Professional Documents
Culture Documents
Steel Industry
Presented by:
(Group 8)
Arpita Bahadur
Gaurav Kumar
Manish Gupta
Pavan Ghargi
Ranjini Ballal
Vani Vyas
Acknowledgement
2
Table of Contents
Table of Contents...................................................................................................3
Introduction........................................................................................................... 3
Varieties of Steel....................................................................................................5
Production Technology ..........................................................................................6
Components of the cost of production...................................................................7
The Global Steel Industry.......................................................................................9
The Structure of Indian Steel Industry.................................................................10
Factors that attribute to the Revival of the Indian Steel Industry........................11
Consumption of Steel in India..............................................................................16
Top Five Companies.............................................................................................16
Bottom Five Companies......................................................................................25
Quantitative Analysis...........................................................................................32
Ratio Analysis...................................................................................................... 32
Qualitative Analysis.............................................................................................47
Understanding the Steel industry using Michael Porter’s Five Forces Model.......47
The SWOT Analysis..............................................................................................51
Strategic Restructuring — A Comparative Analysis.............................................57
Impediments to expansion...................................................................................57
Current Global Scenario.......................................................................................63
Current crisis in Iron and Steel Industry...............................................................63
Suggestions......................................................................................................... 66
Future Outlook..................................................................................................... 67
Business Innovation: Steel Retailing....................................................................70
Vision ‘steel junction’...........................................................................................71
Lessons from Nucor Steel....................................................................................71
Identifying Key Success Factors...........................................................................73
Conclusion........................................................................................................... 74
References........................................................................................................... 75
Introduction
3
Iron is one of the oldest inventions in the world with its first usage
reportedly dating back to 4000 BC. Steel is crucial to the development of
any modern economy and is considered to be the backbone of the human
civilization. Today Steel (the carbon alloy of Iron) finds application in
every imaginable facet of our life. The global steel industry has been
witnessing many interesting events that have influenced market dynamics
in the last ten years.
4
one direction, giving the iron a characteristic grain. It is more rust-
resistant than steel and welds more easily. It is common today to talk
about 'the iron and steel industry' as if it were a single entity, but
historically they were separate products.
Varieties of Steel
There are more than 3500 grades of steel available today; with about 75%
of these developed in the last twenty years. Finished steel products can
5
be broadly classified into flats and longs. Longs are used in construction,
infrastructure and heavy engineering. Flats are mainly used in making
automobiles, commercial vehicles and consumer durables. Hot rolled (HR)
steel and Bar & Rods are the most popular varieties of steel produced in
India. HR coil and sheets are used in making cold rolled products, pipes
and tubes, automobile components, electronic equipment like fridges and
for construction purposes. Currently HR Coils and Sheets account for
about 26% of the total domestic production and its share has been
gradually rising over time. Bars and rods are typically used more
extensively in the construction and engineering sectors.
Production Technology
Some of the technological options for converting iron ore to steel products
is schematically shown below. Hot metal and crude steel process are also
interlinked among themselves as represented by arrows.
Source: www.sail.com
6
• Blast Furnace (BF)/ Blast Oxygen Furnace (BOF) route is the most
popular way of producing steel, accounting for nearly 57% of total
production. The BF/BOF route is good for volume production, but
involves huge capital costs.
• Raw materials - Raw material costs forms roughly about 62% of the
total cost of production. This only emphasizes on how important sharp
movements in raw material prices mean for the steel industry. The
basic raw materials that are used in producing steel are iron ore, coal
and limestone. India is fortunate to be endowed with one of the largest
iron ore deposits in the world. Limestone is also available in sufficient
quantities and as such do not pose much of a problem. India also
possesses one of the biggest coal deposits (approximately 197 bn
tonnes) in the world. However, Indian coal is mostly unfit for coke
production because of its high ash content of 25-40%. Coal fit for coke
production comprises less than 15% of total reserves. As such, Indian
steel giants have to resort to importing coking coal from foreign
7
countries. .
8
• Taxes and duties - Excise duties, sales tax, other direct and indirect
taxes further push up costs in the steel sector. Total taxes contribute
more than 16% of total costs. Here, the government can play an active
role and provide structured concessions for new and old capacities.
9
Source: International iron & steel institute
10
standard of the people in any country. It is a product of large and
technologically complex industry having strong forward and backward
linkages in terms of material flow and income generation. All major
industrial economies are characterized by the existence of a strong steel
industry and the growth of many of these economies has been largely
shaped by the strength of their steel industries in their initial stages of
development. This offers a huge potential to steel manufacturers, both
domestic and global.
In line with the global trend, the Indian steel industry has been passing
through tough conditions. The prices are trailing at rock-bottom levels due
to over capacity. The report gives a comprehensive analysis of the Indian
steel industry. It extensively covers structure of Indian steel industry, with
details on production, consumption, imports and exports. The report deals
with reasons for the over capacity situation prevailing in India and the
demand/price trends for various steel products in India. The report gives a
crisp analysis on the strategies and latest financial performance of the
leading players in India.
Backward Integration
Coking coal, iron ore and scrap shortage are responsible for the increased
cost of production, coupled with low average prices of Rs.17,000-
Rs.18,000 TPA in the past. Integrated players with their own captive mines
11
for iron ore and coal will find it an advantage as they will be shielded from
the fluctuating prices of raw materials.
De-integration of Process/Consolidation
Branded Products
Players within the industry enter into long contracts for their finished
products with automobile original equipment manufacturers. This will
mitigate demand risks, ensure high product off-take and better capacity
utilization.
Government Initiatives
Impact of Liberalization
12
The economic reforms initiated by the government in 1991 have added
new dimensions to the industrial growth in general, and steel industry in
particular. Some of the important features due to liberalization are:
Steel industry has been removed from the list of industries reserved for
the state sector.
There was expansion of the steel sector after the economic reforms. The
new entrants as well as the existing manufacturers went for technical tie-
ups with leading steel producers of the world [Nakra 1996]
The financial cost and the cost of power, oil and some other materials are
high. Energy accounts for about 35 - 40% of the cost of steel production in
13
India, whereas it is about 28% in the developed countries. All these make
the pre-tax cost of steelmaking in India higher than that of South Korea,
Australia, Mexico, and CIS countries. Considering the low wage rate and
other economic factors, the labor cost in India makes up around 15% of
the cost of the steel as compared to around 30% in developed countries
like Japan and United States. In spite of these advantages, Indian firms
could not become cost-effective.
Current Investments
• Bhushan Steel plans to invest US$ 5.72 billion for building 12 million
tonne-capacity in the states of West Bengal, Jharkhand and Orissa.
14
• Non-ferrous metals giant, Vedanta Resources, plans to invest
around US$ 4.79 billion in a 5 million tonne steel plant in Keonjhar
district of Orissa and envisages its commissioning by 2012–13.
• Tata Steel is also planning to build a 5 million tonne plant in
Chhattisgarh with an investment of around US$ 3.59 billion. The
steel major is setting up greenfield projects in Jharkhand, Orissa and
Chhatisgarh. While in Jharkhand it is likely to invest about US$ 8.38
billion for a 12 million tonne integrated steel plant, in Orissa it plans
to pour in almost US$ 4.39 billion for a six million tonne capacity
plant.
• Mesco Steel plans to invest US$ 2.20 billion for expansion of two of
its steel plants in Orissa.
• Reliance Infrastructure, (part of the Reliance Anil Dhirubhai Ambani
Group) plans to build a 12-million tonne steel plant in Jharkhand,
which is likely to be completed by 2012.
• Indian Railways plans to invest around US$ 437.25 million per
annum to raise its consumption of stainless steel for adding new
alloy-made wagons and coaches to its portfolio.
• Welspun Gujarat Stahl Rohren, (one of the largest steel pipe makers
in India), plans to increase the capacity of its pipe plant by 75 per
cent to 1.75 million tonnes with an investment of US$ 222.52
million.
• The JSW group plans an outlay of US$ 40 billion for steel and power
projects. These projects will be completed by 2020.
• Visa Steel has lined up a US$ 1.51 billion – US$ 2.02 billion
integrated steel project in Chhattisgarh.
• Sarralle India, a subsidiary of Sarralle Equipos of Spain and one of
the largest designers of steel plant equipment, has decided to set
up a manufacturing base in Uluberia in West Bengal.
• Interarch Building Products Private, (the largest player in pre-
engineered steel buildings space) plans to set up its greenfield
manufacturing facility in Gujarat by 2009–10.
15
Furthermore, the Confederation of Indian Industry (CII) plans to start six
new small and medium enterprises clusters for steel companies in
Visakhapatnam. It will also set up a steel task force to propel growth in the
steel clusters.
16
Authority of India Ltd. The Company, incorporated on
January 24, 1973, was made responsible for managing five
integrated steel plants at Bhilai, Bokaro, Durgapur,
Rourkela and Burnpur, the Alloy Steel Plant and the Salem
Steel Plant.
17
The Company bagged, 'Business world-FICCI-SEDF
Corporate Social Responsibility Award - 2006'. SAIL has
undertaken a massive modernisation and expansion plan
during the year of 2006-07 with an indicative cost of over
Rs. 40,000 crore to expand capacity of hot metal to over
25 million tonnes from current level of 14.6 million tonnes.
The company introduced several new products in the
domestic market during the year 2006-07: HCR-EQR TMT
for earthquake resistant construction, rock bolt TMT for
tunnel construction, EN series HR coils for LPG cylinders,
MC 12 HR coils for chains etc. In addition, Bhilai Steel
Plant developed high strength vanadium rails; Durgapur
Steel Plant produced S-profile loco wheels for high-speed
locos and Rourkela Steel Plant rolled special plates, which
were used, in the indigenously built rocket PSLV C-7.
18
reviewed the Corporate Plan 2012 in Jul'2006, wherein it
was decided to take up the Expansion of Integrated Steel
Plants and Special Steel Plant in one go based on
Composite Project Feasibility Report (CPFR).
19
received the Prime Minister's Trophy for the Best
Integrated Steel Plant for the year 1994-95. This award
was subsequently conferred again in 1998-99, 1999-2000,
2000-01 and 2001-02. The World Steel Dynamics
recognised Tata Steel as India's only 'world-class steel
makers' thrice in a row.
20
Voest Alpine Industrieanlagenbau (VAI), for technical
details with respect to productivity, iron ore technical
details etc.
21
the balance will be held by Geo Steel LLC of the UK. Both
companies will invest $7 million towards direct equity
while the remaining amount will be raised by way of debt.
JSWSL inaugurated JSW Shoppe, an exclusive steel retail
outlet in Ahmedabad IN June 2008 and planed to setup
200 exclusive JSW Shoppes across the length and breadth
of the country by 2010. Also it will invest around Rs 550
crore in its Chilean mining concessions to ensure 50 per
cent iron ore security by June 2009, up from 30 per cent
now. The Company plans to emerge as 32 million tonnes
per year capacity steel major by 2020.
22
certifications. During 1998-99, Essar Minerals Ltd
presently Hy-Grade Pellets Ltd (HGPL) has become wholly
owned subsidiary of the company.
23
To better provide steel solutions to an increasingly
sophisticated marketplace, IIL had sets up a highly
advanced cold rolling reversing mill during the year 1988,
in collaboration with Hitachi of Japan, to manufacture a
wide range of cold rolled carbon steel strips. In the same
year, the company installed a colour coating line, the first
of its kind in India for the manufacture of pre-painted
colour steel sheets. During the year 1994, Business
interests within the Ispat Group are demarcated. The
eldest son, Mr. L N Mittal continues to manage the
international operations while Mr. Pramod Mittal and Mr.
Vinod Mittal, the younger brothers focused on steel and
other businesses in India. In the identical year 1994, it
commissioned the world's largest gas-based single mega
module plant for manufacturing direct reduced iron
(sponge iron), at its Maharashtra-based Dolvi plant. Within
three months, the plant exceeds its capacity of 1 million
tonnes per annum (MTPA) of high quality DRI. The
company came out with a Euro-issue of 125-mln fully
convertible bonds in 1994 to part-finance the expansion of
its hot strip mill (HSM) capacity to 2.50 lac TPA.
24
Bottom Five Companies
25
furnace, quick roll-changing facilities, a 65 metres long
walk and wait type modern cooling bed and above all
computerised process control linking and controlling the
various stages.
26
The project was financed through term loans and internal
cash accruals. In 2000-01 the company has successfully
commissioned India's first 1800mm width Stainless Steel
Slab Caster. The project of H R /S S Sheet /Coil was
commissioned as per schedule. This project was financed
through internal accruals and also by term loans from
financial institutions/bankers. The company's going on
diversification project of manufacturing of HR/SS
Sheet/Coil was successfully implemented during 2001-02.
27
crankshafts, axles, connecting rods, gears, ball and roller
bearings, shells, valves, turbine blades, etc.
28
manufactures electrical resistance welded (ERW) steel
pipes and tubes, and cold-rolled formed sections and
profiles, and cold-rolled (CR) strips. The lighting division,
operating since 1983, manufactures fluorescent tube
lamps (FTL), general lighting systems (GLS), glass shells
for GLS lamps, tubular glass shells, FTL filaments, GLS
filaments, and sodium and mercury vapour lamps. The
lamps are sold under the Surya brand. A backward
intergration to manufacture lead glass tubings and an
expansion of capacities of the lighting division were
undertaken in 1993.
29
Electronic Development Corporation. The company
manufactures jelly-filled cables in technical collaboration
with AEG Kabel, Germany. The company has developed
PCM system cables used to transmit digital signals. It has
developed foam-skin type cables for the first time in India.
The company also provides software application services.
Later in May 2001 the two subsidiaries viz Usha Martin
Telecom Holding and UBL Industries were merged with the
company. Subsequent to this merger, the company name
was changed to Usha Martin Ltd in May,2003.
30
The company entered into financial tie-up with
IFC,Washington and DEG,Germany for funding of new
projects at Jamdshedpur and Ranchi which are under
implementation stage. IFC has awarded loan of USD 21 Mn
and also has acquired 5264727 equity shares at a
premium of Rs.28 per share,and DEG-Deutsche
Investitions-und Entwicklungsgesellschaft mbH-
Germany,is funding the project by way of loan Euro 10 Mn
and in addition it has also invested Rs.17.64 crores
consisting 5345455 equity shares at a premium of Rs.28
per share.
31
Quantitative Analysis
Ratio Analysis
Definitions
32
RATIO ANALYSIS (Top five)
JSW SAI
Essar Ispat Tata
Aggreg Steel L
Company / Year Steel Inds. Steel
ate 20080 2008
200803 200803 200803
3 03
Key Ratios
Turnover Ratios
33
Debt – equity ratio -Average ratio of industry is 1.02
.Ispat company is showing higher ratio i.e. 4.88 which
shows that company is having higher risk and has
borrowed more from creditors than shareholders. All other
companies are performing average.
JSW SAI
Essar Ispat Tata
Aggreg Steel L
Company / Year Steel Inds. Steel
ate 20070 2007
200703 200703 200703
3 03
Key Ratios
Turnover Ratios
34
companies .All companies are above average and JSW
steel has highest turnover among all these companies.
JSW SAI
Essar Ispat Tata
Aggreg Steel L
Company / Year Steel Inds. Steel
ate 20060 2006
200603 200603 200603
3 03
Key Ratios
Turnover Ratios
35
Interest Cover Ratio 5.01 2.06 -0.19 3.53 13.20 31.03
36
20050 2005
200503 200503 200503
3 03
Key Ratios
Turnover Ratios
37
and 4.41 which shows those companies are having higher
risk and has borrowed more from creditors than
shareholders.
JSW SAI
Essar Ispat Tata
Aggreg Steel L
Company / Year Steel Inds. Steel
ate 20040 2004
200403 200403 200403
3 03
Key Ratios
Turnover Ratios
38
and JSW steel has highest turnover among all these
companies.
Shah
MUSC Sunflag Surya Usha
Aggreg Alloys
Company / Year O Iron Roshni Martin
ate 20080
200803 200803 200803 200803
3
Key Ratios
Turnover Ratios
39
Debtors 12.49 5.95 18.32 17.26 10.83 7.60
Interest Cover
4.83 2.54 -2.06 3.59 1.47 3.32
Ratio
40
M U S Shah Sunflag Surya Usha
Aggreg
Company / Year CO Alloys Iron Roshni Martin
ate
200703 200703 200703 200703 200703
Key Ratios
Turnover Ratios
41
that company is having higher risk and has borrowed
more from creditors than shareholders. All other
companies are performing well. Sun flag is having ratio
of0.83 that is lowest among all these and still it can take
loan from creditors without any hazard.
Key Ratios
Turnover Ratios
42
average and Surya roshini has highest turnover among all
these companies. This ratio shows the number of times a
company’s inventory is turned into sales.
Key Ratios
Turnover Ratios
43
Asset turnover ratio- In 2005 aggregate fixed turnover
is 1.34 which is lesser than all other companies. It means
these companies utilizing their assets efficiently. Shah
alloys has highest turnover ratio.
Key Ratios
44
Debt-Equity
2.92 1.64 1.77 0.80 2.57 2.03
Ratio
Long Term
Debt-Equity 2.48 0.69 1.10 0.64 1.58 1.70
Ratio
Turnover Ratios
Interest Cover
3.01 1.43 2.86 1.45 1.54 1.18
Ratio
45
because it is having ratio of 0.80 which shows company
has more shareholders money than creditor.
46
Qualitative Analysis
Understanding the Steel industry using
Michael Porter’s Five Forces Model
Backed by robust volumes as well as realizations, steel
Industry has registered a phenomenal growth across the
world over the past few years. The situation in the
domestic industry was no exception. In fact, it enjoyed a
double digit growth rate backed by a robust growing
economy. However, the current liquidity crisis seems to
have created medium term hiccups. In this article, we
47
Capital Requirement: Steel industry is a capital
intensive business. It is estimated that to set up 1
mtpa capacity of integrated steel plant, it requires
between Rs 25 bn to Rs 30 bn depending upon the
location of the plant and technology used.
48
user industries or through their own distribution
networks. Some companies also do exports.
Competition: High
49
supplier to standalone and non–integrated steel
mills.
50
The SWOT Analysis
Strengths Weakness
Availability of iron ore Endemic Deficiencies
Availability of labor at low Systemic Deficiencies
wage rates High Cost of Capital
Low Labor Productivity
High Cost of Basic Inputs and
Services
Opportunities Threats
Unexplored rural market Slow Industry Growth
Other sectors Technological Change
Export penetration Price Sensitivity and Demand
Volatility
Strengths
51
compared to many advanced countries. With such
strength of resources, along with vast domestic untapped
market, Indian steel industry has the potential to face
challenges successfully.
Weaknesses
Endemic Deficiencies
Systemic Deficiencies
52
t/man year, for POSCO, Korea and NIPPON, Japan the
values are 1345 t/man year and 980 t/man year.
53
of share prices, distribution network, managerial
initiatives, research and development, information
technology and labor productivity etc. The weaknesses
gets reflected in India’s poor standing in the global
competitiveness as measured in terms of indicated
parameters.
Opportunities
• Other Sectors
54
Excellent potential exists for enhancing steel consumption
in other sectors such as automobiles, packaging,
engineering industries, irrigation and water supply in
India. New steel products developed to improve
performance simplify manufacturing/installation and
reliability is needed to enhance steel consumption in
these sectors. Main objective here have to be
improvement of quality for value addition in use,
requirement of less material by reducing the weight and
thickness and finally reduction in overall cost for the end
user.
Threats
55
growth of the economy, which as a whole was sluggish.
This sluggish growth in the steel industry has resulted in
enhanced rivalry among existing firms. As the industry is
not growing the only other way to grow is by increasing
one’s market share.
• Technological Change
56
Strategic Restructuring — A Comparative
Analysis
The effect of globalization on steel industries in different
regions or countries has not been uniform. Each region is
unique in its own way in terms of raw materials
availability, technology adopted, market conditions,
trading policies, etc.
Impediments to expansion
Steel production targets set in the National Steel Policy by
the Indian Government recognize that success will depend
on addressing a number of impediments. While India
ranks 116th of 155 countries in the World Bank’s ease of
doing business index, such a rating conceals major
57
differences between individual states within India and the
extent of government support at all levels to facilitate
investment in the steel sector. Further, many
impediments to business present in the wider economy
will not be so significant in the special economic zones
and special economic and investment regions where a
large proportion of planned new steel capacity will be
sited.
Infrastructure
The state of infrastructure in India is a significant
consideration for investors in the steel sector. A number of
studies, including one released by Morgan Stanley in 2005
(Ahya and Sheth 2005), concluded that the low level of
spending on infrastructure, compared with other emerging
economies, is the major macroeconomic constraint on the
Indian economy. Morgan Stanley note that China spent
10.6 per cent of gross domestic product, equal to US$150
billion, on infrastructure in 2003 compared with India’s 3.5
per cent or US$21 billion. Notably, India, in contrast to
China, has low rates of domestic savings, which is a factor
in limiting capital formation and domestic investment.
For new steel projects, infrastructure costs can be
significant, as in the case of Posco’s steel plant
development in Orissa. Infrastructure development
requires the transport of raw materials for steel
production. Every tonne of steel produced requires 4
tonnes of raw material to be transported. Hence,
achieving the goal of 75 million tonnes of additional
capacity by 2019-20 will require the movement of an
additional 300 million tonnes of raw material. On this
basis, the Indian Government estimates that rail and road
capacity will need to approximately triple and port
58
capacity double by 2019-20 to meet demand for steel and
raw material movements (Government of India 2005).
An analysis by McKinsey Quarterly (Bhargava, Gupta and
Khan 2005) showed that Australia, Brazil and South Africa
can deliver iron ore to China at a lower price than India,
with Australia’s fob delivery price less than half of India’s
price. A major factor in India’s competitive disadvantage is
high transport costs stemming from a lack of
infrastructure, but mining costs are also high. However,
this is somewhat offset by the closeness of India’s raw
materials to its ports and steelworks relative to other steel
producing countries (De Bassompierre and Arendse
2006) .
The major investments required in infrastructure are
expected to be a significant driver of steel consumption in
the domestic market as infrastructure and construction
combined account for 80% of India’s steel consumption
(Gokarn, Sen and Vaidya 2004). Additional infrastructure
will also provide indirect benefits to other sectors in the
economy.
Roads
The capacity and quality of Indian roads are also a
constraint to economic development, with highways
making up 2 per cent of roads but accounting for 40 per
cent of freight movement in 2004. In addition, some 50
per cent of India’s 600 000 villages are unconnected by
all-weather roads (OECD 2006c; Economist Intelligence
Unit 2005a).
Freight movements are further delayed by onerous
transport regulations, which include restrictions in the
hours of the day that heavy vehicles can operate,
interstate border crossing closures and lengthy trans-
59
border crossing procedures, frequent tolls and inspections,
and road closures at night due to the risk of attacks by
insurgents or bandits.
In an effort to improve transport efficiency the
government has announced a road building program
known as the National Highways Development Project
(Government of India 2002). Stage one is nearing
completion and involves the construction of a highway,
called the Golden Quadrilateral, connecting Delhi,
Mumbai, Kolkata and Chennai at a cost of US$12 billion.
This is part of a wider plan to improve roads nationwide at
a cost of over US$30 billion shared between government
and the private sector (Puliyenthuruthel 2005).
Rail
The government owned and operated rail network is
the third largest in the world after the Russian Federation
and China and the biggest in the world in terms of
passenger kilometres. However, cross subsidisation of
passenger transport by freight transport has meant that
steel freight and freight in general has moved away from
rail to roads: 35 per cent of processed or final steel
products were transported by rail in 2001-02, down from
72% in 1991-92 (OECD 2006c; Economist Intelligence Unit
2005a). The government has signalled its intention to
improve the freight performance of the railways in its
current five year plan, although the passenger cross
subsidisation policy — which is aimed at assisting the poor
— is likely to remain.
Shipping
The efficiency of Indian ports is affected by shallow
draught, low productivity, high costs, long vessel
60
turnaround times, poor governance, and lengthy customs
delays. Shipping costs are consequently high — a
shipment from India to the United States can cost 20 per
cent more than from Thailand and 35 per cent more than
from China (OECD 2006c; Economist Intelligence Unit
2005a).
Expanding India’s steel sector depends on lower port costs
for handling key inputs such as coking coal which is
predominantly imported, as well as servicing potential
steel exports as envisaged under the National Steel Policy.
The Indian Government has in place several initiatives to
encourage private sector participation in ports, while
recognising that modernisation of Indian ports is a long
term project.
Some steel operations are, however, of sufficient size to
overcome these impediments by investing in their own
facilities. An example is Posco’s plant in Orissa, which will
include a US$200 million new world class port at Jagadhari
with berths up to 250 000 tonnes.
Power Generation
The electricity supply system is characterised by
frequent outages and high voltage fluctuations despite
half of all households not being connected to the grid.
Average electricity consumption per person is 526 kilowatt
hours a year, which compares with 1247 kilowatt hours in
China (OECD 2006; Economist Intelligence Unit 2005).
The Ministry of Steel estimates that achieving the goals
set out in its 2019-20 Steel Policy will require an additional
7000 megawatts of generation capacity. This compares to
a nationwide capacity of 131 400 megawatts in 2003-04
and an overall target of an additional 100 000 megawatts
61
of capacity within seven years so that all households can
be connected to the grid.
However, the government has limited funds for the
construction of power capacity and there are a number of
risks for potential investors where political considerations
have constrained reform. These include cross
subsidisation by industry users of some consumer classes
whose payments do not meet costs, as well as over 25 per
cent of power being stolen or lost in distribution. These
factors combine to limit overall electricity tariffs to 75 per
cent of supply costs, which are estimated at twice those of
the United States, and 60 per cent greater than in the
Republic of Korea and Thailand (Economist Intelligence
Unit2005b).
The mismatch between costs and tariffs has bankrupted
many of the government controlled state electricity
boards and consequently restricted their ability to add
capacity.
A case in point is the defaulting on payment by the state
electricity board that emerged in the case of the US$2.9
billion Dabhol power plant, which was India’s largest ever
foreign direct investment project.
62
Current Global Scenario
1. Subprime crisis
2. US slow down
3. US dollar weakening
Impact
63
According to Labour Department, the US job losses last
year were the most since 1945. Additionally, the federal
budget deficit is expected to hit $1.18 trillion this year as
the government spends billions on industry bailouts and
tax cuts. Consequently, the US government has pledged
more than $8.5 trillion as of November 25 for the bailout
package to companies and help the country recover from
an economic recession. The recently elected president
Barack Obama has also favoured an additional stimulus
package of at least $775 billion.
Source: SteelWorld
64
Total shipment from Mormugao port in Goa during the first
fortnight of December showed a drastic decline of over
27.18% to 20.84 million tons as against 28.62 million tons
in the same period last year. Goan exporters ship mainly
Karnataka- and Goa-origin low grade iron ore to Chinese
steel mills, said Glenn Kalavampara, Secretary of Goa
Mineral Ore Exporters' Association (GMOEA). Haresh
Melwani, CEO, H L Nathurmal & Co, one of the leading iron
ore miners and exporters from Goa attributed the decline
in exports to three major factors namely: frequent
changes in exports levy on fines and lumps (the two
grades of iron ore below and above 64 percent of iron
content respectively), slowdown in Chinese demand and
buyers lenience towards Australia and Brazil because of
favourable government policy. He also forecast about 25
percent decline of exports of state-origin iron ore from
Goa to the tune of 20 million tons this financial year from
26 million tons last year. Similarly, both Karnataka- and
Goa-origin iron ore exports may also fall to the level of 30
million tons as compared to 40 million tons last financial
year, Melwani added.
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production of 570,000 tons was the highest ever despite
three of its smaller blast furnaces under relining. Though
JSW Steel announced production cut of 20%, actual
production rates have been worse in November 2008.
Suggestions
The following suggestions are given to rejuvenate the
Indian steel industry:
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programmers should be designed for people from
different hierarchy including top level management.
Future Outlook
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very fast. Another major reason is the global shortage of
scrap. The steel making furnaces in the eastern region use
average 70% Sponge Iron in the feed material for steel
making.
The future for the Sponge Iron is therefore quite bright.
The steel is today considered as the backbone of India
economy. The growth of economy has a direct relation
with the demand of steel. With the present steel intensity
index, considering the GDP projection by the Government
of India, growth of steel demand will be around 11%
annually.
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iron ore which will be established. India has total 9992
million ton of iron ore reserves (as per IBM report of
1995).
• India has sufficient non-coking coal through of high ash
low fixed carbon grade. Coal is used as a reducing for
sponge iron making in the furnace.
• The availability of scrap of required quantum is unlikely
and therefore scraps needs to be replaced more and
more by DRI.
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Business Innovation: Steel Retailing
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innovate and develop newer products & services that add
value to the end customer and makes steel buying
pleasurable.
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Nucor Steel: “Recycled Steel: An environmental
success”
Nucor Corp. (NYSE:NUE) is a steel producer that relies on
scrap steel for production rather than iron ore; this makes
it the largest recycler in the nation. As opposed to
traditional large mills, Nucor runs mostly mini-mills that
utilize modern steel making techniques and require fewer
employees compared to fully-integrated competitors such
as US Steel. Still, the company employs nearly 12,000
workers, all of whom are independent of unions.
Production totalled 22.4 million tons in 2006, a 10%
increase from 2005, with production capacity exceeding
25 million. Nucor achieved record sales and net earnings
in 2006 for the third consecutive year, and has managed
to maintain profitability every quarter of every year since
1966. Hence it is rightly said “Converting Scrap into
Steel.”
Advantages:
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The iron and steel industry, which relies heavily on coal
and natural gas for fuel, is one of the largest energy
consumers in the manufacturing sector. The company
reported achieving a 17% reduction in energy intensity
per ton of steel shipped since 1990. Because of the close
relationship between energy use and GHG emissions, the
industry’s aggregate CO2 emissions per ton of steel
shipped were reduced by a comparable amount during
this same period. As part of their Climate VISION
commitment, the industry has committed to increasing its
energy efficiency by 10% by 2012 (from 2002 levels).
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WHAT DO HOW DO FIRMS KEY SUCCESS
CUSTOMERS WANT? SURVIVE
FACTORS
COMPETITION?
(Analysis of
demand) (Analysis of
competition)
• Differentiation
through technical
specifications and
service quality.
Conclusion
It is universally accepted that Indian economy is growing
at a very high rate presently and the demand for steel is
also showing an upward trend. We believe, for the sake of
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country and growth of economy, growth of sponge iron
industry is a must. This is possible only with the active
support of the Government. Efforts to make this sector
more eco-friendly will meet success only if competent
authorities take up the developmental jobs in proper
spirit.
References
1. Annual Report (2007-2008) Of Ministry Of Steel
9. www.Capitaline.com
10. www.MySteel.com
11. www.sail.com
12. www.SteelWorld.com
13. www.steel.nic.in
14. www.worldsteel.org
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