Steel production in India has expanded rapidly in recent decades and, as a result, India has become the world’s fourth-largest producer of crude steel. Relative to the size of its economy, India’s steel consumption, however, remains low; with large additions to steel making capacity planned to meet expected growth in steel demand, the nation’s steel industry is expected to expand as India develops further.
While India has large reserves of relatively high-quality iron ore, its reserves of coking coal are limited and mostly unsuitable for steelmaking; accordingly, Indian steelmakers import much of the coal required for producing steel. Australia is a major source of India’s coking coal imports, and given its proximity to India, these exports are likely to grow as Indian steel production expands. This article discusses the Indian steel industry, focusing on its structure, the production technologies used and the sources of its steelmaking commodities.
Projected growth of Steel industry and demand of coal
Indian coking coal reserves are quite small and tend to be of low quality, needing to be blended with higher-grade imported coal for use in steel production. To meet rising demand from steel production, India has become an increasingly large purchaser in the global coking coal market. India is now the third-largest importer of coking coal in the world The demand of coal and projected growth of Steel industry can be assessed under following three scenarios namely:-
- Business as usual (BAU)
- Rapid infra growth scenario (RIG)
- Slow infra growth scenario (SIG)
The scenarios listed above are explained as under:-
Business as usual (BAU):- In this scenario it is considered that the demand drivers of Steel industry will grow at the same rate i.e. the infrastructure growth will be registering a CAGR of 7 per cent till 2020. Thus, to meet the rising demand of the sector the Steel industry will grow at a CAGR of 5 per cent in lieu of growing steel demand. Also, the demand of coal thus in turn by the Steel industry will grow at a CAGR of 5 per cent.
Rapid infra growth scenario (RIG):- In this scenario it is assumed that the infra growth for India will be at a CAGR of 8 per cent till 2020. Thus, Steel industry growth and the coal demand by Steel industry will follow the same CAGR rate of 6 per cent till 2020.
Slow infra growth scenario (SIG):- In this scenario it is assumed that the infra growth for India will be at a CAGR of 6 per cent till 2020. Thus, Steel industry growth and the coal demand by Steel industry will follow the CAGR rate of 4 per cent till 2020.
Under the above mentioned scenario the demand of coal by Steel industry and growth of Steel industry will grow at a same CAGR, as coal consumed in production of Steel of designate quantity is 0.6 of the Steel produced. The projected numbers are showcased in Exhibit 01, wherein the growth of Steel industry and growth in coal consumption is scaled for different listed scenarios.
Projected supply for coal
The Steel industry relies on domestic source as far as meeting coal demand is concerned. Almost, 75 per cent of the coal required by the Steel industry is sources locally. The share of coal imports is on high since last five years due to lack of domestic production and low quality coking coal availability in India.
Most of the Steel companies have also been allocated coal blocks but lately the non-production has become an issue for the sector leading the Steel producer’s source coal from coal traders. The supply figures for coal are shown in Exhibit 02 .
Likely coal supply side challenges
The Steel sector in India faces major challenge of high calorific value domestic coal availability and more allocations to power and cement sector. The issues likely to impact coal supply for the Steel sector in future given the current scenario can be listed as under:-
Lack of high low ash content coal: – The Steel manufacturers are facing this as the biggest challenge as most of the coal reaching Steel plants from domestic sources is usually of high ash content. This is so because in India has very limited resources of coking coal which of steel grade I and II.
CIL eyeing to close down MoU route for coal supplies: – The move is going to lay its huge impact on Steel industry if implemented as for power industry. This will see Steel manufacturers struggling to cope with fuel linkage tie-ups with CIL at a higher cost.
Stranded reserves of domestic coal due to improper utilisation: – The inability to mine coal from allocated coal blocks and even starting production. Some of the leading players have seen deallocation of coal
Coal sourcing options and models for Steel industry
Domestic sourcing option and models
The domestic sourcing options and models which can be looked upon are under:-
Joint-Venture with other Steel /power companies and inking FSA’s with CIL:- This will enable even a small Steel manufacturing capacity unit to ensure coal supplies as the fuel linkage will be established
Bidding for coal blocks in partnership of mining Expertise Company: – The likelihood of winning a bid for coal block will increase and it will also ensure better exploration and mining process to enable with timely supply and avoid cost overrun.
Participation in the domestic coal market as trader: – This will also help companies building constant fuel supply and also will be bonus in terms of revenue if the sourced coal is traded.
Import sourcing option and models
The imports sourcing options and models are listed as under:-
Coal mine acquisition abroad in association with major steel companies:- This will provide a Steel company security in terms of fuel supplies of high calorific value and also it may explore the local market to sale coal in order to counter the high cost of imports
JV with power companies who may help in acquiring or having coking coal against supply of non-coking coal abroad to that country’s local buyer:- This may be a very interesting model and Steel companies may arrive to an understanding of a certain proportion of coal utilisation at the same cost which ideally power companies would have been importing coal in India.