CHENNAI: India should review its policy on export of industrial raw materials based on a study of potential demand and scope for domestic value addition on a competitive basis, according to B. Muthuraman, Managing Director, Tata Steel Ltd.

The policy should be different for iron ore, coal, chromite or bauxite, depending on the cost of processing, especially power cost which is high in India, and the relative freight cost of intermediate and finished products.

Need for steel

Interacting with journalists of The Hindu group of publications here on Tuesday, Mr. Muthuraman said the world steel industry was reviving after a long period of flat growth, thanks to the economic takeoff of India and China.

These countries were building infrastructure, which consumed huge amounts of steel. Their large populations would ensure that even when infrastructure building reached a plateau in the next few decades, their need for steel (for automobiles, furniture and appliances) would keep the markets buoyant.

This was in contrast to the experience of the United States and Europe, where the growth in the rate of steel consumption had fallen since the mid-1970s, after their infrastructure building and post-war construction got over and the needs of their limited population were met. Combined with the rising oil prices, the Asian currency crisis and the technological innovations that led to the use of thinner steels, this reduced the growth of the industry globally to less than two per cent till the revival of demand since 2000.

"Investment stagnant"

Mr. Muthuraman said investment in the upstream segments of the industry, namely iron ore and coal, was relatively stagnant, after the end of the boom in the 1980s. Now that the industry was witnessing a revival, producers were keen on getting control of iron ore reserves.

Countries such as Ukraine (70 billion tonnes) and Australia (62 billion tonnes) had much larger reserves than India (20 billion tonnes) but their population and domestic consumption growth were limited.

Though India exported iron ore all along, it was on a limited scale. But when the domestic industry was set for rapid expansion, huge quantities of ore were sought to be exported in return for investments promised by foreign companies.

"FDI not allowed"

If iron ore was allowed to be exported freely, it would affect India's interests, Mr. Muthuraman said. No other country allowed foreign investment in non-renewable resources such as iron ore.

China (with reserves of 42 billion tonnes) recently announced that it would not allow foreign direct investment (FDI) in greenfield steel plants, and that only minority control would be allowed for FDI in existing plants.

The power consumed per unit production of steel from ore and coal was minimal compared to, say, production of aluminium from alumina.

It might be economical for India to allow export of alumina for conversion into aluminium in countries ( such as South Africa) where power cost was low. The resulting difference in the cost of production would more than cover the freight cost of the finished product.

Chromite (exported by Tata Steel) was more power-intensive than steel, but it required much less power than aluminium, and thus was on a different footing.

Also, there was very limited demand for stainless steel in India using chromite. If there were doubts over the wisdom of exporting chromite, this too could be reviewed, Mr. Muthuraman said.

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