India's Growth Outlook – Part One: Steel

TC Malhotra contributes to MetalMiner from New Delhi.

The steel industry plays a significant role in the economic growth of any country, and despite the recent slowdown in the domestic market, the future of the Indian steel industry seems bright.

However, shortages of domestic iron ore supply and increasing raw material prices are posing a challenge to Indian steelmakers as they import a majority of essential ingredients for steel production.

The three raw materials used in making pig iron (which is the raw material needed to make steel) are the processed iron ore, coke (residue left after heating coal in the absence of air, generally containing up to 90 percent carbon) and limestone (CaCO3) or burnt lime (CaO), which are added to the blast furnace at intervals, making the process continuous.

The Indian steel industry was already under raw material supply pressure, however, and the ban for mining in Karnataka state by the Supreme Court has further ratified the shortage of iron ore supply for the industry.

India is the fifth-largest steel producer on the global front and struggling to become the second-largest producer in the coming years.

As per the latest estimates, the crude steel capacity in the country is likely to reach 120 million tons by 2012 from 72.9 million tons in 2009-10.

Analysts are divided on the level of steel demand expected for 2011- 2012. However, a research report titled “Indian Steel Industry Outlook to 2012, issued by leading market research and information analysis company RNCOS, says that Indian crude steel production will grow at a CAGR of around 10 percent during 2010-2013.

The  RNCOS report also says that with the government’s proactive incentive plans to boost economic growth by injecting funds in various industries, such as construction, infrastructure, automobile, and power will drive the steel industry in future.

Industry analysts say that the Indian steel industry will have multifold growth in the coming years, with iron ore requirements soaring to much higher levels.

Mr. Praveen Kumar V, chairman of Maya Iron Ores, warned in a published article that if India’s mining resources are not properly managed and if scientific methods are not used for efficient mining, India is going to face acute shortages of raw materials for many manufacturing industries.

Check back in later today for Part Two.

–TC Malhotra

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