National Conference of Secondary Steel Producers on the theme ‘Make in Steel for Make in India’ by Ministry of Steel in New Delhi on 5 April 2017
New Delhi, April 04, 2017
Chaitra 14, Saka 1939
Contributions of Secondary Iron Steel Sector in India:
· Production of steel from iron ore is normally a two-stage process. In the first stage, Iron is produced which is converted into steel in steel making shop (SMS).
· In integrated steel plants (ISPs) (eg. SAIL, Tata Steel , JSW Steel and others) Iron is produced in liquid form, called Hot-metal, in Blast Furnace (BOF), which is converted into steel in Basic Oxygen Furnace (BOF). Accordingly, such process is known as BF-BOF process. This process requires Coking Coal.
· In contrary, in secondary sector, iron is produced as Sponge Iron (DRI) in Rotary Kiln (in coal-based plants using Non- coking coal) or in gas based a plant (using natural gas) which is converted into steel normally in Electric Arc Furnace (EAF) or in Electric Induction Furnace (EIF). Accordingly, these process routes is known as DRI
· However, there are stand-alone EAF or EIF units producing steel from steel scrap with or without sponge iron.
· Producers of steel through BF-BOF route are normally classified as Primary Steel producers where as those producing steel through DRI-EAF / EIF or stand-alone EAF/EIF are classified as Secondary steel producers which inter-alia also includes steel processing mills/units like Hot Rolling Mills, Cold Rolling Mills, Galvanizing Units or even standalone sponge iron producers.
· Worldwide, Steel is produced normally adopting BF-BOF (70%) and EAF (30%) route whereas in India, steel is produced through three process routes namely BF-BOF: 43%, EAF& DRI-EAF: 25% and EIF & DRI-EIF: 32%.
· The crude steel(billet, blooms and slabs) produced by the steel makers are further processed into usable forms (plates, sheets, strips, bars & rods, structural sections etc.) adopting hot rolling / cold rolling / coating etc. either in-house by BF-BOF steel makers or EAF/EIF steel makers or by stand-alone rolling mill / coating units.
· In India, the secondary sector units contribute significantly (60-65%) in the production of long products (bars & rods, structural sections etc.) whereas flat products are predominantly produced by ISPs. India is also the largest producer of sponge iron in the world producing around 22 million tonne sponge iron.
· However, there are several problems & issues faced by the secondary sector units namely
i) Coal based DRI plants faced perennial problems in getting good quality iron ore and coal at competitive cost resulting in also inferior product (sponge iron).
ii) The DRI industry has also been representing for increased supply of iron ore at lower prices. To address this problem, Ministry of Steel has constituted an inter-ministerial committee, which is looking into the issue.
iii) One of the major player in the sector is Ferro-Alloy producer, where one of the main ingredient of cost is coke, cost of which is high and the industry has been representing to reduce the custom duty on imported coke.
iv) Most of the Induction furnace units particularly those in Chhattisgarh, Jharkhand, Orissa, West Bengal belt use sponge iron because of availability and cheaper cost and land up in production of substandard steel with higher phosphorus. Ministry of Steel is finding ways and means through technological and R&D intervention to produce quality steel in induction furnace. The EAF/EIF industry is representing for exemption of customs duty on steel scrap to make available steel scrap at competitive cost.
v) Re-Rolling Mills mostly use semis produced by the induction furnace units accordingly, the finished product also contains the high phosphorus, which is injurious to load bearing critical applications like high-rise building, infrastructure and construction projects. Once Quality Steel is produced in Induction furnace, the problem being faced by re-rolling mills will be addressed.
vi) The Ministry of Steel has notified quality control order which inter-alia includes TMT bars and structural steel section, which are largely produced by the sector. The secondary sector units are gradually picking up to get BIS license to produce more and more products with ISI mark. However, the sector, particularly the smaller units, lack basic testing facilities, which are essential under BIS certification mark scheme. Ministry of steel is therefore proposing to set up few testing centers to address the problems of the industry.
vii) Electricity cost, which is quite high in India, is one of the major costs of production for most of units in the secondary sector. The industry is therefore requesting for reduced rate of electricity cost.
viii) Utilisation of SMS slag is one of the major challenges across the steel sector –whether ISPs or secondary sector. IRC/MORTH standards permit use of BF slag in road making but not SMS slag. Use of SMS slag (BOF and EAF) slag is a common practice across the globe. IRC/MORTH needs to consider the demand of the steel industry to include SMS slag in their standards. This will go a long way in effective utilisation of SMS slag.
Micro, Small and Medium Enterprises (MSMEs) in Indian Steel Industry
The MSME sector occupies an important place in the economy of a country. Indian Micro, Small and Medium Enterprises play a key role as a growth engine for the national economy, employment generation and greater prosperity for the nation. They represent a significant proportion of the industrial enterprises and have been instrumental in building a solid industrial base in India. Their contribution to the economy is huge and hence they are entitled to their rightful share of attention in the country.
1. Background to Indian Steel Industry
Steel is regarded as the barometer of the economic health and world’s largest steel makers are one of the largest economies in the world. Steel is one of the most important products in the modern world and forms the backbone to any industrial economy. India, being one of the fastest growing economies in the world, and steel finding its extensive application right from construction industry, industrial machinery to consumer products is of strategic importance to the country. In India, steel sector has an output multiplier effect of nearly 1.4 times on GDP and employment multiplier factor of 6.8. On account of India’s rapid industrialization and modernization, the sector has grown exponentially from a small capacity of 22 MT in FY 1991 - 92 to become the 3rd largest producer of steel in the world with a production of 90 MT and a capacity of 122 MT in FY 2015 - 16 contributing to about 2% of the country’s GDP and employing about 5 lakh people directly and about 20 lakh people indirectly.
Earlier the steel industry was classified into two segments of producer v.i.z. Primary Producers and Secondary Producers[1]where the Primary Steel producers were defined as “the producers of any capacity irrespective of process route, starting their operations from iron making using iron ore, virgin or processed, with necessary refining facilities and rolling/processing facilities at a single location or else in multiple locations” and the Secondary Steel producers were defined as “producers of any capacity having Electric Arc Furnace (EAF) and/or Electric Induction Furnace (EIF), with necessary refining facilities, with or without rolling/processing facilities”. However, this classification was revised in May 2016[2], post which, no steel producer are now defined as ‘Integrated steel producers’, ‘Primary Steel Producers’, ‘Secondary Steel Producers’, ‘Main Producers’, ‘Major Producers’ or ‘Others’.
As a result, Ministry of Steel intended to identify steel plants as Large & Mini Steel Plants where Mini Steel Plants are basically defined as “MSMEs (Micro, Small and Medium Enterprises)” based on the standard definition of range of investment, turnover or employment, as followed by Ministry of MSME.
2. Structure of Indian Steel Industry
Indian steel industry is now typically structured in between three broad categories based on route wise production viz. BF-BOF, EAF and IF. BF-BOF route producers have large integrated steel making facilities[3] which utilize iron ore and coking coal for production of steel. Unlike other large steel producers, the Indian steel industry is also characterized by the presence of a large number of small steel producers (MSME sector[4]) which utilize sponge iron, melting scrap and non-coking coal (EAF/IF route) for steelmaking.
MSME segment is highly heterogeneous with the units working on standalone basis and primarily comprising of sponge iron producers, Induction Furnace (IF) and Electric Arc Furnace (EAF) units, Rerolling (RR) units, Hot Rolled (HR) units, Cold Rolled (CR) units, Galvanized/Color coated units, Tin Plate units and Wire-Drawing units. As on March 2016, there were 308 sponge iron producers that use iron ore/ pellets and non-coking coal/gas providing feedstock for steel production; 47 electric arc furnaces & 1128 induction furnaces that use sponge iron and/or melting scrap to produce semi-finished steel and 1392 re-rollers that rolls out semi-finished steel into finished steel products for consumer end use (See Annexures 1 & 2).
3. MSMEs in Indian Steel Industry
India over the years has developed a strong MSME sector (comprising of DRI-EAF/IF route based steel producers and rolling mills) which is unique to India. It embodies the entrepreneurial and innovative strengths of Indian steel industry, which turned the unavailability of coking coal – a key input for BF-BOF route into an opportunity. Currently, around 40% i.e. approximately 50 million tonnes of the capacity lies in MSME sector with large variations amongst various units in terms of scale of operations, product-mix and technology. The MSME sector thus plays an important role in providing employment, meeting demand of some special products required in small volumes and local demand of steel in hinterlands. Apart from this, the sector is also highly export oriented which helps in earning foreign exchange for the country.
Capacity & Production contribution of Large & MSME Steel Players
Source: JPC, Ministry of Steel
Note:
i. Capacity as on 31st December 2016 – 125 million tonnes
ii. 2030-31 capacity figures are projected assuming similar ratio of 2016-17 capacities
iii. MSME includes all steel producers with capacities < 1 MTPA as per the new definition proposed excluding large players in EAF/ IF routes like Essar, JSW, JSPL & Bhushan steel
iv. 2016-17 production figures are annualized on pro-rata basis (Apr-Dec 2016)
v. 2030-31 production figures are projected based on 85% capacity utilization
4. Focus on expansion of MSMEs in steel sector
The aftermath of the global back drop in the steel sector was evident in the Indian steel market as well, with poor balance sheets and cash flows for major steel producers in the country. Over the last two years, the Government of India has taken number of strategic interventions to tackle the global glut in steel industry leading to effective decision making and a series of milestones and achievements in the sector including improved capacity utilizations, increased cash flows & profit margins for steelmakers, reduced imports and significantly high exports. With an increased focus on expansion of MSME sector, improved raw material security, enhanced R&D activities, reduction in import dependency and cost of production, Government aims to develop a“technologically advanced and globally competitive steel industry that promotes economic growth” eyeing self-sufficiency in production, developing globally economical steel manufacturing capabilities by facilitating investments and cost efficient productions with adequate availability of raw materials.
In this context, the expansion plans for the MSME Sector is focused on key strategic parameters and metrics including expansion of capacity, better financing focused on lesser capital involvement[5], production of good quality of steel with enhanced & improved technology and easy adaptability to latest available technology. Over the years, the sector is estimated to add about 70 million tonnes of capacity thus the overall capacity reaching to the tune of about 115 million tonnes by 2030-31. The government is also emphasizing on roll out of quality products thereby mandating adherence to Bureau of Indian Standards certification for 33 categories of steel.
5. Challenges in MSMEs in Indian Steel Industry
The major challenge faced by the MSMEs in steel sector is their inability to compete with large players in terms of quality products due to their inherent weaknesses such as obsolete technology, uncompetitive prices, costly credit, weak infrastructural facilities, plethora of labor legislation, ineffective associations, lack of up-to-date information, lack of international exposure to its products and lack of standards conforming to international standards etc. Moreover, with the introduction of WTO and provisions of free trade, MSMEs are subjected to foreign competition by way of cheap imports from neighboring countries as well as developing countries.
6. Interventions planned by Ministry of Steel
Apart from strategizing the expansion plan of MSMEs in Indian Steel Sector, Ministry of Steel is planning to take number of measures in order to counter the above challenges and to improve the performance of MSMEs in steel sector and sponge iron industry. Some of which includes -
· Ensuring availability of raw materials by facilitating auction of non-coking coal exclusively for steel/ sponge iron sector and increasing the iron ore availability in the domestic market.
· Encouraging adoption of energy efficient technologies in the MSME steel sector to improve the overall productivity & reduce energy intensity through high-level R&D.
· Encouraging small and medium iron and steel making units to set up their plants in the proposed industrial corridors and clusters for optimal utilization of land and to reach economies of scale.
· Pursuing all necessary measures with relevant ministries to bring down the transport and logistics costs along with development of slurry pipelines for the evacuation of fines and pellets in order to reduce the cost of production in this segment.
7. Way Forward
The importance that Ministry of Steel is giving to this segment of domestic steel industry can be gauged from the fact that we are continuously discussing the ways and means to promote pelletisation and are examining the feasibility of setting up scrap-based steel plants and slurry pipelines. All these decisions will go a long way in making a vibrant steel sector and in ensuring that Make in Steel drive is successful in India.
The Indian steel sector is today in a position where continued positive actions in terms of investments and Government interventions can take it to a position of global leadership which could yield rich dividends for India such as accelerated GDP, industrialization, massive employment and wealth generation particularly in the resource rich states of India’s heartland.
It is in this context and background that the MSMEs in the Indian steel sector needs to be promoted, encouraged and incentivized in the country to give a boost to the manufacturing sector to lead the real achievement of the flagship programme of Government of India of ‘Make-in-India’, alongside the achievement of the target of 300 million tonnes of steel production capacity by 2030-31.
Annexure 1: Capacity & production amongst MSMEs in Indian Steel Sector as on 31 March 2016
Sl. No.
|
Type of Industry
|
No. of Units
|
Annual Capacity
(Million tonnes) |
1
|
Electric Arc Furnace[6]
|
47
|
36.33
|
2
|
Induction Furnace
|
1128
|
38.30
|
3
|
Sponge Iron
|
308
|
43.36
|
4
|
Re-rolling
|
1392
|
61.02
|
5
|
HR Flat Product
|
26
|
42.81
|
6
|
CR Flat Product
|
62
|
15.70
|
7
|
GP/GC Sheets
|
24
|
7.15
|
8
|
Colour Coated
|
16
|
2.89
|
Source: JPC
Annexure 2: Flowchart of value chain
Secondary Steel industry comprise of manufacturing units having steelmaking and/or rolling facilities as mentioned below.
Source: Google Books, Industry Representations
[1] As per the Notification No. 4(8)/2010-SD-I, dated 24th April 2015 issued on classification of Steel Producers/Processors
[3] Typical capacities of more than 1 MTPA
[4] MSME includes all steel producers with capacities < 1 MTPA as per the new definition proposed by Ministry of Steel to Ministry of Micro, Small & Medium Enterprises excluding large players in EAF/ IF routes like Essar, JSW, JSPL & Bhushan steel
[5] Around one third of the investment required as compared to the large players
[6] Includes all EAF units in India. However, MSMEs will not include large players in EAF/ IF routes like Essar, JSW, JSPL & Bhushan steel
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