Global excellence can be a ‘steel’

India’s growing economic dynamism requires a productive and best-in-class steel industry that will help push growth to the 8-10 per cent region. On one hand, we are seeing tempering of demand in countries such as China, slow abatement of global over-capacity and de-intensification of steel in the economies. On the other, we see India sitting on the cusp of steel industry growth.

Technology, productivity, economics and policy will play the determining role in establishing India as one of the most productive steel-producing nations in the world. However, that does not mean that India should set its ambitions to rival China in capacity. Nor does it mean that we devote our energies to claim bragging rights in producing value added specialised steels – unless of course strategic considerations for the nation demand it.

India is an independent, progressive, steel-producing nation with its own vast opportunity, its own unique needs and its own set of challenges. By combining our own innovation capacity, our natural endowments, international and national technical know-how, international trade and enabling industrial policy we can engineer the most desirable and productive steel industry for our markets.

Our foundational principles for the steel industry therefore, must be based on sound technology and economics, where private enterprise, innovation and well-functioning markets that are constructively regulated, provide the highest social, business and trade returns.

Firstly, it is time that India starts looking at realigning its focus from capacity and production to engineering intelligent, productive, resilient and environmentally friendly capacities for the future. We need to think in terms of flexible and agile steel plants, not the just the largest and the most repeatable. The flexibility to combine blast-furnace, direct reduction, arc-furnace and BoF technologies; the ability to add incremental capacities at low incremental cost; and the flexibility to complement with clean coal energy sources like coal gasification can make steel at the lowest cost, with the lowest carbon footprint and with sustained profitability and returns.

Such combinations, if designed right, give you unprecedented flexibility in capacity, raw materials and quality. This allows one to operate the plants in uncertain and evolving environments at the least cost, even as market conditions change.

Secondly, continued volatility in raw material prices and the availability of the right raw material mix will continue to exert pressures on margins and cash-flows. While India has an advantage in iron-ore —the right sourcing, appropriate raw material blending, exploration, acquisition and financial engineering, when combined with flexible plants can push up the EBITDAs consistently to the 30 per cent level. In today’s global commodity markets, we must strive to create enduring competitive advantage — not only through domestic raw material security — but more through raw material flexibility, material innovation, raw material substitution and raw material sourcing.

Vital logistics

Contrary to popular myths, one of the biggest competitive advantage for steel firms, is not necessarily the closeness to raw materials, but the availability of a world-class logistics infrastructure. Unfortunately, our cost of steel transportation is three times of what it should be with a normal transportation infrastructure.

Our congested and expensive rail infrastructure is one of the biggest impediments to a productive steel industry. We have, however, often overlooked the fact that we are endowed with over 7,000 km of coast-line. Coastal steel clusters stretching from Paradip to Vizag to Ennore to Ratnagiri, can convert our logistical disadvantage to an unbeatable competitive advantage.

This complemented with pipeline based slurry transport of iron-ore from our hinterlands, can help create a low cost, low carbon, multi-modal transportation infrastructure that can decrease our cost of steel by about $50/tonne.

On the other hand, we have a challenge of productivity in our plants. While a few of our private steel plants are world-class, the vast majority of them have severe productivity issues. The productivity in state steel plants is just over 350 tonnes/person compared to a reasonable 1000 tonnes/person in a productive plant; a vast majority of our blast furnaces run under a productivity of 2 t/m3/day compared to over 2.5 t/m3/day in the good plants; we consume more than 6 Gcal/ton of energy and emit over 2 t of carbon/ton of steel and so on. We must focus on operations improvement, energy, carbon efficiency and productivity as an essential imperative for competitiveness.

Digital angle

Finally, tectonic shifts in digital technology is shaping the future of industries and will certainly shape the future of steel. Digital technologies, analytics, simulation and sensors will transform the way steel is made. Embracing digitisation will be critical to the success of the steel companies.

To make all this work an enabling environment is essential. A progressive and pragmatic government policy is therefore a necessary enabler for a high-performing steel industry. Allocation of resources and funding of essential infrastructure for steel has to be done not only in a transparent, but in a judicious manner which looks at the overall good.

Therefore, policy impetus needs to also consider exercising discretion rather than only mechanised auctions which attempt to extract the best price. In an environment of scams and distrust of discretion, judicious decision making and policy imperatives will require leadership, boldness and conviction.

Intelligently integrating the technical, economic, operational, logistical and digital dimensions of steel making can create unassailable techno-economic supremacy for India’s steel industry. If we do most of this well, our estimations show that flexible plants, multi-modal logistics, raw material optimisations, operational improvements and Digital transformation can improve Indian steel industry’s EBITDA/tonne by over $80-$100.

We have the opportunity to lead by changing the economics of steel in the world by harnessing the power of flexibility, productivity and innovation. We have the talent, the enterprise, and the endowments. What are needed is the will, the discipline, the persistence and the enabling environment to translate this into reality.

The writer is President, MN Dastur

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