PGDM I (Section B) 2007 2009

An Overview of the Steel Industry

Group Number: 6 Bodhisattwa Ganguly (115) Manoj Kumar (128) Ranjitha Sridharan (142) Rishikesh Kumar (129) Roshith Nambiar (135) Sahil Sharma (150) Sumantra Banerjee (103) Vinnu Priya (138)

Submitted to: Dr. SNV Siva Kumar

TABLE OF CONTENTS:
HISTORY OF STEEL INDUSTY......................................................................................4 GOVERNMENT POLICY AND REGULATORY FRAMEWORK.................................4 MAJOR PLAYERS.............................................................................................................5 GROWTH OF STEEL INDUSTRY IN INDIA..................................................................5 IMPACT OF STEEL ON ECONOMY...............................................................................6 CURRENT STATUS OF INDIAN STEEL INDUSTRY...................................................6 FUTURE OF INDIAN STEEL INDUSTRY......................................................................7 CONCLUSION....................................................................................................................8 REFERENCE......................................................................................................................9

ABSTRACT Steel has had a major impact on our lives, the cars we drive, the buildings we live and work in and countless other places. Steel is by far the most important, multi-functional and most adaptable of materials. The backbone of developed economies was laid on the strength of steel. Steel industry is very cyclic and is impacted by economic policies. It has a direct impact on GDP of our country. The global steel industry is in the grip of mergers spree. This report covers various aspects of the Indian Steel Industry like history, Government Policy Framework, its impact on economy, current and future prospects of the Steel Industry.

HISTORY OF STEEL INDUSTRY The Indian steel industry backbone of the Indian economy: The Indian Steel Industry is almost 100 years old now. Till 1990, the Indian steel industry operated under a regulated environment with insulated markets and large-scale capacities reserved for the public sector. Production and prices were determined and regulated by the government and SAIL and Tata steel were the main producers. The first integrated steel plant was set up in 1907 in Jamshedpur by TISCO. Since then the Indian steel industry has emerged as one of the core sectors in the Indian economy with a very significant impact on economic growth. The 90s were a very turbulent time for the Indian economy. With the liberalization of the economy in 1992 a number of domestic and private players entered, adding fresh capacities especially between 1990-2005. Last decade saw the Indian steel Industry integrating with the global economy and evolving considerably to adopt world-class production technology to produce high quality steel. The total investment in the Indian steel since 1990 has been over Rs 25000 crores. The years between 1997 and 2001 saw a downturn in the global steel industry due to demand-supply mismatch, unremunerative prices and erosion of bottom lines. The industry recovered in 2002. Today, India produces international standard steel of almost all grades/ varieties and has been a net exporter for the past few years. Global Scenario: In 1913, production of stainless steel in the world was only a few tons. It reached 0.6 MT in 1938 and increased to about 2.5MT in 1963. It crossed the 10MT mark in 1986. China is presently the worlds largest producer and consumer of steel. TOTAL WORLD PRODUCTION = 1132.8 MT GOVERNMENT POLICY AND REGULATORY FRAMEWORK Steel is an essential commodity for any country since it is used in industries like construction, automobiles and engineering .Also, as steel prices began to heat up, pressure mounted on the government to keep the prices under check to avoid high inflation. This mandates the governments to protect their steel industry by adopting a high import duty structure and act as an enabler/regulator of prices. New Steel Policy: In order to meet increasing domestic and international demand, the Government has formulated a draft national steel policy, which targets a production of over 110 MT by the year 2020. The basic objective of the National Steel Policy is to create enabling conditions for a globally integrated Steel Industry in India and the expansion of its production base adequately. It also plans to address other issues to support the growth of the industry like adequate infrastructure to be developed for mines in terms of road and rail network. Enhance capacity of existing ports and opening new ports on the east coast for moving planned quantity of inputs/outputs. Licensing & Import Duty: The economic reforms initiated by the Government since 1991 have made the steel sector more efficient and competitive. Restrictions on import and export of steel have been 4

removed and import duty rates have been reduced drastically. The Advance Licensing Scheme under the Export-Import Policy allows duty free import of raw materials for exports.

MAJOR PLAYERS
The major steel producing companies in India with capacities of over 1MT & known as Integrated Steel Produces (ISPs) are the following companies: Revenue (Rs in Crores) FY06-07
39,189 27,437

Industries Steel Authority of India Limited (SAIL) Tata Steel Jindal Steel (JSW) Rashtriya Ispat Nigam Ltd (Vizag steel) Essar Steel

Production (Tonnes)
12.6 5

Location
Bhilai, Rourkela, Durgapur,IISCO,Bokaro,S alem, Jamshedpur Tarapur, Bellary

9337

9151 9002

3.6 4

Visakhapatnam Hazira Steel Complex

GROWTH OF STEEL INDUSTRY IN INDIA

After liberalization, there have been no shortages of iron and steel materials in the country. Today, India is the 7th largest producer of steel in the world. China has been an important export destination for Indian steel. The steel industry is buoyant due to strong growth in demand particularly by the demand for steel in China. The Indian steel industry also went through an extremely turbulent phase in the backdrop of a global economic P d c nA dC n u p nT n o S e in ro u tio n o s m tio re d f te l In ia d recession. During the Ninth Plan (1997-2002), while 6 0 5 0 the installed capacity of the 4 0 industry went up to 35 MT, P d ctio ro u n 3 0 C n m tion o su p a slowdown in almost all 2 0 1 0 industrial segments of the 0 Indian Economy and depressed global demand Y r ea resulted in mismatch between installed capacity and demand. This led to a crash in steel prices. All major producers barring Tata Steel went into red and in 1999-2000 questions were being asked whether the steel industry would survive.
(in million tonnes) Quantity
2 4 -' 0 0 2 4 6 8 -' 0 -' 0 1 9 9 1 1 9 9 3 1 9 9 5 1 9 9 7 1 3 1 9 9 9 2 0 0 2 0 0

Fig 1. Shows that the profitability of the Indian Steel Industry had eroded considerably during this phase. 5

2 0 0

-' 0

-9

-9

-9

-9

IMPACT OF STEEL ON ECONOMY

The Discovery of Iron Brought about a paradigm shift in human civilization. The Discovery of steel further enhanced human living standards, so much so that Per Capita consumption of steel is measured as a test of a countrys economic development. Global Perspective: Steel has been the basic raw material for development; it has also played a major Em ploym e nt in M a jor Ste e l P roducing Na tions role in determining result of wars. Steel industry generates growth and employment in other industries like automobiles, construction etc. For every 1 Man-Years of steel industry generates 3.5 man-years elsewhere Due to advent of information technology steel industry has moved from labor intensive industry to knowledge and process intensive industry, thereby reducing number of people employed. Developing countries (Like India and China) are increasing the consumption and production of steel. This has lead to massive financial investments to increase installed capacity. Indian Perspective: Government regulations led to creation of giant PSUs. These PSUs have been inefficient in past and a drain on Tax payers money till recently. FDI inflows into steel have been massive with many global names setting shop Direct Job creation is predicted to decline at 8% pa; due to newer technologies. (source McKinsey Report)
2335 2500 2000 1500 1000 500 0 1388 Thousands 1019 985 946 908 885 1974 1990 1996 1997 1998 1999 2000 Ye ars

CURRENT STATUS OF INDIAN STEEL INDUSTRY

Key highlights: The Indian steel industry currently provides direct/indirect employment to over 2 million people. 7th largest steel producing nation in the world with crude steel production of 49MT in 2006-2007. India is a net exporter with exports of approx. 5 MT in 2006-2007(growth of 33%).

World steel consumption is WORLD PRODUCTION IN 2006 on a strong growth path 450 400 underpinned by the metals350 300 intensive phase of economic 250 200 150 growth that is underway in 100 50 0 emerging economies such as China and India. Today, Indian producers employ world-class standards of COUNTRY technology. There is growing acceptability for Indian steel them in the international market. Despite this however Indias share in world trade steel is a miniscule 2%. To analyze the situation further lets do the SWOT analysis of Indian Industry.
MT

SWOT ANALYSIS OF THE INDUSTRY Strengths 1. Availability of iron ore and coal 2. Low labour wage rates 3. Abundance of quality manpower 4. Mature production base Opportunities 1. Unexplored rural market 2. Growing domestic demand 3. Exports 4. Consolidation

FUTURE OF INDIAN STEEL INDUSTRY

The Growth Profile: The liberalization of industrial policy and other initiatives taken by the Government have given a definite impetus for entry, participation and growth of the private sector in the steel industry. While the existing units are being modernized/expanded, a large number of new/Greenfield steel plants have also come up in different parts of the country based on modern, cost effective, state of-the-art technologies. Growth Opportunities for Steel industry: Number of new Pipeline Projects, over 7800 km of new pipelines is expected to be laid in the next 5-7 yrs. Demand surge in Automobile sector, production of cars growing by 14.5% Construction investments are likely to go up by 9% due to increasing thrust on roads, water supply, hydel power projects, irrigation etc. SEZ/SMEs are coming up in a big way and demand for steel from them is definitely on the upside. 7

H JA INA PA N S O R U U U S TH S K S G O R IA E R EA U MA KR N A Y IN IN E B DIA R A Z IT IL TU A L R Y FR K A EY N TA C IW E S AN M PA E IN C XIC AN O U AD KR A B AI EL N G E IU M S A P IR A O N LA N D

Weaknesses 1. Unscientific mining 2. Low productivity 3. Coking coal import dependence 4. Low R&D investments 5. High cost of debt 6. Inadequate infrastructure Threats 1. China becoming net exporter 2. Protectionism in the West 3. Dumping by competitors

 Demand for steel in India is very low and is bound to increase.

Some of the important points and predictions related to the growth of the Steel industry are mentioned below: In order to support steel production of 110 MT by 2019-20, at 100 percent capacity utilization, the required IRON COKING NON COKING quantities of critical inputs such as ORE COAL COAL iron ore, coking and non-coking coal 2019190 70 26 can be seen in Table below. 20 200454 27 13 Table: Critical Inputs for Steel 05 Production (in MT) The steel producers are expected to add around 8 MT of capacity by FY 08 and 66 MT is targeted for 2011. CARE estimates that during 2006-09, demand for steel in the domestic market would grow at a CAGR of 8.4%. HR steel, due to its widespread applicability is expected to grow at a CAGR of 17.5%. During this period, major demand drivers would be Consumer durables, Automobiles and Construction. Steel will also continue to have a stronghold in traditional sectors such as housing, ground transportation, special steels, power generation, petrochemicals, fertilizers etc. Due to consolidation in the Indian steel industry for e.g. Tata - Corus Merger, with the commissioning of these capacities demand-capacity ratio is expected to decline in FY 09 due to excess capacity. The Eleventh Plan Period, which indicate that for finished non-alloy steel, domestic steel demand would reach 70 million tonnes and steel supply would touch 77 million tonnes by the end of the terminal year of Eleventh Plan, i.e. 2011-12. These would represent 40 per cent and 66 per cent growth rates respectively as compared to 2007-08, the first year of the Plan period.

CONCLUSION
Steel industry is one of the basic industries which have a huge impact on the countrys economy, as seen in the steps taken by government such as liberalization and national steel policy to encourage growth. Hence the growth in this industry has been impressive over the past decade with Indian companies becoming global players and India becoming net exporter of steel with Indian exports growing by over 33%. In spite of this Indian share in consumption and world steel trade is still miniscule. However with the realization of future prospects, while India may not become a leader in world steel market, it can become a powerful force.

REFERENCE www.indiansteelalliance.com Ministry of Steel Govt of India website: www.steel.nic.in Database CMIE Prowess McKinsey Report on Indian Steel Industry 2000.