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Positive signals for Indian steel industry

A few interesting developments in last few days should bring some cheers to Indian steel industry.

A few interesting developments in last few days should bring some cheers to Indian steel industry. The government has identified ports, airports, railways, power, coal and road sectors for special monitoring of investment totalling around R2 lakh crore in 2012-13. This amount is a part of total infrastructural investment that has been earmarked for the 12th Plan period. Surely, this is in addition to other investment that is ongoing since the 11th Plan.

Fixed capital formation has around 0.8% elasticity with steel consumption as evident from last few years? experience. One of the major reasons for a declining GDP to 5.3% in Q4 of Fy12 was falling trend of gross fixed capital formation to 29.5% of GDP in last quarter of 2012-13 from a recent share of 31.5% achieved in 2007-08. From this point of view, the emphasis on infrastructure investment at the beginning of the year is a good omen for steel industry in generating demand from the critical sectors.

Another development in taking care of supply constraints relates to bifurcating the big ticket investment in green field projects by global majors in India. Long delays in implementing the 12 million tonne steel plant at Orissa has prompted Posco to make partial investment of $240 million (R1340 crores) for setting up a 0.45 million tonne hot galvanised steel plant at Maharashtra near Pune to cater to the requirements of auto majors and other consumer durable segments. Posco has also set up a warehousing facility at the nearest port at Dighi to store imported CR products for supply to the galvanising plant and also plans to set up an electrical steel plant of 0.3 million tonne and a cold rolling plant of 1.8 million tonne worth of $1.5 billion to reprocess austenitic and cold rolled stainless steel at Raigad district by 2013-14.

The location of these plants in the hub created by dedicated freight corridor projects of railways ensures the resolution of peripheral logistic issues on a fast track. There are also reports of setting up a 8 million tonne capacity steel plant at Paradip by Posco with a reduced demand for 2,700 acres of land from Orissa government. Similarly, Arcellor Mittal has announced a smaller capacity steel plant of 3 million tonne and a power plant of 750 MW with a reduced demand for 2,210 acres of land at non-tribal areas near Bokaro in lieu of its original demand of 12 million tonne capacity steel plant, 1,500 MW of power plant and 10,000 acres of land in tribal areas.

Thus along with brown field expansion projects of fresh capacity additions by the domestic players, the capacity augmentation in both rolling and steel making facilities by global majors indicate the robustness and high value added pattern of indigenous steel demand. These are bits of silver lining for Indian steel industry amidst the overall gloom of falling GDP and widening trade deficits plaguing the economy in the recent period.

The author is DG, Institute of Steel Growth and Development. The views expressed are personal

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First published on: 13-06-2012 at 03:37 IST
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