Steel Scenario conference--focus on India and China: India, rich in ore but poor in coking coal,...

From November to February India's most populated city, Kolkata (Calcutta) experiences its cool season with pleasant daytime temperatures of 20-25[degrees]C. Hence, these are the months for weddings and conferences.

Steel Scenario's regular annual conference takes place here in February

Starting in 1945 with almost equal outputs, China's growth in output and demand has been spectacular, particularly in the past decade and now stands at 272Mt of crude steel in 2004 (Table 1). In contrast, India's crude steel output in 2004 fiscal was just 32.26Mt and finished steel output 36.1Mt.

In 2004, the Government of India published its Draft National Steel Policy with the ambition of increasing crude steel output to 100Mt by 2020. This will require a 7% annual growth--a modest figure compared with China's double-digit growths in recent years--but one that will require the Indian economy (GDP) to grow at least 6% annually. If domestic growth does not materialise, there will be 12Mt/y of Indian steel each year looking for an export market.

The keynote address by Dr Jamshed J Irani, Member of the Board of Directors Tata Steel, was read in his absence. While the steel industry was currently enjoying an unprecedented boom, it must be remembered it is a cyclic industry rising and ebbing every five to seven years. Steel producers should analyse the underlying reasons for the current surge in an attempt to prolong this profitable era. He saw the present healthy trend continuing for a further two to three years throughout the world and possibly for a lot longer in developing countries such as India and China.

While the Chinese factor was an important boost to today's market, consuming as it does some 300Mt/y of steel or 30% of world output--a figure that still has potential to grow to 350-400Mt as China moves from completing infrastructure projects in the east to the underdeveloped areas of Central and Western China--but China's production capacity is also growing rapidly and now stands at 400Mt/y, diminishing its need to import finished steel.

Apart from China, demand in USA and Europe as well as developing countries is growing as 100-year-old infrastructure is replaced.

India, said Dr Irani, has not yet come up to earlier expectations with consumption standing, at about 35Mt/y. The recent upsurge in economic activity in India is likely to lead to a spurt in consumption reaching 50Mt by 2008 and maybe 75Mt by 2012.

Unlike China, India is well endowed with good grade ore (+55% Fe content viz China's typically 32% Fe content) but lacks significant deposits of coking coal, which it has to import, largely from China in exchange for exports of ore. However, it is employing stamp charging in coke ovens to make use of some of its vast reserves of Indian thermal coal.

Dr Irani put the proposition that India and China were not competitors in the steel market but rather partners. In the future, he said, the dominant success factor for a steel company will be whether it has sufficient access to raw materials. Companies must ensure supplies by buying into ore and coal mines.

Also, increasingly bulk carbon steelmaking would move away from developed countries into those with raw materials, leaving the developed countries to concentrate on producing more sophisticated grades. However, countries like China and India were also increasingly producing such high grade steels.

MARKETING

Six papers were presented in the session on marketing.

There are four strategic groups in India, said Shoeb S Ahmed of SAIL. The major integrated companies SAIL, TISCO and RINL account for 45% of output with the remainder produced by secondary majors, minimills and rerollers. India's strengths were an abundance of ore, a skilled work force and low cost labour. Its weaknesses were low productivity, high social costs and poor coal for coking. Its opportunities are from a low per capita consumption, a vast latent demand from rural regions and low exports. Its threats were poor R&D, lack of coking coal and substitution of steel by other materials. Its strategy should be for the top three players to capture 66% of the market through mergers, acquisitions and joint ventures.

India, it was claimed, is the world's lowest cost producer, a fact disputed in the Q&A session where Russia and Ukraine were cited as the lowest costs producers, while accepting that TISCO is the lowest cost company. Greater customer value is needed with quality and distribution needing improvement and a reliable brand name established. To reach the rural market, SAIL has appointed 700 rural dealers and is marketing complete solutions such as the design and production of steel door frames.

Sushin Banerjee, GM SAIL comparing China and India pointed out that while GDP's were not dissimilar (8.5% in India in 03 and 9% in China) investment in the Chinese steel industry at $260bn was over eight times India's $31bn. On India's demand for steel, an overall growth rate of 7.9% was forecast for 2006-7 led by household appliances followed by petroleum infrastructure projects (Table 2).

Cost of production have risen steeply due to increased raw material and freight costs with some prices more than doubling between December 02 to January 05 (Table 3).

M Roy Exec Dir Salem Steel Plant--SAIL's alloy steel plant--saw a potential for low nickel containing stainless steels (2%Ni + Mn austenitic steels) in India. Globally, the stainless steel producers were now highly concentrated with four major players: Acerinox, Arcelor, Outokumpu and TK Stainless. Despite its richness in chrome ore, India has no commercially significant deposits of nickel.

Sanjeev Dhinda of Broner Metals (UK) explained how Broner's scheduling software has helped improve productivity, in steel processing lines improving manufacturing agility in order to respond to changing markets. Steel, with its high capital investment, needed to be flexible to respond to changing markets. In India, typical delivery times were 30 days compared with 7 days in developed countries and just one day in special cases. This was too rapid for a manual planning process to be used.

A lively debate in the Q&A session revealed that India's largest producer, state owned SAIL has no plans to enter the automotive sheet market until the 2013 to 2020 period, although they already produce alloy steels for automotive production.

A special session was presented by Dr Amit Chaterjee, former Chief Technology Officer Tata Steel and now advisor to the GM. Dr Chaterjee outlined the history of Tata Steel, founded in 1907 in Jamshedpur--formerly named Tatanagar--and hence the origin of the company's name.

Access to raw materials was essential. The world's resources of +47% Fe content ore was 150bn tonnes of which Russia and Ukraine accounted for 75%. While China has large deposits of ore the grade is poor. Regarding coking coal, USA has 23% of the world's reserves, China 11% and CIS 23%. USA was the leading coking coal supplier. India's coal reserves were 201bnt but only 11% of this was suitable for coke production and all had a high ash content. Natural gas was present in good quantities in the eastern region and also in Bangladesh. Worldwide 60% of the natural gas was in Russia, Iran and Qatar.

Per capita consumption of steel in India was 32kg/y, compared with a world average of 140kg. However, based on the 300M urban population where most steel was used then per capita consumption was closer to 117kg. Another measure of steel market penetration is the steel/cement ratio. While this is 0.31 in India it is closer to 1.0 in developed countries. (Table 4)

SAIL plans an Rs25 000 crore ($5.707bn) expansion to grow capacity from 11Mt to 20Mt by 2012. Tata Steel will increase output at Jameshedpur by 3.4Mt to 7.6Mt by 2008. Esser Steel plans a 4Mt/y expansion plus a 6Mt/y pellet plant in the state of Orissa. However, such expansions could not keep pace with growth in China which has seen the period needed to increase capacity by 50Mt decreasing from 37 years for the first 50Mt to just a year in 2003-04. India has still not reached its first 50Mt, even although both India and China started with an equal production base of 1Mt in 1949.

India is now the world's largest producer of DRI, at 6.9Mt, close to half (3.28Mt) of which is produced by reduction with coal in rotating kilns--a technology originally developed by Tata Steel and used extensively in India but elsewhere only in South Africa. Total world output of DRI has grown to 50Mt in 30 years (Fig 1).

[FIGURE 1 OMITTED]

DRI 'Sponge iron' produced from coal has a low carbon content and is often directly melted in induction furnaces with minimum refining and cast to billet for rolling to rebar. Dr Chaterjee--and others--were critical of the poor quality of such rebar and he said that Tata was in the process of commissioning a new rebar mill to meet demand for a certified rebar product. Other smelting processing being considered for use in India are HIsmelt and Romelt as neither require coking coal.

The issue of C[O.sub.2]. output was also addressed by Dr Chaterjee who pointed out that China's total output (all industries) was over three times that of India's at 3473.597Mt and 1007.978Mt respectively. On a per capita basis India's C[O.sub.2] emissions were 0.96t/y compared with China's 2.69 or USA's 19.8t.

Dr Chaterjee concluded that there was a bright future for India and with a population forecast at 1.5bn by 2015 it would need to produce 150Mt to satisfy the market but China would remain the world's leading producer.

RAW MATERIALS

The session on raw materials saw four papers, two dealing with coal/coke one on iron ore and one on the State of Orissa, possibly India's most mineral endowed state.

'India's steel scenario--Advantages of Orissa' was presented by B K Mohanty, former Director of Mining & Geology, Orissa and was co authored by Ashok Kumar Sahu, Joint Secretary to the Government of Orissa Dept of Steel & Mines.

A detailed analysis of this state's potential for steelmaking was made in the March issue of Steel Times International (p38). In summary, this east Indian state bordering on the Bay of Bengal is immensely rich in haematite ore, chromium, manganese, bauxite and thermal coal and contributes a major part of India's production of these minerals (Table 5).

The state boasts one large integrated mill in the north, SAIL's 2Mt/y flat products plant at Rourkela and two smaller blast furnace plants, Neelachal Ispat Nigam (NINL) near Duburi, which produces billet and wire rod and the KIW pig iron plant near Barbil. Also, MESCO has built but not yet commissioned a 0.5Mt/y pig iron plant. Total iron capacity, including Mesco, is 3.2Mt. The State also has 47 sponge iron units of total capacity 2Mt/y. Another 18 such plants are planned by 2007. A further 47Mt capacity of projects are under consideration of which 25Mt have MoUs signed, 7.75Mt are under consideration and 15.2Mt are at the discussion stage. In this latter category is a proposed investment by South Korean steelmaker, Posco to build a 12Mt/y (in two 6Mt stages) in a joint venture with BHP Billiton. This will be located at the State's main seaport, Paradip. A further 11Mt of capacity is proposed in the Kalinganagar industrial zone near a major ore deposit at Daitari. Ore exports currently stand at 6Mt/y and major infrastructure developments are planned to increase port, rail and road facilities.

N K Patnaik, joint MD Orissa Sponge Iron Ltd at Palaspanga presented iron ore reserves in India at 13 460Mt or about 10% of world resources, giving India the fifth largest reserve. The figure, some 1143Mt above that quoted by Mr Mohanty also includes 3407Mt of magnetite ore, any remaining discrepancy being due to the cut off assay and depth selected for commercial mining. The various grades of ore are given in Table 6.

Although high in iron content, Mr A K Mathur of MSTC said Indian ores tend also to have a high alumina content (2.5-4.5% viz world typical < 1%) which results in the formation of a more viscous slag in the blast furnace, which requires more addition of flux, greater slag volume and increases coke consumption.

Looking at availability of coal, there is a shortage of coking coal, which has resulted in integrated steelmakers such as SAIL and Tisco to partly charge sponge iron to their blast furnaces. In 03-04, 4.109M of coal based sponge iron and 3.976Mt of gas produced DRI were made in India. For production with coal, coal grades A, B and C can be used of which there are 10589Mt of reserves but production of these coals has mainly been reserved for other industries prior to the importance of sponge iron being recognised. The government has been approached to reallocate coal distribution.

Mr A K Mathur of MSTC Ltd spoke of methods of improving Indian coals by washing to reduce the ash content which can be as high as 50%. India's integrated industry is dependant on imported coal and coke, mainly from China where export licences were reduced to 9-11Mt in 2004, a drop of 5-6Mt. China and India are both building new coke ovens to meet the demand.

M P Srivastava said that India exported 48Mt of ore in 02-03 worth Rs5800 crores ($1323.4M)), of which 20Mt was to China worth Rs2400 crore ($547.6M). Output in 2003 increased to 78Mt, mainly from the states of Jharkhand, Orissa, Chattisgarth, Karnataka and Goa. SAIL operates seven ore mines with a projected capacity of 24.6Mt by 2006-07.

CHINA

The session on China saw four papers, two presented by Chinese nationals. Dr Zheng Zhenghao of the engineering and raw materials trading company, CMIEC, said that consumption of finished steel in China grew 33% in 2004 and crude steel output increased 50Mt to 273Mt. However, production costs jumped 46% due to the scarcity of raw materials--200Mt of ore was imported--and cost increases for electricity. Chinese domestic ore has a typical iron content of only 38% and must undergo benefication treatment.

Asked on future consumption trends, Dr Zhenghao said that a fall in consumption was likely to take place in 2006 as the major infrastructure projects for the Olympic Games will have been completed by then. However, this fall back would be temporary as other infrastructure projects in Central and Western China were still upcoming.

Mr Henry Wang of Sino-Steel Industry & Trading Group Corp, Beijing (SSIT) pointed out that the Chinese steel industry was still guided by central government control. For example, all further loans to build coke ovens have been stopped in an apparent attempt to slow the growth of the steel industry. The government now wishes to concentrate on producing high grade steels rather than a large volume of plain C steels.

In contrast, a comment from the floor said that the Indian government gave up control of the steel industry on liberalisation but never-the-less this does not mean the government should not plan levels of steel production in the future.

Dr Maharaj Koul, President Cashmir Inc USA presented a paper outlining what China and India could learn from the mistakes of the US steel industry. He pointed out that without exception, steel consumption follows a sigmoid shaped curve with initially slow growth accelerating in a growth boom, only to fall back in a 'shake out' phase until growth resumes to maturity when once again consumption drops. China was still in the initial rapid growth phase and had not yet reached shakeout. India was further behind and has not yet reached the rapid growth stage. The USA was at the mature consumption stage with demand levelling at 120Mt/y (Fig 2).

[FIGURE 2 OMITTED]

Table 7 compares production and marketing parameters for the three countries.

Table 1 China's ferrous production 2004 (Mt)

                     Production   % Change

Crude steel            272.46       23.2
Pig Iron               251.85       24.1
Iron Ore               310.10       22.5
Coke                   177.48       25.8
Ferroalloys              8.65       28.5
Rolled steel           297.39       23.6
Wide HRC                10.38       38.6

Table 2 Demand projection for steel in India

Sector                   Demand    Demand    Growth rate   Growth rate
                         2006-07   2011-12     2006-07       2011-12
                          (Mt)      (Mt)       2002-03       2006-07

Construction              15.0      20.0        10.8           6.0

Fabrication                6.0       8.6        10.0           7.5

Automobile                 2.0       2.7         9.0           6.0

Transformation
of Petroleum Products      3.1       7.7        20.0          17.0

Tube making                3.3       4.1         6.0           4.5

Cold reducing              7.2      12.1        21.6          11.0

Household appliances       2.0       4.0        26.0          15.0

Total demand for
finished steel            41.0      59.9         7.9           7.9

Source: S Banergee SAIL

Table 3 Input costs for SAIL (US$ FOB/t)

                        Dec 02   Jan 05   % rise

Met Coke                   80     260       225
Coking Coal                47     125       166
Scrap                     110     200        82
Pig Iron                  110     325       195
Freight *                   9      35       289

* Cape sized vessel >80kt

Table 4 Comparison of key parameters India vs
China

                          India   China

Literacy (%)                 65      86
Life Expectancy (yrs)        63      72
GDP ($tr)                   0.4     1.2
Total Trade ($bn)          93.9     851
FDI in 2003 ($bn)           5.1      57
Income/cap 04 ($)           454     960
Av inflation (%)            8.0     6.5
Steel consp/cap (kg)         32     118
Crude Prod 03 (Mt)           32     220
Vehicles/1000 pop          0.84    2.52

Table 5 Orissa's mineral wealth (Mt)

Mineral/Ore                  Reserves             Production 03-04

                       Orissa   India     %     Orissa   India    %

Haematite iron ore      4177    12317   33.9    30.18     114   26.4
Chromite                 110      114   96.5     3.18    3.20   99.0
Manganese                115      406   28.3     0.57    1.74   32.0
Limenite (sands)          45      348   12.9     0.10      --     --
Limestone               2223   169941    1.3     2.23     154    1.4
Dolomite                 882     7348   12.0     1.25    3.82   32.7
Bauxite                 1529     3075   49.7     4.93   10.95   45.0
Coal                   60980   212712   28.6    60.00     361   16.6
Graphite                 4.6      5.9   77.9     0.03    0.09    3.3
Fireclay                 177      706   25.0     0.05    0.60   0.80

Table 6 Grades of workable ore in India (%)

High grade (>65%Fe)              13
Medium grade (62-65%Fe)          47
Low grade (<62%Fe)               22
Unclassified                     18

Table 7 Comparative steel statistics

                               USA    CHINA   INDIA

Crude steel (Mt)                110     300      40
  by BOS (%)                     50      72      50
  by Electric (%)                50      16      43
  by Other (%)                    0      12       7
Con Cast (%)                     98      93      65
Yield (%)                        90      80      70
Man power (thou)                125    3000     500
Man hr/t                        2.5      25      30
Vehicle prod (M)               12.2     3.2       1
Elect prod (tril kWh)         3.719    1.42   0.533
Total C[O.sub.2] emis (Mt)      5.7     3.7     1.0

I India's DRI production by type

Year    Coal   Gas

95-96   1.9    2.9
96-97   1.95   3.3
97-98   1.56   3.6
98-99   1.75   3.4
99-00   1.93   3.4
00-01   2.03   3.45
01-02   2.26   3.18
02-03   3.28   3.62

Note: Table made from bar graph.