India today imports 30% of refractories, mostly from China. This needs to change to achieve the ambitious target set up by the National Steel Policy
The beginning of the year 2018 brought a lot of cheer to the Indian steel industry. In February, an impressive 3.4 percent rise in production to 8.4 million tonne (mt), ensured India left behind Japan which registered 0.5 percent output fall to 8.2 mt, making India’s production second highest not just for the month, but for the January-February period of the current year as well.
The major factors that made it possible include government’s protection to the domestic industry, bounce back in domestic demand due to ambitious plan to build smart cities, housing for all, implementation of infrastructure projects and recovery of global economy that gave a fillip to the export market.
The outlook also looks encouraging with government claiming that India’s steel demand is guaranteed for next five decades. With lifestyle improvement, intensified efforts in infrastructure development and thriving automobile and railways sectors, the government of India envisages tripling of our steel capacity build-up to 300 MTPA by 2030 and increasing domestic consumption from the current abysmal 68kg per capita to 160 kg per capita, all of which have been captured in the Steel Ministry’s National Steel Policy.
What is interesting is that the government is aware of the hurdles that may disrupt this dream run in steel production and that is why there is a thrust on strengthening the whole ecosystem of steel production. This includes boost to research and development by setting up an industry-driven Steel Research and Technology Mission of India (SRTMI), which has already attracted an initial corpus of Rs 200 crore (US$ 30 million). For upping production, government has also planned special purpose vehicles with states rich in iron ore to set up steel plants. Further, mining and metallurgy sectors have seen a number of major investments. According to DIPP, Indian metallurgical industries attracted FDI to the tune of US$ 10.56 billion in the period April 2000–December 2017. National Mineral Development Corporation (NDMC) has planned systematic investments in sync with iron ore requirement to achieve this production target. All well intentioned initiatives focused on achieving the objectives of National Steel Policy 2017 but is there something that we are missing here?
Refractories – the heart of steel making
Steel manufacturing is a complex process of which refractories are an integral part, just like iron ore. Not a single ton of steel can be made without refractories and various types of refractories are used at different stages of steel making. Approximately 65-70 percent of total refractory output is consumed by steel industry alone.
Often likened to David, the Indian refractory industry at a billion USD is miniscule compared to its steel counterpart, but in function it plays a critical role with the capability to set Goliath back. If India is to achieve its steel target, a David-Goliath battle isn’t the way forward. The way ahead is close partnership.
Today, refractories constitute under 3 percent of total steel-making cost, but in a scramble to be competitive, steel industry tries to substitute domestic products with Chinese low cost ones. The reality is India today imports 30 percent of refractories, a major chunk of which comes from China that has advantages of being a low-cost manufacturing base with abundance of raw material. This dependence is causing supply disruptions and, in many cases, leads to poor qualities being imported.
Chinese government’s latest environmental rules for their mineral industry has led to severe refractory raw material shortages worldwide. Refractory companies have been forced to delay supply to steel plants, prices are unstable in many cases, steel industry has suffered production and cost setbacks. The prospects are still not very bright as uncertainty over China’s new policy continues. This dependence on China leading to sudden disruptions should serve as an eye-opener.
Further, if India has to build its long-term reputation in the world market as a ‘competitive’ maker of good quality steel, it needs to do better than rely on cheap imports. Steel industry needs to work in close partnership with Indian refractory companies to develop products for making cleaner steel alongside innovating on efficient usages and reducing production costs.
Several countries including EU and Japan have showed the way where steel companies invest in refractory companies and they innovate and evolve through co-dependence.
Not just in refractory, many instances of fruitful co-dependence between parent industry and its supply chain for mutually beneficial partnerships can be found, such as in automobile and air-conditioning industries.
The lesson in the above points is this - to achieve its ambitious targets, steel needs the support of a strong domestic refractory industry. And being the bigger industry, steel should take up the onus of developing and investing in this partnership. Probably then, instead of seeing it as David, the world will see India’s refractory industry as a racehorse for its steel industry - an able and competent partner for the long distance that it aims to run.Sameer Nagpal is Head, Advocacy, Indian Refractory Makers Association and CEO, Dalmia-OCL