INDUSTRY ANALYSIS

Name:- Yash Rawat

Roll No :- 2112646

IRON AND STEEL INDUSTRY :

MICHEAL PORTER’S 5 FORCE MODEL :
INTRODUCTION:-
Steel is an alloy made up of iron with typically a few tenths of a
percent of carbon to improve its strength and fracture resistance
compared to other forms of iron. The iron and steel industry in India
is among the most important industries within the country. India
surpassed Japan as second top steel producer in January 2019. As
per world steel , India's crude steel production in 2018 was at 106.5
tonnes (MT), 4.9% increase from 101.5 MT in 2017, means that India
overtook Japan as the world's second largest steel production
country. Japan produced 104.3 MT in year 2018, decrease of 0.3%
compared to year 2017. Industry produced 82.68 million tons of total
finished steel and 9.7 million tons of raw iron. Most iron and steel in
India is produced from the iron ore. Policy for the sector is governed
by the Indian Ministry of Steel, which concerns itself with
coordinating and planning the growth and development of the iron
and steel industry, both in the public and private sectors;
formulation of policies with respect to production, pricing,
distribution, import and export of iron and steel, ferro alloys and
refractories; and the development of input industries relating to iron
ore, manganese ore, chrome ore and refractories etc., required
mainly by the steel industry. Most of the public sector undertakings
market their steel through the Steel Authority of India (SAIL). The
Indian steel industry was de-licensed and de-controlled in 1991 and
1992 respectively.

Bargaining
power of
Suppliers.

Threat of Industry Threat of

New
Rivalry Substitutes.
Entrants.

Bargaining
power of
Buyers.

INDUSTRY RIVALRY :-
India’s steel industry has a history of more than a century. Before
liberalization, this industry was dominated by public sector
companies. Tata steel was the only private player in the production
of steel. 1990 onwards, huge investments have been made in the
industry which lead to the entry of private players. Over the years,
firms have gained some advantage in by quality, consistency…show
more content. In building construction steel reinforced concrete,
aluminium or less common material like fibre glass in automobile
industry. Automobile industry is one of the biggest markets for steel
and steel faces competition from plastic and other composites. An
aluminium car may be lighter and more fuel efficient than a steel car,
furthermore steel may get corrode, reinforced plastic is much more
durable. It is therefore possible for substitutes to fulfil the buyers’
needs more effectively than the original. Thus although in certain
situations there are substantial substitutes the switching costs are
high, thus the threat from substitutes are substantially low. The
government has a considerable amount of influence on the steel
industry. Various kinds of subsidies are provided to the public sector
firms that which result in a competitive advantage compared to
private sector firms. Few public sector firms could sell steel at prices
less than the market value due to these subsidies. Licenses of iron
ore also play a major role in this industry. This is one of the barriers
to enter this industry. Economic Steel industry is a key part of the
growth of a nation. Steel is used as a raw material for various other
industries such as manufacturing, aerospace, infrastructure, etc. This
also means that if the growth of the country slows down, this
industry will take a hit. Hence, this industry can influence the
economy and can be influenced by the economy as well.

THREATS OF SUBSTITUTES :-
It is medium to low. Although usage of aluminum has been rising
continuously in the automobile and consumer durables sectors, it
still does not pose any significant threat to steel as the latter cannot
be replaced completely and the cost differential is also very high.
Low Plastics and composites pose a threat to Indian steel in one of its
biggest markets — automotive manufacture. For the automobile
industry the other material at present with the potential to upstage
steel is aluminum. However at present the high cost of electricity for
extraction and purification of aluminiumin India weighs against
viable use of aluminium for the automobile industry. Steel has
already been replaced in some large volume applications: railway
The bargaining power of suppliers is low for the fully integrated steel
plants as they have their own mines of key raw material like iron ore
coal for example Tata Steel. However, those who are non-integrated
or semi integrated has to depend on suppliers. An example could be
SAIL, which imports coking coal.

THE BARGAINING POWER OF BUYERS :-

The buyer bargaining power in the steel industry is moderate. This is
mainly because of few suppliers of steel in the market as compare to
buyers. Steel is used a major raw material in many industries. The
consumers thus have less bargaining power. It is necessary for the
company to set the reasonable prices because consumers can switch
to substitute product if they cannot afford steel.
THE BARGAINING POWER OF SUPPLIERS :-
The bargaining power of suppliers is low for the fully integrated steel
plants as they have their own mines of key raw material like iron ore
coal for example Tata Steel. However, those who are non-integrated
or semi integrated has to depend on suppliers. An example could be
SAIL, which imports coking coal. Globally, the Top three mining giants
BHP Billiton, CVRD and Rio Tinto supply nearly two-thirds of the
processed iron ore to steel mills and command very high bargaining
power. In India too, NMDC is a major supplier to standalone and
non–integrated steel mills

THE BARRIER TO ENTRY :-

The barriers to entry are medium. Following are the factors that
vindicate our view.
1. Capital Requirement: Steel industry is a capital intensive business.
It is estimated that to set up 1 mtpa capacity of integrated steel
plant, it requires between Rs 25 bn to Rs 30 bn depending upon the
location of the plant and technology used.
2. Economies of scale: As far as the sector forces go, scale of
operation does matter. Benefits of economies of scale are derived in
the form of lower costs, R& D expenses and better bargaining power
while sourcing raw materials. It may be noted that those steel
companies, which are integrated, have their own mines for key raw
materials such as iron ore and coal and this protects them for the
potential threat for new entrants to a significant extent.
3. Government Policy: The government has a favorable policy for
steel manufacturers. However, there are certain discrepancies
involved in allocation of iron ore mines and land acquisitions.
Furthermore, the regulatory clearances and other issues are some of
the major problems for the new entrants.
4. Product differentiation: Steel has very low barriers in terms of
product differentiation as it doesn't fall into the luxury or specialty
goods and thus does not have any substantial price difference.
However, certain companies like Tata Steel still enjoy a premium for
their products because of its quality and its brand value created
more than 100 years back.
Further more, the regulatory clearances and other issues are some
of the major problems for the new entrants. Product differentiation:
Steel has very low barriers in terms of product differentiation as it
doesn’t fall into the luxury or specialty goods and thus does not have
any substantial price
OVERVIEW OF THE INDIAN IRON AND STEEL INDUSTRY :-
At global level in 2018, the world crude steel production reached
1789 million tunnes (mt) and showed a growth of 4.94% over
2017.China remained world’s largest crude steel producer in 2018
(928 mt) followed by India (106 mt), Japan (104 mt) and the USA (87
mt). Per capita finished steel consumption in 2017 is placed at 212 kg
for world and 523 kg for China and for India it was 69 kg as published
by World Steel Association. India is the largest producer of sponge
iron in the world and the 3rd largest finished steel consumer in the
world after China & USA. The Government has taken various steps to
boost the sector including the introduction of National Steel Policy
2017 and allowing 100 per cent Foreign Direct Investment (FDI) in
the steel sector under the automatic route. The growth in the Indian
steel sector has been driven by domestic availability of raw materials
such as iron ore and cost-effective labour. Consequently, the steel
sector has been a major contributor to India’s manufacturing output.
THE INDIAN STEEL INDUSTRY :-
CONCLUSION :-
After understanding all the above view points and the current global
scenario, we believe that the domestic steel industry will likely to
maintain its momentum in the long term. However, the growth may
get affected in short run. Investors need to focus on companies that
are integrated, have economies of scale and sell premium quality
products..