Despite delays and hurdles, India still stands a chance of maintaining the perception of being steel making's new frontier.
Indian steel makers and offshore investors are planning to add about 80 million tonnes of capacity over the next 7-8 years, comparable only with China's.
Even if only 70 per cent of such capacity is actually realised, it will still be 56 million tonnes, and only China is expected to add more capacity in the same time, says Joe Innace, managing director, World Steel Dynamics.
Also, the delays could be a blessing in disguise. A Crisil report pegs the demand for finished steel to grow at a compounded annual rate of around 8.2 per cent and the consumption of finished steel in 2010-11 to reach around 49.4 million tonnes, way below the targeted production figure. India is expected to produce around 75 million tonnes by 2012.
Ashutosh Satsangi, head of research for the metal sector in Crisil, adds that if the industry manages to achieve the capacity required, it will have to depend heavily on exports, which will result in huge overcapacity in the domestic steel market.
However, the delays have not gone down well with foreign investors. Union Steel Minister Ram Vilas Paswan's recent visit to London and Luxembourg brought to light their disappointment.
Mittal Steel and Corus executives have said clearly that India should sort out its ore problems, which are holding up projects. Corus executives are understood to have said that if the delays continue, the company could look at options like Brazil for investment.
The comment is not surprising, given that Ukraine, Russia, China, Kazakhstan and the US have 60 per cent of the world's iron ore resources.
Globally, the strategy is to set up plants near raw material sources and finished steel-making facilities closer to the market.
A comparison with potential candidates for investment shows that the per capita iron ore reserve in India is only 10 tonnes, compared with 333 tonnes in Brazil and 2,000 tonnes in Australia. Also, Indian per capita steel consumption is only 38 kg, compared with 100 kg in Brazil and 400 kg in Australia.
Satsangi points out that steel producers want to build capacities maintaining their cost competitiveness.
The key to cost competitiveness will be cost of production and of transporting the material to the market. Innace feels that despite the delays, there are many advantages and attractions in the Indian steel industry: iron ore is abundant, there is willingness to embrace the latest technology and a positive steel demand growth outlook of 7.5 per cent per annum for the next 10 years, which makes prospects favourable for good returns on investment.
"In terms of adding/building steel making capacity, India and China are where the action is. Little capacity is being added elsewhere," said Innace.
If China is the benchmark, then India will have a lot of catching up to do. With a capacity of close to 350 million tonnes in 2005, steel use in China for 2006 is expected to grow at 13 per cent. In contrast, India's finished steel consumption is a paltry 33.3 million tonnes.
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