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Mitigating Risk in the Indian Steel Industry

In February 2018, India overtook Japan as the world's second-largest producer of crude steel. With 50% of global crude steel production, China holds the top position. In terms of mined quantities, we are only ranked third behind Australia and Brazil. As one of the world's leading producers of iron ore, we have grown to be a formidable powerhouse. 

Having entirely been  iron-producing regions, the eastern parts of our country are heavily dependent on iron-ore extraction. But even though India is the second-largest crude steel producer, it is unable to reach its full potential in the production of structural steel. It still relies on imports of structural steel to a certain extent. In this regard, to spur domestic demand, the government has taken a lot of steps to curb imports. However, India still faces many challenges. In this blog post, we will look at some of the challenges faced by the Steel industry in India.

1. Infrastructure and Logistics: The infrastructure and logistics in India are the most unorganised and not up to par, which poses a significant challenge for the steel industry. The transportation of raw materials and finished products is a challenging task due to poor road and rail connectivity. This leads to delays in delivery and increases the cost of transportation, which ultimately affects the profitability of the industry.

2. Low Potential Utilisation: The utilisation potential for iron and steel is quite low in India. The potential utilisation hardly ever goes above 80%. Strikes, lockouts, lack of raw materials, a shortage of labour, the energy crisis, an ineffective government, etc. are some of the causes of low potential utilisation. 

3. High costs and lack of capital: High input costs are one of the most critical difficulties affecting India's steel industry. The cost of raw materials required in the production of steel, such as iron ore, coal, and other minerals, is always rising. Large capital investments are required in the industry, which a developing country like India cannot afford. Many of the integrated steel plants in the public sector were built with the assistance of foreign aid. This makes it difficult for steelmakers to keep their products competitive in the global market.

4. Low Productivity: India has one of the lowest per capita labour productivity rates in the world at 90–100 metric tonnes. To put it into perspective, 1.2 million metric tonnes of hot-rolled coils are produced by a tiny mill in the US with fewer than 300 workers. In India, a similar plant has 5,000 employees. As a result, there is a pressing need to boost production, which necessitates retraining and workforce development.

5. Lack of technology: The steel industry in India was known for its high level of technological inefficiency. The majority of the technology that was present was imported. Aside from that, the technology used in India until recently was highly power-hungry, incredibly polluting, and water-hungry.

However, following the oil crisis, the profit margin of the country's steel plants was reduced due to a sharp increase in fuel prices and an increase in other costs associated with inputs for the production of steel. Lower levels of investment in technological advancements were the result. For instance, less than 1.1 metric tonnes of crude steel are needed in countries like Japan and Korea to make one metric tonne of marketable steel. At 1.2 tonnes, the average remains high in India.

The Government's insistence that steel plants comply with international environmental norms, however, is forcing change within the country as a whole. Several advantages could result from this advancement, including lower power consumption with the reuse of waste heat for thermal power; better utilisation and less waste when extracting steel from ore; lower water consumption in steel manufacture; and better utilisation of slag in industries like construction.

6. Shortage of metallurgical Coal: Despite having enormous deposits of high-grade iron ore, India has a limited supply of metallurgical coal, particularly high-grade coking coal that is used to smelt iron. Metallurgical coal imports are a common need for steel factories. Due to the rising cost of locally manufactured steel and a decrease in demand.

7. Global Competition: The steel industry in India faces stiff competition from other global players like China, Japan, and South Korea. These countries have a competitive advantage due to the availability of low-cost raw materials, skilled labours, advanced technology, and economies of scale. To remain competitive, the Indian steel industry needs to invest in research and development, adopt new technologies, train and educate labourers, and improve its efficiency.

8. Environmental Regulations: The steel industry is a significant contributor to greenhouse gas emissions, which has led to increased environmental regulations. The industry needs to comply with these regulations, which can increase the cost of production. The industry needs to invest in clean energy solutions and adopt sustainable practices to reduce its carbon footprint.

9. Public sector inefficiency: The majority of public sector organisations struggle with inefficiency as a result of high social overhead expenditures, strained labour relations, ineffective management, under-utilisation of capacity, etc. This prevents the steel facilities from operating efficiently and causes significant losses.

10. Poor quality products: Poor infrastructure, outdated technology, and inadequate capital inputs make it more expensive, and difficult to produce steel, which results in a narrower range of products that are of lower quality overall. Due to these circumstances, people are compelled to purchase steel of higher quality from outside. Therefore, there is a pressing need to resolve the issue and pull the nation out of its precarious position.

The Pathway

In conclusion, the Steel industry in India faces several challenges that need to be addressed to maintain its growth and competitiveness. The industry needs to invest in research and development, adopt advancing technologies, and improve efficiency to remain competitive.

Additionally, India should focus on saving foreign exchange by increasing production and strengthening infrastructure growth in the country. Despite India's low per capita consumption of steel, Steel demand is rising steadily. As a result of consumer demand, India imports large quantities of steel. Given the ample ore reserves in our country, with strategic investment in technology and efficient use of resources, India could beat its competitors in the steel export market in the next few years.

Pragati Tiwari