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INDIAN STEEL INDUSTRYINDIAN STEEL INDUSTRY

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INTRODUCTIONINTRODUCTION

Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilisation.

It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation.

HISTORYHISTORY

Stages in Global Production of Steel

Source: IISI

Global Steel IndustryGlobal Steel Industry

The current global steel industry is in its best position in comparing to last decades. The price has been rising continuously.

The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace.

The subprime crisis has lead to the recession in economy of different countries, which may lead to have a negative effect on whole steel industry in coming years.

However steel production and consumption will be supported by continuous economic growth.

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INDIAN STEEL GROWTHSlowly and steadily

1.1 1.1 1.623.23

5.056.75

9.36

12.02

14.3

24.2

26.2

36.5

0

5

10

15

20

25

30

35

40

Controlled Regime

Decontrol

Stagnation

Confidence

1951 1981 2005

Steel industry reforms – particularly in 1991 and 1992 – have led to strong and sustainable growth in India’s steel industry.

Since its independence, India has experienced steady growth in the steel industry, thanks in part to the successive governments that have supported the industry and pushed for its robust development.

BASED ON OWNERSHIPBASED ON OWNERSHIP

PUBLIC

• SAIL• VISAKHAPATNAM STEEL PLANT• FERRO SCRAP NIGAM LIMITED• BIRD GROUP OF COMPANIES• SPONGE IRON INDIA LIMITED• MECON LIMITED• BHARAT REFRACTORIES

LIMITED

PRIVATE• TATA-CORUS• ESSAR• ISPAT• JSW STEEL LIMITED• MUKAND LIMITED

• Indian steel industry is poised for rapid growth.

• India’s share in world production of crude steel increased from 1.5% in 1981 to around 7.3% in 2008.

• The private sector is considered engine of growth in the steel industry and technological changes and modernization are taking place in both the public and the private sector integrated steel plants in India.

Steel production in IndiaSteel production in India

AVERAGE COST AND ECONOMIES OF SCALE

• the average cost of production of the firm decreases as the output level increases

• the firm would like to be at the minimum average cost point

• the average cost is higher in long run than short run and company makes higher profit producing higher and higher levels of outputs .

Average cost

outputQ Q1

C1

C

The increase in output from Q to Q2 causes a decrease in the average cost of each unit from c to C1.

Economies of scale are the cost advantages that a business obtains due to expansion.

Contd……..Contd……..

• Suppose in SAIL , the average cost per ton of steel at the minimum average cost point with the larger blast furnace may be 20 percent less than the average cost at the minimum average cost point with smaller blast furnace.

• Due to technological constraints the average cost is assumed to start rising at some output level even in the long run—that is, the average cost curve is U-shaped even in the long run.

DEMAND OF STEELDEMAND OF STEEL

• Driven by a booming economy and concomitant demand levels, demand of steel has grown by 12.5 per cent during the last three years, well above the 6.9 percent envisaged in the National Steel Policy.

• Steel demand to grow by 8-10 pc in 2010-11: MoS Steel . steel consumption grew at 7.6 per cent in 2009-10 to 56.32 million tonne as against 2008-09.

ELASTICITY OF DEMAND OF STEEL

INELASTIC DEMAND

DEMAND OF STEEL

PR

ICE

OF

STEEL

P

P1

OQ Q1

SUPPLY OF STEELSUPPLY OF STEEL

• India is the world’s fifth largest steel producer and its share is 3% plus in global steel output which is still very low.

• China, the world’s biggest steelmaker, produces nearly ten times as much as India.

• Over the past ten years India’s crude steel output rose nearly 7%per year to 56.3 million tons , while global crude steel output increased by 4% .

• ArcelorMittal plans to build greenfield steel production capacity of 30 million tonne per annum in India. While Orissa and Jharkhand will have 12 million tonne capacity each, Karnataka will have a plant with a capacity of six million tonnes.

DEMAND SUPPLY MISMATCHDEMAND SUPPLY MISMATCH

• India is one of the world’s top ten steelmakers its domestic output is insufficient to meet the demand in all segments.

• Consumption of steel is very fast and 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.

MARKET ANALYSISMARKET ANALYSIS

Concentration ratio of an industry is an indicator of the relative size of firms in relation to the industry as a whole.

The 4 firm concentration ratio of the Iron and Steel Industry is 71%.

 Both homogenous product or product differentiation are possible There is a price war and price rigidity Price output decisions are very difficult and indeterminate. This implies that there is oligopoly in the industry as it is

dominated by few major players

Export & Import of Steel in IndiaExport & Import of Steel in India

0

1

2

3

4

5

Qu

an

tity

(in

millio

n t

on

nes)

2003-04 2004-05 2005-06 2006-07YEAR

IMPORTS

EXPORTS

Exports have grown fast and at a rate exceeding 25% per annum between 1991-92 and 2002-03. Thereafter, till 2006-07export levels stagnated at around 4-4.5 Million Tonnes per year.

On the other hand, imports followed a different growth path. In spite of progressive reduction in customs duty levels after deregulation, imports remained around 1-2

Million Tonnes per year till 2003-04 and rose rapidly in the last two fiscals.

SUBSIDIES AND ISSUES OF COMPETITIVENESSSUBSIDIES AND ISSUES OF COMPETITIVENESS

• India does not provide direct subsidies for exports, although indirect subsidies on the nature of exemption from tax and import duty are provided.

• The Government of India implements the Export Promotion of Capital Goods (EPCG) scheme which provides for a reduction or exemption of customs duties and an exemption from excise taxes on imports of capital goods. The EPCG scheme has been countervailed in the US, Canada, as well as the EU.

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SUBSIDIES AND ISSUES OF COMPETITIVENESSSUBSIDIES AND ISSUES OF COMPETITIVENESS

• The income-tax benefits-related export activities are incorporated in sections 80HHC, 10A and 10B of the Income Tax Act.

• The reserve bank of India has accordingly issued directions to commercial Banks to provide export credit both at pre- and post-shipment stages.

• India also administers a number of duty drawback schemes that allow for the remission or drawback of import charges levied on inputs that are consumed in the production of an exported product. Schemes such as duty Entitlement pass book Scheme (DEPB) and Duty free Replenishment certificate (DFRC) fall under this category.

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FU

TU

RE

OU

TL

OO

K

CURRENT PERFORMANCEBAD GOOD

GOOD

ECONOMIC PARAMETERS ARE FAVOURABLEECONOMIC PARAMETERS ARE FAVOURABLE

PERFORMANCE PARAMETERS

Fiscal Deficit

FDI Inflows

Economic reforms

inflationNew Investment

Financial Reforms

Overall GDPExternal Debt

Savings

Industrial Growth

Forex Reserve

Agricultural Growth

Internal Debt

Service sector Growth

MERGERS & AQUISITIONSMERGERS & AQUISITIONS

• Arcelor - Mittal– 32.2bn$ deal– Mittal pips Severstal

• Tata-Corus– 11.3bn$ deal– Tatas pip CSN

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SWOT ANALYSISSWOT ANALYSIS

Strengths Strengths

1. Availability of iron ore and coal 1. Availability of iron ore and coal 2. Low labour wage rates 2. Low labour wage rates 3. Abundance of quality manpower 3. Abundance of quality manpower 4. Mature production base 4. Mature production base

Weaknesses Weaknesses

1. Unscientific mining 1. Unscientific mining 2. Coking coal import dependence 2. Coking coal import dependence 3. Low R&D investment3. Low R&D investment4. Inadequate infrastructure4. Inadequate infrastructure

Opportunities Opportunities

1. Unexplored rural market 1. Unexplored rural market 2. Growing domestic demand 2. Growing domestic demand 3. Exports 3. Exports 4. Consolidation 4. Consolidation

  Threats Threats

1. China becoming net exporter 1. China becoming net exporter 2. Protectionism in the West 2. Protectionism in the West 3. Dumping by competitors3. Dumping by competitors4. Global economic slowdown4. Global economic slowdown

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FACTORS HOLDING BACK THE INDIAN STEEL INDUSTRY

Energy supply

Problems procuring raw material inputs

Inefficient transport system

RECENT FINANCIAL CRISIS AND INDIAN STEEL INDUSTRY

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IN SUMMARY..

• Indian steel industry exudes optimism but crisis should get over as soon as possible.

• Investment in infrastructure is crucial to step up demand for steel.

• Supply may have to be rationalized in line with the demand (Dom + exports).

• Integrated Mills would hold the key in future growth of Indian Steel supplies.

• New technologies to use indigenous natural resources would have to be developed.

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THANK YOU

Man Power in Modern Steel Plants

• In South Korea, Posco employs 10,000 people to produce 28 million tonnes. As a thumb rule, one can put the direct employment potential at 1,000 per million tonnes.

• At present the per capita steel consumption is 35 kg, whereas for developed countries it is 300kg.

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