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7/29/2019 Final Project Proposal for Steel Industry.docx
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MB102 : Managerial Economics.
Industry : Steel Industry
TISCO (TATA Iron and Steel Company)
By : -
Gyan Saurabh (11MBMA27)
K. Rajesh Kumar (11MBMA64)
Pratyusha N. (11MBMA04)
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Introduction
Steel is crucial to the development of any modern economy and is
considered to be the backbone of human civilisation.
It is a product of a large and technologically complex industry having
strong forward and backward linkages in terms of material flows and
income generation.
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 growing forcoming years. The shares of steel industries are also in a high pace.
The subprime crisis has lead to the recession in economy of different
countries, which have lead to a negative effect on whole steel industry.
The stages in Global production of Steel.
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History.
Since its independence, India has experienced steady growth in the steel
industry, thanks in part to the successive governments that havesupported the industry and pushed for its robust development.
Steel industry reformsparticularly in 1991 and 1992have led to
strong and sustainable growth in Indias steel industry.
Indias share in world production of crude steel increased from 1.5% in
1981 to around 12.3% in 2011.
The private sector is considered engine of growth in the steel industry and
technological changes and modernization are taking place in both thepublic and the private sector integrated steel plants in India.
Major Players of Steel Industries in India base on Ownership:
PUBLIC SECTOR
SAIL
VISAKHAPATNAM STEEL PLANT
FERRO SCRAP NIGAM LIMITED
BIRD GROUP OF COMPANIES
SPONGE IRON INDIA LIMITED
MECON LIMITED
BHARAT REFRACTORIES LIMITED
PRIVATE SECTOR
TATA-CORUS
ESSAR
ISPAT
JSW STEEL LIMITED
MUKAND LIMITED
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Categories or types of Products.
Steel
Form/size/shape
Liquid steel
Crude steel
Finished steel
Flat productsNon-flatProducts
Ingots
Semis
Composition
Alloy steel
Stainless steel
Silicon-electrical steel
High speedsteel
Non-alloy steel
Low carbon orMild steel
Mediumcarbon steel
High carbonsteel
End use
Structuralsteel
Constructionsteel
Deep drawingsteel
Rail steel
Foreign qualitysteel
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Market Share of Steel Companies in Indian Market
Companies Market share in terms
of %
Production (in Mn
Tonnes)
SAIL 32 % 13.5
TISCO 11 % 5.2
RNIL 8 % 3.5
ESSAR, ISPAT, JSWL 19 % 8.4
OTHERS 30 % 14.5
SAIL
TISCO
RNIL
ESSAR, ISPAT, JSWL
OTHERS
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Consumption in India.
Driven a booming economy and concomitant demand levels,
consumption of steel has grown by 12.5 per cent during the last threeyears from 50.27 MT to 58.45 MT.
The per capita steel consumption is only 35 kg in India compared to
150 kg in the world and 250 kg in China.
Soaring demand by sectors like infrastructure, real estate and
automobiles, at home and abroad, has put India's steel industry on
the world steel map.
India is the fifth largest steel manufacturer of the world, after China,
Europian Union, Japan and United States.
China produces almost ten times to India.
Year wise Demand of Steel in India.
Year Demand (in Mn. Tonnes) Growth (in %) Price (in Rs/Ton)
2003-04 34.444 24000
2004-05 36.037 4.625 33500
2005-06 40.471 12.32 30000
2006-07 43.063 6.4 29080
2007-08 45.387 5.4 27750
2008-09 50.257 10.73 25040
2009-10 58.450 16.3 25350
0
5000
10000
15000
20000
25000
30000
35000
40000
34.4 36 40.5 43.1 45.4 50.2 58.4
Price
Quantity
Demand Curve
Demand
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Consumers in Market
Support from dynamic economy
Positive stimuli from construction industry
Strong growth in mechanical engineering
Booming automobile industry
Over the past ten years Indias crude steel output rose nearly 7%per
year to 54.35 million tons.
Global crude steel output increased by 4%
It equals Ukraine in the 4% global market share.
Year wise supply of Steel in India.Year Supply (in Mn. Tonnes) Growth (in %) Price (in Rs/Ton)
2003-04 32.81 24000
2004-05 34.70 5.76 33500
2005-06 38.96 12.23 30000
2006-07 41.41 6.29 29080
2007-08 43.28 4.51 27750
2008-09 46.5 7.42 25040
2009-10 54.35 16.91 25350
0
5000
10000
15000
2000025000
30000
35000
40000
32.8 34.7 38.9 41.4 43.3 46.5 54.3
Price
Quantity
Supply Curve
Supply
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TISCO in the context of Indian Economy.
Introduction
In his lifetime J.N.Tata was captivated and led by the three guiding stars - building an iron
and steel company, generating hydro-electric power and creating an institution that offer the
best education in science.
Jamsetji Tata had started his quest for steel way back in 1882 but it was twenty-five years
later, in December 1907 that the explorers found their way to Sakchi - at the confluence of
the rivers Subarnarekha and Kharkai. On 27th February 1908 when the first stake was driven
into the soil of Sakchi the dream had come alive.
When Tatas issued shares on 26th August 1907, for the first time in the financial history of
the country, the Indian people - the masses, the affluent and the common people -joined
hands to put up the first truly Indian enterprise. The Tata family contributed the remaining
11% shares of the Tata Iron and Steel Company Limited.
The Steel Company obtained its first colliery in 1910, adding six more in course of time.
Several mines were spread over the states of Bihar, Orissa and Karnataka. The Tatas soon
became the first to own a fully mechanised iron ore mine in India at Noamundi. The Coal
Beneficiation Plant at West Bokaro undertook beneficiation of low-grade coal, thus helpingin the conservation of the fast dwindling resources of high quality coal. The collieries, the
mines and the quarries together furnish the bulk of the raw material requirements of the plant.
The last decade has been marked by Tata Steels prominent role in the overall development
of the country, even during phases of economic turbulence and its decisive foray into more
and more global territory. Intense strategic thinking about future expansions, plans for
organic growth and initiation of new projects are a few highlights in Tata Steels expanding
and more penetrative roles in the larger perspective. The acquisition of NatSteel in 2004 was
Tata Steels first overseas acquisition and the series of joint ventures and mergers that
followed found a peak when the acquisition of Corus, happened in April 2007. But in everypositive step that the Company has taken towards growth and expansion, involving diverse
cultures and geographies, Tata Steel has never lost sight of its great heritage of social and
community responsibility.
The story of Tatas achievements is a collective effort of people who sank differences of
caste, creed, race and status to strive for a common goal- excellence. They offered their best
as an expression of a sense of belonging, a sense of commitment to the family of which they
were a part - the Tatas.
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Demand for TISCO.
Recognising the need for growth as the world recovers from the financial crisis, the Tata SteelGroup has put into action initiatives that will ensure its growth is sustainable. These initiatives
span the entire supply chain, from raw materials to logistics and value-added manufacturing.
The Indian operations of Tata Steel are among the most cost competitive in the world, soexpanding the capacity of the Jamshedpur plant in Jharkhand is naturally one of the Groupskey strategies. Tata Steel proposes to expand the Jamshedpur works capacity to 9.7 milliontonnes per annum (mtpa) of crude steel by 2011-12.
The expansion will allow the Company to utilise its existing resources more efficiently,whether they be manpower, utilities or the Companys captive mines.
Year Global Demand (in Mn. Tonnes) Domestic Demand (in Mn. Tonnes)Price (in Rs/Ton)
2003-04 38.6 13.0 24000
2004-05 42.3 16.0 335002005-06 44.5 21.8 30000
2006-07 49.5 28.7 29080
2007-08 53.1 34.2 27750
2008-09 57.8 36.3 25040
2009-10 62.4 41.5 25350
0
5000
10000
15000
20000
2500030000
35000
40000
38.6 42.3 44.5 49.5 53.1 57.8 62.4
Price
Quantity
Global Demand Curve of Tisco
Demand
0
5000
10000
15000
20000
25000
30000
35000
40000
13 16 21.8 28.7 34.2 36.3 41.5
Price
Quantity
Domestic Demand Curve of Tisco
Demand
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Supply for TISCO
The Tata Steel Group supplies all major global vehicle manufacturers. In addition to
supplying a wide range of products, it also delivers services including involvement atthe pre-design phase in order to optimise production performance at its customers
factories.
Tata Steel Europe supplies high integrity steels to major global commercial and
defence aerospace programmes. These range from high strength, high integrity
structural steels to high temperature alloy and stainless steels. The Company is
involved throughout the supply chain, from materials selection and processing to the
provision of expertise during development of engineering processes.
Tata Steel delivers a multi-product solution to the global materials handling sector. It
manages the complexity of products and services it supplies via multiple supply
chains, through an extensive global network.
Year Global Supply (in Mn. Tonnes) Domestic Supply (in Mn. Tonnes) Price (in Rs/Ton)2003-04 33.0 12.0 240002004-05 36.0 15.1 335002005-06 41.0 20.1 300002006-07 46.78 26.9 290802007-08 50.1 31.3 277502008-09 55.1 35.2 250402009-10 59.8 40.09 25350
0
10000
20000
30000
40000
33 36 41 46.78 50.1 55.1 59.8
Price
Quantity
Global Supply Curve of Tisco
Supply
0
10000
20000
30000
40000
12 15.1 20.1 26.9 31.3 35.2 40.1
Price
Quantity
Domestic Supply Curve of Tisco
Supply
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Shift in demand Curve
A shift in demand, either leftward or rightward, that occurs only when one of
the five determinants of demand changes. Where determinants are variables thatchange the quantity demanded at each price and that determines where the
demand curve is located. Like as Consumer Income, relative price, taste of
consumer, expected price, no. of consumers, or other factors determining the
demands of the good. A change in demand occurs when one or more of the
determinants of demand change.
Like in the Steel Industry various factors influence the demand of the steel.
Such as the increase in demand or prices of other sectors dependent on the steelindustry for raw materials and the overall economic growth and situations.
In the following graph Demand is the initial demand supply. Which is
influenced by the other sectors dependent on the steel industry as for raw
materials.
Demand 1 is the increase in Demand due to growth in construction sector due to
which due to which demand for steel bars and sheets increased forming a new
demand curve rightwards to the initial demand curve.
Demand 2 is the decrease in Demand due to decrease in sales of the
Automobiles decreased the decrease in production of automobiles causing
decrease in demand for steel sheets and rigid steel forming a new demand curve
leftwards to the initial demand curve.
0
10
20
30
40
50
60
70
24000 33500 30000 29080 27750 25040 25350
Price
Quantity
Demand Shift
Demand
Demand1
Demand2
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Shift in Supply Curve
A shift in supply, either leftward or rightward, that occurs only when one of the
five determinants of supply changes. Where determinants are variables thatchange the quantity supplied at each price and that determines where the supply
curve is located. Like as price of the good, price of inputs, price of goods related
in production, available technology, expected price, or no. of firms, or other
factors determining the supply of the good. A change in supply occurs when one
or more of the determinants of supply change.
Like in the Steel Industry various factors influence the supply of the steel. Such
as the increase in supply or prices of other sectors dependent on the steelindustry for raw materials and the overall economic growth and situations.
In the following graph Supply is the initial supply curve. Which is influenced by
the other sectors over which steel industry is dependent for raw materials.
Supply 1 is the decrease in Supply due to increase in crude oil price in
international market, forming a new Supply curve leftwards to the initial Supply
curve.
Supply 2 is the increase in Supply due to decrease in Iron ore prices, forming a
new supply curve rightwards to the initial supply curve.
0
10
20
30
40
50
60
70
24000 33500 30000 29080 27750 25040 25350
Price
Quantity
Supply Shift
Supply
Supply1
Supply2
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Elasticity of Demand of Steel
Elasticity is the reaction of the customer towards the change in price. It is the
change in Quantity demanded by change in price. Elasticity of steel is low, i.e.;they are inelastic goods.
In the steel industry price changes day by day. In respect of the changes to the
prices customers doesnt react that drastically. So, as demand doesnt changes
that much in relation to the prices. So; it is inelastic in nature.
Year Demand (in Mn. Tonnes) Price (in Rs./Ton)
2003-04 34.444 24000
2004-05 36.037 335002005-06 40.471 30000
2006-07 43.063 29080
2007-08 45.387 27750
2008-09 50.257 25040
2009-10 58.450 25350
Price (in Rs./Ton) Demand (in Mn. Tonnes) Elasticity
24000 34.444 -
33500 36.037 0.13714
30000 40.471 -1.0514
29080 43.063 -1.992
27750 45.387 -1.12
25040 50.257 -0.9918
25350 58.450 12.249
0
5000
10000
15000
20000
25000
30000
35000
40000
34.4 36 40.5 43.1 45.4 50.2 58.4
Price
Quantity
Demand Curve
Demand
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Elasticity of Supply of Steel
Elasticity is the reaction of the producers towards the change in price. It is the
change in Quantity supplied by change in price. Elasticity of steel is low, i.e.;they are inelastic goods.
In the steel industry price changes day by day. In respect of the changes to the
prices customers doesnt react that drastically. So, as supply doesnt changes
that much in relation to the prices. So; it is inelastic in nature.
Year Supply (in Mn. Tonnes) Growth (in %) Price (in Rs/Ton)
2003-04 32.81 24000
2004-05 34.70 5.76 33500
2005-06 38.96 12.23 30000
2006-07 41.41 6.29 29080
2007-08 43.28 4.51 27750
2008-09 46.5 7.42 25040
2009-10 54.35 16.91 25350
Price (in Rs./Ton) Demand (in Mn. Tonnes) Elasticity
24000 34.444 --
33500 36.037 0.1694
30000 40.471 -1.0491
29080 43.063 -1.9576
27750 45.387 -0.9434
25040 50.257 -0.698625350 58.450 12.6524
0
5000
10000
15000
20000
25000
30000
35000
40000
32.8 34.7 38.9 41.4 43.3 46.5 54.3
Price
Quantity
Supply Curve
Supply
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Price shift and change in equilibrium point
In the international market steel of the price changes day to day and accordingly
the demand also shows the changes with the supply and price with other marketfactors. Its also quite unresponsive in regard to the change in demand and
supply for the international and national context of the market in steel industry.
According to the previous data collected in context of Indian and in TISCO
prospective it seems quite vague to determine the equilibrium with all the
different market factors under consideration.
Price shift in equilibrium Curve
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Conclusion
Significance & Forcasting The Arcelor Mittal, which is the largest steelmaker in the world, has
plans of establishing two Greenfield steel projects with capacity of 12
million tons annually, in India
Acerinox SA, one of the important stainless steel manufacturers in
collaboration with Nisshin Steel, Japan is setting up a steel plant in
India
The Tata Steel ranks 5th in the world steel production and the
company have plans of expanding its capacity by the year 2015
SAIL, India's biggest producer of steel has plans of increasing the
production to 24.98 million tons annually
Sinosteel Corp, China are planning to invest US$ 4 billion to set up a
5 million tons capacity Greenfield steel plant
The acquisition of the Corus, the Anglo-Dutch steel manufacturer by
the Tata Steel
The Algoma Steel, Canada was acquired by Essar Global for US$
1.63 billion
Growth
The International Iron and Steel Institute (IISI) has fore casted that
the steel demand will go of from 1.19 billion ton to 1.4 billion ton in
2012.
And this will further increase in a higher rate up to 2015.
In India the growth will be more prominent because of the growth in
Real estate, Aviation, Manufacturing, Automobile sectors.
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Hindrances
Energy supply : - Power shortages hamper production at many locations.
Since 2001 the Indian government has been endeavoring to ensure that
power is available nationwide by 2014.
Problems procuring raw material inputs :-
insufficient raw materials and input leading to increase in import costs.
Inefficient transport system :- termed as insufficient and inefficient. It
lacks quality .
Analysis
THE outlook for the global steel industry in 2010 is stable, supported
by strong demand from emerging economies amid further
consolidation among players worldwide.
We can even see several large acquisitions of global steel companies
like Corus by Indian steel giants.
Indias lower wages and favorable energy prices will continue to
promise substantial cost advantages compared to production
facilities in(Western) Europe or the US.
The growth prospects of the client industries are also very good.
The deployment of modern production systems is increasingly
enabling India to improve the quality of its steel products and thus to
enhance its export prospects.