FINAL PROJECT REPORT

ON

“STUDY ON PRICE DISCRIMINATION IN STEEL INDUSTURY”

A report submitted to IIMT, Greater Noida in the partial fulfillment of full time
Postgraduate Diploma in International business Management.

Submitted To: Submitted By:

DIRECTOR ACADEMICS ABHISHEK SHHARMA
IIMT, G.NOIDA IBR-1048
BATCH-13th

ISHAN INSTITUTE OF MANAGEMENT & TECHNOLOGY

1, KNOWLEDGE PARK-1, GREATER NOIDA, DISTT. G.B.NAGAR (U.P)
Website:www.ishanfamily.com ,Email:[email protected]

1
 CERTIFICATE

This is to certify that the project work done on“STUDY ON PRICE

DISCRIMINATION IN STEEL INDUSTURY” submitted to Ishan Institute of
Management and Technology, Greater Noida by (ABHISHEK SHARMA) in partial
fulfillment of the requirement for the award of degree of Post Graduate Diploma in
Management (International Business) is a bonafide work carried out by them under
my supervision and guidance. This project work is the original one has not been
submitted anywhere else for any other degree/diploma.

Date:

Name of the guide:

Place: Mr. shailesh sharma

Seal/Stamp of Guide

2
 PREFACE

As a student of management, apart from theoretical studies we need to get a deeper

insight into the practical aspects of those theories by working on various projects. So
these projects have high importance in management studies to enhance the knowledge
and skills.

Management in India is heading towards a better profession as compared to other

professions. The demand for professional managers is increasing day by day.
Working on this project has been an enriching experience. This project will help me a
lot in the professional growth. It has given me the confidence to prepare for ourselves
as fully fledged international marketing professional in the eminent future. A
comprehensive understanding of the principle will increases the decision-making
ability and sharpens the tools for this purpose.

Practical Knowledge is an important suffix to theoretical Knowledge. One

cannot merely depend upon the theoretical Knowledge. Classroom lectures
make the fundamental concept of Management clear. They also facilitate the
learning of practical Things. However, Classroom lectures must be correlated
with the practical training situations. It is in the sense that practical Training in
a company has a significant role to play in the subject of business management.

The demand for professional managers is increasing day By day. To achieve

profession competence, manager ought to be fully occupied with theory and practical
exposure of management.

A comprehensive Understanding of the principle will increases their Decision making

ability and sharpening their tools for this purpose. The scope of the work under
taken by us includes introduction to basic & major things about the Impact of
e-banking on the customer and also their own future aspects.

3
 ACKNOWLEDGEMENT

No research can blossom from single person’s mind without proper guidance,
assistance and inspiration from various quarters. Our project was given its present
shape by assistance of many people whom we are greatly indebted to. I owe deep
intellectual debt to the numerous people who through their rich and various
contributions have greatly improved our understanding of various concepts of my
project.

I express my sincere thanks to hon’ble Mr. Shailesh sharma for his stimulate
discussion, constructive and valuable suggestions that helped us in this endeavour. I
would like to thank all those people who graciously helped me by sharing their
valuable time, experience & knowledge for completion of this project.

I take an opportunity to express our sincere thanks to Dr. D.K.Garg (Chairman,

IIMT), Dean Sir Prof. M.K.Verma and all the staff members of the PGDM
department for making available all the facilities in fulfilling the requirements for this
reasonable work.

Finally, I thank my parents for their moral support and financial help.

Abhishek Sharma
IBR-1048
BATCH:-13th

4
 DECLARATION

I am ABHISHEK SHARMA a student of 13th batch of Ishan Institute Of

Management And Technology, Greater Noida (Recognized by AICTE, Ministry of
HRD, Govt. of India) do hereby declare that the project report entitled “STUDY ON
PRICE DISCRIMINATION IN STEEL INDUSTURY” of employees in the
organization that has been submitted by me as a requirement for the award of degree
of Post Graduate Diploma in INTERNATIONAL BUSINESS MANAGEMENT .

This project is my original work and no part of this project has been ever submitted by
me for any other purpose or published earlier.This report is the property of the
institute and any use of this project without prior permission is prohibited and be
treated as an offence.

I also certify that the work has been carried out of the best of my knowledge and
belief.

DATE: ABHISHEK SHARMA

PLACE IBR-1048

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 INDEX

TABLE OF CONTENT

EXECUTIVE SUMMARY

CHAPTER-1 9-16
• INTRODUCTION

• HISTORY OF STEEL INDUSTURY

• PRESENT MAJOR PLAYER

CHAPTER-2 17-46
• PAST PERFORMANCE OF STEEL SECTOR

• GROWTH PATTERN OF STEEL SECTOR

• EXPORT PERFORMANCE

• QUALITATIVE ANALYSIS OF PRODUCTION AND SALES PIGRIM

• ALLOY STEELS

• HOT ROLLED SHEET MAKING

• COLD ROLLED STEEL MAKING

CHAPTER-3 47-85
• MANUFACTURING PROCESS

• IRON ORE TO PIGIRM

• ALLOY STEELS

• HOT ROLLED SHEET MAKING

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 • COLD ROLLED SHEET MAKING

• SPONGE IRON A BOON FOR STEEL MAKING

• QUALITY CONTROL TECHNIQUES TO MEET CHALLENGES

CHAPTER-4 86-95

• PRICING AND CONSUMPTION IN STEEL SECTOR

• PRICING STRATEGY

• POTENTIAL OF MARKET

CHAPTER-5 96-103
• MARKET TREND

• INDIGENOUS MARKET

• EXPORT MARKET

CHAPTER-6 104-115
• SUPPLY AND DEMAND OF STEEL IN INDIA

CHAPTER-7 116-134
• PRICE DISTRIBUTION AND IT’S IMPACT

• GOVT IMPOSING EXPORT RESTRICTION IT’S EFFECT ON STEEL

PRICE

• STEEL PRICE INTERFERENCE BY GOVT. & ITS IMPACT ON

PERFORMANCE OF STEEL INDUSTURY

• INSPITE OF PRICE INDUSTURY

• INDIA’S ADVANTAGE OVER AFTER GLOBAL PLAYERS

• QUALITY & DIPOSIT OF ORE

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 • ROLE OF SPONGE IRON IN ADDING CHEAPNESS IN STEEL
INDUSTURY MAKING

• TECHNOLOGY AS AN ADVANTAGE

• MNC’S BEING ATTRACTED BY INDIAN INDUSTURY

CHAPTER-8 135-154

• GOVERNMENT POLICY ON STEEL SECTOR

• REDUCING ORE EXPORT

• PRODUCING QUALITY(VALUE ADDED)PRODUCT

• EXPORT IN154CENTIVES

• TAX HOLIDAYS AND OTHER TAX POLICEY

CHAPTER-9 155-156

• CASE STUDY

CHAPTER-10 157-158

• TREND ANALYSIS AND FUTURE SCOPE

• BIBLOGRAPHY 159

• WORD OF THANKS 160

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9
CHAPTER-1

INTRODUCTION

HISTORY OF STEEL INDUSTURY

IRON AND STEEL INDUSTRY IN INDIA - PAST, PRESENT AND FUTURE

The history of steel-making in India can be traced back to 400 BC when the Greek
emperors used to recruit Indian archers for their army who used arrows tipped with
steel. Many more evidences are there of Indians’ perfect knowledge of steel-making
long before the advent of Christ. Archaeological finds in Mesopotamia and Egypt
testify to the fact that use of iron and steel was known to mankind for more than six
thousand years and that some of the best products were made in India. Among the
widely-known relics is the Iron Pillar near Qutab Minar in Delhi. The pillar, built
between 350 and 380 AD, did not rust so far -----an engineering marvel that baffles
the scientists even today. Yet another engineering feat is the famous Sun Temple at
Konark in Orissa, built around 1200 AD, where steel structurals were used for the first
time in the world.
These were the halcyon days when India flourished in all directions and when its
prosperity was a matter of envy for the foreigners. But as ill luck would have it,
India’s prosperity gave way to poverty after the advent of the foreign rule. India’s
indigenous industry languished because of a deliberate policy of the colonial rulers to
make the country only a supplier of raw materials.
Steel Role plays a vital role in the development of any modern economy. The per
capita consumption of steel is generally accepted as a yardstick to measure the level
of socio-economic development and living standards of the people. As such, no
developing country can afford to ignore the steel industry.

Beginnings

The first notable attempt to revive steel industry in India was made in 1874 when the
Bengal Iron Works (BIW) came into being at Kulti, near Asansol in West Bengal.
However, forty-four years before that, in 1830 to be precise, a foreigner, named
Joshua Marshall Heath, had set up a small plant at Porto Novo on Madras Coast.
Heath produced in his plant pig iron at the rate of forty tonnes a week. His method of
iron-making needed approximately four tonnes of charcoal to produce one tonne of
low quality pig iron which proved to be too expensive for Heath to carry on in the
face of stiff competition from the British steel industry. The BIW made considerable
improvement in the process of iron and steel making. It used coke as the fuel instead

10
of charcoal. But the plant fell sick as the source of funds dried up. It was taken over
by the Bengal Government and was rechristened as Barakar Iron Works. In 1889 the
Bengal Iron and Steel Company acquired the plant and by the turn of the century the
Kulti plant became a success story. It produced 40,000 tonnes of pig iron in 1900 and
continued to produce the metal until it was taken over by Indian Iron and Steel
Company (IISCO) in 1936.
For modern India’s iron and steel industry August 27, 1907 was a red-letter day when
the Tata Iron and Steel Company (TISCO) was formed as a Swadeshi venture to
produce 120,000 tonnes of pig iron. The TISCO plant at Sakchi (renamed
Jamshedpur) in Bihar, started pig iron production in December 1908 and rolled out its
first steel the following year. TISCO had expanded its production capacity to one
million tonnes ingot by the time the country achieved freedom. The Tatas, as Gandhiji
said, represented the "spirit of adventure" and Jamsetji Tata, in the words of
Jawaharlal Nehru," laid the foundation of heavy industries in India". The British
rulers disfavoured this and other attempts to start indigenous industry. It was chiefly
with the help of American experts that the Tatas started their industry. Its childhood
was precarious but the war of 1914-18 gave it a fillip. Again it languished and was in
danger of passing into the hands of British debenture holders. But nationalist pressure
saved it. In 1918, soon after the war, Indian Iron and Steel Company (IISCO) was
formed. The then Mysore government also decided to start an iron works at
Bhadravati. While IISCO started producing pig iron at Burnpur in 1922, the Mysore
Iron and Steel Works took about 18 years to start its plant. Meanwhile, the Bengal
Iron Works went into liquidation and merged with IISCO. The Steel Corporation of
Bengal (SCOB) formed in 1937, started making steel in its Asansol plant. Later in
1953, SCOB merged with IISCO.
Prime Minister Nehru firmly believed that "no country can be jpolitically and
economically independent unless it is highly industrialised and has developed its
resources to the utmost". Nehru’s ideas about India’s development were broadly
incorporated in free India’s first Industrial Policy Resolution adopted by the
Contituent Assembly in 1948. The resolution officially accepted the principle of
mixed economy. Industries were divided into four categories. In the first category
were strategic industries which were made the monopoly of the Government. In the
second category were six industries which included, among others, coal, iron and
steel.
It was decided that new units would be started exclusively by the government in the
public sector without disturbing the existing ones in the private sector. Eighteen
industries, including heavy castings and forings of iron and steel, ferro alloys and tool
steel were covered by the third category and the rest of the industries by the fourth. In
sum, the government committed itself to the development of basic steel industry while
the private sector was to benefit through the establishment of downstream units which
would use pig iron, billets, blooms and flat products to be made by the public sector
steel plants.
In keeping with the spirit of the resolution the Government decided to start a chain of
steel plants all over the country in the public sector. The first such plant was set up at
Rourkela in Orissa. The second came up at Bhilai in Madhya Pradesh. It was followed
by a third at Durgapur in West Bengal. Each of these three plants had an initial
production capacity of one million tonne ingot. Durgapur was followed by a steel
plant at Bokaro in Bihar. The onward march of Indian steel did not stop at Bokaro.
The fifth public sector steel plant was set up at Visakhapatnam in andhra Pradesh. As

11
a matter of fact, the country was dotted with steel and steel-related plants in public
and private sectors, like Alloy Steel Plant, Salem Steel Plant, Kalinga Iron Works,
Malavika Steel Ltd., Jindal Vijaynagar Steel Ltd., to name only a few. About the same
time TISCO launched its two-million-tonne expansion programme.
The Government’s Industrial Policy had undergone changes once in 1956 and then in
1991. The resolution modified in 1956 brought changes in the category pattern and
listed more industries for the public sector than did the earlier one, though it was not
harsher towards the private enterprise. In the new industrial policy announced in 1991
iron and steel industry, among others, was included in the list of industries reserved
for the public sector and exempted from the provision of compulsory licensing. With
effect from May 24, 1992 iron and steel industry was included in the list of ‘high
priority’ industry for automatic approval for foreign equity upto 51% (now 74%).
Export-import regime for iron and steel has also undergone major liberalisation. The
freight equalisation scheme was withdrawn removing freight disadvantage to States
located near steel plants.
The new policy has already borne fruit. The finished steel pdroduction in India has
gone up from mere 1.1 million tonnes in 1951 to 23.37 million tonnes in 1997-98
despite overall economic slow-down in the country.
It has been estimated that the demand for finished steel in 2001-02 would touch 38.68
million tonnes and the projected availability of 38.01 tonnes is almost adequate to
meet the domestic demand along with export of six million tonnes. Similarly, by
2006-07, the final year of the tenth plan, the demand for finished steel would be
around 48.80 million tonnes, providing adequate surplus for meeting the projected
export potential of nine million tonnes.
However, there is hardly any scope for complacence over the fact that India continues
to be the 10th largest steel producer in the world. In 1997 India’s per capita steel
consumption was only 22 kg which was much below the world average of about 126
kgs. Even if the domestic demand grows up from 34.5 million tonnes to 100 million
tonnes in 2025 the industry is unlikely to catch up with the production in the
developed countries.
The redeeming feature is the cost competitiveness of Indian steel in the global market.
According to World Steel Dynamics, the total cost of steel production in the USA is
$510 per metric tonne while in Japan it is $550, in Germany $557, in Canada $493
and in India it is $497. This is because of high material cost due to high excise and
import duties. Reduction of cost on these accounts will make Indian steel more
competitive in the world market. Indian steel can reasonably expect a good market in
the neighbouring countries now that the Asian economy is looking up.
In conclusion, it can be said with a certain measure of confidence that India’s iron and
steel industry which had a glorious past and has an uncertain present may now look
forward to a bright future.
Iron and Steel Industry. The history of iron‐ and steelmaking in the United States
reflects the rise, fall, and partial recovery of the productive capacity of the nation's
industrial sector, from its origins in the Colonial Era, to the enormous productivity of
the 1880–1970 period, to the cutbacks and restructuring of the 1980s and 1990s. This
history has been marked by dramatic events, triumphant technological innovations,
and well‐known entrepreneurs.

12
Through the early 1800s, the three essential stages in the production of finished metal,
typically conducted in small rural ironworks, consisted of smelting, which melted iron
ore into a raw, intermediate material; refining, which imparted properties such as
hardness or malleability; and shaping, which molded the metal into rails, beams,
sheets, or tools and other objects. In the mid–nineteenth century, highly skilled
workers refined and shaped the smelted metal. These workers, called puddlers,
produced high‐quality wrought iron through a demanding and expensive process.
Before the iron could be used, however, it had to be rolled through grooved cylinders.
Skilled rollers then controlled the production of small amounts of finished iron.

When the Civil War began, U.S. mills output only one million tons per year through a
slow and costly process that produced a wrought iron too weak to be made into rails, a
much‐demanded product. Fortunately for the ironmasters, a new technology, named
for its English inventor, Henry Bessemer, became available in the postwar years. This
process bypassed puddlers by mechanizing the refining process. In a large, egg‐
shaped “converter,” workers combined molten pig iron and a blast of air that
produced an explosion so powerful that virtually all the impurities were removed. The
result was a new, hard metal, Bessemer steel, ideal for rail‐making. The new process
sparked mechanical improvements throughout the industry, prompting steelmasters to
integrate all stages of the production process. These integrated mills employed
thousands of workers, many of them recent immigrants, and made three thousand tons
of steel per day. The Bessemer process and its successor, the open‐hearth method,
underlay a second industrial revolution that transformed the United States into the
world's premier industrial and military power.

Andrew Carnegie was the first to see in the Bessemer process new possibilities for
industrial organization. At his mammoth mills near Pittsburgh, Pennsylvania, he
streamlined and automated production. Significantly, Carnegie's mills required less
and cheaper labor than had been necessary in the days of puddling, and thousands of
workers were displaced by the innovations that swept the metals industry in the late
nineteenth century. Carnegie's initiatives essentially eliminated trade unionism in the
steel industry until the 1930s, when the Steel Workers Organizing Committee
succeeded in creating an industry‐wide union open to workers of all skill levels.
Throughout the twentieth century, industrial relations in steelmaking were often
marked by acrimony and, as in the nineteenth century, occasionally by violence.

The United States retained its premier position in metal‐making until the 1970s, when
international competition, higher production and labor costs, and questionable
managerial decisions led to the collapse of the U.S. Steel Corporation, the direct heir
of Carnegie's empire. In Pittsburgh and other locales in the Northeast, the effects were
devastating. This region, which had profited so handsomely in the Age of Steel, was
forced to look to service industries, education, and information technologies to rebuild
its economic base. In other venues, however, the American steel industry staged a
renaissance by the 1990s and succeeded in producing quality products in efficient and
profitable mills, some large, others belonging to smaller competitors

13
Steel is an alloy consisting mostly of iron, with a carbon content between 0.2% and
2.1% by weight, depending on the 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) 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 less ductile.
Alloys with a higher carbon content are known as cast iron because of their lower
melting point and castability. Steel is also distinguished from wrought iron, which can
contain a small amount of carbon, but it is included in the form of slag inclusions.
Two distinguishing factors are steel's increased rust-resistance and better weldability.
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 material.
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.
talk about "the iron and steel industry" as if it were a single entity, but historically
they were separate products. The steel industry is often considered to be an indicator
of economic progress, because of the critical role played by steel in infrastructural and
overall economic development. The economic boom in China and India has caused a
massive increase in the demand for steel in recent years. Between 2000 and 2005,
world steel demand increased by 6%. Since 2000, several Indian [44] and Chinese steel
firms have risen to prominence like Tata Steel (which bought Corus Group in 2007),
Shanghai Baosteel Group Corporation and Shagang Group. ArcelorMittal is however
the world's largest steel producer.
The British Geological Survey reports that in 2005, China was the top producer of
steel with about one-third world share followed by Japan, Russia, and the USA.[45]
In 2008, steel started to be traded as a commodity in the London Metal Exchange. At
the end of 2008, the steel industry faced a sharp downturn that led to many cut-back
A pile of steel scrap in Brussels, waiting to be recycled
Steel is one of the most recycled materials in the world and as of 2007, more than
78% of steel was recycled in the United States. In the United States it is the most
widely recycled material; in 2000, more than 60 million metric tons were recycled.

The most commonly recycled items are containers, automobiles, appliances, and
construction materials. For example, in 2007, more than 97% of structural steel and
110% of automobiles were recycled, comparing the current steel consumption for
each industry with the amount of recycled steel being produced. A typical appliance is
about 75% steel by weight and automobiles are about 65% steel and iron.
The steel industry has been actively recycling for more than 150 years, in large part
because it is economically advantageous to do so. It is cheaper to recycle steel than to
mine iron ore and manipulate it through the production process to form new steel.
Steel does not lose any of its inherent physical properties during the recycling process,
and has drastically reduced energy and material requirements compared with
refinement from iron ore. The energy saved by recycling reduces the annual energy
consumption of the industry by about 75%, which is enough to power eighteen
million l to make new steel. BOS steel is more malleable than EAF steel so it is often
used to make automotive fenders, soup cans, and industrial drums. EAF steelmaking
uses almost 100% recycled steel. This steel is stronger than BOS steel so it is used to14
make structural beams, plates, and rebar. Recycling one ton of steel saves 1,100
kilograms of iron ore, 630 kilograms of coal, and 55 kilograms of limestone.
Because steel beams are manufactured to standardized dimensions, there is often very
little waste produced during construction, and any waste that is produced may be
PRESENT MAJOR PLAYER

15
» The Beginning

» The War Years

» Expansion to Two Million Tonnes

» Period between 1960-80

» Steelmaking and casting

» Tata Steel Today The Beginning

The modern iron and steel industry in India owes its origin to the grand vision and
perseverance of Jamsetji Nusserwanji Tata. The Tata Iron and Steel Company
Limited (Tata Steel) was registered in Bombay on 26th August 1907. The
construction of the steel plant was then taken up in earnest with the first stake
being driven in February 1908. R.G. Wells, an American with steel plant
construction experience took over as the General Manager in 1909. Success
came when the first blast furnace was blown-in on 2nd December 1911, and the
first ingot rolled on 16th February 1912.

The company was originally constructed for a capacity of 160,000 tonnes of pig iron,
100,000 tones of ingot steel, 70,000 tones of rails, beams and shapes, and
20,000 tonnes of bars, hoops and rods. The plant essentially consisted of a
battery of 180 non-recovery coke ovens and 30 by-product ovens with a
sulphuric acid plant, two blast furnaces (each of 350 tonnes per day capacity),
one 300 tonne hot metal mixer, four open hearth furnaces of 50 tonne capacity
each, one steam engine driven 40-inch reversing blooming mill, one 28-inch
reversing combination rail and structural mill with re-heating furnaces, and one
16- inch and two 10-inch rolling mills. Besides, the steel works had a power
house, auxiliary facilities and a well-equipped laboratory. The cost of the plant
as erected came to around Rs.23 million.

The company was originally constructed for a capacity of 160,

16
CHAPTER-2

PAST PERFORMANCE OF STEEL SECTOR

A Rich Heritage

The Precursor

SAIL traces its origin to the formative years of an emerging

nation - India. After independence the builders of modern
India worked with a vision - to lay the infrastructure for rapid
industrialisaton of the country. The steel sector was to propel
the economic growth. Hindustan Steel Private Limited was set
up on January 19, 1954.

Expanding Horizon (1959-1973)

Hindustan Steel (HSL) was initially designed to manage only

one plant that was coming up at Rourkela. For Bhilai and
Durgapur Steel Plants, the preliminary work was done by the
Iron and Steel Ministry. From April 1957, the supervision and
control of these two steel plants were also transferred to
Hindustan Steel. The registered office was originally in New
Delhi. It moved to Calcutta in July 1956, and ultimately to
Ranchi in December 1959.

The 1 MT phases of Bhilai and Rourkela Steel Plants were

completed by the end of December 1961. The 1 MT phase of
Durgapur Steel Plant was completed in January 1962 after
commissioning of the Wheel and Axle plant. The crude steel
production of HSL went up from .158 MT (1959-60) to 1.6
MT. A new steel company, Bokaro Steel Limited, was
incorporated in January 1964 to construct and operate the steel
plant at Bokaro.The second phase of Bhilai Steel Plant was
completed in September 1967 after commissioning of the Wire
Rod Mill. The last unit of the 1.8 MT phase of Rourkela - the
Tandem Mill - was commissioned in February 1968, and the
1.6 MT stage of Durgapur Steel Plant was completed in
August 1969 after commissioning of the Furnace in SMS.
Thus, with the completion of the 2.5 MT stage at Bhilai, 1.8
MT at Rourkela and 1.6 MT at Durgapur, the total crude steel
production capacity of HSL was raised to 3.7 MT in 1968-69
and subsequently to 4MT in 1972-73.

Holding Company

17
The Ministry of Steel and Mines drafted a policy statement to
evolve a new model for managing industry. The policy
statement was presented to the Parliament on December 2,
1972. On this basis the concept of creating a holding company
to manage inputs and outputs under one umbrella was mooted.
This led to the formation of Steel Authority of India Ltd. The
company, incorporated on January 24, 1973 with an authorized
capital of Rs. 2000 crore, was made responsible for managing
five integrated steel plants at Bhilai, Bokaro, Durgapur,
Rourkela and Burnpur, the Alloy Steel Plant and the Salem
Steel Plant. In 1978 SAIL was restructured as an operating
company.

Since its inception, SAIL has been instrumental in laying a

sound infrastructure for the industrial development of the
country. Besides, it has immensely contributed to the
development of technical and managerial expertise. It has
triggered the secondary and tertiary waves of economic growth
by continuously providing the inputs for the consuming
industry.

18
GROWTH PATTERN OF STEEL SECTOR

BOKARO STEEL PLANT - PRODUCT BASKET

BOKARO STEEL PLANT - FACILITIES

Raw Materials & Material Handling Plant

The Raw Materials and Material Handling Plant receives, blends, stores and supplies
different raw materials to Blast Furnace, Sinter Plant and Refractory Materials Plant
as per their requirements. It also maintains a buffer stock to take care of any supply
interruptions.

Some 9 MT of different raw materials viz. Iron ore fines and lumps, Limestone
(BFand SMS grade), Dolomite lumps and chips, hard Coal and Manganese ore are
handled here every year.

Iron ore and fluxes are sourced from the captive mines of SAIL situated at Kiriburu,
Meghahataburu, Bhawanathpur, Tulsidamar and Kuteshwar. Washed coal is supplied
from different washeries at Dugda, Kathara, Kargali and Giddi, while raw coal is
obtained from Jharia coalfields.

Coke Ovens & By-product Plant

The Coke Oven Complex at Bokaro converts prime coking coal from Jharia, Dugda
and Moonidih and medium coking coal form Kargali, Kathara and Mahuda, blended
with imported coal, into high quality coke for the Blast Furnaces, recovering valuable
by-products like Anthracene Oil, Benzene, Toluene, Xylene, Light Solvent Naphtha,
Ammonium Sulphate and Extra-hard Pitch in the process. Bokaro is situated in the
prime coal belt of the country.

The Coke Oven battery has 8 batteries with 69 ovens each, maintained meticulously
in terms of fugitive emission control, use of phenolic water and other pollution control
measures.

Blast Furnaces

Bokaro has five 2000-cubic metre Blast Furnaces that produce molten iron - Hot
Metal - for steel making. Bell-less Top Charging, modernised double Cast Houses,
Coal Dust Injection and Cast House Slag Granulation technologies have been
deployed in the furnaces. The process of iroin-making is automated, using PLC
Charging System and Computer Controlled Supervision System. The wastes products
like Blast Furnace slag and gas are either used directly within plant or processed for
recycling / re-use.

19
Steel Melting Shops

Hot Metal from the Blast Furnaces is converted into steel by blowing 99.5% pure
Oxygen through it in the LD converter. Suitable alloying elements are added to
produce different grades of steel.
Bokaro has two Steel Melting Shops - SMS-I and SMS-II. SMS-I has 5 LD converters
of 130T capacity each. It is capable of producing Rimming steel through the ingot
route. SMS-II has 2 LD converters, each of 300 T capacity, with suppressed
combustion system and Continuous Casting facility. It produces various Killed and
Semi-Killed steels.

Continuous Casting Shop

The Continuous Casting Shop has two double-strand slab casting machines,
producing high quality slabs of width ranging from 950 mm to 1850 mm. CCS has a
Ladle Furnace and a Ladle Rinsing Station for secondary refining of the steel. The
Ladle Furnace is used for homogenising the chemistry and temperature. The concast
machines have straight moulds, unique in the country, to produce internally clean
slabs.

Argon injection in the shroud and tundish nozzle prevent re-oxidation and nitrogen
pick-up, maintaining steel quality. The eddy current based automatic mould level
control, unique in the country, gives better surface quality. The air mist cooling and
continuous straightening facilities keep the slabs free from internal defects like cracks.
The casters are fully automated with dynamic cooling, on-line slab cutting, de-burring
and customised marking. The shop is equipped with advanced Level-3 automation
and control systems for scheduling, monitoring and process optimisation.

CCS produces steel of Drawing, Deep Drawing, Extra Deep Drawing, Boiler and Tin
Plate quality. It also produces low alloy steels like LPG, WTCR, SAILCOR and API
Grade.

Slabbing Mill

Slabbing Mill transforms ingots into slabs by rolling them in its 1250 mm Universal
Four-High Mill. The rolling capacity of the Mill is 4 MT per annum. The shop has
Hot and Cold Scarfing Machines and 2800 T Shearing Machine. Controlled heating in
Soaking Pits, close dimensional accuracy during rolling and hot and cold scarfing
help produce defect-free slabs.

Hot Strip Mill

Slabs from CCS and Slabbing Mill are processed in the state-of-the-art Hot Strip Mill.
The fully automatic Hot Strip Mill with an annual capacity of 3.363 million tonnes
has a wide range of products - thickness varying from 1.2 mm to 20 mm and width
from 750 mm to 1850 mm. The mill is equipped with state-of-the-art automation and
controls, using advanced systems for process optimisation with on-line real time
computer control, PLCs and technological control systems.

20
Walking Beam Reheating Furnaces provide uniform heating with reduction in heat
losses, ensuring consistency in thickness throughout the length. High-pressure De-
scaling System helps eliminate rolled-in scale. Edgers in the roughing group maintain
width within close tolerance. The roughing group has a roughing train of a Vertical
Scale Breaker, one 2-high Roughing Stand and four 4-high Universal Roughing
Stands. The finishing group consists of a Flying Shear, Finishing Scale Breaker and
seven 4-high Finishing Stands. Hydraulic Automatic Gauge Control system in the
finishing stands ensures close thickness tolerance. The Work Roll Bending System
ensures improved strip crown and flatness. The rolling speed at the last finishing stand
is between 7.5-17.5 metres per second. The Laminar Cooling System is a unique
feature to control coiling temperature over a wide range within close tolerance. The
Hydraulic Coilers maintain perfect coil shape with On-line Strapping system. On-line
Robotic Marking on the coil helps in tracking its identity.

Hot Rolled Coil Finishing

All the Hot Rolled coils from the Hot Strip Mill are received in HRCF for further
distribution or despatch. HR Coils rolled against direct shipment orders are sheared
and finished to customer-required sizes and despatched to customers. The material is
supplied as per Indian specifications and many international/ foreign specifications.
The shop has two shearing lines with capacities of 6,45,000 Tonnes/ year and
4,75,000 Tonnes/ year respectively.

Cold Rolling Mill

The Cold Rolling Mill at Bokaro uses state-of-the-art technology to produce high
quality sheet gauge material, Tin Mill Black Plate and Galvanised Products. Cold
rolling is done to produce thinner gauge strips of very smooth and dense finish, with
better mechanical properties than hot rolling strips. Rolling is done well below re-
crystallization temperature without any prior heating of the material. The products of
CRM are used for deep drawing purposes, automobile bodies, steel furnitures, drums
and barrels, railway coaches, other bending and shaping jobs and coated steels. The
CRM complex comprises of two Pickling Lines (including a high speed Hydrochloric
Acid Pickling Line with re-generation facilities), two Tandem Mills, an Electrolytic
Cleaning Line, a Continuous Annealing Line, Bell Annealing Furnaces, two Skin-
Pass Mills, a Double Cold Reduction Mill (DCR), Shearing Lines, Slitting Lines and
a packaging and despatch section. The 5-stand Tandem Mill is capable of rolling sheet
gauges upto 0.15 mm thickness. It has sophisticated Hydraulic Automatic Gauge
Control, computerised mill regulation and optimisation control.

Hot Dip Galvanising Complex

The Hot Dip Galvanizing Complex integrated with the CRM produces zinc-coated
Cold Rolled strips resistant to atmospheric, liquid and soil corrosion. The Continuous
Coil Corrugation Line in the HDGC produces corrugated sheets and the Galvanised
Sheet Shearing Line produces galvanised plain sheets for a variety of applications.
The first shop of Bokaro Steel to get the ISO-9001 certification way back in 1994, this
complex has maintained a high-standard of coating quality and its SAILJYOTI
branded products enjoy a loyal market.

21
This complex made certain innovations for higher productivity to help re-build
earthquake-ravaged Gujarat.

Services - a valuable support network

The service departments like Traffic, Oxygen Plant, Water Management and Energy
Management provide invaluable support to this gigantic plant. Bokaro Steel has a vast
networked of railway tracks and over 40 diesel locos to smoothly run its operations.
The Oxygen Plant provides Oxygen, Nitrogen and Argon for processes like
steelmaking and annealing. Water Management looks after the huge water
requirements of the plant and the township, providing different grades of water and
taking care of recycling needs. Energy Management juggles the supply and demand of
by-product gases and their demand as process fuel.

Maintenance Departments

Bokaro has centralised maintenance departments for large-scale electrical and

mechanical maintenance, in addition to shop-based maintenance wings for running
repairs and maintenance. These facilities are capable of executing massive capital
repairs, supported by the fabrication facilities of the auxiliary shops.

Auxiliary Shops

To meet its needs for maintenance and repairs, Bokaro has a cluster of engineering
shops such as Machine Shop, Forge Shop, Structural Shop, Steel Foundry, Ingot
Mould Foundry, Cast Iron and Non-Ferrous Foundry, Electrical Repair Shop and
Power Facilities Repair Shop in addition to shop-specific Area Repair Shops. Most of
the repairs and maintainance requirements of the plant are met in-house.

The auxiliary shops and maintenance wings of Bokaro Steel, aided by in-house design
teams, have executed a number of highly sophisticated procurement-substitution,
productivity enhancement and quality improvement jobs, saving revenues and
enhancing equipment availability.

The expertise and operational scale of these departments, along with the service
departments, makes Bokaro a truly integrated plant, housing many virtual enterprises
within Bokaro Steel.

BOKARO STEEL PLANT - Community

Peripheral Development

Bokaro Steel is striving to reach the glow and warmth of its furnaces to people living
at the periphery of this thriving steel city. All villages and residential settlements
within a radius of 20 kilometers are covered under the peripheral development
programmes that benefit some 3 lakh persons. In recent years, the stress has been on

22
developing basic and infrastructure facilities like roads, bridges, schools, primary
health centres, wells, pumps etc. and renovating the existing facilities.

Regular health camps are organised to reach immunisation and free medicines to
people. Free medicines are also supplied to Asha Dan, a hospital for the lepers, and to
government hospitals in the event of natural calamities.

Bokaro Steel pitched in with its share in the relief of victims of natural calamities like
the Orissa cyclone, Gujarat earthquake and Bihar floods.

For a number of years, Bokaro Steel has been sponsoring a First Aid camp during
Shravani Mela for the Kanwariyas walking with holy water from Sultanganj in Bihar
to Deoghar in Jharkhand - a holy journey of some 100 kilometres.

Community Care

In a uniquely sensitive gesture of social care, Bokaro Steel has adopted children
belonging to the primitive Birhor tribe that has a very limited population. These
children live under the love and care of Bokaro Steel, getting free board, lodging,
dresses and education. They are getting developmental opportunities of the modern
world, without having to shun their own cultural moorings.

Encouraging Ancillaries

The ancillaries under the Bokaro Industrial Area Development Authority symbolise
the spill-over of economic activities due to Bokaro Steel. The Plant aids these
industrial units by providing testing facilities, technical support for modernisation and
upgradation, and preferential procurement orders in their areas of strength that match
Bokaro Steel's requirements.

To keep them abreast of the prevailing quality assurance standards, Bokaro Steel has
been giving free consultations to these units for developing their ISO 9001 QA
Systems.

Bokaro Mahila Samiti

Founded in 1964, Bokaro Mahila Samiti is a leading philanthropic organisation of the

spouses of steelmen, giving succour to needy people and creating opportunities for
skill enhancement and self-employment. The Samiti runs a number of schools for
poor children and for uneducated elderly and a children's library. The training centre
and Udyog Kendra with wings for making spices, flour, safety gloves, soap, shawls,
apparel and embroidered clothes, provide livelihood to a number of women. Free
medical consultation for neonates and their mothers and mobile dispensary play a key
role in providing primary healthcare to needy persons. The Samiti organises aid drives

23
for lepers, victims of natural calamities, children from poor families and other
resource-constrained people.

Steel Sector Growth to Rise to 10 to 12% by 2012 : ASSOCHAM

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has

projected that the domestic steel industry would grow by 10 to 12% against the
National Steel Policy (NSP) target of 6.9% growth by 2012 in view of growing boom
of the sector which will further accelerate.
Likewise, the Chamber has forecasted that by 2012, the operating capacities of
indigenous steel industry will rise to 73 MTPA against NSP projections of 57 MTPA.
Currently, steel sector operates at 42 MTPA capacities.
The ASSOCHAM’s projections are based on different levels of growth in industrial
production and Gross Fixed Capital Formation (GFCF) which have been contained in
a Background Paper brought out by the Chamber on Galvanising Future Growth of
Steel Sector.
The background paper will be released by Steel Minister, Mr. Ram Vilas Paswan at
ASSOCHAM organised India Steel Summit to be held here on Thursday (28th
September).
Commenting on findings of the Paper, Mr. Anil K. Agarwal, ASSOCHAM President
said “the increased rate of growth witnessed in both economy and steel in the last 3
years, the NSP target of 6.9% growth (57MTPA) by 2001-12 will be easily overshot
by at least 10 million tonnes at a growth rate of approx 10%”.
“If we take into account the 11th plan targets set in the draft paper, the steel demand
can grow to 73mtpa by 2012, overtaking projected NSP target by 15mtpa. Thus the
country can target steel demand growth anywhere between 10-12%, which would
require additional capacities of at least 26-31 mtpa by 2012 over and above the
current operating capacity of 42 mtpa”, added Mr. Agarwal.
However, the Indian Steel Industry’s growth need not be restricted to the limits set by
domestic growth. India being one of the lowest cost producers of steel in the world,
can easily replace over 50% of the cross border steel market as of today, which is
about 365mt as against India’s current share of 1.5% (5mt).
The Chamber feels that the Indian steel industry is no doubt ready to become the
Global Steel hub and will in probability overtake the NSP targets by a safe margin.
The 11th Five Year Plan targets should therefore be ambitious enough to create
globally competitive steel capacities to serve not only 10% plus growth in the
domestic market but also to gain significant presence in the global market.
It is of this view, “all said and done, developing new steel capacities through either
Brownfield or Greenfield route is not an easy proposition in India. Nearly 60% of the
existing steel capacities have no captive source of raw materials. Our analysis of the
competitiveness of steel industry and determinants of profitability in the steel industry
reveals that control over raw materials is the single most important source of
competitive advantage. Thus it is essential that both captive iron ore and coal mines
be provided to both Brownfield and Greenfield expansions of Indian steel companies

24
on Priority basis. Also provision of all necessary infrastructure at the project site by
the State Governments is of paramount importance to bring up globally competitive
capacities at a fast pace. It is also essential to evolve a conducive regulatory & fiscal
environment to enable the industry to achieve the required growth”, said
ASSOCHAM Chief.
The Paper also points out that steel user segments such as construction, consumer
durables, automobiles, etc are showing rapid growth (Graph below). Non-Food credit
growing at above 30% pa, and the rapidly growing over 300 million strong Indian
middle class, aided by this retail loan revolution, is fueling demand to new highs.
With India’s per capita income in PPP terms reaching the US$ 3330 level, India will
in the next few years reach the threshold US$4000-5000 level of per capita income to
enter the Steel Intensity stage of growth. Thus every indicator suggests that this is the
right time for the country to aim at ambitious targets for the steel industry.
It further says out that the emphasis on manufacturing and Infrastructure in the 11th
plan approach paper if accepted by the government provides a bright outlook for the
steel industry in India. If country achieves sustainable growth of 8.5% in the next 5
years, it would put India in a high growth trajectory similar to that witnessed in Korea
and China. However, these are ambitious targets which would require host of changes
in policies, institutions and governance. In addition to this, the actual growth of
manufacturing would depend on the global business cycles and level of infrastructure
availability in the country, felt Mr. Agarwal.
Referring to approach for the Steel Industry - rapid manufacturing growth will require
equally rapid Steel Growth”, ASSOCHAM Paper notes, “possessing all the necessary
factor advantages and also a rapidly growing domestic market, India is uniquely
placed to become the Steel hub of the World. Against fast growing economy and the
ambitious 11th plan targets, the target set by National Steel Policy (NSP) appears to
be very conservative. At the forecasted growth rates of 6.9% by 2011-12, the country
would end up with just 57mtpa of production capacity. However, India’s steel demand
having risen at a CAGR of almost 10% during the last 3 years along with the 11th
plant target of 12% manufacturing growth, the Steel Ministry and the industry should
aim at much higher growth than the one set by the NSP”.

WORLD CLASS STEEL MAKER

The parameters undertaken are like operating costs, ownership of lower cost ore and
coal, productive workforce, quality products, balance sheet, market for the product
and domestic growth rate of the industry.
The World Steel Dynamics have ranked the companies, which are as follows:
Company Name Rank
TATA 1
Usinor 2
Posco 3
CSN 4
Baosteel 5
China Steel 6
Gerdau 7

25
Nucor 8
Car-Tech 9
Nippon Steel 10
Severstal 10
Dofasco 11

Pre-1800

Arnoux, (2001) shows how in mining and the metallurgical industry, the process of
technical innovation and the growth of demand in the period 1450-1550 made
possible the emergence of new types of production and commercialization, as
happened in the iron-making industry with the diffusion of Walloon processes
throughout northwestern Europe. The mechanization of the forge resulted in rising
production of iron and steel for the interregional and international markets, an
increasing use of wood, and a global process of salarization of the iron-workers. The
growing authority of the forge masters over the workers in smelting and hammering
plants signals the development of forges as industrial firms. This process was
accompanied by strong intervention on the part of the state and other public
institutions by way of orders, patents to protect innovations, and even state-owned
industrial factories.

19th century trends

The growth of pig iron output was dramatic. Britain went from 1.3 million tons in
1840 to 6.7 million in 1870 and 10.4 in 1913. The US started behind, but grew faster,
with .32 million tons in 1870, 1,74 million in 1870, and 31.5 in 1913. Germany went
from .19 million tons in 18509 to 1.56 in 1871 and 19.3 in 1913. France, Belgium,
Austria-Hungary, and Russia, combined, went from 2.2 million tons in 1870 to 14.1
million tons in 1913, on the eve of the World War. During the war the demand for
artillery shells and other supplies caused a spurt in output and a diversion to military
uses.

Before about 1860 steel was an expensive product, made in small quantities and used
mostly for swords, tools and cutlery; all large metal structures were made of wrought
or cast iron. Steelmaking was centered in Sheffield, Britain, which supplied the
European and the American markets. The introduction of cheap steel was due to the
Bessemer and the open hearth processes, two technological advances made in
England. In the Bessemer, or pneumatic, process, molten pig iron is converted to steel
by blowing air through it after it was removed from the furnace. The air blast burned
the carbon and silicon out of the pig iron, releasing heat and causing the temperature
of the molten metal to rise. Henry Bessemer demonstrated the process in 1856 and
had a successful operation going by 1864. By 1870 Bessemer steel was widely used
for ship plate and rails.

After 1890 the Bessemer process was gradually supplanted by open-hearth

steelmaking and by the middle of the 20th century was no longer in use. The open-

26
hearth process originated when the Siemens brothers of Germany used the heat in the
waste gas exiting a furnace to preheat the entering fuel and air. By 1861 William
Siemens experimented using an open hearth heated by a gas flame. By 1867 he had
succeeded in making steel from pig iron and iron ore in an open hearth. In France in
1867 Emile and Pierre Martin, using a Siemens furnace, made good quality steel by
melting wrought iron and scrap in an open hearth. The usual open-hearth process used
pig iron, ore, and scrap, and became known as the Siemens-Martin process. The
Siemens-Martin process allowed closer control over the composition of the steel; also,
a substantial quantity of scrap could be included in the charge. The crucible process
remained important for making high-quality alloy steel into the 20th century. Paul L.
T. Héroult-Heroult in France and Fredrik Kjellin in Sweden adapted the electric arc
furnace to steelmaking in 1900. By 1920 the electric furnace had largely supplanted
the crucible process for specialty steels.

Britain

In 1875 Britain accounted for 47% of world production of pig iron and almost 40% of
steel. 40% of British output was exported to the U.S., which was rapidly building its
rail and industrial infrastructure. Two decades later in 1896, however, the British
share of world production had plunged to 29% for pig iron and 22.5% for steel, and
little was sent to the U.S. The U.S. was now the world leader and Germany was
catching up to Britain. Britain had lost its American market, and was losing its role
elsewhere; indeed American products were now underselling British steel in Britain.

Abé, (1996) explores the record of iron and steel firms in Victorian England by
analyzing Bolckow Vaughan & Company. The leading problem of the company was
its focus on the wrong technology, not switching to the open hearth furnace method
until long after the technology was developed. It is apparent that the company was not
focused on long-term decision-making.

Since 1945

Blair (1997) uses the history of the British Steel Corporation (BSC) since World War
II to illustrate the problem of government intervention in a market economy.
Following the war it was difficult to persuade iron and steel companies to upgrade
their plants despite the fact that the industry had followed a patchwork growth pattern
that needed to be rationalized to improve efficiency in the face of world competition.
In 1946 the first steel development plan was put into practice with the aim of
increasing capacity, and the Iron and Steel Act of 1949 led to nationalization of the
industry, but these measures were undone by Conservative governments in the 1950s.
In 1967, under Labour control, the industry was again nationalized. But by then
twenty years of political manipulation had left companies such as BSC with serious
problems: a complacency with existing equipment, plants operating under capacity
(low efficiency), poor quality assets, outdated technology, government price controls,
higher coal and oil costs, lack of funds for capital improvement, and increasing world

27
market competition. By the 1970s the government adopted a policy of keeping
employment artificially high in the declining industry, and this was especially difficult
for BSC as it was a major employer in a number of depressed regions. Eventually, in
the 1980s BSC was re-privatized as British Steel. Under private control the company
has dramatically cut its work force and undergone a radical reorganization and
massive capital investment to again become competitive in the world marketplace.

British Empire
In Australia, the Broken Hill Propriety Company Limited's (BHP's) Newcastle Iron
and Steel Works was a major mill from its commissioning in 1915 until its closure in
1999. McIntyre (2005) looks at the boilermaker, his history and culture, his task, and
the steelworks. Drawing on historical method, cultural studies, and social theory,
McIntyre explores the world of the steelworks boilermaker as a species of industrial
man, including the ideas, values, symbols, and practices which shaped his
expectations, outlook, and actions as a skilled industrial worker.

Germany

The Ruhr Valley provided an excellent location for the German iron and steel industry
because of the availability of raw materials, coal, transport, a skilled labor force,
nearby markets, and an entrepreneurial spirit that led to the creation many firms, often
in close conjunction with coal mines. In 1825 pig iron production in the Ruhr
amounted to only 5% of total German output. By 1850 there were 50 ironworks with
2,813 full-time employees. The first modern furnace was built in 1849. The creation
of the German Empire in 1870 gave further impetus to rapid growth, as Germany
started to catch up with Britain. From 1880 to World War I, the industry of the Ruhr
area consisted of numerous enterprises, each working on a separate level of
production. Mixed enterprises could unite all levels of production through vertical
integration, thus lowering production costs. Technological progress brought new
advantages as well. These developments set the stage for the creation of combined
business concerns.

During the last third of the 19th century the most important factors for the growth of
German industries and enterprises were mass production, the increased speed of
capital flow, diversification of products, and technological progress. Many diverse,
large-scale family firms were forced to reorganize in order to adapt to the changing
conditions. In the 1870s, economic depression reduced the earnings in the German
iron and steel industry. In 1873 and in 1878 the Haniel family, the owners of the
GHH, modified the basic organizational structure of the company, and between 1872
and 1874 the Krupp family modified the structure of top management. In addition
Alfred Krupp initiated a thorough reform and improvement of the accounting system
as a result of a grave shortage of working capital. New guidelines were laid down for
the accounting systems, a specialized bureau of calculation was established as well as
a bureau for the control of times and wages and the so-called Rechnung-Revisions-
Büro as methods of the revision of these calculations. The measures taken proved to
be so elaborated and adequate to the existing conditions and the future changes in the
Economy, that the rival firm GHH wished to install similar organizational reforms.
The establishment of the Vereinigte Stahlwerke (United Steel Works) by several

28
major iron and steel corporations in 1926 was the most famous rationalization project
in Germany. Previous research has stressed specific German lines of business
organization, but the development of the United Steel Works until 1934 should be
described as an Americanization of the German iron and steel industry. With regard to
the company's internal structure, management strategies, use of technology, and
transition to mass production there were many similarities to the US Steel
Corporation. The United Steel Works in Germany developed a multi-divisional
structure and aimed at return-on-investment as a measure of success. The
management of this "old industry" company was at least as up to date as that of the
better known corporations in the electrical industry. The important difference with
regard to American was that consumer capitalism as an industrial strategy did not
seem plausible to German steel industrialists.

Nazi Era

Stallbaumer, (1996) uses the Flick Concern's participation in the "aryanization" of

Hochofenwerk L ubeck AG, and the Julius and Ignaz Petschek Braunkohle properties
located in Germany for her case study of the relationship between industry and state
in the Third Reich. By virtue of the state's ant-semitic policies, the Flick Concern was
able to avail itself of a business opportunity which otherwise might not have existed.
As a result of the deals which the Flick group negotiated, they were able to expand
into pig iron production and Braunkohle operations which fit into the long-range
expansion goals of this coal and steel firm. Throughout this process, the Flick group
viewed the Nazi state as a tool which could be manipulated to their advantage if they
adopted a cooperative attitude. However, as the "aryanization projects" became more
protracted at the same time that Germany moved closer to war, the Flick group's
ability to reach deals on their own terms became increasingly difficult. The complex
picture which emerges from a detailed analysis of Flick's role in these "aryanizations"
reveals that "understandings" with Nazi state officials were based upon the exigencies
of the moment and that, in turn, made predictable results in the business world
increasingly difficult. The Flick group's experience not only sheds light on the nature
of industry-state relations, but it is also a microcosm of some dominant and consistent
features of the Nazi state: rivalry for control of decision-making; the central role of
autarkic goals in policy decisions; the determinative role of racial and etatist ideology;
and the polymorphous character of policies against Jews.

In Nazi Germany prisoners of war provided the main source of French forced labor at
the beginning of World War II. The Germans turned also to the civilians in countries
they had conquered to increase the labor force, notably in the metalworking
industries, as early as autumn 1940. However, the lack of volunteers led the French
government to introduce a law in September 1942 effectively deporting French
workers to Germany, where, by August 1944, they constituted 15% of the labor force.
While the proportion of French workers in civil and military positions reached its
peak by 1943, they nevertheless maintained a significant presence in the steel- and
ironworks, the largest number working in the giant Krupp works in Essen. Low pay,
long hours, and often miserable living conditions in which poor housing, insufficient
heating, and limited food supplies were frequent, combined with harsh discipline and
inadequate medical facilities, became more prevalent by the end of the war.

29
Other Europe

In 2006 Mittal Steel (based in London, but controlled by the Mittal family) acquired
Arcelor, based in Luxembourg, for $38.3 billion to become the world's biggest steel
maker, with operations throughout Europe, the U.S. and Asia.

French steel and metal industries revealed aspects of retardation, and these were more
the result of social and economic attitudes than inherent geographic, population, or
resource factors. Despite a high national income level, France did suffer from
industrial retardation that weakened its economy.

In Italy a shortage of coal led the steel industry to specialize in the use of hydro-
electrical energy, exploiting ideas pioneered by Ernesto Stassano from 1898. Despite
periods of innovation (1907-14), growth (1915-18), and consolidation (1918-22),
early expectations were only partly realized. Electrical processes were an important
substitute, yet did not improve competitiveness or reduce prices; instead, they
reinforced the dualism of the sector and initiated a vicious circle that prevented
market expansion.

In Spain, iron and steel wire manufacturers provided a wide and heterogeneous range
of products for agriculture, mining, and several industries (paper, flour products, and
machinery) during the process of Spanish industrialization. Fernández Pérez, (2005)
provides new data on the growth of this auxiliary sector for the years 1856-1935, a
period that has been neglected in research on Spanish metallurgy. Of particular
importance are data about Spanish iron and steel wire manufacturing workshops and
factories and imports and exports. Topics addressed include technological change,
geographical location, the entrepreneurial structure of this sector, collusive
agreements, and the institutional environment.

In Yugoslavia only by studying how enterprises worked in practice can the conditions
undermining the economic system of socialist Yugoslavia be understood. The case of
Metallurgical Kombinat Smederevo, a huge iron and steel enterprise that ran massive
deficits, had low productivity, and saddled the republic of Serbia with foreign debt, is
illustrative. The enterprise's losses resulted from an unbalanced production structure,
its location and lack of access to raw materials, an inability to construct an efficient
plant, service machinery, or manage spare parts inventories, and an orientation toward
unprofitable exports. Because no one had the responsibility and incentive to improve
efficiency the country continued to be saddled by its losses.

Asia: Japan, India, China

Japan

Yonekura, (1990) shows the steel industry was central to the economic development
of Japan. The nation's sudden transformation from feudal to modern society in the late
nineteenth century, its heavy industrialization and imperialist war ventures in 1900-
1945, and the post-World War II high-economic growth, all depended on iron and

30
steel. The other great Japanese industries, such as shipbuilding, automobiles, and
industrial machinery are closely linked to steel. From 1850 to 1970, the industry
increased its crude steel production from virtually nothing to 93.3 million tons (the
third largest in the world).

Many analysts credited the role of the government and especially the activist Ministry
of International Trade and Industry. However, the successful transfer of technology
from the West and the establishment of the competitive firms involved far more than
were transporting hardware from one continent to another, or of the government's
shrewdly building steel mills. For modern capital intensive industries, such as the iron
and steel, technological and organizational capabilities were absolute prerequisite to
achieve competitiveness. Japan internally developed the necessary technological and
organizational capabilities, planned the transfer and adoption of technology, and
gauged demand and sources of raw materials and finances.

The post-WW2 development of the industry proved to be the historical solution to a

long-standing problem, the unbalanced development between iron and steel
production. This historical solution was not initiated by the government but by one
entrepreneur, encouraged by the postwar discontinuities and the prewar technological
and organizational capabilities. The Japanese government learned from the over-
controlled economy during World War II how not to control private firms.

India

The Indian steel industry began expanding into Europe in the 21st century. In January
2007 India's Tata Steel made a successful $11.3 billion offer to buy European steel
maker Corus Group PLC.

United States

From 1875 to 1920 American steel production grew from 380,000 tons to 60 million
tons annually, making the U.S. by far the dominant world leader. The annual growth
rates 1870-1913 were 7.0% for the US; 1.0% for Britain; 6.0% for Germany; and
4.3% for France, Belgium and Russia, the other major producres. This explosive
growth rested on solid technological foundations, assisted by other factors, including
(according to steelmen) the protective tariff and the continuous rapid expansion of
urban infrastrures, office buildings, factories, railroads and other sectors that
increasingly demanded steel. A key element was the easy availability of iron ore, coal,
and manpower. Iron ore of fair quality was abundant in the eastern states, but the
Lake Superior region contained huge deposits of exceedingly rich ore; the Marquette
Range was discovered in 1844; operations began in 1846. Other ranges were opened
by 1910, including the Menominee, Gogebic, Vermilion, Cuyuna, and, greatest of all,
(in 1892) the Mesabi range in Minnesota. This iron ore was shipped through the
Lakes to ports such as Chicago, Detroit, Cleveland, Erie and Bussalo for shipment by
rail to the steel mills. Abundant coal was available in Pennsylvania and Ohio.
Manpower was short. Few Americans wanted to work in the mills, but immigrants
from Britain and Germany (and later from Eastern Europe), arrived in great numbers.

In 1869 iron was already a major industry, accounting for 6.6% of manufacturing
employment and 7.8% of manufacturing output.

31
Carnegie

Andrew Carnegie, an immigrant from Scotland, was a salesman, promoter and

financier, but not an engineer; he did not directly supervise his steel mills. His
company's great innovation was in the cheap and efficient mass production of steel
rails for railroad lines. It was based in Pittsburgh, Pennsylvania, the center of the
American industry until the late 20th century.

In the late 1880s, Carnegie Steel was the largest manufacturer of pig iron, steel rails,
and coke in the world, with a capacity to produce approximately 2,000 tons of pig
metal per day. In 1888, Carnegie bought the rival Homestead Steel Works, which
included an extensive plant served by tributary coal and iron fields, a 425-mile (685
km) long railway, and a line of lake steamships. A consolidation of Carnegie's assets
and those of his associates occurred in 1892 with the launching of the Carnegie Steel
Company.

By 1889, the U.S. output of steel exceeded that of Britain, and Andrew Carnegie
owned a large part of it. By 1900, the profits of Carnegie Bros. & Company alone
stood at $40,000,000 with $25,000,000 being Carnegie's share. Carnegie's empire
grew to include the J. Edgar Thomson Steel Works, Pittsburgh Bessemer Steel Works,
the Lucy Furnaces, the Union Iron Mills, the Union Mill (Wilson, Walker & County),
the Keystone Bridge Works, the Hartman Steel Works, the Frick Coke Company, and
the Scotia ore mines. Carnegie, through Keystone, supplied the steel for and owned
shares in the landmark Eads Bridge project across the Mississippi River in St. Louis
(completed 1874). This project was an important proof-of-concept for steel
technology which marked the opening of a new steel market.

US Steel

By 1900 the US was the largest producer and also the lowest cost producer, and
demand for steel seemed inexhaustible. Output had tripled since 1880, and prices fell.
Productivity-enhancing technology encouraged faster and faster rates of investment in
new plants. However during recessions, demand fell sharply taking down output,
prices, and profits. Charles M. Schwab of Carnegie Steel proposed a solution:
consolidation. J. P. Morgan and Elbert Gary led the team that worked with Carnegie
and Schwab to create United States Steel, by far the largest non-railroad corporation
in the world in 1901.

US Steel combined finishing firms (American Tin Plate, American Steel and Wire,
and National Tube) with two major integrated companies, Carnegie Steel and Federal
Steel. It was capitalized at $1.466 billion, and included 213 manufacturing mills, one
thousand miles of railroad, and 41 mines. In 1901, it accounted for 66% of America's
steel output, and almost 30% of the world's. During World War I, its annual
production exceeded the combined output of all German and Austro-Hungarian firms.

Other firms
Bethlehem Steel

32
Charles Schwab (1862- 1939) and Eugene Grace (1876–1960) made Bethlehem Steel
the second-largest American steel company by the 1920s. Schwab started with
Carnegie Steel and by 1897 was its president. He became the fiorst president of US
Steel in 1901; Judge Gary was his boss. He left to become head of Bethlehem Steel in
1903; it concentrated on government contracts, such as ships and naval armor, and on
construction beams. rom 1945 to 1959, Bethlehem's capacity rose from 13 million
tons a year to 23 million tons from 1945 to 1955, reflecting the widespread optimism
in the steel industry. However the company refused to invest in new technologies then
being developed in Europe and Japan. Seeking labor peace in order to avoid strikes,
Bethlehem like the other majors agreed to large wage and benefits increases that
obliged them to raise prices at a time when the foreign steel companies had just begun
to challenge their American counterparts. As Bethlehem's comptroller explained,
"We're not in business to make steel, we're not in business to build ships, we're not in
business to erect buildings. We're in business to make money." The company's
president Arthur Homer explained in 1962, that Bethlehem was profitable enough and
did not need to innovate. All the plants were making money. "We have a nice
business as it is," he boasted. The problem was that short term profits meant avoiding
innovations and that led to long-term competitive weaknesses.

Republic Steel

Cyrus Eaton (1983-1979) in 1925 purchased the small Trumbull Steel Company of
Warren, Ohio, for $18 million. In the late 1920s he purchased undervalued steel and
rubber companies. In 1930, Eaton consolidated his steel holdings into the Republic
Steel Company, basedin Cleveland; it became the third-largest steel producer in the
U.S., after US Steel and Bethlehem Steel.

Recent decades

Growth continued at a rapid rate but other industries grew even faster, so that by
1967, as the downward spiral began, steel accounted for 4.4% of manufacturing
employment and 4.9% of manufacturing output. By 2001 steel accounted for only
0.8% of manufacturing employment and 0.8% of manufacturing output.

Comparison of steel grades by chemistry[1][2]

EN steel SAE BS
EN steel name UNS DIN UNI JIS
number grade 970

Carbon steels

33
 040A1
5
1.1141 CK15 080M1 C15 S15
C15D
1.0401 1018 C15 5 C16 S15CK
C18D
1.0453 C16.8 080A1 1C15 S15C
5
EN3B

060A4
1.0503 C45 7 C45
1.1191 CK45 080A4 1C45 S45C
C45 1045
1.1193 CF45 6 C46 S48C
1.1194 CQ45 080M4 C43
6

212M4
1.0726 35S20 1140/11 35S20
0
1.0727 45S20 46 45S20
En8M

230M0
1.0715 9SMn28 CF9SMn28 SUM 25
11SMn37 1215 7
1.0736 9SMn36 CF9SMn36 SUM 22
En1A

230M0
SUM
7
CF9SMnPb2 22L
Leade
1.0718 11SMnPb30 9SMnPb28 9 SUM
12L14 d
1.0737 11SMnPb37 9SMnPb36 CF9SMnPb3 23L
En1A
6 SUM
Leade
24L
d

Alloy steels

SCM
708A3
25CrMo4 25CrMo4 420
0
1.7218 4130 GS- (KB) SCM
CDS1
25CrMo4 30CrMo4 430
10
SCCrM1

1.7223 42CrMo4 4140/41 41CrMo4 708M4 41CrMo4 SCM

1.7225 42CrMo4 0 38CrMo4 440

34
 708A4
SCM
2
(KB) 440H
1.7227 42CrMoS4 709M4
42 G40 CrMo4 SNB 7
1.3563 43CrMo4 0
42CrMo4 SCM 4M
En19
SCM 4
En19C

35NiCrMo6 SNCM
34CrNiMo6 817M4
1.6582 (KB) 447
34CrNiMo6 4340 40NiCrMo8- 0
1.6562 40NiCrMo7 SNB24-
4 En24
(KB) 1-5

805A2
1.6543 21NiCrMo22 0 SNCM
20NiCrMo2-2 8620 20NiCrMo2
1.6523 21NiCrMo2 805M2 200 (H)
0

Stainless steels

1.4310[cit S3010
ation needed] X10CrNi18-8 301
0

1.4318[cit
ation needed] X2CrNiN18-7 301LN

202S
S3030 X10CrNiS18 21 X10CrNiS18
1.4305 X8CrNiS18-9 303 SUS 303
0 -9 En58 -09
M

304S
15
304S
X5CrNi18-9
16 SUS 304
X2CrNi19-11 S3040 X5CrNi18- X5CrNi18-
1.4301 304 304S SUS
X2CrNi18-10 0 10 10
18 304-CSP
XCrNi19-9
304S
25
En58E

35
 S3040 304S SUS304
1.4306 X2CrNi19-11 304L
3 11 L

1.4311[cit X2CrNiN18- S3045

ation needed] 304LN
10 3

1.4948[cit S3040
ation needed] X6CrNi18-11 304H
9

1.4303[cit S3050
ation needed] X5CrNi18-12 305
0

X5CrNiMo1
316S
7 12 2 X5CrNiMo1
29
X5CrNiMo17- X5CrNiMo1 7 12
316S SUS 316
1.4401 12-2 S3160 7 13 3 X5CrNiMo1
316 31 SUS316
1.4436 X5CrNiMo18- 0 X5CrNiMo 7 13
316S TP
14-3 19 11 X8CrNiMo1
33
X5CrNiMo 7 13
En58J
18 11

X2CrNiMo17- S3160 316S SUS316

1.4404 316L
12-2 3 11 L

1.4406[cit X2CrNiMoN1
ation needed]
7-12-2 S3165
316LN
1.4429[cit X2CrNiMoN1 3
ation needed]
7-13-3

S3163 X6CrNiMoT 320S

1.4571 316Ti
5 i17-12 33

1.4438[cit X2CrNiMo18- S3170

ation needed] 317L
15-4 3

S3210 X6CrNiTi18- 321S

1.4541 321 SUS321
0 10 31

36
1.4878[cit X12CrNiTi18- S3210
ation needed] 321H
9 9

1.4512[cit S4090
ation needed] X6CrTi12 409
0

S4100
410
0

S4300 430S
1.4016 430 X6Cr17 SUS430
0 17

S4400
440A
2

1.4112[cit S4400
ation needed] 440B
3

1.4125[cit S4400
ation needed] 440C
4

S4402 X14CrMoS1 SUS430

1.4104 440F
0 7 F

1.4539[cit X1NiCrMoCu N0890

ation needed] 904L
25-20-5 4

1.4547[cit X1CrNiMoCu S3125

ation needed]
N20-18-7 4

Tool steels

X100CrMoV X100CrMoV
1.2363 X100CrMoV5 A-2 BA 2 SKD 12
51 5-1 KU

37
 X153CrMoV1 X153CrMoV X155CrVMo
1.2379 D-2 BD 2 SKD 11
2 12-1 12-1

95MnWCr-5
1.2510 O-1 100MnCrW4 Bo 1
KU

QUALILATIVE ANALYSIS OF PRODUCTION AND

SALES

Steel making is an energy intensive industry and for this reason, energy prices,
especially oil and natural gas prices, have an important effect on this industry. In
2008, the
sharp rise of crude oil as well as iron ore price caused the sharp rise of steel price
because
of the rise in prices of key production factors. But Iran's producers experienced almost
no
rise in their production factor prices especially key factors of energy and iron ore
prices.
As a matter of fact, inexpensive energy and iron ore are competitive advantages of
steel
makers in Iran because the huge natural resources of the country let the government to
provide inexpensive production factors for the industry. But these inexpensive factors
have
some side effects that one of them is on the stock price of steel makers in stock
market.
In this paper we are to model the effects of fluctuations in world steel price on stock
price of one of Iranian steel producers. In the end, we will offer some policies to
mitigate
the fluctuations of stock prices.
1. Introduction
Steel is a fundamental material for many industries, from automotive to household
industries. With an exception of crude oil, no material is as central to economic
growth
processes and industrial development as steel.
As a consequence of globalization and the associated catching-up processes in
emerging market economies, steel has experienced a worldwide boom. World crude
steel
production has almost doubled during the last 15 years. World crude steel production

38
reached more than 1,344 million tons in 2007, an increase of almost 7% over 2006.
This
increase is largely due to growth in China, whose production grew by 16% in 2007.
This
country experienced a growth of 19% in the year before namely 2006. Table 1 shows
the
world crude steel production from 1997 to 2007.
Source: International Iron and Steel Institute (IISI)
The price of steel billet as an important intermediate product has risen in recent years.
The Fig. 1 shows the monthly average price of billet from 2006 to the end of 2008. As
it is
shown in this figure, although the prices doubled in the first six months of 2008, in
the
middle of 2008 due to the financial crisis, the prices fell down sharply. Actually the
year
2008 was the most turbulent year in the steel market; the price doubled in just 6
months and
suddenly decreased by 70% just in 3 months. This sharp rise and drastic fall were the
result
of a similar rise and fall in the oil market.
subject is important, because of the unique nature of steel market in Iran. Before
introducing the steel market of Iran, it is necessary to describe some technical aspects
of
different steel production methodes.
1.1 Steelmaking Methods
Steelmaking is a process which needs huge amounts of energy. This is the most
important element and the basic difference of various methods of steelmaking.
Production
processes can be divided into two categories:
Coal (coke) based processes (Blast Furnace)
Gas based processes (Direct Reduction)
In addition to energy consumption, these two methods differ from each other in some
other aspects such as iron ore, semi-finished products, environmental and investment
issues. Table 2 shows a brief comparison between the two processes.
Table 2: Comparison of two methods of steel making
Coke-based processes Gas-based processes
Iron Ore Specification
In some cases, this method is able
to process on wide range of iron
ore types. So it is more flexible.
Just limited to Direct Reduced
Iron (DRI)
Semi-Finished Products Is called Pig iron Is called Sponge iron
Environmental Aspects
More polluting than gas-based
Process
Less polluting
Investment costs No difference No difference
Operation costs Coal is important Natural Gas is important
With this brief description of the steel market and different steel making methods, in

39
the next section we will describe the conditions of Iran s steel industry.
1.2 Iran's Steel Industry
The foundation of the first steel-making company in Iran was laid after signing a
contract with the USSR in 1965 to finance and erect a steel plant in Isfahan. The
company,
called Zob-e-Ahan, was based on coal process and blast furnace. However, after a few
years of operation, Zob-e-ahan was facing some problems such as shortage of scrap
and
quality coking coal. These problems, the huge available resources of natural gas, and
the
required raw materials forced the government to convert its steelmaking technology to
direct reduction technology.
Since 1990s, the expansion of steel industry in Iran has changed the technology route
to make the best use of locally available iron ore and natural gas. This change caused
Iran
to become the third country in the world that produces steel with DRI1 technology
after
Mexico and Venezuela.
These inexpensive natural resources are the roots of a problem that this paper is aimed
to
model. Table 3 shows Iran's Production, Export and Import of crude steel. According
to
this table, it s obvious that there is a surplus of demand in the steel market which
forces the
importation of steel.

1 Direct Reduced Iron

2. Problem Definition

Iran is among the countries rich in natural resources especially crude oil and natural
gas. Iran has the third largest oil reserves and also has the second largest natural gas
reserves in the world after Russia. These rich natural resources have brought both
advantages and disadvantages for Iran. The most important advantages are easy
billion
dollar income from selling oil and other natural resources, developing energy
consuming
industries with high profit margin due to availability of inexpensive production
factors, and
even political power in the region and the world.
On the other hand, the easy income reduced the innovation and other intellectual
productions of the country. Actually the oil revenue was about 80% of the total
revenue of
Iran's government in 2008. That easy billion dollar income has also created lots of
local
party conflicts over the control and consumption of it. And finally, the most important
disadvantage of these natural resources is the inefficient and energy consuming
industries
that are not able to compete with their global competitors even with subsidized
energy. For

40
example, in electricity production sector, most of the electricity is produced in steam
boilers, using inefficient combined-cycle gas-turbine technology.
As described earlier in the steel industry section, most of Iran s steel making plants
are based on gas technology or DRI technology that uses huge amount of natural gas
and
electricity as energy factors. To support domestic industries, government decided to
give
steel plants subsidized production factors that three key subsidized factors are natural
gas,
electricity and iron ore. Until two years ago, all steel plants were government-owned
so the
steel making companies had no control over pricing their final product. Hence, the
steel
price in Iran was sometimes less than half of its world price.
Government intervention in pricing caused many problems and created a black
market. For example in some cases the black market price was twice the government
price,
which resulted in corruption in the market.
Therefore, the government decided to
change its policy and liberated steel price. From three years ago, steel is made with
subsidized production factors, but it is sold in Iranian Metal Exchange with free
market
mechanism in which the price follows the world price of steel plus tariff and other
costs.
the monthly average price of billet sold by one of Iranian steel makers,
Khoozestal Steel Company (KSC), with the CFR price of Billet in Bandar-abbas port
in
south of Iran.
Billet price: CFR of Bandar-Abbas as Importation Price and KSC Sell Price
Source: AGAHAN Company Investment Department
When the companies were government-owned, it was considered that this profit will
return to the government treasury. In addition, it would support domestic industries by
providing subsidized production factors. But another policy was executed two years
ago;
"Mass privatization of Government-Owned Companies". With the entrance of steel
companies to the Iranian National Stock Market, everything changed. These
companies
used subsidized inputs but sold their products in free market and their profit directly
was
divided among private share holders.
Another source of problem of subsidized production factors in Iran is the fixed price
policy over a year. Although it is obvious in many countries that when the global
price of a
product rises, the domestic prices of that product and related products will rise too, in
Iran
the price of many important factors like oil, gasoline, electricity and iron ore are set
for one
year and nothing can change those prices during that year, even if the global prices
doubled
or tripled!

41
The mentioned policies in natural gas, electricity and iron ore (main production
factors of steel making) are shown Fig. 3, Fig.4 and Fig. 5.
With this description of steel market in Iran, we consider the effects of price
fluctuations in world steel market in the last year on Khuzestan Steel Company (KSC)
stock price which is a domestic producer of crude steel in Iran. We selected that
company
for three main reasons:
1- It is one of companies that were privatized two years ago as a step in mass
privatization program in Iran. So its stock price and its financial statements are
publicly
available.
2- Its production factors are entirely subsidized although the company is privatized
and sells its products in free market with global price.
3- The main products of the company are billet, bloom and slab, namely crude steel
that is suitable for our purpose because these products are to some extent standard
products.
Hence, we can track the world price easily. Other steel making companies in Iran
produce

3. Dynamic Model Description

The model is established in two main sectors, stock market sector and steel pricing
sector. These two sectors by interaction with each other create the behavior of the
stock
price as a focus of attention in this paper. Based on the literature review mentioned in
the
previous parts, dynamics which run these two sectors are discussed here.

Stock market sector

Dynamics of stock market is well described in the literature. In this sector, two main
loops in a tight relation result in response of stock market. [8, 9] The first loop,
demonstrates the change of attractiveness of investment in the stock market and so its
demand due to the stock price. This loop is shown in Fig. 7. In the figure, higher stock
price leads to higher capital gain and total return on stock. Increasing of capital gain
makes
the stock market more attractive for investment so the total attractiveness of the stock
market will increase. After a while this attractiveness become known by people so
perceived attraction will increase.
This perceived attraction comes from the delay between the rise in capital gain
and people awareness of this rise. It means that perceived attraction does not change
as
soon as capital gain increased. It needs some time for people to know the
attractiveness of
the market to invest in. Higher perceived attraction result in increasing of demand for
stock and higher demand leads to higher stock price. Therefore the loop which is a
reinforcing one is formed.

Stock Market Attractiveness loop

42
There is another loop which limits the rise of stock price as a balancing loop. This
balancing loop comes from a very important factor which is P/E ratio (Profit/Earning
ratio).
This indicator is very significant to investors, which shows a combination of profit as
well
as the risks behind their investment. Another important factor in this loop is the
number of
shares which influence the earning.
In the model, Earning is the point of relation between two sectors. In this loop
rising of stock price will increase the P/E ratio. By going far from the normal P/E
ratio,
attractiveness of the stock market will be affected and will decrease. Decreasing of
attractiveness will decrease the perceived attraction and demand for stock as well.
Therefore the balancing loop is shaped.
Fig. 8 shows both loops. As shown in the figure, the dynamics of stock market
contains two major loops which interact with each other to balance the stock price.
In this sector the dynamics of pricing the steel in the country according to the
domestic costs and world price and its effect on the earning are modeled. Domestic
steel
price rates (increasing rate and decreasing rate) are both strongly affected by the
world
price. In this sector Pricing strategy of the domestic steel is one of the most important
points to change the behavior of the model as well as the policies which are going to
be
discussed further.
Pricing strategy is based on the adjustment of the domestic steel price with the
world s steel price. If the current domestic steel price is lower than world price, then
the
domestic price will increase to adjust itself with the world price so the increasing rate
of the
domestic price will change according to the discrepancy between them. On the other
hand,
if the domestic price is higher, the decreasing rate will work to adjust the domestic
price
with the world price.
Furthermore, there is a time delay for this adjustment during increasing time as
well as decreasing time. Regarding the experts in steel field, the time delay for
increasing
rate is less than that of decreasing rate. It means that by an increase in the world price,
the
domestic price will increase sooner but by a decrease in world price, domestic price
will
decrease with a considerable delay. Therefore the parameter Delay1 is one third of
Delay 2 . Another point in this part is that the domestic price will never become less
than
the domestic cost. It means that the minimum domestic price will be equal to the
domestic
cost regardless of the world price because government uses tarrifs to support the
domestic
producers.

43
Second concept in this sector is the effect of the domestic price on the demands
fulfilled by imported products and on the other hand by domestic products. Total
domestic
demand for steel is assumed to be constant. Division of the demand between these
two
groups is assumed to be proportional to the world price and domestic price. Besides, it
is
assumed that all the domestic production is used, even if it is more expensive than the
world one because of the surplus demand of Iran's market and also the delay of
providing
the import steel.
. There
are some points about the stock and flow model which is mentioned here.
Stock price market which shows the dynamic of the stock market is based on the
two positive and negative loops. In constructing the model there are some
assumptions
worthy of notice. Stock supply and total demand for stock in this section have
constant
values over time. There are two functions acting on the Attractiveness . F1 shows the
Attractiveness as a function of Capital Gain . This function is an increasing function
which shows that Attractiveness is positively influenced by the changes in Capital
Gain and will change in the same direction. F2 describes Attractiveness as a function
of
P/E ratio to Normal P/E ratio . This function starts from a maximum value which is
for
the P/E ratio equal to zero and then decline by increasing the proportional P/E ratio.
When
this proportional value approach a maximum value the Attractiveness will be zero.
Another function in this sector is F3 which describes the Stock price change as a
function of proportional value of Stock supply to Demand for stock . As this
proportion
approaches one the function will be zero which means that there will be no rate
change. As
this proportion go below zero the price will increase by a negative rate. Therefore, the
stock
price will change in accordance with the demand for it and the constant supply of the
stock
in the stock market.
Pricing sector can be seen in the left part of the model. It models the pricing strategy
which leads to the demands fulfilled by domestic products as well as the demands
fulfilled
by imported products. These demands then form the earning. Parameter Earning is
gained by the Demand fulfilled by the domestic products , Number of shares and
Domestic cost . In this sector, Domestic cost and Number of shares are assumed to be
constant.
As mentioned above two Time delays affecting the rates of Domestic steel price
are different due to the perception of people in increasing or decreasing the steel
price. It is
modeled as the time delay in decreasing rate is three times more than the delay time in

44
increasing rate and this happens because of hope that the decline in current domestic
steel
price will not last for a long time.
5. Simulation and Results
As described, this model consists of two sectors. The first sector is the stock market
and the second sector is a description of how producers price their products.
The main concern here is that the world price of the steel fluctuates based on the
price of production factors such as gas and iron ore, but the price of these inputs are
under
the control of government through some subsidizing programs during these years in
Iran,
which results in the constant production cost during these years.
Regarding the constructed model, we want to examine the effects of such
fluctuations on the stock price and its situation. We have three different scenarios:
(1) There is no change in the steel world price.
(2) There is an increase in the price of production factors which results in an
increase in the world price of steel.

(3) There is a fluctuation in the steel world price which generates an increase in the
price of production factors and afterward a decrease in the factor prices.

(4) In this scenario there is also a fluctuation in steel price, but the level of steel
price reduction is to the extent which is lower than the domestic production cost.
In this section we will compare the results of these scenarios the change
in the world price under each of these circumstances is shown:
Based on our simulations for each of these scenarios were
obtained. As the blue diagram shows, we can observe the normal oscillation in the
steel
stock market, when the price of domestic steel price and world stock price are equal.
When there is a crisis in the market of production factors, and the steel price
increases, the stock price oscillates as depicted in the red graph. We can
conclude that in this case, the oscillation takes place with the same frequency but the
amplitude of the oscillation increases, which demonstrates the economical expansion
in the
stock market.
We should consider that always after an increase in the price of production factors,
there will be a reduction in the price. This is the third scenario and the result is shown
in
green curve. As you can see in the graph, in this case a recession will occur in the
stock
market, because of severe competition between domestic products and foreign ones.
Finally, if the level of reduction is lower than the domestic cost of products, there
will be a dreadful situation for domestic producer. This phenomenon hasn't taken
place yet,
but it's possible due to the rapid change of technology and efforts in cost reduction
worldwide. The effects of such a change in world price on the stock price can be seen
in the
gray graph. In this scenario domestic producers will move toward bankruptcy.
It seems that the change in steel world price due to the fluctuation in the price of
production factors has a direct effect on the domestic stock price. The reason of such a

45
direct effect is a result of the pricing strategy of domestic producers. In the next
section, we
will propose some policies for mitigating the effects of the world price of production
factors on the stock market, mainly based on the non-subsidy factors for domestic
producers.

6. Policies

As mentioned, one of the main reasons that the change in production factor prices
especially in the price of energy factor intensely influences the stock price is the
subsidizing policies of government on the price of energy factors for domestic
producers.
It's a controversial issue in the guild of domestic steel producers about the effects of
removing governmental subsidizing programs on the domestic steel stock market and
domestic steel market.
In this section, we will examine the effect of the removing subside from production
factors. We assume that the domestic cost of production will change according to the
price
chance of production factors. It means that an increase or reduction of production
factor
prices will directly affect the price of domestic productions. The result of this policy
compared to the other scenarios.
As demonstrated in this graph, this policy will make the amplitude of the stock
market oscillation insensitive to the price change of production factors. It seems that
this
policy will be effective in mitigating the mentioned effect, but there is a concern of
how
this price liberation should be done so that the social and political side effects of such
a
change will remain at the minimum level.

46
CHAPTER-3

MANUFACTURING PROCESS

IRON ORE TO PIGIRM

the oxygen atoms away

from the iron ore requires heat and an alternate atomic partner for the oxygen to bond
to. Carbon fills this role nicely, and is readily available in the form of everyday
charcoal, or coke, a form of carbon made from coal. The carbon atoms bond with the
oxygen in the ore to create carbon dioxide and carbon monoxide, gases which escape
out a chimney. Because iron ore typically contains silicates, which do not bond to the
carbon, these remain in the iron after it is refined, creating wrought iron, a malleable
and strong form of iron used by blacksmiths throughout history.

To create an even purer form of iron, known as pig iron, limestone must be added to
the mix and the heat increased. This is done contemporarily in the silo-like structure
known as a blast furnace. The calcium in limestone bonds with the silicates in the ore,
creating a material called slag, which floats on top of the pure liquid iron. The iron is
periodically drained into a mold from a port at the bottom of the blast furnace, where
it cools. The pig iron can then be converted into wrought iron by mixing it with
silicon, or processed further to create steel.

Steel is a form of iron mixed together with 0.5% - 1.5% carbon but no oxygen,
silicates, or other impurities. Steel is much more difficult to work than wrought iron,
but is greatly stronger. Iron can be mixed together with various other elements to
create alloys with desired properties, such as lightness or resistance to rust (stainless
steel).

47
Iron ore

This heap of iron ore pellets will be used in steel production.

Iron ores are rocks and minerals from which metallic iron can be economically
extracted. The ores are usually rich in iron oxides and vary in color from dark grey,
bright yellow, deep purple, to rusty red. The iron itself is usually found in the form of
magnetite (Fe3O4), hematite (Fe2O3), goethite (Fe0(OH)), limonite (Fe0(OH)2O5(H2O))
or siderite (FeCO3). Hematite is also known as "natural ore". The name refers to the
early years of mining, when certain hematite ores contained 66% iron and could be
fed directly into iron making blast furnaces. Iron ore is the raw material used to make
pig iron, which is one of the main raw materials to make steel. 98% of the mined iron
ore is used to make steel.[1]

is virtually unknown on the surface of the Earth except as iron-nickel alloys from
meteorites and very rare forms of deep mantle xenoliths. Therefore, all sources of iron
used by human industry exploit iron oxide minerals, the primary form which is used
in industry being hematite.
However in some situations, more inferior iron ore sources have been used by
industrialized societies when access to high-grade hematite ore was not available.
This has included utilisation of taconite in the United States, particularly during
World War II, and goethite or bog ore used during the American Revolution and the
Napoleonic wars. Magnetite is often used because it is magnetic and hence easily
liberated from the gangue minerals. Inferior sources of iron ore generally require
beneficiation. Due to the high density of hematite relative to silicates, beneficiation
usually involves a combination of crushing and milling as well as heavy liquid
separation. This is achieved by passing the finely crushed ore over a bath of solution
containing bentonite or other agent which increases the density of the solution. When
the density of the solution is properly calibrated, the hematite will sink and the silicate
mineral fragments will float and can be removed.
Iron ore mining methods vary by the type of ore being mined. There are four main
types of iron ore deposits worked currently, depending on the mineralogy and geology
of the ore deposits. These are magnetite, titanomagnetite, massive hematite and
pisolitic ironstone d
Banded iron deposits
http://en.wikipedia.org/wiki/File:TaconitePellet.JPG
http://en.wikipedia.org/wiki/File:TaconitePellet.JPG
Processed Taconite pellets as used in the steelmaking industry, with a US Quarter
shown for scale.
Banded iron formations (BIF) are metamorphosed sedimentary rocks composed
predominantly of thinly bedded iron minerals and silica (as quartz). The iron mineral
present may be the carbonate siderite, but those used as iron ores contain the oxides
magnetite or hematite. Banded Iron formations are known as taconite within North
America. Mining of BIF formations involves coarse crushing and screening, followed
by rough crushing and fine grinding to comminute the ore to the point where the
crystallised magnetite and quartz are fine enough that the quartz is left behind when
the resultant powder is passed under a magnetic separator.
The mining involves moving tremendous amounts of ore and waste. The waste comes
in two forms, bedrock in the mine (mullock) that isn't ore, and unwanted minerals
which are an intrinsic part of the ore rock itself (gangue). The mullock is mined and

48
piled in waste dumps, and the gangue is separated during the beneficiation process
and is removed as tailings. Taconite tailings are mostly the mineral quartz, which is
chemically inert. This material is stored in large, regulated water settling ponds.
The key economic parameters for magnetite ore being economic are the crystallinity
of the magnetite, the grade of the iron within the BIF host rock, and the contaminant
elements which exist within the magnetite concentrate. The size and strip ratio of
most magnetite resources is irrelevant as BIF formations can be hundreds of metres
thick, with hundreds of kilometres of strike, and can easily come to more than 2,500
million or more, tonnes of contained ore.
The typical grade of iron at which a magnetite-bearing banded iron formation
becomes economic is roughly 25% Fe, which can generally yield a 33% to 40%
recovery of magnetite by weight, to produce a concentrate grading in excess of 64%
Fe by weight. The typical magnetite iron ore concentrate has less than 0.1%
phosphorus, 3–7% silica and less than 3% aluminium.
The grain size of the magnetite and its degree of commingling with the silica
groundmass determine the grind size to which the rock must be comminuted to enable
efficient magnetic separation to provide a high purity magnetite concentrate. This
determines the energy inputs required to run a milling operation. Generally most
magnetite BIF deposits must be ground to between 32 and 45 micrometres in order to
provide a low-silica magnetite concentrate. Magnetite concentrate grades are
generally in excess of 63% Fe by weight and usually are low phosphorus, low
aluminium, low titanium and low silica and demand a premium price.
Currently magnetite iron ore is mined in Minnesota and Michigan in the U.S., and
Eastern Canada mine taconite. Magnetite bearing BIF is currently mined extensively
in Brazil, which exports significant quantities to Asia, and there is a nascent and large
magnetite iron ore industry in Australia. this is written by RISDHAD
[edit] Magmatic magnetite ore deposits
Occasionally granite and ultrapotassic igneous rocks segregate magnetite crystals and
form masses of magnetite suitable for economic concentration. A few iron ore
deposits, notably in Chile, are formed from volcanic flows containing significant
accumulations of magnetite phenocrysts. Chilean magnetite iron ore deposits within
the Atacama Desert have also formed alluvial accumulations of magnetite in streams
leading from these volcanic formations.
Some magnetite skarn and hydrothermal deposits have been worked in the past as
high-grade iron ore deposits requiring little beneficiation. There are several granite-
associated deposits of this nature in Malaysia and Indonesia.
Other sources of magnetite iron ore include metamorphic accumulations of massive
magnetite ore such as at Savage River, Tasmania, formed by shearing of ophiolite
ultramafics.
Another, minor, source of iron ores are magmatic accumulations in layered intrusions
which contain a typically titanium-bearing magnetite often with vanadium. These ores
form a niche market, with specialty smelters used to recover the iron, titanium and
vanadium. These ores are beneficiated essentially similar to banded iron formation
ores, but usually are more easily upgraded via crushing and screening. The typical
titanomagnetite concentrate grades 57% Fe, 12% Ti and 0.5% V2O5.[citation needed]

Hematite ore

Hematite iron ore deposits are currently exploited on all continents, with the largest
intensity in South America, Australia and Asia. Most large hematite iron ore deposits

49
are sourced from metasomatically altered banded iron formations and rarely igneous
accumulations.
Hematite iron is typically rarer than magnetite bearing BIF or other rocks which form
its main source or protolith rock, but it is considerably cheaper to process as it
generally does not require beneficiation due to its higher iron content. However,
Hematite ores are harder than magnetite ores and therefore require considerably more
energy to crush and grind if benefication is required. Hematite ores can also contain
significantly higher concentrations of penalty elements, typically being higher in
phosphorus, water content (especially pisolite sedimentary accumulations) and
aluminium (clays within pisolites). Export grade Hematite ores are generally in the
62–64% Fe range[citation needed].

Production and consumption

Estimated iron ore production in million metric tons for 2006 according to U.S. Geological
Survey
Country Production
China 520
Australia 270
Brazil 250
India 150
Russia 105
Ukraine 73
United States 54
South Africa 40
Canada 33
Sweden 24
Venezuela 20
Iran 20
Kazakhstan 15
Mauritania 11
Other countries 43
Total world 1690

Iron is the world's most commonly used metal. It is used primarily in structural
engineering applications and in maritime purposes, automobiles, and general
industrial applications (machinery).
Iron-rich rocks are common worldwide, but ore-grade commercial mining operations
are dominated by the countries listed in the table aside. The major constraint to
economics for iron ore deposits is not necessarily the grade or size of the deposits,
because it is not particularly hard to geologically prove enough tonnage of the rocks
exist. The main constraint is the position of the iron ore relative to market, the cost of
rail infrastructure to get it to market and the energy cost required to do so.
World production averages one billion metric tons of raw ore annually. The world's
largest producer of iron ore is the Brazilian mining corporation Vale, followed by

50
Anglo-Australian companies BHP Billiton and Rio Tinto Group. A further Australian
supplier, Fortescue Metals Group Ltd may eventually bring Australia's production to
second in the world.
In Australia iron ore is won from three main sources: pisolite "channel iron deposit"
ore derived by mechanical erosion of primary banded-iron formations and
accumulated in alluvial channels such as at Pannawonica, Western Australia; and the
dominant metasomatically-altered banded iron formation related ores such as at
Newman, the Chichester Range, the Hamersley Range and Koolyanobbing, Western
Australia. Other types of ore are coming to the fore recently, such as oxidised
ferruginous hardcaps, for instance laterite iron ore deposits near Lake Argyle in
Western Australia.
The total recoverable reserves of iron ore in India are about 9,602 million tones of
hematite and 3,408 million tones of magnetite. Madhya Pradesh, Karnataka, Bihar,
Orissa, Goa, Maharashtra, Andhra Pradesh, Kerala, Rajasthan and Tamil Nadu are the
principal Indian producers of iron ore.
World consumption of iron ore grows 10% per annuon average with the main
consumers being China, Japan, Korea, the United States and the European Union.
China is currently the largest consumer of iron ore, which translates to be the world's
largest steel producing country. China is followed by Japan and Korea, which
consume a significant amount of raw iron ore and metallurgical coal. In 2006, China
produced 588 million tons of iron ore, with an annual growth of 38%.

Depletion

Iron ore reserves at present seem quite vast, but some are starting to suggest that the
maths of continual exponential increase in consumption can even make this resource
seem quite finite. For instance, Lester Brown of the Worldwatch Institute has
suggested iron ore could run out within 64 years based on an extremely conservative
extrapolation of 2% growth per year.

Smelting

Main articles: blast furnace and bloomery

Iron ores consists of oxygen and iron atoms bonded together into molecules. To
convert it to metallic iron it must be smelted or sent through a direct reduction process
to remove the oxygen. Oxygen-iron bonds are strong, and to remove the iron from the
oxygen, a stronger elemental bond must be presented to attach to the oxygen. Carbon
is used because the strength of a carbon-oxygen bond is greater than that of the iron-
oxygen bond, at high temperatures. Thus, the iron ore must be powdered and mixed
with coke, to be burnt in the smelting process.
However, it is not entirely as simple as that; carbon monoxide is the primary
ingredient of chemically stripping oxygen from iron. Thus, the iron and carbon
smelting must be kept at an oxygen deficient (reducing) state to promote burning of
carbon to produce CO not CO2.
 Air blast and charcoal (coke): 2 C + O2 2 CO.
 Carbon monoxide (CO) is the principal reduction agent.
o Stage One: 3 Fe2O3 + CO 2 Fe3O4 + CO2
o Stage Two: Fe3O4 + CO 3 FeO + CO2
o Stage Three: FeO + CO Fe + CO2
 Limestone fluxing chemistry: CaCO3 CaO + CO2

51
Trace elements

The inclusion of even small amounts of some elements can have profound effects on
the behavioral characteristics of a batch of iron or the operation of a smelter. These
effects can be both good and bad, some catastrophically bad. Some chemicals are
deliberately added such as flux which makes a blast furnace more efficient. Others are
added because they make the iron more fluid, harder, or give it some other desirable
quality. The choice of ore, fuel, and flux determine how the slag behaves and the
operational characteristics of the iron produced. Ideally iron ore contains only iron
and oxygen. In reality this is rarely the case. Typically, iron ore contains a host of
elements which are often unwanted in modern steel

Silicon

Silica (SiO2) is almost always present in iron ore. Most of it is slagged off during the
smelting process. At temperatures above 1300 °C some will be reduced and form an
alloy with the iron. The hotter the furnace, the more silicon will be present in the iron.
It is not uncommon to find up to 1.5% Si in European cast iron from the 16th to 18th
centuries.
The major effect of silicon is to promote the formation of gray iron. Gray iron is less
brittle and easier to finish than white iron. It is preferred for casting purposes for this
reason. Turner (1900, pp. 192–197) reported that silicon also reduces shrinkage and
the formation of blowholes, lowering the number of bad castings.
[edit] Phosphorus
Phosphorus (P) has four major effects on iron: increased hardness and strength, lower
solidus temperature, increased fluidity, and cold shortness. Depending on the use
intended for the iron, these effects are either good or bad. Bog ore often has a high
Phosphorus content (Gordon 1996, p. 57).
The strength and hardness of iron increases with the concentration of phosphorus.
0.05% phosphorus in wrought iron makes it as hard as medium carbon steel. High
phosphorus iron can also be hardened by cold hammering. The hardening effect is
true for any concentration of phosphorus. The more phosphorus, the harder the iron
becomes and the more it can be hardened by hammering. Modern steel makers can
increase hardness by as much as 30%, without sacrificing shock resistance by
maintaining phosphorus levels between 0.07 and 0.12%. It also increases the depth of
hardening due to quenching, but at the same time also decreases the solubility of
carbon in iron at high temperatures. This would decrease its usefulness in making
blister steel (cementation), where the speed and amount of carbon absorption is the
overriding consideration.
The addition of phosphorus has a down side. At concentrations higher than 0.2% iron
becomes increasingly cold short, or brittle at low temperatures. Cold short is
especially important for bar iron. Although, bar iron is usually worked hot, its uses
often require it to be tough, bendable, and resistant to shock at room temperature. A
nail that shattered when hit with a hammer or a carriage wheel that broke when it hit a
rock would not sell well. High enough concentrations of phosphorus render any iron
unusable (Rostoker & Bronson 1990, p. 22). The effects of cold shortness are
magnified by temperature. Thus, a piece of iron that is perfectly serviceable in
summer, might become extremely brittle in winter. There is some evidence that
52
during the Middle Ages the very wealthy may have had a high phosphorus sword for
summer and a low phosphorus sword for winter (Rostoker & Bronson 1990, p. 22).
Careful control of phosphorus can be of great benefit in casting operations.
Phosphorus depresses the liquidus temperature, allowing the iron to remain molten for
longer and increases fluidity. The addition of 1% can double the distance molten iron
will flow (Rostoker & Bronson 1990, p. 22). The maximum effect, about 500 °C, is
achieved at a concentration of 10.2% (Rostocker & Bronson 1990, p. 194). For
foundry work Turner felt the ideal iron had 0.2–0.55% phosphorus. The resulting iron
filled molds with fewer voids and also shrank less. In the 19th century some
producers of decorative cast iron used iron with up to 5% phosphorus. The extreme
fluidity allowed them to make very complex and delicate castings. But, they could not
be weight bearing, as they had no strength (Turner 1900, pp. 202–204).
There are two remedies for high phosphorus iron. The oldest, and easiest, is
avoidance. If the iron your ore produced was cold short, one would search for a new
source of iron ore. The second method involves oxidizing the phosphorus during the
fining process by adding iron oxide. This technique is usually associated with
puddling in the 19th century, and may not have been understood earlier. For instance
Isaac Zane, the owner of Marlboro Iron Works did not appear to know about it in
1772. Given Zane's reputation for keeping abreast of the latest developments, the
technique was probably unknown to the ironmasters of Virginia and Pennsylvania.
Phosphorus is a deleterious contaminant because it makes steel brittle, even at
concentrations of as little as 0.6%. Phosphorus cannot be easily removed by fluxing or
smelting, and so iron ores must generally be low in phosphorus to begin with. The
iron pillar of India which does not rust is protected by a phosphoric composition.
Phosphoric acid is used at a rust converter because phosphoric iron is less susceptible
to oxidation.

Aluminium

Small amounts of aluminium (Al) are present in many ores (often as clay) and some
limestone. The former can be removed by washing the ore prior to smelting. Until the
introduction of brick lined furnaces the amounts are small enough that they do not
have an effect on either the iron or slag. However, when brick is used for hearths and
the interior of blast furnaces, the amount of aluminium increases dramatically. This is
due to the erosion of the furnace lining by the liquid slag.
Aluminium is very hard to reduce. As a result aluminium contamination of the iron is
not a problem. However, it does increase the viscosity of the slag (Kato & Minowa
1969, p. 37 and Rosenqvist 1983, p. 311). This will have a number of adverse effects
on furnace operation. The thicker slag will slow the descent of the charge, prolonging
the process. High aluminium will also make it more difficult to tap off the liquid slag.
At the extreme this could lead to a frozen furnace.
There are a number of solutions to a high aluminium slag. The first is avoidance, don't
use ore or a lime source with a high aluminium content. Increasing the ratio of lime
flux will decrease the viscosity (Rosenqvist 1983, p. 311).

Sulfur

Sulfur (S) is a frequent contaminant in coal. It is also present in small quantities in

many ores, but can be removed by calcining. Sulfur dissolves readily in both liquid
and solid iron at the temperatures present in iron smelting. The effects of even small

53
amounts of sulfur are immediate and serious. They were one of the first worked out
by iron makers. Sulfur causes iron to be red or hot short (Gordon 1996, p. 7).
Hot short iron is brittle when hot. This was a serious problem as most iron used
during the 17th and 18th century was bar or wrought iron. Wrought iron is shaped by
repeated blows with a hammer while hot. A piece of hot short iron will crack if
worked with a hammer. When a piece of hot iron or steel cracks the exposed surface
immediately oxidizes. This layer of oxide prevents the mending of the crack by
welding. Large cracks cause the iron or steel to break up. Smaller cracks can cause the
object to fail during use. The degree of hot shortness is in direct proportion to the
amount of sulfur present. Today iron with over 0.03% sulfur is avoided.
Hot short iron can be worked, but it has to be worked at low temperatures. Working at
lower temperatures requires more physical effort from the smith or forgeman. The
metal must be struck more often and harder to achieve the same result. A mildly
sulfur contaminated bar can be worked, but it requires a great deal more time and
effort.
In cast iron sulfur promotes the formation of white iron. As little as 0.5% can
counteract the effects of slow cooling and a high silicon content (Rostoker & Bronson
1990, p. 21). White cast iron is more brittle, but also harder. It is generally avoided,
because it is difficult to work, except in China where high sulfur cast iron, some as
high as 0.57%, made with coal and coke, was used to make bells and chimes
(Rostoker, Bronson & Dvorak 1984, p. 760). According to Turner (1900, pp. 200),
good foundry iron should have less than 0.15% sulfur. In the rest of the world a high
sulfur cast iron can be used for making castings, but will make poor wrought iron.
There are a number of remedies for sulfur contamination. The first, and the one most
used in historic and prehistoric operations, is avoidance. Coal was not used in Europe
(unlike China) as a fuel for smelting because it contains sulfur and therefore causes
hot short iron. If an ore resulted in hot short metal, ironmasters looked for another ore.
When mineral coal was first used in European blast furnaces in 1709 (or perhaps
earlier), it was coked. Only with the introduction of hot blast from 1829 was raw coal
used.
Sulfur can be removed from ores by roasting and washing. Roasting oxidizes sulfur to
form sulfur dioxide which either escapes into the atmosphere or can be washed out. In
warm climates it is possible to leave pyritic ore out in the rain. The combined action

54
PIGIRM TO STEEL MELTING

Pig iron is the intermediate product of smelting iron ore with coke, usually with
limestone as a flux. Pig iron has a very high carbon content, typically 3.5–4.5%,[1]
which makes it very brittle and not useful directly as a material except for limited
applications.

The traditional shape of the molds used for these ingots was a branching structure
formed in sand, with many individual ingots at right angles to a central channel or
runner. Such a configuration is similar in appearance to a litter of piglets suckling on a
sow. When the metal had cooled and hardened, the smaller ingots (the pigs) were
simply broken from the much thinner runner (the sow), hence the name pig iron. As
pig iron is intended for remelting, the uneven size of the ingots and inclusion of small
amounts of sand was insignificant compared to the ease of casting and of handling.
Traditionally pig iron would be worked into wrought iron in finery forges, and later
puddling furnaces, more recently into steel.

In these processes, pig iron is melted and a strong current of air is directed over it
while it is being stirred or agitated. This causes the dissolved impurities (such as
silicon) to be thoroughly oxidized. An intermediate product of puddling is known as
refined pig iron, finers metal, or refined iron.
Pig iron can also be used to produce Gray iron. This is achieved by remelting pig iron,
often along with substantial quantities of steel and scrap iron, removing undesirable
contaminants, adding alloys, and adjusting the carbon content. Some pig iron grades
are suitable for producing Ductile iron. These are high purity pig irons and depending
on the grade of ductile iron being produced these pig irons may be low in the elements
silicon, manganese and phosphorous.

Modern uses

Today, pig iron is typically poured directly out of the bottom of the blast furnace
through a trough into a ladle car for transfer to the steel plant in mostly liquid form,
referred to as hot metal. The hot metal is then charged into a steelmaking vessel to
produce steel, typically with an electric arc furnace or basic oxygen furnace, by
burning off the excess carbon in a controlled fashion and adjusting the alloy
composition. Earlier processes for this included the finery forge, the puddling furnace,
the Bessemer process, and open hearth furnace.
Modern steel mills and direct-reduction iron plants transfer the molten iron to a ladle
for immediate use in the steel making furnaces or cast it into pigs on a pig-casting
machine for reuse or resale. Modern pig casting machines produce stick pigs, which
break into smaller 4–10 kg pieces

55
56
Alloy steel
Alloy steel is steel alloyed with other elements in amounts of between 1 and 50% by
weight to improve its mechanical properties. Alloy steels are broken down into two
groups: low alloy steels and high alloy steels. The differentiation between the two is
somewhat arbitrary; Smith and Hashemi define the difference at 4%, while Degarmo,
et al., define it at 8%.

However, most commonly alloy steel refers to low alloy steel.

These steels have greater strength, hardness, hot hardness, wear resistance,
hardenability, or toughness compared to carbon steel. However, they may require heat
treatment to achieve such properties. Common alloying elements are molybdenum,
manganese, nickel, chromium, vanadium, silicon and boron.

Low alloy steels are usually used to achieve better hardenability, which in turn
improves its other mechanical properties. They are also used to increase corrosion
resistance in certain environmental conditions.[3]
With medium to high carbon levels, low alloy steel is difficult to weld. Lowering the
carbon content to the range of 0.10% to 0.30%, along with some reduction in alloying
elements, increases the weldability and formability of the steel while maintaining its
strength. Such a metal is classed as a high-strength low-alloy steel.
Some common low alloy steels are:
· D6AC
· 300M
· 256A
Principal low alloy steels[4]

SAE designation Composition

13xx Mn 1.75%

40xx Mo 0.20% or 0.25% or 0.25% Mo & 0.042% S

41xx Cr 0.50% or 0.80% or 0.95%, Mo 0.12% or 0.20% or 0.25% or 0.30%

43xx Ni 1.82%, Cr 0.50% to 0.80%, Mo 0.25%

44xx Mo 0.40% or 0.52%

46xx Ni 0.85% or 1.82%, Mo 0.20% or 0.25%

47xx Ni 1.05%, Cr 0.45%, Mo 0.20% or 0.35%

57
48xx Ni 3.50%, Mo 0.25%

50xx Cr 0.27% or 0.40% or 0.50% or 0.65%

50xxx Cr 0.50%, C 1.00% min

50Bxx Cr 0.28% or 0.50%

51xx Cr 0.80% or 0.87% or 0.92% or 1.00% or 1.05%

51xxx Cr 1.02%, C 1.00% min

51Bxx Cr 0.80%

52xxx Cr 1.45%, C 1.00% min

61xx Cr 0.60% or 0.80% or 0.95%, V 0.10% or 0.15% min

86xx Ni 0.55%, Cr 0.50%, Mo 0.20%

87xx Ni 0.55%, Cr 0.50%, Mo 0.25%

88xx Ni 0.55%, Cr 0.50%, Mo 0.35%

92xx Si 1.40% or 2.00%, Mn 0.65% or 0.82% or 0.85%, Cr 0.00% or 0.65%

94Bxx Ni 0.45%, Cr 0.40%, Mo 0.12%

58
Material science

Alloying elements are added to achieve certain properties in the material. As a

guideline, alloying elements are added in lower percentages (less than 5%) to increase
strength or hardenability, or in larger percentages (over 5%) to achieve special
properties, such as corrosion resistance or extreme temperature stability.
Manganese, silicon, or aluminium are added during the steelmaking process to
remove dissolved oxygen from the melt. Manganese, silicon, nickel, and copper are
added to increase strength by forming solid solutions in ferrite. Chromium, vanadium,
molybdenum, and tungsten increase strength by forming second-phase carbides.
Nickel and copper improve corrosion resistance in small quantities. Molybdenum
helps to resist embrittlement. Zirconium, cerium, and calcium increase toughness by
controlling the shape of inclusions. Manganese sulfide, lead, bismuth, selenium, and
tellurium increase machinability.

The alloying elements tend to either form compounds or carbides. Nickel is very
soluble in ferrite, therefore it forms compounds, usually Ni3Al. Aluminium dissolves
in the ferrite and forms the compounds Al2O3 and AlN. Silicon is also very soluble
and usually forms the compound SiO2•MxOy. Manganese mostly dissolves in ferrite
forming the compounds MnS, MnO•SiO2, but will also form carbides in the form of
(Fe,Mn)3C. Chromium forms partitions between the ferrite and carbide phases in
steel, forming (Fe,Cr3)C, Cr7C3, and Cr23C6. The type of carbide that chromium forms
depends on the amount of carbon and other types of alloying elements present.
Tungsten and molybdenum form carbides if there is enough carbon and an absence of
stronger carbide forming elements (i.e. titanium & niobium), they form the carbides
Mo2C and W2C, respectively. Vanadium, titanium, and niobium are strong carbide
forming elements, forming the carbides V3C3, TiC, and NiC, respectively.
Alloying elements also have an affect on the eutectoid temperature of the steel.
Manganese and nickel lower the eutectoid temperature and are known as austenite
stabilizing elements. With enough of these elements the austenitic structure may be
obtained at room temperature. Carbide forming elements raise the eutectoid
temperature; these elements are known as ferrite stabilizing elements.

Element Percentage Primary function

Aluminium 0.95–1.30 Alloying element in nitriding steels

Bismuth - Improves machinability
Boron 0.001–0.003 Powerful hardenability agent
0.5–2 Increases hardenability
Chromium
4–18 Corrosion resistance

Copper 0.1–0.4 Corrosion resistance

Lead - Improves machinability
Manganese 0.25–0.40 Combines with sulfur to prevent brittleness

>1 Increases hardenability by lowering transformation points and

59
 causing transformations to be sluggish

Molybdenum 0.2–5 Stable carbides; inhibits grain growth

2–5 Toughener
Nickel
12–20 Corrosion resistance

0.2–0.7 Increases strength

2 Spring steels
Silicon
Higher
Improves magnetic properties
percentages

Sulfur 0.08–0.15 Free-machining properties

Fixes carbon in inert particles; reduces martensitic hardness in
Titanium -
chromium steels
Tungsten - Hardness at high temperatures
Stable carbides; increases strength while retaining ductility;
Vanadium 0.15
promotes fine grain structure

60
Abstract:

A hot rolled steel sheet having a dual phase microstructure with a martensite phase of
less than 35% by volume and a ferrite phase of more than 50% by volume and a
composition containing by percent weight: 0.01≦C≦0.2; 0.3≦Mn≦3; 0.2≦Si≦2;
0.2≦Cr+Ni≦2; 0.01≦Al≦0.10; Mo less than about 0.2%, 0.0005≦Ca≦0.01, with
the balance iron and incidental ingredients. Hot rolled sheet for cold rolling, the
silicon range may be from about 0.05% to about 2%, and the amount of molybdenum
may be up to 0.5%. Also, the hot rolled steel sheet has a tensile strength of at least
500 megapascals, a hole expansion ratio more than about 50%, and. a yield
strength/tensile strength ratio less than 70%.
Claims:

1. A hot rolled steel sheet comprising:(a) a dual phase microstructure comprising a

martensite phase less than 35% by volume and a ferrite phase more than 50% by
volume formed by hot rolling and cooling a steel sheet;(b) a composition
comprising:carbon in a range from about 0.01% by weight to about 0.2% by
weight,manganese in a range from about 0.3% by weight to about 3% weight,silicon
in a range from about 0.2% by weight to about 2% by weight,chromium and nickel in
combination from about 0.2% by weight to about 2% by weight where chromium if
present in a range from about 0.1% by weight to about 2% by weight and nickel if
present is in an amount up to about 1% by weight,aluminum in a range from about
0.01% by weight to about 0.10% by weight and nitrogen less than about 0.02% by
weight, where the ratio of Al/N is more than about 2,molybdenum less than 0.2% by
weight, andcalcium in a range from about 0.0005% by weight to about 0.01% by
weight,with the balance of the composition comprising iron and incidental
ingredients; and(c) properties comprising a tensile strength of more than about 500
megapascals and a hole expansion ratio more than about 50%.

2. The hot rolled steel sheet of claim 1, where the properties comprise a tensile
strength of at least about 590 megapascals, and a hole expansion ratio more than
about 70%.

3. The hot rolled steel sheet of claim 1, where the ferrite phase is between 50% and
90% by volume.

4. The hot rolled steel sheet of claim 3, where the ferrite phase is more than 65% by
volume.

5. The hot rolled steel sheet of claim 1, where the ferrite phase is between 65% and
85% by volume.

6. The hot rolled steel sheet of claim 1, where the composition further comprises one
or more of:titanium in an amount up to about 0.2% by weight; vanadium in an amount
up to about 0.2% by weight; niobium in an amount up to about 0.2% by weight; boron
in an amount up to about 0.008% by weight; copper in an amount up to about 0.8% by

61
weight; phosphorous in an amount up to about 0.1% by weight; and sulfur in an
amount up to about 0.03% by weight.

7. The hot rolled steel sheet of claim 1, where the steel sheet further comprises one or
both of a zinc coating or a zinc alloy coating.

8. The hot rolled steel sheet of claim 1, where the carbon ranges from about 0.02% to
about 0.12% by weight, the manganese ranges from about 0.5% to about 2.5% by
weight, the silicon ranges from about 0.2% to about 1.5% by weight, the combination
of chromium and nickel is an amount between about 0.2% and about 1.5% by weight,
the aluminum ranges from about 0.015% to about 0.09% by weight, the calcium
ranges from about 0.0008% to about 0.009% by percent.

9. The hot rolled steel sheet of claim 8, where the carbon ranges from about 0.03% to
about 0.1% by weight, the combination of chromium and nickel is in an amount
between about 0.3% and about 1.5% by weight, the aluminum ranges from about
0.02% to about 0.08% by weight, the calcium ranges from about 0.001% to about
0.008% by percent.

10. The hot rolled steel sheet of claim 1, where weld properties comprise a
microhardness difference less than about 100 HV (500 gf) between the highest
hardness on a weld and the lowest hardness on a heat affected zone adjacent the weld.

11. The hot rolled steel sheet of claim 1, where weld properties comprise a
microhardness difference less than about 80 HV (500 gf) between the highest
hardness on a weld and the lowest hardness on a heat affected zone adjacent the weld.

12. The hot rolled steel sheet of claim 1, where properties comprise a mean impact
energy more than about 10,000 g-m on a V-notch Charpy specimen of about 5
millimeters thickness.

13. The hot rolled steel sheet of claim 1, where properties comprise a yield
strength/tensile strength ratio less than 70%.

14. A hot rolled steel sheet comprising:(a) a dual phase microstructure comprising a
martensite phase less than 35% by volume and a ferrite phase more than 50% by
volume formed by hot rolling and cooling a steel sheet;(b) a composition
comprising:carbon in a range from about 0.01% by weight to about 0.2% by
weight,manganese in a range from about 0.3% by weight to about 3% weight,silicon
in a range from about 0.05% by weight to about 2% by weight,chromium and nickel
in combination from about 0.2% by weight to about 2% by weight where chromium if
present in a range from about 0.1% by weight to about 2% by weight and nickel if
present is in an amount up to about 1% by weight,aluminum in a range from about
0.01% by weight to about 0.10% by weight and nitrogen less than about 0.02% by
weight, where the ratio of Al/N is more than about 2,molybdenum less than 0.5% by
weight, andcalcium in a range from about 0.0005% by weight to about 0.01% by
weight,with the balance of the composition comprising iron and incidental
ingredients; and(c) properties comprising a tensile strength of more than about 500
megapascals and a hole expansion ratio more than about 50%.

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15. The hot rolled steel sheet of claim 14, where the properties comprise a tensile
strength of at least about 590 megapascals, and a hole expansion ratio more than
about 70%.

16. The hot rolled steel sheet of claim 14, where the ferrite phase is between 50% and
90% by volume.

17. The hot rolled steel sheet of claim 16, where the ferrite phase is more than 65% by
volume.

18. The hot rolled steel sheet of claim 14, where the ferrite phase is between 65% and
85% by volume.

19. The hot rolled steel sheet of claim 14 where the composition further comprises
one or more of:titanium in an amount up to about 0.2% by weight; vanadium in an
amount up to about 0.2% by weight; niobium in an amount up to about 0.2% by
weight; boron in an amount up to about 0.008% by weight; copper in an amount up to
about 0.8% by weight; phosphorous in an amount up to about 0.1% by weight; and
sulfur in an amount up to about 0.03% by weight.

20. The hot rolled steel sheet of claim 14, where the steel sheet further comprises one
or both of a zinc coating or a zinc alloy coating.

21. The hot rolled steel sheet of claim 14, where the carbon ranges from about 0.02%
to about 0.12% by weight, the manganese ranges from about 0.5% to about 2.5% by
weight, the silicon ranges from about 0.2% to about 1.5% by weight, the combination
of chromium and nickel is an amount between about 0.2% and about 1.5% by weight,
the aluminum ranges from about 0.015% to about 0.09% by weight, the calcium
ranges from about 0.0008% to about 0.009% by percent.

22. The hot rolled steel sheet of claim 21, where the carbon ranges from about 0.03%
to about 0.1% by weight, the combination of chromium and nickel is in an amount
between about 0.3% and about 1.5% by weight, the aluminum ranges from about
0.02% to about 0.08% by weight, the calcium ranges from about 0.001% to about
0.008% by percent.

23. The hot rolled steel sheet of claim 14, where weld properties comprise a
microhardness difference less than about 100 HV (500 gf) between the highest
hardness on a weld and the lowest hardness on a heat affected zone adjacent the weld.

24. The hot rolled steel sheet of claim 14, where weld properties comprise a
microhardness difference less than about 80 HV (500 gf) between the highest
hardness on a weld and the lowest hardness on a heat affected zone adjacent the weld.

25. The hot rolled steel sheet of claim 14, where properties comprise a mean impact
energy more than about 10,000 g-m on a V-notch Charpy specimen of about 5
millimeters thickness.

26. The hot rolled steel sheet of claim 14, where properties comprise a yield
strength/tensile strength ratio less than 70%.

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27. A method of making a hot rolled dual phase steel sheet, comprising:(I) hot rolling
a steel slab into a hot band at a hot rolling termination temperature in a range between
about (Ar3-60)° C. and about 980.degree. C. (about 1796.degree. F.), where the steel
slab comprises a composition comprising:carbon in a range from about 0.01% by
weight to about 0.2% by weight,manganese in a range from about 0.3% by weight to
about 3% weight,silicon in a range from about 0.2% by weight to about 2% by
weight,chromium and nickel in combination from about 0.2% by weight to about 2%
by weight where the chromium if present is in a range from about 0.1% by weight to
about 2% by weight and nickel if present is in an amount up to about 1% by
weight,aluminum in a range from about 0.01% by weight to about 0.10% by weight
and nitrogen less than about 0.02% by weight, where the ratio of Al/N is more than
about 2,molybdenum less than 0.2% by weight, andcalcium in a range from about
0.0005% by weight to about 0.01% by weight,with the balance of said composition
comprising iron and incidental ingredients;(II) cooling the hot band at a mean rate of
at least about 5.degree. C./s (about 9.degree. F./s) to a temperature not higher than
about 750.degree. C. (about 1382.degree. F.); and(III) coiling the hot band to form a
coil at a temperature more than the martensite formation temperature obtaining a steel
sheet comprising (a) a dual phase microstructure comprising a martensite phase of
less than 35% by volume and a ferrite phase of more than 50% by volume, (b) said
composition, and (c) properties comprising a tensile strength of at least about 500
megapascals and a hole expansion ratio more than about 50%.

28. The method of claim 27, where the properties comprise a tensile strength of about
least about 590 MPa, and a hole expansion ratio more than about 70%.

29. The method of claim 27, where the ferrite phase is more than 65% by volume of
the hot band.

30. The method of claim 27, where the ferrite phase is more than 65% and less than
85% by volume of the hot band.

31. The method of claim 27, where the martensite phase comprises from about 3% by
volume to about 30% by volume of the hot band.

32. The method of claim 27, where the martensite phase comprises from about 8% by
volume to about 30% by volume of the hot band.

33. The method of claim 27, where the martensite phase comprises from about 10%
by volume to about 28% by volume of the hot band.

34. The method of claim 27, where the composition further comprises one or more
of:titanium in an amount up to about 0.2% by weight; vanadium in an amount up to
about 0.2% by weight; niobium in an amount up to about 0.2% by weight; boron in an
amount up to about 0.008% by weight; copper in an amount up to about 0.8% by
weight; phosphorous in an amount up to about 0.1% by weight; and sulfur in an
amount up to about 0.03% by weight.

35. The method of claim 27, where the carbon ranges from about 0.02% to about
0.12% by weight, the manganese ranges from about 0.5% to about 2.5% by weight,

64
the silicon ranges from about 0.2% to about 1.5% by weight, the chromium and nickel
in combination ranges from about 0.2% to about 1.5% by weight, the aluminum
ranges from about 0.015% to about 0.09% by weight, the calcium ranges from about
0.0008% to about 0.009% by percent.

36. The method of claim 27, where the carbon ranges from about 0.03% to about
0.1% by weight, the chromium, nickel in combination ranges from about 0.3% to
about 1.5% by weight, the aluminum ranges from about 0.02% to about 0.08% by
weight, the calcium ranges from about 0.001% to about 0.008% by percent.

37. The method of claim 27, where the hot rolling termination temperature is in a
range between about (Ar3-30)° C. and about 950.degree. C. (about 1742.degree. F.).

38. The method of claim 27, where cooling the hot band is at a mean rate of at least
about 10.degree. C./s (about 18.degree. F./s) to a temperature not higher than about
650.degree. C. (about 1202.degree. F.).

39. The method of claim 27, further comprising pickling the coil.

40. The method of claim 27, where the total reduction during hot rolling is more than
about 50%.

41. The method of claim 27, where the total reduction during hot rolling is more than
about 75%.

42. The method of claim 27, further comprising:applying a coating of one or both of a
zinc coating or a zinc alloy coating to the hot rolled steel sheet.

43. The method of claim 27, where weld properties comprise a microhardness
difference less than about 100 HV (500 gf) between the highest hardness on a weld
and the lowest hardness on a heat affected zone adjacent the weld.

44. The method of claim 27, where weld properties comprise a microhardness
difference less than about 80 HV (500 gf) between the highest hardness on a weld and
the lowest hardness on a heat affected zone adjacent the weld.

45. The method of claim 27, where properties comprise a mean impact energy more
than about 10,000 g-m on a V-notch Charpy specimen of about 5 millimeters
thickness.

46. The method of claim 27, where properties comprise a yield strength/tensile
strength ratio less than about 70%.

47. A method of making a hot rolled dual phase steel sheet, comprising:(I) hot rolling
a steel slab into a hot band at a hot rolling termination temperature in a range between
about (Ar3-60)° C. and about 980.degree. C. (about 1796.degree. F.), where the steel
slab comprises a composition comprising:carbon in a range from about 0.01% by
weight to about 0.2% by weight,manganese in a range from about 0.3% by weight to
about 3% weight,silicon in a range from about 0.05% by weight to about 2% by
weight,chromium and nickel in combination from about 0.2% by weight to about 2%

65
by weight where the chromium if present is in a range from about 0.1% by weight to
about 2% by weight and nickel if present is in an amount up to about 1% by
weight,aluminum in a range from about 0.01% by weight to about 0.10% by weight
and nitrogen less than about 0.02% by weight, where the ratio of Al/N is more than
about 2,molybdenum less than 0.5% by weight, andcalcium in a range from about
0.005% by weight to about 0.01% by weight,with the balance of said composition
comprising iron and incidental ingredients;(II) cooling the hot band at a mean rate of
at least about 5.degree. C./s (about 9.degree. F./s) to a temperature not higher than
about 750.degree. C. (about 1382.degree. F.); and(III) coiling the hot band to form a
coil at a temperature more than the martensite formation temperature obtaining a steel
sheet comprising (a) a dual phase microstructure comprising a martensite phase of
less than 35% by volume and a ferrite phase of more than 50% by volume, (b) said
composition, and (c) properties comprising a tensile strength of at least about 500
megapascals and a hole expansion ratio more than about 50%.

48. The method of claim 47, where the properties comprise a tensile strength of about
least about 590 MPa, and a hole expansion ratio more than about 70%.

49. The method of claim 47, where the ferrite phase is more than 65% by volume of
the hot band.

50. The method of claim 47, where the ferrite phase is more than 65% and less than
85% by volume of the hot band.

51. The method of claim 47, where the martensite phase comprises from about 3% by
volume to about 30% by volume of the hot band.

52. The method of claim 47, where the martensite phase comprises from about 8% by
volume to about 30% by volume of the hot band.

53. The method of claim 47, where the martensite phase comprises from about 10%
by volume to about 28% by volume of the hot band.

54. The method of claim 47, where the composition further comprises one or more
of:titanium in an amount up to about 0.2% by weight; vanadium in an amount up to
about 0.2% by weight; niobium in an amount up to about 0.2% by weight; boron in an
amount up to about 0.008% by weight; copper in an amount up to about 0.8% by
weight; phosphorous in an amount up to about 0.1% by weight; and sulfur in an
amount up to about 0.03% by weight.

55. The method of claim 47, where the carbon ranges from about 0.02% to about
0.12% by weight, the manganese ranges from about 0.5% to about 2.5% by weight,
the silicon ranges from about 0.2% to about 1.5% by weight, the chromium and nickel
in combination ranges from about 0.2% to about 1.5% by weight, the aluminum
ranges from about 0.015% to about 0.09% by weight, the calcium ranges from about
0.0008% to about 0.009% by percent.

56. The method of claim 47, where the carbon ranges from about 0.03% to about
0.1% by weight, the chromium, nickel in combination ranges from about 0.3% to

66
about 1.5% by weight, the aluminum ranges from about 0.02% to about 0.08% by
weight, the calcium ranges from about 0.001% to about 0.008% by percent.

57. The method of claim 47, where the hot rolling termination temperature is in a
range between about (Ar3-30)° C. and about 950.degree. C. (about 1742.degree. F.).

58. The method of claim 47, where cooling the hot band is at a mean rate of at least
about 10.degree. C./s (about 18.degree. F./s) to a temperature not higher than about
650.degree. C. (about 1202.degree. F.).

59. The method of claim 47, further comprising pickling the coil.

60. The method of claim 47, where the total reduction during hot rolling is more than
about 50%.

61. The method of claim 47, where the total reduction during hot rolling is more than
about 75%.

62. The method of claim 47, further comprising:applying a coating of one or both of a
zinc coating or a zinc alloy coating to the hot rolled steel sheet.

63. The method of claim 47, where weld properties comprise a microhardness
difference less than about 100 HV (500 gf) between the highest hardness on a weld
and the lowest hardness on a heat affected zone adjacent the weld.

64. The method of claim 47, where weld properties comprise a microhardness
difference less than about 80 HV (500 gf) between the highest hardness on a weld and
the lowest hardness on a heat affected zone adjacent the weld.

65. The method of claim 47, where properties comprise a mean impact energy more
than about 10,000 g-m on a V-notch Charpy specimen of about 5 millimeters
thickness.

66. The method of claim 47, where properties comprise a yield strength/tensile
strength ratio less than about 70%.
Description:
RELATED APPLICATIONS

This application is a continuation-in-part of application Ser. No. 10/997,480, filed

Nov. 24, 2004, which is hereby incorporated by reference.

BACKGROUND AND SUMMARY

The present invention is directed to a dual phase structured (ferrite and martensite)
steel sheet product and a method of producing the same.

Applications of high strength steel sheets to automotive parts, electric apparatus,

building components and machineries are currently increasing. Among these high
strength steels, dual phase steel, which possess microstructures of martensite islands
embedded in a ferrite matrix, is attracting more and more attention due to such dual

67
phase steel having a superior combination of the properties of high strength, excellent
formability, continuous yielding, low yield strength/tensile strength ratio and/or high
work hardening. Particularly with respect to automotive parts, martensite/ferrite dual
phase steels, because of these properties, can improve vehicle crashworthiness and
durability, and also can be made thin to help to reduce vehicle weight as well.
Therefore, martensite/ferrite dual phase steels help to improve vehicle fuel efficiency
and vehicle safety.

The previous research and developments in the field of dual phase steel sheets have
resulted in several methods for producing dual phase steel sheets, many of which are
discussed below.

U.S. Patent Application Publication No. 2003/0084966A1 to Ikeda et al. discloses a

dual phase steel sheet having low yield ratio, and excellence in the balance for
strength-elongation and bake hardening properties. The steel contains 0.01-0.20 mass
% carbon, 0.5 or less mass % silicon, 0.5-3.0 mass % manganese, 0.06 or less mass %
aluminum, 0.15 or less mass % phosphorus, and 0.02 or less mass % sulfur. The
method of producing this steel sheet includes hot rolling and continuous annealing or
galvanization steps. The hot rolling step includes a step of completing finish rolling at
a temperature of (A.sub.γ3-50)° C., meaning (Ar3-50)° C., or higher, and a step of
cooling at an average cooling rate of 20° C. per second (° C./s) or more down to the
Ms point (defined by Ikeda et al. as the matrix phase of tempered martensite) or
lower, or to the Ms point or higher and the Bs point (defined by Ikeda et al. as the
matrix phase of tempered bainite) or lower, followed by coiling. The continuous
annealing step includes a step of heating to a temperature of the A1 point or higher
and the A3 point or lower, and a step of cooling at an average cooling rate of 3° C./s
or more down to the Ms point or lower, and, optionally, a step of further applying
averaging at a temperature from 100 to 600° C.

U.S. Pat. No. 6,440,584 to Nagataki et al. is directed to a hot dip galvanized steel
sheet, which is produced by rough rolling a steel, finish rolling the rough rolled steel
at a temperature of Ar3 point or more, coiling the finish rolled steel at a temperature
of 700° C. or less, and hot dip galvanizing the coiled steel at a pre-plating heating
temperature of Ac1 to Ac3. A continuous hot dip galvanizing operation is performed
by soaking a pickled strip at a temperature of 750 to 850° C., cooling the soaked strip
to a temperature range of 600° C. or less at a cooling rate of 1 to 50° C./s, hot dip
galvanizing the cooled strip, and cooling the galvanized strip so that the residence
time at 400 to 600° C. is within 200 seconds.

U.S. Pat. No. 6,423,426 to Kobayashi et al. relates to a high tensile hot dip zinc coated
steel plate having a composition comprising 0.05-0.20 mass % carbon, 0.3-1.8 mass
% silicon, 1.0-3.0 mass % manganese, and iron as the balance. The steel is subjected
to a primary step of primary heat treatment and subsequent rapid cooling to the
martensite transition temperature point or lower, a secondary step of secondary heat
treatment and subsequent rapid cooling, and a tertiary step of galvanizing treatment
and rapid cooling, so as to obtain 20% or more by volume of tempered martensite in
the steel structure.

U.S. Pat. No. 4,708,748 (Divisional) and U.S. Pat. No. 4,615,749 (Parent), both to
Satoh et al., disclose a cold rolled dual phase structure steel sheet, which consists of

68
0.001-0.008 weight % carbon, not more than 1.0 weight % silicon, 0.05-1.8 weight %
manganese, not more than 0.15 weight % phosphorus, 0.01-0.10 weight % aluminum,
0.002-0.050 weight % niobium and 0.0005-0.0050 weight % boron. The steel sheet is
manufactured by hot and cold rolling a steel slab with the above chemical
composition and continuously annealing the resulting steel sheet in such a manner that
the steel sheet is heated and soaked at a temperature from a→γ transformation point to
1000° C. and then cooled at an average rate of not less than 0.5° C./s but less than 20°
C./s in a temperature range of from the soaking temperature to 750° C., and
subsequently at an average cooling rate of not less than 20° C./s in a temperature
range of from 750° C. to not more than 300° C.

All of the above patents and the above patent publication are related to the
manufacture of dual phase steel sheets using a continuous annealing method applied
to cold rolled steel sheet. A need is thus still called for to develop a new
manufacturing method to produce dual phase steel sheets directly by hot rolling
without subsequent cold rolling and annealing to reduce manufacturing processes and
corresponding costs. This appears particularly important in North America, where a
number of steel manufacturers have no continuous annealing production lines to
perform controlled cooling.

The present invention is a hot rolled steel sheet having a dual phase microstructure
comprised of a martensite phase less than 35% by volume and a ferrite phase of at
least 50% by volume formed in the hot-rolled steel sheet after cooling. As used herein
a "hot rolled sheet" and "hot rolled steel sheet" means a steel sheet that has been hot
rolled, before cold rolling, heat treatment, work hardening, or transformation by
another process. The steel sheet also has a composition comprising carbon in a range
from about 0.01% by weight to about 0.2% by weight, manganese in a range from
about 0.3% by weight to about 3% weight, silicon in a range from about 0.2% by
weight to about 2% by weight, chromium and nickel in combination from about 0.2%
by weight to about 2% by weight where chromium if present is in a range from about
0.1% by weight to about 2% by weight and nickel if present is in an amount up to
about 1% by weight, aluminum in a range from about 0.01% by weight to about
0.10% by weight and nitrogen less than about 0.02% by weight, where the ratio of
Al/N is more than about 2, molybdenum less than 0.2% by weight, and calcium in a
range from about 0.0005% by weight to about 0.01% by weight, with the balance of
the composition comprising iron and incidental ingredients. Additionally, the steel
sheet comprises properties comprising a tensile strength of more than about 500
megapascals and a hole expansion ratio more than about 50% and more particularly
may have a tensile strength 590 megapascals and a hole expansion ratio more than
about 70%. Alternately, the ratio of Al/N may be more than 2.5, or may be more than
about 3.

For hot rolled sheet which is for subsequent processing by cold rolling, alternative
steel composition may be provided as above described except the silicon range may
be from about 0.05% to about 2%, and the amount of molybdenum may be up to
0.5%.

In various embodiments, the steel composition may have copper in an amount up to

about 0.8% by weight, phosphorous in an amount up to about 0.1% by weight, and
sulfur in an amount up to about 0.03% by weight. In some embodiments, the

69
composition may additionally include titanium in an amount up to about 0.2% by
weight, vanadium in an amount up to about 0.2% by weight, niobium in an amount up
to about 0.2% by weight, and boron in an amount up to about 0.008% by weight.

The hot rolled dual phase steel may be made by a method comprising: (I) hot rolling a
steel slab having the above composition into a hot band at a hot rolling termination
temperature in a range between about (Ar3-60)° C. and about 980° C. (about 1796°
F.); cooling the hot band at a mean rate of at least about 5° C./s (about 9° F./s) to a
temperature not higher than about 750° C. (about 1382° F.); and (III) coiling the hot
band to form a coil at a temperature higher than the martensite formation temperature.

the hot rolling termination temperature may be in a range between about (Ar3-30)° C.
and about 950° C. (about 1742° F.).

The steel slab prior to hot rolling may have a thickness between about 25 and 100
millimeters. Alternately, the steel slab may be thicker than 100 millimeters, such as
between about 100 millimeters and 300 millimeters, but in such thicker slabs
preheating may be needed before hot rolling.

The present dual phase steel has improved weld properties with a more stable
microhardness profile between the weld and the heat affected zone adjacent the weld
than prior dual phase steels. The microhardness stability of the present dual phase
steel provides a difference of less than about 100 HV (500 gf), or alternatively less
than 80 HV (500 gf), between the highest hardness on a weld and the lowest hardness
on a heat affected zone adjacent the weld, when welded with a conventional gas metal
arc welding system such as a metal inert gas (MIG) welding system using 90% argon
and 10% carbon dioxide gas.

The hot rolled steel sheet may comprise a dual phase microstructure having a
martensite phase between about 3% by volume and about 35% by volume in the hot-
rolled steel sheet after cooling, and more particularly from about 10% by volume to
about 28% by volume in the hot-rolled steel sheet after cooling. The dual phase
microstructure of the steel sheet may have a ferrite phase between about 60% and
about 90% by volume or between about 65% and about 85% by volume in the hot-
rolled steel sheet after cooling. In addition, the hot-rolled steel sheet may have a yield
strength/tensile strength ratio less than about 70%.

The invention is explained in more detail in connection with the accompanying

Figures and description set forth below.

BRIEF DESCRIPTION OF THE DRAWINGS

The accompanying drawings assist in describing illustrative embodiments of the

present disclosure, in which:

FIG. 1 is a flow chart illustrating an embodiment of the presently disclosed process;

2A is a photograph taken through a 500× microscope of one embodiment of the

present hot rolled dual phase steel sheet;

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2B is a photograph taken through a 1000× microscope of the steel sheet of FIG. 2A;

It is a diagrammatical side view of a test specimen showing microhardness

measurement points through a weld and heat affected zones adjacent the weld; and

FIG. 4 is a graph showing microhardness across the weld and heat affected zones of
the test specimen of FIG. 3.

DETAILED DESCRIPTION OF THE DISCLOSURE

The present disclosure is directed to a hot rolled, low carbon, dual phase steel sheet
and a method of making such a steel sheet. The hot rolled steel sheet has a
composition comprising carbon in a range from about 0.01% by weight to about 0.2%
by weight, manganese in a range from about 0.3% by weight to about 3% weight,
silicon in a range from about 0.2% by weight to about 2% by weight, chromium and
nickel in combination from about 0.2% by weight to about 2% by weight where
chromium if present is in a range from about 0.1% by weight to about 2% by weight
and nickel if present is in an amount up to about 1% by weight, aluminum in a range
from about 0.01% by weight to about 0.10% by weight and nitrogen less than about
0.02% by weight, where the ratio of Al/N is more than about 2, molybdenum less than
0.2% by weight, and calcium in a range from about 0.0005% by weight to about
0.01% by weight, with the balance of the composition comprising iron and incidental
ingredients.

For hot rolled sheet which is for subsequent processing by cold rolling, an alternative
steel composition may be provided as herein described except the silicon range may
be from about 0.05% to about 2%, and the amount of molybdenum may be up to
0.5%.

In various embodiments, the steel composition may have copper in an amount up to

about 0.8% by weight, phosphorous in an amount up to about 0.1% by weight, and
sulfur in an amount up to about 0.03% by weight. In some embodiments, as described
in more detail below, the composition may additionally include titanium in an amount
up to about 0.2% by weight, vanadium in an amount up to about 0.2% by weight,
niobium in an amount up to about 0.2% by weight, boron in an amount up to about
0.008% by weight.

The hot rolled steel sheet exhibits high tensile strength and excellent formability, in
that the steel sheet has a tensile strength of more than about 500 megapascals (MPa)
and a hole expansion ratio of at least 50%, and more particularly a tensile strength of
more than about 590 MPa and a hole expansion ratio of at least 70%. The yield
strength/tensile strength ratio is less than about 70%. Alternately, the steel sheet has a
tensile strength of more than about 780 MPa, and a hole expansion ratio of at least
50%. The steel sheet as hot-rolled according to the present disclosure possesses a
microstructure comprising up to about 35% by volume martensite islands dispersed in
a ferrite matrix phase of more than 50% by volume formed in the as-hot-rolled steel
sheet after cooling. Alternatively, the microstructure of the steel sheet may have about

71
3% to about 30% by volume martensite islands embedded in a ferrite matrix phase
formed in the as-hot-rolled sheet.

the ferrite matrix phase is the continuous phase in which the martensite phase of up to
about 35% is dispersed after cooling. The ferrite matrix phase may be less than 90%
by volume and is formed in the as-hot-rolled sheet after cooling. Alternately or in
addition, the ferrite matrix phase is between about 60% and about 90% by volume,
and may be more than 65% of the microstructure by volume in the as-hot-rolled sheet
after cooling.

The steel sheet of the present disclosure can be used after being formed (or otherwise
press formed) in an "as-hot-rolled" state, or optionally can be coated with zinc and/or
zinc alloy, for instance, for automobiles, electrical appliances, building components,
machineries, and other applications.

As described in more detail below, the presently disclosed dual phase steel sheet has
improved properties of high tensile strength, low yield strength/tensile strength ratio,
excellent weldability (microhardness stability across welds) and excellent formability
(hole expansion ratio, stretch flangeability) formed directly by hot rolling. The ranges
for the content of various ingredients such as carbon in the composition of the
resultant steel sheet, and reasons for the ranges of ingredients in the present steel
composition, are described below.

Carbon in the present steel composition provides hardenability and strength to the
steel sheet. Carbon is present in an amount of at least about 0.01% by weight in order
to enable the desired martensite and ferrite phases and strength properties to the steel
sheet. In order to enable the formation of martensite contributing to the improvement
of the strength properties, carbon may be about 0.02% by weight. Since a large
amount of carbon in the present steel composition has been found to markedly
deteriorate the formability and weldability of the steel sheet, the upper limit of the
carbon content is about 0.2% by weight for an integrated hot mill. Alternatively, the
carbon content in the present steel may be no more than about 0.12% by weight for
steel sheet made by hot mills at compact strip production (CSP) plants to provide
excellent castability of the steel sheet. Alternatively, carbon may be present in a range
from about 0.03% by weight to about 0.1% by weight in the present steel.

Manganese of between about 0.3% and 3% by weight in the present steel composition
is another alloy enhancing the strength of steel sheet. An amount of at least about
0.3% by weight of manganese has been found in order to provide the strength and
hardenability of the steel sheet. Alternatively, in order to enhance the stability of
austenite in the present steel composition and at least about 3% by volume of a
martensite phase in the steel sheet, the amount of manganese in the present steel
composition should be more than about 0.5% by weight. On the other hand, when the
amount of manganese exceeds about 3% by weight, it has been found that the
weldability of the steel sheet of the present steel composition is adversely affected.
Alternatively, the amount of manganese may be less than about 2.5% by weight or
between about 0.5% and about 2.5% by weight in the present steel.

Silicon in the range of about 0.2% and about 2% in the present steel composition has
been found to provide the desired strength, and not significantly impairing the desired

72
ductility or formability of the steel sheet. Silicon in this range also has been found in
the present steel composition to promote the ferrite transformation and delay the
pearlite transformation. As pearlite is not desired in the ferrite matrix of the steel
sheet, the present composition has silicon in an amount in the range of about 0.2%
and about 2% by weight. When the content of silicon exceeds about 2% by weight in
the present steel, it has been found that the beneficial effect of silicon is saturated and
accordingly, the upper limit of silicon content is about 2% by weight. Alternatively,
silicon may be present in a range from about 0.2% by weight to about 1.5% by weight
in the present steel. For hot rolled steel sheet which is for subsequent processing by
cold rolling, the silicon range may be from about 0.05% to about 2%.

Chromium and nickel in combination in an amount between about 0.2% by weight

and about 2% by weight in the present steel composition has been found effective for
improving the hardenability and strength of the steel sheet. Chromium and nickel in
such amounts has also been found useful in the present steel for stabilizing the
remaining austenite and to promote the formation of martensite while having minimal
or no adverse effects on austenite to ferrite transformation. These properties have
been provided in the present steel by a combination of chromium and nickel from
about 0.2% by weight to about 2% by weight, where chromium if present is in an
amount between about 0.1% and about 2% by weight and nickel if present in an
amount up to about 1% by weight. Alternatively, the combination of chromium and
nickel may be present in a range from about 0.2% by weight to about 1.5% by weight,
or from about 0.3% by weight to about 1.5% by weight in the present steel.

Aluminum is present in the present steel composition to deoxidize the steel

composition and react with nitrogen, if any, to form aluminum nitrides. Theoretically,
the acid-soluble amount of (27/14) N, i.e., 1.9 times the amount of nitrogen, is
required to fix nitrogen as aluminum nitrides. Practically, however, it has found that
the ratio of Al/N needed in the present steel composition is above about 2, and in
some cases above 2.5. Alternately, the ratio of Al/N may be above about 3, and in
some cases above 3.5. At least 0.01% by weight of aluminum is effective as a
deoxidation element in the present steel composition. When the content of aluminum
exceeds about 0.1% in the present steel, on the other hand, the ductility and
formability of the steel sheet has been found to significantly degrade. Hence, the
amount of aluminum in the present steel is between about 0.01% and about 0.1% by
weight. Alternatively, aluminum may be present in a range between about 0.015%
and about 0.09% by weight, or in the range between about 0.02% and about 0.08% by
weight in the present steel.

Calcium is used in the present steel composition is to assist the shape of sulfides, if
any. Calcium assists in reducing the harmful effect due to sulfur, if any, and improve
the stretch flangeability and fatigue property of the present steel sheet. At least about
0.0005% by weight of calcium has been found to be needed in the present steel
composition to provide these beneficial properties. On the other hand, this beneficial
effect has been found to be saturated when the amount of calcium exceeds about
0.01% by weight in the present steel composition, so that is the upper limit specified
for calcium. Alternatively, calcium may be present in a range from about 0.0008% by
weight to about 0.009% by weight, or, from about 0.001% by weight to about 0.008%
by weight in the present steel.

73
Phosphorus is generally present as a residual ingredient in iron sources used in
steelmaking. In principle, phosphorus in the present steel composition exerts an effect
similar to that of manganese and silicon in view of solid solution hardening. In
addition, when a large amount of phosphorus is added to the present steel
composition, the castability and rollability of the steel sheet has been found to
deteriorate. Also, the segregation of phosphorus at grain boundaries of the present
composition has been found to result in brittleness of the steel sheet, which in turn
impairs its formability and weldability. For these reasons, the upper limit of
phosphorus content in the present steel composition is about 0.1% by weight.
Alternatively, the upper limit of phosphorus may be about 0.08% by weight, or about
0.06% by weight in the present steel.

Sulfur is not usually added to the present steel composition because as low as possible
sulfur content is desired. A residual amount of sulfur may be present depending on the
steel making technique that is employed in making the present steel composition.
However, the present steel composition contains manganese, so that residual sulfur if
present typically is precipitated in the form of manganese sulfides. On the other hand,
since a large amount of manganese sulfide precipitate greatly deteriorates the
formability and fatigue properties of the present steel sheet, the upper limit of sulfur
content is about 0.03% by weight. Alternatively, the upper limit of sulfur may be
about 0.02% by weight, or about 0.01% by weight in the present steel.

When nitrogen exceeds about 0.02% by weight in the present steel composition, it has
been found that the ductility and formability of the steel sheet are significantly
reduced. Accordingly, the upper limit of nitrogen content is about 0.02% by weight in
the present steel composition. Alternatively, the upper limit of nitrogen may be about
0.015% by weight, or about 0.01% by weight in the present steel.

Boron, even in a small amount, is very effective for improving the hardenability and
strength of the steel sheet in the present steel composition. However, when boron is
added in excess, the rollability of the present steel sheet is found to be significantly
lowered. Also with excess amounts of boron, the segregation of boron at grain
boundaries deteriorates the formability. For these reasons, the upper limit of boron
content in the present steel composition is about 0.008% by weight. Alternatively, the
upper limit of boron may be about 0.006% by weight, or about 0.005% by weight in
the present steel. It is also possible that no boron is present in the present steel sheet.

Molybdenum in the present steel composition is effective for improving the

hardenability and strength of the steel sheet. However, excess addition of
molybdenum results in a saturated effect and promotes the formation of an undesired
bainite phase. Furthermore, molybdenum is expensive. The upper limit for
molybdenum in the present steel composition is about 0.2% by weight in the present
steel. For hot rolled steel sheet which is for subsequent processing by cold rolling, the
upper limit of molybdenum may be about 0.5%, or alternately may be about 0.3%.

Copper may be present as a residual ingredient in iron sources, such as scrap, used in
steelmaking. Copper as an alloy in the present steel composition is also effective for
improving the hardenability and strength of the steel sheet. However, excess addition
of copper in the steel composition has been found to significantly deteriorate the
surface quality of the steel sheet. Copper is also expensive. The upper limit for copper

74
in the steel composition is about 0.8% by weight. Alternatively, the upper limit for
copper may be about 0.6% by weight, or about 0.4% by weight in the present steel.

In the present steel composition, titanium, vanadium, and/or niobium may also be
used as an alloy and have a strong effect on retarding austenite recrystallization and
refining grains. Titanium, vanadium, or niobium may be used alone or in any
combination in the steel composition. When a moderate amount of one or more of
them is added, the strength of the steel sheet is markedly increased. These elements
are also useful in the present steel composition to accelerate the transformation of
austenite phase to ferrite phase in the steel microstructure. However, when each of
these elements alone or in combination exceeds about 0.2% by weight, an
unacceptable large amount of the respective precipitates is formed in the present steel
sheet. The corresponding precipitation hardening becomes very high, reducing
castability and rollability during manufacturing the steel sheet, and also unacceptably
deteriorating the formability of the present steel sheet when forming or press forming
the produced steel sheet into final parts. Accordingly, the present steel composition
has no more than about 0.2% by weight of titanium, vanadium, and/or niobium.
Alternatively, the upper limit of each of titanium, vanadium, and/or niobium may be
about 0.15% by weight in the present steel.

Incidental ingredients and other impurities should be kept to as small a concentration

as is practicable with available iron sources and additives with available purity used in
steelmaking. Incidental ingredients are typically the ingredients arising from use of
scrap metals and other additions in steelmaking, as occurs in preparation of molten
composition in a steelmaking furnace such as an electric arc furnace (EAF).

The presently disclosed process to produce a dual phase steel composition requires a
less demanding and restrictive facility and processing steel with described properties.
By the present process, dual phase steel composition of less than 35% by volume
martensite phase in a continuous ferrite phase of more than 50% by volume can be
made directly by hot rolling and cooling. As a result, the disclosed process can be
carried out at most existing compact strip or CSP mills or carried out at most existing
integrated mills.

An embodiment of the disclosed process comprises the following steps. Obtain or

produce as a starting material a thin steel slab having a composition within the ranges
disclosed above, and having a thickness suitable for hot rolling into a hot rolled band.
Hot rolled band is also referred to as a hot rolled steel sheet. A thin slab can be
produced from a molten steel having a composition within the ranges disclosed above
by using, for instance, a continuous slab caster or an ingot caster. [0052]ii. Hot roll
the steel slab into a hot band and complete the hot rolling process at a termination or
finishing temperature in a range between about (Ar3-60)° C. and about 980° C.
(1796° F.), in order to obtain a fine-grained ferrite matrix capable of producing an as-
hot-rolled sheet with a microstructure of more than 50% ferrite phase by volume with
a martensite phase of less than 35% dispersed therein. The total reduction used during
hot rolling is more than 50%, or may be more than 75 [0053]iii. Cool the hot rolled
steel, after completing hot rolling, at a mean rate not slower than about 5° C./s (9°
F./s) to a temperature not higher than about 750° C. (about 1382° F.). [0054]iv. Coil
the hot rolled steel by a coiler, when the hot band has cooled to a temperature higher
than about 400° C. (752° F.) and not higher than about 750° C. (1382° F.). A

75
conventional coiler may be used. Then, cool the coiled sheet to a temperature lower
than about the martensite formation temperature, or the martensite start temperature,
to form martensite islands of less than 35% by volume embedded in a ferrite matrix
phase. The ferrite phase is thus more than 50% by volume and may be more than 60%
or 65% by volume in the as-hot-rolled sheet after cooling. [0055]v. If desired,
applying a coating, such as a zinc coating and/or a zinc alloy coating, to the steel sheet
may be effected. The coating should improve the corrosion resistance of the steel
sheet. Further, the "as-hot-rolled" sheet or coated sheet may be formed or press
formed into a desired end shape for a final application.

After hot rolling, the coiling step may occur at a temperature above the martensite
formation temperature, or the martensite start temperature. The martensite formation
temperature is the temperature at which martensite begins to form when cooling. The
martensite formation temperature may vary with the steel composition, but may be
between about 300° C. and about 450° C.

After coiling the hot-rolled steel sheet, the coil then cools to below the martensite
formation temperature, obtaining a dual phase microstructure having a martensite
phase up to about 35% by volume in a ferrite matrix phase of more than 50% by
volume in the as-hot-rolled sheet. The martensite phase may be between about 3%
and 30% by volume in the ferrite matrix phase in the as-hot-rolled sheet. Alternately
or in addition, the martensite phase may be between about 8% and about 30% by
volume in the ferrite matrix phase in the as-hot-rolled sheet, and may be between
about 10% and about 28% by volume in the ferrite matrix phase.

The ferrite phase is more than 50% by volume and may be less than 90%. Alternately
or in addition, the ferrite phase is more than 60% and less than 90% by volume in the
as-hot-rolled sheet, or may be more than 65% and less than 85% by volume in the as-
hot-rolled sheet after cooling. While the ferrite phase may contain neither precipitates
nor inclusions and no other microstructure phases present in the steel sheet, in practice
it is difficult to obtain a strictly dual phase material. Although not desired, there may
be a small amount of residual or incidental other phases in the steel sheet, such as
pearlite and/or bainite. The sum of residual or incidental phases may be less than 15%
by volume, and usually less than 8% by volume.

The present process is for producing a dual phase steel sheet having high tensile
strength and excellent formability by a hot rolling process as follows: Produce or
obtain as a starting material a thin steel slab, typically with a thickness ranging from
about 25 to about 100 millimeters, for instance using a CSP facility, to form a steel
composition including (in weight percentages) about 0.01% to about 0.2% carbon (C),
about 0.3% to about 3% manganese (Mn), about 0.2% to about 2% silicon (Si), a
combination of chromium (Cr) and nickel (Ni) between about 0.2% and 2% by weight
with about 0.1% to about 2% by weight chromium (Cr) and up to 1% by weight
nickel (Ni), not more than about 0.1% phosphorous (P), not more than about 0.03%
sulfur (S), not more than about 0.02% nitrogen (N), about 0.01 to about 0.1%
aluminum (Al), where the ratio of Al/N is more than about 2, not more than about
0.2% titanium (Ti), not more than about 0.2% vanadium (V), not more than about
0.2% niobium (Nb), not more than about 0.008% boron (B), not more than about
0.2% molybdenum (Mo), not more than about 0.8% copper (Cu), and about 0.0005%
to about 0.01% calcium (Ca), the remainder essentially being iron (Fe) and raw

76
material impurities. [0061]ii. Hot roll the steel slab to form a hot rolled band and
complete the hot rolling process at a termination or finishing temperature in a range
between about (Ar3-30)° C. and about 950° C. (1742° F.). The total reduction used
during hot rolling is more than 50%, and may be more than 75%. [0062]iii. Cool the
hot rolled steel sheet immediately after completing hot rolling at a mean cooling rate
not slower than about 10° C./s (18° F./s) to a temperature not higher than about 650°
C. (about 1202° F.). [0063]iv. Coil the hot rolled steel on a coiler, starting the coiling
process when the hot band has cooled to a temperature above the martensite formation
temperature. The coiling temperature may be higher than about 450° C. (842° F.) and
lower than about 650° C. (1202° F.). Starting the coiling when the hot band has
cooled to a temperature not higher than about 650° C. (1202° F.) may result in better
formability and drawability properties. When cooled, the coiled sheet is at a
temperature lower than the martensite formation temperature to form martensite
islands dispersed in a ferrite matrix phase, where the martensite is between about 3%
and 30% by volume. v. Further, hot dip plating or electroplating may be performed to
apply a zinc coating and/or a zinc alloy coating onto the surface of the above hot
rolled steel sheet to improve the corrosion resistance. Either the "as-hot-rolled" sheet
or coated sheet may be formed or press formed into the desired end shapes for any
final applications.

In the disclosed process, a starting material steel slab thicker than about 100
millimeters (mm) may be employed, For instance, the steel slab thickness may be
about 150 millimeters or thicker, or about 200 millimeters or yet thicker, or, about
300 millimeters and thicker. Such a steel slab employed as a starting material, with
the above-noted chemical composition, can be produced in an integrated hot mill by
continuous casting or by ingot casting. For a thicker slab produced in an integrated
mill, a reheating process may be required before conducting the above-mentioned hot
rolling operation, by reheating the steel slab to a temperature in a range between about
1050° C. (1922° F.) and about 1350° C. (2462° F.) and more typically between about
1100° C. (2012° F.) and about 1300° C. (2372° F.), and then holding at this
temperature for a time period of not less than about 10 minutes and more typically not
less than about 30 minutes. The reheating helps to assure the uniformity of the initial
microstructure of the slabs before conducting the hot rolling process of the present
disclosure. On the other hand, for a thin slab (under about 100 mm) cast as occurs in a
CSP plant, the reheating process is usually not needed unless the slab is cooled. FIG.
1 is a process flow diagram which illustrates the above-described steps of the
presently disclosed process.

Several types of low carbon molten steels were made using an electric arc furnace,
and were then formed into thin slabs with a thickness of about 53 millimeters at the
Nucor-Berkeley compact strip production plant. The samples tested are shown in
TABLE 1 having compositions according to the present disclosure and manufactured
according to the presently disclosed process. As shown in TABLE 2, the measured
fraction of martensite phase ranged from 11% to 28% by volume for the steel samples
having compositions according to the present disclosure and manufactured according
to the present process.

The following were specific process conditions recorded for steel samples of the
composition and process of the present disclosure. A steel slab for each of presently
disclosed steels (Samples A, B, C, E, F, I, J, and K) was hot rolled to form hot bands

77
using hot rolling termination temperatures (also called finishing or exit temperatures)
ranging from 870° C. (1598° F.) to 930° C. (1706° F.). The total reduction used
during hot rolling was more than 85% to obtain the thickness of the hot rolled steel
sheets ranging from 2.5 millimeters to 5.9 millimeters, as shown in TABLE 2.
Immediately after hot rolling, the hot rolled steel sheets were water cooled on a
conventional run-out table at a mean rate of at least about 5° C./s (about 9° F./s), and
coiled at coiling temperatures ranging from 500° C. (932° F.) to 650° C. (1202° F.).
The compositions of these various steel compositions are presented below in TABLE
1.

Test pieces were taken from the resulting hot rolled steel sheets, and were machined
into tensile specimens in the longitudinal direction, namely along the hot rolling
direction, for testing of the respective mechanical properties of the various steel
sheets.

Tensile testing was conducted in accordance with the standard ASTM A370 method
to measure the corresponding mechanical properties, including yield strength, tensile
strength, and total elongation. The test data obtained are presented below in TABLE
2.

The microstructure of the present hot-rolled dual phase steel sheets was examined.
Typical micrographs obtained using a Nikon Epiphot 200 Microscope are given in
FIGS. 2A and 2B, at 500× and 1000× magnification. As illustrated by the
micrographs, martensite islands are substantially uniformly distributed in the
continuous ferrite matrix. It is such a dual phase structure that provides the excellent
combination of strength and formability for the presently disclosed steel sheet.

hole expansion ratio λ is a measure of stretch flangeability, which may indicate ability
of the steel sheet to be formed into complex shapes. To compare the stretch
flangeability and stretch formability of the presently disclosed hot rolled steel sheet
with comparison commercial hot rolled dual phase steel, square test specimens of
about 100 millimeters by 100 millimeters were cut from steel sheets of various
thicknesses. The hole expansion ratio λ was determined according to Japan Iron and
Steel Federation Standard JFS T1001. The hole expansion ratio is defined as the
amount of expansion obtained in a circular punch hole of a test piece when a conical
punch is pressed into the hole until any of the cracks that form at the hole edge extend
through the test piece thickness. Numerically, the hole expansion ratio is expressed as
the ratio of the final hole diameter at fracture through thickness to the original hole
diameter, as defined by the following equation:

λ=((Dh-Do)/Do)×100

where λ=Hole expansion ratio (%), Do=Original hole diameter (Do=10 millimeters),
and Dh=Hole diameter after fracture (in millimeters). A greater hole expansion ratio
may enable the stamping and forming of various complex parts without developing
fractures during stamping or forming processes.

78
TABLE-US-00003 TABLE 3 Hole Expansion Thickness Ratio λ Steel Remark
(millimeters) (%) A Invention 3.8 81.8 E Invention 2.5 79.7 K Invention 4.1 75.8 3.2
84.9 O Commercial- 4.1 36.6 Prior Arts

The present hot rolled dual phase steel provides improved hole expansion ratio
results. The hole expansion ratio λ of the presently disclosed hot rolled dual phase
steel is more than 50%, and may be more than 70%. Alternately or in addition, the
hole expansion ratio λ of the present dual phase steel may be more than 80%. Samples
of steel A, E and K of the present composition and microstructure were compared to
prior comparative commercial Steel Sample I in TABLE 3. The values of hole
expansion ratio λ measured on Steel Samples A, E, and K are more than 70%, and
more particularly more than 75%. By contrast, this value is lower than 40% for
comparative commercial Steel Sample O.

One challenge in prior high strength steels is suitable fatigue properties at welds.
Weld fatigue properties are affected by differences between the hardness of the weld,
the hardness of the unwelded base material, and the hardness of the heat affected
zones adjacent the weld. Fatigue properties may be improved in the present steel by
improving the stability of the hardness, or reducing the difference in hardness,
between the weld, the unwelded material, and the heat affected zones.

Weld hardness of the dual phase hot rolled steel is shown in FIGS. 3 and 4. As shown
in FIG. 3, the microhardness of gas metal arc-welded test specimens 20 was measured
in a plurality of locations from position A to position B. The test specimens 20 were
welded using a metal inert gas (MIG) welding process using an OTC Almega-AX-V6
robot and OTC DP400 power source. The filler metal or welding wire was 0.045 inch
(1.14 millimeters) ER70S-3 electrode, and the shielding gas was 90% argon and 10%
carbon dioxide.

Vickers microhardness measurements were taken on the welded samples through heat
affected zones 30 adjacent the weld, and across the weld 40. The hardness near
position B is the hardness of the unwelded base material. As shown in the graph of
FIG. 4, the comparative commercial Steel Sample O was softened in the heat affected
zones where the heat affected zones of the present Steel Sample C were about the
same hardness as the unwelded base material.

Additionally, the hardness of the weld was greater in the comparative commercial
Steel Sample O than the present Steel Sample C. A microhardness difference 50, 60 is
shown in FIG. 4 showing the difference between the microhardness in the weld 40
and the microhardness in the heat affected zone 30 adjacent the weld 40. A large
microhardness difference 60 was measured from the weld 40 to the heat affected zone
30 of the comparison Steel Sample O, which may decrease weld fatigue properties in
the resulting assembly. As shown in FIG. 4, the weld properties of the present hot
rolled dual phase steel comprise a microhardness difference 50 between the weld 40
and the heat affected zone 30 adjacent the weld less than about 100 HV (500 gf).
Alternately or in addition, the weld properties comprise a microhardness difference
less than about 80 HV (500 gf), and may be less than 70 HV (500 gf). The more stable
microhardness profile through the weld, heat affected zone and unwelded base metal
obtained with the presently disclosed hot rolled steel improves the weld fatigue
performance of the steel.

79
The hot rolled dual phase steels manufactured by the present process has improved
impact toughness and crashworthiness over prior dual phase steels.

In order to evaluate the impact toughness and crashworthiness of the present hot
rolled dual phase steel sheets compared to comparison hot rolled dual phase steel
sheets, a number of V-notch Charpy impact test specimens having a thickness of
about 5 millimeters were machined and prepared according to ASTM E23-05. These
specimens were then tested for the material property of mean impact energy at
ambient temperature using an Instron Corporation Sl-1 K3 Pendulum Impact
Machine. During testing, a 407 J (300 ft-lb) Charpy pendulum with a length of 800
millimeters was used at an impact velocity of 5.18 m/s (17 ft/s).

Compared to the prior art hot rolled dual phase steels, the present hot rolled dual
phase steel sheets have notably higher impact toughness and crashworthiness, as
evidenced by the present hot rolled dual phase steel sheets having a mean impact
energy more than about 10,000 g-m on a V-notch Charpy specimen of about 5
millimeters thickness. More particularly, the present hot rolled dual phase steel sheets
have a mean impact energy more than about 12,000 g-m, and even more particularly
more than about 13,000 g-m, on a V-notch Charpy specimen of about 5 millimeters
thickness. TABLE 4 shows the mean impact energy for samples of the present Steel
Sample B compared to Comparison Steel O. Each impact energy measurement was
taken on a V-notch Charpy specimen of about 5 millimeters thickness, and the mean
impact energy was calculated based on at least 5 measurements of each steel sample.

TABLE-US-00004 TABLE 4 Steel Remark Mean Impact Energy B Invention 13756

g-m (99.5 ft-lb) O Comparison 5848 g-m (42.3 ft-lb)

Although the present invention has been shown and described in detail with regard to
exemplary embodiments, it should be understood by those skilled in the art that it is
not intended to limit the invention to specific embodiments disclosed. Various
modifications, omissions, and additions may be made to the disclosed embodiments
without materially departing from the novel teachings and advantages of the
invention, particularly in light of the foregoing teachings. Accordingly, it is intended
to cover all such modifications, omissions, additions, and equivalents as may be
included within the spirit and scope of the invention as defined by the following
claims.

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The cold rolling mill complex comprises of the four units CRD I, CRD II & CRD III
& CRD IV . CRD I , CRD III & CRD IV comprises a combination of 20 Hi
Sendzimer mills, annealing and pickling lines and various sophisticated associated
equipments and processing lines to produce Cold Rolled Coils and Sheets with quality
surface finishes, precise dimensional control and good flatness control in wider coils
(>600mm width). The facilities at Hisar is equipped to produce and sup-ply material
in 2D, 2B, No.3, No.4 and BA surface finishes. CRD II is engaged in production of
precision strips in thinner sizes (0.05mm to 0.50mm thick) e.g. Razor Blade, other
ferritic and Martensitic stainless steel.

The present installed capacity of cold rolled products is 1,50,000 TPA.

Coil Buildup line

Coil buildup line is used to attach leader ends in hot rolled coils for increasing the
overall yield of coils. It is also equipped with edge trimming to improve production
for further opera-tions. s.

Skin pass Mill

The skinpass mill is designed and installed in dust proof housing. It is used to give
cold rolled pass by polished ground work roll on 2D finish dull material to convert to
2B bright surface finish. The mill is designed to meet requirements in 600 to 1600mm
width coils in 0.40 to 3.00mm thickness.

Slitting Line
Slitting lines are used to side trim the coils and cater the market requirements in
smaller width coils with a thickness from 0.45mm to 6MM.

Strip Grinding Line

The strip Grinding line is used to produce No.3, No.4 and some special finishes
requiring grinding which is used for decorative purposes in architectural applications,
restaurant equipments, dairy equipments, lifts, elevators etc.

Shearing Line
The flying shearing line with Voss Leveller is used to produce sheets with good
flatness which is the first and foremost requirement of customers.

Annealing and Pickling line

The annealing and pickling line is used to anneal and pickle Hot Rolled stainless and
Cold rolled stainless steel coils. The continuous annealing and pickling line is
equipped with a neutral electrolyte tank for pickling by Ruthner process using sodium
sulphate for the neutral electrolyte, scanacon system for acid recovery and removal of
metal content.

Bright Annealing line

The bright annealing (BA) line at Jindal Hisar works is one of its kind in India. The
annealing in BA line is done in controlled atmosphere of cracked ammonia to avoid
any oxidation of metal which ensures a bright finish called as BA finish.

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RAZOR AND SURGICAL BLADE STEEL

Jindal Stainless is an exclusive producer of stainless razor blade steel in India. . The
microstructure of our strips is designed to optimize / facilitate hardening, sharpening
and honing operations at customers end and to develop ideal characteristic for
intended end application. These are achieved with stringent quality checks utilizing
modern and sophisticated testing equipments such as Metallurgical microscope with
advanced image analyzer, digital micro-hardness tester, microprocessor controlled
Tensile testing machine and scanning electron microscope. Persistent R & D activity
had led to the improvement in quality of product enabling us, not only to cater to the
Indian razor blade steel requirement but also to export a substantial quantity on a
regular basis.

The current capacity for precision strip production is 12,000 TPA

COIN BLANKS
Jindal Stainless has been supplying AISI 430 grade ferritic stainless steel coils &
blanks to India Govt. Mint & Foreign mint for making coins on regular basis. To
diversify its product range, coin blanking and associated processing facilities of
world-class quality has been installed and commissioned. .

At present Jindal Stainless is supplying Ferritic Stainless Steel coin blanks of

denomination of 25 Paise, 50 Paise and 1 Rupee to Govt. of India, Mint. In addition to
these we have developed Cupro-Nickel coin blanks of 2 and 5 rupees denomination.
The present installed capacity for coin blanking is 10,000 MTPY.

Production Process
The cold rolled and bright annealed coils are processed at coin blanking lines. This
comprises of a blanking press, deburring machine, edge rimming machine, annealing
furnace and polishing machines. Subsequently the coin blanks are inspected on
Inspection Conveyors, then counted by counting machine and packed in drums for
despatch.

The punched out strips of AISI SS430 is a by-product while making coin blanks.
These are aesthetically pleasing and elegant and have a vide variety of applications
such as cable trays, kitchen racks, Paper Basket etc. These can be supplied in coil
forms.

Cupro-Nickel Complex

In order to expand the business for coin blanks, an independent production line has
been installed to produce high value copper-base non-ferrous alloys importantly
cupro-nickels. The production facility includes induction melting, continuous
horizontal strip casting, cold rolling, annealing, pickling and slitting. The installed
melting and casting capacity is 6000T per annum. Apart from Cuppro-Nickels, the

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unit can produce Aluminum-Bronze, Phosphorus Bronze, Nickel-Silver and Tin
bearing copper for various engineering and jewellry applications. Aluminum-Bronze
along with Cupro-Nickel is used to manufacture duplex coins.

In summary, the difference between the old style, traditional manager, and the
approach taken by managers using TQM can be summarized as follows:|6~
Old Style Managers
* Self-image as a manager or boss
* Follows the hierarchical chain of command to attain quality goals
* Works within a set formal, functional structure
* Acts and makes decisions as an individual
* Is protective and even distorts information
* Becomes an expert and spends whole career in one function
* Demands long hours and only loyalty to one boss
Managers Using TQM
* Self-image as a team leader, sponsor, or internal consultant
* Cuts across functional lines dealing with anyone necessary to attain quality goals
* Changes the composition of teams in response to customer needs and needed
innovation
* Acts and makes decisions as part of a team
* Shares and supplements information with the team or anyone else who needs it
* Becomes an expert and has significant assignments in many different functions
* Demands quality results and loyalty not only to the organization and one's boss, but
also to subordinates, teammates in other departments, and especially customers
Implementing TQM
The discussion so far has tried to give a general understanding of what is meant by
and what is involved in TQM. Now we turn to implementation. Although the steps
will differ depending on the past experience and culture of the organization, the
following discussion can be used for general guidelines for successful implementation
of TQM.
Formulate the Overall TQM Strategy and Philosophical Framework
Like any overall strategy, the TQM strategy involves goals, policies and plans.|7~
This strategic process is customer driven and strives for continuous improvement. The
strategic goals spell out what the organization intends to accomplish in terms of
delivering quality products/services to customers. Importantly, these goals start with
defining who the customers really are and then letting them express their needs and
expectations.
The level of the goals should be determined by "benchmarking." This is the term used
in TQM that establishes the very best in the industry and in the world. Finding out the
"benchmark" for various quality goals may take some effort and digging, but
generally is not as big a problem as it may appear. Valuable benchmark information
can be gained from published sources, government documents, and, especially for
electric cooperatives, industry professional services such as those offered by NRECA.
An organization can even directly contact competitors and prestige firms in the
industry to get the needed benchmark data.
In addition to establishing the goals in the strategic process for TQM, policies and
plans are also formulated. The policies provide guidelines for how the organization
will work toward the quality goals. These policies are rules that are intended to shape
the organization's actions toward the delivery of quality to customers. The plans, on
the other hand, are more specific; they spell out the means that will be used to attain

83
the goals of the delivery of quality to customers. The plans are a specific set of actions
that should take place to accomplish the quality goals.
The TQM strategy can be structured along the lines of widely recognized
philosophical frameworks such as Deming's 14 principles or the Baldrige criteria. W.
Edwards Deming is the best known quality guru who is given credit for teaching the
Japanese statistical quality control after World War II. Now in his nineties, Deming's
14 well-known principles can be used as the philosophical framework in formulating
the strategy for TQM.
Deming's Fourteen Points
1. Create constancy of purpose. 2. Adopt the new philosophy. 3. Cease dependence on
mass inspection to achieve quality. 4. End the practice of awarding business on price
tag alone. Instead, minimize total cost, often accomplished by working with a single
supplier. 5. Improve constantly the system of production and service. 6. Institute
training on the job. 7. Institute leadership. 8. Drive out fear. 9. Break down barriers
between departments. 10. Eliminate slogans, exhortations, and numerical targets. 11.
Eliminate work standards (quotas) and management by objective. 12. Remove barriers
that rob workers, engineers, and managers of their right to pride of workmanship. 13.
Institute a vigorous program of education and self-improvement. 14. Put everyone in
the company to work to accomplish the transformation.
Like the Deming principles, the Baldrige criteria can also be used as a philosophical
framework. Named after Malcolm Baldrige, a popular secretary of commerce who
died in a rodeo accident in 1987, the award was established by Congress in 1987 to
encourage American companies to improve their quality efforts. Motorola was named
the first winner and today hundreds of thousands of firms use the criteria for
structuring their quality strategy. These criteria are so widely accepted that some
firms will not even use suppliers that have not applied for the Baldrige Award.
Baldrige National Quality Award
Leadership (100 points) Examines the senior executives' leadership in creating quality
values and incorporating those values into the way their company conducts business.
This category is divided into four sections:
1. Senior Executive Leadership 2. Quality Values 3. Management for Quality 4.
Public Responsibility
Information and Analysis (70 points) Examines the scope, validity, use, and
management of data and information that underlie the company's overall quality
improvement program.
Strategic Quality Planning (60 points) Examines the company's planning process in
achieving or retaining quality leadership and how quality improvement planning is
integrated into overall business planning.
Human Resource Utilization (150 points) Examines the company's effectiveness at
developing and utilizing the full potential of its work force, including management,
and to maintain an environment that is conducive to full participation, continuous
improvement, and personal and organizational growth.
Quality Assurance of Products and Services (140 points) Examines the statistical and
procedural approaches used for designing and producing goods and services based,
primarily, upon process design and control.
Quality Results (180 points) Examines the levels of quality improvement based upon
objective measures derived from analysis of customers' requirements and expectations
and from analysis of business operation.

84
Customer Satisfaction (300 points) Examines the company's knowledge of its
customers, overall customer service systems, responsiveness, and ability to meet
customers' requirements and expectations.
Develop the Organization and Train/Empower the Personnel
After the strategy has been formulated, the next step of implementation is to
communicate the strategy to everyone and develop the organization to accommodate
TQM. This may involve a reorganization that combines certain functions and/or
reduces the levels of management. Importantly, however, this reorganization effort for
TQM should not be equated with eliminating people or downsizing. There may be a
reduction of personnel in a few cases that can be handled by attrition, but the thrust of
TQM is certainly not to reduce the number of personnel. In fact, successful TQM
application involves more people intensive systems, not less. But because of the
extensive use of self-managed, interfunctional teams, personnel may need to be
reconfigured and especially trained and empowered.
There must be a significant commitment made to training in implementing TQM. One
of the biggest mistakes of the traditional approaches to handling quality was that it
was assumed employees would use common sense and be courteous and
knowledgeable when dealing with customers. Under TQM, everyone must be trained
in things like handling customer complaints and interacting with customers like Wal-
Mart's "Aggressive Hospitality" approach. Also, because of the cross-functional
emphasis, everyone must be cross trained, and because of the extensive use of teams,
training in team building is important.
Besides customer interaction training, cross training, and team building, there are two
generally recognized types of TQM training.|8~ One is statistical training that can be
used in measuring performance, identifying technical problems, and eliminating the
causes and changing the process. The second is problem solving training that can be
used by teams to address quality issues that are best handled with a nonquantitative
approach. Simple "brainstorming" techniques, general participative techniques, or
specialized group problem solving approaches such as nominal grouping technique
(NGT) would be examples.|9~
Finally, this phase of TQM implementation involves empowering the personnel. The
word "empowerment" is very popular these days and certainly is a fad. However, like
quality itself, what empowerment stands for is very important and is vital to
successful TQM. A throw-back to the old concept of delegation, all personnel must be
empowered, have the authority and autonomy, to make decisions that have to do with
the delivery of quality to customers. For example, even hourly paid front-line
employees should be empowered to carry out the quality goals such as making it right
for the customer at any cost. They could be empowered to fix a bill or cancel a cost
without going to their boss for a decision. Such empowerment, of course, assumes
that the benefits of quality service are greater than the costs, which has proven to be
the case in most instances.
Establish the Reward Systems for Quality Improvement
Equal, if not more important, than formulating overall strategy, developing the
organization and training/empowering the personnel is the need to reward quality
improvement. Drawing from the "laws of behavior,"|10~ the simple fact is that the
delivery of quality to customers followed by a positive consequence/reward will tend
to strengthen the quality effort and cause it to be repeated. By the same behavioral
laws, quality efforts followed by a negative consequence/punishment will weaken and
decrease it in subsequent frequency. Finally, quality followed by no
consequence/extinction will also weaken and decrease it over time.

85
CHAPTER-4

PRICING AND CONSUPTION IN STEEL SECTOR

Economy, Industry & Trade

The new Economic Order & Industrial growth, Globalising of Trade &
Telecommunications

A NEW ERA

Though agriculture has been the main preoccupation of the bulk of the Indian
population, the founding fathers saw India becoming a prosperous and Modern State
with a good industrial base. Programs were formulated to build an adequate
infrastructure for rapid industrialization.

Since independence, India has achieved a good measure of self-sufficiency in

manufacturing a variety of basic and capital goods. The output of the major industries
includes aircraft, ships, cars, locomotives, heavy electrical machinery, construction
equipment, power generation and transmission equipment, chemicals, precision
instruments, communication equipment and computers. Early planners in free India
had to keep in mind two aims: all-round development and generation of large-scale
job opportunities. Economic development strategies were evolved with an eye on
these twin objectives.

New International Economic Order

As a responsible and progressive member of the international community, India is

continuing her untiring efforts to bring about a constructive dialogue between the
developed and developing countries in their quest for a cooperative approach towards
a new International Economic Order. India is convinced that the establishment of an
equitable International Economic Order involving structural and other, changes is the
only answer to the various economic ills and problems of development confronting
the world today.

Economic Restructuring

The international confidence in India's economy has been fully restored.

The reforms launched have made India an attractive place for investment. Duties have
been lowered, repatriation of profit made liberal and levels of foreign equity raised
considerably, 100% in case of export oriented industry.

While several multinational companies have entered the Indian market, some Indian
companies have also begun to gain international recognition. In the field of computer
software, India is among the major exporting nations with an overflow of scientists in
the field.

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With the conclusion of the Uruguay Round of Multilateral Trade Negotiations, India
decided to join the new World Trade Organization, successor to GATT. India hopes
that developing countries will not suffer on account of any protectionism.

On its part, India has opened several sectors hitherto restricted to the public sector.
The rupee is convertible on the trade account. In 1994, exports grew by 17%. Figures
for 1995-96 show that exports grew at a rate of 28.8%. About 90% of India's import
are financed by export earnings. The Non-Resident Indian (NRI) enjoys special
incentives to invest in India like tax exemption and higher interest rates on deposits.

NRIs

The government acknowledges the great role that the vast number of Indians living
and working abroad, the Non-Resident Indians, can play in accelerating the pace of
development in the country. In the 1980s, the NRIs contribution through their
remittances was instrumental to a large extent in stabilizing the balance of payment
situation. Several initiatives have been taken to attract NRI investments - in industry,
shares and debentures. The NRIs are allowed 100% investment in 34 priority and
infrastructure facilities on non-repatriation basis. Approval is given automatically on
investment in certain technical collaborations. They can buy Indian Development
Bonds and acquire or transfer any property in India without waiting for government
approval. The Foreign Exchange Regulation Act has been amended to permit NRIs to
deal in foreign currency and they can also bring in five kg of gold. There are
programs to utilize the scientific and technical talents of the NRIs with the help of the
Council of Scientific and Industrial Research.

Infrastructure

In view of their crucial importance, power, transport and other infrastructure

industries are owned by the State. As a result of special attention given to the area in
recent years, the infrastructure industries have been growing at the rate of 9 to 10 per
cent annually.

Power: The generation of power has increased impressively in recent years. In 1990-
51, India generated 6.6 billion-kilowatt hour of electricity, in 1995-96 the figure was
380.1 billion-kilowatt hour. The installed capacity, which was 1400 MW at
Independence in 1947, has crossed 83,288 MW The policy of inviting private sector
has been well received; about 140 offers that can generate over 60,000 MW of power
have came in.
Coal: Coal is the primary source for power generation in India. The country has huge
reserves of coal approximately 197 billion tons. A sufficient amount of lignite (brown
coal used in thermal power stations) is also available.

India produced about 270 million tons of coal in 1995-96. The government now
welcomes private investment in the coal sector, allowing companies to operate captive
mines.

Petroleum and Natural Gas: The recent exploration and production activities in the
country have led to a dramatic increase in the output of oil. The country currently

87
produces 35 million tons of crude oil, two thirds of which is from offshore areas, and
imports another 27 million tons. Refinery production in terms of crude throughput of
the existing refineries is about 54 million tons.

Natural gas production has also increased substantially in recent years, with the
country producing over 22,000 million cubic meters. Natural gas is rapidly becoming
an important source of energy and feedstock for major industries. By the end of the
Eighth Five-Year Plan, production was likely to reach 30 billion cubic meters.

Railways: With a total route length of 63,000 Kin and a fleet of 7000 passenger and
4000 goods trains, the Indian Railways is the second largest network in the world. It
carries more than 4000 million passengers per year and transports over 382 million
tons of freight every year. It is well equipped to meet its demands for locomotives,
coaches and other components.

Lately, the Railways have launched a massive gauge conversion drive as about a third
of the track is meter or narrow gauge. With improvement in tracks, plans are afoot to
introduce faster trains. Very soon, certain prestigious long distance trains will be
running at 160 Kin per hour.

The Railways have also started a scheme to privatize several services that will include
maintenance of railway stations, meals, drinking water and cleaning of trains.

Road Transport: The roadways have grown rapidly in independent India. Ranging
from the cross-country link of the national highways to the roads in the deepest
interiors, the country has a road network of
2.1 million-km. India also manufactures most of its motorized vehicles -cars, jeeps,
trucks, vans, buses and a wide range of two-wheelers of various capacities. While
Indian scooters have established a good foreign market, the car industry is also
looking up with several foreign companies setting up plants in India.

Shipping: The natural advantage of a vast coastline requires India to use sea transport
for the bulk of cargo transport. Following the policy of liberalization, the Indian
shipping industry, major ports, as also national highways and water transport have
been throw open to the private sector.

Shipping activity is buoyant and the number of ships registered under the Indian flag
has reached 471. The average age of the shipping fleet in India is 13 years, compared
to 17 years of the international shipping fleet. India is also among the few countries
that offer fair and free competition to all shipping companies for obtaining cargo.
There is no cargo reservation policy in India.

Aviation: India has an aviation infrastructure, which caters to every aspect of this
industry. Hindustan Aeronautics Limited (HAL) is India's gigantic aeronautical
organization and one of the major aerospace complexes in the world.

India's international carrier, Air India, is well known for its quality service spanning
the world. Within the country, five international airports and more than 88 other
airports are linked by Indian Airlines. Vayudoot, an intermediate feeder airline,
already links more than 80 stations with its fleet of turboprop aircraft and it plans to

88
build and expand its network to over 140 airports in the far-flung and remote areas of
the country. Pawan Hans, a helicopter service, provides services in difficult terrain.

The Government has adopted a liberal civil aviation policy with a view to improving
domestic services. Many private airlines are already operating in the country.

Pipelines: Oil and natural gas pipelines form an important transportation network in
the country. The country completed recently, on schedule, one of its most ambitious
projects, the 1700 km Hazira-Bijaipu Jagdishpur pipeline. Costing nearly Rs. 17
billion, the pipeline transports liquid gas from the South Bassein offshore field off
Mumbai to Jagdishpur and Aonla, deep in the mainland in Uttar Pradesh. Besides,
India has nearly 7,000 km of pipeline mainly for the transportation of crude oil and its
products.

Telecommunications: With rapid advances in technology, India now uses digital

technology in telecommunications, which derives advantage from its ability to
interface with computers. The present strategy focuses on a balanced growth of the
network rapid modernization, a quantum jump in key technologies, increased
productivity, and innovation in organization and management. Moving towards self-
reliance, besides establishing indigenous R&D in digital technology, India has
established manufacturing capabilities in both the Government and private sectors.

The private sector is expected to play a major role in the future growth of telephone
services in India after the opening of the economy. The recent growth in
telecommunications has also been impressive. Till September 1996, the number of
telephone connections had reached 126.1 lakh (12.6 million). Soon every village
panchayat will have a telephone. By 1997, cellular services in most major urban areas
were functional, and telephone connections were available on demand. India is linked
to most parts of the world by E-mail and the Internet.

Key Industries

Steel: The iron and steel industry in India is over 122 years old. However, a concerted
effort to increase the steel output was made only in the early years of planning. Three
integrated steel plants were set up at Bhilai, Durgapur and Rourkela. Later two more
steel plants, at Bokaro and Vishakhapatanam, were set up. Private sector plants, of
which the Tata Iron and Steel Company (TISCO) is the biggest, have been allowed to
raise their capacity. The Steel Authority of India (SAIL), which manages the public
sector plants, has undertaken a Rs. 40,500 crore program to modernize them. During
1995,96, production of salable steel in the country was about 21.4 million tons. The
five SAIL plants accounted for over half of this: The export of iron and steel jumped
from 9.10 lakh tons in 1992-93 (valued at Rs.'708 crore) to over 20 lakh tons (Rs.
1940 crore).

TISCO and a large number of mini steel plants in the country contribute about 40% of
the steel production in the country. The Government has given a push to sponge iron
plants to meet the secondary sector's requirement of steel scrap.

Engineering and Machine Tools: Among the Third World countries, India is a major
exporter of heavy and light engineering goods, producing a wide range of items. The

89
bulk of capital goods required for power projects, fertilizer, cement, steel and
petrochemical plants and mining equipment are made in India. The country also
makes construction machinery, equipment for irrigation projects, diesel engines,
tractors, transport vehicles, cotton textile and sugar mill machinery. The engineering
industry has shown its capacity to manufacture large-size plants and equipment for
various sectors like power, fertilizer and cement. Lately, air pollution control
equipment is also being made in the country. The heavy electrical industry meets the
entire domestic demand.

Electronics: The electronics industry in India has made rapid strides in recent years.
The country produces electronics items worth over Rs. 200 billion annually. Exports
are also rising; in 1995-96 they reached Rs. 4.5 billion. The software export during
the same year reached Rs 2.5 billion. Compared to 1994-95, the software export
growth in 1995-96 rose by an impressive 70%. The Software Technology Park
scheme for attracting investments has proved successful. The relative low cost of
production in India makes items made in India competitive in the world market.

Some of the major items manufactured in India are computers, communication

equipment, broadcasting and strategic electronics, television sets, microwave ovens
and washing machines.

The compound growth of the computer industry has been 50% during the last five
years. Almost the entire demand for floppy disk drives, dot matrix printers, CRT
terminals, keyboards, line printers and plotters is met from indigenous production.
With the availability of trained technical manpower, computers have been identified
as a major thrust area. Special emphasis has been given to software export.

The Indian software industry has developed skill and expertise in areas like design
and implementation of management information and decision support systems,
banking, insurance and financial applications, artificial intelligence and fifth
generation systems.

Recognition for the Indian computer software industry has been global. Indian
software enterprises have completed projects for reputed international organizations
in 43 countries.

Textiles: Textiles, the largest industry in the country employing about 20 million
people, account for one third of India's total exports. During 1995-96, textile exports
were estimated at Rs. 35,504.6 crore which was 13.3% more than the 1994-95 figure.
In recent years, several controls have been removed and in October 1996, a new long-
term Quota policy was announced to boost exports over the next three years, till 1999.

Public Sector: The public sector contributed to the initial development of

infrastructure and diversification of industrial base. It is now being exposed to
competition. Part equity of some units is being disinvested. But many core and
strategic areas, important for economy and self-reliance, will remain in the public
sector.

Research and Development

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Research and Development activities are supported by the governments at the Center
and the states as well as by public and private sector undertakings. The Department of
Scientific and Industrial Research recognizes over 1200 in-house R & D units. About
200 research laboratories exist in government departments and agencies. The benefits
of the R & D works are reaching various fields like industry, agriculture and
commerce.

Planning for Development

The Planning Commission headed by the Prime Minister, draws up five-year plans
under the guidance of the National Development Council to ensure growth, self-
reliance, modernization and social justice. Its role has been redefined in the eighth
plan document: from a centralized planning system, India is moving towards
indicative planning which will outline the priorities and encourage a higher growth
rate. The Rs. 4,000 billion eighth plan envisaged a growth rate of 5.6%.

Traditional Industry

Indian handicrafts have withstood competition from machines over the years. The
skills are passed on from one generation to the next. The handicraft and handloom
sector is a major source of rural employment and earns substantial foreign exchange.
Traditional textiles are as popular abroad as they are within the country. The major
export items include hand-knotted carpets, art metalware, hand-printed textiles and
leather, wood and cane wares.

Pricing Strategy

One of the four major elements of the marketing mix is price. Pricing is an important
strategic issue because it is related to product positioning. Furthermore, pricing affects
other marketing mix elements such as product features, channel decisions, and
promotion.
While there is no single recipe to determine pricing, the following is a general
sequence of steps that might be followed for developing the pricing of a new product:
1. Develop marketing strategy - perform marketing analysis, segmentation,
targeting, and positioning.
2. Make marketing mix decisions - define the product, distribution, and
promotional tactics.
3. Estimate the demand curve - understand how quantity demanded varies with
price.
4. Calculate cost - include fixed and variable costs associated with the product.
5. Understand environmental factors - evaluate likely competitor actions,
understand legal constraints, etc.
6. Set pricing objectives - for example, profit maximization, revenue
maximization, or price stabilization (status quo).

91
7. Determine pricing - using information collected in the above steps, select a
pricing method, develop the pricing structure, and define discounts.
These steps are interrelated and are not necessarily performed in the above order.
Nonetheless, the above list serves to present a starting framework.
Marketing Strategy and the Marketing Mix
Before the product is developed, the marketing strategy is formulated, including target
market selection and product positioning. There usually is a tradeoff between product
quality and price, so price is an important variable in positioning.
Because of inherent tradeoffs between marketing mix elements, pricing will depend
on other product, distribution, and promotion decisions.
Estimate the Demand Curve
Because there is a relationship between price and quantity demanded, it is important
to understand the impact of pricing on sales by estimating the demand curve for the
product.
For existing products, experiments can be performed at prices above and below the
current price in order to determine the price elasticity of demand. Inelastic demand
indicates that price increases might be feasible.
Calculate Costs
If the firm has decided to launch the product, there likely is at least a basic
understanding of the costs involved, otherwise, there might be no profit to be made.
The unit cost of the product sets the lower limit of what the firm might charge, and
determines the profit margin at higher prices.
The total unit cost of a producing a product is composed of the variable cost of
producing each additional unit and fixed costs that are incurred regardless of the
quantity produced. The pricing policy should consider both types of costs.
Environmental Factors
Pricing must take into account the competitive and legal environment in which the
company operates. From a competitive standpoint, the firm must consider the
implications of its pricing on the pricing decisions of competitors. For example,
setting the price too low may risk a price war that may not be in the best interest of
either side. Setting the price too high may attract a large number of competitors who
want to share in the profits.
From a legal standpoint, a firm is not free to price its products at any level it chooses.
For example, there may be price controls that prohibit pricing a product too high.
Pricing it too low may be considered predatory pricing or "dumping" in the case of
international trade. Offering a different price for different consumers may violate laws
against price discrimination. Finally, collusion with competitors to fix prices at an
agreed level is illegal in many countries.
Pricing Objectives
The firm's pricing objectives must be identified in order to determine the optimal
pricing. Common objectives include the following:
• Current profit maximization - seeks to maximize current profit, taking into
account revenue and costs. Current profit maximization may not be the best objective
if it results in lower long-term profits.
• Current revenue maximization - seeks to maximize current revenue with no
regard to profit margins. The underlying objective often is to maximize long-term
profits by increasing market share and lowering costs.
• Maximize quantity - seeks to maximize the number of units sold or the
number of customers served in order to decrease long-term costs as predicted by the
experience curve.

92
• Maximize profit margin - attempts to maximize the unit profit margin,
recognizing that quantities will be low.
• Quality leadership - use price to signal high quality in an attempt to position
the product as the quality leader.
• Partial cost recovery - an organization that has other revenue sources may seek
only partial cost recovery.
• Survival - in situations such as market decline and overcapacity, the goal may
be to select a price that will cover costs and permit the firm to remain in the market.
In this case, survival may take a priority over profits, so this objective is considered
temporary.
• Status quo - the firm may seek price stabilization in order to avoid price wars
and maintain a moderate but stable level of profit.
For new products, the pricing objective often is either to maximize profit margin or to
maximize quantity (market share). To meet these objectives, skim pricing and
penetration pricing strategies often are employed. Joel Dean discussed these pricing
policies in his classic HBR article entitled, Pricing Policies for New Products.
Skim pricing attempts to "skim the cream" off the top of the market by setting a high
price and selling to those customers who are less price sensitive. Skimming is a
strategy used to pursue the objective of profit margin maximization.
Skimming is most appropriate when:
• Demand is expected to be relatively inelastic; that is, the customers are not
highly price sensitive.
• Large cost savings are not expected at high volumes, or it is difficult to predict
the cost savings that would be achieved at high volume.
• The company does not have the resources to finance the large capital
expenditures necessary for high volume production with initially low profit margins.
Penetration pricing pursues the objective of quantity maximization by means of a low
price. It is most appropriate when:
• Demand is expected to be highly elastic; that is, customers are price sensitive
and the quantity demanded will increase significantly as price declines.
• Large decreases in cost are expected as cumulative volume increases.
• The product is of the nature of something that can gain mass appeal fairly
quickly.
• There is a threat of impending competition.
As the product lifecycle progresses, there likely will be changes in the demand curve
and costs. As such, the pricing policy should be reevaluated over time.
The pricing objective depends on many factors including production cost, existence of
economies of scale, barriers to entry, product differentiation, rate of product diffusion,
the firm's resources, and the product's anticipated price elasticity of demand.
Pricing Methods
To set the specific price level that achieves their pricing objectives, managers may
make use of several pricing methods. These methods include:
• Cost-plus pricing - set the price at the production cost plus a certain profit
margin.
• Target return pricing - set the price to achieve a target return-on-investment.
• Value-based pricing - base the price on the effective value to the customer
relative to alternative products.
• Psychological pricing - base the price on factors such as signals of product
quality, popular price points, and what the consumer perceives to be fair.

93
In addition to setting the price level, managers have the opportunity to design
innovative pricing models that better meet the needs of both the firm and its
customers. For example, software traditionally was purchased as a product in which
customers made a one-time payment and then owned a perpetual license to the
software. Many software suppliers have changed their pricing to a subscription model
in which the customer subscribes for a set period of time, such as one year.
Afterwards, the subscription must be renewed or the software no longer will function.
This model offers stability to both the supplier and the customer since it reduces the
large swings in software investment cycles.
Price Discounts
The normally quoted price to end users is known as the list price. This price usually is
discounted for distribution channel members and some end users. There are several
types of discounts, as outlined below.
• Quantity discount - offered to customers who purchase in large quantities.
• Cumulative quantity discount - a discount that increases as the cumulative
quantity increases. Cumulative discounts may be offered to resellers who purchase
large quantities over time but who do not wish to place large individual orders.
• Seasonal discount - based on the time that the purchase is made and designed
to reduce seasonal variation in sales. For example, the travel industry offers much
lower off-season rates. Such discounts do not have to be based on time of the year;
they also can be based on day of the week or time of the day, such as pricing offered
by long distance and wireless service providers.
• Cash discount - extended to customers who pay their bill before a specified
date.
• Trade discount - a functional discount offered to channel members for
performing their roles. For example, a trade discount may be offered to a small
retailer who may not purchase in quantity but nonetheless performs the important
retail function.
• Promotional discount - a short-term discounted price offered to stimulate
sales.
Marketing > Pricing Strategy

Domestic steel companies are reviewing their pricing strategy as the cost of
production touched a new high during the last three months. This was a result of
increase in prices of raw material like iron ore, pellet steel and coking coal.
Public sector steel major Steel Authority of India (Sail) increased the price of hot-
rolled steel by Rs 500 per tonne with effect from January 1. It is expected that other
steel corporates like Ispat Industries, Essar Steel, Tata Steel and Jindal Iron and Steel
are likely to review their pricing strategies over the next couple of days.
When contacted, a Sail spokesperson confirmed the price hike and said, “We have
increased prices of flat steel by Rs 500 per tonne with effect from January 1.
However, there is not much of a change in the price of long steel prices.” The price of
hot-rolled steel will now be Rs 29,500 per tonne.
Ispat sources said that the cost of raw materials touched an all-time high during the
last three months. “The cost of production has increased sharply by 30% in the
October-December quarter compared to the July-September quarter.
They added that the ex-mine prices of iron ore, a key raw material for steel
production, has increased from Rs 900 to Rs 1,160 per tonne during August-
November 2004. The current landed price of the iron ore is Rs 2,500 per tonne.

94
Meanwhile, the cost of pellets has also increased from Rs 3,500 per tonne to Rs 5,400
during the last three months.
This is apart from a 15% increase in railway freight.
Cost Push

• Essar, Jisco, Ispat set to review prices

• Hikes likely to be announced this week
• Tata Steel not to hike
prices for now
• Iron ore, coal, pellet prices touch highs, freight up 15%

“Under these circumstances, we have to review our pricing strategy. The revised
prices will be announced shortly,” Ispat sources added.
Tata Steel, the largest private steel player, said, “Currently, we don’t have any plan to
increase prices.”
According to officials at Jindal Iron & Steel Co (Jisco), the price of coking coal for
the 2005 contract has been increased from $58 to $125, resulting in a 115% hike.
“Our pricing strategy is under review at this stage,” said Jisco officials.
Significantly, China has already indicated a 25% appreciation in coke prices on spot
trading. Officials at Essar Steel too confirmed that a pricing review was underway.
Steel sector analysts explain that with annual supply contracts coming up in March-
April, it is logical that all steel companies will consider a hike in prices. They added
that prices could, in fact, go up by as much as Rs 3,000 per tonne.
The last time prices were hiked was in early December when Jisco and Ispat
Industries increased hot-rolled coil prices by Rs 350 per tonne. Sail had increased
long steel product prices in November by Rs 1,000 per tonne.

95
CHAPTER-5

MARKET TREND

Each day, recalls Aditya Mittal, he and a colleague, along with two advisers, would be
locked in a conference room with "24 chain-smoking representatives of the Romanian
government." The negotiations, which the Romanians insisted on tape-recording,
often stretched on for 15 hours.
Mittal, then head of mergers and acquisitions for his family's company, Rotterdam-
based Mittal Steel, wanted to acquire a steel mill owned by the Romanian
government, even though the plant was losing $1 million a day. Mittal Steel was the
only bidder, but the Romanians kept pushing hard for concessions. Eventually, both
sides agreed to the deal. "They realized that we weren't budging on our conditions
and, more than that, they realized that the restructuring was necessary," Mittal says.
The incident, which occurred five years ago, illustrates the business strategy that has
made Mittal Steel the world's largest steel maker -- a commitment to consolidation
and globalization and a willingness to take risks that scare off competitors. As the
steel industry overall struggled in the early part of this decade, Mittal Steel, grappling
with financial problems of its own, continued to expand. And as competitors insisted
that steel should remain a regional business, Mittal Steel pursued its vision of
becoming a global giant.
In This Special Section
How Mittal Steel Proved Its Mettle in a Tough Marketplace

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Off

Career Advice from ADP's Arthur Weinbach

Tyco's Edward Breen: When Leadership Means Firing Top Management and the
Entire Board

The Cow in the Ditch: How Anne Mulcahy Rescued Xerox

Back to Special Section Home

Today, the company has plants in 14 countries and a market capitalization of $20.3
billion. Fortune magazine in January named Lakshmi Mittal, the company's chairman
and chief executive and Aditya's father, its Europe Businessman of the Year (2004)
for his "deal making and steel making." In April, the company capped a 15-year string
of acquisitions with the completion of its $4.5 billion purchase of U.S.-based

96
International Steel Group. In early October, Mittal Steel announced that it would
construct a new plant in the Jharkhand state in India which, at its peak, will produce
12 million metric tons of steel a year. And in late October, Mittal announced the
purchase of Ukraine steel manufacturer Kryvorizhstal for $4.8 billion. According to a
report in the Wall Street Journal, the transaction, "conducted "in a tense televised
auction that set a new benchmark for acquisitions" in the steel industry "underscores
the increasing premiums being paid for former state-owned steel plants."
Just as important as these recent acquisitions is the fact that Mittal Steel has begun to
change the way that its industry does business. Earlier this year, when steel prices
dipped, the company announced that it was cutting production substantially. Because
of Mittal's position in the industry, competitors followed. In years past, their course of
action had been to continue producing, driving prices down further and compounding
the industry's misery.
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Aditya Mittal, who earned his undergraduate degree at Wharton in 1996, joined the
company in 1997 after a stint as an investment banker. Today, based in London, he is
president and chief financial officer. During a recent trip to campus, he spoke with
KnowledgeWharton about the company's strategy and future plans.
"An Opportunity Basket"
Lakshmi Mittal built Mittal Steel from a single mill. His father, too, had been a steel
man -- in Calcutta. Lakshmi Mittal ran a factory for him in Indonesia before striking
out on his own with a plant in Trinidad. Soon, he seized on a strategy of serial
acquisition, often scooping up underperforming former government outfits in such
far-flung places as Kazakhstan. Although the locales have changed over the years, he
has stuck to a common formula: Import modern management practices, wring out
costs and, where possible, create new efficiencies by taking steps like acquiring
nearby coal and iron ore mines. In some locations, like the Czech Republic, he has left
the local management team intact. In others, like Romania, he has replaced every
member.
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Aditya Mittal says his father understood sooner than most steel executives that their
;companies should operate worldwide, not just near home. "We were the only steel
company pursuing a strategy of globalization when we started. Most participants at

97
industry conferences said, 'Steel can never be global. Steel is regional.' Today, those
same organizations are scrambling for assets in Central Europe because of their
proximity to raw materials and a growing market. Our global vision allowed us to
look at the world as an opportunity basket."
When Mittal Steel considers an acquisition, it seeks not only low-cost inputs and an
expanding market, but also inexpensive labor, Mittal says. But it will bend its criteria
if an opportunity looks promising enough. Its Algerian plant, for example, had no
obvious source of iron ore. When Mittal staffers discovered that the country had ore
deposits, the company secured a license to open a mine.
Similarly, its purchase of International Steel Group did not seem to fit its requirement
for low-cost labor; U.S. wages are among the highest in the world. But ISG had been
cobbled together out of such storied American steel names as Bethlehem and LTV by
U.S. turnaround specialist Wilbur Ross, and Ross had streamlined the companies
while reorganizing them. He laid off employees and jettisoned pension plans, giving
ISG a cost edge over U.S. competitors. "We believe that, with the integration of ISG
into Inland, [another Mittal division in America], we will have the lowest cost
manufacturing base in the U.S," Aditya Mittal says.
Although the company has a blueprint for acquisitions, each of its deals presents
unusual challenges, Mittal adds. In the former Eastern Bloc, for example, financial
statements have proven unreliable because plants often did business via barter.
"Traders would come in and say, 'I'll give you a ton of ore or coal, and I want you to
pay me in steel.' In Romania, they had a central computer which would track all of the
barter transactions.
"In Kazakhstan, we opened a warehouse and found 50,000 bottles of Romanian red
wine. They had traded steel for wine. And they had created their own currency -- IOU
notes. All the employees came and said, 'I have an IOU note from the company.' You
would go to the hospital or the grocery store, and there were these IOU notes."
The Game Had Changed
Aditya Mittal was named head of mergers and acquisitions as the steel industry
teetered on the precipice of its latest slump. His first project was a $1 billion deal --
which was never completed after another company lured the target firm away. Then
came the 1999 steel market crash. A third of U.S. steel makers filed for bankruptcy,
and Mittal Steel, which was losing money along with everyone else, considered that
same path.
"That was the worst period my life," Mittal recalls. "Here I was the head of M&A
with one direct report and one failure to my credit. I analyzed my mistakes and
realized that the game had changed. Historically, acquisitions in the steel industry
were contingent on financial measures, but those [measures] were no longer as
important. Employee commitment, capital-expenditure commitment and media
perception were more important now."
Historically, steel makers, saddled with high fixed costs, have been whipsawed by
commodity pricing and overcapacity in their industry. When prices dropped,
companies kept pumping out steel, even as losses piled up. Cutting production would
have risked failing to cover their fixed costs and collapsing into bankruptcy. Some
companies even cut prices in hopes of protecting their market share. The industry was
so fragmented that no one company or group of companies could stabilize it by
reducing production. If one small player cut his output, everyone else would increase
theirs and drive him out of business.
The slump put Aditya Mittal in a tricky spot. He was trying to buy companies but had
no cash to do it. "A very rational person would have decided to focus internally, and

98
that's what the rest of the steel industry did," he says. "But I wasn't ready to do that. I
had just gotten the job. I kept looking at opportunities."
In the next year, 2000, he found three -- the plant in Romania as well as ones in
Algeria and South Africa, both of which were also losing money. Mittal managed to
acquire all three, adding $5 billion to the company's sales. Soon came a deal in the
Czech Republic and then, last year, the announcement of the ISG acquisition.
Buying ISG was a coming-out party for Mittal Steel. After two decades of largely
operating in out-of-the-way places, the Mittals charged into the business mainstream,
creating the world's biggest steel company. It has pro forma revenues of $31.5 billion
and profits of $6.8 billion.
Aditya Mittal says the company's acquisitions are far from done. "It's critical for
consolidation to continue," he says. "We need two or three players in our industry
who are producing 100 million tons each. Today, we are a 60-million-ton steel
company." Mittal Steel's biggest competitor, Arcelor in Luxembourg, produced about
50 million tons in 2003. Fewer, bigger producers will give the industry better
economies of scale and greater pricing power, which should translate to less volatile
steel prices. "That's critical for our industry to survive in the long run," Mittal says.
International scope brings benefits to the company besides sheer market muscle. It
also enables it to transfer knowledge among its far-flung subsidiaries. "We have
thousands of managers who participate in our knowledge management program, and
they meet on a bi-annual basis," Mittal says. "That allows the cross-fertilization of
ideas. Our counterparts in Kazakhstan were able to teach our American smelters some
better melting practices."
Dealing with China
The future of Mittal, as for many companies, can be boiled down to one word: China.
The company has long done business in that part of the world. Its Kazakhstan plant,
acquired in 1995, exports much of its steel to China. In September, Mittal Steel
completed its $338 million acquisition of a minority stake in Hunan Valin Steel Tube
& Wire Co. Aditya Mittal envisions more deals there. "We want to be a consolidator
in China," he says.
The lure, of course, is supplying China's red-hot economy, especially as the Chinese
construct the sort of infrastructure -- highway bridges and big industrial structures --
that requires a significant amount of steel. The risk is that China will decide to ramp
up its own production and undercut foreign producers. China's steel production is
already growing each year by the total amount of steel that India produces, according
to Mittal. But he thinks that fears about China's designs on a larger piece of the steel
business are overblown. "I don't believe China is a low-cost steel producer, because it
doesn't have iron ore," he says. "They import ore, bring it primarily inland, make
steel, then ship it, and that involves a lot of cost. Their labor-cost advantage is less
than that."
In addition, Chinese government policy has lately seemed to discourage additional
domestic production, Mittal notes. The government has repealed export incentives for
the industry and announced its intention to consolidate its domestic firms. "I think
they recognize that, if they become a significant exporter of steel, there will be trade
issues."
Mittal Steel has found the Chinese government to be an accommodating partner for
foreign firms, especially when compared with the Mittal family's home country, India.
"With India being a democracy, setting up operations can be difficult," Mittal says. "I
don't mean to denigrate democracy. But it takes time. You negotiate with all different

99
levels of government. You negotiate with tribal people. It can take two or three years.
It's a more difficult process than in the United States.
"But I remember going to China. I flew into the airport, and there was literally red-
carpet treatment. Then I'm in a car on a highway, and there is no one else on the road.
So I ask, 'What's going on here?' And they say, 'The party secretary wanted to give
you a nice welcome. This highway isn't actually open yet.' Then I get to the plant site,
but I don't see any land. I see houses, lots of houses -- a village. And I say, 'Where's
the land?' And the party secretary says, 'Right here. In 90 days, everyone will be
gone.'

100
INDIGENOUS MARKET

World industries drive the global economy, collectively transacting almost USD $70
trillion. An industry is a collection of companies that all perform similar functions.
Industry can be used to refer to all company groups, or specifically to industry as
being a set of productive entities that utilize productive forces to convert a simple
input to a processed final product. The size of various industies vary by country, level
of development, and demand in each region. This section of EconomyWatch.com
introduces all the major industries and classification systems, together with key
industry data.
Industries can be categorized in the following ways:
Offering Based Industry Classification
Does the industry provide products, services, or a mix of both products and services?
Production Based Industry Classification
Does the industry rely more on natural resources, human capital or financial capital?
Industries can also be described as resource-intensive, labour-intensive or capital-
intensive?
Classifying Industries by Sector
Is the industry in the primary, secondary or tertiary sector?
· Primary Industry :- The agricultural, farming and fisheries businesses come
under this head.
· Secondary Industry :- The industries that utilize machines, factories or human
labor to convert raw materials into a processed final product. The manufacturing
industries, or heavy industry, are typical examples of Secondary Industry types.
· Tertiary Industry :- Services-based industries are known as tertiary industries.
Retail, food & beverage and professional services are examples of Tertiary Industry
Classifying Industries by Size
Is the industry a small-scale or cottage indutry, a Small & Medium Business (SMB or
SME) industry, or a global industry dominated by Multi-National Corporations
(MNCs)?
Target Market Classification
Is the industry export-oriented and international, or domestic market focused?
Concentration Classification
Is the market fragmented, with many small 'mom and pop' businesses, or is it
consolidated, with rounds of mergers and acquisitions leading to a few dominant
players?

101
 EXPORT MARKET

World Steel Industry : Steel, the recycled material is one of the top products in the
manufacturing sector of the world.

The Asian countries have their respective dominance in the production of the steel all
over the world. India being one among the fastest growing economies of the world
has been considered as one of the potential global steel hub internationally. Over the
years, particularly after the adoption of the liberalization policies all over the world,
the World steel industry is growing very fast.

Steel Industry is a booming industry in the whole world. The increasing demand for it
was mainly generated by the development projects that has been going on along the
world, especially the infrastructural works and real estate projects that has been on the
boom around the developing countries. Steel Industry was till recently dominated by
the United Sates of America but this scenario is changing with a rapid pace with the
Indian steel companies on an acquisition spree. In the last one year, the world has
seen two big M&A deals to take place :-

· The Mittal Steel, listed in Holland, has acquired the world's largest steel company
called Arcelor Steel to become the world's largest producer of Steel named Arcelor-
Mittal.
· Tata Steel of India or TISCO (as listed in BSE) has acquired the world's fifth
largest steel company, Corus, with the highest ever stock price.
It has been observed that Steel Industry has grown tremendously in the last one and a
half decade with a strong financial condition. The increasing needs of steel by the
developing countries for its infrastructural projects has pushed the companies in this
industry near their operative capacity.

The most significant growth that can be seen in the Steel Industry has been observed
during the period 1960 to 1974 when the consumption of steel around the whole
world doubled. Between these years, the rate at which the Steel Industry grew has
been recorded to be 5.5 %. This roaring market saw a phase of deceleration from the
year 1975 which continued till 1982. After this period, the continuous fall slowed
down and again started its upward movement from the early 1990s.

Steel Industry is becoming more and more competitive with every passing day.
During the period 1960s to late 1980s, the steel market used to be dominated by
OECD (Organization for Economic Cooperation and Development) countries. But
with the fast emergence of developing countries like China, India and South Korea in
this sector has led to slipping market share of OECD countries. The balance of trade
line is also tilting towards these countries.

The main demand creators for Steel Industry are Automobile industry, Construction
Industry, Infrastructure Industry, Oil and Gas Industry, and Container Industry

102
New innovations are also taking place in Steel Industry for cost minimization and at
the same time production maximization. Some of the cutting edge technologies that
are being implemented in this industry are thin-slab casting, making of steel through
the use of electric furnace, vacuum degassing, etc.

The Steel Industry has enough potential to grow at a much accelerated pace in the
coming future due to the continuity of the developmental projects around the world.
This industry is at present working near its productive capacity which needs to be
increased with increasing demand.

For more information on the subject please browse through the following links :-
World steel industry and Crude Steel Production

The following table gives a clear picture upon the major crude steel producers in the
world as of the year 2004.
Country Crude Steel Production (mtpa)
China 272.5
Japan 112.7
United State 98.9
Russia 65.6
South Korea 47.5
F.R.Germany 46.4
Ukraine 38.7
Brazil 32.9
India 32.6
Italy 28.4

In the year 2004, the global steel production has made a record level by crossing the
1000 million tones. Among the top producers in the steel production, China ranked 1
in the world.

Production of steel in the 25 European Union countries was at 16.3 mmt in January
2005. Production in Italy increased by 11.5 per cent in comparison to the same month
in 2004. Italy produced 2.5 mmt of crude steel in January 2005. Austria produced
646,000 metric tones.

In Russia it increased by 4.0 per cent to reach at 5.5 mmt in January.

In case of the North America region particularly in Mexico it was 1.5 mmt of crude
steel in January 2005, up by 8.0 per cent compared to the same month in 2004.
Production in the United States was 8.3 mmt.

Brazil had produced 2.6 mmt of crude steel in January 2005. In South America region
it was 3.7 mmt for January 2005.

According to rating made by the " World Steel Dynamics", Indian HR Products are
categorized in the Tier II category quality of products. Both EU and Japan have
ranked the top. USA and South Korea comes as like India.

103
CHAPTER-6

SUPPLY AND DEMAND OF STEEL IN INDIA

India: Steeling the growth

With automobile, capital goods and industrial productions receiving a setback in

recent months due to global downturn, Indian steel industry is hard-pressed to sustain
its growth. In fact, in March 2009, India was the only country which registered a
positive growth in steel production while major economies like the US, Japan, Europe
and even China went southward - with negative growth.

More than survival, Indian steel industry is bracing up to meet new challenges in the
wake of lower domestic demands and fall in global need for steel and iron ore. It was
these pressing issues which saw India's top-notch steel manufacturers converge during
a day-long conference organised by FICCI here on Wednesday.

The conference titled "Indian Steel Industry: The Way Forward" not only discussed
various contemporary issues but also deliberated on technical subjects like outlook
and prospects for Indian steel industry, increasing domestic demand/consumption for
steel through innovative practices and new applications and technological innovation
and environmental issues.

While speaking on the inaugural function, Harsh Pati Singhania, President, FICCI
said since July 2008 when Indian steel manufacturers met during the steel conclave,
the situation has taken a U-turn. He said the global trade is expected to decline by 9%
in the current year, posing fresh challenges to the Indian steel industry.

Singhania said steel production registered a massive fall in developed countries. The
US registered a decline of 54%, Japan 45% and Europe 40%. India and China were
the only exception and did well during post-October recession phase. Singhania said
India has one of the lowest per capital consumption of steel which was a meagre 44
kg. "Keeping global standard in mind, India should strive towards increasing its per
capita consumption at least five times than the present one,” he said.

To turn the global recessionary trend in India's favour, Singhania said India should
invest heavily in infrastructure and construction so that once the recession is over;
India could capitalise on its augmented resources. "We will emerge stronger and more
resilient once we execute our priority in proper order," he said.

104
Rana Som, Chairman & Managing Director, NMDC, while giving a global
perspective to India's steel industry and tracing the volatility in global steel prices said
the only silver lining for Indian manufacturers was its low input cost. "The
profitability of Indian steel industry is in doubt. However, what India could do is
retain, modify and integrate its production mechanism," he said.

Expressing concern over the future of iron ore industry he said many iron ore mines
may be shut down as a result of excess supply and low domestic demand. As coking
coal was limited and short in supply, Som said the premier organisations like SAIL,
NMDC, Coal India have together to bid for coking coal and superior ore mines
overseas.

"While the demand of steel fell by 11% globally last year, India registered a growth of
5%. In fact, India's steel industry should look inward for its growth as global market
would be protective in times to come. If required, India should also resort to
protectionism in its self interests," Som said.
While attracting audience's attention towards steel distribution channel in domestic
market, SK Roongta, Chairman, Steel Authority of India, said that the crisis of 1999-
2003 taught valuable lessons to India. "At that time, we were more price-centric and
did little for new technology, modernisation, and expansion which were taken up
later. Today, Indian steel is globally competitive," Roongta said.
While operating cost of Indian steel manufacturing was lowest in the world, Roongta
said it also suffers from disadvantages like lack of latest technology, low manpower
productivity, absence of collaborative and competitive approach, demand creation and
distribution channel problems. Calling the current situation neither a gloom nor
euphoria, Roongta advised Indian firms to look for new coking coal sources overseas
when the price and valuation is low.

Giving insight into the problem of sustainability post-October phase, Pramod Kumar
Rastogi, Secretary, Ministry of Steel, said that 2009 was an exciting year in term of
volatility in steel prices. He said that the scenario was not as gloomy as being
projected. "In fact, some of the Indian companies have registered 45% growth in
March 2009 against the same period during the last year.

Talking about the impact of steel prices on consumer durables, capital goods, metal
products, machinery and equipment, Rastogi said govt had Indian industry's interest in
mind when it restored 5% import duty on steel and re-imposed CVD on bars and rods
structure. Expressing concern over mining lease policy and difficulty in getting
mining lease, Rastogi said the process needs to be streamlined to facilitate the growth
of steel industries in India.

With automobile, capital goods and industrial productions receiving a setback in

recent months due to global downturn, Indian steel industry is hard-pressed to sustain
its growth. In fact, in March 2009, India was the only country which registered a
positive growth in steel production while major economies like the US, Japan, Europe
and even China went southward - with negative growth.

More than survival, Indian steel industry is bracing up to meet new challenges in the
wake of lower domestic demands and fall in global need for steel and iron ore. It was

105
these pressing issues which saw India's top-notch steel manufacturers converge during
a day-long conference organised by FICCI here on Wednesday.

The conference titled "Indian Steel Industry: The Way Forward" not only discussed
various contemporary issues but also deliberated on technical subjects like outlook
and prospects for Indian steel industry, increasing domestic demand/consumption for
steel through innovative practices and new applications and technological innovation
and environmental issues.

While speaking on the inaugural function, Harsh Pati Singhania, President, FICCI
said since July 2008 when Indian steel manufacturers met during the steel conclave,
the situation has taken a U-turn. He said the global trade is expected to decline by 9%
in the current year, posing fresh challenges to the Indian steel industry.

Singhania said steel production registered a massive fall in developed countries. The
US registered a decline of 54%, Japan 45% and Europe 40%. India and China were
the only exception and did well during post-October recession phase. Singhania said
India has one of the lowest per capital consumption of steel which was a meagre 44
kg. "Keeping global standard in mind, India should strive towards increasing its per
capita consumption at least five times than the present one,” he said.

To turn the global recessionary trend in India's favour, Singhania said India should
invest heavily in infrastructure and construction so that once the recession is over;
India could capitalise on its augmented resources. "We will emerge stronger and more
resilient once we execute our priority in proper order," he said.

Rana Som, Chairman & Managing Director, NMDC, while giving a global
perspective to India's steel industry and tracing the volatility in global steel prices said
the only silver lining for Indian manufacturers was its low input cost. "The
profitability of Indian steel industry is in doubt. However, what India could do is
retain, modify and integrate its production mechanism," he said.

Expressing concern over the future of iron ore industry he said many iron ore mines
may be shut down as a result of excess supply and low domestic demand. As coking
coal was limited and short in supply, Som said the premier organisations like SAIL,
NMDC, Coal India have together to bid for coking coal and superior ore mines
overseas.

"While the demand of steel fell by 11% globally last year, India registered a growth of
5%. In fact, India's steel industry should look inward for its growth as global market
would be protective in times to come. If required, India should also resort to
protectionism in its self interests," Som said.
While attracting audience's attention towards steel distribution channel in domestic
market, SK Roongta, Chairman, Steel Authority of India, said that the crisis of 1999-
2003 taught valuable lessons to India. "At that time, we were more price-centric and
did little for new technology, modernisation, and expansion which were taken up
later. Today, Indian steel is globally competitive," Roongta said.
While operating cost of Indian steel manufacturing was lowest in the world, Roongta
said it also suffers from disadvantages like lack of latest technology, low manpower
productivity, absence of collaborative and competitive approach, demand creation and

106
distribution channel problems. Calling the current situation neither a gloom nor
euphoria, Roongta advised Indian firms to look for new coking coal sources overseas
when the price and valuation is low.

Giving insight into the problem of sustainability post-October phase, Pramod Kumar
Rastogi, Secretary, Ministry of Steel, said that 2009 was an exciting year in term of
volatility in steel prices. He said that the scenario was not as gloomy as being
projected. "In fact, some of the Indian companies have registered 45% growth in
March 2009 against the same period during the last year.

Talking about the impact of steel prices on consumer durables, capital goods, metal
products, machinery and equipment, Rastogi said govt had Indian industry's interest in
mind when it restored 5% import duty on steel and re-imposed CVD on bars and rods
structure. Expressing concern over mining lease policy and difficulty in getting
mining lease, Rastogi said the process needs to be streamlined to facilitate the growth
of steel industries in India.

Steel making is an energy intensive industry and for this reason, energy prices,
especially oil and natural gas prices, have an important effect on this industry. In
2008, the
sharp rise of crude oil as well as iron ore price caused the sharp rise of steel price
because
of the rise in prices of key production factors. But Iran's producers experienced almost
no
rise in their production factor prices especially key factors of energy and iron ore
prices.
As a matter of fact, inexpensive energy and iron ore are competitive advantages of
steel
makers in Iran because the huge natural resources of the country let the government to
provide inexpensive production factors for the industry. But these inexpensive factors
have
some side effects that one of them is on the stock price of steel makers in stock
market.
In this paper we are to model the effects of fluctuations in world steel price on stock
price of one of Iranian steel producers. In the end, we will offer some policies to
mitigate
the fluctuations of stock prices.

1. Introduction

Steel is a fundamental material for many industries, from automotive to household

industries. With an exception of crude oil, no material is as central to economic
growth
processes and industrial development as steel.
As a consequence of globalization and the associated catching-up processes in
emerging market economies, steel has experienced a worldwide boom. World crude
steel
production has almost doubled during the last 15 years. World crude steel production

107
reached more than 1,344 million tons in 2007, an increase of almost 7% over 2006.
This
increase is largely due to growth in China, whose production grew by 16% in 2007.
This
country experienced a growth of 19% in the year before namely 2006. Table 1 shows
the
world crude steel production from 1997 to 2007.

The price of steel billet as an important intermediate product has risen in recent years.
The Fig. 1 shows the monthly average price of billet from 2006 to the end of 2008. As
it is
shown in this figure, although the prices doubled in the first six months of 2008, in
the
middle of 2008 due to the financial crisis, the prices fell down sharply. Actually the
year
2008 was the most turbulent year in the steel market; the price doubled in just 6
months and
suddenly decreased by 70% just in 3 months. This sharp rise and drastic fall were the
result
of a similar rise and fall in the oil market.
1.1 Steelmaking Methods
Steelmaking is a process which needs huge amounts of energy. This is the most
important element and the basic difference of various methods of steelmaking.
Production
processes can be divided into two categories:
Coal (coke) based processes (Blast Furnace)
Gas based processes (Direct Reduction)
In addition to energy consumption, these two methods differ from each other in some
other aspects such as iron ore, semi-finished products, environmental and investment
issues. Table 2 shows a brief comparison between the two processes.
Table 2: Comparison of two methods of steel making
Coke-based processes Gas-based processes
Iron Ore Specification
In some cases, this method is able
to process on wide range of iron
ore types. So it is more flexible.
Just limited to Direct Reduced
Iron (DRI)
Semi-Finished Products Is called Pig iron Is called Sponge iron
Environmental Aspects
More polluting than gas-based
Process
Less polluting
Investment costs No difference No difference
Operation costs Coal is important Natural Gas is important
With this brief description of the steel market and different steel making methods, in
the next section we will describe the conditions of Iran s steel industry.
1.2 Iran's Steel Industry
The foundation of the first steel-making company in Iran was laid after signing a
contract with the USSR in 1965 to finance and erect a steel plant in Isfahan. The
company,

108
called Zob-e-Ahan, was based on coal process and blast furnace. However, after a few
years of operation, Zob-e-ahan was facing some problems such as shortage of scrap
and
quality coking coal. These problems, the huge available resources of natural gas, and
the
required raw materials forced the government to convert its steelmaking technology to
direct reduction technology.
Since 1990s, the expansion of steel industry in Iran has changed the technology route
to make the best use of locally available iron ore and natural gas. This change caused
Iran
to become the third country in the world that produces steel with DRI1 technology
after
Mexico and Venezuela.
These inexpensive natural resources are the roots of a problem that this paper is aimed
to
model. Table 3 shows Iran's Production, Export and Import of crude steel. According
to
this table, it s obvious that there is a surplus of demand in the steel market which
forces the
importation of steel.
2. Problem Definition
Iran is among the countries rich in natural resources especially crude oil and natural
gas. Iran has the third largest oil reserves and also has the second largest natural gas
reserves in the world after Russia. These rich natural resources have brought both
advantages and disadvantages for Iran. The most important advantages are easy
billion
dollar income from selling oil and other natural resources, developing energy
consuming
industries with high profit margin due to availability of inexpensive production
factors, and
even political power in the region and the world.
On the other hand, the easy income reduced the innovation and other intellectual
productions of the country. Actually the oil revenue was about 80% of the total
revenue of
Iran's government in 2008. That easy billion dollar income has also created lots of
local
party conflicts over the control and consumption of it. And finally, the most important
disadvantage of these natural resources is the inefficient and energy consuming
industries
that are not able to compete with their global competitors even with subsidized
energy. For
example, in electricity production sector, most of the electricity is produced in steam
boilers, using inefficient combined-cycle gas-turbine technology. [6]
As described earlier in the steel industry section, most of Iran s steel making plants
are based on gas technology or DRI technology that uses huge amount of natural gas
and
electricity as energy factors. To support domestic industries, government decided to
give
steel plants subsidized production factors that three key subsidized factors are natural
gas,

109
electricity and iron ore. Until two years ago, all steel plants were government-owned
so the
steel making companies had no control over pricing their final product. Hence, the
steel
price in Iran was sometimes less than half of its world price.
Government intervention in pricing caused many problems and created a black
market. For example in some cases the black market price was twice the government
price,
which resulted in corruption in the market. [7] Therefore, the government decided to
change its policy and liberated steel price. From three years ago, steel is made with
subsidized production factors, but it is sold in Iranian Metal Exchange with free
market
mechanism in which the price follows the world price of steel plus tariff and other
costs.
Fig. 2 shows the monthly average price of billet sold by one of Iranian steel makers,
Khoozestal Steel Company (KSC), with the CFR price of Billet in Bandar-abbas port
in
south of Iran.
Fig. 2: Billet price: CFR of Bandar-Abbas as Importation Price and KSC Sell Price
Source: AGAHAN Company Investment Department
When the companies were government-owned, it was considered that this profit will
return to the government treasury. In addition, it would support domestic industries by
providing subsidized production factors. But another policy was executed two years
ago;
"Mass privatization of Government-Owned Companies". With the entrance of steel
companies to the Iranian National Stock Market, everything changed. These
companies
used subsidized inputs but sold their products in free market and their profit directly
was
divided among private share holders.
Another source of problem of subsidized production factors in Iran is the fixed price
policy over a year. Although it is obvious in many countries that when the global
price of a
product rises, the domestic prices of that product and related products will rise too, in
Iran
the price of many important factors like oil, gasoline, electricity and iron ore are set
for one
year and nothing can change those prices during that year, even if the global prices
doubled
or tripled!
The mentioned policies in natural gas, electricity and iron ore (main production
factors of steel making) are shown Fig. 3, Fig.4 and Fig. 5.
With this description of steel market in Iran, we consider the effects of price
fluctuations in world steel market in the last year on Khuzestan Steel Company (KSC)
stock price which is a domestic producer of crude steel in Iran. We selected that
company
for three main reasons:
1- It is one of companies that were privatized two years ago as a step in mass
privatization program in Iran. So its stock price and its financial statements are
publicly

110
available.
2- Its production factors are entirely subsidized although the company is privatized
and sells its products in free market with global price.
3- The main products of the company are billet, bloom and slab, namely crude steel
that is suitable for our purpose because these products are to some extent standard
products.
Hence, we can track the world price easily. Other steel making companies in Iran
3. Dynamic Model Description
The model is established in two main sectors, stock market sector and steel pricing
sector. These two sectors by interaction with each other create the behavior of the
stock
price as a focus of attention in this paper. Based on the literature review mentioned in
the
previous parts, dynamics which run these two sectors are discussed here.
3.1. Stock market sector
Dynamics of stock market is well described in the literature. In this sector, two main
loops in a tight relation result in response of stock market. [8, 9] The first loop,
demonstrates the change of attractiveness of investment in the stock market and so its
demand due to the stock price. This loop is shown in Fig. 7. In the figure, higher stock
price leads to higher capital gain and total return on stock. Increasing of capital gain
makes
the stock market more attractive for investment so the total attractiveness of the stock
market will increase. After a while this attractiveness become known by people so
perceived attraction will increase.
This perceived attraction comes from the delay between the rise in capital gain
and people awareness of this rise. It means that perceived attraction does not change
as
soon as capital gain increased. It needs some time for people to know the
attractiveness of
the market to invest in. Higher perceived attraction result in increasing of demand for
stock and higher demand leads to higher stock price. Therefore the loop which is a
reinforcing one is formed.
Fig. 7: Stock Market Attractiveness loop
There is another loop which limits the rise of stock price as a balancing loop. This
balancing loop comes from a very important factor which is P/E ratio (Profit/Earning
ratio).
This indicator is very significant to investors, which shows a combination of profit as
well
as the risks behind their investment. Another important factor in this loop is the
number of
shares which influence the earning.
In the model, Earning is the point of relation between two sectors. In this loop
rising of stock price will increase the P/E ratio. By going far from the normal P/E
ratio,
attractiveness of the stock market will be affected and will decrease. Decreasing of
attractiveness will decrease the perceived attraction and demand for stock as well.
Therefore the balancing loop is shaped.
Fig. 8 shows both loops. As shown in the figure, the dynamics of stock market
contains two major loops which interact with each other to balance the stock price.

111
3.2. Steel pricing sector
In this sector the dynamics of pricing the steel in the country according to the
domestic costs and world price and its effect on the earning are modeled. Domestic
steel
price rates (increasing rate and decreasing rate) are both strongly affected by the
world
price. In this sector Pricing strategy of the domestic steel is one of the most important
points to change the behavior of the model as well as the policies which are going to
be
discussed further.
Pricing strategy is based on the adjustment of the domestic steel price with the
world s steel price. If the current domestic steel price is lower than world price, then
the
domestic price will increase to adjust itself with the world price so the increasing rate
of the
domestic price will change according to the discrepancy between them. On the other
hand,
if the domestic price is higher, the decreasing rate will work to adjust the domestic
price
with the world price.
Furthermore, there is a time delay for this adjustment during increasing time as
well as decreasing time. Regarding the experts in steel field, the time delay for
increasing
rate is less than that of decreasing rate. It means that by an increase in the world price,
the
domestic price will increase sooner but by a decrease in world price, domestic price
will
decrease with a considerable delay. Therefore the parameter Delay1 is one third of
Delay 2 . Another point in this part is that the domestic price will never become less
than
the domestic cost. It means that the minimum domestic price will be equal to the
domestic
cost regardless of the world price because government uses tarrifs to support the
domestic
producers.
Second concept in this sector is the effect of the domestic price on the demands
fulfilled by imported products and on the other hand by domestic products. Total
domestic
demand for steel is assumed to be constant. Division of the demand between these
two
groups is assumed to be proportional to the world price and domestic price. Besides, it
is
assumed that all the domestic production is used, even if it is more expensive than the
world one because of the surplus demand of Iran's market and also the delay of
providing
the import steel.
Demand fulfilled by the domestic products and Number of shares then form the
earning which is a critical factor in PE ratio. Therefore, Earning is the parameter
which
join two sectors. The pricing sector causal relation is shown in Fig. 9.

112
4. Simulation Model

The model based on the two causal loops mentioned in the previous part is shown in
Fig. 10. There are two sectors and the sectors are joined by the Earning parameter.
There
are some points about the stock and flow model which is mentioned here.
Stock price market which shows the dynamic of the stock market is based on the
two positive and negative loops. In constructing the model there are some
assumptions
worthy of notice. Stock supply and total demand for stock in this section have
constant
values over time. There are two functions acting on the Attractiveness . F1 shows the
Attractiveness as a function of Capital Gain . This function is an increasing function
which shows that Attractiveness is positively influenced by the changes in Capital
Gain and will change in the same direction. F2 describes Attractiveness as a function
of
P/E ratio to Normal P/E ratio . This function starts from a maximum value which is
for
the P/E ratio equal to zero and then decline by increasing the proportional P/E ratio.
When
this proportional value approach a maximum value the Attractiveness will be zero.
Another function in this sector is F3 which describes the Stock price change as a
function of proportional value of Stock supply to Demand for stock . As this
proportion
approaches one the function will be zero which means that there will be no rate
change. As
this proportion go below zero the price will increase by a negative rate. Therefore, the
stock
price will change in accordance with the demand for it and the constant supply of the
stock
in the stock market.
Pricing sector can be seen in the left part of the model. It models the pricing strategy
which leads to the demands fulfilled by domestic products as well as the demands
fulfilled
by imported products. These demands then form the earning. Parameter Earning is
gained by the Demand fulfilled by the domestic products , Number of shares and
Domestic cost . In this sector, Domestic cost and Number of shares are assumed to be
constant.
As mentioned above two Time delays affecting the rates of Domestic steel price
are different due to the perception of people in increasing or decreasing the steel
price. It is
modeled as the time delay in decreasing rate is three times more than the delay time in
increasing rate and this happens because of hope that the decline in current domestic
steel
price will not last for a long time.
Domestic
Steel Price
Demand fullfilled by
domestic products

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Demand fullfilled by
imported products
World Price
Earning
Number of
Shares Domestic Cost
PE Ratio
Figure 10: Complete simulation model

5. Simulation and Results

As described, this model consists of two sectors. The first sector is the stock market
and the second sector is a description of how producers price their products.
The main concern here is that the world price of the steel fluctuates based on the
price of production factors such as gas and iron ore, but the price of these inputs are
under
the control of government through some subsidizing programs during these years in
Iran,
which results in the constant production cost during these years.
Regarding the constructed model, we want to examine the effects of such
fluctuations on the stock price and its situation. We have three different scenarios:
(1) There is no change in the steel world price.
(2) There is an increase in the price of production factors which results in an
increase in the world price of steel.
(3) There is a fluctuation in the steel world price which generates an increase in the
price of production factors and afterward a decrease in the factor prices.
(4) In this scenario there is also a fluctuation in steel price, but the level of steel
price reduction is to the extent which is lower than the domestic production cost.
In this section we will compare the results of these scenarios. In Fig. 11, the change
in the world price under each of these circumstances is shown:
Based on our simulations for each of these scenarios, the results in Fig. 12 were
obtained. As the blue diagram shows, we can observe the normal oscillation in the
steel
stock market, when the price of domestic steel price and world stock price are equal.
When there is a crisis in the market of production factors, and the steel price
increases, the stock price oscillates as depicted in the red graph of Fig. 12. We can
conclude that in this case, the oscillation takes place with the same frequency but the
amplitude of the oscillation increases, which demonstrates the economical expansion
in the
stock market.
We should consider that always after an increase in the price of production factors,
there will be a reduction in the price. This is the third scenario and the result is shown
in
green curve. As you can see in the graph, in this case a recession will occur in the
stock
market, because of severe competition between domestic products and foreign ones.
Finally, if the level of reduction is lower than the domestic cost of products, there
will be a dreadful situation for domestic producer. This phenomenon hasn't taken
place yet,
but it's possible due to the rapid change of technology and efforts in cost reduction

114
worldwide. The effects of such a change in world price on the stock price can be seen
in the
gray graph. In this scenario domestic producers will move toward bankruptcy.
It seems that the change in steel world price due to the fluctuation in the price of
production factors has a direct effect on the domestic stock price. The reason of such a
direct effect is a result of the pricing strategy of domestic producers. In the next
section, we
will propose some policies for mitigating the effects of the world price of production
factors on the stock market, mainly based on the non-subsidy factors for domestic
producers.

6. Policies

As mentioned, one of the main reasons that the change in production factor prices
especially in the price of energy factor intensely influences the stock price is the
subsidizing policies of government on the price of energy factors for domestic
producers.
It's a controversial issue in the guild of domestic steel producers about the effects of
removing governmental subsidizing programs on the domestic steel stock market and
domestic steel market.
In this section, we will examine the effect of the removing subside from production
factors. We assume that the domestic cost of production will change according to the
price
chance of production factors. It means that an increase or reduction of production
factor
prices will directly affect the price of domestic productions. The result of this policy
compared to the other scenarios is shown in Fig. 13.
As demonstrated in this graph, this policy will make the amplitude of the stock
market oscillation insensitive to the price change of production factors. It seems that
this
policy will be effective in mitigating the mentioned effect, but there is a concern of
how
this price liberation should be done so that the social and political side effects of such
a
change will remain at the minimum level.

7. Conclusion

Price fluctuation of the world steel causes some effects on Iranian steel-maker stock
price. When the global price rises, due to subsidized production factors, Iranian steel
makers experience a sharp rise in their profit and consequently in their stock price.
They
experience a drastic fall, when the global price falls. In this paper we modeled the
phenomenon and after that we tried to offer some policies to mitigate the global
fluctuation effects on stock price of steel-makers in Iran.

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 CHAPTER-7

PRICE DISCRIMINATION AND ITS IMPACT

Net Neutrality and Price Discrimination

In the latest of a series of looks at the economics of the Internet, mathematician

Andrew Odlyzko, director of the Digital Technology Center at the University of
Minnesota, takes a dispassionate look at the dispute and concludes that while carriers
certainly have a strong interest in charging premium prices, it is hard to come up with
an economic justification for them doing so.

There are precedents for telecom companies to ask for ability to charge special fees to
companies like Google that might be deriving large profits from the use of the
infrastructure.,” Odlyzko writes. “The question is, do they need it? And there is no
evidence that they do.” In the end, he believes, some form of net neutrality regulation
is likely: “The general conclusion is that some form of government intervention, to set
the rules, is inevitable. (And at some point it may be welcomed by the players, just as
government intervention was welcomed in the end by the railroads.)”

The paper, "Network Neutrality, Search Neutrality, and the Never-ending Conflict
Between Efficiency and Fairness in Markets," is non-technical and well worth
reading. It recasts the net neutrality debate largely as an argument over what
economists call price discrimination, a difference in prices that reflects a buyer's
willingness or ability to pay rather than differences in the cost of providing a good or
service. Sellers generally like price discrimination because it leads to higher profit
margins; consumers tend to hate it in large part because they are always left with the
feeling that someone is getting a better deal than they are.

Odlyzko's bottom-line conclusion, based on an analysis of rates of return and the cost
of capital, is that the operators of the Internet backbone don’t need to charge premium
rates for the transmission of high-quality media. In large part, that's because the
ungraded networks required will actually cost less than the book value of the systems
they are replacing.

WITH the given cyclic nature of the world steel market and the tendency of steel
prices to touch peaks and bottoms at will, no year is a surprise, in real terms, for steel
watchers. The New Year 2006 too comes on the heels of a mixed 2005. Starting off
with a historically high price line, 2005 closed with an overall downward correction

116
of 30 per cent. For instance, the Europe export price, which was ruling at a high of
$582 per tonne at the beginning of the year, fell 32 per cent to $393 by end-2005.
This happened despite the fact that real consumption remained relatively strong
through most of the year. The factor that played the crucial role in deciding the
demand and supply mismatch, or mix-match, was the `de-stocking' of huge quantities
of piled-up inventory lying with the service centres and end-users at the beginning of
2005.
This de-stocking of inventories deflected a significant portion of demand and did not
let it reach the steel producers in full.
In the European markets, for instance, the growth in apparent consumption of steel
went down from 3.4 per cent in Q1-04 to -6.1 per cent in Q3-05 whereas real
consumption growth showed figures of 3.7 per cent and 0.7 per cent in Q1-04 and Q3-
05 respectively, showing that the decline in apparent demand was not real.
China too played a major role, virtually driving global steel production. Its crude steel
output rose 25.5 per cent, to 317.7 million tonnes in the first 11 months of 2005,
pushing world steel production up by 6.1 per cent despite rest of the world registering
a fall of 0.9 per cent in production.
The continued increase in output in China has changed the demand-supply equation in
the global and Chinese steel industries. From being a net importer of steel till 2004,
China exported 23.34 mt of steel (including billets), against imports of 23.03 mt,
making it a net exporter.
These two major factors put together resulted in downward price pressures in the
industry. However, as 2005 came to an end, new order bookings started picking up
due to the de-stocking activity being over in the US and European markets.
According to Metal Service Centre Institute, a renowned steel journal, the stockists'
inventories in the US are at their lowest in more than seven years.
In the Asian markets too, the de-stocking activity has almost reached its end,
signalling the arrival of a period of overall price stability. The year 2006 starts on a
healthy and vibrant note as the global economy is projected to grow at 4.3 per cent
(IMF estimate), virtually the same rate of growth as last year.
China, the country driving world steel demand, is unlikely to see a sudden slowdown
in either its GDP or industrial production, which are currently growing at a scorching
pace of 9.4 per cent and 16.1 per cent per annum respectively. The US economy is
expected to grow reasonably well at 3.3 per cent, which, although slightly less than
the 3.5 per cent expected for the current year, is in itself a huge growth considering
the size of the economy. Europe and Japan along with Asia too are showing robust
growth. The rebuilding activities in the aftermath of the Iraq war, and the Hurricane
Katrina and the tsunami are likely to further push up the demand for steel in the
world.
The party on the demand side gets even better as the International Iron and Steel
Institute (IISI) has projected a growth of 4-5 per cent in steel demand in 2006 against
an estimated growth of 3 per cent in 2005. This projected rate of growth is well above
the historical average annual growth rate of 3.6 per cent experienced by the steel
industry.
The strong growth continues to come from China, West Asia, India and South
America. In the case of India too, the strong economic and manufacturing growth of

117
8.1 per cent and 9 per cent respectively during April-September 2005 spell hope for
the domestic steel industry. This along with strong performances being witnessed in
various user segments, such as capital goods and automobiles, brings the global party
home for the Indian steel producers.
The medium- and long-term outlook for the Indian steel sector remains positive, with
a lot expected to happen on the capacity addition front in the market. On the supply-
side too there are healthy signs.
In China, where a third of the steel producers are currently operating below average
cost of production, the producers are expected to cut down growth in production.
Therefore, the fear of Chinese overproduction entering the international markets is
somewhat receding, giving further stability to prices.
However, as behind every growth spurt, there is a note of caution, there is one here
too. The Chinese Government's ability to control the molten hot Chinese steel sector
and to curtail surging steel capacities still remains a billion dollar question.
In the event of Chinese Government failing to control the addition of capacities and
growth in production, the additional supply is most likely to reach the international
market. This event has the potential to cause considerable heartburn to the global steel
industry. Also, though the high oil prices, rising interest rates and increasing
imbalances in the US market have so far not shown any significant downward impact
on the strong global growth, they still remain high risk factors having the potential to
affect global economic growth and thereby global steel demand.
Barring these factors, the overall near outlook for the global steel industry remains
positive in the year 2006. The industry is likely to see a normal and healthy year with
prices remaining stable.

NRDC develops new steel melting process

NRDC (National Research Development Corporation) and Mr K. Rajendran,

Chairman of Casto Castings Bangalore, are offering consultancy in a unique process
of steel melting by exothermic reaction.
The process, developed by Mr Rajendran after years of research, is now ready to be
transferred to the industry, according to NRDC.
The exothermic process addresses two of the main problems of the steel foundry
industry - shortage of electricity and high initial capital requirement.
The steel scrap is arranged and pre heated to the required temperature. A
metallothermic mixture (consisting of the right oxides and reducing metals) is
introduced. The enormous quantity of heat that is given off during the resulting
chemical reaction (reduction of oxides) is itself enough to melt the steel outside a
furnace.
Every tonne of steel melted consumes 650 to 750 KW of electrical energy. The
exothermic process saves on electricity by bringing down consumption to 1 KW. This
translates to Rs 100 lakh savings in capital investment, eliminates need to maintain
sophisticated equipment, and refines metal automatically.

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GOVT IMPOSING EXPORT RESTRICTION ITS EFFECT ON

STEEL PRICE

Introduction:
Steel is considered to be the backbone of human civilization. As the steel
industry has tremendous forward and backward linkages in terms of income
and employment generation, the growth of an economy is very closely
related to the quantity of steel consumed by it. Historically, the global steel
industry, apart from being subjected to cyclical ups and downs of demand
and prices has suffered from structural deficiencies of large unutilized
capacity and high degree of fragmentation.
The dragon boosted 2004 performance
In 2004, the global economy had the strongest growth in the last two
decades at 5.0% as compared to 3.9% in the previous year. For the steel
industry, it brought about a greater balance in the demand-supply equation.
The apparent steel demand is estimated to have risen by 9.6% to 968
million tonnes in the calendar year 2004. The recent surge of
industrialization in China and its emergence as a growing economic power
has transformed the world steel scenario. While the more matured
economies of the West and Japan have seen little change in their per capita
consumption of steel, China's consumption of steel has been growing at over
20% in the last four years and it has become the most dominant factor in
the world steel market. China accounted for 27% of global steel demand and
26% of crude steel production in 2004. Though globally the consolidation in
the industry has gathered pace, the industry is still fragmented, with the top
ten steel producers controlling less than 30% of the world's steel output.
The strong growth in steel demand together with the increased prices of
inputs had a major impact on margins of the steel majors off late.

Raw material prices racing ahead

While India has iron ore reserves, domestic companies faced severe shortage
of coking coal during the year. Consequently there has been a substantial
increase in the prices of key raw materials such as iron ore, metallic scrap
and coking coal as well as freight rates during the year. The table below
indicates the trend in the prices of major finished goods and key inputs of the
steel industry during FY05:

In the near term, the industry cost structure is likely to remain high due to
shortage of coking coal and iron ore. These structural deficiencies in the steel
value chain are unlikely to be resolved in the near future.
The Indian scene:
The buoyancy in the global steel industry was also reflected in the Indian steel
industry. During the year 2004, domestic steel production and apparent steel
consumption increased by 3.9% and 7.0% respectively, over the previous year

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thanks to 6.5-7% growth in the economy. The rising demand from user
industries coupled with firm prices has been responsible for the outstanding
performance of the Indian steel Industry. The user industries which include
automobile, consumer durable, infrastructure and engineering have registered
a brisk growth rate in CY2004. The steel prices also remained firm during the
year, following the trend in the international market. India contributed
approximately 3% to overall steel demand and is capturing attention as a
possible low-cost steel making source because of the strategic advantages that
it offers and hence domestic, as well as global players are rushing to set up
shop/increase capacity in the country.

Current scenario on pricing front

In the last 1-1.5 month the domestic steel prices have come under pressure
due to a lowering of international steel prices and domestic steel makers have
reduced steel prices by 2-8% in the first week of June. However prices are still
higher than the levels of March, 2005 as steel prices had been raised by 8-14%
in early April.

The future scenario for Indian steel sector:

Going forward Indian economy is expected to grow by 7% and domestic steel

demand growth is likely to be around 8% during 2005-06. The central
government has targeted consumption of 60mtpa of steel in India by 2012. The
major demand drivers for healthy steel demand would be:
• Automobile and its ancillary industries have recently emerged as
strong demand drivers for steel in India (about 8% of the total
consumption in India in FY05). These segments are expected to
grow at a pace of 11-12% in the coming three years.
• Continued boom in house construction due to the continuation of
the benign interest rate regime.
• Huge capital expenditure plans announced by Indian companies.
• Growing focus on building of road infrastructure.
• · Government’s plans to add more than 100,000 MW power
generating capacity (almost 90% of the present capacity) over the
next seven years.
On the capex spree: Since the existing capacities of 35mtpa are woefully
short of the projected demand, almost all companies have announced capital
expenditure outlays. With concerns on availability of inputs, most Indian
manufacturers of secondary steel propose to integrate backwards to have
greater control over these scarce commodities. Consequently, a large
proportion of capital outlays are directed towards backward integration
projects while others towards moving up the value chain and ramp up existing
capacities.
A feather in the cap
Tata Steel has been ranked as the best steel company in the world (with
POSCO remaining at second place) by World Steel Dynamics Inc, USA (WSD),
the world's leading steel information service provider. The 23 companies
selected were from Asia, Europe and were evaluated on 20 various
parameters.

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finished steel products in 2005 will exceed 1 billion tonne for the first time, an
increase of 36 million tonnes compared to 2004. Steel consumption in China
is expected to grow by over 10%, an increase of 28 million tonnes during
2005 and the Steel consumption in Asia Pacific region is expected to grow by
6.5% in 2005.

Conclusion:

To conclude, though currently there is sluggishness in global steel market it

should peter out in the next 4-6 months, as production cuts in the West take
shape and as export curbs in China play out. In the long run the steel prices
are expected to remain higher than their historic average. Also though China
has done an upward revision of Yuan by 2.1%, such slight revaluation is
unlikely to do much to slow China's fast-expanding economy. Further the
Indian steel industry is relatively better posed with strong demand from
infrastructure, construction, urbanization, the automobile industry in the
coming years. Overall the steel industry has entered a ‘new age of steel’ in its
continuing evolution.

This publication has been prepared solely for information purpose and does not
constitute a solicitation to any person to buy or sell a
security. While the information contained therein has been obtained from sources
believed to be reliable, investors are advised to satisfy
themselves before making any investments. Kisan Ratilal Choksey Shares & Sec Pvt
Ltd., does not bear any responsibility for the
authentication of the information contained in the reports and consequently, is not
liable for any decisions taken based on the same.
Further, KRC Research Reports only provide information updates and analysis. All
opinion for buying and selling are available to
investors when they are registered clients of KRC Investment Advisory Services. As a
matter of practice, KRC refrains from publishing
any individual names with its reports.
As per SEBI requirements it is stated that,Kisan Ratilal Choksey Shares & Sec Pvt
Ltd., and/or individuals thereof may have positions in
securities referred herein and may make purchases or sale thereof while this report is
in circulation.

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INDIA’S ADVANTAGE OVER OTHER GLOBAL PLAYERS

London-based Ispat International (now Mittal Steel) and its founder Lakshmi Niwas
Mittal recently became the world's biggest steel maker, and has been named by
Forbes magazine as the world's third richest man.
How does Mittal transform poor performing steel mills into power-packed profit
centers?
We bring to you an inside account written by written Gita Piramal and late Prof
Sumantra Ghoshal. Sumantra Ghoshal was a leading management guru. Gita Piramal
is managing editor, The Smart Manager. The two also co-authored a book: Managing
Radical Change.

Acquisitions is one of the three major routes for business expansion, the other two
being organic growth and strategic alliances.
But why choose acquisition as a growth strategy? When is this strategy more
appropriate? And, if you have chosen this strategy, what are the main do's and don'ts
for managing it well?
While not quite an Indian company -- incorporated in Holland and headquartered in
London [ Images ] -- Ispat International N.V. (now called Mittal Steel) is Indian in
both its spirit and management. In less that a decade, Lakshmi Niwas Mittal has
spectacularly expanded the company from a wire rod manufacturer in Indonesia to the
largest steel producer in the world, largely through an acquisitive strategy.
• He can buy 44 lakh Maruti 800s!
• Lakshmi Mittal's $19-billion year!
In 1992, Mittal acquired a Mexican steel mill. From this case study, it is possible to
distil some simple lessons about how to manage acquisitive growth.
There are, of course, some variations depending on the nature of the industry, the
history of the acquiring company, and the specific circumstances of each individual
acquisition case. But, overall, there is a certain commonality in the pre- and the post-
acquisition phases.
The story of Ispat Mexicana (Imexa)
Lakshmi Niwas Mittal's (widely referred to as 'LN' both inside and outside the
company) faith in DRI (direct reduced iron) technology governed his choice of
acquisitions. He believed in its future long before others.
"This has spelt success for so many of my plants," he says. Starting in Indonesia in
1976, he bought mini steel mills using the DRI route in various countries and turned
them around. Eventually in January 1995 Mittal acquired Hamburg Stahlwerke, the
originator of DRI technology on which almost all LN's plants depend.
According to Peter F Marcus, director of Paine Webber: "Lakshmi Mittal [ Images ]
championed the practice of mini mills becoming integrated producers through the use
of scrap alternatives."
This faith created 'the only true global steel company,' according to the Financial
Times, and Mittal's reputation as a doctor of sick steel mills. In 1991, this reputation
brought the Mexican government knocking at his door.
In the early 1980s, the Mexican government decided to build a new steel mill --
Sicartsa II -- adjacent to its existing Sicartsa facility located in Lazaro Cardenas.

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They invested $2.2 billion in a state-of-the-art facility, which included a pelletizer
plant to produce iron pellets from ore, the first DRI plant in the world using the HyL
III technology, electric arc furnaces, casters to roll molten steel into flat slabs and a
mill to convert these slabs into plates to produce pipes for the then-booming oil
industry.
Before the factory was completed, however, the end of the oil boom coincided with a
faltering economy which forced Mexico to devalue the peso. The government
curtailed investment in the planned pelletizer plant, which forced Sicartsa
management to source high cost iron pellets on the open market.
The government also abandoned the planned plate mill, forcing the plant to sell steel
slabs -- an intermediate product -- rather than finished steel plates. Three years after
opening, the plant operated well below its capacity of two million tons per year and
incurred significant operating losses.
Mexican government officials publicly blamed the management and employees of the
factory for the losses, and decided to privatize both Sicartsa factories in 1991. Based
on Ispat's reputation for turning around Iscoot, a steel mill in Trinidad, the Mexican
government invited Ispat to join two other steel companies in bidding for Sicartsa.
The pre-acquisition negotiation process
• The team: Mittal sent a due diligence team consisting of twenty managers
representing all line and staff functions chosen from Ispat's Trinidad and Indonesian
plants and instructed them to develop plans to turn around the plant.
Mittal also explained that some members of the due diligence team would have an
opportunity to remain in Mexico if Ispat acquired the facility. There were no merchant
bankers.
The team was divided into sub-units to look at specific are as such as finance,
marketing, management and costs. Each team had to make specific recommendations.
"These had to be solid and do-able as the person making the recommendation could
easily be called upon to implement it," said one manager. "This eliminates consultants
and their ivory tower analyses. After this process, targets are fixed and LN largely
steps out of the picture."
Each team's report provided a valuable check on the other's to eliminate biases and
oversight.
The team's due diligence revealed a factory plagued by technical problems, running at
20% of capacity, producing low quality slabs and manned by a dispirited workforce.
The Ispat team was impressed, however, by the recent vintage of the assets, a young
workforce with an average age of 27 years, and the supporting infrastructure.
The team recommended bidding for the plant, and developed a turn around plan.
• The bid: Ispat proposed acquiring all the Sicartsa II factory's assets and
liabilities, excluding contingent environmental liabilities.
Ispat also bid for 50% equity stakes in several of the businesses that supported the
Sicartsa II plant, including PMT, a producer of welded pipes, Pena Colorada, which
provided the factory with iron pellets and Sersiin, which managed the deep water port
facilities and distributed electricity. It took eight months to sew up the contract.
Ispat proposed a total consideration of $220 million, consisting of $25 million in cash
and $19 million n in ten year bonds (at 15% interest) issued by the Mexican
government and secured by a warrant for 49% of Imexsa (not Ispat) equity. Of the
cash component, $5 million was a loan from Trinidad and $20mn came from LN's
personal resources.

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Ispat's bid outlined the company's five-year plan for improving Sicartsa's operations,
and included a commitment to invest an additional $350mn, with a $50mn penalty if
the company failed to follow through on its promised capital spending.
Ispat's proposal also included a clause capping the number of employees it would lay
off at 100 of the 1,050 workers. Impressed by the business plan, the Mexican
government selected Ispat's bid. Ten members of the due diligence team remained in
Mexico to run various departments, including Dr Johannes Sittard the former head of
Iscoot, who served as the managing director of Imexsa from 1991 to 1993.
The post-acquisition integration process
• Stopping the bleeding: Ispat took control of Imexsa on January 1st 1992 in the
midst of a global recession in the steel industry, and had to briefly shut down the
furnaces because there were no orders for the steel and no place to store the finished
slabs.
Despite the shut-down, Imexsa laid off only seventy people -- thirty fewer than the
agreed-upon limit -- and ultimately hired an additional 270 employees.
The $220 million consideration which Ispat had committed to more than halved
almost instantly. The plate mill which had been lying abandoned -- still packed in
crates -- was shipped to a Korean company.
"Our focus is slabs and we didn't need the plate mill," RR Mehta, Imexsa's executive
director told Business India. The deal brought in $135 million -- much of this went
towards upgrading facilities.
Mittal recalled his first steps at Imexsa: "In Mexico we did what we do with every
business . . . we sat down with management of the acquired company to discuss
various options for improvement and we developed the business plan. We sat down
with each of the departments to understand their problems and viewpoints and gave
our input based on international experience and our due diligence."
"Together we set very aggressive targets because we don't benchmark companies
based on local standards, but on international standards. If the management of the
acquired company is willing to commit to these targets, they stay. If they have any
problems following our business plan and vision, they go. The Imexsa managers
stayed," he added.
Production Planning Manager Oscar Vasquez recalled his first meeting with Mittal:
"In our first meeting, we presented two alternative production plans, one for 600,000
tons -- it was conservative and based on our past experience -- and another plan for
1.2 million tons. Mr Mittal saw both and said, 'forget the small plan, just let me know
what you need to implement the second plan.' We expressed concern that we might
not find a market for the additional slabs, but Mr Mittal said, 'You will have the
volume because I'm going to take care of that for you'."
Mittal used Ispat Indo's sales network to identify Asian customers for Imexsa's slabs,
including a contract for 400,000 tons per year with a Taiwanese steel manufacturer.
Although these orders provided low margins, they allowed Imexsa to increase
capacity utilization while improving quality to win more profitable business.
Imexsa also reduced costs by switching to suppliers willing to match the lowest costs
provided at Ispat's Trinidad and Indonesia plants.
The next step was to quickly develop cost-consciousness and discipline among the
Imexsa management team. Jai K Saraf, Ispat International's finance director, and
Sittard instituted a daily meeting of the heads of each department in the plant, which
began after the day shift ended at 5:00 p.m. and generally ran until 9:00 or 10:00 at
night.

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The team evaluated the previous day's cost, volume, productivity and quality
performance, discussed the current day's results, and agreed on detailed targets by
department for the following day.
Om Mandhana, purchase director, described the purpose of the daily meeting: "The
idea of the daily meeting was to cut red tape. You got together all of the people
involved to talk through any issues, and as a means of coordinating and resolving day
to day problems. The idea was to take a decision then and there rather than refer to
committees."
Raul Torres, melt shop director, recalled his first impressions of the meetings: "Before
Ispat bought the plant, the boss just told us how we should do things, but the daily
meetings were nothing like that. Dr Sittard asked a lot of detailed technical questions
to force us to think through problems to their root causes."
"If we were consuming too much steel in the electric arc furnaces, for instance, Dr
Sittard would ask: 'Why are you consuming this amount of steel? Is there leakage?
Why do you have this amount of leakage? Are you losing steel in the slag? How do
you plan to improve this? Is that the cheapest way in the world? Who does this best in
the world? Can we adopt their technology?'"
"We had open and sometimes heated discussions, but once we agreed on the right
thing to do, it was easy to get Dr Sittard's approval and any resources you needed to
make it happen. But you had to commit to improvements -- how much you were
going to achieve and by when, and the entire team monitored how you did against the
promised target."
"And Dr Sittard was always asking for higher targets -- he always kept the pressure on
us to increase volume and quality and cut costs."
Imexsa's existing cost accounting system reported only aggregate production costs on
a monthly basis, and was first available three weeks after the previous month ended.
One of the first things the new management team did was to implement Ispat's daily
reporting system which provided overall figures for each day's operations by the next
morning.
Led by Saraf, Imexsa's accounting department began collecting detailed volume, cost,
quality and productivity data for each step in the production process on a daily basis.
Initially, Imexsa's accountants collected these data themselves every day, and
analysed it by hand. To monitor raw material usage, for example, the accountants
asked warehouse workers to track the volume of materials leaving the storeroom each
day.
As the discipline steeped in, kudos flowed back. A JP Morgan report hailed Imexsa as
the lowest-cost slab producer in the world, while Credit Suisse First Boston reported,
'At Imexsa, Ispat makes Nucor's cost position look almost amateurish.'
Imexsa could land a slab in the middle of American at $35 a ton below Nucor's cash
cost of production of $210 a ton. And Nucor founder Kenneth Iverson acknowledged,
"Ispat comes in and runs the operations very well. They control costs very very
closely."
In 1992 -- the first year under Ispat ownership -- Imexsa increased shipments from
528,000 tons to 929,000 tons, decreased the cash cost per ton produced from $253 to
$178, and earned a small profit.
From 1992 to 1998 Imexsa increased annual steel shipments from 929,000 tons to
over 3mn tons, and improved productivity from 2.62 to 0.97 man-hours per ton.
Antonio Gonzales, the Pelletizing Plant Supervisor observed, "There is no feeling of
having finished the turnaround . . . we keep resetting the targets, and now we are
aiming for 4 million tons per year -- that's double our rated capacity."

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In 1997, MRR Nair joined Imexsa as managing director from the Steel Authority of
India, the seventh largest steel company in the world, where he had served as
chairman and CEO and had been awarded the Best CEO in India award.
Nair cited four mechanisms for maintaining constant improvement at Imexsa -- i.e.
daily meetings and reports, quality programmes, global integration and stretch goals.
• 01. Daily meeting and daily report: The daily meeting, now held each morning
for one or two hours, continued to play a pivotal role at Imexsa. A typical meeting (in
March 1998) was attended by representatives from each of the departments, most of
whom wore the khaki Imexsa uniform.
A few of the managers however wore red Imexsa jackets awarded to recognize
achievement of ambitious goals, such as increasing one of the DRI facility's
production nearly 50% above its rated capacity.
On several occasions during the meeting, participants jokingly asked whether their
targets were ambitious enough to earn a jacket. Nair guided the meeting with a series
of questions, inquiring about the results of previous experiments to improve
performance, asking what level of performance was budgeted for the following
month, and probing why targets were not higher.
Nair left the room for extended periods on two occasions during the meeting, but the
discussion continued with the members of the different departments discussing targets
and experiments among themselves.
The participants frequently referred to the daily report which provided detailed data
on cost, productivity, volume and quality for each of the departments.
• 02. Quality programmes: In 1998, Imexsa used standard quality tools, such as
ISO methods, to describe existing processes. Imexsa's quality efforts won numerous
international awards and earned it the British Standards Institute's prestigious
Company Wide Recognition, one of only two steel companies in the world so
honoured (Iscoot was the other).
More importantly, Imexsa's quality initiatives helped the company upgrade its
products to serve more demanding customers.
Imexsa enhanced its product mix from 97% low grade steel sold into construction
applications in 1992 to 47% of slabs sold for demanding automotive and coated plate
applications in 1997.
Despite Imexsa's success, Quality Director Rafael Mendoza wanted more:
"Traditional quality programmes such as ISO 9000 provide excellent statistical tools
for documenting your current processes, but they are not as useful in accelerating
continuous improvement. For this we introduced benchmarking, Top 10s and internal
agreements."
In benchmarking operating processes, quality team members looked at best practices
within the Ispat network, the steel industry as a whole and also identified and studied
related processes at global leaders such as Ericsson and General Electric.
When Imexsa management wanted to improve cafeteria service during the busy lunch
hour, for example, a quality team studied the restaurant in a busy soccer stadium
renowned for serving large quantities of excellent food quickly during half time.
Imexsa would only work with customers and technology suppliers who agreed to
openly share information on new technological developments and applications, and in
turn agreed to open their plants for benchmarking.
Mendoza was not worried that Imexsa would surrender competitive advantage by
allowing other companies to benchmark the plant:

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"In the steel industry these days, all companies have access to good ideas through
customers, suppliers and consultants. The difference is who can implement them
successfully."
In the Top 10 programme, each department identified projects to either cut costs or
improve quality, quantified each project's financial impact (in US dollars per year),
and rank ordered the projects from one to ten based on their bottomline impact.
Each project was assigned to a project owner charged with selecting a multi-
disciplinary team to quantify the benefits of the project, develop an action plan and
monitor progress against agreed process milestones.
In Mendoza's view, the Top 10 programme introduced a consistent discipline in
translating proposed projects into financial results and allowed each department to
prioritize its own projects for improvement.
In 1996 Imexsa initiated a systematic program for making internal service agreements
between Imexsa's departments and monitoring service delivery levels against these
agreements.
The head of the department receiving a service would meet once a year with each
internal supplier to articulate their key requirements and agree on targets and concrete
measures of service delivery. Before agreeing to target service levels, a service
provider could request any prerequisites necessary to guarantee delivery.
The maintenance department might agree to provide preventive maintenance on time,
for instance, provided that they were notified at least one week in advance of the
scheduled downtime.
The head of the department providing the service was responsible for monitoring
performance on a daily basis and reporting to the head of the internal customer on a
monthly basis, who would sign off on the performance evaluation.
If a service provider repeatedly failed to meet goals, the failure would be elevated for
discussion in the daily meeting, but this had occurred only once in the programme's
first two years.
In 1998 Imexsa had 140 internal service agreements across 28 production and service
departments and sub-departments in the plant. 70% of the agreements fulfilled 100%
of the requirements, 11% of the agreements met between 95% and 99%, with the
remainder fulfilling less than 95%. These internal agreements yielded significant
improvements in operations.
• 03. Knowledge integration programme: The Knowledge Integration Program
(KIP) was an Ispat corporate initiative designed by Mittal to "keep stirring the whole
organisation."
A few representatives from each operating and staff function (twelve in total) at each
Ispat plant would meet twice each year. These KIP meetings lasted two to four days,
and rotated among the plants in the Ispat network.
Prior to the meeting, the department heads would send their suggestions for
discussion topics to Ispat group headquarters in London, where the agenda would be
set and then distributed to each of the participants in advance.
During the meeting, the participants would review their performance against targets,
including major accomplishments and disappointments, discuss common technical
problems, update each other on developments in their plant and commit to future
targets. The participants also communicated between KIP meetings, as Torres
described:
"If I have a question, I don't have to wait until the next KIP meeting. I can make a
phone call or send an email to Canada [ Images ] or Trinidad. I probably exchange at
least one email every week with them."

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• 04. Stretch goals: Each department in Imexsa committed to annual targets for
production volume, productivity and costs, and presented their plan for achieving
these goals. The process was based on a firm philosophy of Ispat.
As described by Nair, "Senior managers should ask the departments what they plan to
do, rather than telling them what to do."
At the same time, however, it was not a laissez fair. Nair and his team asked a lot of
questions on the plans that were presented. "You achieved this level last year, why
can't you do it again? They can achieve the level at another factory, what prevents you
from doing the same? What can we do to help you achieve more?"
At the end of such discussions, while the targets were very demanding, they were
owned by the departments instead of being perceived as coerced from above.
As Raul Torres described: "I feel the need to constantly improve performance every
day, but its not forced on me by management. I'm not fighting against somebody
else's budgets -- I agreed to the goal, and the best way to reach a goal is not with a big
gun to your head. I set stretch goals because I want Imexsa to win."
"At first, I wanted Imexsa to be the best steel plant in Lazaro Cardenas, then the best
steel plant in Mexico, but now I ask 'why can't we be the best steel plant in the world?'
We always wanted to be the best, but we couldn't because the old management put up
too many limitations."

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TECHNOLOGY AS AN ADVANTAGE

One of the four major elements of the marketing mix is price. Pricing is an important
strategic issue because it is related to product positioning. Furthermore, pricing affects
other marketing mix elements such as product features, channel decisions, and
promotion.
While there is no single recipe to determine pricing, the following is a general
sequence of steps that might be followed for developing the pricing of a new product:

1. Develop marketing strategy - perform marketing analysis, segmentation,

targeting, and positioning.
2. Make marketing mix decisions - define the product, distribution, and
promotional tactics.
3. Estimate the demand curve - understand how quantity demanded varies with
price.
4. Calculate cost - include fixed and variable costs associated with the product.
5. Understand environmental factors - evaluate likely competitor actions,
understand legal constraints, etc.
6. Set pricing objectives - for example, profit maximization, revenue
maximization, or price stabilization (status quo).
7. Determine pricing - using information collected in the above steps, select a
pricing method, develop the pricing structure, and define discounts.

These steps are interrelated and are not necessarily performed in the above order.
Nonetheless, the above list serves to present a starting framework.
Marketing Strategy and the Marketing Mix
Before the product is developed, the marketing strategy is formulated, including target
market selection and product positioning. There usually is a tradeoff between product
quality and price, so price is an important variable in positioning.
Because of inherent tradeoffs between marketing mix elements, pricing will depend
on other product, distribution, and promotion decisions.
Estimate the Demand Curve
Because there is a relationship between price and quantity demanded, it is important
to understand the impact of pricing on sales by estimating the demand curve for the
product.
For existing products, experiments can be performed at prices above and below the
current price in order to determine the price elasticity of demand. Inelastic demand
indicates that price increases might be feasible.
Calculate Costs
If the firm has decided to launch the product, there likely is at least a basic
understanding of the costs involved, otherwise, there might be no profit to be made.
The unit cost of the product sets the lower limit of what the firm might charge, and
determines the profit margin at higher prices.
The total unit cost of a producing a product is composed of the variable cost of
producing each additional unit and fixed costs that are incurred regardless of the
quantity produced. The pricing policy should consider both types of costs.
Environmental Factors

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Pricing must take into account the competitive and legal environment in which the
company operates. From a competitive standpoint, the firm must consider the
implications of its pricing on the pricing decisions of competitors. For example,
setting the price too low may risk a price war that may not be in the best interest of
either side. Setting the price too high may attract a large number of competitors who
want to share in the profits.
From a legal standpoint, a firm is not free to price its products at any level it chooses.
For example, there may be price controls that prohibit pricing a product too high.
Pricing it too low may be considered predatory pricing or "dumping" in the case of
international trade. Offering a different price for different consumers may violate laws
against price discrimination. Finally, collusion with competitors to fix prices at an
agreed level is illegal in many countries.
Pricing Objectives

The firm's pricing objectives must be identified in order to determine the optimal
pricing. Common objectives include the following:
• Current profit maximization - seeks to maximize current profit, taking into
account revenue and costs. Current profit maximization may not be the best objective
if it results in lower long-term profits.
• Current revenue maximization - seeks to maximize current revenue with no
regard to profit margins. The underlying objective often is to maximize long-term
profits by increasing market share and lowering costs.
• Maximize quantity - seeks to maximize the number of units sold or the
number of customers served in order to decrease long-term costs as predicted by the
experience curve.
• Maximize profit margin - attempts to maximize the unit profit margin,
recognizing that quantities will be low.
• Quality leadership - use price to signal high quality in an attempt to position
the product as the quality leader.
• Partial cost recovery - an organization that has other revenue sources may seek
only partial cost recovery.
• Survival - in situations such as market decline and overcapacity, the goal may
be to select a price that will cover costs and permit the firm to remain in the market.
In this case, survival may take a priority over profits, so this objective is considered
temporary.
• Status quo - the firm may seek price stabilization in order to avoid price wars
and maintain a moderate but stable level of profit.
For new products, the pricing objective often is either to maximize profit margin or to
maximize quantity (market share). To meet these objectives, skim pricing and
penetration pricing strategies often are employed. Joel Dean discussed these pricing
policies in his classic HBR article entitled, Pricing Policies for New Products.
Skim pricing attempts to "skim the cream" off the top of the market by setting a high
price and selling to those customers who are less price sensitive. Skimming is a
strategy used to pursue the objective of profit margin maximization.
Skimming is most appropriate when:
• Demand is expected to be relatively inelastic; that is, the customers are not
highly price sensitive.
• Large cost savings are not expected at high volumes, or it is difficult to predict
the cost savings that would be achieved at high volume.

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• The company does not have the resources to finance the large capital
expenditures necessary for high volume production with initially low profit margins.
Penetration pricing pursues the objective of quantity maximization by means of a low
price. It is most appropriate when:
• Demand is expected to be highly elastic; that is, customers are price sensitive
and the quantity demanded will increase significantly as price declines.
• Large decreases in cost are expected as cumulative volume increases.
• The product is of the nature of something that can gain mass appeal fairly
quickly.
• There is a threat of impending competition.
As the product lifecycle progresses, there likely will be changes in the demand curve
and costs. As such, the pricing policy should be reevaluated over time.
The pricing objective depends on many factors including production cost, existence of
economies of scale, barriers to entry, product differentiation, rate of product diffusion,
the firm's resources, and the product's anticipated price elasticity of demand.
Pricing Methods
To set the specific price level that achieves their pricing objectives, managers may
make use of several pricing methods. These methods include:
• Cost-plus pricing - set the price at the production cost plus a certain profit
margin.
• Target return pricing - set the price to achieve a target return-on-investment.
• Value-based pricing - base the price on the effective value to the customer
relative to alternative products.
• Psychological pricing - base the price on factors such as signals of product
quality, popular price points, and what the consumer perceives to be fair.
In addition to setting the price level, managers have the opportunity to design
innovative pricing models that better meet the needs of both the firm and its
customers. For example, software traditionally was purchased as a product in which
customers made a one-time payment and then owned a perpetual license to the
software. Many software suppliers have changed their pricing to a subscription model
in which the customer subscribes for a set period of time, such as one year.
Afterwards, the subscription must be renewed or the software no longer will function.
This model offers stability to both the supplier and the customer since it reduces the
large swings in software investment cycles.
Price Discounts
The normally quoted price to end users is known as the list price. This price usually is
discounted for distribution channel members and some end users. There are several
types of discounts, as outlined below.
• Quantity discount - offered to customers who purchase in large quantities.
• Cumulative quantity discount - a discount that increases as the cumulative
quantity increases. Cumulative discounts may be offered to resellers who purchase
large quantities over time but who do not wish to place large individual orders.
• Seasonal discount - based on the time that the purchase is made and designed
to reduce seasonal variation in sales. For example, the travel industry offers much
lower off-season rates. Such discounts do not have to be based on time of the year;
they also can be based on day of the week or time of the day, such as pricing offered
by long distance and wireless service providers.
• Cash discount - extended to customers who pay their bill before a specified
date.

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• Trade discount - a functional discount offered to channel members for
performing their roles. For example, a trade discount may be offered to a small
retailer who may not purchase in quantity but nonetheless performs the important
retail function.
• Promotional discount - a short-term discounted price offered to stimulate
sales.

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MNC’S BEING ATTRACTED BY INDIAN INDUSTURY

MAJOR PLAYERS

Steel Authority of India Limited (SAIL) is the leading steel-making company in India.

It is a fully integrated iron and steel maker, producing both basic and special steels for
domestic construction, engineering, power, railway, automotive and defence
industries and for sale in export markets. The Government of India owns about 86%
of SAIL's equity and retains voting control of the Company. However, SAIL, by
virtue of its "Navratna" status, enjoys significant operational and financial autonomy.
Major units of SAIL are as under:

Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh
Durgapur Steel Plant (DSP) in West Bengal
Rourkela Steel Plant (RSP) in Orissa
Bokaro Steel Plant (BSL) in Jharkhand
Special Steel Plants
Alloy Steels Plants (ASP) in West Bengal
Salem Steel Plant (SSP) in Tamil Nadu
Visvesvaraya Iron and Steel Plant (VISL) in Karnataka
Subsidiaries
Indian Iron and Steel Company (IISCO) in West Bengal
Maharashtra Elektrosmelt Limited (MEL) in Maharashtra
Bhilai Oxygen Limited (BOL) in New Delhi
Joint Venture
SAIL has promoted joint ventures in different areas ranging from power plants to e-
commerce.

NTPC SAIL Power Company Pvt. Ltd

Set up in March 2001, this 50:50 joint venture between SAIL and the National
Thermal Power Corporation (NTPC) operates and manages the Captive Power Plants-
II of the Durgapur and Rourkela Steel Plants which have a combined capacity of 240
MW.

Bokaro Power Supply Company Pvt. Limited

This 50:50 joint venture between SAIL and the Damodar Valley Corporation formed
in January 2002 is managing the 302-MW power generation and 1880 tonnes per hour
steam generation facilities at Bokaro Steel Plant.
Bhilai Electric Supply Company Pvt. Limited

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Another SAIL-NTPC joint venture on 50:50 basis formed in March 2002 manages the
74 MW Power Plant-II of Bhilai Steel Plant which has additional capacity of
producing 150 tonnes of steam per hour.

UEC SAIL Information Technology Limited

This 40:60 joint venture between SAIL and USX Engineers & Consultants, a
subsidiary of the US Steel Corporation, promotes information technology in the steel
sector.

Metaljunction.com Private Limited

A joint venture between SAIL and Tata Steel on 50:50 basis, this company promotes
e-commerce activities in steel and related areas.

SAIL-Bansal Service Center Pvt. Ltd.

SAIL has formed a joint venture with BMW industries Ltd. on 40:60 basis to promote
a service centre at Bokaro with the objective of adding value to steel.

North Bengal Dolomite Limited

A joint venture between SAIL and West Bengal Mineral Development Corporation
ltd on 50:50 basis was formed for development of Jayanti Dolomite Deposit,
Jalpaiguri for supply of Dolomite to DSP and other plants.

Romelt-SAIL (India) Ltd

A joint venture between SAIL, National Mineral Development Corporation (NMDC)
and Russian promoters for marketing Romelt Technology developed by Russia for
reducing of iron bearing materials, which is carried out with carbon in single stage
reactor with the use of oxygen.

Others major steel producers are

Tisco ( Tata Iron and Steel Corporation ltd)
Essar Steel
Jindal Vijaynagar Steels Ltd
Jindal Strips Ltd
JISCO
Saw Pipes
Uttam Steels Ltd
Ispat Industries Ltd
Mukand Ltd
Mahindra Ugine Steel Company Ltd
Tata SSL Ltd
Usha Ispat Ltd
Kalyani Steel Ltd
Electro Steel Castings Ltd
Sesa Goa Ltd
NMDC
Lloyds SteeI Industries Ltd

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CHAPTER-8

GOVT. POLICY ON STEEL SECTOR

"Our mission is to impact the policy and legislative environment so as to foster

balanced economic, industrial and social development."
As such one our key objectives at ASSOCHAM is to help formulate policy decisions
for creating a healthy environment for trade and industry in India.
Towards attaining this objective we :
• Have active representation in most Government Advisory Committees
• Keep organising Seminars, Workshops, Round Table meetings
• Submit representations/memoranda
• Bring out publications, periodicals and discussion papers.
This section presents our policy work on important Business & Industry and National
issues

Overview

By far, the most important engineering and construction material in the world, steel
application figures prominently in many aspects of human life, from civil structures to
automotive manufacture, from paper clips to refrigerators and washing machines and
from aircrafts to the finest surgical instruments. All major industrial economies have a
strong domestic steel industry which shaped their economic growth in the initial
stages of their development. In India too, the vision of Sir Jamshedji Tata was taken
to its logical conclusion by leaders of Independent India, and steel production was
given a pride of place in the successive five-year plans. The Government’s policy
attaches great importance to capacity expansions in the steel industry, to produce and
market steel at globally competitive prices.

Steel is produced either from basic raw materials namely iron ore, lime stone and
coke, using the blast furnace and basic oxygen furnace processes, or from recyclable
steel scraps via the electric arc furnace process. The molten steel is stored and refined
in ladles before being solidified and cast into slabs, blooms, billets and bars. Semi-
finished steel is re-rolled (formed and finished) to produce finished steel items like
plates, flats, bars, sections, tubes etc of varying thickness and dimensions. A third
route for steel making from direct reduced iron [DRI] has been followed since 70s.
Direct Reduced Iron, or sponge iron as it is often referred to, is a substitute for
melting scrap in the Electric Arc steel making process. In India, nearly 60% of crude
steel production is from the basic oxygen process and the balance is from the electric
arc process.

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The Iron and Steel industry was reserved for the public sector till 1991 and all the
capacities created were only in this sector. TISCO was the sole exception having been
in existence since 1911. Capacity creation was subject to compulsory licensing.
Hindustan Steel later (reconstituted into SAIL) contributed to the major share of
production. SAIL’s plants were set up in technical collaboration with overseas
partners. The plants set up prior to 60s were based on the open hearth process which
was slow and uneconomical. Subsequent plants were based on the basic oxygen
conversion process (LD converters). Even within SAIL, Bhilai and Bokaro were more
efficient while Durgapur was considered a laggard. The steel prices were regulated by
the Joint Plant Committee [JPC], under the superintendence of the union ministry in
such a manner as to reconcile the interests of both the producers and the users. In an
era of quota and licenses, the industry boomed and needed to concern itself only with
production and operational aspects. By the turn of 70s, the gap in supplies was
growing and large quantities of steel were imported into the country by consumers
paying high customs duty.

The problem for the consumers was compounded with infrastructure bottlenecks in
power and transportation. It was not uncommon during late 70s to observe large
inventories piling up in the plants even when there was acute shortage experienced by
consumers. On the input side, while India had superior grades of iron ore which was
well in demand the world over, domestic coal supplies were inferior with high sulphur
and ash content. The import of coking coal was highly controlled. Coal washing and
beneficiation technology had not developed adequately to enable usage of coal with
high sulphur and ash content.

It was becoming apparent to the policy planners that huge investments were required
to create fresh capacities, modernize the existing plants, upgrade their technology, and
profitably sustain their operations. As a public sector unit, SAIL, the main player, was
compelled to sustain a large strength of employees on its regular payroll, apart from
regularizing contractual employees from time to time, due to political pressures. The
Government was finding it very difficult to provide budgetary support to meet the
investment requirement and credit from international agencies was expensive.

The Government attempted to promote private investment in the small and medium
sector for setting up mini steel plants. These plants were to use steel scraps as their
main raw material and electric arc furnaces for converting them into molten and
saleable steel. Despite Government promotion, major constraints such as availability
of recyclable scrap which was canalized by the Government, power shortages in many
states and the technical limitation arising from inability to control the chemistry of
furnace output by the manufacturers, dogged the survival of these units. During the
80s the development of sponge iron as an alternative to steel scrap opened up another
feasible manufacturing route. Since India was reasonably endowed with reserves of
high-grade iron ore as well as non-coking coal and natural gas from Bombay High,
sponge iron emerged as a viable alternative. Unfortunately, the sponge iron units too
had their share of problems due to their inputs/services remaining Government
controlled. Administered prices of iron ore, non-coking coal and natural gas were
higher than international prices. Till the end of the 80s, the sponge iron industry
remained a fledgling.

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In the overall analysis, till 1991, steel supply was short compared to the burgeoning
demand, both output and input prices in the industry were administered, and efforts to
promote private initiative elicited only feeble responses.

The new economic policies pursued by the Government post-liberalization, since

1991, opened up a floodgate of opportunities for expansion of the steel industry. The
important policy measures which were taken for growth and development of the
sector since then, included removal of Iron and steel from the list of industries
reserved for the public sector, their exemption from the provisions of compulsory
licensing, automatic approval for foreign equity investment up to 51% (now 75%),
deregulation of price and distribution of steel, liberalization of import regime, moving
from controlled import to total freeing and lowering of duty levels, allowing free
export and withdrawal of freight equalization scheme.

The Indian steel industry responded enthusiastically to the liberalization and large
capacities were created in the private sector. The plants which came up post 1991, like
Vizag Steel (RINL) in the public sector and Essar Steels, Ispat Steels, Jindal
Vijayanagar etc. in the private sector used the modern state-of-the-art technologies.
However, because of decontrol, removal of duty protection, free import, dumping
from China and CIS, and, above all, a global economic melt-down in the latter half of
90s, the industry went through a major crisis. The period from 1997-2001 marked the
worst for the industry with price decline, poor capacity utilization, inventory pile up,
dumping through unofficial channels and high interest burden.

Nevertheless, the industry has since turned around impressively due to a combination
of factors. The rising demand from China, revival of economic growth in most
economies, limitations to steel output growth from developed countries, falling rates
of interest were favorable factors. The cost economics were significantly favorable to
Indian producers due to lower cost of pig iron and cheaper labor. Most of the
integrated plants had taken productivity improvement and cost cutting measures
including financial restructuring during the lean period earlier; as a result, when the
boom began, they could exploit the growth opportunities. Though the steel prices
have continued to fluctuate, a majority of the plants have now streamlined their
operations and are considered competent to withstand price shocks.

The focus of the national steel policy 2005, envisages stepping up domestic steel
output to 100 million tonnes by 2019-20 from the present level of around 40 million
tonnes. Consequently, the availability of critical inputs like iron ore, coking coal,
refractory material, power and gas as well as matching infrastructure in terms of
transportation are proposed be stepped up with large-scale capital investments. To
control price volatility, it is also proposed to introduce steel futures. The policy
provides a major impetus for technology upgradation, R&D and development of
skilled human resources. With an enabling trade policy, the Indian industries are
expected to emerge as leading players.

Meanwhile, the industry is already into an expansion mode with all steel majors like
SAIL, Tata Steels, RINL, Ispat, Jindals and Essar hiking their capacities. States like
Orissa and Jharkand, rich in iron ore, are attracting major investment interest both
from domestic and international majors. There is, however, some concern regarding
the differential treatment meted out to overseas players to attract investment, mainly

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in respect of export of iron ore. In the final analysis, the industry scenario is expected
to radically alter in the coming years.

In the above context, this book, split into three distinct sections, presents insights into
the status of Indian Steel Industry through articles written by experts. The first section
gives an introduction to the Indian Steel Industry and an Overview of its development.
The second section elaborates on the Indian and Global Steel Industry: A Comparison
and finally, the third section outlines the Emerging Issues and Challenges.

Section I: Indian Steel Industry: An Introduction

The first article under this section “Indian Steel Industry – Retrospect and Prospects”
by N Kannan, presents an overview of the Indian steel industry, which traces its
chronological history, the current position and future outlook. The article provides
basic information on the steel industry including the product classification, production
processes, technology and the critical inputs. It carries data, both global as well as
Indian, relating to installed capacities, crude steel/finished steel production,
consumption, exports and projected growth. Besides, it also features the main points
covered in the draft steel policy of 2004 (which has since been legislated) and a
SWOT analysis of the industry. Constraints in inputs and infrastructure, policy plans
for addressing them, current expansion plans of the industry, overseas acquisition
plans by Indian companies, foreign direct investments in India, and Steel price
volatility are the other issues addressed.

The second article “Steel Making in India – Technology Scenario Changes” sourced
from steelworld.com outlines the various technologies for Steel manufacture, the
transition over the years, from Bessemere Converters and open hearth process to LD
converters, Electric Arc Furnaces and Induction Melting Furnaces. It mentions the
potential availability constraints in high grade iron ore and coking coal inputs and
development of technological alternatives such as sponge iron instead of pig iron,
which can be produced with low grade coal, the COREX process for pig iron
manufacture, again using low grade coal, and the Romelt process which makes pig
iron from even iron ore fines. It discusses the introduction of Electric Arc Furnaces
for steel making in India, constraints in steel scrap availability and their competitive
limitations vis-à-vis induction furnaces. The success of Induction Melting Furnaces
used competitively by Indian steel makers for making all types of steel and their
growing popularity are also debated. It concludes with the observation that Indian
steel makers have now become adept in innovative steel making techniques
synergizing with captive power generation.

The third article “Electric Steel Making Technology in the 21st Century” by R P
Varshney is a revisit to the technological developments and upgradations in steel
industry. Its focus, however, is on the development of electric steel making process in
India and the stabilization of induction furnaces as an alternative and commercially
competitive process in the Indian context. The article concludes with a focus on the
present scenario in terms of capacity utilized, key input-output characteristics of using
induction furnaces and envisaging a scenario of a large number of integrated mini
steel plants in India in the 21st century.

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The next article summary “National Steel Policy – 2005” summarized by E Naveen
Kumar and N Kannan, discusses the salient features of the National Steel Policy
approved by the Government in 2005. The policy is regarded as the basis for long-
term projections of the growth of the Indian Steel industry and, thus, has great
significance for the existing players and prospective entrants. The article defines the
strategic policy goal, the feasibility of realizing this goal supported with past and
projected growth figures of per capita steel and a SWOT analysis. The supply side
requirements to meet the anticipated demand in terms of availability of critical inputs,
infrastructure requirements and current limitations in the country and the need for
foreign investment to improve the scenario are highlighted in the article. The future
concerns regarding the steel price volatility, human resource requirements, R&D
requirements and environmental issues are also discussed in the article.

The last article under this section “Indian Steel Industry: A Story of Continuing
Progress” by Braja Kishore Tripathy, discusses the significant role played by the
Ministry of steel in the post deregulation years in fostering the growth of the industry
based on competitiveness and economic efficiency, in trying to curb unfair
competition from steel surplus overseas sources like Russia and CIS, in helping the
industry to overcome structural rigidities, input scarcity, infrastructure related
constraints and in creating additional demand through intensive consumption
promotion programs. The improvement in the profitability of SAIL and
Vishakapatnam Steel Plant, through ambitious modernization, financial restructuring
and manpower rationalization, coupled with productivity improvement and cost
efficiency, are also highlighted in the article.

Section II: Indian and Global Steel Industry: A Comparison

This section contains articles focusing on the competitiveness of the Indian steel
industry amidst dynamic changes in the global scenario.

The first article under this section, “Steel in the 21st Century: Creating an Attractive
and Sustainable Industry”, summarizes the points made in the lecture delivered by
Malay Mukherjee, COO, Mittal Steel Company. The talk covers a gamut of issues
such as GDP led demand growth, the need for steel industry to penetrate deeper and
wider existing and potential application segments, the supply side of inputs, the role
of China in shaping the future of the supply-side of the industry and the policy
directions of the Chinese government to enforce regulation of the industry to both
slow down the growth of new capacity as well as rid the industry of sub-scale, long-
term inefficient plants. The volatility of steel prices, poor supply chain management
and the knee-jerk behavior of the players to price volatility, distorting the real picture
of the industry, are also addressed. The article concludes with the remark that the
growth of geographies, superior marketing and supply chain management to manage
the demand, proper pricing of value added products vis-à-vis steel commodities, and
the continuing trend of industry consolidation will undoubtedly lead to a virtuous
cycle culminating in a sustainable steel industry for the 21st century.

The second article titled “Global Steel Industry Expansion Scenario – Its Impact on
NAFTA Region” by S Bhaskaran, traces the uneven output growth across various
regions in the world, the stiff competition and challenges faced by the producers in
the NAFTA region and the steps taken by them to counter the threat of competition

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through tariffs and barriers. The article draws extensively from the OECD reports and
alerts sounded to NAFTA regions.

The third article under this section titled “Indian Steel Industry Globally Competitive
– A Comparison of Financial Performance” by N Kannan, analyzes the global
competitiveness of the Indian Steel Industry in quantitative as well as qualitative
terms. The quantitative analysis focuses on unit cost of production, unit cost of sales
and also Return on Equity. For this purpose, the article draws reference to research
study reports brought out by Joint Plant Committee and World Steel Dynamics. These
reports provide insights into the comparison of different components of production
costs across different countries and cost differentials at various stages of production.

The next article is titled “India Can Make Steel Much Cheaper Than China”. This
article is an excerpt from an interview with B Muthuraman, Managing Director, Tata
Steel. It dwells at length on the “China factor” in metals, the company’s globalization
efforts and their challenge of servicing the automotive market in a big way, in future.
It discusses various issues on steel consumption and comparison between India and
China. The theme rests on the CEO’s assertion that India can produce steel much
cheaper than China.

The fifth article is a case study titled “POSCO in 2004: The World’s Most Profitable
Steel Maker” by M P Jayaprada. The case talks about POSCO, the South Korean steel
maker which was the leading steel company in terms of profitability. The case starts
with the evolution of the world steel industry, the major technology shift (from basic
oxygen method to electric arc furnace (EAF) method) that changed the industry
economics, and talks briefly about the evolving demand-supply conditions. By 2004,
the steel industry was considered an old economy and steel was commoditized. The
increasing competition from mini-mills (companies using the EAF technology to
produce steel) left some of the major steel producers’ operations unprofitable. As a
result, steel producers were resorting to various strategies, including consolidation, to
sustain themselves in the industry. The case describes how POSCO sustained and
grew in such conditions, achieved its position of leadership, and the strategies it
adopted on its way.

The sixth article, again a case study titled “Lakshmi Niwas Mittal: Spearheading
Consolidation in the Global Steel Industry” by Kalyani Vemuri, offers scope for
discussion on strategic issues of consolidation, scale economies and post-merger
management. It highlights the consolidation strategy practised by Lakshmi Niwas
Mittal, which has enabled his group to emerge as the world’s largest steel producer.
The case analyzes Mittal’s business roots, the problems faced in raw material
acquisition, adoption of DRI route, acquisition of manufacturing facilities in the
Caribbean and later expansion foray into different parts of the world, acquiring sick
units in developing economies and turning them around to healthy ventures with good
supply chain management. Some of the controversial aspects of Mittal’s business
dealings are also touched upon.

Section III: Emerging Issues and Challenges

This section debates the current and emerging issues confronting the Indian steel
industry.

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The first article of this section, “Steel: Will the Big Bets Pay Off?” by Sunil Nayanar,
is a debate on the wisdom of large scale capacity expansion planned by all major
players in the Indian steel Industry at a huge outlay, amidst apprehension of a
repetition of the scenario of mid 1990s when the country was saddled with excess
capacity. The article details the capacity additions planned by various players inland
as well as overseas, including vertical integration of processes. It cites the
justifications put forth for such large scale capacity build-up like demand growth,
export push, iron ore availability, competitive cost of production, low cost of debt and
relatively low per capita steel consumption in India by Government and all major
players. The author then raises concerns about the situation of overcapacity in the face
of a feeble outlook on international prices, with demand slowing down in China, US
and Japan, coupled with tightening of raw material availability.

The next article “India’s Overseas Investment: An Eye Opener for Policy Planners”
by Dilip Kumar Jha provides the details of acquisitions and investments abroad by
major steel companies (Tata, Essar, Ispat & JSL) and the potential benefits these
companies expect to derive from them. Efficient catering to the needs of overseas
customers is cited as an important reason for offshore locations. The article debates
the wisdom of such overseas investment and expresses concern that, due to these,
India is losing huge potential domestic investments, limiting job creations and forex
reserves. The author suggests that the Government of India can ease steel export
norms and reduce customs tariff so that exporters can play safe and send their output
abroad and bring foreign reserves to India, instead of overseas capacity creations.

The third article “Indian Steel Industry: Consolidation is the Need of the Hour” by S
Subramanian, explains that with the Chinese steel industry entering into autocatalytic
consumption stage, the prices of raw materials for steel, like coking coal and steel
scrap, have shot up sharply in recent months. Given the increasing steel consumption
in the country, Indian steel makers need to adopt strategies like consolidation, to
manage the situation.

The fourth article “Steel Regulator: Valid Concerns?” by Anupama Chowdary,

debates the wisdom of having an independent regulator for steel prices, which had
been voiced by the union minister, and raises the concerns put forward by the industry
players, should such a body come into force. The article explains that the trigger for
ministerial suggestion would have been mainly the domestic price volatility and
pressures from domestic users long used to enjoying stability from price controls. The
author brings forth experts’ argument that the Government must rather focus on
encouraging fresh investments in steel to match the supply commensurate with rapid
growth in demand, instead of regulating prices. Finally, the article talks about the
practical impediments in having a Regulator for the complex steel industry and
suggests other areas for Government to focus on like steel futures, easing raw material
shortage, rationalizing customs duty structure etc.

The fifth write-up “Round Table on Steel Industry” is an interview with three eminent
experts B Muthuraman, MD, Tata Steel, Vikram Amin, Director, Marketing, Essar
Steel and Bratin Biswas, Market Analyst. The interview discusses the revival of the
Indian steel industry over the last four years, the current scenario and brings forth the
experts’ views on whether Indian steel manufacturers are prepared to bridge the gap

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between demand and supply triggered by surging global demand. The interview also
highlights their views on the bottlenecks to be removed in order to become a global
leader and the advantages of consolidation of companies for achieving the same.

The sixth article “Indian Steel Industry: Key Challenges” by Deven R Choksey,
revisits the key challenges confronting the Indian steel industry. It touches upon two
issues of concern for select players—unequal freight costs across different producers
and competition from imports. Further, the author proceeds to discuss the various
revival factors, such as backward integration for captive coke and iron ore supplies,
industry consolidation, concentration of semi-finished steel manufacturing capacity
near pig iron/sponge iron plants, and dispersion of finished steel manufacturing
capacities to consumption centers to save on freight costs. The other important revival
factor attributes as per the author are branding of products and forward and future
trade contracts to hedge price risks.

The next article “Branding a Commodity: The Tata Steel Way” by K Subhadra and
Sanjib Dutta, is a case study and focuses on steel marketing by India’s leading private
sector steel manufacturer—Tata Steel. The case explains in detail the reasons for the
company’s decision to opt for branding, and the steps taken by the company to make
its branding initiatives successful so as to withstand rising global competition. It also
provides information about the steps taken by Tata Steel to inculcate customer
orientation in its employees. The revamping exercise undertaken by Tata Steel and the
different approaches adopted for its two different customer segments – B2B and B2C
– are also covered. The case concludes with information on the benefits reaped by the
company through its branding of its steel products, and the prospects of the company
in the future.

The last article “Indian Steel Scenario: Vision 2011-12” by Sanjay Sengupta, presents
a vision of Indian Steel scenario in the year 2011-12. The article provides the past
steel consumption statistics; relative growth statistics in China, NAFTA, Europe and
CIS; the projected finished steel production and consumption figures as per national
steel policy; a narrative on proposed expansions and modernization programs of the
major players; and the problems in respect of availability of inputs and infrastructural
requirement. The article concludes by raising some doubts about the feasibility of
mobilizing the huge amount of funds required for the expansions and capacity
additions, as well as doubling per capita steel consumption, in the light of the earlier
failures.

The book is an attempt to capture the historical development of the Indian steel
industry, the major transformations it underwent and the new challenges faced against
the backdrop of globalization.

142
PRODUCING QUALITY(VALUE ADDDED) PRODUCT

The following is the text of my keynote speech to the Fabricators & Manufacturers
Association’s Toll Processing Conference in Orlando, Fla., on February 16, 2007. The
two-day conference was devoted to mergers and consolidations in the steel industry,
and I addressed the growing worry that Mittal’s concentrated control of steelmaking is
resulting in a price squeeze for U.S. industrial users and fabricators.

I had expressed concern about the anticompetitive implications of Mittal’s takeover of

International Steel Group (ISG) before the merger took place in op-ed articles. The
organizers of the conference asked me to compare the recent consolidations to the
past history of the industry.

As it happened, on February 20, 2007, the U.S. Department of Justice – which I have
given poor marks for its antitrust review of the Mittal-ISG merger – announced that
Mittal must sell the Sparrows Point, Md., mill to preserve competition in the tinplate
market. DOJ said Mittal’s 2006 merger with Arcelor, owner of the Dofasco (Canada)
tinplate-making facility, raised “anticompetitive effects” in the marketplace.

I was quoted in the AP article on the decision saying that the ruling underscores
manufacturers’ frustration with Mittal Steel’s pricing and production policies. And
their complaints go beyond tinplate – embracing the pricing of automotive steel and
several other mill products.

DOJ’s action is a positive step, not only for the future of Sparrows Point, but also for
American manufacturing that uses steel, for reasons explained in my speech. Further,
it represents the first time that the business policies of Lakshmi Mittal have come
under government scrutiny.

Here’s hoping that DOJ starts looking at the draconian production cutbacks (described
below) at Mittal mills since 2005, apparently aimed at controlling downward swings
in steel prices by denying lower-cost steel to customers.

“The problem as I see it,” said Gustave Koven, “is this: how can we keep the small
and medium-size manufacturer from extinction?” Koven, who managed a steel-
fabricating factory in Jersey City, N.J., was testifying back in 1950 before a
Congressional committee studying the ownership and pricing policies of the U.S. steel
industry.

The committee concluded that the industry was dangerously over-concentrated, with
three companies, U.S. Steel, Bethlehem Steel, and Republic, operating a “tropoly”
that kept prices under the control of a small group of executives.

143
Throughout the 1950s, the Truman and Eisenhower administrations pleaded with an
industry that had been consolidated under trusts by J.P. Morgan, Charles Schwab, and
Andrew Carnegie not to raise prices – after all, we were fighting the Cold War and,
for a while, a hot war in Korea. But to little avail. When U.S. Steel raised its prices, so
did Beth Steel, Republic, Jones & Laughlin, Youngstown Sheet & Tube, Armco, and
Inland Steel – usually within the same 24-hour period.

The industry invented some choice vocabulary to justify its actions. “Meeting the
competition” was steel talk for the matched prices that the top steel companies
instituted nationwide. “Unfair competition” was anything that might undercut these
uniform prices. “Inelastic demand” was the purported economic reason why steel was
outside the laws of supply and demand, and why the trade could advance prices with
impunity.

“Our salesmen don’t sell steel; they allocate it,” gloated one executive.

Thus, the “Big Steel” companies rolled over the likes of Gustave Koven – the heavy-
metal, high-octane, chrome-tail-finned Buick Rivieras of U.S. business – until they
crashed into President John F. Kennedy. On October 22, 1962, Kennedy opened a
White House press conference with the following statement (slightly edited):

“Simultaneous and identical actions of U.S. Steel and other leading steel companies
increasing steel prices by some $6 a ton constitute a wholly unjustifiable and
irresponsible defiance of the public interest. In this serious hour in our nation’s
history, when we are confronted with grave crises in Berlin and southeast Asia, when
we are asking reservists to leave their homes and families for months on end and
servicemen to risk their lives in Vietnam, when restraint and sacrifice are being asked
of every citizen – the American people will find it hard, as I do, to accept a situation
in which a tiny handful of steel executives can show such utter contempt for the
interests of 185 million Americans.”

Kennedy continued: “If this rise in the cost of steel is imitated by the rest of the
industry, instead of rescinded, it would increase the cost of homes, autos, appliances,
and most other items for every American family. It would add, Secretary McNamara
informed me this morning, an estimated $1 billion to the cost of our defenses. It
would make it more difficult for American goods to compete in foreign markets and
more difficult to withstand competition from foreign imports.”

While rising steel prices in the 1950s and again in the 1970s had short-term benefits
for U.S. steel producers, the long-term consequence was increased substitution of
competing products by buyers.

This chart shows the price of steel mill products relative to other producer prices over
the last 60 years. Largely because of wartime price controls, steel prices dropped in
the 1940s compared to all producer goods, then began rising at roughly double the
rate of producer goods. Following President Kennedy’s intervention, steel-price hikes
moderated over the 1960s, only to shoot upward again in the 1970s. Overall, the price

144
of all producer goods roughly tripled between 1947 and 1979, while the price of steel-
mill products rose by a factor of six – faster than any other metal product.

Lakshmi Mittal after winning shareholder approval of his hostile bid for Arcelor Steel
in 2006. The takeover made Mittal by far the world’s largest steelmaker, with 330,000
employees in more than 60 countries.

While rising prices had obvious short-term benefits for the steelmakers, the long-term
consequences were disastrous. Aluminum, plastics, and concrete began replacing steel
in markets that, 50 years earlier, steel had conquered from glass bottles, wood-framed
cars, brick-and-mortar buildings, and wrought-iron machinery and tools. What was an
all-steel kitchen in the days of June Allyson became by the 1990s a kitchen with
aluminum and plastic, right down to plastic microwaveable food packaging (in place
of tin cans) and aluminum instead of tin foil.

Inroads by competitive products and the lack of new steel markets – much more than
rigid union work rules or imported steel – played havoc on the economic base of Big
Steel. In the 1980s and 1990s, hundreds of thousands of jobs were lost in the cradle of
the industry around Pittsburgh and Youngstown, and plant closures spread west to
Chicago and east to Johnstown and Bethlehem, Pa. Then there was another factor.
Mini-mills that used electric-arc furnaces, thin-slab casters, and motivated employees
undercut Big Steel’s prices, delivery dates, and customer service.

After all the bloodshed, Big Steel was returning to what it had been before the “trust-
building” movement of Morgan, Schwab, and Carnegie – a lean, competitive industry.
Yes, LTV (former Republic Steel) and Bethlehem struggled, but U.S. Steel and
Armco (re-named AK Steel) did an admirable job in restructuring their businesses.

Aping the baroque extravagance of Charles Schwab and Andrew Carnegie during the
first steel monopoly, Mittal’s home in London is reported to be the most expensive
private residence on Earth.

The chart indicates how steel prices responded in the 1990s when competition was
robust and no firm had significant control over the marketplace. Returning to levels
that were very competitive, steel was making inroads against substitute products,
gaining ground, for example, against lumber in the booming housing market.

But the dynamics of the U.S. – indeed, world – steel business has rapidly changed as a
result of the aggressive business tactics of Lakshmi Mittal. Having succeeded last July
in his hostile takeover of Arcelor Steel, the Mittal combine is by far the largest
steelmaker on the globe, now employing 330,000 employees in more than 60
countries.

145
Aditya and Lakshmi Mittal pose with former presidents George Bush and Bill Clinton
in Washington, D.C. A lavish entertainer, Mittal has cultivated connections with
politicians worldwide.

With a personal net worth reported at $25 billion, the Indian-born, London-based
businessman has not been shy about advertising his wealth. He shelled out $125
million for a mansion next door to the royal family’s Kensington Palace in London.
Comprising the former Russian and Egyptian embassies joined together, the house
boasts a swimming pool inlaid with jewels, a grand ballroom, and a 20-car garage.

Mittal also raised eyebrows for the lavish wedding of his daughter, Vanisha, 26, who
sits on the Arcelor-Mittal board of directors. Invitations for the Hindu nuptials were
20-page thick, encased in silver, and contained jade necklaces or diamond watches for
close family friends. Mittal chartered 12 Boeing jets to fly 1,500 guests from India for
five days of festivities in France that included the rental of the Palace of Versailles.

As recently as five years ago, Mittal was mostly known for his oddball collection of
steel mills in such countries as Kazakhstan, Trinidad, and Mexico. In 2002, Mittal
survived the disclosure that British Prime Minister Tony Blair had intervened to help
him purchase Romania’s Sidex Works shortly after the mogul had made a $235,000
donation to Blair’s Labor Party.

Since then, Mittal and his son Aditya – who works intimately with his father – have
cultivated ties to politicians in the U.S. Father and son were photographed with our
41st and 42nd presidents after contributing to a Tsunami-victims fund. Last year,
Mittal jetted Bill Clinton and New York Senator Hillary Clinton to a celebrity
wedding in India in his private Gulfstream plane.

Steel shipments (in 1,000 tons) by companies bought by Mittal. Before 2005, most of
his acquisitions were in third-world and former Soviet-bloc countries.

So what’s the secret to the success of Mr. Mittal, whose steel holdings have multiplied
252 times over the last 18 years? Forget about Internet innovation or creative-class
convergence. Mittal makes his money the old-fashioned way, accumulating strategic
control over the same commodity that forged the fortunes of Schwab and Carnegie.
Mittal is a serial acquirer, whose specialty has been scooping up distressed steel
properties in remote corners of the world and making them profitable through tough
management practices.

Most of his conquests through 2004 involved purchasing state-owned mills in

countries such as Mexico and Kazakhstan whose governments had shed their Socialist
ways and were being running by privatizers, or, in the case of many ex-Soviet states,
former Communist bosses posing as privatizers.

In the U.S., however, Mittal’s dominance came about not through a deal with
government apparatchiks, but from a deal with a smart and well-regarded ex-
Rothschild banker nicknamed the “king of bankruptcy.” Between 2002 and 2004,

146
Wilbur Louis Ross bought in bankruptcy court five independent steel companies –
LTV, Acme, Bethlehem Steel, Weirton, and Georgetown Steel. By far the largest of
this group was Beth Steel. After shedding retiree and widow’s health benefits and
letting the government-run Pension Benefit Guaranty Corp. take over the companies’
underfunded pension funds, Ross combined these companies into the nation’s largest
steelmaker, International Steel Group or ISG.

In October 2005, Mittal announced the $4.5 billion buyout of ISG, the largest U.S.
steelmaker, controlled by New York financier Wilbur Ross, shown here with wife No.
3, Hilary Geary.

Ross won the applause of the business press in post-9/11 America by announcing that
he was a patriotic businessman seeking to “save” a troubled industry and keep
steelmaking in America. How fascinating it therefore was to see our patriotic banker
turn around and announce the sale of five former independent steel companies to
Lakshmi Mittal in a $4.5 billion deal in October 2004. The man who said he wouldn’t
flip U.S. mills flipped them.

Ross’ motivation to pack up his bags was apparent – he pocketed $267 million from
the sale of ISG. And the reason why Mittal purchased the plants followed his tried-
and-true business model of owning the majority of steel mills within any given
country. Bearing in mind that Mittal-owned Ispat Steel already owned Chicago-based
Inland Steel, his acquisition of ISG has had enormous economic ramifications.

The acquisitions moved nearly 25 million tons of capacity from independent

operation into a single combination. Mittal Steel currently owns six major steel mills,
nine finishing mills, and fully 40 percent of U.S. flat-rolled steel capacity.

A year ago, members of Congress complained loudly about the sale of U.S. port
facilities to the Middle East’s Dubai Ports, citing post-9/11 security. How ironic that
these same statesmen did not raise national security alarms when our steelmaking
capacity was sold to a little-known London businessman. Mittal’s takeover of ISG
raced through the Bush Administration’s Committee on Foreign Investments in the
U.S. as well as the antitrust division of the Department of Justice.

Washington was asleep at the switch.

Now in the wake of Mittal’s takeover of Arcelor, DOJ wants Mittal to divest of either
Sparrows Point or Weirton, saying that the company otherwise will have too much
pricing power in the domestic tinplate market. Since Mittal already owns four of the
five integrated mills on the Great Lakes, such divestment – while welcome – is like
closing the barn door after most of the animals have escaped.

And how has the London industrialist treated the mills that he purchased from Mr.
Ross? “Squeezing more toothpaste out of the tube” is how I have characterized the
Mittal way. For example, after paying $4.5 billion to Ross and associates and

147
simultaneously paying himself a $2-billion dividend to form Mittal Steel, Mittal has
kept capital expenditures at the mills to a bare minimum.

Sparrows Point Works outside of Baltimore. Once the world’s largest steel mill, the
plant has been starved for capital by Mittal. In June-July 2006, it stopped producing
hot metal when its blast furnace “froze.”

In 2005, the Mittal board of directors took away $40 million in capex previously
planned by ISG. Overall, Mittal Steel USA spent no more than $385 million for capex
in 2005. This compares to $475 million capex, or 23 percent more spending, by U.S.
Steel, a smaller integrated steelmaker, in 2005.

Other key findings are described in detail on my website. But to summarize: There is
little long-term planning. Sophisticated rolling equipment is operated to achieve short-
term profit targets with little provision for adequate maintenance or renewal.

A cult-like conformity characterizes the corporate culture, especially at the upper

ranks. Any mill manager who pushes for more resources than allotted from London is
no longer – and I quote – “an effective manager.”

Last summer, Sparrows Point’s single remaining blast furnace (once there were 11)
stopped running when the furnace froze. No hot metal was produced for many weeks.
Eight months earlier, in November 2005, Mittal permanently closed the blast furnace
and steelmaking operations at the Weirton plant, permanently eliminating 800 jobs
and 3 million tons of annual steel capacity.

Since the Mittal takeover, management has been a merry-go-round. Rodney Mott, the
respected CEO of ISG and CEO-designate of Mittal USA, resigned one day before the
merger. Mott was replaced by Louis Schorsch, a Mittal loyalist from Inland Steel,
who in turn was kicked upstairs and replaced by Mike Rippey. Most senior ISG
executives left immediately after the merger. And the exodus continues with the
resignation or retirement of many department managers.

But if there has been turmoil within the ranks, there has also been the steady,
determined vision of Mr. Mittal. “I want to be the Ford of steel,” he proclaimed to the
London Sunday Times, which means not just being the emperor of world steel, but
siring a dynastic line. This kind of imperial longing fits in with the most expensive
house in London and a wedding staged in the palace of Louis XIV, known as Le Roi
Soleil, or The Sun King.

Mittal at a press conference during his six-month campaign to win Arcelor Steel over
the fierce objections of management.

What satisfied Mittal just four years ago – ownership of 20 million tons of raw steel
capacity – jumped to 70 million with the acquisition of ISG. Now with Arcelor inside
his corporate kingdom, Mittal says he will only settle for 200 or 300 million tons,
arguing that the steel industry remains globally fragmented and can achieve lasting

148
prosperity only through consolidation into two or three worldwide companies – led by
Mittal and his children and, I suppose, the children of their children.

For those in the audience who do not seek to be steel deities – who wish to grow their
steel-fabricating business steadily and serve their customers and employees well –
what we’ve seen from two years of the “Mittal effect” is worrisome. Currently, people
like you are squeezed between high prices and surcharges for tightly controlled
domestic steel production and “dumped” finished steel goods from overseas.

I would like to cite two recent examples of the production/pricing squeeze:

First, regarding production. As the price of HRC (hot-rolled coil) dropped in the last
quarter of 2006, an interesting thing happened at Mittal’s Sparrows Point mill.
Typically, the mill runs 21 eight-hour turns per week. But early last November, as
HRC prices dropped to $500 per ton, Mittal Steel reduced to 18 the number of turns
for the final six weeks of 2006.

149
EXPORT INCENTIVES

Bellwether Report.com is Doing Due Diligence on United States Steel Corp.

M2 Presswire ...Notice of United States Steel Corp. (Nyse:X) Steel...steelmakers
United States Steel Corp. and Nucor Corp. Monday...next nine months. A "steel
supply overhang now seems unavoidable...research on United States Steel Corp. as
well as many more...

National Steel deal would forge a future.(acquisition of National Steel Corp. by U.S.
Steel Corp. could protect Great Lakes Steel division operations in Detroit)(Brief
Article)(Editorial)

Magazine article from: Crain's Detroit Business ...look no further than the current
debacle in steel supply and pricing to help them see the light. When...above is what
makes the acquisition of National Steel Corp. by U.S. Steel Corp. so appealing (see
story, Page 1). In recent...

Manufacturing a new identity: to thrive in a changing steel industry, Dennen Steel has
modified its position as a traditional service center with a bold foray into contract
manufacturing.(CASE STUDY: DENNEN STEEL CORP.)

Magazine article from: Metal Center News ...Grand Rapids, Mich.-based Dennen
Steel Corp. Fortunately for this family-owned...ensure its future in the rapidly
changing steel supply chain. While continuing to distribute...war suplus steel and
aluminum. Dennen Steel Supply Co. operated out of a Quonset hut on...

Slump slams center; investors planning to buy debt-laden Manchester Steel. (Monarch
Steel Co. to buy Manchester Steel Supply Inc. and form new company)

Magazine article from: Crain's Cleveland Business ...slump apparently is about to

claim another victim. Manchester Steel Supply Inc., a Cleveland steel service center,
has sizable debts...industry who asked not to be identified. Last month, Bethlehem
Steel Corp. filed a lawsuit in Cuyahoga Common Pleas Court, alleging...

Steel supply concerns Ohio senator

Newspaper article from: Charleston Gazette ...law protection. At least nine domestic
steel companies, including Wheeling- Pittsburgh Steel Corp., have filed for
bankruptcy. Weirton Steel Corp. temporarily laid off hundreds of workers over
Thanksgiving and Christmas, blaming steel...

STEEL SUPPLY PLENTIFUL USX STRIKE NOT CRIPPLING.(Business)

Newspaper article from: Albany Times Union (Albany, NY) ...demand for wage and
benefit cuts and the union's resistance to concessions. The last work stoppage at USX,
then U.S. Steel Corp., was the record 116- day nationwide strike by the United
Steelworkers of America in 1959. It ended only when the U...
Steel Supply Puts Manufacturers In A Pinch.

150
Newspaper article from: The Milwaukee Journal Sentinel (Milwaukee, Wisconsin)
(via Knight-Ridder/Tribune Business News) ...could severely harm the U.S. steel
industry, said Alan Price, a Washington,
D.C., attorney who represents Nucor Steel Corp., one of the nation's largest steel
producers. "If the duties are dropped, there will be a surge of dumped and
subsidized...

Steel supply puts manufacturers in a pinch; Majority of companies surveyed say

January orders came incomplete or late

Newspaper article from: The Milwaukee Journal Sentinel ...could severely harm the
U.S. steel industry, said Alan Price, a Washington, D.C., attorney who represents
Nucor Steel Corp., one of the nation's largest steel producers. "If the duties are
dropped, there will be a surge of dumped and subsidized...

VIETNAM STEEL CORP TAKES STEPS TO STABILISE PRODUCTION.

News Wire article from: AsiaPulse News ...increased. Faced with that unfavourable
situation, VSC decided to restrain its factory production to ensure that the overall steel
supply matched market demand. It also gradually raised its product prices in three
increments, in line with consumption growth...

151
TAX HOLIDAYS AND OTHER TAX POLICY

New Delhi/Hyderabad, Feb. 16 The steel industry is disappointed that import duty on
steel was not raised to 15 per cent as recommended by the Ministry.

“Despite being an Interim Budget, because of the current extraordinary situation the
industry and economy is currently passing through, the steel industry was expecting a
set of measures aimed at reviving demand for steel and controlling dumping of steel
products from a host of foreign countries,” said Mr Vinod Mittal, Vice-Chairman and
Managing Director, Ispat Industries.

The Budget was a good opportunity for the Government to announce major initiatives
in this direction, he said, pointing out that many countries have already announced
stimulus packages to the tune of hundreds of billions of dollars to save employment
and revive demand.

“I hope the over Rs 60,000 crore spending plan for construction of rural roads,
irrigation and other infrastructural projects in rural areas under the Bharat Nirman and
other Centrally-sponsored projects would help generate additional demand for steel,”
he added.

According to Mr Vikram Amin, Executive Director, Essar Steel, since this was a vote-
on-account, nothing much could be expected. “Steel industry has been seeking import
duty to deter countries from dumping their goods in India and it will also insulate
Indian companies from unfair trade practices. The government can impose this duty
during the course of the year by a notification,” he said.
‘market has reacted’

Mr N.C. Mathur, Director (Corporate Affairs), Jindal Stainless, said that in the current
economic situation, the Government could have at least given some relief to the steel
industry.

Mr Mathur said the import duty, which is currently at 5 per cent, can be taken to a
peak rate of 7.5 to 10 per cent after which it would need Parliamentary approval.
“Increasing it marginally could have been good indication, but the Government
decided not to touch it. The market has given its reaction,” he said. Metal stocks on
BSE sectoral indices fell more than 250 points, down 4.75 per cent.
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Steel Scenario In India

Steel Basics
Steel Production Flowchart
Global

152
In the year 2006 the production of crude steel has been at 1239 mt the highest in last
20 years and increase of 8.8% over the previous year 2005.

In 1996 China produced 101.2 mt and in 2006 it produced 418.8 mt an increase of

313.8% in span of ten years. The World Crude steel production has been shown on
the right.

In 1996 Asia region produced 38.4% of all crude steel which increase to 46.6 by 2001
and in 2006 the Asian region share in world steel production stands at 53%.

Asia is poised to be the emerging power house of growth.

Indian Perspective
In India after liberalization the consumption of finished steel increased from14.84
million tones in 1991-92 to 44 million tonne in 2006.

The shares of main producers and secondary producer was 36% & 64% respectively.
DRI production in India has grown from 4.7 million tonne in 1996 to 14.5 million
tonnes in 2006. DRI – Electric Arc Furnace route for making steel has proved to be
cost effective with low gestation period.

India is the largest producer of DRI in the world and total production is likely to
exceed 25 million tonne by 2011 (source SIMA). Today India is the seventh largest
producer of steel in the world. However, per capita steel consumption in India is still
very low as compared to other developed countries and is shown on the right.

Growing urban population and improving macro economic factors are leading to a
rapid growth in Housing & infrastructure investment. Housing shortage is expected to
be 41 million units as per Tenth five year plan (2002-07). There is need to invest Rs.
4000 billions over ten years. Tenth plan investment in infrastructure has been revised
to 11,080 billion. India has one of the lowest electricity consumption at 365 units per
capita as compared to 893 in China and 1729 in Brazil. In power sector about 100000
MW new capacity is likely to be added in next seven years. This will act as strong
drive for steel growth.

The turnover in Automobile sector is going to increase from the existing US $35
billion to US $145 billion by 2016.As per Automobile mission plan (2006-16) report
the contribution of this sector to GDP of the country is going to increase to 10% from
the existing 3 to 4%.

The over all growth in demand of steel is healthy and is likely to continue at this pace
most likely till 2012. As per National Steel Policy 2005, the existing consumption of
2 kg per capita in rural India is likely to go up to 4 kg by 2020. India would need
indigenous production of over 100 million tones by 2019-20.

153
Capacity addition is expected to be 50 million tonnes in next decades.

Indian steel is competitive today but new technologies to use indigenous resources
would have to be developed to remain competitive.

The steel industry has the capacity to act as spring board for reaching the national
vision of transforming India into a developed country by 2020.

154
CHAPTER-9

CASE STUDY

Meeting the New Paradigm Challenges through Total Quality Management.

by Fred Luthans , Dan Kessler

Introduction

In recent issues of Management Quarterly, it has been suggested that the electric
utility industry in general, and rural electric cooperatives in particular, have entered a
new paradigm. Steve Collier suggests that this new paradigm is mostly characterized
by competition.|1~ Scott Luecal emphasizes that the consumer dominates the new
paradigm.|2~ Few would argue that both meeting increasing competition and better
satisfying consumers have become extremely important challenges facing all rural
electric cooperatives today and in the critical years ahead. In fact, if these challenges
are not met, not only will there be problems, but rural electric cooperatives may not
even survive as we know them today.

Importantly, it should be recognized that rural electric cooperatives are not alone in
the tremendous challenges that lie ahead. All American organizations today are faced
with a new paradigm characterized by global competition and rapidly escalating
customer expectations. Fortunately, many organizations are meeting these challenges
through total quality management or TQM. For example, world class organizations
such as Motorola have met their competitive and customer challenges through TQM.
A sample of the results achieved through TQM implementation at Wells REC is
explained on page 13.

Obviously, TQM is not going to be the panacea for rural electric cooperatives. Yet,
rural electric managers must be aware of this movement that is sweeping across
America and the world. The purpose of this article is to spell out exactly what is
meant by TQM, suggest some steps of implementation, and bring out some of the
common problems.

Already, many cynics are calling TQM the latest gimmick, the latest fad and quick fix
for management problems. Obviously, there is some truth to these accusations. But
even the most caustic nay-sayers will admit that "quality" is for real and will
definitely provide the competitive edge and improve customer satisfaction. This new
"quality" approach is needed to meet not only the challenges facing huge
multinational corporations such as Motorola, but also the smallest electric
cooperative. Therefore, all electric co-op managers should be aware of what is
involved in TQM so that they can take all, or just what is deemed useful to them, in

155
meeting the competitive and consumer challenges that lie ahead in their new
paradigm.

What Is TQM?

Obviously, there are many definitions and connotations associated with TQM.
Practically every management author, consultant or even practitioner has a different
meaning for TQM. In an earlier article, my colleagues and I defined TQM as an
organizational strategy with accompanying techniques that deliver quality products
and/or services to customers.|3~ In other words, we feel that TQM is an
organizational strategy, not just another technique that is used in operations or
member services. TQM is the way the organization is managed, not just something in
addition to everything else. However, the definition does point out that there are TQM
techniques that are employed to help deliver (the key word in TQM implementation)
quality service to customers. To gain a depth of understanding of TQM, it would be
helpful to examine each letter in the acronym for further refinement and expansion.

The "Total" Perspective of TQM

The total part of TQM differentiates the approach from the traditional inspection,
quality control or quality assurance approach. TQM is an overall organizational
strategy that is formulated at the top management level and then is diffused
throughout the entire organization. Everyone in the organization, from the general
manager/CEO to the lowest paid hourly workers/clerks are involved in the TQM
process.

The "total" part of TQM also encompasses not only the external, end-user and
purchaser of the product or service, but also internal customers and outside suppliers
and support personnel. This is how TQM differs from a traditional customer service
orientation. Under TQM, the "Customer Is King" (as in Wal-Mart), but so are internal
customers such as co-workers or other departments. Everyone who gives or passes on
anything in the organization is a supplier, and anyone who receives anything from
anyone in the organization is an internal customer. The same is true for external
suppliers and support personnel such as in maintenance; they are also a vital, integral
part of the TQM approach. If suppliers and external support personnel do not deliver
quality, then the organization cannot deliver quality to its customers.

In essence, TQM becomes the dominant culture of the organization. Well known
behavioral scientist Edgar Schein has formally defined organizational culture as "a
pattern of basic assumptions--invented, discovered, or ...

156
CHAPTER-10

TREND ANALYSIS AND FUTURE SCOPE

What is Bright Steel Bars or Bright Bars?

Bright Bars are of 2 types-1. Cold Drawn and Peeled 2. Turned.

In a Cold Drawn Bright Bar the Hot Rolled Bars are pickled and drawn through a
Tungsten Carbide Die as Cold Rolled, no heating is required, that is why it is called a
Cold Drawn Bright Bar.

Secondly in Peeled / Turned Bright Bar the Hot Rolled Bar is fed into a Turning
machine and the surface is turned / removed to the required size of the Dia. This is
also a Cold process, no heating is required. Bright Bars can be further Ground
Finished for special applications.

Bright Bars have a smooth and a Bright surface with Accurate Tolerance on the Dia.
Accurate Tolerance means the tolerance of the Dia is very restricted i.e 0.10 mm
approximatly depending on the size of the Dia and as per the customer’s specific
requirement. These are the reasons why a Bright Bar enjoys advantages over a Hot
Rolled Bar. Bright Bars can be used in automatic Machines for making Steel
components whereas a Hot Rolled Bar cannot be used.

The Bright Bar can be made into the following ranges :-

SHAPES

Rounds

Flats (Rectangular Bars)

Hexagons (Across Flats)

Squares

Any other special Shapes / Profiles as per drawing.

QUALITY

MILD STEEL

CARBON STEEL

FREE CUTTING

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ALLOY STEEL
What are the uses of a Bright Steel Bar?
Bright Bars are used in the following sectors :-
Automobile Industry :- This is the major sector which consumes Bright Bar. All
engine components , Nuts, Bolts, shafts are made out of special grades of Bright Bars.

In all Heavy Engineering Industries.

In Textile Machine Manufacturing and in the manufacturing of all types of

machineries.

In Pumps / Electric Motor Industries.

In Railways for manufacture of Engines as well as Coaches.

In Defence Sector for making various Arms and Ammunitions.

In Fan Industries.

In Telecom Sector.

For various fabrication jobs where accuracy is important.

For making shafts in Conveyors.

In all other Engineering Industries.

FROM 3 MM TO 100 MM DIAMETER
We also entertain enquiries as per customers specific requirement. We are making
Cold Drawn / Peeled / Turned Bright Bars as per Specific requirements of our
customers.

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BIBLIOGRAPHY

REFRENCES

WEBSITE VISITED

www.google.com

www.sail.com

www.wikipedia.com

www.tatasteel.com

www.bokarosteelcity.com

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WORD OF THANKS

I take the opportunity to pay our hearty regards to the chairman Dr. D.K. Garg, IIMT,
Greater Noida, Prof. M.K. Verma, Dean for extending their hand and their kind
support for completion of this project. I would also like to thank to all those who
directly or indirectly supported us during this project work.

I am very much thankful to our guide (Mr. shailesh sharma) for his stimulated
discussion, constructive and valuable suggestions that helped us in this endeavour. At
last I want to thank my parents who financially as well as morally supported us during
this entire project work.

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