National Steel Policy (NSP) for Steel Companies

The government has gone ahead and announced a comprehensive National Steel Policy (NSP) 2017 outlining its vision for steel industry in general and facilitating the steel companies in particular. While the government has been supporting the steel industry over the last one year through import quotas and minimum import price (MIP) to protect them from Chinese steel dumping, there is obviously more to be done on steel. Firstly, Indian steel consumption per capita is not only lower than developed countries but also much lower than other emerging markets. Secondly, steel has strong externalities and has a multiplier impact on overall GDP growth. In fact, historically steel manufacture has been the best indicator of industrialization of an economy. Lastly, it was time to holistically look at the steel industry, being one of the core industries, from a long term sustainability point of view.

 

The broad contours of the National Steel Policy have been announced and some of the key highlights are as under:

 

• India has emerged as the 3^rd largest player in the world steel industry with a capacity of over 100 million tonnes. India is likely to overtake Japan in the next few years. However, China has a capacity of over 800 million tonnes and remains by far the largest player in the steel industry with over 50% of the world’s steel capacity.

 

• India proposes to increase its steel capacity three-fold to around 300 million tonnes from current levels by the year 2030. This massive expansion of steel capacity will entail an investment of nearly Rs.10 trillion (approx $150 billion).

 

• Steel being institutional demand is largely dependent on sectors like automobiles, white goods, construction and infrastructure for driving demand. The government also proposes to prop up the activity in these sectors to spur steel demand. From the current level of steel consumption at 60kg/per capita, the government also proposes to increase the consumption three-fold to 160kg/per capita. This will bring Indian steel consumption at par with the world average.

 

• The NSP also envisages that this capacity expansion cannot be met with the current set-up alone. Hence the government proposes two things. Firstly, it will facilitate R&D by establishing the Steel Mission. The government will take the initiative to bring about greater synergies between steel industry, national R&D laboratories and eminent universities specializing in metallurgy to create a comprehensive and robust R&D set up. Secondly, the government will also incentivize medium & small enterprises (MSMEs) to manufacture steel using more energy efficient technologies so that economic viability is ensured.

 

• A key issue is availability of raw materials like iron ore and coking coal. The government NSP will ensure that Indian steel companies get iron ore, coking coal and natural gas to fire their plants at globally competitive rates. This will go a long way in helping Indian steel become competitive vis-à-vis global peers.

 

• Last, but not the least, there will be a major focus on an inward looking steel consumption policy. All public projects of the government will necessarily use only steel manufactured domestically. This will be a big boost for domestic steel manufacturers both in the integrated sector and the MSME sector. An assured market will also give domestic steel producers greater incentives to invest more into their business.

 

But a few key questions still remain…

 

While the broad contours of the National Steel Policy (NSP) are surely commendable, there are some key areas that need to be addressed on an urgent basis…

 

• Steel is a major contributor to the stress in the banking industry in the form of NPAs. To put the steel companies on auto mode, they may first require a rescue package to reduce the stress on their balance sheet. This could be a precursor to the overall success of the NSP.

 

• One of the reasons Indian steel is facing problems in exporting is the lack of world-class infrastructure facilities in terms of quick turnaround in port times and better inland and last-mile transport facilities. These will also have to be simultaneously focused on to make a success of the NSP.

 

• Lastly, overcapacity is never a great idea for any industry. Between, 2008 and 2014, China massively expanded its steel production capacity to over 800 million tonnes. That also marked the beginning of the fall in steel prices as there was just too much capacity compared to demand. In fact, China is deliberately idling capacity which is one of the reasons steel prices are going up. This sharp rise in steel capacity should not result in a glut and a fall in steel prices. That may defeat the entire purpose of the steel policy.

 

The NSP is definitely a step in the right direction. It is high time that the world’s 3^rd largest steel manufacturer with the potential to drive steel consumption has a comprehensive game plan in place for the steel industry. At least, a beginning has surely been made!