise crude steel capacity in IndiaIndia

Capacity (Mtpa)

(by 2011-12)

(by 2020)

Likely capacity

52

122

India to play the Key role in Steel Market dynamics

International Forecasters sayInternational Forecasters sayIndia emerging India emerging as a big player in global steel marketas a big player in global steel market

Global community also say, .yesIndia, is a big prospect

Buoyant supply & demand side ahead. ( )

A WSD reportsays, India is

one of thebest countryfor building

new steel plant

NEWS

BOX

WSD,

Sept-1

6,

2007,p

:13

Now the problem beginsNow the problem beginsAchieving the target Achieving the target production generates huge demand for steel industry production generates huge demand for steel industry

infrastructureinfrastructure....

Iron oreCoking coalLimestone

Dolomite etc.

PowerWater

RailwaysRoadsPorts

Human capitalEngineering &

Consultancy etc.

Mining Infrastructure External Infrastructure

A demand A demand supply analysis of the supply analysis of the infrastructureinfrastructureis neededis needed..

14500

15000

15500

16000

16500

17000

17500

18000

18500

19000

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

0

50

100

150

200

250

300

350

.

I

r

o

n

o

r

e

r

e

s

e

r

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e

(

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)

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(

0

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Iron ore poses the first challengeIron ore poses the first challengethe situation the situation is not very healthyis not very healthy

2050 / 55/ 60.

?

Fast exploration requiredFast exploration required.with host of new .with host of new techniquestechniquesotherwise;otherwise;....

-500

0

500

1000

1500

2000

2500

3000

2006-0

7200

8-09

2010-1

1201

2-13

2014-1

5201

6-17

2018-1

9202

0-21

2022-2

3202

4-25

2026-2

7202

8-29

2030-3

1203

2-33

2034-3

5

Demand 223.4 MtSupply 150.8 Mt

2

0

2

9

-

3

0

N

e

w

m

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s

t

o

b

e

a

c

q

u

i

r

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d

2

0

1

9

-

2

0

1

6

6

1

M

t

Reserve

Iron ore Requirement (BF grade) ,

if finished steel demand inIndia grows by 8.4% p a &SAIL retains 35% share in

All India crude steel production

SAIL may have deficits in iron ore by 2029SAIL may have deficits in iron ore by 2029--30 unless it 30 unless it acquires new minesacquires new minesor, enters into longor, enters into long--term term

contracts with mining companiescontracts with mining companies....

M

t

THE CASE O

F SAIL

Requirement of iron ore and depletion of captive reserve.?

Reserve

4 5.68.7

19.4

35

78.6

1.7 3.59.8

25.1

44.1

97

0

20

40

60

80

100

120

2006-07 2011-12 2019-20

Coal requirement is quite high to achieve target steel production.

BF-BOF RoutePig iron

C

o

k

i

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g

c

o

a

l

r

e

q

u

i

r

e

m

e

n

t

(

M

t

)

EAF/IF Route Total

Proved reserve of coking coal is 16.5Bn tonnes, though of poor quality

Demand for non-coking coal in steel industry : 25Mt by 2011-12, 50Mt by 2019-20 Non-coking coal is abundant (proven reserve 79 Bn

tonnes). But availability of the desired quality for production of DRI is restricted.

SteelPlants are

nowimporting80-90% of

their CokingCoal

requirement

67.86

17.3

02468

101214161820

2007-08 2011-12 2019-20

Natural gas demand will soar due to increase in production of steel products from EAF /IF route..&

sponge iron industry.N

a

t

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r

a

l

g

a

s

r

e

q

u

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r

e

m

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t

(

M

M

S

C

M

D

)

Present supply : 111 MMSCMD; it is likely to increase to 192.4MMSCMD by 2011-12 & then, at All India level, there will be a Deficit of 88 MMSCMD.Extensive exploration efforts needed

Meeting the natural gasrequirement will be a tough

Job..?

100

215

0

50

100

150

200

250

2011-12 2019-20

W

a

t

e

r

d

e

m

a

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d

(

0

0

0

m

3

/

d

a

y

)

Alarming situation in case of water infrastructure

Present water resource potential : 1123 Bn cubic meter National Perspective Plan envisage increase in utilizable

water by about 200 Billion cubic meter

Availability of Land

Land acquisition

Availability of

Human CapitalEven the bestMetallurgical

Engineer is now in IT sector

Engineering & Consultancy

Services

constrained

Challenges are many.Land..Human capital Engineering & Consultancy..etc. etc

Indige

nous

Equip

men

t &

Syste

ms s

upply

Heavily constrained

Meticulous Strategic Planning is needed

Iron Ore

Gradual reduction in iron ore exports Exploration to be accorded highest prioritywith necessary incentive & removal of variouslegal and procedural constraints

Adoption of latest technology for beneficiation Priority in allocation of mines to the existing /

prospective steel plants without captive mines

Indigenously available coal need to be blendedwith imported coal to make these more suitablefor metallurgical operations

Acquiring mines overseas Indian steel-makers may enter into long-term contracts with coal majors

Alternative technologies like coal tar liquid gasesfuel injection, PCI into BF to reduce dependence on imports

Coal

Meticulous Strategic Planning required.

Naturalgas

More efforts on exploration of natural gas Strengthening & expanding the distribution network

More deepening of the power sector reform

Capacity built up by promoting captive power plants, through incentives / tax breaks and by removing various procedural constraints

Small producers may be encouraged to pool their efforts as consortium for such activities

Power

Meticulous Strategic Planning required.

Humancapital

Increase in remuneration Extensive man-hunt through visits

to the standard engineering institutes Better training, exposure to global

technologies Applied Engineering Research

More private initiatives Collaboration with foreign

consultancy organizations

More R&D effort

Engineering&

consultany

Meticulous Strategic Planning required.

Promoting indigenous manufacture Promote state-of-art technology

collaboration Revival of old units with

manufacturing capacities

Equipment&

SystemsManufacture

Ministry of Steel

Ministry of Power

Ministry of Petroleum &Natural gas

Ministry of Railways

Ministry of Shipping,Surface transport &

Highways

Ministry of Water

resources

Strategic Planning Team

Strategic Planning is required, in an integratedFramework combining various ministries

Ministry ofMining

Extensive Exploration / Beneficiation pelletisation

Gradual Reduction in Ore Export

Beneficiation of Indigenous coal

Clean and Green Technologies

Policy InitiativesPolicy Initiatives