Stimulating-steel-demand

The per capita steel consumption in India remains an abysmal 65 kgs compared to the world average of 210 kgs. Despite being the second largest steelmaker, India lags an ocean behind China, which produces ‘eight’ times more steel than us. The per capita consumption of the metal in the demographically similar China is a massive 500 kgs.

The low consumption of steel in India is owing to fundamental pitfalls in its approach to the use of steel and infrastructure planning. India has a great deal going for it to multiply by many times the amount of steel it uses and yet quite ironically the country with an estimated iron ore reserve of 28 billion tons mines just 200 million tons (MT) annually. This figure until recently was 140 to 160MT.

Good, steel-grade iron ore is about 75% of the mined volume. That is, only about 150 MT can be used, which yields about 75 MT of steel. Seen in the backdrop of 130MT and capacity utilisation of 80%, this clearly points to shortage of domestic iron ore for steel production. This shortage is met by imported ore or scrap.

Iron ore lying buried under the ground is of little value but mined and converted into steel it can help India build world class infrastructure at a rapid pace.

India is not the first to adopt steel as the basic construction material; highly developed nations like U.S, China, Korea, Japan and European Union have already done that with transformational results.

India has virtually all the raw materials required for the production of steel—be it iron ore or coal, limestone and alloys. There is also sufficient power to run the steel mills. What is it then that hinders the use of steel for building the nation? What impedes steel from being widely adopted by the construction and infra sector? Is it the price of steel? Why is it that steel continues to lag RCC as a material of choice for construction despite its compelling advantages? It is much easier and faster to build with steel, which in addition retains its intrinsic value that can be realised even after buildings are demolished.

The Government of India (GOI) can certainly take some of the following tangible measures to ensure that the upfront cost of steel is lowered compared to the present levels:

  • Increase the mining of iron ore to double its present volume which would bring the prices down by 25-30%
  • Reduce royalty on iron ore to the levels in major iron producing countries like Brazil, Australia and South Africa
  • Reduce GST on iron ore and freight to 12% from 18%. Do the same for finished to lower the net cost to the user.
  • Reduce rail freight rates on the movement of iron ore and finished steel. The logistics cost of steel in India is 13% compared to China’s 8 to 9%. This should certainly be possible with introduction of high speed corridors

The average current price of steel is about 45000+ 18% GST per ton. This needs to be reduced by 20-25% which is quite doable . Reduction of steel price will be a winner for all stakeholders. It would lead to increased steel production, larger demand and rapid growth of steel production capacity

India needs to do what is good for India. We need to unshackle our industry from old mindsets, which keeps us struggling for marginal gains. India’s vision of increasing its per capita consumption of steel to 160 Kg by 2030-31 will remain a mirage unless we are able to massively increase domestic demand as did China, which consumes 90% of all the steel it makes.

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