1.

Introduction:

When iron is smelted from its ore, it contains more carbon than is desirable. To become steel, it
must be reprocessed to reduce the carbon to the correct amount, at which point other elements
can be added. In the past, steel facilities would cast the raw steel product into ingots which
would be stored until use in further refinement processes that resulted in the finished product.

1.1. Introduction to Steel Industry in India:

India was the world’s second-largest steel producer with production standing at 111.2 million
tones (MT) in 2019. The growth in the Indian steel sector has been driven by domestic
availability of raw materials such as iron ore and cost-effective labor. Consequently, the steel
sector has been a major contributor to India’s manufacturing output.

The Indian steel industry is modern with state-of-the-art steel mills. It has always strived for
continuous modernization of older plants and up-gradation to higher energy efficiency levels.

Indian steel industry is classified into three categories - major producers, main producers and
secondary producers.
1.2 Market Size:

In FY21, the production of crude steel and finished steel stood a 102.49 MT and 94.66 MT,
respectively. According to CARE Ratings, crude steel production is expected to reach 112-114
MT (million ton), an increase of 8-9% YoY in FY22. The consumption of finished steel stood at
93.43 MT in FY21.

Exports and imports of finished steel stood at 10.79 MT and 4.75 MT, respectively, in FY21. In
April 2021, India’s export rose by 121.6% YoY, compared with 2020. In FY20, India exported
8.24 MT of finished steel.

1.3 Growth in India:

Robust Increased Steel demand from infrastructure, Oil & Gas, and
Automotive will drive the growth of the industry

Demand According to CARE Ratings, crude steel production is expected to

reach 112-114 MnT, an increase of 8% to 9% YoY in F.Y. 2022.

Increasing The industry is witnessing consolidation of players, which has led to

investment by entities from other sectors. This also present an
Investments opportunity to global players to enter the Indian Market.

National Steel Policy (NSP), 2017 was implemented to encourage

Policy Support the industry to reach global benchmarks.

Under the Union Budget 2021-22, the government allocated Rs.
39.25 crore to the Ministry of Steel

Competative India was the world's second-largest producer of crude steel with 111.2
MnT by 2019.

Advantage As of May 2021, India was the world's second -largest producer of
crude steel with production of 9.2 Mnt.

1.4 Demand of Steel in India:

 Demand (in Mnt)
Demand

100.01
97.54
90.71
84.04

84.08
81.52

FY-1 6 FY-1 7 FY-1 8 FY-1 9 FY-2 0 FY-2 1

 Demand of finished steel in India increased from 8.55 MT February 2020 to 9.13 MT in
February 2021.
 India’s finished steel Demand grew at a CAGR of 5.2% between FY16-FY20 to reach
100 MT.

1.5 Supply of Steel in India:

Supply (in MnT)

126.86

Supply
120.14

101.29
106.6

101.03

85.6

FY-1 6 FY-1 7 FY-1 8 FY-1 9 FY-2 0 FY-2 1

 The steel sector contributes over 2% to India’s GDP. Also, it employs 500,000 people
directly and 2.50 million indirectly.
 From April 2020 to February 2021, India’s cumulative Supply of crude steel stood at
92.78 MT.
  Between April 2020 and February 2021, India’s cumulative Supply of finished steel
stood at 85.60 MT.
 To support MSMEs, the government has reduced customs duty on stainless steel to 7.5%.

1.6 Import and Export of Steel:

Import and Export (in MnT)

14

12 11.71

10 9.62 9.49
8.24 8.24
7.48 7.83
8 7.22
6.36 6.69
6
4.08 4.25
4

0
FY-16 FY-17 FY-18 FY-19 FY-20 FY-21

Import Export

1.7 State-wise Production of Steel:

2. Companies Operate in Steel Sector:

2.1. Tata Steel Ltd.:

Tata Steel Limited is an Indian multinational steel-making company based in Jamshedpur,

Jharkhand, and is headquartered in Mumbai, Maharashtra, India. It is a subsidiary of the Tata
Group. Formerly known as Tata Iron and Steel Company Limited (TISCO), Tata Steel is
among the top steel producing companies in the world with an annual crude steel capacity of
34 million tons per annum.

Name Tata Steel Ltd.

Production Capacity 19.4 MnT
Market Share 17.2%
Annual Turnover 91037 Cr.

2.1.1. Demand:

Year Price (Per Ton) Demand (in Tons)

March-16 40210 9500000
March-17 48419 11000000
March-18 49810 12150000
March-19 55643 12690000
March-20 48394 16970000
March-21 52592 17310000

2.1.2. Demand Curve:

 Demand Curve
60000
55000
50000
Price

45000
40000
35000
30000
9000000 11000000 13000000 15000000 17000000 19000000
Quantity

2.1.3. Price Elasticity of Demand:

Price Elasticity of Demand

5

0
FY 17 FY 18 FY 19 FY 20 FY 21
-1

Price Elasticity of Demand

Year Elasticity Type of Elasticity

March-17 1.293 Elastic
March-18 0.275 Inelastic
March-19 2.63 Elastic
March-20 -0.386 Inelastic
March-21 4.32 Elastic

2.1.4. Supply:

Year Price (Per Ton) Supply (in Tons)

March-16 40210 9900000
March-17 48419 11680000
 March-18 49810 12480000
March-19 55643 12980000
March-20 48394 18200000
March-21 52592 16920000

2.1.5. Supply Curve:

Supply Curve
60000
55000
50000
Price

45000
40000
35000
30000
9000000 11000000 13000000 15000000 17000000 19000000
Quantity

2.1.6 Price Elasticity of Supply:

 Price Elasticity of Demand
3.5
3
2.5
2
1.5
1
0.5
0
FY 17
-0.5 FY 18 FY 19 FY 20 FY 21
-1
-1.5

Price Elasticity of Demand

Year Elasticity Type of Elasticity

March-17 1.13 Elastic
March-18 0.419 Inelastic
March-19 2.92 Elastic
March-20 -0.32 Inelastic
March-21 -1.23 Inelastic

2.2. JSW Steel Ltd.:

JSW Steel Ltd. is an Indian multinational steel making company based
in Mumbai, Maharashtra. It is a subsidiary of JSW Group. It is one of the fastest growing
companies in India with a global footprint in over 140 countries. After the merger of ISPAT
steel, JSW Steel has become India's second largest private sector steel company.

Name JSW Steel Ltd.

Production Capacity 18 MnT
Market Share 14.4%
Annual Turnover 62315 Cr.

2.2.1. Demand:

Year Price (Per Ton) Demand (in Tons)

March-16 33260 12130000
March-17 41180 14700000
March-18 45982 15550000
March-19 54331 15600000
March-20 49212 14900000
March-21 53404 14950000

2.2.2. Demand Curve:

 Demand Curve
60000
55000
50000
Price

45000
40000
35000
30000
9000000 10000000 11000000 12000000 13000000 14000000 15000000 16000000
Quantity

2.2.3. Price Elasticity of Demand:

Price Elasticity of Demand

60
50
40
30
20
10
0
FY 17 FY 18 FY 19 FY 20 FY 21

Price Elasticity of Demand

Year Elasticity Type of Elasticity

March-17 1.24 Elastic
March-18 2.016 Elastic
March-19 56.47 Elastic
March-20 2.1 Elastic
March-21 25.38 Elastic

2.2.4. Supply and Supply Curve:

Year Price (Per Ton) Supply (in Tons)

March-16 33260 12560000
March-17 41180 15800000
 March-18 45982 16270000
March-19 54331 16690000
March-20 49212 16060000
March-21 53404 15080000

2.2.5. Supply Curve:

Supply Curve
60000
55000
50000
Price

45000
40000
35000
30000
9000000 11000000 13000000 15000000 17000000 19000000
Quantity

2.2.6. Price Elasticity of Supply:

 Price Elasticity of Demand
Price Elasticity of Demand
8
7
6
5
4
3
2
1
0
FY 17
-1 FY 18 FY 19 FY 20 FY 21
-2

Year Elasticity Type of Elasticity

March-17 0.923 Inelastic
March-18 3.92 Elastic
March-19 7.03 Elastic
March-20 2.49 Elastic
March-21 -1.39 Inelastic

2.3. Steel Authority of India Ltd.:

Steel Authority of India Limited (SAIL) is a government owned steel manufacturing
enterprise based in New Delhi, India. It is under the ownership of Ministry of Steel, Government
of India.

Name Steel Authority of India Ltd.

Production Capacity 16.3 Mnt
Market Share 14%
Annual Turnover 80869 Cr.

2.3.1. Demand:

Year Price (Per Ton) Demand (in Tons)

March-16 32038 12200000
March-17 33460 13110000
March-18 41422 14070000
March-19 46948 14110000
March-20 42881 14230000
March-21 45827 14930000

2.3.2. Demand Curve

 Demand Curve
48000
46000
44000
42000
40000
Price

38000
36000
34000
32000
30000
9000000 10000000 11000000 12000000 13000000 14000000 15000000 16000000
Quantity

2.3.3. Price Elasticity of Demand:

Price Elasticity of Demand

60
50
40
30
20
10
0
FY 17 FY 18 FY 19 FY 20 FY 21
-10
-20

Price Elasticity of Demand

Year Elasticity Type of Elasticity

March-17 0.59 Inelastic
March-18 3.25 Elastic
March-19 46.92 Elastic
March-20 -10.18 Inelastic
March-21 1.39 Elastic

2.3.4. Supply:

Year Price (Per Ton) Supply (in Tons)

March-16 32038 14270000
March-17 33460 14490000
 March-18 41422 15020000
March-19 46948 16260000
March-20 42881 16110000
March-21 45827 15210000

2.3.5. Supply Curve:

Supply Curve
48000
46000
44000
42000
40000
Price

38000
36000
34000
32000
30000
00 00 00 00 00 00 00 00 00
000 000 000 000 000 000 000 000 000
Quantity
90 10
0
11
0
12
0
13
0
14
0
15
0
16
0
17
0

2.3.6. Price Elasticity of Supply:

 Price Elasticity of Demand
10

0
FY 17 FY 18 FY 19 FY 20 FY 21
-2

Price Elasticity of Demand

Year Elasticity Type of Elasticity

March-17 2.88 Elastic
March-18 6.5 Elastic
March-19 1.61 Elastic
March-20 9.39 Elastic
March-21 -1.22 Inelastic

3. Consumer Buying Behavior:

Consumer behavior is the study of how individual customers, groups or organizations select,
buy, use, and dispose ideas, goods, and services to satisfy their needs and wants. It refers to the
actions of the consumers in the marketplace and the underlying motives for those actions.

The study of consumer behavior assumes that the consumers are actors in the marketplace. The
perspective of role theory assumes that consumers play various roles in the marketplace. Starting
from the information provider, from the user to the payer and to the disposer, consumers play
these roles in the decision process.

3.1. Factors Affecting Demand of Steel:

 GDP of the Country: The topmost factor determining the demand is the GDP of the
country. The dependency is quite different for an advanced economy or a developing
economy. People in country with increasing GDP will spend more on steel based on
products, investments etc. Typically, the per capita consumption keeps rising as the
income level per head increases till it reaches an upper limit of income level. The
consumption is somewhere around 74 kgs per head.
 Availability of Downstream Economy: Availability of downstream economy who
need steel as input can also cause the need for a booming steel industry. This could be
both, manufacturing setups (like India focusing on Made in India) or infrastructure
developments (like China which started heavily investing in infrastructure).
 Government Policies: The government could specifically target to produce steel either
to improve employment (as steel is a manpower intensive industry) or on the other side
decide not to allow steel production even if all other factors favor it because of other
consideration like pollution (steel being a huge contributor to pollution).

If we are considering the steel industry as a whole then steel demand is based on its applications.
Typically, Steel is used in the following sectors.

1. Construction: The construction is the biggest consumer. It could be in building, bridges,

tunnels, fencing, railway lines, harbors, stations, stadiums etc.
2. Transport: The next biggest consumer is the transport industry with all cars, trucks, trains,
trains, ships aircrafts, jet engines and even rockets needing steel.

3. Energy: All type of energy need steel. Oil and Gas need pipes, wells and platforms.
Electricity needs turbines, pylons, transmission towers etc. Renewable energy also is heavily
dependent on steel like wind turbines needing the wind mills.

4. Appliances and Industry: Nearly 75% by weight of house hold appliances (ovens, washing
machines, driers, refrigerators., sinks, cutlery) is steel. The ratio is much higher in industrial
machinery. Even farm machinery, water tanks etc. need steel.

5. Packaging: Being recyclable, steel is the preferred packing material which include from items
as large as containers in ships to bottle caps and aerosol cans.

So, any growth in any of the above industry sectors will lead to increase in demand for steel.

3.2. Factors Affecting Supply of Steel:

 Resource Availability: The availability of iron ore, coal both in terms of quality and
quantity triggers investment towards steel industry. In spite of all modern cheap transport,
the transport logistics costs play a major role for steel industry and so when resources are
available, building steel plants close to such resources will make the steel production
cheaper.
 Availability of Manpower: The availability of manpower also plays an important role in
the supply. The shortage of manpower leads to decrease in production which will
decrease the supply in the economy.

3.3. Factors Affecting Price of Steel:

 Supply and Demand of Steel: Like every other commodity or service in any economy,
the primary factor that affects the price of steel is its demand and supply rates. Prices of
steel are categorized based on a prior forecast of the market, with supply and demand as
its parameters. In-depth research of the market trends can help business mark their prices
accordingly.
  Availability and Cost of Raw Materials: Some of the raw materials that go behind the
production of TMT bars are iron ore, coal, dolomite, limestone, and many more. The
availability of these raw materials affects their prices, and in turn, also affect the prices of
TMT bars. Unavailability of these resources results in demand exceeding the supply,
thereby rising prices of steel bars. Another major raw material for steel making is energy,
as steel needs a lot of heat to melt.
 Transportation and Distribution Costs: Every well-produced commodity needs to be
shipped to distributors and sellers to complete the manufacturing process. Selecting a
freight method which includes a longer transit time can have huge impacts for any steel
making company and cut their costs drastically. Overseas or regional shipping costs play
a major role in the prices of steel. Government regulations, logistic and political climate
also plays a major role in determining the steel prices of any country.
 Cost of Energy and Power: One of the most important factors affecting the price of
steel is oil and electricity. While some major brands have resorted to solar-powered
factories to reduce their cost of production in the long run, other companies still use oil
and electricity to power their machines. Oil prices are determined through global markets,
and it plays a huge role in the price of steel. Upon researching, you will find out that the
prices of steel and oil fluctuate hand in hand.

4. Production:
In this industry there are a few players. There are big companies like Tata Steel, JSW Steel,
SAIL and mid & small companies like Mukand, Bajaj Steel, etc. All these different companies
serve the need of different category of people, so their scale of working differ from each other.
Acquisition of land & labor, quality of amenities provided, health & hygiene all vary with
different segments thus the production is done at different levels. The Production Function gives
a relationship between inputs and outputs it states every possible combination of inputs to reach
the maximum output levels.

Production function = F (K, L)

K= capital

L= Labor

Productivity in Steel Industry can be measured on the basis of input of fixed and variable cost
and output can be monitored in terms of production quantity and revenue generated.

4.1. Cost of Production:

Any firm’s total cost is divided into fixed cost and variable cost.

Total Cost

Fixed Cost Variable Cost

Fixed Cost: A fixed cost is a cost that does not change with an increase or decrease in the
amount of goods or services produced or sold.

 Rent Expenses
 Payroll costs and staff salaries
 Property expenses
 Depreciation Expenses
 Fixed Monthly Bills
Variable Cost: A variable cost is a corporate expense that changes in proportion to how much a
company produces or sells. Variable costs increase or decrease depending on a company's
production or sales volume—they rise as production increases and fall as production decreases.

 Purchase of Raw Materials

 Wages given to daily workers
 Fuel and Power Cost
 Packing and Distribution Cost
5. Market Analysis:

Market can be defined as a place of interaction between the consumer and the service provider.
When defined from locational perspective it can be local, National, or International Market. In
Economics, market is mainly defined on the basic of the number of sellers in the market. Hotel
industry comes in the Oligopoly market.

Perfect
Monopolistic
Competition
Market
Structure
Imperfect
Oilgopoly
Competation

Monopoly

More Competition Less Competition

Perfect Monopolistic
Oligopoly Monopoly
Competition Competition

Less Concentration More Concentration

Differentiated
Price Rigidity
Product

Restriction to
Few Sellers
Entry
Oligopoly
5.1. Oligopoly:
An oligopoly is a market characterized by a small number of firms who realize they are
interdependent in their pricing and output policies. The number of firms is small enough to give
each firm some market power.

 Only Few Sellers

 Homogeneous/Differentiated Products
 High Barriers to Entry
 Interdependence of Firms
 Price Rigidity

5.2. Stages of Production Function with reference to variable factor employed:

Total Production Marginal Production

Year
(In MnT) (In MnT)
F.Y. 16 106.6 0
F.Y. 17 120.14 13.54
F.Y. 18 126.86 6.72
F.Y. 19 101.29 -25.57
F.Y. 20 101.03 -0.26
F.Y. 21 85.6 -15.43
(The data are in assumption form)

140
120
100
80
60
40
20
0
F.Y. 16 F.Y. 17 F.Y. 18 F.Y. 19 F.Y. 20 F.Y. 21
-20
-40

Total Production Marginal Production