ANALYSIS OF INDIAN STEEL

INDUSTRY
INTRODUCTION
Iron is one of the oldest inventions in the world with its first usage
reportedly dating back to 4000 BC. Steel is crucial to the development of
any modern economy and is considered to be the backbone of the human
civilization. Today Steel (the carbon alloy of Iron) finds application in
every imaginable facet of our life. The global steel industry has been
witnessing many interesting events that have influenced market dynamics
in the last ten years.
Though steel had been produced by various inefficient methods long
before the Renaissance, its use became more common after more efficient
production methods were devised in the 17th century. With the invention
of the Bessemer process in the mid-19th century, steel became a
relatively inexpensive mass-produced good. Further refinements in the
process, such as basic oxygen steelmaking, further lowered the cost of
production while increasing the quality of the metal. Today, steel is one of
the most common materials in the world and is a major component in
buildings, infrastructure, tools, ships, automobiles, machines, and
appliances. Modern steel is generally identified by various grades of steel
defined by various standards organizations.
PRODUCTION TECHNOLOGY
 PRODUCTION TECHNOLOGY

Below mentioned are few methods of producing steel:

• Blast Furnace (BF)/ Blast Oxygen Furnace (BOF) route is the most
popular way of producing steel, accounting for nearly 57% of total
production. The BF/BOF route is good for volume production, but
involves huge capital costs.
• The Electric Air Furnace (EAF) is rapidly gaining popularity
globally and uses sponge iron/scrap and coke to produce steel. EAF
route is flexible to produce different grades of steel. However, EAF
growth is constrained by power and scrap supply constraints in India.
• COREX, a new modern smelting technology has been recently
introduced in India. It does not require coke in producing steel and
therefore could become popular with Indian steel majors in time to
come.
COMPONENTS OF THE COST OF
PRODUCTION

Any sustained rise in input prices usually lead to an increase in product prices
through the cascading effect. The major components of cost of production of
finished steel are-

•RAW MATERIALS
•POWER COSTS

•INTEREST PAYMENTS
•TAXES AND DUTIES

•OTHER EXPENSES
THE GLOBAL STEEL INDUSTRY

Following the collapse of Soviet Union, the low cost steel makers in the
region have been targeting the global steel market pie, creating a price
imbalances as the cost of production of steel varies drastically across
countries The 90’s were crucial for Indian steel industry too. The
‘controlled’ environment has changed drastically, in the post-liberalization
scenario. The sector was opened up to the entry of private players, while
quantitative restrictions on foreign trade have been removed. The last ten
years has also seen inefficient steel mills with outdated technology
perishing, while new capacities that possess latest technology expertise
have come up.
Source: International iron & steel institute
 STRUCTURE OF INDIAN STEEL
INDUSTRY
 India became 5th largest producer of steel in 2010
as against 8th in 2003.
 Data reveals that Indian steel output is increasing from

42.78mt in’06 to 56.6mt in ‘09

Steel consumption grew from 9.8mt to 29.8mt during

Apr-Sep ‘10
MICHAEL PORTER’S 5 FORCES MODEL
UNDERSTANDING STEEL INDUSTRY USING
PORTER’S FIVE FORCES MODEL

Backed by robust volumes as well as realizations, steel

Industry has registered a phenomenal growth across the
world over the past few years. The situation in the
domestic industry was no exception. In fact, it enjoyed a
double digit growth rate backed by a robust growing
economy. However, the current liquidity crisis seems to
have created medium term hiccups. In this article, we
have analyzed the domestic steel sector through Michael
Porter’s five force model so as to understand the
competitiveness of the sector.
 ENTRY BARRIER: HIGH

CAPITAL REQUIREMENT

ECONOMY OF SCALE
GOVT. POLICY

PRODUCT DIFFERENTIATION
 COMPETITION: HIGH

The steel industry is truly global in terms of

competition with large producing countries like China
significantly influencing global prices through
aggressive exports.

Steel,
being a commodity it is, branding is not
common and there is little differentiation between
competing products.
 THREATS OF SUBSTITUTE: 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
aluminium. However, at present the high cost of
electricity for extraction and purification of aluminium
in India weighs against viable use of aluminium for the
automobile industry. Steel has already been replaced in
some large volume applications: railway sleepers (RCC
sleepers), large diameter water pipes (RCC pipes),
small diameter pipes (PVC pipes), and domestic water
tanks (PVC tanks). The substitution is more prevalent in
the manufacture of automobiles and consumer
durables.
BARGAINING POWER OF SUPPLIERS: HIGH

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.
BARGAINING POWER OF CONSUMERS: MIX

Some of the major steel consumption sectors like

automobiles, oil & gas, shipping, consumer durables and
power generation enjoy high bargaining power and get
favorable deals. However, small and retail consumers who
are scattered and consume a significant part do not enjoy
these benefits.
UNDERSTANDING STEEL INDUSTRY USING
SLEPT ANALYSIS
 POLITICAL FUTURE

Political parties and alignments at local and

national level.
Government Ownership and attitude
Legislation
TECHNOLOGICAL FUTURE

Government investment policy

Level of expenditure on R&D

New patents and products

 SOCIAL AND LEGAL FUTURE

Shift in value and culture

Attitude towards work
Green environment issues

Product safety issues

Employment and safety law
 ECONOMIC FUTURE

 Inflation
 Currency fluctuation and exchange rate
 Consumer expenditure
 CONCLUSION

It is universally accepted that Indian economy is growing at a

very high rate presently and the demand for steel is
also showing an upward trend. We believe, for the sake of
country and growth of economy, growth of sponge iron
industry is a must. This is possible only with the active
support of the Government. Efforts to make this sector
more eco-friendly will meet success only if competent
authorities take up the developmental jobs in proper spirit.