The last time Indian businesses found opportunities wherever they looked was perhaps in the post-liberalisation days of the 1990s. Sector after sector witnessed aggressive growth and development thanks to the unlocking of the true potential India promised. It’s happening again, I’m sure most of you leaders will agree. Economically, India is one of the bright spots in a world marred with pain and sluggishness. There are a few differences however.
The economic tsunami caused by a global pandemic, coupled with a war that will alter geopolitical matrices for years to come, has disrupted and continues to disrupt supply-chains across the world. Businesses have stuttered and struggled in adapting to an ever-changing environment, trying to frantically figure out ways to ensure their in-demand products and services reach their customers in time, efficiently and most importantly, profitably.
Being the world’s 6th largest economy, with a large base of domestic consumers surely has its perks we’ve realised over the last 2 years or so. India was quick to switch to an ‘Atmanirbhar’ mode, with early policy-related announcements arriving during the first lockdown itself. Remember all the talk about developing PPE kits locally, initiating work on a made-in-India vaccine, launching programmes to ensure all the health infrastructure related wherewithal was available and ready to handle the numerous waves which were expected to follow once the lockdowns were eased? And then came the devastating second wave which saw a desperate shortage of oxygen and precious other medical supplies, nearly undoing all the good work done earlier. Clearly someone had forgotten to dot all the i’s and cross all the t’s. I am not blaming anyone here, we are all guilty of not seeing the wood for the trees at some point or the other in our lives.
The surprising case of chip shortages forcing automakers to re-plan and delay production is another great example where businesses and policymakers alike failed to look at the bigger picture as far as an entire industry is concerned. The refractory industry, and consequently its customers i.e. steel and cement producers, may face a similar situation if a healthy and highly synchronised ecosystem, with forward and backward integration far and deep, is not encouraged and developed in the near term. Govt of India, with its favourable policies such as PLI, or lower duties on raw materials, can act as a catalyst for maturing of a small yet critical industry such as refractory without which not a kilo of steel, cement or glass can be produced.
For the benefit of those of you who are not familiar with refractories, these are special bricks, cements, precast shapes and components, which operate at very high temperatures (ranging from 800-1600 °C), and are used to line up vessels that carry molten iron, steel, other metals, glass etc. The World Refractories Association has put a short video on YouTube, containing an entertaining introduction to refractories. Check it out here. Did you know Dalmia-OCL alone manufactures over 700 different types of refractories at its plants spread across India, China & Germany?
Are you aware of India’s National Steel Policy? Released in 2017, the policy aims to achieve production of 300 MT of steel by the year 2030. To do this, in 8 years, the Indian steel industry needs to virtually triple its current capacity, and become a preferred global source for high-quality steel, while remaining competitive. So much confidence the Government has in India’s resilience and capability, that they recently announced a target of 500 MT of annual steel production by 2047, coinciding with the centenary of India’s independence.
While all this is good news, there are several bottlenecks, even from a 2030 point of view, that are not being looked into. Refractory is one of them.
In terms of costs, refractory accounts for just 1%-3% of overall costs as far as iron and steel makers go. In the pre-pandemic days, Indian refractory consumers preferred China as a source thanks to lower costs, and reasonably so. Nearly half of all refractory consumed in India at the time was sourced from China. The fact that China controls a majority of the world’s refractory raw material deposits only helps its case.
The math however is not as exciting and attractive. By purchasing from China, while refractory consumers paid 10% less, they saved only 0.1%-0.3% in terms of overall costs. In the absence of a healthy margin, to remain competitive, the local refractory industry found it extremely hard to make investments in enhancing capacities and capabilities, and develop into an optimal and stable system that could support Indian steelmakers in times of crisis and conflict. The point I’m trying to make is that Indian refractory consumers now have a real opportunity to nurture and develop a local refractory industry and invest in a brighter future for a local ecosystem. Much like what Maruti accomplished in the automobile industry through backward integration with its component suppliers. Maruti invested in those businesses for a future insulated from global uncertainties. It’s simply a case where a choice has to be made between short-term gains and forgoing those gains by investing in long-term growth and stability (beginning to sound like a life insurance proposition now).
The Indian refractory industry is on the verge of a breakthrough. The outlook is promising indeed, and a strong local ecosystem will not only go a long way in creating a bulletproof future for Indian consumers, but the successes here will also help the Indian refractory industry leap into international markets with immense confidence through products and services that are equal to the best in the world. The industry already has all the core strengths it needs – rich and long standing experience, a solid talent pool, financial strength, technical knowhow and capabilities. A small nudge here, a policy push there is all it needs to contribute in laying the foundation of a strong and ‘Atmanirbhar’ Bharat.
Sameer Nagpal, MD & CEO, Dalmia Bharat Refractories Ltd.