Executive Summary

About Essar
y Essar is one of the leading corporate in India. y It is the first Indian steel company with Environment System ISO 14001 y Its also Certified with ISO 9002 for its quality system and ISO 27001 for IT network y It has various SBUs like

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o Essar Steel o Essar Power o Essar shiping o Essar construction o Essar oil o Essar Telecom & BPO o Essar Steel Ltd is located at the coastal zone of Gujarat near Hazira. It has 2.4 MTPA steel plants, being increase to 3.6 MTPA, the first & largest of Indias new generation steel plants. Essar has good channel distribution which sells their product in domestic as well as international market & also strong brand product 24 CARAT STEEL FROM 24 CARAT COMPANY. Essar has state of technology infrastructure, for steel manufacture, Among the 25 percentile of lowest cost producer in the world. One of the worlds lowest man powers cost, lower than other competitors. First Indian company to brand flat products7 to provide Internet based customer support. Indias largest exporter of Hot Rolled Flat Products for the last 10 years.

Industry profile
Introduction to steel industry:
Steel is highly engineered material that is critical to the functioning of society. Steel is used in applications that people come into contact with every day, inducting cars and trains homes and buildings, food packaging and briddges. Steel is a truly versatile material that comes in thousands of variations designed to meet the specific needs of end users.

Global Scenario:
Steel is produced on most regions of the world. China, European Union, Japan, USA, and Russia accounted for 69% of the 964.8 million tonnes of the steel produced in 2003. Production has surpassed one billions tones for the first time in 2004.
Top ten steel producing region, 2010 Rank 1 2 3 4 5 6 7 8 9 10 country China Japan US Russia India South Korea Germany Ukraine Brazil Turkey 2009 626.7 109.6 80.6 67.0 66.8 58.5 43.8 33.6 32.8 29.0 2010 573.6 87.5 58.2 60.0 62.8 48.6 32.7 29.9 26.5 25.3 %2009/20010 9.3 25.2 38.5 11.7 6.4 20.3 34.1 12.4 23.8 14.6

Share of world crude steel production 2009, 2010

All the major steel-producing countries and regions showed double -digit growth in 2010. The EU and North America had higher growth rates due to the lower base effect from 2009 while Asia and the CIS recorded relatively lower growth.

Over the course of the 20th century, production of crude steel has risen at an astounding rate, now fast approaching a production level of 800 million tons per year. Today, it is difficult to imagine a world without steel.

During the 20th century, the consumption of steel incre ased at an average annual rate of 3.3%. In 1900, the USA was producing 37% of the worlds steel. With post war industrial development in Asia that region now (at the turn of the 20th century) accounts for almost 40%, with Europe (including the former Soviet Union) producing 36% and North America 14.5%.

Towards the end of the last century, growth of steel production was in the developing countries such as China, Brazil and India, as well as newly developed South Korea. Steel production and consumption grew steadily in China in the initial years but later it picked up momentum and the closing years of the century saw it racing ahead of the rest of the world. China produced

220.1 million tonnes in 2003, 272.2 million tonnes in 2004 and 349.36 million tonnes in 2005. That is much above the production in 2005 of Japan at 112.47 million tonnes, the USA at 93.90 million tonnes and Russia at 66.15 million tonnes

INTRODUCTION
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Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilisation. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows an d income generation.

Indian Scenario:
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, while SAIL and Ta ta Steel were main producer, the latter being the only privet player. In 1990, the Indian steel industry had a production capacity of 23MT. In year 1992 saw the onset of liberalization and entry several domestic privet players and large privet investments flowed into the sector to add fresh capacities .

Global Steel Industry

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The current global steel industry is in its best position in comparing to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The subprime crisis has lead to the recession in economy of different countries, which may lead to have a negative eff ect on whole steel industry in coming years.

INDIAN STEEL GROWTH Slowly and steadily Controlled Regime Decontrol Stagnation Confidence 1951 1981 2005 Steel industry reforms particularly in 1991 and 1992 have led to strong and sustainable growth in Indias steel industry. Since its independence, India has experienced steady

growth in the steel industry, thanks in part to the successive governments that have supported the industry and pushed for its robust development.
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Indian steel industry is poised for rapid growth. Indias share in world production of crude steel increased from 1.5% in 1981 to around 7.3% in 2008. The private sector is considered engine of growth in the steel industry and technological changes and modernization are taking place in both the public and the private sector integrated steel plants in India.

AVERAGE COST AND ECONOMIES OF SCALE

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the average cost of production of the firm decreases as the output level increases the firm would like to be at the minimum average cost point the average cost is higher in long run than short run and company makes higher profit producing higher and high er levels of outputs .

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Average cost output Q Q1 C1 C The increase in output from Q to Q 2 causes a decrease in the average cost of each unit from c to C 1 . Economies of scale are the cost advantages that a business obtains due to expansion.

DEMAND OF STEEL
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Driven by a booming economy and concomitant demand levels, demand of steel has grown by 12.5 per cent during the last three years, well above the 6.9 percent envisaged in the National Steel Policy. Demand of Steel amounted to 53.10 mt in 2007-08 compared to 49.50 mt in 2006-07, recording a growth rate of 7.3 per cent, which is higher than the world average.

SUPPLY OF STEEL
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India is the worlds fifth largest steel producer and its share is 3% plus in global steel output which is still very low. China, the worlds biggest steelmaker, produces nearly ten times as much as India. Over the past ten years Indias crude steel output rose nearly 7%per year to 55.3 million tons , while global crude steel output increased by 4% .

DEMAND SUPPLY MISMATCH

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India is one of the worlds top ten steelmakers its domestic output is insufficient to meet the demand in all segments. Consumption of steel is very fast and 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.

MARKET ANALYSIS
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Concentration ratio of an industry is an indicator of the relative size of firms in relation to the industry as a whole . The 4 firm concentration ratio of the Iron and Steel Industry is 71%. Both homogenous product or product differe ntiation are possible There is a price war and price rigidity Price output decisions are very difficult and indeterminate.

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This implies that there is oligopoly in the industry as it is dominated by few major players

Export & Import of Steel in India Exports have grown fast and at a rate exceeding 25% per annum between 1991 -92 and 2002-03. Thereafter, till 200607export levels stagnated at around 4 -4.5 Million Tonnes per year. On the other hand, imports followed a different growth path. In spite of progressive reduction in customs duty levels after deregulation, imports remained around 1 -2 Million Tonnes per year till 2003-04 and rose rapidly in the last two fiscals.

SUBSIDIES AND ISSUES OF COMPETITIVENESS

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India does not provide direct subsidies for exports, although indirect subsidies on the nature of exemption from tax and import duty are provided. The Government of India implements the Export Promotion of Capital Goods (EPCG) scheme which provides for a reduction or exemption of customs duties and an exemption from excise taxes on imports of capital goods. The EPCG scheme has been countervailed in the US, Canada, as well as the EU.

SUBSIDIES AND ISSUES OF COMPETITIVENESS

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The income-tax benefits-related export activities are incorporated in sections 80HHC, 10A and 10B of the Income Tax Act. The reserve bank of India has accordingly issued directions to commercial Banks to provide export credit both at pre - and post-shipment stages. India also administers a number of duty drawback schemes that allow for the remission or drawback of import charges levied on inputs that are consumed in the production of an exported product. Schemes such as duty Entitlement pass book Scheme (D EPB) and Duty free Replenishment certificate (DFRC) fall under this category.

SWOT ANALYSIS
Strengths y y y y

Availability of iron ore and coal Low labour wage rates Abundance of quality manpower Mature production base

Weaknesses
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Unscientific mining Coking coal import dependence Low R&D investment Inadequate infrastructure

Opportunities
y Unexplored rural market y Growing domestic demand y Exports y Consolidation

Threats
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China becoming net exporter Protectionism in the West Dumping by competitors Global economic slowdown

Major Players in steel sector

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Steel Authority of India Ltd.(SAIL) Tata Iron and Steel Co.Ltd (TISCO) Essar Steel Ltd. Jindal Vijaynagar Steel Ltd. Jindal Iron and Steel Co.Ltd.(JISCO) Tata SSL Ltd. Mukand Ltd. Usha Ispat Ltd. Jindal strips Ltd. KalyaniSteel ltd. Mahindra Igine Steel Co.Ltd. Electro Steel Casting Ltd. Saw pipes Ltd. Sesa Goa Ltd. Uttam Steel Ltd. National Mineral Development Corporation (NMDC) Ispat Industry Ltd. Lloyds Steel Industry Ltd.

Current Scenario
Global Scenario
Worlds crude steel production has reached a level of 1,329 mn tonnes in CY 2008 but declined by 1.1% on YoY basis. During the period CY 2001-2008, the world crude steel production has grown at a Compounded Annual Growth Rate (CAGR) of 7.9%. Growth in crude steel production was mainly driven by emerging countries such as China and India which registered a CAGR o f 18.7% and 10.6%, respectively, during the same period. With global economic meltdown in CY 2008, global crude steel production in each month, post the month of August, has registered a negative growth on YoY basis. China produced about 502 mn tonnes of crude steel but the growth has slowed down to 2.6% as compared to 15.8% recorded in CY 2007 and 18.8% in CY 2006. India remained the fifth-largest crude steel producer, registering a growth of 3.7% on YoY basis.

Domestic Steel Industry

Indias finished steel production has increased from 35.4 mn tonnes in FY 03 to 52.8 mn tonnes in FY 08, registering a CAGR of 8.3%. During the same period, finished steel consumption has grown at an incremental CAGR of 11.9%. Demand of steel in the country has been growing at a multiplication factor of approximate 1.2x -1.3x of the growth rate of the economy. Construction sector in the country is the largest consumer of steel and accounted for about 52% of the total finished steel consumption in FY 08. Indias exports of finished steel have remained almost stagnant in the range of 4-5 mn tonnes in the past six years. But import of finished steel has grown from 1.5 mn tonnes in FY 03 to 6.5 mn

tonnes in FY 08, registering a CAGR of 33.8%. In FY 08 , India turned into a net importer of finished steel as countrys import rose by almost 46% on YoY basis.

Input Scenario
India has self sufficiency in iron ore but for coking coal it has to mainly rely on imports. Iron ore production in the country has increased from 123 mn tonnes in FY 04 to 204 mn tonnes in FY 08, registering a CAGR of 13.9%. In FY08, India produced about 204 mn tonnes of iron ore, out of which the country consumed about 100 mn tonnes and 104 mn tonnes of iron ore was exported out of which about 80% of exports were made to China. Countrys coking coal import has increased almost two fold in the past six yea rs. In FY 08, India imported about 22 mn tonnes of coking coal. Coke which can be directly used in BF is also not available in plenty in the country. Imports of coke in the country have increased from 2.2 mn tonnes in FY 03 to 3.8 mn tonnes in FY 07.

Government Protection to Indian Steel Industry

The iron and steel industry presents one of the most energy intensive sectors within the Indian economy and is therefore of particular interest in the context of both local and global environmental discussions. Increases in productivity through the adoption of more efficient and cleaner technologies in the manufacturing sector will be effective in merging economic, environmental, and social development objectives. A historical examination of producti vity growth in Indias industries embedded into a broader analysis of structural composition and policy changes will help identify potential future development strategies that lead towards a more sustainable development path.

y India has traditionally been one of the major producers of steel in the world. Till the 1990s the steel industry of India was regulated and controlled by government policies.

y After the economic reforms of the early 1990s, the Indian steel industry has evolved significantly to confor m to global standards.

India has set a vision economically developed nation by 2020. The steel industry is expacted to play a major role in indias economic development in coming years. The steel industry in india has very high growth potential and is expacted to register significant growth in coming dacads. India is expected to emerge as a strong force in the global steel market in coming years.

The two major aspects that are expected to play a significant role in the growth of the steel industry in India are Abundant availability of iron ore in the country The country has well established facilities for steel production

The major sectors where consumption of steel is expected to grow in the coming years are Construction Housing Ground transportation Hi-tech engineering industries such as power generation, petrochemicals, fertilizers

Industry Structure

y At the time of independence, India had a small Iron and Steel industry with production of about a million tonnes (mt). In due course, the government was mainly focusing on developing basic steel industry, where crude steel constituted a major part of the total steel production. Many public sector units were established and thus public sector had a

dominant share in the steel production till early 1990s. Mostly private players were in downstream production, which was mainly producing finished steel using crude steel products. Capacity ceiling measures were introduced. Basically, the steel industry was developing under a controlled regime, which established more public sector steel companies in various segments.

y Till early 1990s, when economic liberalization reforms were introduced, the steel industry continued to be under controlled regime, which largely constituted regulations such as large plant capacities were reserved only for public sector under capacity control measures; price regulation; for additional capacity creation producers had to take license from the government; foreign investment was restricted; and there were restrictions on imports as well as exports. y Undoubtedly there has been significant government bias towards public sector undertakings. But not all government action has been beneficial for the public sector companies. Freight equalization policies of the past were one example. The current governmental moral -suasion to limit steel price increases is another y However, after liberalization when a large number of controls were abolished, some immediately and others gradually the steel industry has been experiencing new era o f development. Major developments that occurred at the time of liberalization and thencefort h were:

1. Large plant capacities that were reserved for public sector were removed; 2. Export restrictions were eliminated