Final Project Proposal for Steel Industry.docx

7/29/2019 Final Project Proposal for Steel Industry.docx

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MB102 : Managerial Economics.

Industry : Steel Industry

TISCO (TATA Iron and Steel Company)

By : -

Gyan Saurabh (11MBMA27)

K. Rajesh Kumar (11MBMA64)

Pratyusha N. (11MBMA04)


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Introduction

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.

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 forcoming 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 have lead to a negative effect on whole steel industry.

The stages in Global production of Steel.


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History.

Since its independence, India has experienced steady growth in the steel

industry, thanks in part to the successive governments that havesupported the industry and pushed for its robust development.

Steel industry reformsparticularly in 1991 and 1992have led to

strong and sustainable growth in Indias steel industry.

Indias share in world production of crude steel increased from 1.5% in

1981 to around 12.3% in 2011.

The private sector is considered engine of growth in the steel industry and

technological changes and modernization are taking place in both thepublic and the private sector integrated steel plants in India.

Major Players of Steel Industries in India base on Ownership:

PUBLIC SECTOR

SAIL

VISAKHAPATNAM STEEL PLANT

FERRO SCRAP NIGAM LIMITED

BIRD GROUP OF COMPANIES

SPONGE IRON INDIA LIMITED

MECON LIMITED

BHARAT REFRACTORIES LIMITED

PRIVATE SECTOR

TATA-CORUS

ESSAR

ISPAT

JSW STEEL LIMITED

MUKAND LIMITED


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Categories or types of Products.

Steel

Form/size/shape

Liquid steel

Crude steel

Finished steel

Flat productsNon-flatProducts

Ingots

Semis

Composition

Alloy steel

Stainless steel

Silicon-electrical steel

High speedsteel

Non-alloy steel

Low carbon orMild steel

Mediumcarbon steel

High carbonsteel

End use

Structuralsteel

Constructionsteel

Deep drawingsteel

Rail steel

Foreign qualitysteel


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Market Share of Steel Companies in Indian Market

Companies Market share in terms

of %

Production (in Mn

Tonnes)

SAIL 32 % 13.5

TISCO 11 % 5.2

RNIL 8 % 3.5

ESSAR, ISPAT, JSWL 19 % 8.4

OTHERS 30 % 14.5

SAIL

TISCO

RNIL

ESSAR, ISPAT, JSWL

OTHERS


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Consumption in India.

Driven a booming economy and concomitant demand levels,

consumption of steel has grown by 12.5 per cent during the last threeyears from 50.27 MT to 58.45 MT.

The per capita steel consumption is only 35 kg in India compared to

150 kg in the world and 250 kg in China.

Soaring demand by sectors like infrastructure, real estate and

automobiles, at home and abroad, has put India's steel industry on

the world steel map.

India is the fifth largest steel manufacturer of the world, after China,

Europian Union, Japan and United States.

China produces almost ten times to India.

Year wise Demand of Steel in India.

Year Demand (in Mn. Tonnes) Growth (in %) Price (in Rs/Ton)

2003-04 34.444 24000

2004-05 36.037 4.625 33500

2005-06 40.471 12.32 30000

2006-07 43.063 6.4 29080

2007-08 45.387 5.4 27750

2008-09 50.257 10.73 25040

2009-10 58.450 16.3 25350

0

5000

10000

15000

20000

25000

30000

35000

40000

34.4 36 40.5 43.1 45.4 50.2 58.4

Price

Quantity

Demand Curve

Demand


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Consumers in Market

Support from dynamic economy

Positive stimuli from construction industry

Strong growth in mechanical engineering

Booming automobile industry

Over the past ten years Indias crude steel output rose nearly 7%per

year to 54.35 million tons.

Global crude steel output increased by 4%

It equals Ukraine in the 4% global market share.

Year wise supply of Steel in India.Year Supply (in Mn. Tonnes) Growth (in %) Price (in Rs/Ton)

2003-04 32.81 24000

2004-05 34.70 5.76 33500

2005-06 38.96 12.23 30000

2006-07 41.41 6.29 29080

2007-08 43.28 4.51 27750

2008-09 46.5 7.42 25040

2009-10 54.35 16.91 25350

0

5000

10000

15000

2000025000

30000

35000

40000

32.8 34.7 38.9 41.4 43.3 46.5 54.3

Price

Quantity

Supply Curve

Supply


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TISCO in the context of Indian Economy.

Introduction

In his lifetime J.N.Tata was captivated and led by the three guiding stars - building an iron

and steel company, generating hydro-electric power and creating an institution that offer the

best education in science.

Jamsetji Tata had started his quest for steel way back in 1882 but it was twenty-five years

later, in December 1907 that the explorers found their way to Sakchi - at the confluence of

the rivers Subarnarekha and Kharkai. On 27th February 1908 when the first stake was driven

into the soil of Sakchi the dream had come alive.

When Tatas issued shares on 26th August 1907, for the first time in the financial history of

the country, the Indian people - the masses, the affluent and the common people -joined

hands to put up the first truly Indian enterprise. The Tata family contributed the remaining

11% shares of the Tata Iron and Steel Company Limited.

The Steel Company obtained its first colliery in 1910, adding six more in course of time.

Several mines were spread over the states of Bihar, Orissa and Karnataka. The Tatas soon

became the first to own a fully mechanised iron ore mine in India at Noamundi. The Coal

Beneficiation Plant at West Bokaro undertook beneficiation of low-grade coal, thus helpingin the conservation of the fast dwindling resources of high quality coal. The collieries, the

mines and the quarries together furnish the bulk of the raw material requirements of the plant.

The last decade has been marked by Tata Steels prominent role in the overall development

of the country, even during phases of economic turbulence and its decisive foray into more

and more global territory. Intense strategic thinking about future expansions, plans for

organic growth and initiation of new projects are a few highlights in Tata Steels expanding

and more penetrative roles in the larger perspective. The acquisition of NatSteel in 2004 was

Tata Steels first overseas acquisition and the series of joint ventures and mergers that

followed found a peak when the acquisition of Corus, happened in April 2007. But in everypositive step that the Company has taken towards growth and expansion, involving diverse

cultures and geographies, Tata Steel has never lost sight of its great heritage of social and

community responsibility.

The story of Tatas achievements is a collective effort of people who sank differences of

caste, creed, race and status to strive for a common goal- excellence. They offered their best

as an expression of a sense of belonging, a sense of commitment to the family of which they

were a part - the Tatas.


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Demand for TISCO.

Recognising the need for growth as the world recovers from the financial crisis, the Tata SteelGroup has put into action initiatives that will ensure its growth is sustainable. These initiatives

span the entire supply chain, from raw materials to logistics and value-added manufacturing.

The Indian operations of Tata Steel are among the most cost competitive in the world, soexpanding the capacity of the Jamshedpur plant in Jharkhand is naturally one of the Groupskey strategies. Tata Steel proposes to expand the Jamshedpur works capacity to 9.7 milliontonnes per annum (mtpa) of crude steel by 2011-12.

The expansion will allow the Company to utilise its existing resources more efficiently,whether they be manpower, utilities or the Companys captive mines.

Year Global Demand (in Mn. Tonnes) Domestic Demand (in Mn. Tonnes)Price (in Rs/Ton)

2003-04 38.6 13.0 24000

2004-05 42.3 16.0 335002005-06 44.5 21.8 30000

2006-07 49.5 28.7 29080

2007-08 53.1 34.2 27750

2008-09 57.8 36.3 25040

2009-10 62.4 41.5 25350

0

5000

10000

15000

20000

2500030000

35000

40000

38.6 42.3 44.5 49.5 53.1 57.8 62.4

Price

Quantity

Global Demand Curve of Tisco

Demand

0

5000

10000

15000

20000

25000

30000

35000

40000

13 16 21.8 28.7 34.2 36.3 41.5

Price

Quantity

Domestic Demand Curve of Tisco

Demand


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Supply for TISCO

The Tata Steel Group supplies all major global vehicle manufacturers. In addition to

supplying a wide range of products, it also delivers services including involvement atthe pre-design phase in order to optimise production performance at its customers

factories.

Tata Steel Europe supplies high integrity steels to major global commercial and

defence aerospace programmes. These range from high strength, high integrity

structural steels to high temperature alloy and stainless steels. The Company is

involved throughout the supply chain, from materials selection and processing to the

provision of expertise during development of engineering processes.

Tata Steel delivers a multi-product solution to the global materials handling sector. It

manages the complexity of products and services it supplies via multiple supply

chains, through an extensive global network.

Year Global Supply (in Mn. Tonnes) Domestic Supply (in Mn. Tonnes) Price (in Rs/Ton)2003-04 33.0 12.0 240002004-05 36.0 15.1 335002005-06 41.0 20.1 300002006-07 46.78 26.9 290802007-08 50.1 31.3 277502008-09 55.1 35.2 250402009-10 59.8 40.09 25350

0

10000

20000

30000

40000

33 36 41 46.78 50.1 55.1 59.8

Price

Quantity

Global Supply Curve of Tisco

Supply

0

10000

20000

30000

40000

12 15.1 20.1 26.9 31.3 35.2 40.1

Price

Quantity

Domestic Supply Curve of Tisco

Supply


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Shift in demand Curve

A shift in demand, either leftward or rightward, that occurs only when one of

the five determinants of demand changes. Where determinants are variables thatchange the quantity demanded at each price and that determines where the

demand curve is located. Like as Consumer Income, relative price, taste of

consumer, expected price, no. of consumers, or other factors determining the

demands of the good. A change in demand occurs when one or more of the

determinants of demand change.

Like in the Steel Industry various factors influence the demand of the steel.

Such as the increase in demand or prices of other sectors dependent on the steelindustry for raw materials and the overall economic growth and situations.

In the following graph Demand is the initial demand supply. Which is

influenced by the other sectors dependent on the steel industry as for raw

materials.

Demand 1 is the increase in Demand due to growth in construction sector due to

which due to which demand for steel bars and sheets increased forming a new

demand curve rightwards to the initial demand curve.

Demand 2 is the decrease in Demand due to decrease in sales of the

Automobiles decreased the decrease in production of automobiles causing

decrease in demand for steel sheets and rigid steel forming a new demand curve

leftwards to the initial demand curve.

0

10

20

30

40

50

60

70

24000 33500 30000 29080 27750 25040 25350

Price

Quantity

Demand Shift

Demand

Demand1

Demand2


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Shift in Supply Curve

A shift in supply, either leftward or rightward, that occurs only when one of the

five determinants of supply changes. Where determinants are variables thatchange the quantity supplied at each price and that determines where the supply

curve is located. Like as price of the good, price of inputs, price of goods related

in production, available technology, expected price, or no. of firms, or other

factors determining the supply of the good. A change in supply occurs when one

or more of the determinants of supply change.

Like in the Steel Industry various factors influence the supply of the steel. Such

as the increase in supply or prices of other sectors dependent on the steelindustry for raw materials and the overall economic growth and situations.

In the following graph Supply is the initial supply curve. Which is influenced by

the other sectors over which steel industry is dependent for raw materials.

Supply 1 is the decrease in Supply due to increase in crude oil price in

international market, forming a new Supply curve leftwards to the initial Supply

curve.

Supply 2 is the increase in Supply due to decrease in Iron ore prices, forming a

new supply curve rightwards to the initial supply curve.

0

10

20

30

40

50

60

70

24000 33500 30000 29080 27750 25040 25350

Price

Quantity

Supply Shift

Supply

Supply1

Supply2


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Elasticity of Demand of Steel

Elasticity is the reaction of the customer towards the change in price. It is the

change in Quantity demanded by change in price. Elasticity of steel is low, i.e.;they are inelastic goods.

In the steel industry price changes day by day. In respect of the changes to the

prices customers doesnt react that drastically. So, as demand doesnt changes

that much in relation to the prices. So; it is inelastic in nature.

Year Demand (in Mn. Tonnes) Price (in Rs./Ton)

2003-04 34.444 24000

2004-05 36.037 335002005-06 40.471 30000

2006-07 43.063 29080

2007-08 45.387 27750

2008-09 50.257 25040

2009-10 58.450 25350

Price (in Rs./Ton) Demand (in Mn. Tonnes) Elasticity

24000 34.444 -

33500 36.037 0.13714

30000 40.471 -1.0514

29080 43.063 -1.992

27750 45.387 -1.12

25040 50.257 -0.9918

25350 58.450 12.249

0

5000

10000

15000

20000

25000

30000

35000

40000

34.4 36 40.5 43.1 45.4 50.2 58.4

Price

Quantity

Demand Curve

Demand


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Elasticity of Supply of Steel

Elasticity is the reaction of the producers towards the change in price. It is the

change in Quantity supplied by change in price. Elasticity of steel is low, i.e.;they are inelastic goods.

In the steel industry price changes day by day. In respect of the changes to the

prices customers doesnt react that drastically. So, as supply doesnt changes

that much in relation to the prices. So; it is inelastic in nature.

Year Supply (in Mn. Tonnes) Growth (in %) Price (in Rs/Ton)

2003-04 32.81 24000

2004-05 34.70 5.76 33500

2005-06 38.96 12.23 30000

2006-07 41.41 6.29 29080

2007-08 43.28 4.51 27750

2008-09 46.5 7.42 25040

2009-10 54.35 16.91 25350

Price (in Rs./Ton) Demand (in Mn. Tonnes) Elasticity

24000 34.444 --

33500 36.037 0.1694

30000 40.471 -1.0491

29080 43.063 -1.9576

27750 45.387 -0.9434

25040 50.257 -0.698625350 58.450 12.6524

0

5000

10000

15000

20000

25000

30000

35000

40000

32.8 34.7 38.9 41.4 43.3 46.5 54.3

Price

Quantity

Supply Curve

Supply


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Price shift and change in equilibrium point

In the international market steel of the price changes day to day and accordingly

the demand also shows the changes with the supply and price with other marketfactors. Its also quite unresponsive in regard to the change in demand and

supply for the international and national context of the market in steel industry.

According to the previous data collected in context of Indian and in TISCO

prospective it seems quite vague to determine the equilibrium with all the

different market factors under consideration.

Price shift in equilibrium Curve


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Conclusion

Significance & Forcasting The Arcelor Mittal, which is the largest steelmaker in the world, has

plans of establishing two Greenfield steel projects with capacity of 12

million tons annually, in India

Acerinox SA, one of the important stainless steel manufacturers in

collaboration with Nisshin Steel, Japan is setting up a steel plant in

India

The Tata Steel ranks 5th in the world steel production and the

company have plans of expanding its capacity by the year 2015

SAIL, India's biggest producer of steel has plans of increasing the

production to 24.98 million tons annually

Sinosteel Corp, China are planning to invest US$ 4 billion to set up a

5 million tons capacity Greenfield steel plant

The acquisition of the Corus, the Anglo-Dutch steel manufacturer by

the Tata Steel

The Algoma Steel, Canada was acquired by Essar Global for US$

1.63 billion

Growth

The International Iron and Steel Institute (IISI) has fore casted that

the steel demand will go of from 1.19 billion ton to 1.4 billion ton in

2012.

And this will further increase in a higher rate up to 2015.

In India the growth will be more prominent because of the growth in

Real estate, Aviation, Manufacturing, Automobile sectors.


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Hindrances

Energy supply : - Power shortages hamper production at many locations.

Since 2001 the Indian government has been endeavoring to ensure that

power is available nationwide by 2014.

Problems procuring raw material inputs :-

insufficient raw materials and input leading to increase in import costs.

Inefficient transport system :- termed as insufficient and inefficient. It

lacks quality .

Analysis

THE outlook for the global steel industry in 2010 is stable, supported

by strong demand from emerging economies amid further

consolidation among players worldwide.

We can even see several large acquisitions of global steel companies

like Corus by Indian steel giants.

Indias lower wages and favorable energy prices will continue to

promise substantial cost advantages compared to production

facilities in(Western) Europe or the US.

The growth prospects of the client industries are also very good.

The deployment of modern production systems is increasingly

enabling India to improve the quality of its steel products and thus to

enhance its export prospects.

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