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Impact of Covid 19 on Indian Steel Industry

Impact of Covid 19 on Indian Steel Industry

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  • GS 3|| Economy || Industries || Major Industries

Why in the news?

  • The COVID-19 pandemic and the nationwide lockdown in 2020 may have disrupted domestic demand but steel manufacturers in India have enjoyed a relative advantage which has seen a boost in its exports.

Status of Steel Industry

  • Second largest producer of steel
    • At 51.3%, China is the world’s largest producer of steel. With a total contribution of 5.9%, India has overtaken Japan to become the second largest producer of steel contributing about 2% of the country’s GDP.
    • Production of steel has kept pace with its global usage.
    • A sound credit sector, better investment environment, and boost to infrastructure development will go a long way towards strengthening the industry. Steel and metal manufacturing units are considered to be asset-intensive.
  • Per capita consumption
    • Also, India has a low per capita consumption of steel of around 65 kg in India, compared to the world’s average of 214 kg.
    • Thus, India is serving as an attractive location to promote the construction of steel.
  • Technology integration enhances the performance of the sector
    • The steel industry is going through an exciting transformation with the evolution of various emerging technologies such as robots, drones, and IoT that provide businesses with valuable solutions.
    • Sound asset performance and technology integration will also boost labour productivity.
    • This will help in reducing costs and increasing profitability across the industry.
    • However, the introduction of new technologies will entail the development of a new talent pool with the requisite skills and the upskilling of the existing workforce.
  • Though the steel industry in India and the rest of the world is grappling with certain challenges, a push from the government and the adoption of emerging technologies will enable India to become a USD 5 trillion economy in 5 years and to achieve the goals outlined in National Steel Policy, 2017.

Challenges to the Indian steel Industry

  • In 2016, World Steel Dynamics ranked India second in terms of the cost of conversion of iron ore to steel, after Ukraine.
  • Indian mills were found to be more cost-efficient in converting iron ore to steel than their counterparts in China, Japan, or Korea. Most Indian integrated steel producers ranked within the top 35 steel mills globally.
  • Finance: Steel is a capital-intensive sector. In India, the cost of finance is extremely high compared to the cost of finance in developed countries such as China, Japan, and Korea. This adds about USD 30–35 USD to the final cost of steel.
  • Resources: The iron and steel industry necessitates a significant capital investment, which a developing country like India cannot afford. International funding has aided the establishment of several public sectors integrated steel plants.
  • Poor Productivity: The steel industry’s per capita labor productivity is 90-100 tonnes, which is extremely low. In Korea, Japan, and other steel-producing countries, it is 600-700 tonnes per human.
  • Low Potential Utilization: The Durgapur steel plant only uses about half of its potential due to factors such as strikes, raw material shortages, energy crises, inept administration, and so on.
  • Logistics: For most Indian steel makers, managing logistics requirements is arduous, challenging, and costly. The primary raw material for steel making is iron ore, besides coal or coking coal. Both are bulk minerals, and steel is also a bulk commodity.
    • Moreover, most Indian steel plants are located inland, unlike in China, Japan, or Korea, where they are located close to the sea.
    • This increases the challenge of managing logistics requirements for most steel plants in India. Railways are naturally the preferred mode of transportation for steelmakers
  • Tax, duties, and cess
    • While the government has lowered corporate tax rates to 25%, there are certain non-creditable taxes, duties, and cesses, specifically paid by the steel sector, which reduce the competitiveness of Indian steel products in the global market.
  • Environment and energy consumption: Increasingly, environmental concerns are taking centre stage and the Indian steel industry is not immune to this trend.
    • The steel industry is energy-intensive and is the second-biggest consumer of energy globally. Using energy-efficient methods to produce steel will not only reduce production costs but also improve competitiveness.

China as a competitor

  • External factors are operating at various layers and various sectors. The steel demand is down globally due to which in China, which is the largest producer, the steel companies are in great trouble.
  • China Undercutting imports and exports
    • China is also undercutting imports and exports to India because of which the domestic steel producers find it difficult to sell even domestically at a good price.
    • Though anti-dumping duty is imposed still the Indian industries are not as competitive as Chinese imports.A country as a part of the global economy where steel is a decontrolled sector; these problems do arise and have to be negotiated.
  • Experts forecast China to import more steel than it exports in 2022.

 The Impact of Covid-19 on steel industry

  • In March 2020 India imposed the strictest lockdown of any large economy.
  • For the steel industry which is reliant on mills not designed to sit idle, and on the physical shipment of bulky slabs and coils, this spelled disaster.
  • Jindal South West (JSW) filled its blast furnaces with coking coal to preserve heat, but not with ore.
    • 14,000 workers completing an expansion of its mills dispersed to their villages.
    • There was no domestic market
  • The market since March 2020 has come back with a vengeance.
    • Last year steel prices nearly doubled in India, doubled in Europe and China, and more than trebled in America.
    • Indian efficient steel plants since May 2020 have been running at near-full capacity.
    • The share prices of big Indian steelmakers have outperformed those of rivals elsewhere.
  • Despite the uncertainty of the early pandemic in 2020, JSW took a gamble and immediately began planning for a reopening.
    • JSW lengthened shifts to reduce the flow of people in and out.
    • JSW transformed schools and clinics it runs into dormitories and covid-19 treatment centres.
    • JSW tapped out its credit lines, increasing debt from $6bn to $7bn.
  • Favorable situation
    • Tight supply propped up prices
    • By July 2020, domestic demand in India began to recover.
    • Good harvests prompted farmers to buy new tractors.
    • Construction, which uses steel and heavy machinery made from it, took off after the first wave subsided.

Indian Steel Industry’s Potential and scope

  • India is well placed to produce more steel and different kinds of steel both in terms of raw material availability and proximity to the countries which produce coke such as
  • India can be a net exporter of steel of all kinds if there is better research and development. It has to strategize its raw materials like iron ore and coke carefully with steel production units. These two materials constitute about 75% of the cost of total steel production.
  • Abundence of raw material
    • Some of the raw materials in abundance are suddenly in short supply like the Goa Iron Ore Mines were shut down by the Supreme Court order, Karnataka mines are facing huge problems and in Odisha, there are capacity constraints on mine production imposed.
  • Setting up of washeries by organizations by Coal India is a must which should be done. These washeries can be easily subsidized to be set up rather than importing coke.
  • Demand for steel
    • Demand for steel in India has been good in the past few years but the effect of demonetization is still not known. Real estate, construction, and cars are one of the major consumers of steel and these sectors are affected by demonetization. Revival in these sectors will take some time.
  • Employment by the steel industry
    • The steel sector and allied industries employ 6 lakh people directly and 13 lakh indirectly. Until 2 years ago India was also the third-largest consumer of finished steel in the world.
  • The sector has been adversely impacted by the global steel glut which led to predatory pricing and a surge in steel imports in recent years. This has also led to the flooding of the domestic market with cheap imports from China, Korea, and Japan impacting sales and profits.
  • Developing production capacities within the country and outside the country by Indian companies are two key issues here. For domestic production, there are companies like SAIL, Tata Steel, and others.

Government Initiatives for Steel Industry

  • The government has mooted a plan to boost domestic steel capacity to 300mt per annum by 2030.
  • However, this growth will have to be supported by private sector companies and will also require the import of foreign technology and foreign direct investment (FDI).
  • 2017 National Steel Policy (NSP)
    • The 2017 National Steel Policy (NSP) aims to develop a technologically advanced and internationally competitive steel industry that supports economic development.
  • Steel Scrap Recycling Policy
    • It was developed to use steel scrap from vehicles and white goods (that have reached the end of their useful lives) in the manufacture of high-quality steel.
  • Adoption of Industry 4.0 (Fourth Industrial Revolution)
    • Manufacturing procedures, material use, energy efficiency, plant and worker productivity, supply chain, and product life-cycle can all be improved.
  • India’s Steel Research and Technology Mission
    • It provides financial assistance to various institutions, including CSIR laboratories and academic institutions, for researching the iron and steel sector, including environmental issues such as waste use, energy efficiency, and greenhouse gas reduction.
  • Draft Framework Policy
    • The draft Framework Policy aims to make the establishment of new steel clusters as well as the construction and expansion of existing steel clusters easier.
  • Ministry of Steel’s Purvodaya initiative, the steel clusters will help the country become Atmanirbhar (self-reliant) in value-added steel and capital goods while also creating jobs, especially in the eastern part of the country, which includes the states of Chhattisgarh, Jharkhand, West Bengal, Odisha, and Andhra Pradesh.

Way forward

  • Entering into a new stage
    • As India works towards becoming a manufacturing powerhouse through policy initiatives like Make in India, the steel industry has emerged as a major focus area given the dependence of a plethora of sectors on its output.
    • The Indian steel industry has entered into a new development stage, post-de-regulation, riding high on the resurgent economy and rising demand for steel.
  • Huge scope for growth
    • Huge scope for growth is offered by India’s comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors.
    • The industry has the potential to help India regain its positive trade balance in steel as well as to drive the country’s export manufacturing capabilities. The decline in exports is a concern and calls for efforts from both the public as well as the private sector.
  • Boosting competitiveness may turn fruitful
    • There is an urgent need to boost the competitiveness of the country’s steel industry. To achieve this, cost reduction across the supply chain, development of efficient logistics, and reduction in financing costs are some of the measures required.
  • Investing in training and education
    • Investment in education and training will be a key enabler in these areas. The digital disruption has just begun and is set to increase exponentially in the next 10 years. The right adoption of emerging technologies is a critical factor for success in times to come.

Conclusion

  • Things may be about to get harder as Foreign competitors are back in operation. India is in the throes of a new, deadlier second wave of covid-19.India is in the throes of a new, deadlier second wave of covid-19. But if the industry survives this tough period, the future will be bright for years to come.

Mains model question

What factors affect the location of iron and steel industries in India? What are the different challenges our Iron and steel industry has to face to emerge one of the biggest Industries in the world.