Tata Steel's Muthuraman: Iron ore on his mind

B. Muthuraman spends most of his time in Mumbai these days (when he isn't travelling, that is). It's only recently that the Managing Director of Tata Steel relocated to the third floor corner-room of Bombay House, the headquarters of the Tata group, from Jamshedpur, the manufacturing hub of the Rs 15,000-crore steel giant. The few days that he has been in the country's financial capital have provided Muthuraman plenty of opportunities to witness first-hand the infrastructure build-up taking place in this Shanghai wannabe and-what else-the increased usage of steel in such development. "Most of the buildings in the Bandra-Kurla complex use more steel (than bricks and concrete). Even the new development at the domestic airport I suspect would have a large steel component to it," observes Muthuraman.

The chief of Tata Steel is, of course, saying this in the context of the surge in steel consumption he expects in the country-not just over the next five years, not even just for the next 25, but for the next half a century. Consider: As the Tata head honcho sees it, per capita consumption in the country is set to explode from just 30 kg currently to around 200 kg in 25 years, and to all of 300-400 kg in around 50 years. This will translate into a growth in steel consumption from 40 million tonnes currently to 250 million by 2030, to 500 million tonnes by 2050.

Muthuraman says steel production has entered a new phase of growth, which should average at least 5 per cent for the next 20 years. This is against the 1975-2000 period, when cumulative growth was just 1 per cent annually, and when the steel industry as a whole didn't make any profits. Rather, in the next 20-25 years, the industry will more or less replicate the 1945-75 period, when cumulative annual growth was 7 per cent. This was because most of the now-developed world-US and Europe in the main-was creating its infrastructure then, an exercise that China, and India on a more modest scale, is undertaking now. Muthuraman in fact expects the current boom-on a much larger base of 1 billion tonnes-to be more sustainable than the one that began in 1945, primarily because a country like China is creating infrastructure (roads, bridges, housing) and building cars for a total population of 1.2 billion people. The US on the other hand had a population of just 250 million. Add the 1 billion-plus people of India to the Chinese population and you have a sure-fire recipe for bounty profits.

A significant chunk of the domestic steel industry's growth will come from the construction sector. As K.V. Rangaswami, Whole time Director and Senior Vice President (Operations), Larsen & Toubro, says: "For the next 15-20 years, I see plenty of demand for infrastructure and expect a continuous upcycle for at least another 10 years." Automobiles will be another vital consumer of steel, where Tata Steel already has a 50 per cent share of all vehicle manufacturers (as well as a 43 per cent market share in ancillaries).

That's exactly why Tata Steel is stepping on the gas as far as expansions and new projects go. By 2010, the company would have taken its total capacity to 15 million tonnes by expanding the Jamshedpur facilities to 7 million, putting up new capacities of 3 million in Orissa and 2 million in Chhattisgarh, and by acquiring some more international capacity (in addition to NatSteel in East Asia), taking it up to 4 million tonnes. In the second phase, Jamshedpur will further be expanded to 10 million, Orissa to 6 million and Chhattisgarh to 5 million tonnes.

Of course, Tata Steel will be joined (along with other domestic players like sail and Essar) by two of the world's most high-profile steel makers, Mittal Steel and Posco, who are putting up mega-capacities in the country. The danger, as many of the home-grown steel barons-including Muthuraman-see it is not so much about competition or potential oversupply, but an apparent vested interest in exporting iron ore from India to other manufacturing bases. The fear: India's estimated 18 billion tonne reserve base of iron ore may dry up within this century. After all, if India does produce 500 million tonnes of steel by 2050-that's a fourth of the total world's projected consumption-it would require some 600 million tonnes of iron ore per year by then. Muthuraman is of the view that exports of iron ore should be banned, something that China's steel policy clearly states, and something that most other countries in the world do not encourage.

Clearly, almost everything seems to be in the Indian industry's favour: Increasing demand growth coupled with cost competitiveness, and the burning need for infrastructure creation. The billion tonne question, though, is: Will iron ore supply eventually run out?