Report of the Working Group on Steel Industry for the Twelfth Five Year Plan (2012 – 2017)

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Report of the Working Group on Steel Industry for the Twelfth Five Year Plan (2012 – 2017) REPORT OF THE WORKING GROUP ON STEEL INDUSTRY FOR THE TWELFTH FIVE YEAR PLAN (2012 – 2017) Ministry of Steel (November 2011) 1 2 REPORT OF THE WORKING GROUP ON STEEL INDUSTRY FOR THE TWELFTH FIVE YEAR PLAN (2012 – 2017) LIST OF CONTENTS Sl. CHAPTER SUBJECT PAGE No. NO. NO. 1. PREFACE 5 – 6 2. INTRODUCTION 7 3. EXECUTIVE SUMMARY 9 – 20 4. I PERFORMANCE OF INDUSTRY DURING 11TH 21 – 30 PLAN (2007-2012) 5. II PROSPECTS OF DOMESTIC DEMAND FOR 31 – 37 STEEL – REVIEW OF RELEVANT MACRO ECONOMIC FACTORS 6. III DEMAND AND SUPPLY PROJECTIONS FOR 12TH 39 – 52 PLAN (2012-2017) 7. IV RAW MATERIAL ISSUES 53 – 88 8. V INFRASTRUCTURE ISSUES 89 – 98 9. VI TECHNOLOGICAL ISSUES, PROMOTION OF 99 – 137 RESEARCH AND DEVELOPMENT IN IRON & STEEL MAKING 10. VII ENVIRONMENT MANAGEMENT AND SAFETY 139 – 157 ISSUES 11 VIII RECOMMENDATIONS 159 - 184 12 ANNEXURES / TABLES 185 – 227 13 LIST OF ANNEXURES 229 14 LIST OF TABLES 231 -234 15 ABBREVIATIONS 235 – 236 3 4 PREFACE The decade following liberalisation was a period of robust economic growth, increased liquidity and low interest rates. As the resultant manufacturing boom was also maintained during the tenth plan, the steel industry prospects on the eve of eleventh plan (2007-12) were largely optimistic. These expectations were also justified by the initial plan performance but the unexpected global turmoil of 2008 triggered by the sub-prime debt crisis was to prove the spoilsport leading to substantial scaling down of operations and profit margins. However thanks to Indian economy‘s inherent resilience these reverses were only temporary and even the domestic steel sector managed to make a recovery helped by a resurgence in sectors like automotive appliances, capital goods and construction. 2. Today as the 11th plan draws to a close, the growth indicators for the industry remain positive but the performance levels are lower than what was achieved during the pre- crisis phase. As for future prospects - and this includes the 12th plan (2012- 17) period, the outlook remains optimistic despite concerns regarding the existing domestic and global economic scenario. The optimism stems from the fact that as compared to other emerging economies the basic fundamentals of the economy remains strong which is crucial for an industry depended more on domestic than external demand trends. But the growing budgetary deficit sliding rupee and double digit inflation are worrying and from a business perspective there are fears of a slowing down as reflected in the volatile stock markets, lower investment on account of increasing cost of credit and rising input prices specially of imported fuel and raw materials. There are also fears about a likely shrinkage in global demand in the wake of the new global crisis triggered by unmanageable public debt in the US and many European countries. 3. However, as highlighted in the 12th plan Approach Paper the above challenges may only be temporary and given the strong fundamentals the economy is very well placed to achieve a growth rate of 9% over the next five years. The domestic growth prospects for the industry therefore remain positive. The sector already has certain inherent advantage like easy access to key raw materials, low cost of labour, requisite technical manpower, a high potential for technology absorption and most important a growing domestic market. As demand for steel is essentially a derived demand, any growth in the major consuming sectors may be expected to provide the requisite performance stimulus. In this context the proposed huge investment for infrastructure development and implementation of the new National Manufacturing Policy (NMP) during the 12th plan period are relevant. 4. Presently we are the fourth largest producer of crude steel and the largest producer of sponge iron in the world. However in terms of techno economic efficiency of operations our steel making units are nowhere near their global competitors. The industry in fact continues to be characterised by low labour productivity and high energy consumption levels, heavy dependence on imported technology, low priority for Research & Development initiatives and diversification. For improving the sectoral performance and competitiveness there is an urgent need to address its basic structural constraints irrespective of equity size and nature of operations. These efforts will also have to cover every phase of steel making as a manufacturing process i.e. from accessing of raw materials to its processing, finishing, quality control, transportation to 5 final retailing. Already significant changes on all these fronts are expected over the next three years on account of the new capacities coming up and the resultant competition. 5. Taking into account the above issues, the Working Group after mutual consultations with all the stakeholder groups concerned had identified three crucial structural issues for a detailed appraisal i.e. steel demand and supply trends, raw- material and Infrastructure issues and the issues linked to technology, R&D and sustainable development. Each of these issues were examined by a separate Subgroup and based on the inputs provided by them the report‘s recommendations have been finalised. 6. The recommendations broadly support not only initiatives for achieving competitiveness in terms of the right technology , quality and product-mix but also timely policy intervention and consensus building for resolving issues beyond the purview of the market mechanism. Amongst the critical issues highlighted in the recommendations are that of acquisition and conservation of critical raw materials for the industry, promoting the development of infrastructure linkages through coordinated efforts across sectors and encouragement for innovative R&D projects consistent with existing resource endowments through the ongoing Plan scheme for promotion of R&D in steel sector. Two new areas of focus proposed and with specific reference to environment sustainability by the sector, the provision of budgetary assistance for improving energy efficiency by the secondary steel sector and also for promoting increased investment in beneficiation and agglomeration of low grade iron ore and ore fines by the industry. I would like to thank all members of the main group and of the subgroups for sparing time for active participation in the deliberations and for their valuable inputs. A report like this required careful compilation of all sector specific information received including statistical projections and estimates and this was taken care of by the Budget Division and the Economic Research Unit (ERU). The involvement of the ERU project team was also crucial for the compilation and editing of the report. I hope that the report will prove to be a useful referral document on understanding the problems and prospects of the Indian Iron and Steel Industry. Yours sincerely November, 2011 (Pradeep Kumar Misra) Secretary (Steel) & Chairman Working Group on Steel Sector 6 INTRODUCTION The Planning Commission vide its letter No I&M 3(30)/2011 dated 29th April, 2011 constituted the Working Group on Steel sector for the Twelfth Five Year Plan (2012-17) under the Chairmanship of Secretary, Ministry of Steel. The Composition and Terms of Reference of the Working Group is given at Annexure – I. The first meeting of the Working Group was held on 19th May, 2011 in which it was decided that there was need for an in-depth analysis of the issues relating to Steel Industry prior to framing a development strategy for 12th Plan. Accordingly, three Sub-Groups were set up the Sub-Group-I on ‗Demand and Supply of Iron & Steel, under Shri S. Machendra Nathan, AS&FA, Ministry of Steel‘, Sub-Group-II on ‗Raw Material and Infrastructure Issues, under Shri U.P. Singh, Joint Secretary, Ministry of Steel‘ and Sub-Group-III on ‗R&D and Technology Issues‘, under Dr. Dalip Singh, Joint Secretary, Ministry of Steel. The Composition and Terms of Reference of the three Sub-Groups are given at Annexure – II. Sub-Groups-I, II, & III submitted their reports on 12th September, 2011 and their recommendations were considered by the Working Group in its second Meeting held on 19th September, 2011. Based on the deliberations held on the recommendations, the report of the Working Group has been finalised. 7 8 EXECUTIVE SUMMARY 9 10 EXECUTIVE SUMMARY The Working Group on Steel Industry for Twelfth Five Year Plan 20012 – 17 was constituted by the Planning Commission with the objective of making a critical assessment of the performance of the industry, examine major sectoral policy issues and concerns, estimate the potential demand and supply requirements during 12th Plan and make policy recommendations for implementation. The major findings and observations of the Working Group are summarised as follows;- A. Overview of the Indian Steel industry Status, Performance and Emerging Trends (i) The first four years of Eleventh Five Plan witnessed a marginal slowdown in growth when compared to the growth rates in the tenth five year plan mainly due to the global financial crisis in 2008-09. However, the counter cyclical policy measures taken to arrest the economic slowdown and the innate resilience of the economy ensured a quick turnaround that enabled the domestic steel industry to return to moderate growth. (ii) Crude steel production grew at the rate of 8.2% per annum from 50 .817 million tonnes in 2006-07 to 78.001 million tonnes in 2010-11. While the share of additional production by main producers (SAIL, TATA & RINL) accounted for a mere 6%, (about 1.67 million tonnes), this growth was primarily driven by capacity expansion by major producers and other producers group. Production of finished steel grew at an annual rate of growth of 5.8% from 52.53 million tonnes in 2006-07 to 66.01 million tonnes in 2010-11. (iii) Consumption of steel exceeded production and grew at an annual rate of 8.8% from 46.78 million tonnes in 2006-07 to 65.61 million tonnes in 2010-11.
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