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

• 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

New Policies

Included in high priority list for Foreign Investment

Withdrawal of import and Export restrictions

Positive Outcomes

• New Channels Opened

• Enhanced Efficiency

• National Steel Policy

Negative Outcomes

• Non-Tariff Barriers

• Availability of Cheaper Steel

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 • Increase Demand. • Availability of labour at low wage rates. • Huge Resources of Raw material. • Environment laws.

WEAKNESSES • High cost of capital. • Lack of infrastructure. • Slow decision making. • Low labor productivity. • Insufficient transport system.

OPPORTUNITIES • High potential to be tapped. • Unexplored rural market. • Export market penetration. • Consolidation.

THREATS • Cheap Imports. • Slow Industry Growth. • Technological change. • 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

tonnes)

Market share(in percentage

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.