46314892 Steel Industry Final Report

7/29/2019 46314892 Steel Industry Final Report

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DECLARATION

I hereby declare that the work presented in this Project entitled Analysis of Indian Steel

Industry submitted to Ms. Paramita Sarkar full-time faculty at Smt. J.D.Birla Institute

(Department of Management), Kolkata is an authentic record of my original work.

The total word count of this paper is 18113 words.

Purvi Tiberewalla


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ACKNOWLEDGEMENT

A student is always incomplete without the guidance of his teachers.

The successful completion of a task is incomplete without mentioning the name of the

person who extended his help and support in making it a success.

Firstly, I would like to thank our college director, Dr. Suman K. Mukherjee, because if it

hadnt been his vision to allot us the task of preparing a paper, I wouldnt have ever got

so much knowledge about this subject.

I am greatly indebted to Ms. Paramita Sarkar (Full-time faculty at Smt. J.D.Birla

Institute), my Project Guide and Mentor for devoting her valuable time and efforts

towards my project. I thank her for being a constant source of knowledge, inspiration and

help during this period of making project.

Finally, I would also like to thank our faculty in-charge of Learning and Research Centre

(LRC).It was indeed very kind of them to provide me with the necessary books and

journals on time so as not to delay the completion of my paper.


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ABSTRACT

Steel is a uniquely versatile material. It is involved in virtually every phase of our lives from

housing, food supply and transport to energy delivery, machinery and healthcare. In fact, it is

so versatile that pretty well everything people use every day is either made from steel or is

provided by steel. Steel has facilitated our quality of life, underpinned humankinds

development and even helped us to understand our planet and the eco-systems it supports.

Without being aware of it, society now depends on steel. Humankinds future success in

meeting challenges such as climate change, poverty, population growth, water distribution and

energy limited by a lower carbon world depends on applications of steel.


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DECLARATION.......................................................................................................... 2

ACKNOWLEDGEMENT ........................................................................................... 3

ABSTRACT .................................................................................................................. 4

1. Introduction ...................................................................................................... 8

Field of Management: .................................................................................................. 8

Scope and Objective: ................................................................................................... 8

2. Literature Review............................................................................................ 10

I.1. Steel ......................................................................................................................... 11

I.2. History & Evolution of the Industry ................................................................... 13

II. The Global Steel Industry ...................................................................................... 15

II.1. Growth of the industry ........................................................................................ 15

II.2. Economic trends ................................................................................................... 16

II.3. Industry size and geographic distribution ......................................................... 17

II.4. Consolidation as a strategy in the global steel industry ................................... 18

III. Indian Steel Industry ............................................................................................ 20

III.1. Background ......................................................................................................... 20

III.2. Steel production processes ................................................................................. 22

III.3. Types of steel ....................................................................................................... 24

III.4. Components of the cost of production .............................................................. 25

IV. Institutional Design ............................................................................................... 27

IV.1. Introduction ........................................................................................................ 27

IV.2. Policy regime for the Steel sector in India........................................................ 28


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IV.3. Role of Government ........................................................................................... 29

V. Performance of the Indian Steel Industry ............................................................ 30

V.1. Production of Steel ............................................................................................... 30

V.2. Steel Producers In India ...................................................................................... 32

V.3. Export and Import Of Steel ................................................................................ 33

VI. Industry Analysis36

VI.1. Michael Porters Five Forces Model ................................................................ 36

VI.2. The SWOT Analysis ........................................................................................... 39

VII. Major Indian Players In the Steel Industry43

VII.1. Public Sector ...................................................................................................... 43

VII.2. Private Sector .................................................................................................... 46

VIII. Current Global Scenario ................................................................................... 50

VIII.1. Current Global Scenario................................................................................. 50

VIII.2. Impact ............................................................................................................... 50

IX. Future Outlook ...................................................................................................... 52

IX.1. Factors Holding back the Industry ................................................................... 52

IX.2. The Road Ahead ................................................................................................. 53

3. Research Methodology.................................................................................. 55

3.1 Introduction to Research Methodology ............................................................... 55

3.2 Qualitative and Quantitative Research Data Gathering .................................... 55

3.3 Data Analysis .......................................................................................................... 56

4. Hypothesis ........................................................................................................... 58

5. Results ................................................................................................................... 59

5.1 Findings ................................................................................................................... 59

5.2 Recommendations .................................................................................................. 61


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6. Conclusion........................................................................................................... 63

7. Executive Summary ....................................................................................... 64

8. Testing of Hypothesis .................................................................................... 65

9. Annexure ............................................................................................................. 66

10. Bibliography .................................................................................................... 75


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1. Introduction

1.1 Field Of Management:

Indian Steel Industry

Management in all business and human organization activity is simply the act of getting

people together to accomplish desired goals and objectives. Management comprises planning,

organizing, staffing, leading or directing, and controlling an organization (a group of one or

more people or entities) or effort for the purpose of accomplishing a goal. Resourcing

encompasses the deployment and manipulation of human resources, financial resources,

technological resources, and natural resources. Management can also refer to the person or

people who perform the act(s) of management

This project relates to the field of financial management. The primary concern of financial

management is the assessment rather than the techniques of financial quantification. A

financial manager looks at the available data to judge the performance of enterprises.

1.2 Scope and Objective:

India is a reputed name in the world steel industry; the countrys steel industry is catching up

the pace and luring the steel majors from all over the world. The industry has gained strength

from the strong Indian economy, and strong sectors like infrastructure, construction and

automobile. Although India consumes less steel as compared to other Asian countries, it was

ranked the fifth major crude steel producer in the world in 2008. Thus, the country offers vast

scope for the steel industry in future.

However, the current economic turmoil has dented the growth curve of various industries such

as construction, which, in turn, has hit the Indian steel industry hard. But with the

governments plans to boost up the economy by injecting funds in various industries like

infrastructure, construction, automobile and power, growth is well expected in near future,

India accounts for 4.14% of the global steel production in 2008 . Indias crude steel production

grew to reach an estimated 54.51(million metric tonnes) mmt in 2008-09; primary producers
http://en.wikipedia.org/wiki/Planninghttp://en.wikipedia.org/wiki/Organizinghttp://en.wikipedia.org/wiki/Staffinghttp://en.wikipedia.org/wiki/Leadershiphttp://en.wikipedia.org/wiki/Control_(management)http://en.wikipedia.org/wiki/Organizationhttp://en.wikipedia.org/wiki/Human_resourceshttp://en.wikipedia.org/wiki/Financialhttp://en.wikipedia.org/wiki/Technologicalhttp://en.wikipedia.org/wiki/Natural_resourceshttp://en.wikipedia.org/wiki/Natural_resourceshttp://en.wikipedia.org/wiki/Technologicalhttp://en.wikipedia.org/wiki/Financialhttp://en.wikipedia.org/wiki/Human_resourceshttp://en.wikipedia.org/wiki/Organizationhttp://en.wikipedia.org/wiki/Control_(management)http://en.wikipedia.org/wiki/Leadershiphttp://en.wikipedia.org/wiki/Staffinghttp://en.wikipedia.org/wiki/Organizinghttp://en.wikipedia.org/wiki/Planning


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alone contributed about 21.2% whereas secondary producers contributed the rest1. While

domestic crude steel production capacity has increased from 43.9 mmt in 2003-04 to 64.4 mmt

in 2008-092, apparent demand for finished steel increased by about 22%, in the same year.

At present, steel industrys demand is strong because of buoyant automobile sector, white

goods and construction industry driving the growth of the industry. India has finally its

National Steel Policy approved by Cabinet Committee on Economic Affairs (CCEA) in 2005

to meet the growing domestic and international demand. The National Steel Policy 2005 had

projected consumption to grow at 7% based on a GDP growth rate of 7-7.5% and production of

110 million tonnes by 2019-20203. In the backdrop of robust demand for steel and solid

performance of the major domestic players in the last three years, global steel manufacturers

are in for massive capital investment in the steel sector, which is significant for the industry.

Steel consumption in India is expected to outgrow GDP growth and increase at the rate of 10%

in the coming years.

This report focuses on the steel industry in India. It covers the industry overview with its basic

features, types of steel and the production processes. The report discusses basic steel

manufacturing processes, industry value chain with a special reference to major raw material

trends and price trends of steel products. The report touches briefly on the Global Steel

Industry and provides a detailed analysis of the performance of the Indian Steel Industry. In the

report the Indian Steel Industry has been analyzed using the Porters Five Force Model and

SWOT analysis. Various Quantitative Methods have been used for testing the relationship

between various economic Indicators and functions of the steel Industry such as production,

exports, imports and so on. In the end, the report studies the impact of the current economic

crisis on the Indian Steel Industry and takes a peek into the future of the Industry.


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2. Literature Review

I. Emergence of the Steel Industry

Indias economic growth is contingent upon the growth of the Indian steel industry.

Consumption of steel is taken to be an indicator of economic development. While steel

continues to have a stronghold in traditional sectors such as construction, housing and ground

transportation, special steels are increasingly used in engineering industries such as power

generation, petrochemicals and fertilizers. India occupies a central position on the global steel

map, with the establishment of new state-of-the-art steel mills, acquisition of global scalecapacities by players, continuous modernization and upgradation of older plants, improving

energy efficiency and backward integration into global raw material sources.

Steel production in India has increased by a compounded annual growth rate (CAGR) of 8

percent over the period 2002-03 to 2006-07. Going forward, growth in India is projected to be

higher than the world average, as the per capita consumption of steel in India, at around 45 kg,

is well below the world average (190 kg) and that of developed countries (400 kg) 4. Indian

demand is projected to rise to 200 million tonnes by 2015. Given the strong demand scenario,

most global steel players are into a massive capacity expansion mode, either through brown-

field or Greenfield route. By 2012, the steel production capacity in India is expected to touch

124 million tonnes and 275 million tonnes by 2020. While green-field projects are slated to add

28.7 million tonnes, brown-field expansions are estimated to add 40.5 million tonnes to the

existing capacity of 55 million tonnes.

Steel is manufactured as a globally tradable product with no major trade barriers across

national boundaries to be seen currently. There is also no inherent resource related constraints

which may significantly affect production of the same or its capacity creation to respond to

demand increases in the global market. Even the government policy restrictions have been

negligible worldwide and even if there are any the same to respond to specific conditions in the

market and have always been temporary. Therefore, the industry in general and at a global

level is unlikely to throw up substantive competition issues in any national policy framework.

Further, there are no natural monopoly characteristics in steel. Therefore, one may not expect

complex competition issues as those witnessed in industries like telecom, electricity, natural

gas, oil, etc.


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This, however, does not mean that there is no relevant or serious competition issue in the steel

industry. The growing consolidation in the steel industry worldwide through mergers and

acquisitions has already thrown up several significant concerns. The fact that internationally

steel has always been an oligopolistic industry sometimes has raised concerns about the

anticompetitive behaviour of large firms that dominate this industry. On the other hand the set

of large firms that characterize the industry has been changing over time.

Trade and other government policies have significant bearing on competition issues. Matters of

subsidies, non-tariff barriers to trade, discriminatory customs duty (on exports and imports) etc.

may bring in significant distortions in the domestic market and in the process alter the

competitive positioning of individual players in the market. The specific role of the state in

creating market distortion and thereby the competitive conditions in the market is a well-known

issue in this country.

I.1.Steel

Iron is one of the oldest inventions in the world with its first usage reportedly dating back

to 4000 BC. Steel is crucial to the development of any modern economy and is considered

to be the backbone of the human civilization. Today Steel (the carbon alloy of Iron) finds

application in every imaginable facet of our life. The global steel industry has been

witnessing many interesting events that have influenced market dynamics in the last ten

years.

Steel is an alloy consisting mostly of iron, with carbon content between 0.2% and 2.14% by

weight, depending on grade. Carbon is the most cost-effective alloying material for iron,

but various other alloying elements are used such as manganese, chromium, vanadium, and

tungsten. Carbon and other elements act as a hardening agent, preventing dislocations in the

iron atom crystal lattice from sliding past one another. Varying the amount of alloying

elements and form of their presence in the steel (solute elements, precipitated phase)


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controls qualities such as the hardness, ductility, and tensile strength of the resulting steel.

Steel with increased carbon content can be made harder and stronger than iron, but is also

more brittle. The maximum solubility of carbon in iron (as austenite) is 2.14% by weight,

occurring at 1149 C; higher concentrations of carbon or lower temperatures will produce

cementite. Alloys with higher carbon content than this are known as cast iron because of

their lower melting point and castability5. Steel is also to be distinguished from wrought

iron containing only a very small amount of other elements, but containing 13% by weight

of slag in the form of particles elongated in one direction, giving the iron a characteristic

grain. It is more rust-resistant than steel and welds more easily. It is common today to talk

about 'the iron and steel industry' as if it was a single entity, but historically they were

separate products.

Though steel had been produced by various inefficient methods long before the

Renaissance, its use became more common after more efficient production methods were

devised in the 17th century. With the invention of the Bessemer process in the mid-19th

century, steel became a relatively inexpensive mass-produced good. Further refinements in

the process, such as basic oxygen steelmaking, further lowered the cost of production while

increasing the quality of the metal. Today, steel is one of the most common materials in the

world and is a major component in buildings, infrastructure, tools, ships, automobiles,

machines, and appliances. Modern steel is generally identified by various grades of steel

defined by various standards organizations.

There are more than 3500 grades of steel available today; with about 75% of these

developed in the last twenty years. Finished steel products can be broadly classified into

flats and longs. Longs are used in construction, infrastructure and heavy engineering. Flats

are mainly used in making automobiles, commercial vehicles and consumer durables. Hot

rolled (HR) steel and Bar & Rods are the most popular varieties of steel produced in India.

HR coil and sheets are used in making cold rolled products, pipes and tubes, automobile

components, electronic equipment like fridges and for construction purposes. Currently HR

Coils and Sheets account for about 26% of the total domestic production and its share has

been gradually rising over time. Bars and rods are typically used more extensively in the

construction and engineering sectors.
http://en.wikipedia.org/wiki/Cementitehttp://en.wikipedia.org/wiki/Castabilityhttp://en.wikipedia.org/wiki/Castabilityhttp://en.wikipedia.org/wiki/Castabilityhttp://en.wikipedia.org/wiki/Cementite


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I.2.History & Evolution of the Industry

Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220

AD6. Prior to steel, iron was a very popular metal and it was used all over the globe. Even

the time period of around 2 to 3 thousand years before Christ is termed as Iron Age as ironwas vastly used in that period in each and every part of life. But, with the change in time

and technology, people were able to find an even stronger and harder material than iron that

was steel. Using iron had some disadvantages but this alloy of iron and carbon fulfilled all

that iron couldnt do. The Chinese people invented steel as it was harder than iron and it

could serve better if it is used in making weapons. One legend says that the sword of the

first Han emperor was made of steel only. From China, the process of making steel from

iron spread to its south and reached India. High quality steel was being produced in

southern India in as early as 300 BC. Most of the steel then was exported from Asia only.

Around 9th century AD, the smiths in the Middle East developed techniques to produce

sharp and flexible steel blades. In the 17th century, smiths in Europe came to know about a

new process of cementation to produce steel. Also, other new and improved technologies

were gradually developed and steel soon became the key factor on which most of the

economies of the world started depending.

In ancient times, steel was only used for very high value products like swords and precision

instruments because it was produced in small quantities because of production in very small

quantities. This so because the process used for manufacturing was work intensive and time

consuming. In this period steel was manufactured by reverse process and adding carbon to

the carbon free wrought iron. This process was known as cementation process. This

process was very expensive and difficult.


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In 1855 the blast furnace process was invented by Henry Bessemer at his steel plant in

England. This process was a new way to produce steel and first less expensive industrial

process for mass production. In recognition of his services to metallurgy and for the far-

reaching effects of his invention, he was afterwards knighted and is generally spoken of as

Sir Henry Bessemer. It is doubtful if any single invention or discovery has had such a

wonderful effect on industry and manufacturing in general7.

Further down in 1952, Voest-Alpine introduced basicoxygen furnace. This was a much

more modified version of steel production process8. This process is being used by all

modern steelworks. After the invention of this process steel extraction became less

expensive and started being used for construction, automobiles and capital goods.


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II.The Global Steel IndustryII.1.Growth of the industry

Since 19th century to early 20th centuries major steel demand was from munitions and wascontrolled by wealthy steel dynasties with political influence. During 1950-1970, steel

industry was highly subsidized, exempted and received many other favours from the

national government. This led to many new investments in big integrated steel plants.

During 1960-1990 was the period of nationalization and increase in state control because of

the excess capacity and inefficiency. Till 1980s most of the steel plants were state owned

either partly or wholly. 1980s to 2000 was the era of re-privatization of the steel industry.

This was done in order to improve the efficiency and competitive position of the steel

companies and to fund economic reforms and improve the financial scenario. Many steel

companies were privatized. Some of them have been included in the table below9:

(Source: Reynolds, 2006)

Even After re-privatization steel industry was controlled by government. Subsidies and

tariffs were tools that government used in order to control and protect the domestic steel

industry. For example, in March 2001, US government imposed an import tariff of 30

percent in order to protect its domestic steel industry. Whereas Chinese government

introduced number of subsidies in order to boost its steel industry. This consequently lifted

global steel industry to a new height.

The current global steel industry is in its best position in comparing to last decades. The

price has been rising continuously. The demand expectations for steel products are rapidly

Company Privatization Year

British Steel 1987

SSAB (Sweden) 1989

Ilva (Italy) 1992-1995

Usinor-sacilor (France) 1995

SN (Portugal) 1995-1996

Voestalpine (Austria) 1995-2003

Aceralia (Spain) 1997


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growing for coming years. The shares of steel industries are also in a high pace. The steel

industry is enjoying its 6th consecutive years of growth in supply and demand. And there is

many more merger and acquisitions which overall buoyed the industry and showed some

good results. The sub-prime crisis has lead to the recession in economy of different

countries, which may lead to have a negative effect on whole steel industry in coming

years. However steel production and consumption will be supported by continuous

economic growth. Graph 1 (Annexure) shows the continuous increase in the Total crude

steel production in the world:

II.2.Economic trends

During the 20th century, steel industry grew from just 28 million tons (MT) to 789 MT as

shown in the above graph. The steel industry has always been a cyclical business. Steel

industry grew from 189 million metric tonnes to 684 million metric tonnes in just 25 years.

But in 1975, the European, American and Japanese economy stabilized which led to the

flattening of demand. This led reduction in demand from these major steel consuming

countries as compared to the supply. In this period capacity utilization was fluctuating

between 70 to 80 percent. During this time, demand from the developing countries started

increasing but was not sufficient to meet the supply.

Another difficult phase for the steel industry was between 1997 to 2001 due to financial

crisis in Asia and severe recession in the global economy. This led to the imbalance

between demand and supply. Steel prices went down 20 year low in this period and new

capacities became uneconomical. In order to fight this recession, steel industry was ignited

with mergers and acquisitions since 1997.

Steel industry again showed a sign of recovery in 2002. This happened due to increase in

demand from China and other South Asian countries like India, as these countries were

growing and focused on infrastructure development. Even sectors like housing,

construction and automobiles showed recovery. Most of the steel companies in the period

of 2002 to 2006 have shown recovery and growth in profits. Many of the steel companies in

Asia pacific regions have added capacity in this boom period.


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II.3.Industry size and geographic distribution

In 2003, China emerged as the biggest producer in the world with the production of 220

million metric tonnes. China also imported 43 million metric tonnes of steel in that period.

During 2008, China produced approximately 500 million metric tonnes, an increase of 25

percent as compared to last year. In 2008 China produced 37.6 percent of the world steel

production. The other top producing countries of 2008 were Japan with 118.7 million

tonnes and US with 98.4 million tonnes10.

Major Global steel companies:

The below table shows the top 15 major steel producing companies in the world as per

2007 and 2008.11

Major steel companies around the world on the basis of output

2008 2007

Rank mmt Rank mmt Company

1 103.3 1 116.4 ArcelorMittal

2 37.5 2 35.7 Nippon Steel

3 35.4 5 28.6 Baosteel Group

4 34.7 4 31.1 POSCO

5 33.3 NA 31.1 Hebei Steel Group

6 33 3 34 JFE

7 27.7 11 20.2 Wuhan Steel Group

8 24.4 6 26.5 Tata Steel

9 23.3 8 22.9 Jiangsu Shagang Group

10 23.2 10 21.5 U.S. Steel

11 21.8 8 23.8 Shandong Steel Group

12 20.4 12 20 Nucor13 20.4 13 18.6 Gerdau

14 19.2 15 17.3 Severstal

15 17.7 17 16.2 Evraz


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II.4.Consolidation as a strategy in the global steel industry

Steel industry has had its worst time in the 1990s. There was capacity mismatch and

consequently the prices reached the lowest ever. This excess capacity had put too much

pressure on the steel companies globally. During this period steel industry was highlyfragmented and competitive. It had no global player during this time.

But since the late 1990s the rise in consolidation has been noticed in the steel industry.

Booming Chinese economy lead China to become leading consumer as well as producer of

steel and consequently booming the steel industry business cycle. Mergers and Acquisitions

strategy was one of the surviving strategies for some of the large companies. M&A helps

the companies to reduce costs and getting better price from their customers.

During 1990s Mittal steel, which started its business in Indonesia in 1976, had bought 8

companies around the world including Trinidad, Mexico, Germany, Ireland and USA. n the

span of just 15 years it became the largest steel producer in the world after the acquisition

of ISG for $4.8 billion in 2004.

Some of the major steel industry acquisitions data has been shown in the Table given

below.

Major Mergers and Acquisitions in Steel Industry

Year Companies Consolidated Company Formed

1997 Krupp AG + Thyssen ThyssenKrupp

1998 Inland steel company (USA) + Ispat

Ispat Inland Inc (Subsidiary of

Ispat International NV)

1999Hoogovens British steel (UK) +

Koninklijke(Netherlands)

2001 Arbed (Luxembourg) + Usinor (France)+ Aceralia (Spain) Arcelor

2002LTV (US) + International Steel Group

(US)International Steel Group (US)

2004Mittal Steel Company NV (Netherlands)

+ International Steel Group (US)Mittal Steel Company NV

2005 Dofasco(US) + Arcelor Arcelor


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2005 Kryvorizhstal (Ukraine) + Mittal Steel Mittal Steel

2006 Mittal Steel + Arcelor Arcelor Mittal

2007 Tata Steel + Corus (UK) Tata CorusSource: Compiled by Author from Rasheeda, 2007 & Business Standard, 2006

In todays scenario, there has been tremendous rise in demand and consolidation has been

noticed. The biggest step towards consolidation in the history of steel industry was taken

by Mittal steels acquisition of its biggest competitor Arcelor for $33.7 billion. This

combination of worlds largest and second largest steel producers would contribute

towards 10 percent of the world steel output (approximately 110 million tonnes). Theother recent major acquisition has been made by Tatas buying CORUS for $12.1

billion12.


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III.Indian Steel Industry

III.1.Background

The establishment of Tata Iron and Steel Company (TISCO) in 1907 was the starting pointof modern Indian steel industry. Afterwards a few more steel companies were established

namely Mysore Iron and Steel Company, (later renamed Vivesvaraya Iron & Steel Ltd) in

1923; Steel Corporation of Bengal (later renamed Martin Burn Ltd and Indian Iron & Steel

Ltd) in 1923; and Steel Corporation of Bengal (later renamed Martin Burn Ltd and Indian

Iron and Steel Co) in 1939.13 All these companies were in the private sector.

Key Events

1907*: Tata Iron and Steel Company set up.

1913: Production of steel begins in India.

1918: The Indian Iron & Steel Co. set up by Burn & Co. to compete with Tata Iron and Steel Co.

1923*: Mysore Iron and Steel Company set up.

1939*: Steel Corporation of Bengal set up.

1948: A new Industrial Policy Statement states that new ventures in the iron and steel industry

are to be undertaken only by the central government.1954: Hindustan Steel is created to oversee the Rourkela plant.

1959: Hindustan Steel is responsible for two more plants in Bhilai and Durgapur.

1964: Bokaro Steel Ltd. is created.

1973: The Steel Authority of India Ltd. (SAIL) is created as a holding company to oversee most of

India's iron and steel production.

1989: SAIL acquired Vivesvata Iron and Steel Ltd.

1993: India sets plans in motion to partially privatize SAIL.

Source: * Government of India, Joint Plant Committee Report 2007, rest of the dates from:http://www.fundinguniverse.com/company-histories/Steel-Authority-of-India-Ltd-Company-History.html

At the time of independence, India had a small Iron and Steel industry with production of

about a million tonnes (mt). In due course, the government was mainly focusing on

developing basic steel industry, where crude steel constituted a major part of the total

steel production. Many public sector units were established and thus public sector had a

dominant share in the steel production till early 1990s. Mostly private players were in


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downstream production, which was mainly producing finished steel using crude steel

products. Capacity ceiling measures were introduced.

Basically, the steel industry was developing under a controlled regime, which established

more public sector steel companies in various segments. Till early 1990s, when economic

liberalization reforms were introduced, the steel industry continued to be under controlled

regime, which largely constituted regulations such as large plant capacities were reserved

only for public sector under capacity control measures; price regulation; for additional

capacity creation producers had to take license from the government; foreign investment

was restricted; and there were restrictions on imports as well as exports.

Undoubtedly there has been significant government bias towards public sector

undertakings. But not all government action has been beneficial for the public sector

companies. Freight equalization policies of the past were one example. The current

governmental moral-suasion to limit steel price increases is another. However, after

liberalizationwhen a large number of controls were abolished, some immediately and

others graduallythe steel industry has been experiencing new era of development.

Major developments that occurred at the time of liberalization and thenceforth 14 were:

1. Large plant capacities that were reserved for public sector were removed;

2. Export restrictions were eliminated;

3. Import tariffs were reduced from 100 percent to 5 percent;

4. Decontrol of domestic steel prices;

5. Foreign investment was encouraged, and the steel industry was part of the high

priority industries for foreign investments and implying automatic approval for

foreign equity participation up to 100 percent; and

6. System of freight ceiling was introduced in place of freight equalization scheme.

As a result, the domestic steel industry has since then, become market oriented and

integrated with the global steel industry. This has helped private players to expand their

operations and bring in new cost effective technologies to improve competitiveness not

only in the domestic but also in the global market. Private sector contribution in the total

output has since been increasing in India. Development of private sector has caused high

growth in all aspects of steel industry that is capacity, production, export and imports.

During the last decade more than 12 mt of capacity has been added in the steel industry,

this is mostly in the private sector. Recently, the steel industry is receiving significant

foreign investments such as POSCOSouth Korean steel producerand Arcelor-Mittal


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GroupUK/Europe based steel producerannouncing plans for establishing about 12 mt

production units each in India.

The Indian steel industry, with a production of about 1 mt at the time of independence,

has come long way to reach the production of about 57 mt in 2006-07. Moreover, the

steel industry is showing promising future growth as major players in the industry have

announced their plans for significant investments in expanding their capacities.

Impressive development of the steel industry with active participation of private sector

and integration of India steel industry with the global steel industry has also induced the

government to come up with a National Steel Policy in 2005. The National Steel Policy

2005 was drafted with the aim of establishing roadmap and framework for the

development of the steel industry. The policy envisages steel production to reach at 110

mt by 2019-20 with annual growth rate of 7.3 percent. As later sections will show these

expectations are not excessively high. With increasing need for large investments in the

industry private sectors role would be crucial in the development of the steel industry.

The future, it appears, will continue to be dominated by a few large players and the

industry will remain oligopolistic as it is internationally. There is a key factor behind

the predominance of large units and oligopolistic industry structure. And that is the

production process. The following section discusses the process and underlying

technology.

III.2.Steel production processes

Blast furnace/basic oxygen furnace (BF/BOF): BF basically converts iron ore into liquid

form of iron. Iron produced by BF contains high amount of carbon and other impurities,

this iron is called pig iron. Pig iron due to its high carbon content has limited end use

application such as covers of manholes. To make steel products out of pig iron it is further

processed into BOF where its carbon content and other impurities are burnt or removed

through slag separation. Main inputs to BF are iron ore and coal/coke. BOF is also called

oxygen furnace because oxygen is the only fuel used in the process. Generally, integrated

milling use BF/BOF routes to produce finished steel. Producers that use this technology

include SAIL, RINL, TSL and JSWL.

Electric Arc Furnace (EAF): Basic purpose of the EAF is re-melting sponge iron, melting

scrap, its main inputs, to produce finished steel. It uses electricity as much as 400-500


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kWh/ton. ISPAT, ESSAR, and the Jindal group are examples of producers, which use this

technology.

COREX or Cipcor Process: COREX is an advance process of making steel. Though few

use this process, it is possible to use non-coking coal directly in smelting work and it also

makes it possible to use lump ore and pellets as inputs. These two advantages allow steel

producers to eliminated coking plants and sinter plants. Purpose of coking plant is to

convert non-coking coal into more efficient fuel and purpose of sinter plant is purify lump

ore or pellets for further processing. Basic inputs to COREX are iron-ore and coal. Jindal

Iron & Steel Company (JISCO) uses COREX technology to produce finished steel.

Induction Arc Furnace (IAF): is one of the most advance processes of making steel. LikeEAF it uses electricity as its main fuel. IAF is most environment friendly and efficient way

of producing steel. However, its lack of refining capacity requires clean products as its

inputs. Large numbers of small steel companies use this technology. The high weight of the

product significantly pushes up transport and movement costs. Therefore large integrated

plants are the norm for cost efficient production. For specialized steel and alloys efficient

production by smaller plants is possible.

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III.3.Types of steel15

Steel is an iron based mixture containing two or more metallic and/or non metallic elements

usually dissolving into each other when molten. Since it is an iron based alloyas per its

end use requirementsother than iron it may contain one or more other elements such ascarbon, manganese, silicon, nickel, lead, copper, chromium, etc. For example, stainless

steel (a type of steel) mainly contains chromium that is normally more than 10.5 percent

with/without nickel or other alloying elements. Steel is produced using Steel Melting Shop

that includes converter, open hearth furnace, electric arc furnace and electric induction

furnace.

There arebroadly two types of steel according to its composition: alloy steel and non-alloy

steel. Alloying steel is produced using alloying elements like manganese, silicon, nickel,

chromium, etc. Non-alloy steel has no alloying component in it except that are normally

present such as carbon. Non-alloy steel is mainly of three types viz. mild steel (contains

upto 0.3% carbon), medium steel (contains between 0.3-0.6% carbon) and high steel

(contains more than 0.6% carbon). All types of steel other than mild steel are called special

steel. It is mainly because a special care is taken in order to maintain particular level of

chemical composition in such steel. This process gives different properties to the steel

according to its composition. In India, non-alloying steel constitutes about 95 percent of

total finished steel production, and mild steel has large share in it.

According to shape/size/form steel is categorized into different types such as liquid steel,

ingots, semis (semi-finished steel) and finished steel. Liquid steel is a first product that

comes out from Steel Melting Shop. Liquid steel further goes into ingots, and then ingots

advance to semis. Semis are called semi-finished steel products because they are further

subject to forging/rolling in order to produce finish steel products such as flat steel products

and long steel products. Crude steel generally includes ingots and semis.

According to end use, steel is categorized into structural steels, construction steel, deep

drawing Steel, forging quality, rail steel, etc. The following chart depicts various types of

steel products according to different categories.


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III.4.Components of the cost of production

Any sustained rise in input prices usually lead to an increase in product prices through the

cascading effect. The major components of the costs of production of finished steel are16:

Raw materials - Raw material costs forms roughly about 62% of the total cost of

production. This only emphasizes on how important sharp movements in raw material

prices mean for the steel industry. The basic raw materials that are used in producing steel

are iron ore, coal and limestone. India is fortunate to be endowed with one of the largest

iron ore deposits in the world. Limestone is also available in sufficient quantities and as

such do not pose much of a problem. India also possesses one of the biggest coal deposits

(approximately 197 bn tonnes) in the world. However, Indian coal is mostly unfit for coke

production because of its high ash content of 25-40%. Coal fit for coke production

comprises less than 15% of total reserves. As such, Indian steel giants have to resort to


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importing coking coal from foreign countries. .

Power costs - The steel industry is an energy intensive industry with power and fuel

contributing as much as 10.1% of total production costs. It has been estimated that the

global steel industry account for nearly 4% of the total energy consumption in the world.

Most steel majors like SAIL, TSL and JSW have captive power plants but smaller players

have to depend on outside supply. As such, erratic supply forms a major obstacle for

growth of these producers.

Interest payments - Steel is a capital-intensive industry and as such many companies resort

to outside borrowings, mostly in form of long-term loans. Interest payments always used to

form on average between 7 9% of the total costs but have recently come down to as low

as 3.2%. Interest coverage ratio has also shot up to nearly 10 after hovering above the zero

levels for a number of years. Also, it is important to note that the recent good turn in the

sector has enabled many companies to pay off their long-term debts early and, in general

interest payments have come down industry-wide.

Taxes and duties - Excise duties, sales tax, other direct and indirect taxes further push up

costs in the steel sector. Total taxes contribute more than 16% of total costs. Here, the

government can play an active role and provide structured concessions for new and old

capacities.

Other expenses - Wage bills, depreciation costs and distribution expenses are among the

other major cost components.


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IV.Institutional Design

IV.1.Introduction

Steel was under a fairly strict framework of regulation till 1992 and the erstwhile policy

was to allocate scarce investment and infrastructure resources for optimum and planned

development of the industry and to make available this scarce industrial intermediate to the

users at a reasonable price. The basic purpose of the past policy was to manage a scarcity

driven market towards an announced objective of establishing a fair and equitable

distribution of this product and to keep it affordable as far as possible.

The pre-reform steel market in India was controlled in all relevant areas. Competition was

limited in this shortage-infested market that had no real role to play in the growth of theindividual companies or their performance and the allocative efficiency of investible

resources. The prices set by the government were more on political consideration and not

strictly on the basis of costs of production or markets demand and supply balance.11 In the

absence of an elaborate and an efficient distribution mechanism, one can expect such a

system of controlled prices to be favourable to the consumers. However, the trading

intermediaries, with whatever role they were allowed to play, gobbled up the margin

between the market and the administered prices, with little benefits left to the vast number

of small consumers. This was natural given that supply was limited, and higher demand

required an allocation mechanism between the many competing consumers. And the

intermediaries used price as a means of allocation. In free market such price controls only

lead to rents for those not facing the controls. In this particular case this would have only

adversely affected the willingness of those facing the controls to invest in increasing

production or improving technology.

Following the reforms ushered in the nineties this regulatory regime was dismantled. The

steel market and the industry currently are free from all regulations in trade, production and

investment. Till some time ago, steel was included in the list of essential commodities.

After it hasbeen removed, the governments scope for direct policy backed intervention has

reduced considerably.


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IV.2.Policy regime for the Steel sector in India

Under the new industrial policy, iron and steel has been made one of the high priority

industries. Price and distribution controls have been removed as well as foreign directinvestment up to 100% (under automatic route) has been permitted. The Trade Policy has

also been liberalized and import and export of iron and steel is freely allowed with no

quantitative restrictions on import of iron and steel items. Tariffs on various items of iron

and steel have drastically come down since 1991-92 levels and the government is

committed to bring them down to the international levels. With the abolishing of price

regulation of iron and steel in 92, the steel prices are market determined. The Government

announced the National Steel policy in 2005. The policy targets indigenous production of

110 million tonnes (mt) by 2019-20 from the 2004-05 level of 38 mt at a compounded

annual growth of 7.3 percent per annum. Similarly targeted consumption is 90 mt by 2019-

20 from the 2004-05 level of 36 mt, implying a CAGR of 6.90 percent.

The policy devises a multi-pronged strategy to achieve these targets with following focus

areas - removal of supply constraints especially availability of critical inputs like iron ore;

improve cost competitiveness by expanding and strengthening the infrastructure in roads,

railways, ports and power; increase exports;12 meet the additional capital requirements by

mobilizing financial resources; promote investments by removing procedural delays. In

addition the policy also addresses challenges arising out of environmental concerns, human

resource requirements, R&D, volatile steel prices and the secondary sector.

The Eleventh plan working group for steel recommends the following for effective

development of the steel industry:

1. Full utilization of the existing policy framework of Public-Private Partnerships (PPPs) in

development of infrastructure like Railways.

2. Set up an R&D Mission in order to provide accelerated thrust on R&D and thereby

improve the competitiveness of the industry.

3. Spread awareness about hedging mechanisms available in exchanges like MCX and

NCDX and develop appropriate regulatory mechanism to avoid any manipulative practices.

4. Develop an appropriate Institutional Framework for collection of data and dissemination

of Information.

5. Consider setting up of a multi-disciplinary organization along the lines of the

International Iron & Steel Institute (IISI).


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6. Proposal to have a dedicated plan fund of Rs. 25 crores for the 11th Five Year Plan in the

Ministry of Steel towards grant for development of human resources for iron and steel and for

ad campaigns for promotion of steel usage.

7. A Technology Up gradation Fund Scheme (TUFS) for the Small and Medium Enterprises

(SME) sector in steel industry to upgrade the technological profile of the plants in the SME

sector.

IV.3.Role of Government

In the pre reform era, the ministry of steel played the role of key regulator and was involved in

decision making related to pricing, allocation and distribution. With dismantling of the strict

regulatory regime, the role of Government in all sectors has changed to that of a facilitator. So

is true of the steel industry. In the post-de-regulation period, the role of the Ministry of Steel is

now considered that of a facilitator. This is how the government itself sees its role17.

Given the oligopolistic features of the steel industry, the role of Government in promoting

competitive forces in the industry is of some importance. Government intervention may be

called for, especially to protect larger consumer interests. But whether it is done via policy or

through some regulatory/judicial mechanism is the question of interest. However, the

government continues to intervene in ad-hoc ways through its administrative ministry on and

off. For instance government's diktat to the steel producers to hold prices down in the face of

rising domestic and global demand for steel is a clear example of government's undue intrusion

in the market.

Excerpts from Annual Report 2007-08, Ministry of Steel, Government of India.

Role of the Ministry

1. Providing linkage for raw materials, rail movement clearance etc. for new plants and expansion

of existing ones.

2. Facilitating movement of raw materials other than coal through finalization of wagon

requirements and ensure an un-interrupted supply of raw materials to the producers.

3. Interaction with All India Financial Institutions to expedite clearance of projects.

4. Regular interactions with entrepreneurs proposing to set up new ventures, to review the

progress of implementation and assess problems faced.

5. Identification of infrastructural and related facilities required by steel industry.


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V.Performance of the Indian Steel Industry

V.1.Production of Steel

The steel industry is a dynamic, innovative sector, which is constantly adapting and

refining itself to become more competitive in the market. The industry does this by

developing new, improved steel grades and production procedures that produce better and

more cost effective product lines for the changing marketplace. Today developing countries

lead the growth in world steel demand. Steel is a key material in promoting economic

growth as it is critical in the creation of infrastructure, construction materials, building,

transport, machinery, and consumer goods.

Global Production

The use of steel in the world economy continues to increase at a rapid pace because it

is a commodity that is both versatile and recyclable.

In 2007, the world steel industry produced 1.35 billion metric tons of steel. The

International Iron and Steel Institute (IISI- the worlds largest steel organization

with membership of sixty-six countries) reported that the total global crude steel

production for the first half of 2008 was 696 million metric tons, a rise of 5.7% overthe same period in 2007. In the first six months of 2008, China produced 263.2 mmt

of crude steel, an increase of 9.6% compared to the same period in 2007. The total

production of world stood at 1.32 billion metric tonnes.

Asia produced 68.3 mmt of crude steel in June 2008 compared to 62.8 mmt in June

2007, an 8.7% increase in crude steel production.

Total crude steel production in the EU was 18.1 mmt, 1.8% higher than for June 2007. The

largest producer in the EU is Germany, with 4.1 mmt of crude steel, an increase of

2.1% compared to the same month last year.

The Other Europe region of seven countries outside the EU produced 2.9 mmt in

June 2008, an increase of 15.5% from June 2007. Turkeys crude steel production

was 2.5 mmt, which was 17.5% higher than the same month last year. Turkey

produced 10.6% more crude steel in the first six months of 2008 than over the same

period last year.

Since 2000, steels average growth rate has been over 6% per annum.


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It is projected that with the economic development of China and India, as well as, the

continued growth of Southeast Asia, steel will be in great demand for years to come.

World Steel Production (000 tonnes)

Indian Steel Production

The Indian steel industry have entered into a new development stage from 2005-06,

riding high on the resurgent economy and rising demand for steel. Rapid rise in

production has resulted in India becoming the 5 th largest producer of steel.

It has been estimated by certain major investment houses, such as Credit Suisse that,

Indias steel consumption will continue to grow at nearly 16% rate annually, til l 2012,

fuelled by demand for construction projects worth US$ 1 trillion. The scope for raising

the total consumption of steel is huge, given that per capita steel consumption is only 44

kg compared to 190 kg across the world and 250 kg in China.

The National Steel Policy has envisaged steel production to reach 110 million tonnes by

2019-20. However, based on the assessment of the current ongoing projects, both in


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greenfield and brownfield, Ministry of Steel has projected that the steel capacity in the

county is likely to be 124.06 million tonnes by 2011-12. Further, based on the status of

MOUs signed by the private producers with the various State Governments, it is expected

that Indias steel capacity would be nearly 293 million tonne by 2020.

The National Steel Policy 2005 had projected consumption to grow at 7% based on a

GDP growth rate of 7-7.5% and production of 110 million tonnes by 2019-2020 18. These

estimates will be largely exceeded and it is envisaged that in the next five years, demand

will grow at a considerably higher annual average rate of over 10% as compared to

around 7% growth achieved between 1991-92 and 2005-06. It has been assessed that, on

a most likely scenario basis, the steel production capacity in the country by the year

2011-2012 will be nearly 124 million tones.

VV..22..Steel Producers In India

Traditionally, Indian steel industry was classified into Main Producers (SAIL plants, Tata

Steel and Vizag Steel/ RINL) and Secondary Producers. However, with the coming up of

larger capacity Steel making units, of different process routes, the classification has been

characterized as Main Producers & Other Producers. Other Producers comprise of Major

Producers namely Essar Steel, JSW Steel and Ispat Industries as well as large number of

Mini Steel Plants based on Electric Furnaces & Energy Optimizing Furnaces. Besides the

steel producing units, there are a large number of Sponge Iron Plants, Mini Blast Furnace

units, Hot & Cold Rolling Mills & Galvanizing/ Colour Coating units which are spread

across the different states of the country.

Indian Iron & Steel Makers

I Steel ProducersA. Main Producers

Steel Authority of India Ltd. (SAIL)

Rashtriya Ispat Nigam Ltd.(RINL)

TATA Steel Ltd.(TSL)

B. Major Producers

JSW Steel Ltd.

ESSAR Steel Ltd.

Ispat Industries Ltd.

Jindal Steel & Power Ltd.

C. Other Producers (Mini Steel Plants)

EAF based Units : 33 working units

Industion Furnace based units : 970 working units


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MBF-ETF based units : 2 units

II Sponge Iron Producers

A. Gas based Sponge Iron Units

ESSAR Steel Ltd.

Ispat Industries Ltd.

Vikram Ispat LtdB. Coal based Sponge Iron Units : 321 units

Traditionally, Indian steel industry has been classified into Main Producers (SAIL plants,

TATA Steel and Vizag Steel/RINL), Major Producers (plants with crude steel making

capacity above 0.5 million tonnesEssar Steel, JSW Steel and Ispat Industries) and Other

Producers. The latter comprises of numerous steel making plants producing crude

steel/finished steel (long product/flat product)/ pig iron/ sponge iron and are spread across

the different states of the country.

Public & Private Production (In million tonnes)

V.3.Export and Import Of Steel

The steel exports of India over the decade have the compounded annual growth rate

(CAGR) of 22.27% against CAGR of imports of steel, which accounted 14.20% in the

respective period. In 1991-92, very inception of the Liberalization, the steel exports

amounted to 368 thousand tons, which increased year-by-year and reached to 5221

thousand tonnes in 2003-04. It accounted for thirteen-fold increase over the period. The

Annual growth rates of exports of steel for the period showed the fluctuating trend, which

ranged between 14.41% in 1994-95 and 101.36 in 1992-93. In 2003-04, the growth rate

was 15.87 %.

Exports of Iron & Steel

Iron & Steel are freely exportable.

Advance Licensing Scheme allows duty free import of raw materials for exports.

Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate exports. Under

this scheme exporters on the basis of notified entitlement rates, are granted due credits

which would entitle them to import duty free goods. The DEPB benefit on export of

various categories of steel items scheme has been temporarily withdrawn from 27th

March 2008, to increase availability in the domestic market.


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Exports of finished carbon steel and pig iron during the last four years and the current

year is shown in graph 5 (Annexure)19 :

On the other hand, the imports are also growing. In 1991-92, the imports of steel

amounted to 1043 tonnes. But in 1999-2000, it touched 2200 tonnes, which is the highest

import of steel in India, and then the imports went down and reached 1650 tonnes in

2003-04. In 1991-92, the year of liberalization, the imports of steel in India exceeded over

the exports of steel. But in the following years the trend changed. From 1997-98, India

exported steel and steel products which was more than its imports of steel and steel

products.

Imports of Iron & Steel

Iron & Steel are freely importable as per the extant policy.

Last five years import of Finished Steel is given in graph 6 20:-


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As on 2007, India is ranked 20 amongst the Top Exporters of Steel and is ranked 19th

amongst the top steel importing countries of the world21.

Major Exporters and Importers of Steel (2007):


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VI.Industry Analysis

VI.1.Understanding the Steel industry using Michael Porters Five

Forces Model

Backed by robust volumes as well as realizations, steel Industry has registered a

phenomenal growth across the world over the past few years. The situation in the domestic

industry was no exception. In fact, it enjoyed a double digit growth rate backed by a robust

growing economy. However, the current liquidity crisis seems to have created medium term

hiccups. In this article, we have analyzed the domestic steel sector through Michael Porters

five force model so as to understand the competitiveness of the sector.


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Entry barriers: High

Capital Requirement: Steel industry is a capital intensive business. It is estimated that

to set up 1 mtpa capacity of integrated steel plant, it requires between Rs 25 bn to Rs 30bn depending upon the location of the plant and technology used.

Economies of scale: As far as the sector forces go, scale of operation does matter.

Benefits of economies of scale are derived in the form of lower costs, R& D expenses

and better bargaining power while sourcing raw materials. It may be noted that those

steel companies, which are integrated, have their own mines for key raw materials such

as iron ore and coal and this protects them for the potential threat for new entrants to a

significant extent.

Government Policy: The government has a favorable policy for steel manufacturers.

However, there are certain discrepancies involved in allocation of iron ore mines and

land acquisitions. Furthermore, the regulatory clearances and other issues are some of

the major problems for the new entrants.

Product differentiation: Steel has very low barriers in terms of product differentiation

as it doesnt fall into the luxury or specialty goods and thus does not have any

substantial price difference. However, certain companies like Tata Steel still enjoy a

premium for their products because of its quality and its brand value created more than

100 years back. Bargaining power of buyers: Unlike the FMCG or retail sectors, the

buyers have a low bargaining power. However, the government may curb or put a

ceiling on prices if it feels the need to do so. The steel companies either sell the steel

directly to the user industries or through their own distribution networks. Some

companies also do exports.

Competition: High

The steel industry is truly global in terms of competition with large producing countries

like China significantly influencing global prices through aggressive exports.

Steel, being a commodity it is, branding is not common and there is little differentiation

between competing products.

It is medium in the domestic steel industry as demand still exceeds the supply. India is a

net importer of steel. However, a threat from dumping of cheaper products does exist.


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Bargaining power of suppliers: High

The bargaining power of suppliers is low for the fully integrated steel plants as they have

their own mines of key raw material like iron ore coal for example Tata Steel. However,those who are non-integrated or semi integrated has to depend on suppliers. An example

could be SAIL, which imports coking coal.

Globally, the Top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly

two-thirds of the processed iron ore to steel mills and command very high bargaining

power. In India too, NMDC is a major supplier to standalone and nonintegrated steel

mills.

Threat of substitutes: Low

Plastics and composites pose a threat to Indian steel in one of its biggest markets

automotive manufacture. For the automobile industry, the other material at present with

the potential to upstage steel is aluminium. However, at present the high cost of

electricity for extraction and purification of aluminium in India weighs against viable use

of aluminium for the automobile industry. Steel has already been replaced in some large

volume applications: railway sleepers (RCC sleepers), large diameter water pipes (RCC

pipes), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks). The

substitution is more prevalent in the manufacture of automobiles and consumer durables.

Bargaining power of Consumers: Mixed

Some of the major steel consumption sectors like automobiles, oil & gas, shipping,

consumer durables and power generation enjoy high bargaining power and get favorable

deals. However, small and retail consumers who are scattered and consume a significant

part do not enjoy these benefits.


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VI.2.The SWOT Analysis

Strengths Availability of iron ore

Availability of labor at low wage

rates

Weakness Endemic Deficiencies

Systemic Deficiencies

High Cost of Capital

Low Labour Productivity

High Cost of Basic Inputs and

Services

Opportunities Unexplored rural market

Other sectors

Export penetration

Threats Slow Industry Growth

Technological Change

Price Sensitivity and Demand

Volatility

Strengths

Availability of iron ore

India has rich mineral resources. It has abundance of iron ore, coal and many other raw

materials required for iron and steel making. It has the fourth largest iron ore reserves (10.3

billion tonnes) after Russia, Brazil, and Australia. Therefore, many raw materials are available

at comparatively lower costs.

Availability of labor at low wage rates

India has the third largest pool of technical manpower, next to United States and the erstwhile

USSR, capable of understanding and assimilating new technologies. Considering quality of

workforce, Indian steel industry has low unit labor cost, commensurate with skill. This gets

reflected in the lower production cost of steel in India compared to many advanced countries.

With such strength of resources, along with vast domestic untapped market, Indian steel

industry has the potential to face challenges successfully.


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Weaknesses

Endemic Deficiencies

These are inherent in the quality and availability of some of the essential raw materials

available in India, e.g., high ash content of indigenous coking coal adversely affecting the

productive efficiency of iron-making and are generally imported. Advantages of high Fee

content of indigenous ore are often neutralized by high basicity index. Besides, certain key

ingredients of steel making, e.g., nickel, ferro-molybdenum is also unavailable indigenously.

Systemic Deficiencies

However, most of the weaknesses of the Indian steel industry can be classified as systemic

deficiencies. Some of these are described here.

High Cost of Capital

Steel is a capital intensive industry; steel companies in India are charged an interest rate of

around 14% on capital as compared to 2.4% in Japan and 6.4% in USA.

Low Labor Productivity

In India the advantage of low cost labor gets offset by low labor productivity; e.g., at

comparable capacities labor productivity of SAIL and TISCO is 75 t/man year and 100 t/man

year, for POSCO, Korea and NIPPON, Japan the values are 1345 t/man year and 980 t/man

year.

High Cost of Basic Inputs and Services

High administered price of essential inputs like electricity puts Indian steel industry at a

disadvantage; about 45% of the input costs can be attributed to the administered costs of coal,

fuel and electricity, e.g., cost of electricity is 3 cents in the USA as compared to 10 cents in

India; and freight cost from Jamshedpur to Mumbai is $50/tonne compared to only $34 from

Rotterdam to Mumbai. Added to this are poor quality and ever increasing prices of coking and

non-coking coal.Other systemic deficiencies include:

Poor quality of basic infrastructure like road, port etc.

Lack of expenditure in research and development.

Delay in absorption in technology by existing units.

Low quality of steel and steel products.

Lack of facilities to produce various shapes and qualities of finished steel on-demand such

as steel for automobile sector, parallel flange light weight beams, coated sheets etc.


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Limited access of domestic producers to good quality iron ores which are normally

earmarked for exports, and High level taxation.

Besides these, Indian steel makers also lack in international competitiveness on determinants

like product quality, product design, on-time delivery, post sales service, Performance index

(1997-2001): Movement of share prices, distribution network, managerial initiatives, research

and development, information technology and labor productivity etc. The weaknesses gets

reflected in Indias poor standing in the global competitiveness as measured in terms of

indicated parameters.

Opportunities

The biggest opportunity before Indian steel sector is that there is enormous scope for increasing

consumption of steel in almost all sectors in India. There is untapped potential of increasing

steel consumption in India; eg, even to reach the comparable developing and lately developed

economies like China and European nations, a quantum jump in steel consumption will be

required.

Unexplored Rural Market

The Indian rural sector remains fairly unexposed to the multi-faceted use of steel. The rural

market was identified as a potential area of significant steel consumption way back in the year

1976 itself. However, forceful steps were not taken to penetrate this segment. Enhancing

applications in rural areas assumes a much greater significance now for increasing per capital

consumption of steel. The usage of steel in cost effective manner is possible in the area of

housing, fencing, structures and other possible applications where steel can substitute other

materials which not only could bring about advantages to users but is also desirable for

conservation of forest resources.

Other Sectors

Excellent potential exists for enhancing steel consumption in other sectors such as automobiles,

packaging, engineering industries, irrigation and water supply in India. New steel products

developed to improve performance simplify manufacturing/installation and reliability is needed

to enhance steel consumption in these sectors. Main objective here have to be improvement of

quality for value addition in use, requirement of less material by reducing the weight and

thickness and finally reduction in overall cost for the end user.

Latest technology must be adopted by Indian steel manufacturers for production of superiorquality of steel for these applications. For example, pre-coated sheets can be used in


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manufacture of appliances, furnishings, electric goods and public transport vehicles. Production

and supply of superior grades of steel in desired shapes and sizes will definitely increase the

steel consumption as this will reduce fabrication need; thereby reduce cost of using steel.

Export Market Penetration

It is estimated that world steel consumption will double in next 25 years. This poses as a huge

opportunity to the steel industry.

Threats

Slow Industry Growth

The linkage between the economic growth of a country and the growth of its steel industry is

strong. The Indian steel industry is no exception. The growth of the domestic steel industry

between 1970 and 1990 was similar to the growth of the economy, which as a whole was

sluggish. This sluggish growth in the steel industry has resulted in enhanced rivalry among

existing firms. As the industry is not growing the only other way to grow is by increasing ones

market share.

Consequently, the Indian steel industry has witnessed spurts of price wars and heavy trade

discounts, which has done Indian steel industry no good as a whole.

Technological Change

Technological changes often force the industry structure to change. For a developing country

like India where capital itself is costly, technological obsolescence is a major threat.

Price Sensitivity and Demand Volatility

The demand for steel is a derived demand and the purchase quantity depends on the end-user

requirements. The traders tend to exhibit price sensitivity and buy when there are discounts.

This volatility of demand often affects the integrated steel manufacturers because of their

inability to tune their production in line with the market demand fluctuations.

Some other threats are:

Ever decreasing import duty on steel.

Dumping of steel by developed countries.

High quality products from developed countries available for import at very

competitive prices.

Non-availability of capital from financial institutions for iron and steel sector.


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VII.Major Indian Players In the Steel Industry

VII.1.Public Sector

STEEL AUTHORITY OF INDIA LIMITED (SAIL)

Steel Authority of India Limited (SAIL) is a company registered under the Indian

Companies Act, 1956 and is an enterprise of the Government of India. It has five integrated

steel plants at Bhilai (Chattisgarh), Rourkela (Orissa), Durgapur (West Bengal), Bokaro

(Jharkhand) and Burnpur (West Bengal). SAIL has three special and alloy steel plants viz.

Alloy Steels Plant at Durgapur (West Bengal), Salem Steel Plant at Salem (Tamilnadu) and

Visvesvaraya Iron & Steel Plant at Bhadravati (Karnataka). In addition, a Ferro Alloy

producing plant Maharashtra Elektrosmelt Ltd. at Chandrapur, is a subsidiary of SAIL.

SAIL has Research & Development Centre for Iron & Steel (RDCIS), Centre for

Engineering & Technology (CET), SAIL Safety Organisation (SSO) and Management

Training Institute (MTI) all located at Ranchi; Central Coal Supply Organisation (CCSO) at

Dhanbad; Raw Materials Division (RMD), Environment Management Division (EMD) and

Growth Division (GD) at Kolkata. The Central Marketing Organisation (CMO), with its

head quarters at Kolkata, coordinates the country-wide marketing and distribution

network22.

VIZAG STEEL. (RINL)

RINL, the corporate entity of Visakhapatnmam Steel Plant (VSP) is the first shore based

integrated steel plant located at Visakhapatnam in Andhra Pradesh. The plant was

commissioned in August 1992 with a capacity to produce 3 million tonne per annum (mtpa)

of liquid steel. The plant has been built to match international standards in design and

engineering with state-of- the- art technology incorporating extensive energy saving andpollution control measures. Right from the year of its integrated operation, VSP established

its presence both in the domestic and international markets with its superior quality of

products. The company has been awarded all the three International standards certificates,

namely, ISO 9001:2000, ISO 14001: 1996 and OHSAS 18001: 1999. RINL was accorded

the prestigious Mini Ratna status by the Ministry of Steel, Govt. of India in the year 2006

and the company is gearing up to complete the ambitious expansion works to increase the

capacity to 6.3 mtpa by 2009. RINL has prepared a road map to expand the plants capacity

up to 16 mtpa in phases.23


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MSTC LTD.

MSTC Limited is a Mini Ratna Category-I PSU under the administrative control of the

Ministry of Steel, Government of India. The company was set up in 9th September 1964 to

act as a regulating authority for export of ferrous scrap with an investment of Rs 6 lakh.

Government of India, Members ofSteel Arc Furnace Association and members of ISSAI

had made with the investment.

MSTC became a subsidiary of SAIL in 1974. In 1982, it got delinked from SAIL and

became an independent company under Ministry of Steel. It was a canalizing agency for

import of ferrous scrap till 199224.

.With the passage of time, the company emerged as the canalizing agency for the import of

scrap into the country. Import of scrap was de-canalized by the Government in 1991-92 and

MSTC has since then moved on to marketing ferrous and miscellaneous scrap arising out of

steel plants and other industries and importing Coal, Coke, Petroleum products, semi

finished steel products like HR Coils and export primarily Iron ore. The Company has also

established an e-auction portal and undertakes e-auction of Coal, Diamonds and Steel Scrap

and has developed an e- procurement portal in house

FERRO SCRAP NIGAM LTD. (FSNL)

Ferro Scrap Nigam Limited is a joint sector company, incorporated on 28-3-1979. Presently

it is "Mini Ratna II PSU" a Government of India company under Ministery of Steel. It is a

wholly owend subsidiary of MSTC Limited and the share capital is INR 200 Million25.The

Company undertakes the recovery and processing of scrap from slag and refuse dumps in

the nine steel plants at Rourkela, Burnpur, Bhilai, Bokaro, Visakhapatnam, Durgapur,

Dolvi, Duburi & Raigarh. The scrap recovered is returned to the steel plants for recycling/

disposal and the Company is paid processing charges on the quantity recovered at varying

rates depending on the category of scrap. Scrap is generated during Iron & Steel making

and also in the Rolling Mills. In addition, the Company is also providing Steel Mill

Services such as Scarfing of Slabs, Handling of BOF Slag, etc.

HINDUSTAN STEELWORKS CONSTRUCTION LTD. (HSCL)

Hindustan Steelworks Construction Limited (HSCL) was established in 1964, as a

construction agency of Government of India under Ministry of Steel, to mobilize

indigenous capability for putting up integrated steel plants in the country26

. HSCL had done

the construction work of Bokaro Steel Plant, Vizag Steel Plant and Salem Steel Plant from


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the inception till commissioning and was associated with the expansion and modernisation

of Bhilai Steel Plant, Durgapur Steel Plant, IISCO (Burnpur) and also Bhadravati Steel

Plant. With the tapering of construction activities in Steel Plants, the company intensified

its activities in other sectors like Power, Coal, Oil and Gas. Besides this, HSCL diversified

in Infrastructure Sectors like Roads/Highways, Bridges, Dams, Underground

Communication and Transport system and Industrial and Township Complexes involving

high degree of planning, co-ordination and modern sophisticated techniques. The company

has developed its expertise in the areas of Piling, Soil investigation, Massive foundation

work, High rise structures, Structural fabrication and Erection, Refractory, Technological

structures and Pipelines, Equipment erection, Instrumentation including testing and

commissioning. The company has also specialised in carrying out Capital repairs and

Rebuilding work including hot repairs of Coke Ovens and Blast Furnaces and other allied

areas of Integrated Steel Plants.

MECON LTD.

MECON is one of the leading multi-disciplinary design, engineering, consultancy and

contracting organization in the field of iron & steel, chemicals, refineries & petrochemicals,

power, roads & highways, railways, water management, ports & harbours, gas & oil,

pipelines, non ferrous, mining, general engineering, environmental engineering and other

related/ diversified areas with extensive overseas experience. MECON, an ISO: 9001- 2000

accredited company, registered with World Bank (WB), Asian Development Bank (ADB),

European Bank for Reconstruction and Development (EBRD), African Development Bank

(AFDB), and United Nations Industrial Development Organisation (UNIDO), has wide

exposure and infrastructure for carrying out engineering, consultancy and project

management services for mega projects encompassing architecture & town planning, civil

works, structural works, electric, air conditioning & refrigeration, instrumentation, utilities,

material handling & storage, computerization etc. MECON has collaboration agreements

with leading firms from the USA, Germany, France, Italy, Russia, etc. in various fields.

The authorized share capital of the company is Rs. 10,400 lakh (previous year Rs. 4,100

lakh) against which the paid up capital is Rs. 10,313.84 lakh (previous year Rs. 4,013.84

lakh). All the shares are held by the Government of India 27.


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VII.2.Private Sector

The private sector of the Steel Industry is currently playing an important and dominant role

in production and growth of steel industry in the country. Private sector steel players have

contributed nearly 67% of total steel production of 38.08 million tonnes to the countryduring the period April-December, 2007. The private sector units consist of both major

steel producers on one hand and relatively smaller and medium units

Documents

46314892 Steel Industry Final Report