Higher cost of funds denting steel industry’s capacity expansion: Kearney
India’s steel industry had targeted a capacity of 180 to 190 MTPA by 2024–2025 and 300 MTPA by 2030. Prior to the Covid-19 outbreak, 10 MT of steel capacity was expected to come on board in the second half of this fiscal year.
For India to create a globally competitive steel industry, global consultancy firm Kearney, formerly A T Kearney, has prescribed a wider and deeper government role.
While it has flagged the need for a financial stimulus and suggested that the industry should seek concessional interest rate from the government as higher cost of fund is denting its capacity expansion plans; the consultancy firm also feels that government’s sustained intervention is required to push for infrastructure to ensure demand revival for steel.
India’s higher cost of financing makes it difficult for domestic players to operate capacity expansion plans. The industry needs a financial stimulus and should seek support from the government for concessions in interest rates. Alternative methods of financing and reduction of hedging costs can help make the financing options more competitive,” Kearney said in its report — Rewriting the growth story for India’s steel industry.
India’s steel industry had targeted a capacity of 180 to 190 MTPA by 2024–2025 and 300 MTPA by 2030. Prior to the Covid-19 outbreak, 10 MT of steel capacity was expected to come on board in the second half of this fiscal year. However, the demand shock is expected to dent the industry’s capacity addition plans and delay projects in the medium term, it said.
Among eleven elements that are essential for the country to create a globally-competitive steel industry, Kearney suggested that the government and the industry should focus on identifying land parcels for expansion in targeted clusters, closer to ports as the capacity expansion plans are implemented to lower logistics costs.
“The land acquisition process needs to be simplified with single-window approvals. The government must provide land and utilities such as common infrastructure and connectivity for the steel industry to ease pressure on the supply chain. There should also be easy access to utilities, such as water and electricity, to encourage industry players to set up in dedicated zones,” it said.
Since Indian steelmakers depend mostly on imported coking coal, there is a need to accelerate the purchase of captive coking coal mines globally to support the steel industry’s planned growth. “There should be an enhanced strategy for coking coal purchases from Mongolia and Russia. Additionally, imperatives need to be identified to improve mining operations in country.”
In terms of logistics, the focus should be on accelerating planned investments in rail and water transport with the creation of an optimal modal mix and connectivity strategy for 2031. Additional capacity expansions should be planned near ports to reduce dependence on road and rail networks. The policy should provide the framework for establishing dedicated steel corridors, ports, and berths.