CRGO Steel: “Core” Concern for the Indian Power Equipment Industry

India, widely recognized as one of the fastest growing economies of the world, is steadily advancing to the big league of developed nations. The growth of this nation is being anchored primarily by advancements in technology and steady creation of basic infrastructure. While on the technology front India has gained some major milestones, the latest one being the successful launch of India’s first dedicated navigation satellite through which India joins the elite league of only a few nations possessing this technology, the developments in basic infrastructure have been relatively slow owing to a variety of challenges ranging from private participation to social issues hampering the development.

Basic Infrastructure broadly covers aspects like improved regional connectivity through various modes of transportation as well as quality access to basic necessities such as water, food as well as a latest entrant into this domain, electricity. Electricity becoming a basic necessity has been a result of massive capacity additions by the government and success of programmes like Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) which have increased access of electricity to erstwhile remote areas. Widening of electricity network has also facilitated industrial development in new areas thereby increasing social benefits for the area. Electricity is now impacting lives in a big way. Government also realizes this and thus, in the 12^th Five Year Plan, have set quite optimistic targets, such as 88000 MW of capacity addition and transmission grid strengthening, for the sector to grow further.

In the power sector, one of the key equipment used across power generation, transmission and distribution is the transformer having a basic functionality of stepping up and down the voltage levels. As per IEEMA, the size of Indian transformer industry at the end of FY12 has been estimated to be approximately INR 12,400 Crore which is likely to grow to about INR 30,000 Crore by the end of the 12^th Five Year Plan  implying a tremendous CAGR growth of 19% during the 5 year period. These estimates suggest the transformer industry to be a highly profitable investment going into the future but realistically it is not so. Current market conditions in India for the transformer industry are such that the manufacturers are being forced to reduce their margins while experiencing high input costs and a very stiff competition from foreign players, especially China which prices its transformers approximately 30 percent lower than the prices being offered by Indian players. Cost competitiveness is one of the key concerns of the Indian transformer manufacturers who are being burdened by high raw material prices in the Indian market. Non availability of indigenous Electrical Silicon Steel or CRGO is one of the core concerns of the sector.

Electrical Silicon or CRGO Steel: Core Concern of the Transformer Sector

With a rising encroachment of foreign players in the Indian transformer market, the biggest concern for the domestic transformer industry is to reduce the prices and relatively improve the quality of transformers supplied to the demand centres so as to fend of competition. The biggest hurdle in this regard is the availability of raw material at competitive prices. Of the raw materials required to manufacture a transformer, CRGO steel, which is required to manufacture the transformer core and also impacts the transformation efficiency, is currently a 100% imported product and is being supplied only by a handful of steel players across the globe possessing the technology to manufacture it. As of now, Only 14 steel mills across the globe have CRGO manufacturing capability. As per the Industry estimates, the total global production of CRGO in 2012 was just about 2.5 Mt of which nearly 18% was supplied to the Indian market. The market size for electrical steel in India currently is worth over USD 2 billion. Considering the expected growth in transformers demand during the 12^th plan, India’s imports of CRGO are likely to reach a level of 1.8 Mt thereby seriously affecting the coffers of equipment manufacturers and also adding to the opportunity loss of Indian steel players. 

Steel Players with CRGO Technology:

·         NIPPON Steel

·         JFE Steel

·         Arcelor Mittal

·         POSCO

·         US Steel

·         Bao Steel

·         Corus (Tata Subsidiary)

·         Thysen Krupp

Positive Market Developments

Though the Indian transformer industry is facing major issues in the form of low availability of CRGO steel and government restrictions through quality control order, some positive developments in the market has also boosted their morale. These developments are mainly in the area of development of Indigenous CRGO capabilities which will, in future, improve the availability of this critical raw material to the Indian transformer industry, importantly at competitive market prices. Some of these developments have been listed as follows:

Tata Steel to partner with NML to develop indigenous CRGO technology

In December 2012, it was reported that steel ministry’s National Metallurgical Laboratory and Tata Steel are contemplating a public – private partnership to set up a pilot plant at a cost of INR 500 Crore for the development of CRGO steel in the country. Under this arrangement, the pilot plant having 3-5 tonnes of capacity would be set up in Jamshedpur with both the parties putting in INR 170 Crore each while the remaining amount would be funded by Ministry of Steel for procuring the plant equipment.

State run NMDC invites EoI from global firms for JV partnership in steel project

In February 2013, NMDC invited Expression of Interest from global steel players to become a joint venture partner in its INR 15525 crore proposed 3 MTPA steel project in Nagarnar, Chhattisgarh. Through this, the company expects the partner to bring in necessary technologies capable of producing high end steel products like CRGO, CRNGO and auto grade steels.

India’s steel ministry to invest $28 million in CRGO R&D

In May 2013, Ministry of Steel announced that it will invest USD 28 million in research and development of new production technologies for cold rolled grain oriented (CRGO) steel sheets and other value added innovative steel products. Of the total corpus, USD 6 million would be invested in FY14 and the entire budget of USD 28 million is to be invested by 2017 on focused R&D projects.

While major Indian steel makers are making headway towards acquiring CRGO manufacturing capabilities, one other major development being anticipated is some modification in the government’s tendering procedure which currently values cost above quality. Introducing aspects like government certifying manufacturing facilities of transformer suppliers and allowing only the certified parties to be a part of the bid process can work in favour of both the parties and can eventually direct the Indian transformer industry towards a better future.

                    Infraline Energy Metals & Mining Research Team