Indian Steel Industry

2011

Submitted By - Group 13

Akhil Jain

Nikhil Srivastava

Shibi Singh Gaharwar

Akshay Rathod

Ankit Aggarwal

Himanshu Sirohi

Indian Steel Industry

Indian Steel Industry 2011

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Contents

1. Industry Perspective: ................................................................................................................................ 3

1.1 Size of Industry ..................................................................................................................................... 3

1.2 Employment: ...................................................................................................................................... 4

1.3 Growth over the years ........................................................................................................................ 4

1.4 Acquisition over the years .................................................................................................................. 5

1.5 Major Players in the Industry ............................................................................................................. 5

1.6 Foreign Player in Indian market: ...................................................................................................... 6

1.7 Commodity prices of Steel movement: .............................................................................................. 7

1.8 Dumping: ............................................................................................................................................ 7

2. Macro-Economic variables affecting the industry ................................................................................. 8

2.1 GDP/Economic Growth: .................................................................................................................... 8

2.2 Inflation: ........................................................................................................................................... 10

2.3 Government Policies/Liberalization: ................................................................................................ 13

2.4 Environmental Concerns: ................................................................................................................ 18

2.5 Availability of raw materials: ........................................................................................................... 18

2.6 Flow of money and tax measures : .................................................................................................. 22

2.7 Growth of complementary Sectors:- ................................................................................................ 24

2.8 Labour skilfulness and availability:- ................................................................................................ 26

2.9 FDI/FII in Indian steel industry: ...................................................................................................... 28

3. SWOT Analysis of Indian Steel Industry:............................................................................................... 31

4. Future Prospect ...................................................................................................................................... 32

4.1 Steel Demand in Rural Markets: ...................................................................................................... 32

4.2 Exports Opportunities: .................................................................................................................... 34

4.2 Development of New Technology: .................................................................................................. 36

5. Conclusions: ........................................................................................................................................... 39

6. References:- ........................................................................................................................................... 40


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1. Industry Perspective:

India's Steel Industry has a history of more than a century. Before the liberalization, the Indian steel industry was a predominantly synchronized one with the public sector industry. Tata Steel was the only major private player involved in the production of steel. SAIL and Tata Steel have been the major steel industries of India. The liberalization of the India economy directed to the opening up of many steel industries, consequently, increased production capacity. Since 1990, a huge investment has been made into the industry.

From 1997 to 2001 when the overall global steel industry was facing a depression, Indian Steel Industry also went through a rough phase but improved after 2002. India has now emerged as one of the largest producers of steel in the entire world. Almost all varieties of steel are now being produced in the country. India has also emerged as a net exporter of steel and Indian steel is being increasingly accepted in the global market. 1.1 Size of Industry

PSU Net worth(31.03.2005) Net worth(31.12.2010)

SAIL 10011.00 36115.00

RINL 6878.00 13266.00

NMDC 2568.77 18601.00

MOIL 257.26 2011.19

MSTC 154.96 450.00

KIOCL 1846.69 1960.84

MECON (-) 234.76 173.23


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1.2 Employment:

The total employment in the industry is more than two million (including

direct and indirect employment). Most of the Steel plants are situated in economically backward regions of the country. Therefore, Steel companies have contributed to the overall development of civic, medical, educational and other facilities in these regions.

Since non-executives recruitments are carried out mainly on regional level,

a large number of SCs/STs and other weaker section of the society get the benefit of employment in SAIL. For jobs of temporary & intermittent nature, generally contractors deploy workmen from the local areas, which again provide an opportunity for employment of local candidates of economically weaker section.

Establishment of steel plants in economically backward areas has given a fillip to

the economic activities thus benefiting the support population providing different types of services. Over the years, a large group of ancillary industries has also developed in the vicinity of Steel Plants. This has created opportunities for local unemployed persons for jobs and development of entrepreneurship.

PSU No. Of employees(31.12.2010)

SAIL 113403 RINL 17900 NMDC 5902 MOIL Ltd 6676 MECON 1851 KIOCL 1349

1.3 Growth over the years

The steel industry of India has seen tremendous but a steady growth,

backed by many initiatives taken by Indian Government. The crude steel of India will grow at an annual rate (CAGR) of more than 10 percent during 2010 – 2013. Additional initiatives taken by Government, is proving to be helpful to boost economic growth, by injecting various funds in industry such as Infrastructure, Construction, Power and Automobiles. This growth impetus will definitely cater future growth of Indian steel industry. The prospective growth of the Indian steel industry not only attracts Domestic capital, but numerous other foreign global steel players have been planning to invest the market or have announced their


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expansion plans. For example, AreclorMIttal & POSCO have planned mega Greenfield projects at many locations of India. Additionally few other global players have entered into strategic partnerships or joint ventures with the Indian Steel majors to capitalize on existing on the existing client base in the region.

Global Perceptive: Steel Industry is a booming industry in the whole world. The increasing demand for it was mainly generated by the development projects that have been going on along the world, especially the infrastructural works and real estate projects that has been on the boom around the developing countries. Steel Industry was recently dominated by the US but this picture is changing with a rapid pace with the Indian steel companies on an acquisition spree.

1.4 Acquisition over the years

The steel industry has seen major acquisitions over the years and profound

the status of one of the most dynamic industry in the world. Mittal Steel, has acquired World’s largest Steel company Arcelor Steel to become the world’s largest producer of steel named Arcelor-Mittal. TATA Steel has acquired the world’s fifth largest company, Corus, with ever highest steel price. The increasing needs of steel by the developing countries for its infrastructural projects have pushed the companies in this industry near their operative capacity. World steel industry is in booming phase where Mergers and Acquisitions are going on all around the world. Thus the present Global scenario suggests that the OECD Countries do not have their monopoly in Steel Market.

1.5 Major Players in the Industry

Steel industry was mostly dominated by Public sector before liberalization

in 1991. But liberalization gives a new life to the industry. It allows new private players to enter in the market and encourages existing players to expand their capacity. This eventually brings competition in the market. Presently India is the 5th largest producer of crude steel in the world and is expected to become the 2nd largest producer by 2015-16.

Production of crude steel (in Mn tonnes): Public Sector 16.714 Private Sector 48.161 Total 64.875 Percentage share of Public sector 26%


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Production of sponge iron (in Mn tonnes): Coal based 15.52 Gas based 4.48 Total 20

Public sector players: • Steel Authority of India Ltd(SAIL) -- market leader public sector company in

the sector

• Rashtriya Ispat Nigam Ltd. (RINL)

• NMDC Ltd.

• MIOL Ltd

• MSTC Ltd

• Hindustan Steelworks Construction Ltd. (HSCL)

• KIOCL Ltd

• Bird Group Of Companies (BGC) Private sector Player:

• TATA Steel Ltd. – Private sector market leader

• ESSAR Steel Ltd.

• MUKAND LTD.

• Sun flag Iron & Steel Co. Ltd.

• JSW Steel

• Bhushan Steel Ltd.

1.6 Foreign Player in Indian market:

Recently, the steel industry is receiving significant foreign investments such

as POSCO—South Korean steel producer—and ArcelorMittal Group—UK/Europe based steel producer—announcing plans for establishing about 12 MT production units each in India. But clearance from Environment ministry is delaying in the process. Such competition in market increases the production capacity of sector. Growth in infrastructure sector is also having an increasing effect on demand of steel. Such competition will help India to become market leader in world and may help to become a net steel export country.


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1.7 Commodity prices of Steel movement:

Commodity Futures markets are prominent parts of the global financial economy. Futures trading have been an important agency in the way the financial economy has grown to its contemporary form. My role in the project includes investigating the role of commodity futures markets in the financial economy and discusses its theoretical understanding in light of the trading practices in these futures markets. The focus of our research has been maintained on steel futures traded on a commodity exchange.

The result of the limited research that has been done in the short duration

of 1 month brings forth the uncertainty of investor behavior and challenges the market oriented idea of rational investors as proposed by the theory of futures trading.

Our research focuses on the importance of commodity futures markets and

the role they play in commodity price stabilization. The proponents of futures markets argue about the importance of futures markets based on the factors like price discovery and price stability. Price discovery and price stability parameters are only partly true in any given derivative market and, therefore, show the weakness in the theoretical argument in favour of commodity futures markets. Derivative trading in steel has been chosen as the commodity futures in focus due to the inherent steel price instability and its latest introduction as a commodity to be traded on the futures market.

Steel demand has been growing continuously in the developing economies

and any sudden price fluctuations creates detrimental effects in the production process within these economies, as they heavily depend on steel for infrastructural growth. So, steel futures might create a condition of further price fluctuations due to speculative activity and thus can prove to be harmful for the producers and consumers of the emerging economies. These producers and consumers lack the capability to accommodate with the problems of over-production and sudden price rise, impacting the aggregate demand and supply which often has been observed to be imbalanced.

1.8 Dumping:

Many nations are accused of this ‘heinous crime’ on a day to day basis.

Though legally speaking ‘dumping’ is not a ‘crime’ as per WTO, which surely does not encourage it but at the same time permits this activity. Things get stranger when China comes into picture.


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Well what really is dumping? Dumping is exporting a product to another nation at a price below normal value. Now that raises another question: what is this ‘normal value’? It is a price that the exporting nation charges in its domestic market (or an approximation thereof).

Now we see why dumping is discouraged. Firstly it comes under the classification of predatory pricing. Secondly and more importantly it distorts the domestic market of the importing nation. It is allowed on the name of free market. Under GATT, nations can take action against dumping so that the final value of the foreign product in their market is close to normal value of the dumped product at home. Authorities investigate such cases and impose punishment that is valid for roughly/generally a term of 5 years. The incidence of these cases is maximum in two obvious nations. Argentina being one and the other being INDIA.

Finally we come to the astounding bit. China is not granted a "Market Economy Status" by the EU. For now the perplexing question arises: when cases of dumping come up against China, how do we calculate the normal value of Chinese product. To do so, an ‘analogue market’ is chosen, i.e. the normal value is calculated for that domestic market.

Antidumping and Indian steel industry: Against India cases:

• Thailand to impose antidumping duty on Indian steel products

• EU to discontinue anti-dumping duty on Indian steel wires

Cases by India:

• India imposes anti-dumping duties on stainless steel from abroad

• Anti dumping duty on Chinese tyre and steel

2. Macro-Economic variables affecting the industry

2.1 GDP/Economic Growth:

India’s economic growth is dependent upon the growth of the Indian steel industry. Consumption of steel is considered as an indicator of economic development. While steel continues to have an iron grip in traditional sectors such as construction, housing and ground transportation, it is also increasingly used in engineering industries such as power generation, petrochemicals and fertilizers. India occupies a vital position on the global steel map, with the establishment of


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new steel mills, acquisition of global scale capacities by players, continuous modernization and upgradation of older plants, improving energy efficiency and backward integration into global raw material sources.

Global steel giants from across the world have shown interest in the industry due to its phenomenal performance. For instance - the crude steel production in India registered a year-on-year growth of 6.4% in 2010 and reached 66.8 Million Metric Tons. Indian crude steel production will grow at a CAGR of around 10% during 2010-2013. Moreover, with the government proactive incentive plans to boost economic growth by injecting funds in various industries, such as construction, infrastructure, automobile, and power will drive the steel industry in future. The report also reveals that, steel consumption in India is expected to grow significantly in coming years as per capita finished steel consumption is far less than its regional counterparts.

According to government estimates, the Iron and Steel Industry contributes around 2 per cent of GDP. Indian steel industry has travelled a long journey from having a negligible global presence to a globally acknowledged industry for its product quality.


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2.2 Inflation:

High inflation has severely hit the Steel Industry. High inflationary rates have caused slowdown in the sector. Automobile industry and construction industry have been the major consumers of steel commodities. Slowdown in these industries has further hit the steel industry adversely.

Recent policy rate hike by 25 basis points, the 12th in the series since March 2010 has forced the commercial banks to pay more while borrowing from RBI. Inflation in August rose to 9.78%, the highest in 13 months compelling RBI to increase the rate to 8.25%.

Construction Industry: Experts of construction and real estate industry sense that the current rate hike and the anticipation of another round of hike in the coming months is likely to blow down the demand for new houses and the availability of loans in India. Many new housing projects are on hold and many key construction companies have slowed down their activity in the market.

According to the construction firms in the country, the bookings for the new flats have gone down in the last few months. It is becoming very difficult for builders to find source of capital to construct flats because banks are not providing


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loans easily as they used to do earlier. Moreover, the number of late payments and defaults has also gone up in the last months.

Automobile Industry: This industry has also been hit by weak demand. The number of new vehicle orders has gone down drastically. Even before the festive season demand is not that high as it used to be. Key players like Tata and Maruti are also facing a similar problem. Less demand of vehicle is leading to a “no-discounts” season which further discourages people from buying the vehicles. Many smaller manufacturers have already considered cutting down the new production units and are planning to manufacture less number of vehicles of different models.

According to the experts of automobile industry, the competition in the Indian automobile industry has grown fierce, especially in the family car segment. Every player wants to develop cheap, good looking fuel efficient car. On the other side, increased loan rates and surging fuel cost have demotivated customers from buying cars. All this, when coupled with each other, land the automobile industry in deep troubles in coming months.

This overall scenario explains the impact of hike in cost of borrowings on the profitability, investment and growth of many companies which are dependent on Steel directly or indirectly. The global recession like outlook has added the remaining fears in the investment sector as well.

Few effects of inflation are:

• Seller’s market results in deterioration of the quality of goods produced. Give impetus to speculative activities.

• Most serious: disrupts the smooth functioning of the price mechanism. • Wage & Salary Earners: wages do not rise proportionally with rise in cost of living.

If they are well organized in trade unions, they may not suffer much.

Unemployment:

The demand for goods and services and a return on investment are drivers of machine of capitalism. If people are unemployed, production of goods and provision of services falls off, and simultaneously, the people who are unemployed lack the wherewithal to purchase goods and services. People who still have money, investors, are reluctant to invest any money in the production of goods or the provision of services because when production and consumption are down, there is no opportunity to get a return on the investment.


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The ability of government to provide for people is also seriously compromised. When there is high unemployment, people pay less in income taxes and also pay less in sales taxes because they purchase fewer goods and services. This leads to less in the way of public services, which includes everything from police and fire protection to the staffing for the municipal swimming pool and rubbish pickup.

Effects of Unemployment:

-Low economic growth. -A loss of production and output because those who are unemployed are not able to add towards GDP. -A misallocation of resources this occurs because those who are employed will have the burden of paying for the unemployed. This in time will result in a fall in living standards. -A decline in labor market skills because those who are persistently unemployed will lose valuable skills. -A cost to the government for the simple reason that the government must fund the unemployed increasing its budget deficit. -High unemployment means there is an excess supply of jobs. This means that employers can more easily find labor and are less likely to increase wages to attract workers.

Indian Steel

Industry

Unemployment

InflationLow Economic

Growth


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So, we can observe that Unemployment, Inflation and Low economic growth are related to each other and affect the Indian steel industry adversely.

2.3 Government Policies/Liberalization:

Though Indians were familiar with Steel from Vedic Age, more than 4000

years ago, the initialization of Indian Steel Industry was begun by Sir Jamshedji Tata in 1907. TISCO was started in 1907, later Mysore Iron and Steel Works (later renamed as Visvesvaraya Steel Works) was established in year 1936, and in year 1939, the production of Steel was started in another private company the Iron and Steel Company. Thus, we can conclude that India at the time of independence, India possessed a small but viable steel industry with an annual capacity of 1.3 million tonnes. In 1951, the finished steel production in India was 1.1 million tonnes.

After Independence, Steel Industry became one of the major focuses in planned economic development; it became one of the key sectors for public investment in first five year plan itself. The phenomena started with the signing of agreements with Germany in 1953 to set up a plant in Rourkela, Orissa. Later, in 1956, two more agreements with USSR (for Bhilai Steel Plant) and UK (for Durgapur Steel Plant) had been signed. The successive capacity augmentations at Bhilai, Durgapur and Rourkela helped the capacity to further rises to 2.5, 1.6 and 1.8 million tonnes per annum respectively by the end of 60s. Bokaro Steel Plant was set up in 1973-74 with capacity of 2.5 million tonnes per annum. The major restructuring took place in 1978, when Steel Authority of India Limited (SAIL), a Public Sector Enterprise came into picture with an aggregated capacity of over 10 million tonnes per annum. The first on shore public sector integrated steel plant was set up in 1992, the Rashtriya Ispat Nigam Limited with a capacity of 3 million tonnes per annum. During the first two decades 1950-1960 and 1960-1970, the average annual growth of Steel Production exceeded 8 percent, from 1970-1980 the growth came down to 5.7 percent and boosted up marginally for next decade to 6.4 percent per annum.

Before 1990s, the steel industry was by and large the exclusive safeguarded and controlled by Public Sector, the TISCO being the only exception. The new economic policy announced in 1191, better known as liberalisation phase, was no doubt a milestone in the evolution of Indian Economy. But also, the liberalisation phase of Indian Economy, makes the Iron and Steel Industry undergone a sea change. The process of economic reforms accompanied in substantial liberalisation of policies and institutions governing trade, industry and finance. Steel Industry has become one of the foremost sectors to be opened under the New Economic


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Policy. Substantial Private Investments flowed in with the consequent change indicating a new beginning for the interplay of free market enterprises in the vital sector.

• Industrial and Trade Policy Resolutions in 1991 with regard to the Steel industry – Exempted from industrial license system – Abolition of price controls – Liberalizing conditions for FDIs – Liberalization of imports and exports – Lowering tariff level

If we compare both pre and post liberalization era with the concern of Steel

Industry, there are many interesting and significant structural changes occurred. The Steel Market of India has been changed from a Seller to a Buyer market, at the consumer or demand end. The excessive control exercised by Government has been replaced by healthy Competition from private players. The price control by Government i.e. administered price has been replaced by Supply-Demand market driven prices. The structure of Indian Steel Industry was significantly changed with the advent of private sectors using World Class technologies and thus capacities have further improved in post liberalization era.

Fig1. World Crude Steel Production

WORLD CRUDE STEEL PRODUCTION 2009

Europe, 194.73,

15.88%

C.I.S. (6), 97.36,

7.94%

North America, 82.25,

6.71%

Middle East, 16.59,

1.35%

Africa, 14.84, 1.21%

South America,

37.82, 3.08%

India, 56.61, 4.62%

Rest Asia, 151.88,

12.39%

Oceania, 6.01, 0.49%

China, 567.84,

46.32%

There has been a shift towards the selection of the product mix. For example, private players like TISCO were mainly confined to the production of long products. The only producer of hotsector. Now including TATA StSteel in private sector. With the liberalisation phase, there has been a clear focus on state-of-art technology. The new technologies like Corex Thin Slab Casting and “Compact Strip Mill Technology”, “DC EAFs” etc have been providing extra edge to Indian Steel Industry. The focus of industry changes from mass production to Consumer Satisfaction and Outstanding Quality of steel products in the competitive environment.Steel has been highly accepted in international markets.

The Indian steel industry, with the annual production of about 1 mt in 1947 i.e. at the time of our independence, has come long way to reach the production of about 66 mt in 2010-11. The stemajor players in the industry have announced their plans for significant investments in mounting their capacities. Remarkable development of the steel industry with active participation of private sectorindustry with the global steel industry has also induced the government to come up with a National Steel Policy in 2005. An all new policy framework, The National Steel Policy 2005 was drafted with the aim of establishing rofor the development of the steel industry. The policy visualizes steel production to reach at 110 mt by 2019-will show these expectations are not excessively high.

With increasing requirement for huge investments in the industry private

sector’s role would be critical in the expansion of the steel industry. As it appears, steel industry will continue to be dominated by a few large players and the


There has been a shift towards the selection of the product mix. For example, private players like TISCO were mainly confined to the production of long products. The only producer of hot-rolled flat products was SAIL in public sector. Now including TATA Steel, there are 5 main producers of flat products of Steel in private sector. With the liberalisation phase, there has been a clear focus

art technology. The new technologies like Corex Thin Slab Casting and “Compact Strip Mill Technology”, “DC Electric Arc Furnaces”, “Twin Shells AC EAFs” etc have been providing extra edge to Indian Steel Industry. The focus of industry changes from mass production to Consumer Satisfaction and Outstanding Quality of steel products in the competitive environment.Steel has been highly accepted in international markets.

The Indian steel industry, with the annual production of about 1 mt in 1947 i.e. at the time of our independence, has come long way to reach the production of

11. The steel industry is presenting promising future growth as major players in the industry have announced their plans for significant investments in mounting their capacities. Remarkable development of the steel industry with active participation of private sector and integration of India steel industry with the global steel industry has also induced the government to come up with a National Steel Policy in 2005. An all new policy framework, The National Steel Policy 2005 was drafted with the aim of establishing roadmap and framework for the development of the steel industry. The policy visualizes steel production to

-20 with annual growth rate of 7.3 percent. As later sections will show these expectations are not excessively high.

asing requirement for huge investments in the industry private sector’s role would be critical in the expansion of the steel industry. As it appears, steel industry will continue to be dominated by a few large players and the

Finished Steel Production

13,566.0

-

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

1991

(000' Tonnes)

Fig2. Growth of Indian Steel Industry since Liberalization


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There has been a shift towards the selection of the product mix. For example, private players like TISCO were mainly confined to the production of

rolled flat products was SAIL in public eel, there are 5 main producers of flat products of

Steel in private sector. With the liberalisation phase, there has been a clear focus art technology. The new technologies like Corex Thin Slab Casting and

Electric Arc Furnaces”, “Twin Shells AC EAFs” etc have been providing extra edge to Indian Steel Industry. The focus of industry changes from mass production to Consumer Satisfaction and Outstanding Quality of steel products in the competitive environment. Indian

The Indian steel industry, with the annual production of about 1 mt in 1947 i.e. at the time of our independence, has come long way to reach the production of

el industry is presenting promising future growth as major players in the industry have announced their plans for significant investments in mounting their capacities. Remarkable development of the steel

and integration of India steel industry with the global steel industry has also induced the government to come up with a National Steel Policy in 2005. An all new policy framework, The National

admap and framework for the development of the steel industry. The policy visualizes steel production to

20 with annual growth rate of 7.3 percent. As later sections

asing requirement for huge investments in the industry private sector’s role would be critical in the expansion of the steel industry. As it appears, steel industry will continue to be dominated by a few large players and the

Finished Steel Production

66,013.0

2011

Fig2. Growth of Indian Steel Industry since Liberalization


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industry will remain oligopolistic – as it is internationally. The share of fixed cost to total cost for selective steel producers in India is very high making it prone to increasing returns to scale and the consequent market structure. The key players like TISCO, public sector entities, POSCO, Jindals, Essar, and Arcelor-Mittal will be among the major players accounting for the bulk of the 100 plus million tons of production in the future.

Recent Major Initiatives by Ministry of Steel:

• National Steel Policy 2005 is under review and the process for drafting a 'National Steel Vision' has since been initiated

• Five year strategy paper has been prepared for promotion of Steel sector in the country.

• A policy paper on R&D has also been prepared with special focus on beneficiation, coal ash reduction and promotion of production of high grade value added Steel in the country.

• New techno-economic bench marks have been evolved on International pattern for improvement in performance of Steel PSUs.

• Sevottam Compliant Citizen's Charter has been evolved and included in the Result Framework Document (RFD) of the Ministry.

• In order to enhance financial powers of SAIL Board, the Government conferred 'Maharatna' status on SAIL in May 2010.

• The Government conferred 'Navratna' status on RINL in November 2010 to enable the Company to become globally competitive.

• International Coal Ventures Limited (ICVL), a Special Purpose Vehicle, with equity participation to an extent of ` 3500 crore by SAIL, RINL, Coal India Ltd, NMDC and NTPC Ltd. for acquisition of metallurgical and thermal coal assets abroad has been incorporated. ICVL will function like a Navratna company (with powers to clear proposals involving investment of up to ` 1,500 Crore). ICVL is assisted by a panel of investment bankers on acquisition of coal assets abroad through equity purchase, JVs in existing mines or Greenfield projects in Australia, Canada, Indonesia, Mozambique, Russia and USA. A MoU was signed between ICVL and the Provincial Governor of Kalimantan, Indonesia on 25th January, 2011 envisaging direct allocation of mineral resources in the Province for ICVL.

• 8.38% of the total government equity in NMDC was offered for sale through FPO. The entire proceeds from the offer for sale totalling ` 9930.42 crore has been deposited in the government account. Disinvestment of 10% Government of India’s shareholdings in MOIL has been completed. The Government earned ` 618.76 crore by disinvestment of MOIL.

• The Government has also decided to disinvest 10% of its shareholding in SAIL and for raising of 10% of additional equity by SAIL, in two discrete tranches. Each


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tranche will consist of 5% raising of fresh equity capital by SAIL and 5% disinvestment of Government of India’s share. The process has since commenced.

• In order to encourage R&D activities in iron & steel sector, Ministry of Steel is providing financial assistance from Steel Development Fund (SDF) and Plan Fund. 64 research projects initiated by public and private undertakings, research laboratories, educational and other promotional institutions have so far been approved at a cost of ` 442 crore during 2010, of which the SDF component is ` 278 crore. So far 31 projects have been completed and 24 research projects are underway.

• ` 118 crore was allocated from Plan Fund during the 11th five year plan for promotion of R & D in steel sector. Under this scheme 8 R& D projects have been approved with Plan fund of ` 111 crore.

• For ensuring quality of Steel, seven items such as galvanised sheet, steel wire for pre-stressed concrete etc. have been brought under a quality control order issued by the Government. The matter to bring more steel items under this order is under examination.

Fig3. Indian Steel Industry Contribution to GDP

5.7 5.8 5.8 6 6.2

7.48

8.48.7 8.9

0

1

2

3

4

5

6

7

8

9

10

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09

(Percent) Construction sector: Contribution to GDP


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2.4 Environmental Concerns:

There is a rapid increase in population and economic development has led to harsh environmental deprivation that undermines the environmental resource base upon which sustainable development depends. The economics of environmental pollution, depletion and degradation of resources has in fact been neglected as compared to the issues of growth and expansion. India has been no exclusion to this global trend, rather the trends of environmental deterioration in India, because of the substantial increase in its population, has been far more prominent as compared to other developing economies. Major Environmental Issues concerning Indian Steel Industry: � Selection of plant site-effect on neighborhood, ecology and communication

facilities. � Space for water treatment & recycling, solid waste disposal. � Pollution control measures-Pollution cannot be completely eliminated- only

levels can be reduced. � Up to 15% cost of capital equipment is being incurred on pollution control

devices. � Obtain clearances by State Govt. & other Govt. agencies (viz. pollution control

board, forest deptts. etc) and Central Govt.

Indian government has started a strict and rigid policy framework for protecting the environment. All projects found violating the guidelines given by Ministry of Environment, has been either removed or restricted. Recently India’s biggest direct foreign investment project has been by South Korean Firm got itself in a controversial position. The main concern was the environmental impact of the project. And then minister of environment did not approve the project. But, a huge and controversial steel plant – got the go ahead from the Indian environment ministry, despite years of fierce opposition from local campaigners who claim that the lives of tens of thousands of villagers will be destroyed along with swathes of forest and coastline.

2.5 Availability of raw materials:

As far as raw materials are concerned India enjoys a far better position than

many of the other producers around the globe. In addition to that we have good understanding and appreciation of cost and operation efficiency. These need improvement and constant endeavor to meet the best industry standards. Benchmarking needs to be done. The part that India is playing now when

compared to its position a quarter of centuries ago clearly outlines the improvement of these factors of production. Now we are into highly competitive and superior products. The infrasyet our products today can be found in the most advanced markets and in no way are inferior or sub-quality. Not to undermine these achievements in any form, the glaring fact today still is that the operational pshort of that of the best of advanced nations; in majority of cases. The problems that mar our plants are high energy consumption, nominal Research and development, high material consumption, low efficacy, low labour produout graded technology to name a few.

Graph of per capita steel consumption

This industry needs efficient raw material base with enough supportive infrastructures. India today enjoys a leading position due to its raw material base but unless other related sectors show an equally and much needed growth this advantage will slowly turn to zilch. The entry of China as a global player and the exponential rise in prices of raw material like iron ore and coking coal have consequently increased the imThe gaping question now is whether we develop our own resources or import at cheaper price from elsewhere and whether we export our high quality iron ore or use is for domestic production. The technology used to produce steel plays a major role in need of raw material.

Major raw materials to be considered are:

• Iron ore

• Coking Coal

• Non-coking coal

• Raw Materials for Ferro


compared to its position a quarter of centuries ago clearly outlines the improvement of these factors of production. Now we are into highly competitive and superior products. The infrastructure problems have hindered other growth yet our products today can be found in the most advanced markets and in no way

quality. Not to undermine these achievements in any form, the glaring fact today still is that the operational performance in our case falls way short of that of the best of advanced nations; in majority of cases. The problems that mar our plants are high energy consumption, nominal Research and development, high material consumption, low efficacy, low labour produout graded technology to name a few.

Graph of per capita steel consumption

This industry needs efficient raw material base with enough supportive infrastructures. India today enjoys a leading position due to its raw material base

ther related sectors show an equally and much needed growth this advantage will slowly turn to zilch. The entry of China as a global player and the exponential rise in prices of raw material like iron ore and coking coal have consequently increased the importance of supply and possession of raw material.

now is whether we develop our own resources or import at cheaper price from elsewhere and whether we export our high quality iron ore or use is for domestic production. The technology used to produce steel plays a major role in need of raw material.

r raw materials to be considered are:

Raw Materials for Ferro-alloy Industry


19

compared to its position a quarter of centuries ago clearly outlines the improvement of these factors of production. Now we are into highly competitive

tructure problems have hindered other growth yet our products today can be found in the most advanced markets and in no way

quality. Not to undermine these achievements in any form, the erformance in our case falls way

short of that of the best of advanced nations; in majority of cases. The problems that mar our plants are high energy consumption, nominal Research and development, high material consumption, low efficacy, low labour productivity,

This industry needs efficient raw material base with enough supportive infrastructures. India today enjoys a leading position due to its raw material base

ther related sectors show an equally and much needed growth this advantage will slowly turn to zilch. The entry of China as a global player and the exponential rise in prices of raw material like iron ore and coking coal have

ossession of raw material. now is whether we develop our own resources or import at

cheaper price from elsewhere and whether we export our high quality iron ore or use is for domestic production. The technology used to produce steel plays a major


20

• Power

• Labour

• Capital costs

• Infrastructure

Iron ore:

India has got an initial advantage of having huge resources of iron ore the main raw material required in the production of steel. But the question is whether we reserve this for our domestic use and for attracting investment into the country or we export it and earn profit in the short run. The estimates for long term predict the resources to last for 20 to 40 as per different estimates. Alos the prodtion is more in from of fine than in lumps while the technology used in our country uses lumps, thereby creating a mismatch. The exports consequently are more in form of fines. The need is to upgrade the technology to the use of fines. As of today the production is driven by rising exports. Then there is the policy of granting captive mines to provide a constant supply of raw material in the country. These gives a competitive advantage to a few players over others. Further the tight demand of iron ore in the international market gives these a current cost advantage.

The other issue with iron ore is that most f the mines are ecologically sensitive area hence there is a problem in their exploitation for industrial means. The major silver lining is that the government is serious about maintaining the competitive advantage and has set up several committees to look after it.

Zonal Distribution of iron ore in India

Coking coal:

The picture here inevitable conclusion that the supply of coking coal is very short. The quality of coking coal a very major input in the steel industry is quite low for our domestic production.

We have major dependencstrong bargaining advantage; hence we end up paying higher prices. High import volumes need good ports, rail and road infrastructure which need to be developed. Further few plants are far away from ports whic

Non Coking coal: The country has large reserves of non coking coal and a number sponge

iron units are coming up due to the cost competitiveness of technologies based on


Zonal Distribution of iron ore in India

The picture here is quite dismal with all the projection leading to the inevitable conclusion that the supply of coking coal is very short. The quality of coking coal a very major input in the steel industry is quite low for our domestic

We have major dependence issues on imported coal. The suppliers have a strong bargaining advantage; hence we end up paying higher prices. High import volumes need good ports, rail and road infrastructure which need to be developed. Further few plants are far away from ports which complicates matter.

The country has large reserves of non coking coal and a number sponge iron units are coming up due to the cost competitiveness of technologies based on


21

is quite dismal with all the projection leading to the inevitable conclusion that the supply of coking coal is very short. The quality of coking coal a very major input in the steel industry is quite low for our domestic

e issues on imported coal. The suppliers have a strong bargaining advantage; hence we end up paying higher prices. High import volumes need good ports, rail and road infrastructure which need to be developed.

h complicates matter.

The country has large reserves of non coking coal and a number sponge iron units are coming up due to the cost competitiveness of technologies based on


22

non-coking coal. More than 80% of the total reserve of coal in our nation is non-coking coal reserves. Though the grade of coal that the SI are getting are inferior D, E and F instead of B and C.

Raw Materials for Ferro-alloy Industry:

The steel industry development leads to demand of inputs such as ferro-alloys. The major minerals needed are manganese ore and chrome ore. A major input for utilization of these ore is cheap electricity which is not always available in area where these are found.

Power:

Electric steel making is curbed due to very high rates of electricity in this country; but

things look better with a huge number of power projects underway currently Also

technology that use the power efficiently need to be developed for lower input costs

Labour:

A source of major competitive advantage when it comes to cheap labor availability lies in

favor of India. The productivity of older plants has been a major problem due to high

number of workers being employed in peripheral activities. But these are being resolved

through schemes like voluntary retirement. Further training and development are need to

reduce the low productivity. Though most of the newer plants have overcome these

problems, our nation is yet to come up with own solution.

Capital costs:

Another major shortcoming has been the high rate of capital. Need for strong

government policy to neutralize this is felt throughout the industry. The best solution is

the right and well thought use of capital for projects as well as for maintenance.

Infrastructure:

The infrastructure is grossly short of what is needed by the steel industry. The

costs of transportation are humungous and hit at both the ends; carrying in input and

carting out outputs. Ports need to be further developed and the turnaround time must be

increased.

2.6 Flow of money and tax measures:

This can be divided product wise, segment wise, company wise etc. It is

how the money in form of investment, import, export etc. changes hands and what is its quantum. The detailed discussion shall be dealt with in the following section of this report. We here present a glimpse of relevant data.


23


24

Tax measures:

Export tax has been introduced on specific iron and steel products so as to achieve and increase in supply in domestic market. Predating this was the Rs.300 per 50 tonnes tax rate; which has been fixed to 15% flat.

This is to deal with saving the resources for the nation considering the growth of our GDP and future projection of our need; though some have reported excess stock accumulation due to these restrictions. Further there have been proposal of exemption of certain companies from paying these taxes.

Duty Entitled Pass Book was restored form 14th Nov, 2008 and 5% import duty on iron and non-alloy steel was re-imposed from 18th Nov., 2008. Central Value Added Tax was reduced to 8% for steel products from 24th Feb.,2009. Countervailing duty on Thermo Mechanically Treated bars and structural was reintroduced from 02 Feb.2009.

2.7 Growth of complementary Sectors:-

Construction materials and equipment sector accounts for approximately 8.6% of India’s GDP and accounts for nearly two-third of the total construction costs on an average. The share of construction materials in project costs ranges from 40-60% and the corresponding cost for construction equipment ranges from 5 to 25%. Steel forms a major part of the construction industry. Unlike cement where almost 100% of Cement production is consumed in construction only 40 - 60% of steel production goes into Construction.

The Indian steel industry ranks fifth in the world with crude steel

production of 55.1 MT in calendar year 2008 up from 19.3 T in 1994. The steel production has grown at a CAGR of 7.8% over the same time frame. The share of India in global crude steel production has increased from 2.7% in 1994 to 4.1% in 2008.

The structure of the Indian steel industry comprises of primary producers, secondary producers and small scale stand-alone processors, with an estimated installed capacity of 57 MTPA, comprising primary producers (20.7 MTPA), secondary producers (11.5 MTPA), and others (24.6 MTPA).

During 2007, there were an estimated 970 induction furnaces (IFs) working

in the country in the secondary sector with the maximum located in Punjab (119 units), Uttar Pradesh (107), Maharashtra (73), Gujarat (62), Orissa (57), and West Bengal (43). There are also an estimated 39 working EAFs in the secondary sector. The apparent consumption of finished steel in India has increased from 25.1 MT in 1999-2000 to 54.7 MT in 2008-09 at a CAGR of 9%.


25

The construction sector accounted for around 45% of India’s steel

consumption during FY2008. Other major user sectors include machinery manufacturing and engineering (30%), steel units (18%) comprising CR/GP/GC and tube units, automotive (4%), and consumer durables (2%).

Source: IMF:- Annual Indian steel report

It is estimated that the growth in India's steel consumption will primarily be fuelled by demand for construction projects worth Rs 45-50 trillion4. The scope for raising the total consumption of steel is huge, given that per capita finished steel consumption is only 44 kg – compared to approximately 180 kg across the world and 320 kg in China.

The National Steel Policy has a target for taking steel production up to 110 MT by 2019–20. Nonetheless, with the current rate of on-going Greenfield and Brownfield projects, the Ministry of Steel has projected India’s steel capacity is expected to touch 124.06 MT by 2011–12. India's steel capacity is likely to be 293 MT by 2020. An investment worth Rs. 8.8 trillion is likely to go into the steel sector by the end of the year 2025.

Thus, steel boosts all these complementary sectors and plays a key role in the construction industry which forms the backbone of every country. The investment for a steel plant is huge as generally, steel plants involve townships and thereby leading to the advancement of various sectors of that region. Also, the railways is one more sector which involves investment of 180,000 INR (Public) and 120,000 INR (Private) for construction purposes as per Planning Commission

Consumption pattern by End user industries, 2008-09

Steel & Tube unit, 18%

Machinery & equipments 30%

Automotive 4%

Construction 45 %


26

Working Group Report on Construction for the 11th Five Year Plan. Most of this investment will require steel as the basic raw material.

2.8 Labour Skillfulness and Availability:-

S.no Category Details

1.a Construction material Rs. 495,000 Cr.

1.b Construction equipment Rs. 180,000 Cr.

1.c Manpower Rs. 108,000 Cr.

Detailed requirements:-

Materials (major)

2.a Cement 381 million tonnes

2.b Steel 150 million tonnes

2.c Manpower 92 million man years

2.d Engineers 3.72 million man years

2.e Technicians 4.32 million man years

2.f Support staff 3.65 million man years

2.g Skilled workers 23.35 million man

years

2.h Unskilled/semiskilled workers 56.96 million man

years

These resources would be required under the 11th Five Year Plan for the above mentioned investments. It is, therefore essential, that necessary measures be taken to prepare the industry to meet this challenge.

As per Cement Manufacturers Association of India, ASI, IMaCS analysis the steel industry employs 0.50 million of employees which is nearly 44% of the total people employed in the construction sector (Construction sector includes cement industry (0.14 million employees and constructionequipment sector employs the rest percentage of employees)). This shows how critical it is for this sector to have skilled employees.

Major Regions of Employment Concentration:

In the steel segment we see that for over 50% of the total number of personnel engaged in the segment.

The zone-wise distribution is as follows: The zones are defined as:

• North: Jammu & Kashmir, Punjab, Haryana, Himachal Pradesh, Uttar Pradesh, Uttarakhand, Delhi

• South: Tamil Nadu, Andhra Prad

• East: Bihar, Jharkhand, Orissa, West Bengal, Sikkim, Madhya Pradesh, Chhattisgarh

• West: Maharashtra, Gujarat, Goa, Manipur, Meghalaya, Tripura, Arunachal Pradesh, Nagaland

Source: NSDC (National skill development corporation) HR & skill requirement report

In the Steel Segment the distribution of personnel engaged in the core operations of casting and hot rolling (on the shopof personnel engaged in the“Others” in the table below includes personnel engaged in all other operations at steel units, such as mining, raw material processing, iron manufacturing, liquid

Zone wise distribution of personnel employed in the steel segment in India


wise distribution is as follows:

The zones are defined as:

North: Jammu & Kashmir, Punjab, Haryana, Himachal Pradesh, Uttar Pradesh, Uttarakhand, Delhi

South: Tamil Nadu, Andhra Pradesh, Kerala, Karnataka

East: Bihar, Jharkhand, Orissa, West Bengal, Sikkim, Madhya Pradesh,

West: Maharashtra, Gujarat, Goa, Rajasthan, North East: Assam, Mizoram, Manipur, Meghalaya, Tripura, Arunachal Pradesh, Nagaland

(National skill development corporation) HR & skill requirement

In the Steel Segment the distribution of personnel engaged in the core operations of casting and hot rolling (on the shop-floor) as well as the proportion of personnel engaged in the sales /marketing of finished products is as below. “Others” in the table below includes personnel engaged in all other operations at steel units, such as mining, raw material processing, iron manufacturing, liquid


North 14.7%

West 11.5%

South 20.5%

East 52.5%

North East 0.8%


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North: Jammu & Kashmir, Punjab, Haryana, Himachal Pradesh, Uttar

East: Bihar, Jharkhand, Orissa, West Bengal, Sikkim, Madhya Pradesh,

East: Assam, Mizoram,

(National skill development corporation) HR & skill requirement

In the Steel Segment the distribution of personnel engaged in the core floor) as well as the proportion

sales /marketing of finished products is as below. “Others” in the table below includes personnel engaged in all other operations at steel units, such as mining, raw material processing, iron manufacturing, liquid


North 14.7%

West 11.5%

South 20.5%

East 52.5%

North East 0.8%


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Steel manufacturing and cold rolling, across all functions (i.e. manufacturing, procurement, R&D, support functions, etc.).

The details of functional distribution are as below:

Functional distribution of human resources in the Steel Segment (Manufacture of Finished products):-

Function Distribution

Production, QA, R&D 40-45%

Technical Services / Industrial Engineering

25-30%

Purchase, Logistics, Stores 10-12%

Support functions (HR, Finance, etc.) 12-15%

Profile of people employed:- The following figures illustrate the profile of people employed in the Steel Segment

across various Categories:- i.) Manager: -Grad engg / PGs with 7-8 yrs experience / diploma engg with 10-12

yrs experience + metallurgy background ii.) Supervisor: - Diploma engineers with 3-4 yrs experience; Some ITI-trained

personnel with experience iii.) Workmen: - ITIs / below 12th with /without experience

2.9 FDI/FII in Indian steel industry:

Foreign Direct Investment refers to inflow of investments to acquire lasting management interest in an enterprise operating in an economy (generally a nation) other than that of the investor. There are various ways through which a foreign direct investor might acquire voting rights in an enterprise.

� by incorporating a wholly owned subsidiary or company � by acquiring shares in an associated enterprise


29

� through a merger or an acquisition of an unrelated enterprise � participating in an equity joint venture with another investor or enterprise

Promotion of foreign direct investment forms an integral part of India’s economic policies. Foreign direct investment helps in accelerating economic growth by way of infusion of capital, technology and modern management practices. The Department of steel has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route.

According to department of industrial policy and promotion, the FDI inflow in India between the year 2000 and 2011 was approximately US$133000 million. Of this US$4286 million was attracted by Metallurgical industries. Of the Total FDI inflow of Rs88520 crore in the year 2010-11, the metallurgical industry attracted an FDI of Rs.5055 crores. This is about 5.7% of the FDI inflow.

External Commercial Borrowings:

ECB is an instrument used in India by Indian corporations and PSU’s to access to foreign money. ECBs include commercial bank loans, buyers' credit, suppliers' credit, securitized instruments such as Floating Rate Notes and Fixed Rate Bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of Multilateral Financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc.

Overview of steel industry over last few years:

To understand the FDI in any sector it is important to study the present status of the sector, its performance over last few years and the emerging trends in the sector. Here are the highlights for the steel industry: 1. Backed by the liberalized government policies, the Indian steel sector is going

through an expansionary phase. The prospects for the demand are excellent driven by high investment rate, accelerated growth in the manufacturing industry and expansion in physical infrastructure creation.

2. Liberalization in the foreign trade has had a favorable effect on Indian exports. Exports have grown fast and at a rate exceeding 25% per annum between 1991-92 and 2002-03.

3. Demand for steel has been worked out on the basis of observed relationship between steel consumption and selected macro economic variables under four scenarios of GDP growth (i.e., of 7%, 8%, 8.5% and 9%) by 2011-12 as envisaged in the Draft Approach paper for the Eleventh Five Year Plan. In the ‘Most Likely’ scenario of 9.0% GDP growth, demand for steel works out to be 70 Million Tonnes by 2011-12. Therefore, it is envisaged that in the next five years,


30

demand will grow at a considerably higher annual average rate of 10.2% as compared to around 7% growth achieved between 1991-92 and 2005-06.

4. India has necessary resources and capabilities to become a global supplier of quality steel. Also there exists ample market opportunities in the neighboring regions of Asia, Africa and the Middle East. Recognizing this potential, the National Steel Policy, 2005 has estimated an annual growth of around 13% in export of steel in the next decade and a half.

5. There are many technological developments, which have been commercialized abroad to reap the benefits in both equipments and processes. However, these are yet to be adopted widely in India. The Indian Steel Industry has to come forward and adopt these technologies on priority basis to make their products competitive internationally.

The focus of National steel policy 2005 is to achieve global competiveness not only in terms of cost, quality and product mix but also in terms of global benchmarks of efficiency and productivity. It aims at indigenous production of over 100 million tonnes by the year 2019-20. In the year 2009-10 the production has reached levels of 50 million tonnes.

In order to achieve the goal of 110 million tonnes by 2019, the industry needs additional capital to the extent of Rs.2, 30,000 crore. However the cost of capital in India is one of the highest in the world at about 11% p.a. Therefore, In such a scenario Foreign direct investment is expected to play a major role. So the FDI would be encouraged in the steel sector.

National steel Policy 2005 also recommends periodic review of External commercial borrowing norms to facilitate smooth inflow in debt and to bring down the cost of capital. This would help FIIs to invest in Indian steel companies through a route different from FDI.

Investments in Complementary sectors: Apart from huge investment required in the steel sector, associated industries also require investments so that they can serve the sectors wells. According to planning commission report on 11th five year plan the investment required in complementary sectors in these 5 years is as follows:

• Mining : Iron Ore: Rs11800 crore Coal: Rs.2700 crore

• Power : Rs.12,500 crore


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3. SWOT Analysis of Indian Steel Industry:

Strengths: � Abundant availability of raw material like Iron ore, limestone and Coal in the

country (India is the sixth largest producer of iron ore and the tenth largest producer of crude

steel in the world) � Availability of huge man power � Low Labor wages – major cost advantage � Developed production base

Weaknesses: � Poor technology being used in mining work � Dependence on other countries for coking coal � Low R&D investment by the government and private players � Inadequate Infrastructure in the country � High cost of capital � Labor productivity in India is still very low. (According to an estimate crude steel

output at the biggest Indian steelmaker is roughly 144 tones per worker per year, whereas in Western Europe the figure is around 600 tones.)

Opportunities: � Huge and growing domestic demand � Consolidation of small players into a big producer � Exports � Unexplored Rural market which provides a huge platform for production as well as

consumption.

Threats: � Demand Volatility � Threats of substitute (Plastic, Aluminum etc.) � Technological changes � Price war � Tough competition from China � Protection policies in Western countries


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� Global economic slowdown � Dumping by competitors

4. Future Prospect

4.1 Steel Demand in Rural Markets:

At the Macro level, growth in total finished steel consumption depends upon the rate of growth in GDP and the estimated ‘GDP-elasticity of steel demand’ (i.e., observed response of steel consumption to changes in GDP/relationship between steel demand and GDP calculated on the basis of past time-series data). GDP-elasticity, in its turn, is determined primarily by the following structural factors: • Rate of investment/capital formation • Structure of the economy, particularly, the share of steel intensive manufacturing activities and their growth • Technological factors (e.g., norms of production, considerations of material conservation, possibilities of inter-material substitution etc.) guiding usage of steel per unit of production/activity in the end-using sectors.

Rural Demand: The rural consumption of steel is as low as 2kgs per capita per annum. This is largely because steel is considered to be expensive among village population. Efforts are being made to increase the rural demand by efforts mention above. The focus is also on opening block level rural stock points. These efforts are expected to take this demand to 4kgs per annum per capita by the year 2019-20.

To aid the government’s strategy to boost rural demand PSU steel firms like SAIL and RINL are rapidly expanding in rural markets through expansion of their dealer networks in the rural areas.

Steel authority of India Ltd. (SAIL) has rapidly expanded its network in the past five years from 200 in 2006 to 2,579, while RINL which had no dealers in 2003 now has 120. To increase the rural demand for steel SAIL has taken following steps:


33

• Distribution network of SAIL was expanded by establishing Warehouses at seven new locations during April 2008 March 2009. During April-September 2009 marketing network was further expanded by appointing two Customer Contact Officers and opening two new Warehouses. With this, SAIL's marketing network has expanded to 37Branch Sales Offices, 26 Customer Contact offices and 67 Warehouses as on 1st January, 2010. SAIL has the widest network of branches and warehouses in the country among steel producers, which helps it in meeting requirements of wide range of customers at their doorstep in time.

• SAIL has also expanded its dealer network extensively. As on 1st January, 2010, SAIL had

1963 dealers in 599districts. Items of mass consumption like Rebars and Galvanized Sheets, required by common man are being sold through district dealers.

• Incentive schemes have been introduced by the company to encourage dealers to perform

consistently and promote SAIL steel. SAIL held its first dealer award ceremony "Gaurav Samman" during April 2008 at Bangalore for the year2007-08 and second ceremony in May 2009 at Goa to reward well performing dealers based on their performance of 2008-09.

• SAIL is regularly holding Dealer meets, architects meets and masons meets along with its

dealers for promotion of SAIL steel. During April-December 2009, 55 dealer meets, 17 architects meets and 8 mason meets have been held.

• SAIL released two directories during 22nd National Steel Consumer Council meet held on

October 4, 2008 at Delhi consisting of details of SAIL Dealer Network and SAIL Warehouse Network and distributed them among council members to increase awareness about SAIL outlets.

• Technical presentations are made from time to time to project customers for launching

new products like corrosion resistant / earth quake resistant TMT Bars for construction and rock bolt bars for tunneling.

• SAIL has undertaken various promotional activities to promote sales through

dealers. Some of them are given below:

• Wall Paintings done at various locations including interior areas.

• Broadcast of radio jingles on FM radio.

• Product brochures/technical literature given to the dealers for distributing among customers.

• Promotional items (calendars/pens/key chains/T Shirts/Bags etc.) were distributed by

dealers among customers.


34

• Advertisement of dealers in print media/dealer details also updated on the SAIL website.

• SAIL Maximum Retail Price (MRRP) is prominently displayed at all dealer shops and also

regularly updated on SAIL website.

• Incentive schemes have been introduced by the company to encourage dealers to perform consistently and promote SAIL steel.

• Participation in fairs and exhibitions highlighting various usages of steel.

• SAIL advertisement was released on train tickets and on few major trains like Shatabdi for

building brand awareness.

4.2 Exports Opportunities:

Exports in steel Industry has two main focuses 1) Exports of processed steel 2) Exports of Iron Ore

Its impact on industry and economy is completely different form each other. Export of processed steel is normally considered as beneficial to steel industry growth and overall economy but export of Iron Ore is considered as bad sign for industry. As India is short of high quality steel and importing it from foreign, and exporting of high quality iron ore is sign of inability to produce high quality steel in country.

Iron and steel products are freely exportable as per the extant policy. Government introduced schemes under the Duty Entitlement Pass Book Scheme (DEPB) to facilitate exports. Under this scheme, exporters on the basis of notified entitlement rates, are granted due credits which entitles them to import duty free goods in return.

The national policy seeks to facilitate the creation of additional capacity, removal of procedural and policy bottlenecks that affect the availability of production inputs, increased investment in research and development, and the creation of road, railway, and port infrastructure. The policy focuses on the domestic sector but also envisages a steel industry growing faster than domestic consumption, which will enable export opportunities to be realised.

Indian steel industry also needs to focus heavily on mining procedures. It should acquire mines in other countries for sufficient supply of raw material and grab the opportunity of exporting processed steel. Government also need to


35

regulate the mining industry so it can bring transparency into the system and help steel industry to grow rapidly.

Export of Indian steel industry:

As we can observe form the chart that exports of steel is highly dependent upon world economic condition. Recession in 2008-09 period is showing sharp decline in export of steel. India needs to focus on producing high quality steel, required for some specific purposes whose demand can remain inelastic even during recession time.

Source : http://www.cci.gov.in/

Customs Policy

The government has significantly reduced the duty payable on inputs to steel production, on capital equipment and on finished steel products and has streamlined the associated approvals processes. The government administers schemes covering duties, licenses and taxes to support firms that export steel, although some (for example, the Duty Entitlement Passbook Scheme and Duty Free Replenishment Certificate) have the net effect of remitting duty in excess of what was levied on the inputs to the production of the export goods (OECD 2006d) and are potentially subject to challenge in trade forums.

4.774

4.918

5.15.187

4.787

4.5

4.6

4.7

4.8

4.9

5

5.1

5.2

5.3

2004-05 2005-06 2006-07 2007-08 2008-09

Million Ton

Million Ton


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Special Economic Zones (SEZs)

The government introduced ‘special economic zones’ in June 2005, with the aim of creating internationally competitive regions in which exporting businesses can base their operations. Previously existing ‘Export Processing Zones’ (EPZ) have been converted to special economic zones. Steel plants operating in special economic zones are not subject to restrictive normal laws for the purpose of export operations and also receive some additional advantages including tax holidays, freedom to source inputs domestically or externally without any specific approval or duty payable, and sales tax reimbursement on domestic purchases. However, the proposed new economic zones will be relatively small, which may limit their effectiveness given that economies of scale are one of the key advantages of such zone.

It is estimated that world steel consumption will double in next 25 years. Quality improvement of Indian steel combined with its low cost advantages will definitely help in substantial gain in export market.

4.2 Development of New Technology:

New Technology is very important factor for overall growth of a particular

industry. It increases the output of industry by using same level of input. New technologies can help in saving energy, increasing competitiveness, and improving the environment. New technologies have the potential to change radically the way steel is made and reduce energy consumption and greenhouse gas emissions more than 50%.

Energy usage of Steel Industry at world level-

Source : American Iron and Steel Institute (www.steel.org)

1714 14 13 13.5 13 13 13 12 11 10 10.2

0

5

10

15

20

MMBTU/Ton

MMBTU/Ton


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Some of the technologies, which are being used by some developed countries and can be brought to India, can help in improving productivity of steel sector. Some of these techniques are as follows:

• Blast Furnace Optimization via Modeling

• Blast Furnace Optimization via Improved Analytical Techniques

• CO2 Abatement and Alternative Iron making Processes

• Suspension Reduction of iron Ore Concentrates Using Hydrogen

• Molten Oxide Electrolysis

• Paired Straight Hearth Furnace

• Basic Oxygen Furnace (BOF) and Electric Arc Furnace (EAF) Steelmaking

• Optimization of Post Combustion in the BOF and EAF

• Optical Sensors for Prediction of Carbon and Temperature in BOF and EAF Furnaces

• Laser Contouring System

• Rolling Mill Operations

• Hot Strip Mill Model

• Sustainable Steelmaking Using Biomass and Waste Oxides

• Geological Sequestration of CO2 by Hydrous Carbonate Formation with Reclaimed Slag

Some these technologies can enter into the industry very quickly, e.g. Laser contouring of vessels and CFD modeling. Others, such as Alternative Iron making, take longer. These are very high risk, capital intensive technologies that may take many years to become commercially viable, and some may not become commercial at all. Still, high risk research is highly valuable and much knowledge can be gained. This know-how can be rapidly transferred to the shop floor. Steel industry should continuously try to develop new steelmaking technologies.

Government Policies to encourage new Technologies: Considering some recent events to overcome the fast-increasing coking coal prices

and widening gap between demand and supply, industry body ASSOCHAM has submitted a proposal to encourage new green technologies used in steel production with a view to reduce costs and carbon emissions while improving productivity.

Recent technologies like COREX, FINEX and pulverized coal injection in blast furnace have greatly increased their relevance at a time when India is set to become one of the global steel hubs showcasing a variety of world class technologies leveraging technical competencies.

The Associated Chambers of Commerce and Industry of India said that they preclude the needs of a coke oven plant and use inferior quality coals with weak


38

caking properties directly into furnace without going through the process of making coke.

Blending of hard and poor grades of coking coals has become a necessity, Coking coal is not available in the required quantity and steel manufacturers have to import them.

The National Steel Policy sets out the Indian Government’s vision for the

future of the steel industry. The central goal is the creation of an industry with 110 million tones of capacity and 100 million tones of production by 2019-20 — implying an average growth in production of nearly 7 per cent a year. The Indian Ministry of Steel estimates that achieving this goal will require major technology upgrades at existing facilities.

Improving Intellectual Property Laws

The compulsory licensing regime, which still applies to some sectors, enables the Indian Government to force the granting of a technology license if it deems that a patent has not provided a sufficient public benefit at a reasonable price. Its removal from the steel sector has provided greater security in intellectual property ownership and will facilitate the transfer of intellectual property to India and the development of indigenous technology solutions.

Latest technology must be adopted by Indian steel manufacturers for production of superior quality of steel for these applications. For example, pre-coated sheets can be used in manufacture of appliances, furnishings, electric goods and public transport vehicles. Production and supply of superior grades of steel in desired shapes and sizes will definitely increase the steel consumption as this will reduce fabrication need; thereby reduce cost of using steel.

Apart from all this, Indian Government can introduce the concept of green loan to players in steel industry. As steel sector is one of the most energy hungry sector so even a few percentage decrease in energy usage, by the help of new technologies, can help in reducing overall energy requirement of the nation.

Considering all this information, another important fact is Indian steel industry is just catching up with some of the new technologies developed by industrialized countries. But it is not investing in its own R&D programme. Indian steel industry’s budget for R&D is less than 1% of its revenue. So industry needs to find out technologies on its own instead of adopting it from other countries.


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5. Conclusions:

Since independence, India has practiced stable growth in the steel industry, thanks in part to the successive governments that have supported the industry and made efforts for its healthy development. Further illustrating this plan is the fact that a number of steel plants were established in India, with technological assistance and investments by foreign countries. In 1991, a substantial number of economic reforms were introduced by the Indian government. These reforms boosted the development process of a number of industries - the steel industry in India in particular - which has subsequently developed quite rapidly.

India’s steel industry is in a transitory stage. Yet, it is one which is seeing exceptional growth thanks to the overall expansion of the economy. It is also witnessing the injection of foreign investment. The overall growth projection of the steel-consuming industries of India and Korea is pretty optimistic. Much the same is true of Southeast Asian countries like Indonesia, Malaysia, Vietnam and Thailand. In such circumstances, India is bound to witness huge investments in its steel industry and see unprecedented competition in the race for control over essential raw materials, namely, iron ore, chrome ore and coal. New technologies always have the power to entirely change the way goods are being produced by any industry. The same thing is happening in steel industry. Being one of the most energy hungry industries, new technologies are providing a great help to reduce its energy consumption. New technologies also helping the industry to improve the quality of steel produced in India, which is eventually helping in increasing exports of steel. Presently Indian steel manufacturers are adopting most of the technologies from developed nations, but instead of adopting it from other countries they need to start focusing more on Research and Development and try to develop their own technologies.

But few macroeconomic variables like inflation and unemployment have adversely affected the growth of Indian steel industry. Inflation disrupts the smooth functioning of the price mechanism; increased loan rates and surging fuel have also discourages customers from buying steel made products. All this is causing a deep trouble for steel industry. Unemployment on the other hand is responsible for low economic growth; loss of production and output because those who are unemployed are not able to add towards GDP. On the positive side, considering the present position of India’s steel industry it is quite clear that India has the potential to become global steel player. Huge iron ore reserve is the greatest advantage to the industry. Industry just need to utilize its expertise and should try to exploit the resources it has. Export opportunities are increasing as some of the steel producers in India are the most efficient producer of steel at world level and as global competition is increasing only the efficient players can survive in it. Government’s positive support, such as formation of SEZ and relaxation in taxes, is also helping industry to grow rapidly.


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6. References:-

1. Ministry of Steel (India) website

2. competition commission of India website

3. Indian Business Equity Foundation website 4. SAIL Annual Report 5. TATA Steel Annual Report 6. Economic survey and IIT-R e-library.

Indian Steel Industry

Documents

indias steel industry

production of steel

tata steel

steel demand

varieties of steel

overall global steel

industry perspective

net exporter of steel