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The consultancy firm expects India’s crude steel production capacity to hit 112.5 million tpy in the 2015-16 financial year.

India is currently the fourth-largest crude steel producer.

Capacity expansions planned by major steel producers, the availability of a large consumer base due to India's demographics as well as adequate iron ore reserves to meet domestic demand were some of the few factors driving growth, a Frost & Sullivan report noted.

"Around 300 memorandum of understandings have been signed with various states for planned capacity of around 488.56 million tpy by 2020 and major investments are planned for the states of Orissa, Jharkhand, Karnataka, Chhattisgarh and West Bengal,” Frost & Sullivan’s director of metals and minerals Venkatesan Subramanian said.

Total installed capacity in India currently stands at 78 million tpy while capacity utilisation was in the range of 84% in 2010-11.

India’s finished steel production in 2011-12 stood at 70.32 million tpy. This is forecast to rise to 92.29 million tpy in 2015-16.

“Production of crude steel increased from 27.3 million tpy to 71.3 million tpy in the last 10 years at a compounded annual growth rate of 10% due to advancements in traditional steelmaking. Electric arc and induction furnaces have been the key drivers for the increase in crude steel production,” the report said.

However, the report highlighted several threats that could prevent the sector from reaching its potential.

These include the delay in obtaining approval from local authorities for mega projects due to environmental and land concerns, inadequate infrastructure and inefficient transport systems, fluctuating raw material prices, and insufficient power and coking coal.

In addition, competition from international steel manufacturers, mainly from China and the CIS countries, also poses a challenge.

“There is no doubt about the fact that land availability is a hurdle in the growth story of the Indian steel sector. Due to land acquisition issues [that vary from state to state] all the major upcoming steel projects are delayed for a significant time period,” Subramanian told Steel First, when asked about the steel sector’s land availability issues.

Frost & Sullivan does not expect the Indian Supreme Court ban on mining activities in some parts of the country to affect the steel industry in the long run.

The ban came about following concerns of environmental damage and illegal mining in Karnataka state, and was later extended to other regions.

“We have considered the above mentioned issue in our report. As the ban on mining activities is temporary, it will have a short-term impact on the Indian steel industry.”

The consultancy firm also does not expect the country’s recent coal scam to have a lasting effect on the steel industry.

The scam came to light after the country’s Comptroller and Auditor-General (CAG) pointed out in its report that that the arbitrary allocation of coal blocks for captive use to private companies had caused massive losses to the nation while private companies made windfall gains.

It is said to be the largest scam to have surfaced since India’s independence and cost the Indian exchequer an estimated loss of over $181 billion.

“The [...] coal scam is likely to have a short-term repercussion on steel production in India. The shortfall in coal demand will be met by steel companies through imports,” Subramanian said.

He added that this scenario will continue for the next one to two years and that it would not have any major impact on the development of greenfield and brownfield projects.

The report urged the Indian government and steelmakers to capitalise on available opportunities such as high domestic demand, unexplored rural markets, abundant iron ore and coal, growing exports, lower costs per tonne of production and the availability of skilled labour.

India’s per capita steel consumption rose from 38kg in 2005-06 to 57kg in 2011-12.

In 2011, overall steel consumption in India was about 67 million tpy compared with 30.7 million tpy in 2001, the report said.

"Currently, India is the world's fourth-largest producer of crude steel and if all planned capacity expansion projects become operational, it is expected to become the world's second-largest producer by 2015," Subramanian said.