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Steel Indusrty
Steel Indusrty
There have been almost revolutionary changes in the global steel scene with fierce
competitive pressures on performance, productivity, price reduction and customer
satisfaction. National boundaries have been melted to encompass an ever increasing world
market. Trade in steel products has been on upswing with the production facilities of both
developed and developing countries complementing each other in the making of steel of
different grades and specialty for the world market.
Sagging price in the back drop of the economic slowdown have spelt turmoil in the industry
the world over. As in case of oil and natural gas, there is a felt need for the steel producing
countries to come together and evolve and understanding on production and pricing of steel
product. Some effort in this direction is being taken, but it is yet to take firmer roots. The
future is uncertain, but challenging and holds great promise if the right steps are taken
because of the inherent qualities of steel.
The Indian steel industry comprises of the producers of finished steel, semi-finished steel,
stainless steel and pig iron, Indian steel industry, having participation from both public
sector and private sector and private sector enterprises , is one of the fastest growing
markets for steel and is also increasingly looking towards exports and driving the growth of
the industry.
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.
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Production
Steel industry was de-licensed and decontrolled in 1991 & 1992 respectively.
Today, India is the 7th largest crude steel producer of steel in the world.
In 2008-09, production of Finished (Carbon) Steel was 59.02 million tonnes.
Production of Pig Iron in 2008-09 was 5.299 Million Tonnes .
Last 5 year's production of pig iron and finished (carbon) steel is given below:
Steel Prices
Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices
are determined by the interplay of market forces.
There has been an up-trend in the domestic steel prices since 2006-07 and the trend
accentuated since January this year.
Rise in raw material prices, strong demand in the international and domestic market
and up-trend in the global steel prices have been some of the reasons cited by the
industry for increase in the steel prices in the domestic market.
The mismatch in demand and supply is considered to be the main reason on the
demand side for the rise in steel prices. Honorable Steel Minister has held discussion
with all major steel investors including Arcellor-Mittal, POSCO, Tata Steel, Essar,
Ispat and also SAIL, RINL to explore the possibility of expediting the ongoing as well
as envisaged steel projects.
The Government also took various fiscal and other measures for stabilizing the steel
prices like exempting pig iron, non alloy steel and steel making inputs like zinc,
ferro-alloys and metcoke from customs duty; withdrawing DEPB benefits on export of
various categories of steel products and bringing back railway freight on iron ore
from classification 180 to 170 for domestic steel producers.
In May 2008, the Government imposed 15% export duty on semi-finished products,
and hot rolled coils/sheet, 10% export duty on cold rolled coils/sheets and pipes and
tubes and 5% export duty on galvanized steel in coil/sheet form in order to further
curtail rising prices and increase supply of steel in the domestic market.
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Imports of Iron & Steel
Iron & Steel are freely importable as per the extant policy.
Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate exports. Under
this scheme exporters on the basis of notified entitlement rates, are granted due
credits which would entitle them to import duty free goods. The DEPB benefit on
export of various categories of steel items scheme has been temporarily withdrawn
from 27th March 2008, to increase availability in the domestic market.
Exports of finished carbon steel and pig iron during the last five years and the
current year is as :
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Comparison and future of the industry:
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 tons (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.
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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, Chattisgarh, 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 country’s 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.
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PORTER’s FIVE FORCE MODEL
POWER OF SUPPILIERS:
MAJOR PLAYERS
Steel Authority of India Limited (SAIL) is the leading steel-making company in India.
It is a fully integrated iron and steel maker, producing both basic and special steels for
domestic construction, engineering, power, railway, automotive and defence industries and
for sale in export markets. The Government of India owns about 86% of SAIL's equity and
retains voting control of the Company. However, SAIL, by virtue of its "Navratna" status,
enjoys significant operational and financial autonomy. Major units of SAIL are as under:
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National Mineral Development Corporation Limited (NMDC)
Economies of scale
Capital and investment requirement
Customer switching costs
Access to industrial distribution channels
Access to technology
Brand Loyalty
The Likelihood of retaliation from existing industry players
Government regulations(SAIL)
Quality
Buyers
The relative Price and the performance of the substitutes
The cost of switching to substitutes. It is not easy to change to other products to
substitute the steel industry products.
Concentration of suppliers. Are there many buyers and few dominant suppliers
Branding of the products that are available in the markets
Profitability of suppliers and the suppliers are not forced to raise prices.
The suppliers threaten to backward or forward integrate into the industry
The role of quality and services that the organization provides
The industry is not a key supplier for the customer group.
Switching costs. Its easy for suppliers to find new customers as and when the
existing one move away.
Concentration of buyers. Are there a few dominant buyers and many sellers in the
industry
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There should be no differentiation in the products that are available. Also there is a
proper standardization of the product.
There should be profitability of buyers of the product. The buyers will be made
tough.
Would have to look into the role of quality and service
There is also a threat of backward or forward integration
Switching costs. Its not very easy for buyers to change the suppliers on a larger
perspective
The structure of competition. Rivalry will be more intense if there are a lot of small or
equally sized competitors.
The structure of the industry cost.
Degree of product differentiation
Strategic objectives
Exit Barriers. When leaving barriers to leaving an industry are high, competitors
trend to exhibit greater rivalry.
INDIAN COMPARISION
Essar
TATA STEEL SAIL JSW
Steel
Year of 2003(1984
1907 1954
Establishment ) 1975
construction Iron Ore
Rods
Bars Pallets
Hot Rolled Hot Rolled Hot Rolled
Pipes
Sheets Sheets Sheets
Cold
Cold Rolled Cold Rolled
PRODUCTS Rails Rolled
Sheets Sheets
Sheets
Hot Rolled Galvanised Galvanise
Wires, Pipes
Sheets Sheets d Sheets
Cold Rolled
Sheets
Production (in MT) 3.8 9,15 3.5 3.3
Percentage of
Production(%) 9 22 8 8
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