A REPORT ON A STUDY OF INDIAN ECONOMY AND STEEL INDUSTRY OF INDIA

CONTENT:1. Overview of Indian economy 2. Key economic indicators 3. Indian steel industry 4. Porters model 5. SWOT analysis 6. References

SUBMITTED TOPROF. MAYANK PATEL FACULTY OF SECURITY ANALYSIS

SUBMITTED BYKAVAN SHAH MEGHA SHAH NIDHI SHAH SHASHIKANT SAINI

Global Economic Prospect for Year 2010

Global economy is seems to be expanding after a recent shock. Indian Economy, however just felt the blow of the global economic recession and the real economic growth have seen a sharp fall followed by the lower exports, capital outflow and corporate restructuring. It is expected that the global economies continue to stay strong in the short-term as the effect of stimulus is still strong and the tax cuts are working. Due to strong position of liquidity in the market, large corporations now have access to capital in corporate credit markets.

Contribution of countries to global steel industry (Sales)

12% 17% EUROPE USA BRAZIL JAPAN CIS INDIA CHINA OTHERS

8%
35% 3% 9% 8.2%

8%

Indian Economy Overview

The Indian economy has registered a growth of 7.4 per cent in 2009-10, with 8.6 per cent year-on-year (yo-y) growth in its fourth quarter. The growth is driven by robust performance of the manufacturing sector on the back of government and consumer spending. GDP growth rate of 7.4 per cent in 2009-10 has exceeded the government forecast of 7.2 per cent for the full year. According to government data, the manufacturing sector witnessed a growth of 16.3 per cent in January-March 2010, from a year earlier. Industries driving the economic growth: Following are key industries with their significant growth rates in 2009-10 over the corresponding period last year: Mining and quarrying (10.6 per cent), manufacturing (10.8 per cent), electricity, gas and water supply (6.5 per cent), construction (6.5 per cent), trade, hotels, transport and communications (9.3 per cent), financing, insurance, real estate and business services (9.7 per cent), community, social and personal services (5.6 per cent). Impact of global recovery on Indian economy The global economic recovery also had its impact on the Indian economy, as visible in its balance of payments (BoP) during October-December 2009. India not only registered robust exports and imports figures, it also showed remarkable growth in its merchandise exports during the period. Further, during the period, trade deficit also witnessed a downfall and stood at US$ 89.5 billion, in comparison to US$ 98.4 billion during October-December 2008.

Key economic indicators:

GDP Growth CPI 2007 9.40% 6.40% 2008 7.30% 9.30% 2009 7.60% 5.50% 2010 8.30% 4.90%

Inflation rates trend: Year 2010 Jan 16.22 Feb 14.86 March 14.86 April 13.33 May 13.91 June 13.73

Interest Rate: 4.5% Growth rate: 8.3% Inflation Rate: 13.73% Bank rate: 6% Unemployment rate: 7.32% Repurchase (repo) rate: 5.75% Reverse repurchase rate: 4.5% Cash reserve ratio: 6% Statutory liquidity ratio: 25%

Indian Steel Industry

Sector structure/Market size The steel industry in India has been moving from strength to strength and according to the Annual Report 2009-10 by the Ministry of Steel, India has emerged as the fifth largest producer of steel in the world and is likely to become the second largest producer of crude steel by 2015-16.Recently, Steel Minister, Mr. Virbhadra Singh said that India will become the world's second-largest steel producer by 2012, more than doubling its capacity to 124 million tones (MT) as part of the push being given to assist overall infrastructure development. Production Steel production rose 4.2 per cent to reach 60 MT in 2009-2010, according to the Ministry of Steel. The National Steel Policy 2005 had projected an annual steel consumption growth of 7 per cent based on GDP growth rate of 7-7.5 per cent and production of 110 MT of crude steel by 2019-2020. Nonetheless, with the current rate of ongoing Greenfield and Brownfield projects, the Ministry of Steel has projected that these growth trends are likely to be exceeded and it is envisaged that in the next five years demand will grow at higher annual average growth rate of over 10 per cent as compared to around 7 per cent growth achieved between 1991-92 and 2005-06. Moreover, according to the ministry, the crude steel production capacity in the country by 2011-12 will be nearly 124 MT. According to the Ministry of Steel, 222 memorandum of understanding (MoUs) have been signed with various states for planned capacity of around 276 MT. Major investment plans are in Orissa, Jharkhand, Chhattisgarh, West Bengal, Karnataka, Gujarat and Maharashtra.

According to the Annual Report 2009-10 by the Ministry of Steel, domestic crude steel production grew at a compounded annual growth rate of 8.6 per cent during 2004-05 and 2008-09. Consumption India's steel consumption rose 8 per cent in the year ended March 2010, over the same period a year ago on account of improved demand from sectors like automobile, infrastructure and housing. The countrys steel consumption increased to 56.3 MT in the 12 months to March 2010 from 52.3 MT in the previous year, as per the Ministry of steel. Investments A host of steel companies have lined up major investment proposals. Furthermore, with an expanding consumer market, the Indian steel industry is likely to receive huge domestic and foreign investments.The domestic steel sector has attracted a staggering investment of about US$ 238 billion, according to the Minister of State for Steel, Mr A. Sai Prathap. This consists of nearly 222 MoUs signed between the investors and various state governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West Bengal. SAIL is planning to set up a 12-million tonnes plant in Jharkhand. In December, Indias largest engineering conglomerate Larsen & Toubro (L&T) and state-owned Nuclear Power Corporation of India Limited (NPCIL) formed a US$ 373.2 million joint venture for specialized steel and forging products. Stainless steel manufacturer and exporter, Varun Industries, is setting up a US$ 171.8 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur. Tata Steel has entered into a joint venture with Japans Nippon Steel for production and sales of automotive cold-rolled flat products at Jamshedpur. The JV is expected to invest US$ 400 million to set up an automobile venture in India. Steel major, JSW Steel has earmarked a capex of US$ 1.6 billion for 2010-11 and plans to increase capacity of its Bellary plant in Karnataka from 7 MT to 10 MT by end of 2010-11. Government Initiative As per the Press Information Bureau, during 2009, the government took a number of fiscal and administrative steps to contain steel prices. Central value added tax (CENVAT) on steel items was reduced from 14 per cent to 10 per cent with effect from February 2009.Moreover, in the Union Budget 2010-11, the government has allocated US$ 37.4 billion to the infrastructure sector and has increased the allocation for road transport by 13 per cent to US$ 4.3 billion which will further promote the steel industry. Exchange rate used: 1 USD = 46.36 INR (as on February 2010) 1 USD = 44.42 (as on April 2010)

Michael porters five force model For Steel Industry

Bargaining power of
Supply

Buyer

Bargaining power of Suppliers

Competitive rivalry

Threats of new entry

Threat of substitutes

Steel Industry
Supply With trade barriers having been lowered over the years, imports play an important role in the domestic markets. The demand is derived from sectors that include infrastructure, consumer durables and automobiles. High capital cost, technology. The government can increase railway freight cost and grid power cost. This in turn will determine the final price of metal.

Demand

Barriers to entry Bargaining power of suppliers

Bargaining power of customers Competition

High presence of large numbers of suppliers and access to global market.

High presence of large number of players in the unrecognized sector.

SWOT Analysis
availabilty of iron ore & coal low labour wage rates abundance of manpower mature production base
strength weakness unscientific mining low productivity cooking coal import dependence low R&D investment high cost of debt inadequate infrastructure

opportunity unexplored rural market growing domestic demand exports

threat china becoming superior as net exporter protectionism in west dumping by competitors

References:websites www.economist.com www.indiainfoline.com www.mckinsey.com www.worldsteel.com