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    Steel ministry proposes clusters, integrated hubs to unlock growth potential

    Synopsis

    The policy says, "Creation of two archetypes of clusters nanely, Ancillary and Downstream cluster and Value-Added steel clusters, will provide multiple benefits."

    Untitled-2Agencies
    The ministry has also proposed ‘Integrated Steel Hubs’
    (This story originally appeared in on Nov 20, 2019)
    steel min
    The clusters will primarily include units from secondary steel sector and ancillary industry.
    KOLKATA: The union steel ministry has drafted a framework policy for Steel Clusters in an effort to resolve challenges of the ancillary, downstream and value-added steel units and unlock their growth potential.

    The policy says, "Creation of two archetypes of clusters nanely, Ancillary and Downstream cluster and Value-Added steel clusters, will provide multiple benefits."

    Increased production of carbon steel, alloy (including stainless steel) and other high grade and special steel will facilitate higher value addition of steel in India. On the other hand, encouraging growth of ancillary units will foster development of SME units as well as further enable growth of the anchor primary steel unit(s).

    The policy will facilitate provision of specific benefits in line with the current issues faced by these units along with providing scale benefits through shared infrastructure facilities to spur their growth.
    These units currently face competition in the domestic market from imports. High cost of power and access to raw material has also emerged as a key challenge. In addition, their growth is also hampered by lack of testing facilities and limited access to funding.

    In addition to this, support in marketing outreach and access to better technology as well as funding would provide necessary support to ensure strong and sustainable growth of these players.

    The government’s planned outlay of investments worth Rs 100 lakh crores in infrastructure by 2024-25 will be a major driver of growth in steel consumption. In line with the growth in GDP and infrastructure, India’s steel consumption is expected to increase from 99 million tonnes per annum (MTPA) currently to ~160 MTPA by 2024-25.

    It is imperative for India to fulfill this consumption through domestic steel industry, as it would contribute to economic growth and generate employment. Commensurate increase in the domestic steel capacity has been envisaged in National Steel Policy 2017 to meet the increased steel consumption.

    While India enjoys a competitive advantage in steel production due to domestic availability of high grade iron ore, robust domestic demand and a young workforce, development of the steel industry will require further support in terms of raw material linkage, suitable logistics connectivity and lower project risk.

    "The Eastern region of the country has significant potential to lead the steel capacity addition in India, with availability of all the requisite resources needed by the industry to achieve the envisaged capacity," the policy says. The region is rich in mineral resources with over 80% of the country’s iron ore reserves and significant resources of coal, chromite, nickel, and manganese.


    In addition to raw material availability, the region also has access to critical logistics infrastructure, e.g. ~25% of running railway capacity, presence of multiple ports such as Paradip, Haldia, Vizag and significant share of existing and upcoming inland waterways.

    The higher cost of inbound logistics vis-à-vis the outbound logistics creates an even stronger case for the steel industry to set up their manufacturing facilities near the supply of raw material.

    "Globally, steel manufacturing hubs have been instrumental in development of the steel industry in the respective countries such as Gwangyang Bay in Korea, Guangdong Province in China and Ruhr region in Germany. These hubs serve as integrated zones with a range of facilities and advantages that enable swift capacity addition and improve the cost competitiveness of the industry," the policy says.

    On similar lines, the ministry is proposing creation of ‘Integrated Steel Hubs’ based on the principle of availability of raw material, logistics support and/or proximity to demand centres.

    It will enable capacity expansion through provision of a cohesive ecosystem, with presence of effective forward and backward linkages, single-window mechanism for swift approval of clearances and best-in-class logistics infrastructure.

    The concept of the Integrated Steel Hub has been designed to include Capacity expansion: Crude steel capacity expansion will primarily be done through greenfield and brownfield projects by the Integrated Steel Plants (ISPs).

    In order to reduce project risk, the government is working with relevant stakeholders to make encumbrance free land available (e.g. land parcels with steel CPSEs or State Government), provide long term raw material linkage at competitive prices and facilitate environmental and forest clearances; Setup of clusters: A Cluster will be a defined region with co-located units across the steel value chain along with the provision of basic infrastructure facilities and other relevant value added services.

    The clusters will primarily include units from secondary steel sector and ancillary industry.

    The focus will be on 2 types of clusters: one around the ISPs and other near the demand centres. The cluster around ISPs will be called ‘Ancillary and Downstream cluster’.

    They will primarily have ISP(s) as their anchor plant(s), with focus on ancillary units and may also entail downstream units. It will help create an integrated ecosystem for the industry with enhanced linkage for both the ISPs as well as the tenant units.

    In addition, it will facilitate growth of SME units. On the other hand, ‘Value-Added steel clusters’ are likely be set up near demand centre(s).

    It will enable capacity expansion of units producing carbon steel, alloy (including stainless steel) as well as other high grade and special steel by improving their cost competitiveness through effective raw material linkages and other interventions such as reduced cost of power; Capital goods and spares: Capital Goods equipment forms a sizeable share of the expenditure of the steel plants, with the plants making 55-60% of their total investment on the equipment.

    However, 25-30% of capital goods equipment is currently being imported from various foreign manufacturers.

    For an increase in cumulative Indian steel capacity to 300 MTPA, there would be a significant increase in investment in capital goods. Efficient logistics infrastructure: This will require effective connectivity across mines, ports, plants and demand centres.
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