Analysis of Indian Steel Industry

8/7/2019 Analysis of Indian Steel Industry

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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 humancivilization. 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 efficientproduction 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 inbuildings, 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 productprices 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 lastten

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

Back y r st v l s a s lla s r aliz ati s, st l

I stry a s r ist r a al r t acr ss t

rl v r t a st f y ars. T sit ati i t

sti c i stry a s xcepti . I f act, it en j y ed a

double di it r ow t r ate back ed by a r obu st r ow i ng

economy . Howev er, t e curr ent li ui dit y crisis seem s to

hav e cr eated medi um ter m hi ccup s. In this arti cle , we

hav e anal y z ed the dome sti c steel sector thr ough i chael

P orter·s fiv e f or ce model so a s to understand the

competitiv ene ss 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. owever, 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 B 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 non²integrated 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. owever, small and retail consumers whoare 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 andnational level.

Government Ownership and attitude

Legislation



TECHNOLOGICAL FUTURE

Government investment policyLevel 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.

















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Analysis of Indian Steel Industry

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