CS Verma, Chairman, Steel Authority of India, is confident that steel demand will pick up once the projects that are held up take off. In an interview with BusinessLine, he spoke about smaller steel manufacturers having borne the brunt of the downturn. Excerpts:
India’s steel consumption grew just 0.6 per cent in 2013-14, but larger players such as SAIL reported much better volume growth. What explains this?
You have to factor in the composition of the Indian steel industry. In the long segment, a good amount of the market is held by small units (such as sponge iron units and conversion agents) in the unorganised sector. Economies of scale will happen only in the big units. These smaller units cannot compete with big companies.
Compliance with quality standards has been made mandatory for many steel products. These small units have had to either comply with these standards or face the risk of closure.
Small companies have also been hit because of the absence of mining linkages. Small manufacturers have not been getting iron ore allocations. As it is they find it difficult to adhere to quality standards and emission norms.
Today, free steel imports into India are free. You have to pay an import duty of 5 per cent on long products and 7.5 per cent on flat products. China has surplus capacity and it keeps on dumping material. All these factors taken together have hurt the smaller companies much more than the bigger ones.
We have to bear in mind that five years back, we (SAIL) were getting a profit margin of 20 per cent. We have to come out of that mind-set. Twenty per cent margin is earned by companies that are monopolies. The steel industry no longer features a monopoly.
So margins will be reasonable. But volumes of small players have fallen and have been grabbed by the big companies.
All leading steelmakers are undertaking large capacity expansions. Will this additional capacity go on-stream? Will the supply be commensurate with demand which may pick up only slowly?
India is a demand centre. We have a per capita usage of 55 kg per annum against the global per capita usage of 225 kg. Sixty per cent of India’s population lives in rural areas where the per capita usage is 18 kg per annum. In the last one year or so, demand has been subdued. We have had elections in five States and at the Centre. The 12{+t}{+h} Five-Year Plan outlay of $1 trillion to be spent on various infrastructure sectors is at 10 per cent of GDP — the highest since India started planning.
But the achievement has been dismal as government projects could not take off because of elections. Now the new government is in place and there is a new agenda. We are already seeing signs of recovery.
A number of projects are now getting cleared. So you will the real impact in the next five to six months when held up projects take off. That will stimulate the steel demand. Fundamentals are strong in terms of low per capita usage. That is why no steel maker in India has curtailed capacity expansion plans.
What are your expectations from the Budget?
The steel industry per se is not doing well and the stainless steel market is virtually in a glut. All companies in the stainless steel segment are bleeding. The import duty on stainless steel is only 5 per cent. So our expectation from the Budget is that the import duty on stainless steel will be put up. About a year ago, the government had imposed an ad-hoc duty of 20 per cent (over and above 5 per cent) on imported stainless steel products from China.
We, along with industry associations, have taken up this matter with the government. Import duty on carbon steel product imports must also go up.
Source: The Hindu Business Line
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