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INTRODUCTION Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilisation. The level of per capita consumption of steel is treated as an important index of the level of socioeconomic development and living standards of the people in any country. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. All major industrial economies are characterised 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. Steel industry was in the vanguard in the liberalisation of the industrial sector and has made rapid strides since then. The new Greenfield plants represent the latest in technology. Output has increased, the industry has moved up i n the value chain and exports have raised consequent to a greater integration with the global economy. The new plants have also brought about a greater regional dispersion easing the domestic supply position notably in the western region. At the same time, the domestic steel industry faces new challenges. Some of these relate to the trade barriers in developed markets and certain structural problems of the domestic industry notably due to the high cost of commissioning of new projects. The domestic demand too has not improved to significant levels. The litmus test of the steel industry will be to surmount these difficulties and remain globally competitive. It has been observed that steel industry has grown tremendously in the last one and a half decade with a strong financial condition. The increasing need of steel by the developing countries for its infrastructural projects has pushed the companies in this industry near their operative capacity. INDUSTRY OVERVIEW Steel is the world’s third largest commodity market with a dollar value in excess of $700 billion. In recent years, the industry has undergone radical restructuring and has become more global, more efficient and more financially viable. Events have resulted in high

prices, supply disruptions and increased volatility, all elements which the existence of futures contracts can help the industry to manage. Exceptional growth continues to be seen in the global consumption of finished steel products. Growth in steel demand is highest in the developing world. China has increased its domestic consumption from 53 million tonnes in 1990 to nearly 350 million tonnes in 2005. Economic growth in the developing world tends to be more steel intensive than growth in developed nations. As a result, steel plays a vital role in these new economies. World steel trade has expanded as global consumption has increased. In 1990 international steel trade was 167 million tonnes and is forecast to grow to 353 million in 2015.Global steel production has continued to increase but, at a lesser rate to previous years. In 2005, the total world crude steel production was 1,107.2 million metric tons and was valued at over $700 billion. This growth is estimated to continue until 2015 at a rate of approximately 4% per year. Previously from 1990 to 2000, the growth rate was only 1.6% per year. THE GLOBAL STEEL INDUSTRY The current global steel industry is in its best position in comparing to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The steel industry is enjoying its 6th consecutive years of growth in supply and demand. And there is many more merger and acquisitions which overall buoyed the industry and showed some good results. The subprime crisis has lead to the recession in economy of different countries, which may lead to have a negative effect on whole steel industry in coming years. However steel production and consumption will be supported by continuous economic growth. The most significant growth that can be seen in the steel industry has been observed during the two decades that is 1960s and 1970s, when the consumption of steel around the whole world doubled. Between these years, the rate at which the steel industry grew has been recorded to be 5.5 %. In late 70s the industry showed a deceleration in growth.

After this period, the continuous fall slowed down and again started its upward movement from the early 1990s. New innovations are also taking place in Steel Industry for cost minimization and at the same time production maximization. Some of the cutting edge technologies that are being implemented in this industry are thin-slab casting, making of steel through the use of electric furnace, vacuum degassing, etc.

Steel Industry in India is on an upswing because of the strong global and domestic demand. India's rapid economic growth and soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put Indian steel industry on the global map. The finished steel production in India has grown from a mere 1.1 million tonnes in 1951 to 36.957 million tonnes in 2003-04. During the first two decades of planned economic development, i.e. 1950-60 and 1960-70, the average annual growth rate of steel production exceeded 8%. However, this growth rate could not be maintained in the decades that followed. During 1970-80, the growth rate in steel production came down to 5.7% per annum and picked up marginally to 6.4% per annum during 1980-90. The production during the last decade has doubled. Though India started steel production in 1911, steel exports from India began only in 1964. Exports in the first five years were mainly due to recession in the domestic iron and steel market. Upon revival of the domestic demand there was a decline in exports. India once again started exporting steel only in 1975 touching a figure of 1 million tonnes of pig iron export and 1.40 million tonnes of steel export in 1976-77. Thereafter, exports again fell rapidly to meet rising domestic demand. It was only after liberalisation of the steel sector that the exports of iron and steel have once again started increasing.

Transformation of Indian steel industry after liberalisation
India's Steel Industry is more than a century old. Before the economic reforms of the early 1990s the Indian steel industry was a predominantly regulated one with the public sector dominating the industry. Tata Steel was the only major private sector company

involved the production of steel in India. Sail and Tata Steel have traditionally been the major steel producers of India. In 1992, the liberalization of the India economy led to the opening up of various industries including the steel industry. This led to the increase in the number of producers, increased investments in the steel industry and increased production capacity. Since 1990, more than Rs 19,000 crores (US$ 4470.58 million) has been invested in the steel industry of India. India's steel industry went through a rough phase between 1997 and 2001 when the overall global steel was facing a downturn and recovered after 2002. The major factors that led to the revival of the steel industry in India after 2002 was the rise in global demand for steel and the domestic economic growth in India. India has now emerged as the eighth largest producer of steel in the world with a production capacity of 35MT. Almost all varieties of steel is now produced in India. India has also emerged as a net exporter of steel which shows that Indian steel is being increasingly accepted in the global market. The growth of the steel industry in India is also dependent, to a large extent, on the level of consumption of steel in the domestic market. Steel consumption is significant in housing and infrastructure. In recent years the surge in housing industry of India has led to increase in the domestic demand for steel.

Policy changes
The important policy measures, which have been taken for the growth and development of the Indian iron and steel sector, are as under: • In the new industrial policy announced in July, 1991, iron and steel industry among others, was removed from the list of industries reserved for the public sector and also exempted from the provisions of compulsory licensing under the Industries (Development and Regulation) Act, 1951. • With effect from 24.5.92, iron and steel industry was included in the list of ‘high priority’ industries for automatic approval for foreign equity investment upto 51%. This limit has since been increased to 100%.

Pricing and distribution of steel were deregulated from January, 1992. At the same time, it was ensured that priority continued to be accorded for meeting the requirements of small scale industries, exporters of engineering goods and North Eastern Region, besides strategic sectors such as Defence and Railways.

The import regime for iron and steel has undergone major liberalisation moving gradually from a controlled import by way of import licensing, foreign exchange release, canalisation and high import tariffs to total freeing of iron and steel imports from licensing, canalisation and lowering of import duty levels. Export of iron and steel items has also been freely allowed.

Import duty on capital goods was reduced from 55% to 25%. Duties on raw materials for steel production were reduced. These measures reduced the capital costs and production costs of steel plants.

Freight equalisation scheme was withdrawn in January 1992. However, with the coming up of new steel plants in different parts of the country, iron and steel materials are freely available in the domestic market.

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Levy on account of Steel Development Fund was discontinued from April, 1994 thereby providing greater flexibility to main producers to respond to market forces Industrial and Trade Policy Resolutions in 1991 with regard to the Steel industry – – – – – Exempted from industrial license system Abolition of price controls Liberalising conditions for FDIs Liberalisation of imports and exports Lowering tariff level

Changes after the economic liberalisation
• • • • • Steel production and export increased much faster than before This increase attributable to new comers Technology catching up rapidly New type of steel firms appeared Flat products imported and exported

Emerging trends in steel industry
An increasing investment in infrastructure, construction and urbanisation as well as growth in automobile, white goods and industrial sector is a further boost to the optimism within the domestic steel industry. Power: Addition of 41,000 MW of power generating capacity between 2002 and 2007 and about 61,000 MW between 2007 and 2012 should drive steel off take, leading to an incremental consumption of 0.4 million tones in FY2006 itself. Roads: The government intends to embark on the construction of 48 new projects with a view to four lane about10,000 kms of roads in addition to the existing ongoing programme of National Highway Authority of India.With steel intensity in the roads under construction being considerably higher than the legacy infrastructure, the outlook for increased steel consumption on this count appears to be brighter. Housing: Low interest rates and easy availability of housing finance has resulted in a housing boom; the Housing and Urban Development Corporation intends to add two million houses every year (35 per cent in urban areas), estimated to create an additional annual demand of 0.6 to 0.8 mtpa of steel. Malls: From 25 malls in 2003, India expects to commission more than 220 malls by 2006 (estimated 40 million sq ft) and 600 malls by 2010 (100 million sq ft). Automobile and ancillaries: In 2004-5, India’s auto industry consumed about 2.8 mt of steel (about 8 per cent of India’s steel consumption). This is expected to grow at 11-12 per cent over the next three years following India’s emergence as a global outsourcing hub for the auto industry. White goods: Rising income and the easy availability of low cost finance has started a white goods (refrigerators, air conditioners and washing machines) revolution in India, leading to an increased consumption of steel. Industrial Projects: India’s industrial growth is encouraging a number of companies to reinvest leading to an increased consumption of steel, the steel industry is expected to emerge as a major steel consumer itself.

The positive outlook for increasing steel demand in India along with the strategic advantages offered have resulted in a keen interest from domestic and international steel majors for setting up steel projects in India.

JSW Steel Ltd
JSW Steel Ltd. is one among the largest Indian Steel Companies in India today. India’s third largest steelmaker, JSW Steel Ltd. consists of the most modern, eco-friendly steel plants with the latest technologies for both upstream & downstream processes. We are among the largest integrated steel companies in India, having established production facilities at close proximity to the mineral resources as well as to the market for its products. Our cost of production is among the lowest in the country due to locational advantages, strong leadership, and committed work force. The integrated steel plant at Toranagallu in Bellary District of Karnataka produces hot rolled coils of various Carbon and Low Alloy grades of steel for wide application ranging white goods, automotive, line-pipe, railway wagons etc. We have adopted the technology of iron making using pellets through the novel Corex process as well as in the conventional Blast Furnace route. We are among the few plants in the world to adopt and successfully operate Vibro-compacted non-recovery coke-oven, utilizing the heat of the flue gases for power generation. Competitive Strengths • Location: Upstream facility is located in the Iron Ore rich belt of Bellary- Hospet region of Karnataka. The strategic location of the manufacturing units with respect to established ports and well connected rail and road networks ensures reliable and cost efficient receipt of raw materials and dispatch of finished steel. • Technology: In order to maintain quality and cost of products they have adopted technologies such as Vibro compacting non-recovery Coke Ovens, the novel Corex Process as well as the conventional Blast Furnace route of Iron Making. • Integrated operations: They have a vertically integrated company with operations spanning across iron ore mining to manufacture of value added galvanized and colour coated products. For preserving competitive advantage, they focus on developing

advanced skill sets within the organization through internal research and development efforts as well as tie up with leading companies. • Marketing: Having one of the largest galvanising capacities in the country, JSW is one of the largest exporters of galvanized products to over 50 countries in five continents. Professional Management: As part of corporate governance practices, they have a qualified and experienced management in addition to a diversified independent board.

Business Strategy
• Capacity enhancement: They intend to leverage proximity to iron ore reserves and the existing infrastructure to expand capacities at low specific investment cost per ton.. • Increase vertical integration: Their impetus has been to increase the vertical integration through strategic tie up, long-term linkages and acquisitions aimed at ensuring availability of critical raw materials at low cost. • Improve product profile: They intend to improve the value added products in product mix to withstand the vagaries of price volatilities besides being able to offer suite of products to meet the growing requirements of the customers. Aligned to this strategy, they had merged the steel business of JISCO, which was into manufacture of value added products – HR Plates, Cold Rolled and Galvanised.We are modernizing hot strip mill to increase hot rolled product capacities while also setting up a 1 mtpa CRM complex to meet the growing demand for value added products. • Improve financial profile: Being part of a capital-intensive industry with high volatility in the product prices, they need to maintain a healthy financial profile. They have accordingly reduced debt significantly over the last couple of years bringing down the gearing levels and also intent to maintain low gearing ratio and propose to reduce debt levels going forward to make resilient to any downward pressure of steel prices and continue smooth operations. • Investing in technology to improve productivity and reduce wastage: they have invested in latest technologies for efficient operations and are continuing to improve to ensure that best operating practices are followed.

The initiatives are adopted across company including areas related to coal distribution, refractory relining file and plant availability enabling to improve efficiencies resulting in reduced costs.

Swot Analysis
Strengths • They are one of the major players in the steel sector and have a diversified client base. They have adequate experience and expertise as an integrated steel producer and have withstood the cyclic fluctuations that have characterized the steel industry in the past. • They are one of the low cost producers of Hot Rolled coils, which forms a key input for their CRM project. They also use the Corex-BOF route for making steel, which requires less amount of coke. • They have sourcing arrangements with suppliers of power and oxygen which reduces vulnerability to fluctuations in the prices of these raw materials. Weaknesses • The debt / equity ratio or gearing is relatively high compared to some of the other integrated steel producers in India. They are actively taking steps to rationalize further high cost debt to reduce interest burden. • The profitability of the Company is dependent on prices of key inputs such as iron ore, coal and zinc. Though the Company mitigates these risks by entering into strategic tieups / sourcing contracts with raw material suppliers, any adverse fluctuations in the input costs would affect the margins of the Company. Opportunities • Compared to the global per capita steel consumption average and the steel consumption average for developed world, India’s per capita consumption of steel is extremely low. To address this low consumption of steel the National Steel Policy 2005 envisages steel production to grow at 7.3% CAGR to 110 Mtpa from the present levels of finished steel production at 38 Mtpa. It also envisages steel imports growing at 7.1% CAGR (Compound Annual Growth Rate) from the present level of 2 Mtpa to 6 Mtpa and steel exports to grow at 13.3% CAGR from the prevailing 4 Mtpa (Metric Tons Per Annum) to 26 Mtpa leading to a healthy apparent steel consumption of 90 Mtpa by the

F.Y. 2019- 20, a 6.9% CAGR growth. Several initiatives taken by the Government of India in the form of infrastructural development programs such as the National Highway Development Programme, the Indira Awas Yojna and the National Urban Renewal Programme are expected to have a beneficial impact on the demand for steel. Demand for Hot Rolled, Cold Rolled and Hot Dipped Galvanized Steel products – forming the steel-valuechain for the Company is expected to substantially benefit from the positive impact of these initiatives. • The Cold rolled products are used in the automobile sector. There is a major opportunity for them to market their products on a large scale to the automobile sector resulting from robust growth in the demand for automobiles combined with stringent regulations on pollution control pertaining to old vehicles. • India is perceived to be one of the manufacturing destinations for steel making globally and this may propel to meet the demand not only domestically but also internationally. Threats • The steel industry is characterized by cyclical fluctuations in prices of finished steel products as well as those of the key inputs. Any downward cyclical movement in the steel sector could reduce the demand for steel and reduce profitability. • Operating margins could come under pressure if there is a fall in the demand for steel and increase in input costs. However, since JSW is one of the lowest cost producers in the market, they may still be able to maintain reasonable operating margins for their products. • The Indian steel industry is highly competitive. They face substantial competition in the steel industry, both from Indian and international companies. Domestic as well as international steel majors like Tata Steel, POSCO and Mittal Steel have announced plans to set up manufacturing facilities in India. This could lead to excess capacity and consequently downward pressure on the prices of finished steel products.