Steel Industry Business Op Port Unites and Identification

8/9/2019 Steel Industry Business Op Port Unites and Identification

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BUSINESS OPPORTUNITIES & IDENTIFICATION: STEEL

By: Amit Parmar (AMA) 1

Date: January 23, 2009

SUBMITTED TO:

Prof. Rasananda Panda

Project Giude

Submitted By:

Amit Parmar

PGPIBM 2009-11

AHMEDABAD MANAGEMENT ASSOCIATON

BUSINESS OPPORTUNITIES &IDENTIFICATION

STEEL


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CONTENTS

SR. NO. TOPICS PAGE NO

1. Overview of the Steel Sector 2

2. About Steel 3

3. Steel Manufacturing Process 4

4. Type of Producers 5

5. Classification of Steel products 5

6. Key Characteristics of Steel 6

Fragmentation Price Fluctuation Labour Power

Energy Intensity Entry Barriers7. Production of Steel in India 8

8. Export Import 9

9. Key Growth Drivers 11

10 Top 10 Steel Producers in the World 13

11. Top 10 Steel Producing Countries 13

12. Role of Government 14

13. Conclusion 15

14. Bibliography 16


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PREFACE

India is the 5th largest steel producing countries in the world with the production of 55.2 million metric

tons in 2008. Primary producers alone contribute around 68% whereas secondary producers contribute the

rest. At present the steel industrys demand is strong because of growth in automobile sector and in

construction industry. In recent global meltdown demand for steel in India fell but not in the way it

happened elsewhere in the world. Ministry of Steel has set a target to achieve 100 MMT of steel

production by 2019-20. Steel consumption in India is expected to outgrow GDP growth and increase at

the rate of 10% in the coming years.

This report focuses on the business opportunities available in the steel sector. This report covers history of

steel, basic steel manufacturing process, classification of steel major exporter and importers of steel,

major steel producers in the world, key drivers, outlook of steel prices in the world and India, effects of

recent meltdown in the steel industry.

This report will help to understand the Indian steel industry and its current growth. It also helps to identify

business opportunities available in the steel sector. As students we get an overview of the steel sector

which is at present one of the growing sector in India and will experience robust growth in the coming

years.


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OVERVIEW OF STEEL SECTOR

India is the 5th largest steel producing countries in the world with the production of 55.2 million

metric tons in 2008.

The industry currently provides employment to around 2 million people directly or indirectly.

Indian steel producers are divided in to two categories: primary and secondary, with primary

producers alone contributes around 68% of total steel production.

India is major exporter of pig iron. India finished steel exports have declined to 3.85 MMT in 2008-

09 from 5.242 MMT in 2007-08 due to recent global meltdown.

Following the global trend, TISCO too took the path of M&A I order to expand and grow.

TISCO acquires Corus Group in US$10 billion which was the biggest overseas acquisition by an

Indian company.

Steel companies are in capacity expansion mode as the industry is targeting to achieve 100 MMT of

steel production by 2019-20 set by Ministry of Steel.

Despite of recent global meltdown demand for steel has not fallen as it happened elsewhere in the

world.

Strong economic growth in developing economies such as China and India are expected hold steel

prices heavily.


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ABOUT STEEL

Steel is the most common metal alloy in the world. In its simplest form, Steel mostly consist alloy iron,

with a carbon content between 0.2% and 2.1% by weight, depending on the grade as both iron and carbon

have been well-known since ancient times, steel has been produced in one form or another since well

before the birth of Christ. Some of the very earliest steel was made in the eastern regions of Africa,

around 1400 BCE.

The metal known as cast iron is actually steel that has a very high carbon content, which gives it a

lower melting point and greater castability. Steel is well-known for its strength, which is given to it

precisely by the alloying elements.

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 material.

The modern steel industry produces steel through the use of the basic oxygen furnace. In these furnaces,

molten iron has pure oxygen blown through it, lowering the levels of impurities in the iron. Cleaning

agents called fluxes are also added for this same purpose. The main advantage to this process is high

quality product and processing speed.

Alloys with higher carbon content are known as cast iron because of their lower melting

point and castability. Steel is distinguished from wrought iron, which can contain a small amount of

carbon, but it is included in the form of slag inclusions. Two unique factors are steel's

increased rust resistance and better weldability.

Today, steel is one of the most common used 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.


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STEEL MANUFACTURING PROCESSBasic steps involved in the production of steel products are:

Melting Refining Casting Rolling

Steel Melting Process

BLAST FURNACE

It is a type of shaft furnace that acts as a vertical counter current heat exchanger as well as chemical

reactor in which iron ore fines along with coke fed form the top descend downward and the impurities areremoved as gases or slag.

RAW MATERIALS

Iron ore lumps, sinter, coke (made from coking coal) and fluxes such as limestone and dolomite are the

major raw materials in the steel production.

REDUCING AGENT

Reducing agent in the blast furnace is the carbon monoxide gas generated by the oxidation of carbon in

the coke.


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TYPE OF PRODUCERS

CLASSIFICATION OF STEEL PRODUCTS

HR hot rolled, CR cold rolled, GP Galvanized plan, GC Galvanized corrugated

STEEL PRODUCERS

Primary Producers(ISPs)

Large Producers

(> 1MMT capacity)

Secondary producers

Processors

stand alone units

PRODUCTS

Long Products

Bars and rods

Railboard sections

Structurals

Flat Products

Plates (GP, Tin)

Coils (HR, CR, GC)

Sheets (HR, CR, electrical)


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KEY CHARACTERISRICS

1. FRAGMENTATIONIt is one of the key features of steel industry. 6 major producers of steel account for 66% of total steel

production in the country.

2. PRICE FLUCTUATIONSteel prices have been quite volatile in the last few years. Over a period prices of steel started growing ata historic growth. In the beginning of 2008 steel prices reached to 37060 Rs/MMT but after recent global

meltdown steel prices fell drastically.

SAIL38%

TATASTEEL18%

ESSAR15%

JINDALSTEEL13%

ISPAT12%

OTHERS4%

FLAT STEEL PRODUCTION

RINL16%

TATASTEEL8%

SAIL

15%

OTHER

S61%

LONG STEEL PRODUCTION


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3. LABOUR POWERLabour is cheap in India but productivity is low compared to other steel producing countries. This is

because many small and medium sized enterprises are using inefficient technology, which results into

low labour productivity.

4. ENERGY INTENSITYEnergy constitutes about 35% of the total manufacturing cost of steel. Primary sources of energy in

the steel sector include coking coal, non coking coal, liquid hydrocarbons and electricity. The steel

industry in India consumes around 10% of electricity and 27% of coal that of the total consumption of

Indian industry.

5. ENTRY BARRIERSEntry barrier is one of the key characteristics of the steel industry in India. It covers factors that

prevent any new company from entering the industry. These factors include high capital expenses,

long gestation period, and unavailability of scrap, energy efficient coking coal and minimum

economic size. The Indian domestic steel industry faces all these entry barriers.

18077

16356

17520

19940

20850

23510

37060

25200

23350

22450

0

5000

10000

15000

20000

25000

30000

35000

40000

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

STEEL PRICES IN INDIA


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PRODUCTION OF STEEL IN INDIA

In the recent years steel consumption and production in the country have grown at respectable rates

compared to global trends.

There are lots of opportunities available in steel. There are mineral resources, manpower, technical skills

and most of what we required to make steel. There is huge growth potential of the domestic market as the

enormous resource of high quality iron ore is available in the country.

Over past few years the number of small and medium scale producers of steel has grown rapidly which

have capacity to around 0.2 to 1 million tons.

The total production of finished carbon steel in the country has been 59.02 million tonnes in 2008-09 as compared

to 14.33 million tonnes in 1991-92. Primary sector alone contributes around 68% of total production. The high

share of the secondary sector in finished steel production is largely due to substantial supplies of semis, the basic

feed material from the main producers for conversion to needed shapes by rolling.

0

10

20

30

40

50

60

70

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

STEEL PRODUCTION (In million

tonnes)

Year Production in MMT)

1991-92 14.33

1992-93 15.2

1993-94 15.21994-95 17.82

1995-96 21.4

1996-97 22.72

1997-98 23.37

1998-99 23.82

1999-00 26.71

2000-01 29.7

2001-02 30.63

2002-03 33.67

2003-04 36.19

2004-05 40.05

2005-06 42.636

2006-07 55.146

2007-08 58.233

2008-09 59.02


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EXPORT IMPORT

EXPORT SCENARIO

Although steel export began in 1964, substantial growth in exports of finished steel was witnessed only

after economic reforms. The growth in the sectors such as automobiles, infrastructure, engineering further

boost the exports of steel. India is the major exporter of pig iron. Recent global meltdown results into fell

in exports but long trends of exports are satisfactory.

IMPORT SCENARIO

As per new industrial policy steel can be freely imported. Import duty rates have been brought down

progressively in the post deregulation period. Since 2004-05 steel imports rises heavily till the period of

global meltdown. The reasons of increase in imports is the growth in production capacity of certain steel

products legged behind the domestic needs.

0

1000

2000

3000

4000

5000

6000

7000EXPORT - IMPORT OF STEEL

IMPORTS EXPORTS

Year IMPORTS EXPORTS

1991-92 1043 3731992-93 1115 895

1993-94 1153 1605

1994-95 1936 1272

1995-96 1864 1320

1996-97 1822 1922

1997-98 1815 2383

1998-99 1637 1944

1999-00 2200 2998

2000-01 1632 3000

2001-02 1375 3000

2002-03 1510 4966

2003-04 1650 5922

2004-05 2109 4903

2005-06 3850 4828

2006-07 4436 5415

2007-08 6581 5000

2008-09 5149 4036


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10%10%

9%

8%

6%

57%

IMPORT SOURCES

GERMANY RUSSIA JAPAN

UK KOREA OTHERS

24%

8%

5%5%

4%

4%

50%

EXPORT DESINATIONS

CHINA USA UAE

THAILAND ITALY IRAN

OTHERS


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KEY GROWTH DRIVERS

Historically steel was expensive and was only used where nothing else does, particularly in the cutting

edge of knives, razors, swords and other tools where a sharp edge was needed. With the time the

application of steel has changed and started applying in industries such as home appliances, automobiles,

construction, fabrication, packaging, rail and ship building.

1. INFRASTRUCTURE AND CONSTRUCTION PROJECTSThe construction sector broadly comprises of commercial office space, retail segments, IT parks and

housing. The primary requirements of the construction sectors are reinforcements bars, rounds, structural

plates, galvanized steels. Highways, railways, ports, airports, telecom and power are main constituent ofthe infrastructure sector in India. This sector is booming because retail loans are available to the

consumers and all these together constitute around 40% of steel consumption in the country. In addition

various international financial institutions come forward to finance this kind of huge projects. This drives

to the massive raise in the demand for the steel in the country.

Automobiles7% Consumer

Durables6%

Manufacturing23%

Construction21%

Infrastrucutre25%

Others18%

MAJOR STEEL CONSUMING SECOTRS


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2. AUTOMOBILESWith the economic growth of the country large section of the middle class population is growing. Inaddition to this availability of soft interest rate based car loans triggered tremendous demand for

automobiles in the country. Automobiles sector in 2008 grew at around 15% which is expected to be

continue in the near future. This is a positive sign for the persons associated with the steel industry.

3. CONSUMER DURABLESIf the automobile sector has pushed the demand for steel, the domestic consumer durable are not far

behind. Consumer durable includes home appliances such as TV sets, music system, white goods,

washing machine, air conditioners and microwave ovens. The rising level of income, change in lifestyle

of people, availability of a disposable income which further raise the demand for the consumer durable

goods. Out of total steel production in 2007-08, 6% is consumed alone by consumer durable industry.


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TOP 10 STELL PRODUCERS IN WORLD (2008)

RANK COMPANY NAME PRODUCTION

(MILLION TONS)

1 Arcelor Mittal 103.3

2 Nippon Steel 37.5

3 Baosteel Group 35.4

4 Prohang Iron & Steel Company 34.7

5 Hebej Steel 33.3

6 JFE Steel Corporation 33.0

7 Wuhan Steel Group 27.7

8 TATA Steel 24.4

9 Jiangsu Shagang Group 23.3

10 US Steel 23.2

TOP 10 STEEL PRODUCING COUNTRIES (2008)

RANK COUNTRY PRODUCTION

(MILLION TONS)

1 Peoples Republic of China 500.5

2 Japan 118.7

3 United states 91.4

4 Russia 68.5

5 India 55.26 South Korea 53.6

7 Germany 45.8

8 Ukraine 37.1

9 Brazil 33.7

10 Italy 30.6


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ROLE OF GOVERNMNET

The role of government in steel sector is motivating. The separate ministry of steel is exist whose

major objectives are:

Co-ordination and planning of the growth and development of Iron and Steel Industry in the countryboth in the Public and Private Sectors;

Formulation of policies in respect of production, pricing, distribution, import and export of iron &steel. eel industry.

In 2005 steel ministry has implemented NATIONAL STEEL POLICY with the objective of having a

modern and efficient steel industry of world standard to cater as diversified steel demand. The policy was

focusing to achieve global competitiveness not only in terms of cost, quality but also in terms of global

benchmark of efficiency and productivity. The government has set a target of achieving 100 million

tonnes of steel production per annum by 2010-20.

Government is also taking care of the small and medium scale producer. The different governments

departments such as State Small Scale Industries Corporations (SSICs) and National Small Industries

Corporations (NSICs) ensure a proper allocation of steel materials to the small and medium sector

industries.

Since the liberalization government is reducing the various duties and tariffs applicable to the

imports and exports of steel. Currently 5% custom duty is applicable to the all steel related items.

In addition there is an export duty of 15% on iron and steel melting scrap and 5% export duty on iron ore.

STRUCTURE TRENDS OF CUSTOM DUTY

Sr.

No.

Item 2002-03 2004-05 2006-07 2008-09 2009-10

1. Pig Iron 15% 5% 5% 5% 5%

2. Semis 25% 10% 5% 5% 5%

3. Bars & Rods 30% 10% 5% 5% 5%

4. Structurals 30% 10% 5% 5% 5%

5. HR Sheets/Plates 30% 10% 5% 5% 5%

6. HR Coils 25% 10% 5% 5% 5%

7. CR Coils/Sheets 30% 10% 5% 5% 5%

8. GP/GC Sheets 30% 10% 5% 5% 5%

9. HR alloy steel 30% 15% 7.5% 5% 5%

10. Stainless steel 0% 15% 7.5% 5% 5%

11. Melting Scrap 5% 5% 5% 0% 0%


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CONCLUSION

In a summary, we can conclude that steel is the one of the most common used metal in the world. There

are lots of growth opportunities are available in this sector. The strengths of Indian steel industry are

availability of Iron ore and coal, low labour wage rates and availability of quality manpower. On the other

hand there some weaknesses also such as low productivity, low R&D investments, high capital

investment, long operating cycle and inadequate infrastructure.

In addition to this the underestimation of the potential growth of the local and world steel market, lack of

sufficient investment funds, poor project management, lack of professionalism in managing the project

were responsible for the slowdown in steel sector investment in the past.

As an individual if you want to enter in the steel business there are lots of growth opportunities available

in this sector. In India still the rural market is not explored completely and in addition the domestic

demand for steel is growing. Demand of Steel in World is also rising so one can directly enter into the

business of export of steel rather than entering into the hectic manufacturing process.

On the other hand there are some threats in steel sector such as china is becoming net exporter of steel and

some of the western countries have protected policies regards to steel. There is also a threat of dumping

by your competitors such as china is doing in India. In addition long term investment in the non

performing assets results into several steel companies became liabilities for the bank.

Despite all these positive and negative aspects of steel sector one cannot ignore the presence of steel in

most of the growing and developing sectors of the world including India.


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BIBLIOGRAPHY

BOOK:

Indian Commodity Year Book 2009Publisher: National Collateral Management Services Ltd.

WEBSITES:

Indian Ministry of Steelwww.steel.nic.in/

Wikipedia, stainless steelhttp://wikipedia.org/

World steel organizationwww.worldsteel.org/

Indian steel associationwww.stainlessinida.org/

REPORTS:

National Steel Policy - 2005

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Steel Industry Business Op Port Unites and Identification

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