fINAL Eco_steel_presentation-Final-March_5

8/7/2019 fINAL Eco_steel_presentation-Final-March_5

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STEEL INDUSTRY ANALYSIS

UTTARASATISH

LOKITA

PRASHANTRAHUL

RINALDO

SHEKHAR

Group Name:

Show STEELERS


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AGENDA

INDUSTRY OVERVIEW AND PROMINENT PLAYERS

THE MAKING OF STEEL

SWOT ANALYSISLOCATION OF STEEL INDUSTRY

GOVERNMENT POLICIES

FDI

MERGERS AND ACQUISITIONS

COMPETITION/EFFECTS


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Production wise India accounts

4.7% of the total steel production.

India is the 5th largest producer

globally.

Installation Capacity of 66.8 mmt

Contribution of Steel Industry is

near to 2% of the GDP


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Industry Structure:


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Industry Structure:

Integrated producers Those that convert iron ore into steel. There are three major integrated steel

players in India, namely Steel Authority of India Limited (SAIL), Tata Iron and

Steel Company Limited (TISCO) and Rashtriya Ispat Nigam Limited (RINL).

Secondary producers These are the mini steel plants (MSPs), which make steel by melting scrap

or sponge iron or a mixture of the two. Essar Steel, Ispat Industries and

Lloyds steel are the largest producers of steel through the secondary route.


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KEY PLAYERS

Company Sales (08-09) US$ billion (INR billion) Product

Tata Steel Ltd 31.01 (1488) Finished Steel

SAIL 11.11(533) Finished Steel

JSW Steel 3,72(179) Hot Rolled Coil;Strips,Sheets

Jindal Steel & Power 2.47(119) Iron & Steel

Ispat Industries 1.98(95) Hot Rolled Coil;Strips,Sheets

Welspun Gujarat 1.38(66) Tubes & Pipes

J S L Ltd 1.134(54) Flat Products

Bhushan Steel 1.11(53) Cold rolled coils,strips,sheets

Uttam Galva Steels Ltd 0.94(45) Flat Products

KEC International 0.73(35) Heavy Structurals


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STEEL MAKING PROCESS


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WHERE DOES THE STEEL WE USE

EVERYDAY COME FROM??


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INTRODUCTION

People have been using steel since centuries and today it is

used in just about every aspect of our lives.

Over the years, steel making process has evolved drastically

from the early techniques to automated, large-scale processestoday.

Steel plays a key role in the industrial development and the

economic growth of a country.

Therefore, the selection of very efficient and effective

metallurgical processes at the time of installation and their

continuous upgradation through research and development is

very vital.


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RAW MATERIALS

The ores used in making iron and steel are iron

oxides, which are compounds of oxygen.

The major iron oxide ores are hematite, limonite,

taconite, magnetite (highest iron content).

Coke, which is the residue left after heating coal in the

absence of air, generally containing up to 90% carbon.

Limestone or burnt lime, which is added to the blastfurnace to remove impurities.


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PROCESS FLOW OF MATERIALS IN

STEEL PLANTS

The coals are crushed, screened, and blended. Thecoals are fed to coke ovens to make coke suitable

for use in the blast furnaces. The coke from coke ovens, Iron ore after

beneficiation and Lime Stone as a flux along withhot blast of air are main raw materials which are

used to make molten pig iron in the blast furnaces. The liquid steel is cast into ingots and fed to

soaking pits for primary rolling into blooms, slabsand billets.


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ELECTRIC ARC FURNACE

The electric arc furnace is used to reduce iron from iron ore. Heat is generated from

an electric arc between electrodes. Oxygen is blown into the furnace, and lime and

other materials are added to combine with the impurities and form slag. Molten iron

is extracted and poured out via a tapping spout. It is then processed again in an

electric arc furnace to make steel particularly special quality steel.


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OXYGEN LANCE

The process for makingsteel is called the basicoxygen steel-making process

or BOS process. Oxygengas is blown throughthe oxygen lance at highpressure, this reacts withimpurities such as carbonand sulphurand oxidises them. Theseleave as gas (carbondioxide and sulphurdioxide) and pure ironremains. Calculatedamounts of carbon or othermetals are added to makea range of different alloys.


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S.W.O.T ANALYSIS


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Availability of labour at low wage

rates

Third largest pool of technicalmanpower

Low unit labor cost

Huge Resources Of Raw material

Abundance of iron ore & coal

Fourth largest iron ore reserves

Increase Demand

Environment laws


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High cost of capital

Lack of infrastructure

Slow decision making

Research & Development

Inefficient transport system


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High potential to be tapped

Unexplored rural market

Export market penetration

Consolidation


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Cheap Imports

Slow Industry Growth

Technological change

Huge bottlenecks in

foreign invested projects


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LOCALIZATION FACTORS OF IRON AND STEEL

INDUSTRY

Raw Material

Market

Transportation Labour

Government Policy

Technology


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RAW MATERIAL

Iron and Steel industry is a Weight Losing Industry .All the raw materials of

this industry Coking Coal, Iron Ore, Limestone, Dolomite, mainly are heavy

and bulky.

Location is governed by proximity to raw materials particularly coking coal

and Iron ore. Localization either near coal and Iron ore or in between.

VISW is an exception, located far from main coal producing areas. Earlier it

used locally available charcoal and now using HEP from Sharavati Power

Project.


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MARKET

Finished steel products are quite bulky, and transport cost per tone km of

steel product is about 3 times more than that of coal and iron ore. Therefore

market plays an important role in localization.

Agglomeration of market forces brings economics in the cost of production,

thus making market favorable location. One of the major consumers of steel industry is Automobile industry which

in itself prefers a market location. These industries have also raised the

importance of market for iron and steel industry. Further their waste in the

form of scrap provides additional raw material for iron & steel industry.


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TRANSPORTATION

Both raw materials & finished products are bulky and

require big transportation facilities.

Optimum transportation cost of carrying raw materials

from source and finished products to market playimportant role.

However, setting up of large integrated steel plants

boosted the growth of infrastructure, especially road

and rail links in these regions.


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TECHNOLOGY

Increasing popularity of Open Hearth Process.

It uses scrap as raw material (1/2 of worlds

raw material). It is easier to transport in raw

form. Therefore, changed location of industry

from traditional raw material site to market.


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PORT LOCATION

Port locations provide easy and cheap means

of transportation. These are also highly helpful

in the import of raw materials and export of

finished products.

The Vizag Plant is a glaring example of this kind

of location.


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GOVERNMENT POLICY

Trickle down hypothesis for balanced regional development guided

tremendously the location of I&S industry in the backward regions.

Policy of developing Growth Centers & Growth Poles with I&S industry as

their core also influenced its location in India.

Political lobbying at times influences greatly its location. VISW Plant was set up to fulfill Defense requirements.

LABOR

Cheap and abundant labor is required for this industry. ThereforeChottanagpur, West Bengal and the nearby regions were favorable

locations.


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DISTRIBUTION OF IRON AND STEEL INDUSTRY IN

INDIA


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MAP OF STEEL LOCATIONS IN INDIA


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Government Policies

Licensing requirement for capacity creation has been abolished, under

Industries Act,1951.

Steel industry has been removed from the list of industries reserved for

the public sector.

With effect from 24th May 1992,Automatic approval granted forforeign equity investment.

Price and distribution controls were removed from January 1992.

Restrictions on external trade, both in import and export, have beenremoved.

Import tariff reduced from 105% in 1992/93, to 30% in 1996-97,and

then to 20% .


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CONTINUE.

Imports of seconds and defectives of steel are allowed only through

three designated ports of Mumbai, Calcutta and Chennai.

Mandatory pre inspection certificate by a reputed international agency

for every import .

Iron and steel became freely importable and exportable products.


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Indias exports during April-December 2008 were 64.4 MT. The

government has reduced export duty on iron ore lumps from 15

per cent to 5 per cent, which has given a further fillip to exports.

Out of Indias annual iron ore production of more than 200 MT,about 50 per cent is exported.

Earlier, according to a study, with the rise in demand for steel in

China, Indias iron ore exports went up by 38 per cent to reach13.6 MT in December 2008 against 9.8 MT in December 2007.

Around 50-60 per cent of Indias iron ore is exported to China.

Continued


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Plan outlay for 11th Five-Year Plan (2007-12)

For the 11th Five Year Plan (2007-12), the Planning Commission has

approved total outlay of Rs. 45607.08 crore (i.e. Internal and Extra

Budgetary Resources [I&EBR] of Rs. 45390.08 crore and Gross

Budgetary Support [GBS] of Rs. 217 crore).

Scheme forpromotion of Research and Development in Iron & Steel

sector.

The Working Group on Steel Industry set up by the Planning

Commission for the 11th Five-Year Plan (2007-12) has projected a totaldemand of 70.34 million tonnes for finished steel and a total production

of 80.23 million tonnes of crude steel by the end of the 11th Plan, that is,

2011-12. Both the 11th Plan projections and the NSP targets are likely to

be considerably surpassed.


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Continued

The 11th Plan would be crucial for realizing the objectives

pronounced in the National Steel Policy 2005 of building a

modern and efficient domestic steel industry of global standards

with a capacity to cater to diversified product demands.

The Working Group on Steel Industry has made

recommendations consistent with the targets/objectives of the

National Steel Policy, 2005

The rejuvenated steel market in the country has already witnessed

the announcements of mega expansion plans of leading domestic

producers in the form ofGreenfield and/or Brownfield projects in

different parts of the country.


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The decision of Posco, South Korea, to set up their 12 million

tonnes integrated steel plant in Orissa has given the Indian steel

industry a feel of what globalization is all about. This was soon

followed by Mittal Groups announcement ofplans to set up their

12 million tonnes integrated steel unit in Orissa.

However, the domestic Indian steel producers did not lag

behind. Indian conglomerate TATA Steels $12 billion takeover of

Anglo-Dutch giant Corus Group Plc, transformed TATA Steel Ltd.into the worlds 5th largest steel producer, which may well be

regarded as a benchmark even in the history of the Indian steel

industry.


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Other Majorpolicies from Union budget 2011

Hike in Export duty on Steel by 20 per cent.

Government abolished import duty on steel scrap from

2.5 percent earlier


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OVERVIEW OF FDI

Definition of Foreign direct Investment(FDI).

Purpose of FDI.

Factor responsible for FDI taking place in India.


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FOREIGN DIRECT INVESTMENT

FDI plays an important role in Global business.

It can be define as investments made to acquire

lasting interest in enterprises operating outside of theeconomy of the investor.

The investment must afford the parent enterprisecontrol over its foreign affiliate in order to qualify as

FDI


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FDI IN INDIA

Foreign Direct Investment in steel sector ispicking up in India.

Factors attracting Foreign Direct Investment.

According to the Investment Commission of

India, investments of over US$ 30 billion insteel are in the pipeline over the next 5 years


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FDI IN INDIA

Companies involve in Foreign investment inIndia are:

Posco steel

Arcelor Mittal steel.


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OTHER INVESTMENT IN INDIA

Apart from foreign companies ,many Indiancompany are planning to invest in India.

SAIL Steel.

TATA Steel

Varun Steel


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FDI IN STEEL SECTOR

0

50 0

1000

1500

2000

2500

3000

3500

4000

4500

2006-07 2007 -08 2008-09 2009 -10 (Apr -Dec)

1 2 3 4

FDI (in Rs.)

FDI (in US$)


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MERGER & ACQUISITION

Objective of M&A in the Steel Industry:

Consolidation among top steel companies since industry

players engaged in an unfettered rush for scale.

To purchase additional production capacity to improve the cost

structure and increase market clout.

To increase commercial production capacity within thestipulated time period with minimum investment.


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Consolidation among industry players would be driven bystrategic fits between companies, rather than financiallycentered deals.

Strategic fit for merger:

Attractive access to raw materials

Production capabilities

Proven success in complementary markets

New technologies or patented productsSuccessful global supply network.


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Jindal Vijayanagar Steel (JVSL) acquired EuroCoke and Energy Pvt Ltd, Euro Ikon Iron & SteelPvt Ltd and JSW Power Ltd (JPL) April 1, 2005.

Jindal Stainless acquired a cold rolling unit in

Indonesia in 2004 with a capacity of 50,000tonne per annum (TPA)

Tata Steel which bought out Rawmet FerrousIndustries, an unlisted Kolkata-based Ferro

alloys player


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TATA & CORUS

Tata Steel acquired the Anglo Dutch steel producerCorus Group Plc for US$ 12.11 billion ( 8.5 billion) On

January 31, 2007

Nine rounds of bidding against the Brazil based

Companhia Siderurgica Nacional (CSN)

Fifth largest steel producer in the world after the

acquisition.

Deal links low-cost Indian production and raw

materials and growth markets to high-margin markets

and high technology in the West.


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TATA & CORUS

Corus' expertise:

Grades of steel used in automobiles and in aerospace to boost

Tata Steel's supplies to the Indian automobile market.

Better technology from Corus can work in the Asian markets

Significant presence in value-added steel segment

Strong distribution network in Europe.

Tata Steel's expertise:Low cost manufacturing of steel

Supply semi-finished steel to Corus for finishing at its plants,

which were located closer to the high-value markets


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MITTAL BAGGED ARCELORArcelor Mittal is a global steel company headquartered inLuxembourg

On 25 June 2006, Arcelor SA accepted India-born L N Mittalgroup's takeover bid with improved quoting by 10% to 25.9billion Euros ($32.4 billion)

Severstal Russian steel giant which was perceived to be as a

last ditch effort to thwart Mittal's bidPositioned Mittal Steel as the largest steel producer in theworld

Contributes 10 per cent of total steel production worldwide withannual production capacity of more than 110 million tons perannum

Output is nearly four times as much as that of the next biggestplayer(Nippon Steel) and eight times as much as SAILs


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MITTAL BAGGED ARCELOR

Benefits of the Merger

No Geographical overlap nor do they compete with each other.

Prior to the deal Mittal didnt have a presence in Europe, whereArcelor was essentially

concentrated.

Merger created the worldwide leader in the steel industry,increasing its bargaining power with suppliers and consumers.

Arcelor Employing 310,000 employees in over 60 countries

Largest steel manufacturer in terms of turnover


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ANALYSIS OF COMPETITION


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Difference between domestic ex-plant prices and low or averageexport realization is positive

Export at a relatively lower price to create an artificial shortage in

the domestic market, so that they can adjust their prices to the

landed costs of imports or higher???

Tradable product one cannot question why did the producerschoose to sell in the international market and not in the domestic

market

Many products are developed and produced only for exports.

The same action may cause artificial shortages or mere perception

of shortages in the domestic market leading to price increases. Inthat case exports are used as a gaming device and as a threat to

domestic buyers.

We do see this as an issue of competition

Lack of consistent price data prevents to conclusively demonstrate

this


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Intra-Industry issues

HRC users are medium size firms but together they make a big

clout in the political and administrative system forcing the

government to intervene frequently and decisively in their favour

whenever the pricing scenario turns against them

On the other hand: undue protection provided to the HRC

manufacturers by high import duty, non-tariff import barriers like

floor prices etc.


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Price/cost that has no relevance to the value of the asset, especially

when otherproducers who are dependent on the same raw material

are outside of this favour

Prospective investment incentivised with the promise of a captive

mining lease by the state government

Significant resources getting locked up under the lease holding of a

few companies which in turn in creating a shortage of capacity andsubsequent rise in the prices of iron ore in the open market


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Policy induced distortions Subsidies to State Small Industries

Corporations (SSICs)

High Import duties

Floor prices imposed on prime steel products

Existence of non-tariff barriers

Imposition of anti-dumping duty

Prohibitive duty on seconds and defectivesExport Tax


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THANK YOU

fINAL Eco_steel_presentation-Final-March_5

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