Shishir 2.1 To 2.4

2 Industry Overview
Steel is crucial to the development of any modern economy and is considered to be the backbone of
human civilization. The level of per capita consumption of steel is treated as an important index of the
level of socio-economic development and living standards of the people in any country. 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. All major industrial economies are characterized by the existence
of a strong steel industry and the growth of many of these economies has been largely shaped by the
strength of their steel industries in their initial stages of development.
India’s 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
being 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 scale capacities by players, continuous modernization and up gradation of older
plants, improving energy efficiency and backward integration into global raw material sources.
India is currently the world's fourth largest producer of crude steel (knocking to be the third largest by the
year end) and is expected to become the second largest producer by 2020. Steel production in India has
increased from 81 million tones (mt) in 2013-14 to 88 mt in 2014-15 with the capacity being increased
from 100 mt in 2013-14 to 110 mt in 2014-15. The steel sector contributes nearly 2% of the country’s GDP
and employs over 6 lakh people. The per capita consumption of total finished steel in the country has
risen from 51 kg in 2009-10 to about 60 kg in 2014-15.
Steel industry derives its demand from other important sectors like infrastructure, aviation, engineering,
construction, automobile, pipes and tubes etc. With the Indian economy poised for its next wave of
growth under the reforms being unleashed in the last one year, there lies tremendous opportunity for the
Indian steel industry to prosper and grow exponentially.
The Indian steel industry is largely iron-based through the blast furnace (BF) or the direct reduced iron
(DRI) route. Indian steel industry is highly consolidated. About 50% of the crude steel capacity is resident
with integrated steel producers (ISP). But the changing ratio of hot metal to crude steel production
indicates toward the increasing presence of secondary steel producers in the eco-system.
2.1 Nature and Size of the Industry

India’ steel production grew 6.2% y-o-y to 101mt in 2017 in line with ongoing expansion in steelmaking
capacities. National Steel Policy 2017 has projected steel production to reach 255mt by 2030-31, implying
a 7.4% annual average growth. Considering the projected expansion plans of Indian companies and
project implementation time, this target might be difficult to achieve. However, in the short term,
production and capacities will grow and India is expected to surpass Japan to become the second largest
producer of steel in 2018.During 2017, steel consumption grew by around 5.2%. Lag in consumption
growth was mainly due to implementation of economic policies like demonetization and GST, which
impacted demand for short period of time. Going forward, steel consumption is expected to grow by an
average of 6.3% to reach 140mt by 2023, implying steel intensity to increase to 97kgs per capita as
compared to 73kgs in 2017. Rapid urban population growth, substantial government investment in
infrastructure, expansion of housing and manufacturing sector will aid steel consumption growth in India.
2.2 Key Growth drivers for the industry

Infrastructure growth:
Over the next 25 years, India will require around US$4.5 trillion for infrastructure development in the
country. Investment will be required across all sectors ranging from road, airports, shipping, power,
logistics and telecom. Steel consumption for housing construction is also likely to rise due to the “housing
for all” initiative which aims to build around 12 million units in urban areas over next three years and 10
million units in rural areas by 2019
India is emerging as a global manufacturing hub:

Manufacturing contributes around 16% of the country’s GDP. Over the year, India’s low-cost skilled
manpower has attracted a number of manufacturing companies from various industries including
petroleum products, machinery and equipment, textiles and leather products. Several companies in these
industries have announced expansion plans (including building new manufacturing plants/facilities) to
address the growing demand, leading to a higher intake of steel. India’s manufacturing sector could touch
US$1 trillion by 2025. There is potential for the sector to account for 25-30% of the country’s GDP.
Growth in the automobile industry:

The automobile industry in India is the world’s fourth largest, with the country currently being the world’s
fourth largest manufacturer of cars and seventh largest manufacturer of commercial vehicles in 2017.
Overall, domestic automobiles sales increased at 7.01% CAGR between FY13-18 with 24.97 million
vehicles being sold in FY18. The passenger vehicle sales in India crossed 3.2 million units in FY18 and is
further expected increase to 10 million units by FY20. The country’s key strengths such as a large domestic
consumption base, a cost competitive value chain (that includes low design, testing and validation costs,
frugal engineering capabilities and low labor costs) and strategic geographical location shall help in
developing the country as a world class automotive manufacturing base. Also, higher manufacturing of
auto grade steel shall help in import substitution, pushing demand for domestic steel.
Increased capacity expansions and investments in the oil and gas and power industries:
India’s energy demand is expected to double to 1,516Mtoe by 2035 from 721Mtoe in 2016. The pipeline
network for transporting petroleum products is on an expansion path as all major oil companies are
looking to increase long distance pipeline for petroleum products in line with the government’s aim to
increase the pipeline network to around 32,000 km by 2030. Strong domestic growth, coupled with an
anticipated recovery in export demand, is expected to drive steel pipe production and steel requirement
for infrastructure development in refineries.
2.3 Identification of Critical Success Factors (CSF)

Economic and Financial Factors
 Increased Sales
 Higher Margin
 High Dividend and Capital Appreciation
 Lower costs spent on CSR formulation and implementation
 Lower costs of capital
 Higher Annual Net Income After Taxes (ANIAT) over Cost of Capital
External Relationships
 Quality Products
 Low cost products
 Effective CSR
 Well-coordinated implementation of CSR
 Strong brand and company image
Knowledge and Learning

 State of the art technology
 Plant expansion
 Forward thinking worker practices
 Integration of cost-consciousness in organizational culture and processes
 Effective leaders
 Loyal Worker
 Healthy working environment
 Trained and skilled workers
 Enhanced competencies in the formulation and implementation of CSR
Internal Processes
 Production of quality steel
 Incurrence of minimal production costs
 Proper decision-making process
 Maximum value of CSR at lowest possible cost
2.4 Market Analysis based on CSFs

 Being a core sector, steel industry tracks the overall economic growth in the long term. Also, steel
demand, being derived from other sectors like automobiles, consumer durables and
infrastructure, its fortune is dependent on the growth of these user industries. The Indian steel
sector enjoys advantages of domestic availability of raw materials and cheap labor. Iron ore is also
available in abundant quantities. This provides major cost advantage to the domestic steel
industry.
 The Indian steel industry is largely iron-based through the blast furnace (BF) or the direct reduced
iron (DRI) route. Indian steel industry is highly consolidated. About 60% of the crude steel capacity
is resident with integrated steel producers (ISP). But the changing ratio of hot metal to crude steel
production indicates the increasing presence of secondary steel producers (non-integrated steel
producers) manufacturing steel through scrap route, enhancing their dependence on imported
raw material.
 In FY18, India's finished steel consumption grew at a CAGR of 5.6% during FY08-FY18 to reach 90.6
MT. India's crude steel and finished steel production increased to 102.3 MT and 104.9 MT in FY18,
respectively. In FY18, the country's finished steel exports increased 17% year-on-year to 9.6
million tones (MT), as compared to 8.2 MT in FY17. Exports and imports of finished steel stood at
1.3 MT and 1.89 MT, during Apr-Jun 2018.
 Further, India was the only major steel consuming market globally, which saw a demand
escalation. However, the country suffered from an unprecedented inflow of steel imports from
China, Japan, South Korea, and Russia. South Korea and Japan benefitted due to the free trade
agreement with India. The result was that the domestic industry was forced to take a series of
price cuts, leading to a severe margin squeeze for domestic steel companies.
 Steel prices are now increasingly aligning to global export prices as markets strike a balance
between imports and domestic demand. China's waning demand and resultant rise in exports
poses a risk to leveraging improving domestic demand in South Asia and Europe. Further,
movement of currencies against the US dollar would also have a significant impact on the
movement of global steel and raw material prices.
Market Prospects:
 India is expected to overtake Japan to become the world's second largest steel producer soon.
The National Steel Policy, 2017, has envisaged 300 million tons of production capacity by 2030.
 In 2018, steel consumption of the country is expected to grow 5.7% year-on-year to 92.1 MT.
 Huge scope for growth is offered by India’s comparatively low per capita steel consumption and
the expected rise in consumption due to increased infrastructure construction and the thriving
automobile and railways sectors.
 Companies in the steel industry are investing heavily in expanding their capacity. Major public and
private companies, including Tata Steel, SAIL and JSW Steel, are expanding their production
capacity.
 The capital goods sector accounts for 11% of steel consumption and expected to increase 14-15%
by 2025-26 and has the potential to increase in tonnage and market share.
 The infrastructure sector accounts for 9% of steel consumption and expected to increase 11%
2025-26.
 In FY18, passenger traffic at Indian airports stood at 308.7 million and number of operational
airports stood at 100 in September 2018. Estimated steel consumption in airport building is likely
to grow more than 20% over next few years.

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Shishir 2.1 To 2.4

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2 Industry Overview

2.1 Nature and Size of the Industry

2.2 Key Growth drivers for the industry

India is emerging as a global manufacturing hub:

Growth in the automobile industry:

2.3 Identification of Critical Success Factors (CSF)

Knowledge and Learning

2.4 Market Analysis based on CSFs

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