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Steel is one of the key materials used in various industries – from construction to automotive, energy, engineering goods, and pharmaceuticals. With an output of 101.4 MT, India is the second largest crude steel producer in the world. There are however several challenges faced by the steel industry in India.
The government of India has established the National Steel Policy in 2017 that aims at increasing steel-making capacity to 300 MT by 2030. To achieve this, an additional investment of up to ₹10 lakh crore is required. To facilitate this investment, the policy has also allowed up to 100% foreign direct investment (FDI) in the steel industry. This move is especially important as it is a capital-intensive industry. This will ensure growth of the steel industry.
According to the Department for Promotion of Industry and Internal Trade (DPIIT), Indian metallurgical industries attracted FDI of $17.09 billion between April 2000 and September 2022.
However, despite the various steps taken by the government, the steel industry has various challenges to face. We take a look at some of the major problems of iron and steel industry in India:
1. Capital and labour intensive industry
One of the main problems faced by steel industry in India is that it is highly capital and labour intensive. According to a PwC report, around ₹7,000 crore are required to establish a steel plant having a capacity of 1 tonne.
As a result, arranging for finances becomes a challenge. Getting a business loan of such a huge amount to set up a steel plant is a difficult task. As mentioned above, the government is helping steel makers by allowing FDI.
Apart from finances, the steel industry is also a labour-intensive industry. While labour is available, labour management becomes another challenge for many steel companies.
2. Demand prediction
Yet another challenge of the steel industry is fluctuating demand. As it fluctuates from time to time, it becomes difficult for steel makers to predict the demand and produce accordingly. This results in delayed returns on investment.
3. Logistics related challenges
Like most other industries, logistics, and supply chain management remain key areas of challenge for the steel industry. The main raw materials for making steel are iron ore and coking coal. Both these are bulk materials while the finished product i.e., steel is also a bulk material. Meaning, they are not regular goods to be transported and need to be handled differently.
A report suggests that 80% of steel transportation takes place through railways in India. Railways lack the modern infrastructure to handle bulk commodities. Road transport for bulk commodities is often expensive and hence economically unfeasible. Many times, road conditions are not suitable for transporting high-end steel products. Sea transport turns out to be a cheaper and viable option provided the steel plant is closer to the port area. In simple terms, if the steel plant is located in a landlocked area, the railway turns out to be the most feasible option however, it comes with its set of constraints.
Moreover, the cost of logistics is high for any industry in India, which is applicable to the steel industry as well. Although the National Logistics Policy aims at bringing down the cost, it is still to become a reality.
4. Disruptions in raw material supply
Disruption in supply of raw materials is yet another problem faced by the steel industry in India. Key raw materials for steel production include iron ore and coking coal. Though iron ore is available domestically, India needs to import coking coal and it is mainly imported from Australia. Because of various factors, the supply chain of coal remains disrupted and hence the supply of coal fluctuates. The same goes for coal prices too. While fluctuating supply of coal affects steel production, fluctuating prices of coal impact the economics of production. Hence, the produced steel becomes uncompetitive in the global market.
5. Low per capita consumption
Despite India being one of the largest producers of steel, India’s per capita consumption in 2020 was only about 75 kg. This restricts the demand for steel domestically. According to a media report, the average per capita consumption is 224.5 kg while China records a per capita consumption of a whooping 590 kg. The National Steel Policy 2017 aims at increasing per capita consumption to 160 kg by 2030-31.
6. Lack of technology adoption
Although industry giants may have adopted digital technologies for supply chain management, it is not the case for all steel producers. As a result, the supply chain management team does not have access to real-time data. This translates into a lack of capability in forecasting demand, grabbing short-term opportunities, etc. It may lead to losses for the company.
7. Downtime and potential utilisation
All the challenges mentioned above culminate into yet another problem i.e., low capacity utilisation. A report suggests that the potential capacity utilisation of the Indian steel plants rarely reaches 80% because of various hurdles they face.
Some of the common constraints that affect capacity utilisation are: the non-availability of raw materials, supply chain and logistics-related issues, labour relates problems like strikes, energy crises, and so on. If these issues are eliminated, the plants can have better capacity utilisation and hence, increased production of steel.
8. Increasing environment concerns
The steel industry is known to be an extremely energy-intensive industry. In fact, it is known to be the second most energy-intensive industry after the chemical sector is the steel segment. Hence, it has a high level of carbon footprint. On the other hand, increasing environmental concerns is reducing the popularity of steel. Additionally, the industry has to adopt new industry norms. Using modern energy management systems and the latest technologies can help the steel industry to be more eco-friendly and more competitive.
Also read: How to reduce the carbon footprint of steel?
Apart from the challenges mentioned above, the steel industry still faces a few other challenges. These include payment of taxes, duties and cesses that are specifically imposed on the steel sector, etc. Steel attracts import duty as well as export duty.
Some of the challenges faced by the steel industry are external and hardly in control of the industry to resolve. However, the industry can adopt the latest production technology, energy management system, efficient use of resources to make it an attractive sector for FDI. More FDI can translate into growth of the industry.