Short-term dampeners notwithstanding, one of India’s prime Public Sector Units, Steel Authority of India (SAIL), has decided to embark on an ambitious expansion plan.
Spread over the next five years, the expansion will take up approximately US $12.2 billion, which translates into an approximately 33 percent jump in the company’s planned expenditure compared to the previous five-year plan.
On Saturday, SAIL Chairman C.S. Verma told his shareholders at the annual general body meeting that in FY 2013, his company would be spending about US $2.25 billion. Most of it will be used in capital expenditure, which essentially means setting up more units, optimizing operations, modernization, and so on.
The chairman seemed pretty confident that India’s steel story was poised to grow, driven by the increased investment in infrastructure because of its rapid pace of urbanization.
His optimism is based on the fact that in terms of per capita consumption of finished steel, India at 57 kilograms lags behind the world average of 214.7 kg. Clearly, this is a huge gap waiting to be filled.
SAIL’s spending for FY 2013 is already slightly more than what it was for the current year’s approximately US $2 billion. So it is clear that despite the steel story script not playing out exactly as planned this year, SAIL at least feels that the coming years would see better yields.
The well-known steelmaker was in the midst of expanding its crude steel production capacity to 21.4 million tons per year from 12.8 million with a roughly $13.5 billion investment.
Apprising shareholders on the status of modernization and expansion, Verma said the majority of the facilities of the on-going phase of SAIL’s modernization and expansion of SAIL were likely to be completed in the current fiscal year.
SAIL’s optimistic outlook does not look misplaced. It coincided with a report by the World Steel Association that said compared to other countries, India’s steel production had gone up in August by 2.6 percent to 6.4 million tons.
In fact, India was one of the few nations to have bucked the global trend that month. Overall global steel production fell by 1 percent to 124 million tons in August as compared to the same month last year.
Earlier, India’s Steel Minister Beni Prasad Verma had told news agency PTI that the previous 12th-Plan target of about $8 billion for SAIL had been pushed to over $12 billion.
The minister also told a group of visiting journalists from Korea and Philippines that India was poised to become the world’s second-largest producer of crude steel within the next two years.
The SAIL chairman told shareholders that to maintain its current dominance in the domestic market and to meet future challenges, SAIL was working on a long-term strategic plan called ‘Vision 2020.’ This included organic and inorganic growth, and infusion of state-of-the-art environmentally friendly technologies to shore up its bottom line.
The company was determined to meet its enhanced requirement of iron ore from captive sources, by augmenting production from existing mines and by developing new mines at Rowghat in Chhattisgarh and Chiria in Jharkhand, he said.
Besides achieving a record sales turnover of approximately US $9 billion during 2011-12, a growth of 7 percent over previous year, SAIL also achieved production of hot metal, crude steel and saleable steel at 14.1, 13.4 and 12.4 million tons respectively, registering a corresponding capacity utilisation of 102 percent, 104 percent and 112 percent.
Its cumulative production of crude steel was 5.6 million tons in April-August 2012, up by 3 percent as compared to the same period last year.
Sohrab Darabshaw contributes an Indian perspective to MetalMiner.