STEEL SCENARIO

Kushagra Jadhav
“With fresh capacity of 4.8 million tonnes coming on
stream in the current fiscal, total finished steel capacity
of the industry will go up around 70 million tonnes.”
 Contents
INTRODUCTION ....................................................................................................................................... 2
TOP COMPANIES OF INDIAN STEEL AND PRODUCTS .............................................................................. 3
SWOT ANALYSIS ...................................................................................................................................... 6
PRIVATIZATION ..................................................................................................................................... 10
MARKET SHARE OF LEADING PLAYERS IN IRON AND STEEL INDUSTRY ................................................ 10
FUTURE TRENDS.................................................................................................................................... 11
CONCLUSION......................................................................................................................................... 11
STEEL SCENARIO

INTRODUCTION

Global Scenario

 In 2007 the World Crude Steel output reached 1343.5 million metric tons and showed a growth of
7.5% over the previous year. It is the fifth consecutive year that world crude steel production grew by
more than 7%. (Source: IISI)
 China remained the world’s largest Crude Steel producer in 2007 also (489.00 million metric tons)
followed by Japan (112.47 million metric tons) and USA (97.20 million metric tons). India occupied
the 5 th position (53.10 million metric tons) for the second consecutive year. (Source: IISI)
 The International Iron & Steel Institute (IISI) in its forecast for 2008 has predicted that 2008 will be
another strong year for the steel industry with apparent steel use rising from 1,202 million metric
tonnes in 2007 to 1,282 million metric tonnes in 2008 i.e. by 6.7%. Further, the BRIC ( Brazil, Russia,
India and China) countries will continue to lead the growth with an expected increase in production by
over 11% compared to 2007.

Domestic Scenario

 The Indian steel industry have entered into a new development stage from 2005-06, riding high on the
resurgent economy and rising demand for steel. Rapid rise in production has resulted in India
becoming the 5 th largest producer of steel.
 It has been estimated by certain major investment houses, such as Credit Suisse that, India’s steel
consumption will continue to grow at nearly 16% rate annually, till 2012, fuelled by demand for
construction projects worth US$ 1 trillion. The scope for raising the total consumption of steel is
huge, given that per capita steel consumption is only 40 kg – compared to 150 kg across the world and
250 kg in China.
 The National Steel Policy has envisaged steel production to reach 110 million tonnes by 2019-20.
However, based on the assessment of the current ongoing projects, both in greenfield and brownfield,
Ministry of Steel has projected that the steel capacity in the county is likely to be 124.06 million
tonnes by 2011-12. Further, based on the status of MOUs signed by the private producers with the
various State Governments, it is expected that India’s steel capacity would be nearly 293 million
tonne by 2020.
Major Factors for Growth in Steel Industry
 Indian Automobile Industry.
 Size 34 billion USD in 2006.
 Growing at CAGR of 14% in the last five years.

 2 nd Largest two wheeler market in the world.

 4th largest commercial vehicle market in the word.
 11 th largest passenger car market in the world.

 Total sales of vehicles-9 million in 2005-06.

 10 million production in the first 11 months of the CY 2006.
 Government's announcement to cut excise duty on small car ? India emerging as the world's largest
manufacturing hub for small or compact cars.
 Expected to grow at 13% p.a over the next decade to reach around USD 120- 160 bn by 2016.
 Total investments required to support the growth is estimated at around USD 35 ?40 bn

The New Industrial Policy Regime

The New Industrial policy has opened up the iron and steel sector for private investment by (a) removing it from
the list of industries reserved for public sector and (b) exempting it from compulsory licensing. Imports of
foreign technology as well as foreign direct investment are freely permitted up to certain limits under an
automatic route. Ministry of Steel plays the role of facilitator, providing broad directions and assistance to new
and existing steel plants, in the liberalized scenario.

TOP COMPANIES OF INDIAN STEEL AND PRODUCTS

 Ahmedabad Steel Craft: Producer of windows, ventilators, steel doors and the like
 Ambica Steel: Producer of carbon steel, alloy, and stainless steel
 Apollo Tubes: Manufacturer of steel tubes and pipes
 Bengal Industries: Producer of hoses made up of stainless steel
 Bokaro Steel Plant: Steel manufacturer
 Beehive Kowtha Group: Manufacturer of castings, towers, and steel buildings
 Central Steel Corporation: Producer of alloy and tool steels
 Bharat Impex: Manufacturer of stainless steel kitchenware
 Allied Ferromelt: Producer of non alloy and alloy steel
 Anchor Engineers' Files: Producer of steel files for engineers
 Essar Steel: Producer of sponge iron, steel and iron ore pellets
 ColdFab: Producer of pre-fabricated buildings of steel
 Govind Steel: Producer of ductile and grey iron
 Gaysons: Producer of steel rolls
 Devson Steels: Fabricates storage tanks
 Hisar Metal: Producer of strips and stainless cold rolled steel coils
 Buyao Info: Producer of steel products and re-rolled iron
 Jindal Iron & Steel: Producer of galvanized steel products
 Kanoi Group: Dealer of corrugated sheets and steel coils
 Jindal Steel & Power: Manufacturer of mild steel slabs and sponge iron
 Lloyds Steel: Producer of corrugated sheets and steel coils
 Metalman Industries: Producer of tubular and flat steel items
 Steel Authority of India: Manufacturer of steel and iron
 Tata Steel: Producer and supplier of wire rods, bars, and steel flats
 Vizag Steel: Producer of pig iron and steel
REGIONWISE CRUDE STEEL PRODUCTION

MAJOR CONSUMER OF STEEL IN 2007-2008 (IN %)

INDUSTRY STATISTICS
 • The table above shows the trend in production for sale, import, export and consumption of
total finished steel (alloy + non-alloy) in the country during the last six years:

• It is envisaged that in the next five years, demand will grow at a considerably higher annual
average rate of over 10% as compared to around 7% growth achieved between 1991-92 and
2005-06. It has been assessed that, on a ‘most likely scenario’ basis, the steel production
capacity in the country by the year 2011-2012 will be nearly 124 million tonnes.

• With growth in production for sale lagging behind consumption growth, India has turned into
a net importer of finished steel in 2008-09. Exports also declined to ensure greater domestic
availability.

Even though India is now one of the world’s top five steelmakers its domestic output is insufficient to
meet the demand in all segments. Low steel prices smooth the way for imports from Russia, Ukraine
and Kazakhstan. The geographical proximity of Japan, South Korea and China makes them important
suppliers as well. We do not expect India to be self-sufficient in many segments over the medium
term. There are several reasons for this: firstly, steel consumption is rising very fast as a consequence
of the prospective dynamic economic growth. Secondly, there is demand for high-quality products
which India will not be able to supply in sufficient quantities for the foreseeable future.

GLOBALISATION

New Policies Positive Outcomes Negative Outcomes

• New Channels Opened • Non-Tariff Barriers
Included in high priority • Enhanced Efficiency • Availability of Cheaper
list for Foreign Investment • National Steel Policy Steel
Withdrawal of import and
Export restrictions

• The iron and steel industry was included in the high priority list for foreign investment,
implying automatic approval for foreign equity participation up to 50%, subject to the foreign
exchange and other stipulations governing such investments in general. Quantitative import
restrictions were largely removed. Export restrictions were withdrawn.

• For steel makers, opening up of the economy opened up new channels of procuring their
inputs at competitive rates from overseas markets and also new markets for their products. It
also led to greater access to information on global operations techniques in manufacturing.
This, along with the pressures of a competitive global market, increased the need to enhance
efficiency levels so as to become internationally competitive.

• The steel consumer, on the other hand, was now able to choose items from an array of goods,
be it indigenously manufactured or imported. Reduction/ dismantling of tariff barriers access
 to best-practice of global technologies and consequentreduction in costs – all these enhanced
the international competitiveness of Indian steel in the world export market.

• The National Steel Policy (NSP) was announced in November 2005 as a basic blueprint for
the growth of a self-reliant and globally competitive steel sector. The long-term objective of
the National Steel Policy is to ensure that India has a modern and efficient steel industry of
world standards, catering to diversified steel demand. The national policy seeks to facilitate
removal of procedural and policy bottlenecks that affect the availability of production inputs,
increased investment in research and development, and creation of road, railway and port
infrastructure. The policy focuses on the domestic sector, but also envisages a steel industry
growing faster than domestic consumption, which will enable export opportunities to be
realised.

• In Foreign trade, Indian steel was subjected to anti-dumping/ safeguard duties as most
developed economies invoked non-tariff barriers. Economic devastation caused by the Asian
financial crises, slowdown of the global economy and the impact of glut created by additional
supplies from the newly steel-active countries (the steel-surplus economies of erstwhile
USSR) were the negative factors.

• With trade barriers having been lowered over the years, imports started playing an
important role in the domestic markets. The great price difference in India and international
market was one of the reasons which led the import to incline.

SWOT ANALYSIS

STRENGTH WEAKNESSES
• Increase Demand. • High cost of capital.
• Availability of labour at low wage rates. • Lack of infrastructure.
• Huge Resources of Raw material. • Slow decision making.
• Environment laws. • Low labor productivity.
• Insufficient transport system.

OPPORTUNITIES THREATS
• High potential to be tapped. • Cheap Imports.
• Unexplored rural market. • Slow Industry Growth.
• Export market penetration. • Technological change.
• Consolidation. • Price sensitivity and demand volatility.
• Threat from substitutes.
• Huge bottlenecks in foreign invested
projects.
 • STRENGTHS :

Increased Demand

As per the World Steel Association’s forecasts, global steel consumption is projected to decline by
around 14.9% in 2009 led by US (-36.6%), Europe (-28.8%), CIS (-23.7%) and Japan (-20.4%). Also,
the world’s largest steel producer China is projected to experience a decline of 5% in steel usage.
However, India is the only country that is projected to witness a growth of around 2% in 2009. The
global steel industry is expected to recover in 2010 on the back of government stimulation packages,
the continued stabilisation of financial systems and a return of consumer confidence.

India is also the only country with the dual advantage of fast-growing domestic demand and raw
material access. The demand in India is perhaps more sustainable too. "This cycle is more demand-
led, than supply-driven. There is a more robust and broad-based demand. It is not led sharply by any
single specific sector like government or automobiles,

Availability of labour at low wage rates

India has the third largest pool of technical manpower, next to United States and the erstwhile USSR,
capable of understanding and assimilating new technologies. Considering quality of workforce, Indian
steel industry has low unit labour cost, commensurate with skill. This gets reflected in the lower
production cost of steel in India compared to many advanced countries. With such strength of
resources, along with vast domestic untapped market, Indian steel industry has the potential to face
challenges successfully.

Environment laws

Environment laws in the US and Europe have become too stringent for a polluting industry like steel,
raising substantially the cost of conforming to the laws.

Huge Resources Of Raw material

It has the fourth largest reserves of iron ore in the world. And most of it is present along the country's
east - in the states of Orissa, Jharkhand and Chhattisgarh - which are close to the larger Asian
markets. That's the reason Orissa has been able to ink deals for 25 steel projects worth more than Rs
38,000 crore.

• WEAKNESS

High Cost of Capital

Steel is a capital intensive industry; steel companies in India are charged an interest rate of around
14% on capital as compared to 2.4% in Japan and 6.4% in USA.

Lack Of Infrastructure

Infrastructure comes first. A steel plant requires massive inbound and outbound logistics -connectivity
from pithead to plant, plant to port, etc. - besides a well-equipped township for the workforce. "Lack
of infrastructure development would hamper the economic growth of that region

Slow Decision Making

restrictions and slow decision making, can put off investors. "You cannot set up your own rail line.
There are some restrictions on ports. Environment clearances are very slow. Mining leases are
conditional

Low Labor Productivity

In India the advantage of low cost labor gets offset by low labor productivity; e.g., at comparable
capacities labor productivity of SAIL and TISCO is 75 t/man year and 100 t/man year, for POSCO,
Korea and NIPPON, Japan the values are 1345 t/man year and 980 t/man year.

High Cost of Basic Inputs and Services

High administered price of essential inputs like electricity puts Indian steel industry at a disadvantage;
about 45% of the input costs can be attributed to the administered costs of coal, fuel and electricity,
e.g., cost of electricity is 3 cents in the USA as compared to 10 cents in India; and freight cost from
Jamshedpur to Mumbai is $50/tonne compared to only $34 from Rotterdam to Mumbai. Other
systemic deficiencies include:

Lack of expenditure in research and development.

Delay in absorption in technology by existing units.

Low quality of steel and steel products.

Limited access of domestic producers to good quality

Iron ores which are normally earmarked for exports,

High level taxation.

Still has not achieved world class quality

If India aspires to become a hub for steel making, the steel companies themselves need to overcome a
few key challenges: improve the quality of products, secure raw material linkages (coking coal) and
expand their marketing capabilities abroad. There is growing need for value-added products, and
Indian companies are just beginning to grow that part of their product baskets. For one, India doesn't
produce all grades of automotive steel. Large carmakers like Maruti Udyog and Hyundai Motors still
have to import certain grades. That's why many steel majors are today investing in downstream
capacities like rolling mills and modernising them. "The capabilities were not enough to cater to
exports. Indian consumers, too, are demanding better quality. Indian steel makers also lack in
international competitiveness on determinants like product quality, product design, on-time delivery,
post sales service, Performance index (1997-2001): Movement of share prices, distribution network,
managerial initiatives, research and development

Raw Material availability

The key challenge is to secure raw material supplies, primarily coking coal. The coal available in the
country has high ash content and poor energy efficiency. So Indian producers have been trying to
secure supplies by tying up with global majors and acquiring mines abroad. Besides, certain key
ingredients of steel making, e.g., nickel, ferromolybdenum is also unavailable indigenously.

Inefficient transport system

Although the country has one of the world’s biggest transport networks – the rail network is twice as
extensive as China’s – its poor quality hinders the efficient supply of goods. 150 bn is to be invested
in transport infrastructure, which offers huge potential for the steel industry. In the medium to long
term this capital expenditure will lay the foundations for seamless freight transport

Energy Supply

Power shortages hamper production at many locations. Since 2001 the Indian government has been
endeavouring to ensure that power is available nationwide by 2012. The deficiencies have prompted
many firms with heavier energy demands to opt for producing electricity with their own industrial
generators.

Unscientific Mining

Growth In Indian steel sector has led to unscientific Mining methods and poor working conditions.
This can also lead to pollution and inefficient usage of resources.

• OPPORTUNITIES

Huge Potential to be tapped

India is currently the fifth largest steel-producing nation in the world with production of over 54
million tonnes (MT). However, it has a very low per capita consumption of steel of around 46 kgs as
against an average of 198 kgs of the world. This wide gap in relative steel consumption indicates that
the potential ahead for India to raise its steel consumption is high.

Unexplored Rural Market

The usage of steel in cost effective manner is possible in the area of housing, fencing, structures and
other possible applications where steel can substitute other materials which not only could bring about
advantages to users but is also desirable for conservation of forest resources.

Export Market Penetration

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

Consolidation

Consolidation in the industry is allowing valuations and profits to spiral, and the top five steel
companies now account for more than 20 per cent of the 1.2 billion tonnes of steel produced
worldwide. Tapping on this consolidation, India can stand tall as all the major steel conglomerates
like Arcellor Mitall, Tata and Posco have invested in India
 • THREATS

Cheap Imports

Also, the domestic steel sector may face threat from cheap imports, now that the import duties on steel
in India being amongst the lowest in the world. Import pressures could consequently lead to pressure
on margins of the domestic companies on account of lower steel realisations. However, if the Indian
government increases the import duty on steel products, domestic steel industry could get protection
to an extent. But since India has already agreed to the WTO norms, it might become difficult for the
government to increase duties substantially.

Slow Industry Growth

This sluggish growth in the steel industry has resulted in enhanced rivalry among existing firms. As
the industry is not growing the only other way to grow is by increasing one’s market share.
Consequently, the Indian steel industry has witnessed spurts of price wars and heavy trade discounts,
which has done Indian steel industry no good as a whole.

Technological Change

Technological changes often force the industry structure to change. For a developing country like
India where capital itself is costly, technological obsolescence is a major threat.

Price Sensitivity and Demand Volatility

The demand for steel is a derived demand and the purchase quantity depends on the end-user
requirements. This volatility of demand often affects the integrated steel manufacturers because of
their inability to tune their production in line with the market demand fluctuations.

Huge Bottlenecks in Foreign invested projects

Till now land acquisition has not been possible for Mittal and Posco which shows lack of political will
in these projects. We should not forget the whole Latin American stretch is also open to new
investments with growing domestic demand. If the bottlenecks continue in this way, we should not be
surprised that these organizations finally withdraw from India.

PRIVATIZATION
The market share of public sector SAIL has now come down to around 34 per cent which is likely to
decline further if the government of India’s policy of strengthening private sector continues.
Disinvestments of SAIL has resulted in 14.18 per cent equity of SAIL going in to the hands of private
sector companies as well as domestic financial institutions. While undermining the public sector, the
government of India encouraged Tatas, Mittals, Essar and Jindals to develop and expand their
capacity. While SAIL management had to work under heavy restrictions by the bureaucrats and
capricious ministers of steel, the private sector was completely free to take decisions. Despite SAIL
acquiring the status of a navaratna company, lack of autonomy prevented it from developing faster
while the private sector received every encouragement for increase in capacity.

MARKET SHARE OF LEADING PLAYERS IN IRON AND STEEL INDUSTRY

Company Production of Steel(in million Market share(in percentage
tonnes) terms)

SAIL 13.5 32

TISCO 5.2 11

RNIL 3.5 8

ESSAR, ISPAT,JSWL 8.4 19

OTHERS 14.5 30

FUTURE TRENDS
The ongoing trend of expanding and modernizing steel production is expected to maintain in the
future. Major investment and expansion projects are currently underway that will substantially
increase the availability of steel on domestic as well as International markets. Energy savings
potentials by comparing specific energy consumption in Indian iron and steel plants with specific
energy consumption in plants using world best technology (best practice). Total final specific energy
consumption in India is the sum of fuels consumed and electricity purchased in the sector.

CONCLUSION:
The Indian steel industry is among the upcoming industries of the world. It has a number of iron ores,
which means that it has plenty of resources from which to draw its raw material. The rate of
production of steel in India has been going up at a steady rate in the last few years. In the recent times
Orissa and Jharkhand have been identified as the potential steel destinations of India - the ones that
would provide the Indian steel industry with its necessary raw material. Existing units are being
modernized and a no. of Greenfield steel plant has come up in diff parts of the country. Indian steel
players concentrate on global market.