Shri Sushim Banerjee: India to be the second largest steelmaker in the world

Asian Metal: Hello, Mr. Sushim. I’m Sana Feng, the HRC market analyst from Asian Metal’s headquarter in Beijing China. Thanks for being with me in the interview.

First, please give a brief introduction about your institution and yourself, especially the role your institution plays in the steel industry development.

Sushim: Institute of Steel Development & Growth (INSDAG) is a non-profit making member established by the government of India (Ministry of Steel) in 1996 and it started to function in 1999. Many prevailing steelmakers like SAIL, TATA STEEL, JSW STEEL, RINL, Essar Steel, Ispat Industries and JSPL (Jinda Steel and Power limited) are members of our institution.

The Institute aims to promote the consumption of steel in local market, including 11 civilian, structural, metallurgical and mechanical engineers. We interact closely with the structural engineers, designers and architects to influence them in the design of house, industrial structures, bridges and roads. In this way, INSDAG strives to expand the use of steel in the residential, commercial, infrastructure, industrial and rural segments of the construction industry.

In order to achieve that purpose we have established many programs including training students, engineers’ collages, Preparing guidebooks, directories, design aids and manuals and Providing consultancy in Steel based design & Instituting various Award schemes.

We have more 3,000 professionals, students and faculty members. Getting involved in setting goals and standards for the steel industry, we also provide research based reports for the steel industry participants. We have brought out studies and research reports. Basing on that, we have come out 120 various publications on the steel use. Actually, we have also made out our own buildings with steel and concrete.

Asian Metal: Can you introduce yourself about the personal experience in steel industry?

Sushim: Basically devoted to economics (Gold Medallist from Presidency College and Kolkata University) and management (Post Graduate Diploma in Business Management from All India Management Association, New Delhi), I worked my career out in Indian steel industry. I entered INSDAG in 2010 and am also a Member of National Committee on Steel of Both CII and FICCI. now As a chairperson in Indian Vision Study 2020 undertaken by World Steel Association, I interact very closely with professionals and experts in steel industry, who are members of that group. Our report has been presented in World Steel Annual Conference on 8-10 Oct, 2012 and is very meaningful for the steel industry’s development.

Having been in steel industry for last 14 years, I witnessed the development and growth of Indian steel industry and that of its counterparts in other countries. And I’m willing to devote to the further growth of the local industry.

Asian Metal: I learned that Indian steel mills like JSW and Tata have been trying to promote list prices since January this year. Is that supported by strong demand? How will the demand behave?

Sushim: Now the price upward trend has subdued. The demand has been going up at the end of last December. Recent industry report has shown that Indian steel consumption is going up with the rate of about 4%. And it’s likely to increase by 4.5% this year, which is about 75-76 million tons, while the production rise is about to be about 80 million tons. And the growth rate of the latter is about 2-5% compared with that of last year. Considering the current market situation, tremendous price increase is hard to realize.

India is the fourth largest steelmaker in the world, behind China. And yesterday, a group of Chinese steel experts from Baosteel visited Kolkata. I have a discussion with them about the development of global steel industry. We are also interested in the communication with them.

Asian Metal: Yes. Baosteel is the most authoritative steelmaker in China. They predicted that the Chinese steel demand will increase by 3% this year, which may be the second year with slower increase. So do you think the stronger demand will support the price to increase in India or act in another way?

Sushim: Yes, but I think the markup may be limited.

Since this January, Indian steel makers have been trying to promote steel list prices. The old year ended in last December and a new year started. The price for long products in local market has witnessed an increase of USD 20-25/t, but the price increase for flat products is gentler for two reasons.

The first one is that the automobile industry growth slows down after witnessing a fast rise in last few months. Besides, the inventory is high and the demand shows a sign of decreasing due to the quiet macro-economy in local market. As automobile is a main downstream industry for steel products, the slow increase of it makes higher flat products prices unaccepted.

The other reason is high production from China. October is the main steel consumption season. Steel mills in India reported the capacity utilization rate of 50%-60%, while Chinese suppliers kept high production. Therefore, the price increase was not accepted fully in the local market.

The demand for flat products is constrained. And we are expecting more projects to be started and can consume more steel. Fortunately, the power producer may not get a full supply of coil. And the government is slowly taking some measures to lower the importation of coil and encourage the domestic consumption. Nevertheless once these projects make the commencement and demand turn to be down, so will the price.

Long products are mainly used in construction projects, and those of course are growing at a stable rate. Due to that, long product price increase is to extend. However, in long products market, there are a number of mills with small and medium sizes producing all over the country, who will not allow price to go up significantly.

So the market will not show any great change.

Asian Metal: Chinese government has imposed tight control on the real estate. Investor’s confidence in steel market is seriously stroke because the demand is likely to move down. Steel price in futures market and spot market both fell drastically influenced by that. Chinese suppliers are also giving lower quotations to foreign customers. What’s the influence of Chinese situation have on Indian market?

Sushim: To some extent, Chinese prices do have influence on Indian market as the two countries are so closed to each other. And international prices are related to domestic ones.

According to an official report, the imported quantity this year probably increases tremendously by 50% than that of last year. India import 80million tons of steel or so annually, while the export volume is only about 50 million ton. So we are still an importer of steel.

Prices in India increase very defectively late last year because dollar and rupee exchange rate go down. Gap between international landed cost for coils and the domestic market offers are much more than before, because the importation tax has been imposed by local government. Now the inventory is also increasing in key cities and Chinese suppliers are mentioning discount in terms of the amount. And I'm not optimistic about the significant price increase this month. China, South Korea and Japan are the three prevailing exporters for India, whose offers influence the local prices. Therefore, lower quotations from foreign suppliers will impose pressure on domestic prices.

Asian Metal: Indian production capacity for crude steel has increased from 512.3MT in 2008 to 716.5MT in 2012. And India is aiming to be the second largest one in the world within following several years. What’s your opinion about that?

Sushim: I think to realize this goal may need one or two years more than expected. Though it's reported that we have a hundred million tons’ capacity, we actually only produced about 90% of that. Furthermore, Japan is the second largest steel producer in the world at the moment with the capacity of about 120 million tons. Therefore, the production increase process for India to the above-mentioned level may need more time.

To start up a steel mill in India need two preconditions: one is the land use permission for the government and the other is the investment from advanced global steelmakers. Prevailing steelmakers all over the world like POSCO has built up two steel mills with the investment of 2 million dollars. However, the project usually takes 4-5 years to be put into production. But investors are not willing to do that, because the lands use permission from the government and the environmental assessment both take lots of time. If we have established steel plants, the production can move up fast. So I think the goal to be the second largest steelmaker may be realized by 2017 or 2018.

Asian Metal: In contrast to the expanding production, main steel mills reported net loss. Tata Steel reports $139 million net loss in Q3 FY 2012-13. JSW recorded a net loss of INR 740 million ($13.7 million) last December. And Indian traders complain about the bad financial situation which is the main block for the industry’s development. When can the macro-economic situation be better?

Sushim: Interest rate in India is really high because Indian Central Bank has no control on that and they think if they impose tight control the inflation rate will go very high and hard to command. It needs a subtle balance between economic and inflation. Hopefully, since the GDP growth rate has come down very decently, the government is conscious of that they need to at least guarantee the growth by lowering interest rate. The construction investment, fixed investment and capital expenditure will not come down. And the steel industry needs it for capacity expand. About the policy to be announced on 19 Mar by Indian Central bank, the interest rate is expected to come down. So the current financial tough situation will be promoted in the short run.

Asian Metal: In China, the steel industry are facing reorganization and the reduction of outdated capacity. Now the top ten steel makers in China take 48% of the whole production, but the number will increase to 60% by 2015. It’s the goal put forward by the government. Do you think Indian steel industry will face the same issue in the future? I mean to cut down small steel mills.

Sushim: The production for steel is widely spreading in India because the competition between steel mills has not come out while it's very strong in China. In China, there're 4-5 steel mills operating more than 20 million tons anually. In India, SAIL takes most percent of the whole production of about 40million tons, while that for JSW 14 million tons, and TATA 10 million tons. These are the prevailing mills, while there are thousands of mills operating through the country with the capacity of 1-1.5 million tons. They contribute 15% or so of the whole production, but they are also with high pollution like the situation in China. Indian government has started to enhance environmental protection and estimated their air pollution.

Furthermore, the government has come out the standard norms for steel products to ensure that most of the steel products are with high quality. If these clauses including the environmental ones and qualitative ones can be implemented strictly, small steel mills will stop operating. In view of that, Indian steel industry won’t face the productivity concentrating problem in the future.

Asian Metal: Indian government has imposed importation tax on stainless steel from China by 20%. It does can encourage local producers. But in the long run, what is the influence of production expand have on the global market? Will that intensify the global steel market competition?

Sushim: India has not been a steel exporter and most of its production is consumed in local market. And the export and import volume gap will narrow in following years as the domestic production is up. Now only 7-8% of the production is transported to the export market, which is much lower than the world average. In following decades, the domestic demand will present a general upward trend. Now some steel products like sheet are still mainly relying on importation. And the domestic production expansion mainly aims to meet local demand. Seeing from this angle, it will not be easy to compete in the fiercer export market.

Asian Metal: Thanks for being with me in the interview and sharing the Indian steel industry development history. Hope we can keep contacting about the newest market trends.

Sushim: Thank you. I’m so happy to discuss market situation with you. Hope Asian Metal can offer the steel industry participants more information for the right guide.