Steel Minister Calls for Cost Reduction Road map

If one thing is hitting Indian industry and infrastructure hard, it is the price of steel. In the last one year, the price of Steel Rebars on the London Metal Exchange are up nearly 61%. It impacted major steel user industries like construction, automobiles and consumer durables. Not surprisingly, the Steel Minister, Ram Chandra Prasad Singh has asked steel companies to evaluate cost structures and target price reduction in next 6 months.

The problem is the cost structure does not offer much leeway. The Indian steel Industry is the second largest in terms of annual production after China. There are two technologies that Indian steelmakers deploy for manufacturing steel viz. Blast Oxygen Furnace (BOF) method and Electric Arc Furnace (EAF) method. The BOF method is more popular in India and accounts for nearly 75% of the steel produced domestically.

The table below captures the approximate cost mix of manufacturing one tonne of steel using the Blast Oxygen Furnace Method.
 

Data Source: Steelonthenet.com

The two major influencing factors in the cost of steel are iron ore and coking coal. Iron Ore prices are largely linked to global prices and if domestic prices are set too low then iron ore producers like NMDC will be incentivized to export iron ore. In the steel making process, coking coal is important as it is the primary reducing agent for iron ore.

The minister has made an interesting point about using pulverised coal injection to reduce the use of coking coal, which is mainly imported. What he means is that by injecting fine coal particles into the blast furnace, it is estimated that the use of coking coal can be reduced by almost 30%. That would be a good strategy, although the economics and government support for the same will hold the key.

The use of PCI technology will suit large integrated steel players like Tata Steel, JSW Steel and SAIL by reducing cost meaningfully.