Prime Minister Modi revamped India’s economy with his “Make in India” initiative. (Source: LinkedIn)

Most notably, Prime Minister Modi launched the “Make in India” initiative in September 2014, showing his resolve to revamp the manufacturing industry in India. Under the initiative, domestic as well as foreign companies are encouraged to manufacture their goods in India with the goal of increasing the makeup of the manufacturing industry to 25 percent of GDP by 2025.

At the heart of the initiative is the government’s efforts to ignite the steel industry. The National Steel Policy (NSP) 2017 declared that India will become self-sufficient on domestic steel supplies by increasing its steel production capacity from 122 Mt in 2015 to 300 Mt in 2030. However, the steel industry currently only makes up 1.04 percent of the country’s GDP.

Challenges Ahead for India’s Steel Industry

Despite India’s promising potential and robust government support, the steel industry has not met the government’s high expectations and growth has been modest. According to researchers in volume 4 of the Asian Steel Watch, there are deep structural flaws within India’s steel industry that need to be addressed before the country can reach its full potential.

One of the industry’s biggest challenges is its growing debt – In 2016, the steel industry surpassed INR 3 trillion in debt. Most of the country’s steel and infrastructure projects are financed by the government. What India needs is more private sector involvement, but private players are hesitant due to complex regulations, a lack of business models and no guarantee on returns on investment (ROI). The government has also been slow to secure FDI because, over the years, India’s steel industry has displayed poor planning and management of projects as well as a mismanagement of funds.

India’s mining industry will directly affect the success of the steel industry. (Source: Pinterest)

Another major challenge has to do with India’s natural resource management, as mining companies do not have fair access to the country’s abundant resources. The mining industry is subject to heavy tax burdens including the royalty, local area development tax, forest development tax and much more as it is a profitable business for the government. Plus, the costs of meeting international environmental standards are passed directly onto mining companies. Thus, the price of iron ore and other minerals do not reflect the abundant supplies available, and the higher prices ripple into the steel industry.

Moreover, the government regards the steel industry as the backbone of India’s economy, but in reality, the times are changing.

Technological advances in the manufacturing industry is making the steel production process more efficient and less labor intensive. (Source: South China Morning Post)

In the past, 70,000 workers were required to produce 1.5 Mt of steel. Today, it takes about 3,000-4,000 workers to make 5 Mt a year. The steel industry is just not what it used to be in terms of the positive effects it had on the economy as a whole. The industry requires intensive capital and the only way it will survive is with low labor costs and maximum manpower productivity.

India needs to take full advantage of the country’s abundant resources and capitalize on its competitiveness to reach its full potential. In order to do so, India can start by examining other steel industries that served as the main driver for national economic growth, such as Korea’s.

Takeaways from Korea

After the Korean war in 1953, Korea had to build its economy up from scratch. Like India, the government chose to stimulate its steel industry and spent its war reparations payment from Japan to build POSCO’s steel mill in 1969. Since then, the state-led steelmaker has been a primary engine for Korea’s miraculous economic growth.

The construction of POSCO’s headquarters began in May 1968.

So how did Korea manage such growth?

The government allocated much of its resources to infrastructure construction for efficient logistics and implemented policies to support the mutual growth of steel and steel-consuming industries. Moreover, the government practiced protectionist trade policies long enough to get Korea’s steel business on its feet, then supported a market-driven business model.

The government also kept a close watch on supply and demand forecasts and updated its supply policies timely and accordingly. Factors such as demographic changes, industrialization patterns, urbanization and labor costs should be examined holistically to prevent the gap between supply and demand from increasing too much. For example, in 2010, the Korean government implemented capacity expansion policies that resulted in oversupply and a prolonged recession. This was because policymakers failed to diagnose the symptoms of the mid to long-term steel demand forecasts that showed sluggish demand. Since then, Korean policymakers keep close watch on such measures to update the country’s supply policies.

Finally, the Korean steel industry invested heavily in knowledge accumulation and R&D to wean off of Japan’s technical support and become an exporter of steel technology.

POSCO is now a leader in steel production technology.

Compared to Korea, India has an advantage in almost every aspect. The country’s per capita steel consumption is still low and the booming population will drive demand in steel-related industries. With much room for growth, the Indian steel industry can expect to see accelerated growth when paired with the right policies and government support.

On December 7, employees celebrated reaching 20 million tons and took a commemorative photo.

FINEX is an innovative, paradigm-shifting technology where molten iron is produced directly in a blast furnace. The process eliminates preliminary processing and uses cheaper powder-type iron ore and bituminous coal as raw materials. Subsequently, investment and production costs can be reduced by 85 percent compared to those of general blast furnaces of the same size. In addition, the technology reduces SOx and NOx emissions by 40 and 15 percent respectively, and fine dust particles can be reduced by 34 percent compared to general blast furnaces.

The beginnings of the technology date back to the 1990s when the Korean government chose POSCO’s smelting reduction steelmaking for a national project and contributed KRW 22.2 billion for research and development.

As a result, POSCO started operating the FINEX 2 plant with an annual production capacity of 1.5 million tons in 2007, and the FINEX 3 plant with an annual production capacity of 2 million tons in 2014, which now produces 10,000 tons of molten iron every day. Surprisingly, the Korean steel industry, which was heavily reliant on foreign technologies in 1968, now leads the world’s steel industry in terms of technology.

However, the path to success was filled with challenges.

In 1998, objections were raised against additional investment for the FINEX technology because there were no clear, tangible results even after KRW 60 billion was invested. Even so, POSCO management made a decision to construct a demo-plant with an additional investment of KRW 100 billion for technology development in order to secure long-term competitiveness rather than seeking immediate profit.   

In addition, POSCO convinced steelmaker Voestalpine, who was in possession of the world’s leading technology for molten iron production, to participate in the project as a partner. POSCO was able to do this by offering to cover the full cost of dispatched researchers and engineers should the technology become successful.

In 2003, there was a slight setback when the newly-opened core FINEX processing facility failed to operate successfully. However, after dozens of tests with 80 in-house professionals over 3 months, the facility was up and running.

Molten iron is produced directly in a furnace in the FINEX plant.

Sang-ho Lee, Director in Charge of Commercialization at POIST, said, “With less than 50 years of steelmaking experience, POSCO has managed to achieve a next-generation, innovative steel-producing technology. It feels great because even though POSCO started as a fast follower of foreign technologies, we are now a leading company in the world’s steel industry with our FINEX technology.”

POSCO currently has over 200 patents for its FINEX technology and HCI technology in Korea and 50 patents in more than 20 countries worldwide. Many overseas companies have expressed an interest in FINEX, and POSCO is in talks with world-renowned steelmakers in China to export its FINEX technology.

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Since 2014, sales of products combined with Solution Marketing have tripled, and sales of POSCO’s World Premium Products (WPP) have increased by 56 percent.

It Wasn’t Always Smooth Sailing

When the 2008 global financial crisis hit, the global economy as a whole suffered. The steel industry experienced stagnant growth, even in its subsequent recovery. From 2012 to 2016, annual steel sales remained fixed at 35 million tons.

The 2008 Financial Crisis was felt in markets all over the world. (Source: South China Morning Post)

The main culprit for the slow recovery was overproduction, mostly from the heavily-subsidized Chinese steel industry. Between 2000 and 2014, steel production doubled from 800 million to 1.6 billion tons, exceeding the global demand for steel by 100 million tons.

As a result, steel markets around the world saw prices falling, layoffs and steel mill closures.

SEE ALSO: Asian Steel Watch: Megatrends Shaping the Future of the Steel Industry

A Strategy for Success

In order to stay competitive in a stagnant market, POSCO made the decision to focus on Solution Marketing and the sales of its World Premium Products (WPP) such as POSCO GIGA STEEL for cars and PosMAC for solar panels.

Solution Marketing involves hyper-customization for POSCO’s partners to deliver optimal material solutions for their products. Some notable projects this year have been with automakers GM Korea and Ssangyong Motors for the launch of their new models made of POSCO GIGA STEEL. POSCO gave them full support from development and R&D to testing and post-production evaluations, redefining the role of a steel supplier.

GM Korea and POSCO worked together to incorporate POSCO GIGA STEEL into the 2017 All New Chevy Cruze. (Source: GM Korea)

As a result, POSCO’s operating profit margin (individual basis) was 10.8 percent in 2016, making it one of the highest performing steel companies in the world. Its recovery and growth continued into 2017.

SEE ALSO: 6 Reasons Why POSCO GIGA STEEL is Ideal for Automakers

Cultivating the Industry

Following its continued success with Solution Marketing, POSCO is now determined to share its insights and technology with up and coming small and medium-sized enterprises (SMEs). POSCO has completed 32 shared-growth projects through which they work with SMEs to develop ways to cut costs, improve the quality of their work, provide financial assistance and education and training.

One of the most recent projects for shared growth is a collaborative business model called “System Construction” that provides a framework for effective technical cooperation among POSCO’s partners in the construction industry. The model was developed jointly with NI Steel and entails systemizing composite materials such as beams, floor decks, exterior panels and roofing materials, all based on joint R&D from both parties.

Under System Construction, workers from various sectors come together for joint development.

POSCO is continuing its efforts to advance its competitiveness by providing material and technical solutions to its partners, and along the way, fostering the growth of SMEs in various industries to ensure a more stable and robust economy.