There are hundreds of specifications of steel based on their composition and the form (coils, tubes, plates etc) in which they are produced. But broadly, steels can be classified as plain carbon steels and alloy / hi - alloy steels. The most common type of plain carbon steel is `mild steel' which is very widely used as a structural material in the construction sector in the form of various sections ( I section, L section etc). Likewise carbon steels are also widely used in the plate form or as hot rolled / cold rolled strips.

But when the property of steel is enhanced by using various alloying materials like chromium, nickel, molybdenum, titanium etc. we obtain alloy steels. In case the alloy content is high, these steels are referred to as high alloys. The most commonly used high alloy is stainless steel which contains 18% chromium and 8% nickel in it. Stainless steel is rust resistant, non magnetic and has a high level of resistance to corrosion by various chemicals.

Product - market structure

Stainless steel: The market for alloy / hi alloy steels is largely application specific. The application of stainless steel is widespread in plate and tube forms. The main end users of stainless steel in these forms are process equipment manufacturers. Stainless steel plates are used to construct equipment like pressure vessels, storage tanks etc.

while stainless steel tubes are used in equipment like heat exchangers, condensers etc.. Stainless steel coils find wide application in utensil manufacturing, welded tubes etc.

In India, even five years ago, imports of stainless steel (plates & coils) was substantial. However, this has declined following capacity additions by the Jindal Group and improving capacity utilisation of SAIL's stainless steel plant at Salem.

Other suppliers of stainless steel include Mukand, Mahindra Ugine, Panchmahal Steel and Shri Ishar Alloys. An ambitious stainless steel project with a large capacity has been planned by Tisco.

The manufacture of stainless steel utensils is dominated by medium and small players who carry out further processing to make utensils. The market is largely unorganised and results in use of steels with inadequate alloy content.

Salem steel has attempted to penetrate this market by supplying steel for premium quality processors and allowing them to use the "Salem Steel" mark on them.

In case of stainless steel tubes, the market is dominated by Choksi Tubes which has an integrated facility to manufacture seamless hollows and draw them into tubes.

The company is one of the few facilities in the world to have integrated seamless tube manufacturing facility for stainless steel and has recently entered into a strategic alliance with Sandvik of Sweden for production sharing.

Sandvik is world leader in seamless tubes and hopes to utilise this arrangement to cater to the world markets. Choksi Tubes' export performance in recent years has also been impressive.

Alloy Steels

Steels with moderate levels of alloying elements exhibit properties of high strength and better resistance to corrosion than plain carbon steels. These steels too find significant application in the chemical process equipment industry, especially where the pressure levels are high.

Alloy steels in the forms of blooms and billets form the input material for forging industry.

Alloy steels in the form of rounds are mainly used in the manufacture of seamless tubes. These tubes find application in process equipment, piping and automobile components like fuel injection tubes etc. The other major application is seamless piping in the oil and gas industry.

With increased emphasis on oil exploration and transportation of crude and finished petroleum products, the long term potential in this sector is good.The domestic availability of alloy steels is fairly adequate. Amongst the main players are SAIL ( Alloy Steel Plant, Durgapur), Kalyani Steel, Bihar Alloys, Thapar Ispat, Mardia Steel etc.

Key factors

Power Intensive Business:

Manufacture of alloy steels / hi alloy steels is through the electric arc furnace or the induction furnace routes. Hence, the steel making by this process in very power intensive.

Also, alloy steel making involves few additional steps in molten steel refining unlike plain carbon steels. Hence sufficient power availability of good quality (adequate power factor with minimal frequnecy fluctuation) is an important pre requisite. However, in India, this is a tall demand.

Further, most of these steel units are in the mini steel category with no captive power supply. Hence, their performance is hurt whenever the power supply is inadequate or of poor quality.

Cyclicality in Ferro Alloy Prices: The international prices of ferro alloys is highy cyclical. Domestic manufacturers of ferro alloys are further disadvantaged by the high cost of power in India despite some tariff concessions extended to this industry which is also highly power intensive. Large companies like Ferro Alloys, Indian Charge Chrome etc. have incurred heavy losses and there very viability has been questioned. Thus weak local suppliers of ferro alloys alongwith cyclical prices is a cause for concern.

Quality criteria: Alloy / hi alloy steel mnaufacturing is a precise technology.. Given the nature and criticality of many end uses of these steels, quality demands are invariably stringent. For example, plates for pressure vessel applications undergo a variety of testing for strength, hardness, internal defects etc. Many local manufacturers are yet to achieve manufacturing proficiency to meet these norms consistently and therefore face high rejection levels.

In particular, forging and seamless tube manufacturers impose very strict quality norms to ensure that rejection rate at their end (i.e after forging or tube drawing) is minimal. As a long term solution, some of them have chosen to set up dedicated steel mills to meet their own requirements. Thus Bharat Forge and Kalyani Seamleass have a dedicated supplier in Kalyani Steel while Indian Seamless Steels and Alloys (ISSAL)'s prime customer is the parent company - Indian Seamless Metal Tubes (ISMT) which manufactures seamless tubes.

Flexibility in Manufacturing : Given the variety of specifications of alloy steels, the manufacture of these steels can hardly be carried out like that of commodity steels like mild steel. These steel mills book orders in advance, prepare rolling mill schedules and then deliver over a period which could range from a few weeks to a few months depending on order backlog. Hence at times when demand is low, the capacity utilisation plummets but when demand is high the mills are unable to meet delivery schedules. This problem too has forced end users in forging or pipe manufacturing to integrate backward.

Import threat

A decade ago, the single biggest complaint of the capital goods industry was the poor quality, inadequate availability and high prices of alloy steels in India. But the scenario has now substantially changed. Availability is better, quality standards are improving and the gap in prices between imported steel and local steel has substantially narrowed even after the steep cuts in import duties. This has happened due to increasing investments by the steel sector in adding capacity as well as emphasizing on modernistion.

So, one would naturally expect a more competitive capital goods sector to emerge with significant potential to export. But that has not happened. Government policy towards the capital goods industry has been consistently harsh and this sector has been singled out for maximum exposure to foreign competition. Ever since liberalisation, duties on captial goods have been slashed mercilessly and sectors like power and fertilsers have ben allowed to freely import capital goods. In the recent budget, the petroleum industry too has been made eligible for such imports.

The oil industry represents a huge demand potential for alloy steel fabricated equipment like pressure vessels, distillation columns, heat exchangers and long piping networks. Given the option to freely import these items, promoters of these projects could find imports cheaper despite the deemed export status permitted to local suppliers.

The reasons for these could be many. While deemed export status permits local equipment suppliers eligible for duty free import of raw materials, the disadvantages associates with high cost of power and high cost of finance will nevertheless remain.

Also, foreign contractors for such projects may offer attractive turnkey packages with liberal supplier's credit to these projects which could encompass equipment supply. This would mean, bypassing of local capital goods suppliers and naturally loss of business potential to local steel companies as well.

Outlook :

Already, alloy steel companies have been hurt by the slowdown in the economy and SAIL has begun imposing production cuts selectively to contain inventory levels. Mukand has reported a steep drop in profits for 1996-97 and Shri Ishar Alloys is also facing difficulties. Shri Ishar's debt instruments have been recently downgraded by Crisil. Other steel companies like Bihar Alloys and ISSAL are also faring badly. Powmex Steel, which specialised in alloy steel for cutting tools incurred heavy losses and has been taken over by GKW.

Given the fact that the steel industry in continues to remain sluggish, the new dimension of losing even existing business owing to direct import of capital goods could mean very serious problems to the players in alloy steel industry. These players cannot make themselves globally cost competitive overnight.

H.H Choksi, Chairman of Choksi Tubes, who manages to export seamless tubes, summed up the irony of the current scenario when he quipped - "These days, the tubes I export are coming back fitted in equipment imported into India !" It appears that pace of liberalisation has been too quick for the alloy steel industry to meet the future challenges. This fact is borne out by the uniformly poor performance of steel companies in this segment in 1996-97. Only pragmatic government policies aimed at ensuring a level playing field for domestic players to compete with imports can alone ensure the survival of these players.

Contributed by KenSource Information Services)<

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.