Indian refractories sector hopes rising steel tide will lift all boats

By IM Staff
Published: Friday, 08 September 2017

Booming steel production has helped prop up demand for Indian refractories amid lacklustre demand from cement and foundries, but as Sunder Singh, IM Correspondent explains, the country’s relatively healthy market is attracting increased foreign competition.

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Buoyed by strong expansion in the domestic steel sector, India’s refractories industry has registered impressive growth over the last decade.

Refractories demand from steelmakers has more than compensated for recent weak consumption by the cement, glass and non-ferrous metal sectors, but with significant government investment planned in India’s infrastructure over the coming years, all of the country’s refractory-consuming segments are expected to record healthy demand in the near-to-medium term. 

India is home to 13 large and 40 medium-sized refractories companies, with around 300 small scale players. Corporate activity in the sector was brisk in the last Indian financial year, which ended on 31 March 2017, with significant new players entering the market through joint ventures (JV).

Figures from refractory companies and the Indian Refractory Manufacturers Association (IRMA) indicate that the domestic refractories sector grew by nearly 8% in 2016-17. 

According to Anirbandip Dasgupta, senior executive officer at IRMA, steelmaking accounts for 75% of India’s domestic refractory consumption, while cement consumes 15% and glass demand makes up 5%. The remaining 5% goes into other industries, including aluminium and copper smelting and foundries.

In the Indian financial year 2015-16, sales of Indian refractories totalled $961.7m. Export revenue stood at $213.8m, while India imported $360m-worth of refractory products, around 33% of the amount consumed in the country that year.

Despite strong consumption growth from the steel industry, India’s refractory production capacity far outweighs demand and capacity utilisation in 2015-16 was just 54%. This low utilisation rate has become a major concern for the industry. 

Some manufacturers are however optimistic that overall growth in demand will neutralise the problem.

"Even though specific consumption of refractories per tonne of product is coming down, this is outweighed by overall growth in demand from steel and cement," Praveen Agarwal, head of Indian operations at Slovenia-headquartered Seven Refractories, told IM.

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In 2016, Seven Refractories entered an agreement with India’s Dalmia Bharat Group to develop and supply a range of monolithic refractories for the Indian market. 

Increasing competition

While new market entrants and JVs have helped boost the sophistication of Indian refractory technology, they have also increased competition, forcing down prices which are already under pressure from excess production capacity and declining specific consumption. 

Hirdesh Sehgal, senior vice president of operations at Indian refractories company TRL Krosaki Ltd, told IM that steelmakers are increasingly aiming for higher productivity and cost reductions. 

"This has put huge pressure on refractory suppliers to supply high performance products (…) Sadly, Indian refractory manufacturers have done little in terms of technological improvement. This has led to growth in imports and has dented capacity utilisation of Indian refractory manufacturers."

Indian refractory producers are dependent on a number of domestic and international suppliers for raw materials. Recent volatility in prices and availability of bauxite, alumina, zirconium, magnesite and other refractory minerals have added to the challenges facing Indian companies, along with adverse currency exchange effects and the inability to pass cost increases on to customers.

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Fanning the flames: Steel workers in India. The National Steel
Policy 2017 aims to increase Indian crude steel production 
capacity to 300m tonnes and production to 225m tonnes 
by 2030-31. 

Revival in the Indian steel sector

India’s refractories industry has largely been carried by the country’s booming steel sector, which saw production grow by 10.7% year-on-year (y-o-y) in 2016-17 to 100.7m tonnes. This was one of the strongest annual growth figures in the last five years, thanks largely to the implementation of protectionist measures against Chinese steel imports.  

Much of the extra production was exported, however, as domestic steel consumption remained weak due to lacklustre growth in sectors such as construction and white goods manufacturing.

According to data from the Indian government’s Joint Plant Committee (JPC), India’s steel exports doubled during the last financial year to 8.2m tonnes. Imports, on the other hand, declined by 37% to 7.4m tonnes, making India a net exporter of steel.

India’s seven largest steel producers together produced 57.5m tonnes steel during April-March 2016-17, representing y-o-y growth of 18.5%. Combined production by the rest of the country’s steelmakers was down by 1.2% over the same period, however.

Indian steel companies have broadly welcomed the government’s import protection measures and are hopeful that planned infrastructure spending will boost domestic consumption.

In February this year, Prime Minister Narendra Modi’s government announced its intention to spend the equivalent of $59bn on building new and modernising India’s existing railways, airports and roads.

India’s parliament also recently approved the National Steel Policy 2017, which aims to increase Indian crude steel production capacity to 300m tonnes and production to 255m tonnes by 2030-31. The target for domestic per capita steel consumption has been set at 158kg, up from 61kg today. 

The policy envisages that India will meet all its domestic needs for high grade automotive, electrical, special and alloyed steels, through an increase in value-added steel manufacturing capacity.

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Cement-making is the second largest consumer of refractories in India, but its recent performance has been underwhelming compared to that of steel. 

Cement

In 2016-17, the industry registered one of its worst financial years on record, shrinking for the first time in 15 years.

Raw materials availability

Raw material availability has been a key concern for Indian refractory producers for many years. According to IRMA’s Dasgupta, the issue is perhaps the single largest challenge facing Indian refractory producers. 

"There is an urgent need for research and development of domestic raw material sources, so that we have local alternatives to imports," he told IM.

China’s crackdown on polluting industries, which has intensified since the beginning of May this year, with Beijing shutting down most of the bauxite mines in Shanxi and Guizhou provinces, along with processing and calcining plants in Shanxi and Tinzin provinces, has hit Chinese refractory mineral exporters and reduced the availability of raw materials to Indian manufacturers. 

"It is a wake-up call for the refractory industry in India," Hakimuddin Ali, managing director of Calderys India, the refractories arm of France’s Imerys SA, told IM. "We have reviewed our over-dependence on China for raw materials and, for the first time, have initiated a dialogue with the [domestic] steel and mining industries to explore and develop alternative sources in India."

IRMA is also working to develop local sources of raw materials. Having secured the support of India’s government, the association is scouting for alternative suppliers in Brazil and Europe and is in talks with the Indian Institute of Technology at Varanasi about setting up a refractories centre. 

The problem is that, due to the country’s tax framework, refractory products and raw materials produced in India tend to be more expensive than imports, so IRMA has urged the government to amend the country’s current duty structure to reverse this situation.

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New entrants

Headquartered in Divaca in Slovenia, Seven Refractories is one of the latest international entrants into India’s refractories market in recent years. In addition to facilities in Slovenia and India, the company started a new plant in Kazakhstan in February and has seven international subsidiaries and numerous agencies, serving 300 customers in 40 countries.

Erik Zobec, CEO of Seven Refractories, said that due to the highly competitive nature of the Indian refractories market, the company had to build up a track record of good references in India before signing its agreement with Dalmia Bharat Group to form a monolithics manufacturing JV in the country. 

"We gained a thorough understanding of the specific requirements of the market," Zobec said on signing the deal.

Speaking to IM, head of India operations for Seven Refractories, Praveen Agarwal, revealed that the company will soon be opening a new refractories plant in order to cater to the rising domestic demand: "Very soon we will be starting a refractory production plant in the country to cater to huge demand from the user industries", Agarwal said.

Earlier this year, Calderys India and Brazilian company Magnesita formed a strategic alliance to work together in India to expand their portfolio of products for the cement industry. 

Calderys India will be primarily responsible for selling and marketing Magnesita’s products in India, as well continuing to sell its own materials and Magnesita will provide technical support to Calderys India.

Carlderys set up its third refractory production plant in India in late 2015; its facilities are located in Katni, in Madhya Pradesh; Nagpur, in Maharashtra; and now in Wankaner in Gujarat. 

The company opted to locate its newest plant, which has a capacity of 50,000 tpa, in Gujarat northwest India, as the state accounts for about 65% of the 145,000 tpa refractory grade bauxite produced in the country.  

Calderys has a capacity of over 220,000 tpa across its Katni, Nagpur and Wankaner plants for producing dense castable, binders, grouts, basic masses, precast shapes, refractory bed support, taphole clay, refratherm and other insulating bricks. The company also has the capacity to produce 66,900 tpa dense alumina bricks, insulating bricks and castables and mortars from its Indian franchises.

As specific consumption of refractories continues to fall and the future of steelmaking remains uncertain in regions like Europe, North America and South America, global refractories companies are eyeing India as one of the few markets with solid near term growth prospects.

While this may be good news for Indian steelmakers, which stand to benefit from increased price competition and better quality products, the outlook for local refractories companies is tough, with many expecting further consolidation and internationalisation to reshape the sector over the coming years.