The Rapid Rise of India's Steel Industry

The Rapid Rise of India's Steel Industry

Nation's steel industry is poised to be a world leader, but the country must address raw materials challenges and land issues.

The traffic leaving the Kolkata airport in India moves in a type of organized chaos that's incomprehensible to Westerners but clearly understood by the local road warriors who communicate with the beep of a horn.

These bumpy roads leading toward Kolkata's business center help tell the story of a nation struggling to enter the industrialized world. Ramshackle huts dot the roadsides where a little girl no older than 5 or 6 years old picks scraps out of a garbage heap.

Such scenes eventually give way to newly paved roadways and high-rise apartment buildings as the car approaches the city's business district. "That, over there, old Kolkata," says the cab driver pointing backward toward the slums. "This, here, new Kolkata."

Indeed, the sights and sounds of new construction are ever present along JBS Haldane Avenue near the city's sprawling Science City technology and science museum. It's part of India's continuing development as an economic powerhouse. The country's movement toward industrialization is spurring infrastructure investments, such as highways, bridges and railroads.

JSW Steels blast furnace No. 3 in Toranagallu, Karnataka, India, produces nearly 3 million tons per year of steel. Photo: Jonathan Katz
One of the key sectors supplying these developments is the steel industry. India's government expects the country to become the second-largest crude-steel producer in the world by 2015. It's currently ranked fifth behind China, Japan, the United States and Russia, respectively. India's domestic demand for steel is expected to grow by around 12% in the next two years, according to an Ernst & Young global steel report.

India's largest steel producers have embarked on several major expansion projects throughout the country. JSW Steel Ltd. is in the midst of a 10-year expansion plan that by 2020 would create the largest integrated steel works in India, with a steel-making capacity of 32 million tons per year, says P. Sasindran, chief operating officer of JSW Steel Ltd. Tata Steel Ltd. (IW 1000 No. 169) is expanding steel-making capacity at its Indian plants by 3 million metric tons per year.

The Battle for Land

Foreign investors have also begun to capitalize on the nation's growing steel market. South Korea's Posco, the world's third-largest steel maker, plans to build a $12 billion plant in India's eastern state of Orissa. But the project has met resistance from local land owners, many of whom are farmers.

Land acquisition is a common hurdle steel producers face in India. Oftentimes companies must gain approval from hundreds of land owners to build a new mill. Complicating matters even further is a complex permitting process that varies by state, says Werner Auer, CEO of Siemens AG's iron and steel plant engineering business Siemens VAI.

Unlike China, India is a democratic nation where land acquisition requires more than a nod from a centralized authority. "We have a democracy here, and therefore acquisition of land has to follow a highly democratic, open and transparent process that satisfies the land owners," says P.K. Bishnoi, chairman and managing director of India's state-owned Rashtriya Ispat Nigam Ltd. "You cannot grab land like you can in many other places." Companies that follow the system and compensate farmers adequately are less likely to encounter the type of issues Posco and other steel producers, including ArcelorMittal, have faced acquiring land in India, Bishnoi told IndustryWeek in May during Siemens' metals and mining summit in Kolkata.

India's government is working on a new Land Acquisition and Rehabilitation bill that would ensure adequate compensation and employment opportunities for land owners, India's Minister of Steel Shri Beni Prasad Verma said during a steel industry conference in July.

The Raw Materials Race

The other major challenge steel producers in India face is access to iron ore. A six-hour ride north from the research and technology hub of Bangalore takes visitors though a desert and sometimes mountainous landscape interspersed with small villages. The distance from major metropolitan areas makes the final destination an unlikely place to build a steel mill. But the village of Toranagallu is in the heart of India's high-grade iron ore belt. It's also well connected to ports in Goa and Chennai.

India is one of the worlds largest producers of sponge iron, which steel makers produce through smelting-reduction processes, such as this Siemens Corex module at the JSW Steel plant in Toranagallu, Karnataka, India. Photo: Jonathan Katz
Here, JSW Steel lays claim to two of India's largest blast furnaces with annual capacities of 3 million tons each, including one that began operations in July. The iron ore-rich region would seem to be an advantage for JSW, but allegations of miners illegally tapping the resources and exporting them to other countries has cut into iron ore supplies, say steel makers.

"We have a lot of iron ore available, but it's not judiciously allocated," says JSW's Sasindran. "They're given to some private mine owners who make a lot of money. But there is no real value addition that is given to the steel industry." Sasindran says the Indian government should adopt policies that encourage iron ore mining for domestic use. The government has already taken some steps by imposing a 20% duty on iron ore exports.

India's steel industry also lacks access to coking coal, which is used to produce iron. Coking coal prices fluctuate and supplies are controlled by major mining operations outside of India, Sasindran says. Processes such as coal gasification and Siemens' Corex and Finex technologies produce hot metal without using coking coal. The processes produce direct-reduced iron, or sponge iron, to feed electric-arc furnaces. India has been the world's largest producer of sponge iron since 2002, India's Steel Ministry says.

The excess gas from these processes can be used as energy for other industrial processes. In addition, the capital investment and production costs of electric-arc furnaces are typically lower than blast furnaces. JSW plans to build a Corex gas-based plant at the Toranagallu site to produce 1.2 million tons of hot and cold direct-reduced iron per year. The plant is scheduled to begin operating by mid-2013.

The pace of steel expansion in India could be cause for alarm in some parts of the world, particularly the United States where cheap imports from China have been a source of contention for the industry. But currently India's output is supplying mostly domestic needs, and the country's political climate is much different than it is in China.

"A lot of people say India is the next China, but India is a democracy or at least a near-democracy, which by definition means they're not going to be the next China," says industry analyst Michelle Applebaum, CEO of Steel Market Intelligence. "You can't get the same kind of economic growth that the Chinese have had unless you're a dictatorship."

To see full IW1000 list click here.

See Also:
Rise and Fall of Asia's Global Titans

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