The industry steels itself

At an opportune time, Indian companies are learning to cope with high input prices in more innovative ways than simply passing on the burden to the consumer. In a major strategic move, Indian steel-makers that rely on imports may just be acquiring some bargaining power in global markets. Emulating their Japanese counterparts, they will be scouting jointly for global supplies and, for a start, Tata Steel, SAIL, JSW, Jindal Power and RINL will bid collectively for iron ore in Afghanistan; this could eventually even lead to a stake in coking coal property in that country. Forming an alliance of national producers to bid collectively for a financial stake in a prospective mineral asset or negotiate prices for long-term supply is a time-tested approach to keeping costs down. Indeed, wherever physical inputs are not the key differentiator for success in the market place, producers do tend to collaborate; and steel, perhaps more than any other industry, exemplifies this philosophy.

India produces 70 million tonnes of steel and imports virtually half of the raw material in value terms; with such high import intensity, steel producers are always vulnerable to the vicissitudes of the global supply situation in raw materials. With steel production slated to go up sharply in the medium term, relying on overseas supplies alone may not be enough. Global prices of coal and iron ore have softened in recent months. Coking coal prices, which peaked at $350 per tonne, have since softened to $275. But the steel industry cannot afford to be complacent. It needs to augment domestic reserves of these commodities, and signs of such intent are emerging. SAIL, for instance, is planning to invest more than Rs 10,000 crore in mine development besides contract extraction from existing captive sources. The Government must support similar initiatives by others.

The steel sector suffers from legacy issues as, for decades, its operations have suffered from a regime of price and output controls which left very little surplus for investment in the future. While efforts at modernisation have begun, the process needs to gather steam. Growth in the larger economy may be slowing and demand for steel may also dip temporarily. Yet, this is a good time for the government to push its new mining policy with earnestness right through to the States. The mining industry is in shambles and it reflects poorly on a government pitching for nine per cent growth in the Twelfth Plan to ignore a perennial shortage of the vital inputs for steel — the backbone of manufacturing.

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