SPEECH FOR THE CMD FOR CII Steel Summit 2012

Good Morning….Honourable Minister for Steel, Shri Beni Prasadji Verma; Secretary, Ministry of Steel, Shri D. R. S. Chaudhary; Chairman, CII National Committee on Steel and Chairman, SAIL, Shri C. S. Verma; Chairman and Managing Director NMDC Ltd, Shri N. K. Nanda; Chairman and Managing Director, Rashtriya Ispat Nigam Limited, Shri A. P. Choudhury; Director General, Confederation of Indian Industry Shri Chandrajit Banerjee, ladies and gentlemen…

Thank you for giving me this opportunity to share my views with you on the steel industry today.

I see a long and promising road ahead for the steel sector. Steel is the foundation of our future – it is the pillar that supports industry and infrastructure. I am full of optimism as the opportunity is enormous.

The demand for steel is strong and is bound to strengthen in sectors such as construction, housing, automotive, consumer durables, packaging and ground transportation. Specialised steel will be used in hi-tech engineering industries such as power generation, petrochemicals and fertilizers, while stainless steel will be consumed in large quantities by airports and railway metro projects.

The oil and gas transportation sector is also a multi-billion dollar opportunity waiting to be tapped by steel makers. For Indian steel makers, the booming global demand for steel pipes and tubes is the next big frontier.

Steel is by far the most widely-used metal, and will continue to drive growth in India and the world in years to come.

Global and domestic crude steel production figures during 2011 further lend credence to this fact.

World crude steel production reached 1.52 billion tonnes in 2011-12, an increase of 6.8 percent over 2010-11 and a record for global crude steel production.

Asia accounted for 64.7 percent of world production or 988.2 million tonnes. China produced 695.5 million tonnes — 70 percent of the Asian supply and 45.5 percent of the world’s crude steel. India ranked fourth with its crude steel production standing at 72.2 million tonnes, an increase of 5% over the previous year.

The increase in steel production is a positive sign as the steel consumption in India is expected to grow over 10% annually in the domestic sector with huge demand coming from sectors such as construction, housing, automotive, consumer durables, packaging and infrastructure sector.

India’s GDP is expected to grow at 8% per annum, which will drive a need for increase in Steel Production. India has plans to increase capacity to about 200 MTPA by 2020 from the current 70 MTPA. This is a significant increase and will make India the number 2 steel producing country globally – a major achievement!

Absolute numbers reveal only half the story. The growth rate of our steel industry is higher than that of our Asian neighbours and by 2016, our production is expected to touch 137 million tonnes.

The fortunes of the steel industry rest on the demand from other sectors of the economy. With the government planning to inject more funds in infrastructure, construction and power sectors, our growth should become solid and stable. Tier II and Tier III cities are where most demand will come from and companies need to gear up their retail plans to meet the increase in demand from the hinterland.

In fact, the wide gap in demand and supply has encouraged a number of steel companies to build new capacities. The current capacity of the steel industry as a whole is 81.6 million tonnes per annum. Eighty-two per cent of the proposed capacity addition by 2020 will be through greenfield projects.

The challenge now before steel companies is to capitalise on this opportunity and create value for their shareholders. While there are two constraints − limited reserves of coking coal and non-availability of natural gas − for steel companies the way forward is to:

  • Adopt technologies that use non coking coal as against coking coal for steel making: JSPL is already setting up a Coal Gasification plant that will produce DRI through Syn Gas, thus reducing the dependence on coking coal. Also, JSPL has signed an MoU with Australian mining major, Rio Tinto to jointly work towards global commercialisation of the HIsmelt technology to be used in a fully integrated steel making facility. HIsmelt, short for high-intensity smelting, is the world’s first commercial direct smelting process for making iron straight from the ore.
  • Secure raw material availability globally
  • Partner with professional and technical institutions to develop the necessary skill sets and competencies
  • Consolidate and enhance capacities to achieve economies of scale
  • Adopt cleaner and greener technologies, and here I would like to remind our audience that steel is already the most recycled material in the world
  • Steel companies need to do more to lower their greenhouse gas emissions by setting up iron ore benefication and pelletisation facilities
  • Every tonne of steel that is re-applied leads to a big cut in carbon dioxide emissions
  • As production of one tonne of steel will require movement of 5 tonne of raw material and finished steel products, there is a need to create a strong infrastructure in terms of railways, roads and ports.

I hope that the new steel policy being formulated will address the challenges faced by steel manufacturers like delay in getting environment and forest clearances and problems faced in acquiring land for projects and in Rehabilitation and Resettlement of project affected families.

In fact, the Land Acquisition and (R&R) Billthat has been introduced in the Parliament recently will make land acquisition for private companies further difficult. It requires the consent of 80% land owners for acquiring land for private companies. The compensation for land will be minimum 4 times the circle rates which will make the cost of land acquisition prohibitive.

The New Mines & Minerals (Development & Regulation) Bill (new MMDR Bill) proposes sharing of 26% profit in case of coal and lignite and imposition of 100% royalty in case of other minerals. This is going to hit the mining industry very hard. Taxation on mining companies will become more than 60% which will be the highest in the world. The employable funds will get reduced substantially hitting the growth of the mining sector in a big way. This will also lead to an increase in the price of coking coal.

It is believed that there will be huge erosion in the market value of the Government as well as private sector mining companies after the introduction of this bill. The Government of India needs to look into these aspects in a bid to make the process of setting up a steel plant easier.

On its part, the steel industry must be inclusive in its approach − it must involve and employ local communities and improve the quality of their life. It must give back to the society and must create extensive and meaningful corporate initiatives focused on local communities. These will go a long way in building the nation. Once local communities have a stake in development, we will be able to take all our people along the path of progress.

I hope at the end of the day we will have a roadmap for a sustainable steel industry that can balance the interests of all stakeholders.

Thank you for indulging me so patiently.

Jai Hind!

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