Rashtriya Ispat Nigam Ltd, the corporate entity of Visakhapatnam Steel Plant, is a Navaratna public sector enterprise under the Ministry of Steel. VSP, popularly known as Vizag Steel, is the first shore-based integrated steel plant in India. T.K Chand spoke to Sandeep Menezes on a wide range of issues concerning the steel industry and RINL.
In 2013-14, steel consumption growth rate hit the lowest in four years, at 0.6 per cent to 73.93 million tonnes. Going forward, what will be steel demand scenario in India?
If you look at steel and GDP, there is a correlation and that is called ‘elasticity of steel.’ It is around 1.18. Therefore, this year (2014-15), the GDP is expected to be around 5.2 to 5.6 per cent. If you multiply this with 1.18, then steel consumption will be somewhere around 5.7 to 5.8 per cent, but it’s still 3.2 per cent. Therefore, there is a likelihood of growth in consumption. There will also be growth in supply because in coming days new capacities are coming up. Both demand and supply position will increase.
Initially, supply will be slightly more and it will chase demand. But, 2016 onwards, the demand and supply position will even out. By 2019, steel production will be less than steel consumption.
In next one or two years, we will witness the boom leg of the demand scenario.
Low growth rate in domestic steel consumption reflected the abysmal demand from the construction and automobile sectors which accounted for around 60 per cent and 15 per cent of total steel demand.
These segments have not been faring well since the past two years but currently the international markets are firming up. The main driver of world economy is the US economy which was registering negative growth. However, this year, in the first half itself the US economy has turned positive with 3.1 per cent growth. Similarly, the Russian economy has grown by 1.8 per cent while the European and Japanese economies have overcome their negativities. South Korea is also growing at 1.8 or 1.9 per cent. So there will be movement in the world economy.
In India, also, with the coming of a new government and sentiment building around it, I think consumption in automobile, manufacturing and engineering sectors will move ahead.
The last quarter of 2013-14 has already sowed the seeds of a turnaround; therefore, 2014-15 will be a year of turnaround not only for Indian economy but for world economy.
Prices of steel-making raw materials have declined 25 per cent globally since January 2014 due to sluggish demand from China. In contrast, iron ore prices in India have moved marginally upwards.
In international market, prices of iron ore has been sluggish because the bigger players like Rio Tinto and BHP Billiton have opened big mines in South Africa, Brazil etc. and those mines have now started producing.
In India, the major supplier of iron ore is NMDC and others. Although prices have not been raised much in India, they have led to little rise due to domestic steel prices also being higher.
Over a period of time, the prices will come down in the Indian market because exports have fallen from 117 million tonnes to barely 11 or 12 million tonnes. The Supreme Court restrictions have led to certain supply shortages but once those restrictions are relaxed, the prices will be coming down.
There were recent reports about water crisis threatening to make a dent in the production of Visakhapatnam Steel Plant.
We consume around 42 mgd water for RINL. We have been getting water from Godavari river but because it is dry season and cultivators also require water, they are making breaches in canal and taking water. Recently, the chief secretary assured that water would be provided but we are also developing alternative sources of water supply.
Since we are a shore-based plant, we are planning to go in for water desalination which will provide perennial supply. It will definitely be costly but in a situation wherein we suffer from availability of water, paying more is better than suffering from lack of water.
RINL is implementing the Pulverised Coal Injection (PCI) technology in blast furnaces due to which low-cost coal can be used which in turn would help reduce costs. Tell us about the quantum of savings expected.
Pulverised coal is an international benchmark. Use of pulverised coal is around 150 to 200 per tonne. About 150 to 200 kg is injected into 1 tonne of pulverised coal. This coal is 40 to 50 per cent cheaper than other coal. That means we will be replacing around 1\5 of the price through low value coal. By using pulverised coal at the rate of $150 of coking coal price, it means a saving of 1/5 or $30 or at least $20.
Despite 8 per cent growth in sales volumes, RINL’s average price realisation was about Rs.33,500 per tonne during 2013-14 against Rs.36,000 per tonne in 2012-13.
Last year, it was a severe drop in NSR throughout the country as well as global market. There was a drop of around $120 to $130. In India, it is around Rs.6,000 to Rs.7,000 per tonne. This year there was no scope for a drop because it was already down; thereafter, there were ups and downs. Therefore, realisation has seen Rs.1,800 to Rs.2,000 drop. It’s not only our case but all the steel producers witnessed drop of around Rs.2,000.
But one good thing is that raw material prices have remained moderate. This has helped steel companies to some extent. Therefore, even if volume has increased, per tonne realisation has decreased.
Another factor which has influenced turnover this time is that we have sold around 1 lakh tonne of semis; so semis NSR is Rs.6,000 to Rs.7,000 less than the prime products. Thus, we have sold 2 lakh tonnes more, out of that 1 lakh tonne is semis which has brought down the average NSR.
Yet another factor is increase in railway freight. Railways charge 15 per cent more during peak period.
Thus, market realisation, product mix, higher freight rates and rising power charges (Andhra Pradesh has become power deficit) has affected our realisation.
RINL aims to triple its export to around 3 lakh tonnes in the current year. How do you plan to achieve this?
RINL is a shore-based steel plant and we have been leveraging our shore-based location to take advantage. This year we have put an export target of around Rs.1,200 crore or 3 lakh tonne. From 1 lakh tonne last year, the target is three times more next year.
As per foreign policy there are some focus markets wherein if you sell there we get some advantages. The focus markets are South Asia, Southeast Asia and African countries. But now we are focusing more on Africa because we are a shore-based plant which provides advantages for exports to Africa. Our freight costs are around $35 to $45 to Africa while freight costs are $65 to $70 to northern states like Punjab and Uttar Pradesh.
Therefore, by taking our products to Africa, we will be gaining around $25 in freight alone. Also, we are taking our products from domestic to export market, so the domestic market will remain buoyant. The third advantage is that currently Railways are unable to provide rakes; we will get relief from that.