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The steel and metallurgical industry is changing

The world is changing and that too at a very fast pace. The rate of change is also increasing. This means that the scientific and technological advancements happened in last 5 to 10 years are more than those happened in last 100 years or so. The steel and metallurgical industry is not an exception to it.

Today, a lot of basic metallurgical research is being carried out. New alloys are being developed for specific applications under specific conditions. The changes in the perception of a customer industry like automobile forced steel industry to develop new light weight steels, micro alloyed steels etc that are today extensively produced and used. Metallurgists are trying to develop specific steels which can be used for building human colonies on the moon in future. Moon is supposed to have a vast mineral resources and the research has already started on how to tap these minerals for the betterment of human race.

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All this is happening in the western world and unfortunately almost nothing of this kind is happening in India. If we look back in the history, India has a great metallurgical heritage. The process of separation of metals like gold, silver, copper from their minerals was known to Indian much earlier that the rest of the world. The iron piller in Delhi, which has not rusted for so many centuries, is a glaring example of Indian metallurgical expertise but unfortunately today, we have lost that edge. Except handful ones, no Indian steel companies have a ‘Research & Development’ department. There are heaps of iron ore fines lying outside various mines but we are not able to use or dispose them off. We are looking for Chinese or European technologies but are not able to develop one ourselves!

History tells us that those societies which invest in scientific research today will rule the world tomorrow. India had that edge in pre historic times but today they are surely one of the under developed countries as far as metallurgical research is concerned. With such approach, we do not need an astrologer to tell our future, do we?

Specials steels sector has come a long way in last decade or so

Indeed, specials steels sector has come a long way in last decade or so. It has developed not only in terms of volume but also in terms of new grades and specifications, technologies and processes and more importantly, new applications.

If one recalls the situation about two decades ago, there were very few special steels producers, commonly known as ‘mini steel plants’ which adopted scrap based steel melting and refining process. In most of the cases, electric arc furnace was employed. The applications of such steels were also limited to few end user industries like auto, springs, fasteners, gears etc. It was basically a seller’s market till de-control of steel happened in early nineties. Along with many private sector integrated steel plants, the population of special steels producers also increased substantially. The availability of sponge iron changed the input mix and also helped to make cleaner steel as sponge iron naturally contains lesser tramp elements. Along with EAF route, blast furnace route was also used to produce special steels and allowed the producers to cater to higher volume demands from the users. All this gradually started changing the face and the profile of this metallurgical knowledge demanding industry.

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When any society grows economically, it starts using more special steels. Thus the special steels sector in India started expanding post liberalization along with the economic growth of the country. Also as we all know, most of the inventions are done due to the pressure put by the customer industry. Indian special steels producers got such a trigger from the fast moving auto industry. If you see, the auto industry, auto models have gone through a sea change in last few years. A great emphasis is given to fuel efficiency, light weight, aerodynamic shape etc. In last few years special steels industry has lost sizable business to other materials such as aluminium, composites etc. and there is a standing danger of losing further. All this has more or less compelled special steels sector to develop new grades, enhance their competitiveness and cater to the ever increasing demands from the auto sector. Also special steels have found applications in other emerging industries such as power, defense, aerospace, nuclear etc. and thus the long term future of this industry looks bright.

Though all this is true, we all know that this industry vertical is today struggling for its survival and hoping for the revival of the economy in due course of time.

Iron & steel industry are sailing in the same boat

Economic slowdown is a global phenomenon and iron & steel industry are sailing in the same boat. As we all know, more than 50 % of steel is consumed by infrastructure projects and unfortunately this core sector is not moving ahead in many parts of the world. This naturally affects the steel demand and has a negative impact on capacity utilization. Many Greenfield and brownfield expansion projects are on hold which is badly affecting the bottom line of steel business houses. Even many running mills are operating much below the rated capacity which makes survival a difficult proposition. In India there are additional negative factors such as non-availability of vital inputs like iron ore and coal, problems in land acquisition, environmental issues etc. Needless to mention that Indian steel sector is going through one of its most lean periods. The demand seems to be stagnated and unless the government gives a major push to mega infrastructure projects, the industry future looks bleak. Many analysts argue that this can happen only if a stable government is formed at the centre in the forthcoming general elections. Of course these issues and factors are very well outside the purview of the industry but at the same time, have a great impact on it.

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Given the above situation, many steel business houses in India are looking for overseas opportunities in terms of markets or even strategic acquisitions to tap the growing markets. The conventional export destinations for Indian companies were US and EU but today these markets seem to be stagnated or saturated and new growing regions need to be identified. MENA (Middle East & North Africa) is one such region which is growing faster than most of the regions in the world. Yes, Middle East economies had become vulnerable along with the developed world meltdown in 2008 but in past 4 to 5 years, they are slowly coming back on track. The trigger in the Middle East is undoubtedly Saudi Arabia where the government is putting in huge investments for making none less than few industrial cities. One can only imagine the huge generation of steel demand due to such mega infrastructure projects. Further, most of the experts agree that North Africa is slowly waking up and today’s possibilities can be converted into opportunities if dealt properly.

In my opinion, the situation will ease out by the end of this year and the iron & steel industry will be again surging ahead! Let’s hope for the best but prepare for the worst!

The steel demand in most of the parts in the world

The steel demand in most of the parts in the world is sluggish for quite some time. Even the countries like China and India, which were not affected by the global meltdown, are now witnessing a weak steel market. The prime reason for this is that the user industries like infrastructure, automobile are not growing as per the expectations. In other words the production levels have rose substantially in view of the future rise in the consumption but it was not to be. Except MENA region, most of the world is facing either a slowdown or stagnation in steel consumption. Of course in India the problems do not end here. There are other issues like environment, land acquisition etc. which are very vital and have the potential to delay any project for an indefinite period. In fact if you see, not many green field steel projects have come up in India in last few years. There is a limit to which one can have brown field expansion but what will happen after that? How can Indian mills cater to the rising steel demand in the country? Will India be a long term net importer? Only time will answer all these questions!

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The recently concluded ‘Indo – Arab Steel Summit’ was in a way an eye opener for many. We all know that UAE is the biggest trade partner for India and even for steel, it is an important destination. The Middle East region being a net importer of steel, offers a tremendous potential for steel exports but mind well, it’s not a cake walk. There are other players like Turkey, CIS, China which are very active in this region for many years. Also there are certain certifications needed in order to sell in this market. Further, the market needs a seamless and a long term supplier, not an opportunistic one. Today, due to weak domestic market, many Indian mills want to export to Middle East but they will have to take a matured view and continue the supplies to this region even if the domestic market improves.

I am sure a multi product and multi dimensional Indo-Arab steel trade will flourish in coming years and will be beneficial to both the regions.

The Indian sponge iron industry

The Indian sponge iron industry has come a long way post Y2K. It is worthwhile to take a look at its interesting but corrugated journey in this period.

Conventionally, Indian steel making was dominated by blast furnace route and only few sponge iron plants existed. Essar, Ispat and Vikram Ispat were the gas based plants and Tata Sponge was coal based. Initially, there was a lot of apprehension about using sponge iron as an input in EAFs but eventually it was proved that it not only reduces the melting cost but also produces cleaner steel with reduced tramp elements. At the same time the availability and the price of coking coal started behaving erratically giving more reasons for new plants to adopt sponge iron route.

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In sponge iron too there was a difference in fortunes between gas based and coal based plants. Gas based plants used MIDREX or HYL technologies and were quite cleaner plants as compared with coal based ones. But here also gas availability was a big problem and this single factor restricted the growth of gas based sponge iron industry in the country. On the other hand, non-coking coal was abundantly available especially in the states like Chhattisgarh, Odisha, Jharkhand etc. At this time, a suitable technology for producing sponge iron through rotary kiln using indigenous non-coking coal and high grade iron ore was developed which opened the floodgates for mini-sponge iron industry in the country. Hundreds of small units having kilns of the capacity ranging from 50 TPD(tonnes per day) to 350 TPD were commissioned in the states mentioned above. The hot flue gas was used to make either power or ferro alloys thus strengthening the bottomline of this ‘mini integrated steel complex’.

Today India is the highest producer of sponge iron, thanks to the rise of coal based sponge iron industry. The viability of this industry also depends on the availability of high grade iron ore and non-coking coal and thus its fortune also fluctuates depending on these parameters. Today the sector is struggling to find a way ahead on the backdrop of ‘Quality Order’ being implemented by the central govt banning the usage of construction steel having high S & P. One needs to add a refining vessel to the existing induction furnace but in today’s depressed industry condition, not many would be in a position to do that. As such the industry is poised at a crucial juncture and it will be interesting to watch how the things unfold in due course.

A big boost to the production of steel

In all international forums, we say with pride that India has vast reserves of iron ore and coal, and we further argue that the country has tremendous potential to grow its steel production. Also, infrastructure development is the prime agenda of the government which will give a big boost to the production of steel.

But what is the ground reality? Many iron ore mines in the country are closed because of the ban imposed by Supreme Court. This has seriously affected the iron ore availability and thus steel production. The problem is so grave that the country which has vast iron ore reserves has started importing this vital input. Same is the case in regard to coal. Coal block allocation has been reversed by the court and again many steel plants are running on imported coal. Every politician talks about infrastructure development but in reality, most of the mega projects are on hold for want of clearances as well as finance. As a result it is hampering the production of steel which cannot grow owing to the non-availability of raw materials and the demand too is as good as stagnated. In the current scenario the industry is going through a very bad phase; especially in the last 2/3 years, everything seems to have come to a standstill.

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One more factor which is de-accelerating the industry growth is lack of metallurgical workforce. Around 2000 metallurgical engineers pass out every year, but many of them migrate to other industries (such as IT) for better prospects. We talk about figures like 150 MT and 200 MT but where is the manpower to manage this tonnage? Even if we assume that if iron ore and coal are made available, and demand surges, then also it is impossible to achieve the production level simply because there are not enough metallurgists to run the plants.

All the industries follow a cyclic fortune pattern and steel is no exception. I believe that we have come so much down that there is no room to go further. One can only hope to go up from this position. I also see that there is a definite positive change in the industry sentiment since the last 2/3 months. I only hope it translates into a fast movement of the economy wheel and finally into steel demand.

Special Steels segment produces variety of steels

As an extremely important sector in the iron & steel industry, Special Steels segment produces variety of steels such as Carbon Steels, Spring Steels, Free Cutting Steels, Heat Resistant Steels, Tool and Die Steels, High Speed Steels, micro alloyed steels etc. using alloy additions such as chromium, manganese, vanadium, silicon, lead etc. Typically, the producers of such grades are mini steel plants having EAF, refining facilities, concast and hi-tech rolling mills and are situated all over the country. Nevertheless, few of the integrated plants also produce special steels but are limited in number and also in quantity.

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It is estimated that the special steels segment grew by around 13% annually in the last decade. ‘Steelworld’ research reveals that among various user industries, the auto and auto ancillary sector plays major role in the growth for special steels with a share of more than 50% of its total demand. All major global automakers have entered into Indian market and have set up or are in the process of setting up their production facilities here. This is not only to cater to Indian market but also to act as a manufacturing hub for global supply. Their requirement for steel is also changing in terms of quantity and quality. They require more intricate grades with stricter composition, closer tolerances and enhanced mechanical properties. A new family of steels called ‘Micro Alloyed Steels’ is being developed by many special steels producers as among many other advantages, the forgings made of these steels do not have to undergo the heat treatment cycle and acts as a money saver to that extent. It is surely a big challenge in front of special steel makers to cope up with the growing demands from the user industries. The other applications of special steels include power sector, aerospace, defense, engineering etc. where the demand seems to be rising steadily.

Presently, auto market seems to be recovering from the steep fall for the last two years or so. This has naturally triggered the demand for auto components and also the steel required for making them. It is understood those as on now, the special steel producers are operating at the level of around 70 % capacity utilization. Of course, temporary ups and downs are bound to be there in any industry but generally the direction of the curve seems to be upward !

The umbrella of iron & steel industry

Within the umbrella of iron & steel industry, special steels assume a very vital and prestigious position. Owing to their special properties, these steels find applications in variety of industries and a lot of metallurgical thinking is required to formulate their parameters. Many steel mills producing TMT or similar steels may operate without a qualified metallurgist but this is impossible in case of mills producing special steels. Thousands of compositions and grades as well as numerous intricate parameters and applications make this sector really challenging and thus exciting!

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The sector has been growing with double digit rate for the last decade or so with an approximate domestic consumption of 7 MT, around 8 to 9 % of the total steel consumption in the country. Out of many customer industries, automobile forms the most important and the biggest user of special steel products. It consumes around 50% of the special steels produced and the remaining 50% finds its application in other industries like power, defense, aerospace, white goods, construction etc. Naturally the fortunes of special steel producing mills dance on the tunes of automobile industry. The auto industry too had witnessed an explosive growth in the last decade not only in terms of numbers but also in terms of the perception of the consumer. The customer expectations have undergone a phenomenal change in this period. They want more fuel efficient, lightweight, aerodynamic shape and a good looking smart vehicle. We have also seen that many auto parts which were originally made of steel, are now being made by other metals like aluminium or even by composites for weight and price considerations. The steel industry had to lose this business permanently. The special steels industry is also gearing up for the challenging requirements of auto sector. They have developed micro alloyed steels which eliminate the need of heat treatment, lightweight steels specially for auto industry are also being developed.
Presently auto sector is somewhat stagnated as far as sales are concerned and this has put a tremendous back pressure on forging companies as well as special steel mills. In my opinion, these two sectors have bit over expanded their capacities and thus though in the last decade or so, the demand has climbed up substantially, the capacity has gone ahead of it. Today many special steel mills are operating below 75 % of capacity utilization but at the same time I must mention that the industry sentiment is quite positive and everybody is expecting the things to improve in coming months!!!

Before 2009, Middle – East was seen as one of the fastest growing regions

Before 2009, Middle – East was seen as one of the fastest growing regions in terms of steel consumption, thanks to the infrastructure development and construction activity all over. It is also a fact that the regionlacked melting capacity but many rolling, processing lines mashroomed all over the region. Steel fabrication too aquaired importance due to requirement of huge, intricate residential and industrial structures. The region was net importer of steel and CIS, Turkey, China were the preferred suppliers. During 2009 meltdown, the regional economy did get a jolt and the developmental activity drastically reduced followed by reduction in steel consumption. Now 5-6 years later, the region as such is gradually stabilizing in terms of industrial activity, infrastructure projects and the steel consumption is also rising steadily.

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The Middle East and the North African region commonly known as MENA, is considered to be one of the fastest growing regions as regards industrial and economic activity. The Middle – East region is very strategically located. One one side it connects with Indian subcontinent from where it get a good supply of technically qualified manpower. It also receives some raw materials like ferro alloys, iron ore, refractories etc. On the other hand it is connected with Europe which is conventionally supposed to be high end market. In a way, Middle-East acts as a gateway to Europe. Another factor which is becoming increasingly important is ‘Africa’. African markets are also heating up and industrial activity is gradually increasing. Though their present steel making capacity is small, the consumption has started growing. Few iron & steel projects, though small in size, are being planned and executed in Africa. Middle – East region has become a gateway for Africa too.
I hope to see a gradual and steady growth in industrial activity as well as in iron and steel industry of the region. The next one or two quarters are supposed to be very crucial and will decide the future direction of iron & steel industry in Middle-East region. Of course, as mentioned earlier, Indian steel business houses should be having lot of interest in ME steel industry, firstly as it offers a tremendous export opportunity to Indian steel mills. Further, Indian technology and equipment suppliers to can gain from expansion projects from this region. Lastly the ME region needs technical manpower, middle and top level management personal and India can very well fulfill this need.

Steel is a peculiar industry

Recently, in one of the business conferences, I was asked, “What are the steel industry’s demands from the government? What are your expectations from the budget ?” My answer was, “No, we do not need anything from the government. Let government take enough measures to boost the country’s economy and we will be the natural beneficiaries”!

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Steel is a peculiar industry.  Its demand lies outside the industry. As we all know, infrastructure, automobile, engineering, white goods are the major customer industries for steel. The steel demand depends on how well these industries perform. Their performance in turn depends on the buying power of the people and general economic sentiment prevailing in the society. Thus, if the government takes such measures which directly or indirectly boost the economy, steel industry is a natural beneficiary. These measures may include triggering the mega infrastructure projects, reducing excise duty on automobiles, introduce one window clearance system for manufacturing sector, especially MSME segment. All these measures will translate into additional steel demand and will help the steel industry to grow. Last few years, iron & steel industry suffered mainly because of lack of domestic as well as overseas demand.  Many mega infrastructure projects were put on hold. Developed world started witnessing recessionary trend which curtailed export potential. Auto demand suffered a setback due to high fuel prices and high interests on auto loan. The sharp decline in fuel prices will surely help this industry to some extent.
‘Demand growth’ has become a very scarce commodity in the world. Only few countries like India hold that special power. In my opinion, it is the time to let the domestic players take the advantage of this demand. We are witnessing a lot of dumping including steel and the government needs to be very vigilant in these matters. One may argue that the quantities involved in the imports are very small and will not be able to alter the demand pattern much. Yes, I agree that it may not alter the demand but even such small quantity has the potential to dilute or decrease the price. This can adversely affect the bottomline of domestic steel companies.
I would still say that today the industry sentiment is positive but the present government has to do something on an urgent basis to keep it positive even tomorrow.