Steel India & China

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MSc. International Business

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INDIAN AND CHINESE
STEEL INDUSTRY:
ECONOMIC IMPACT

Prateek Gupta

2008

A Dissertation presented in part consideration for the degree of MSc in
International Business Management

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ACKNOWLEDGEMENTS

I would like to take this opportunity to pay my Gratitude GOD and to Iew people who have
supported me throughout writing my dissertation. First and Ioremost, I express my sincere
gratitude to my supervisor, Ms. Swee-Hoon Chuah Ior being such an understanding and
supporting mentor. Her motivation, support and path direction has greatly enhanced the value
that I put in my dissertation which otherwise would have not been possible. I would like to thank
her Ior taking the time out to answer all my emails as well as providing me with detailed
suggestions and comments about my work. Thank you so very much!

I would also like to acknowledge the invaluable help that I received Irom my proIessors during
the past one year which in turn helped me in my dissertation. I also want to thank the university
authorities Ior providing excellent inIrastructure such as world class library with excellent
collection oI books, providing accesses to valuable journals, and IT Iacilities. I truly Ieel
privileged to be part oI this University. I sincerely wanted to thank Mr. Bansal Irom Valley Iron
and Steel, who helped me attending the very inIormative and knowledgeable Indian Steel
Conclave 2008 in New Delhi. I would like to thank all my Iriends who supported me spending
endless nights in the library, doing my course works and dissertation.

Finally, I need to thank my parents and sister Ior believing in me throughout this year and
believing in my abilities, when I needed it the most! I could not have survived this year at
Nottingham iI it weren`t Ior your support. You guys are the best! It`s truly just beyond the
dissertation, I am grateIul to them Ior every but oI contribution

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ABSTRACT

This paper investigates economic impact oI the steel industry on the Indian and Chinese
economies as these economies are completely diIIerent Irom each other. China is manuIacturing
intensive, known as Iactory oI the world and India is rich with intellectual property. With the
economic impacts, this research investigates the various problems Iaced by the two economies in
their path to become a Iully developed economy and the various policies oI the two nations to
overcome these.
The literature review describes the Indian steel industry and Iactors aIIecting its growth. For
these reasons qualitative research methodology has been chosen. The researcher has used both
primary and secondary sources in order to understand and satisIy the aims and the objectives oI
this research. The various Iindings has been discussed and analyzed by doing a comparative
study oI the SWOT analysis oI both India and China. Lastly the concluding thoughts oI this
study discuss the limitations and recommendations.

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Table of Contents
ACKNOWLEDGEMENTS ............................................................................................................. i
ABSTRACT ................................................................................................................................... iv
BACKGROUND OF THE RESEARCH TOPIC ........................................................................... 1
1.1 STEEL:- .................................................................................................................................... 1
1.2 History oI Steel:- ....................................................................................................................... 2
1.3 Methods oI Steel Making:- ....................................................................................................... 3
1.3.1 Integrated (blast Iurnace and basic oxygen Iurnace) ......................................................... 3
1.3.2 Electric arc Iurnace (EAF). ................................................................................................ 4
1.4 Properties oI Steel ..................................................................................................................... 5
1.5 Present World Steel Scenario.................................................................................................... 7
1.5.1 Share oI world crude steel production: 2001, 2006, and 2007 .......................................... 9
1.5.2 Major steel producing nations with their total production Irom the year 2001 to 2007 .. 11
1.6 World Steel Review, 2008 ...................................................................................................... 12
1.7 Major Steel Producing Companies:- ....................................................................................... 13
LITERATURE REVIEW ............................................................................................................. 14
2.1 Indian Steel Industry ............................................................................................................... 14
2.2 Current Scenario ..................................................................................................................... 16
2.3 Growth in the Steel Industry ................................................................................................... 18
2.3.1 Each oI these segments has good potential to grow ........................................................ 20
2.4 Future Prospects Ior the Indian Steel Industry ........................................................................ 21
2.4.1 WHY DEMAND TO GROW 15 ............................................................................. 23
2.5 Steel Companies oI India ........................................................................................................ 25
2.5.1 Other Major Producers are ............................................................................................... 26
2.6 Raw Materials Scenario oI Indian Steel Industry ................................................................... 27
2.6.1 Minerals ........................................................................................................................... 27

vi
2.7 DEMAND-SUPPLY ANALYSIS OF RAW MATERIALS FOR IRON & STEEL
INDUSTRY .................................................................................................................................. 30
2.7.1 Short Term ....................................................................................................................... 30
2.7.2 LONG TERM DEMAND ................................................................................................ 31
2.8 OTHER MINERALS .............................................................................................................. 32
2.9 COAL ...................................................................................................................................... 33
2.9.1 DEMAND & AVAILABILITY ...................................................................................... 34
2.9.2 DEMAND & SUPPLY GAP ........................................................................................... 35
2.10 The Policy Environment In The Indian Steel Industry ......................................................... 35
2.11 Steel prices ............................................................................................................................ 36
2.11.1Strategy to Contain Prices ............................................................................................... 40
2.11.2 Fiscal Measures Taken by the Government to contain steel prices ............................... 40
2.11.4 Pro-active Measures by the Producers to contain the steel price ................................... 41
METHODOLOGY ....................................................................................................................... 42
3.1 Methodology & Research ....................................................................................................... 42
3.2 Selection oI research method .................................................................................................. 43
3.3 Sources oI Data Collection ..................................................................................................... 46
3.3.1 Primary sources to collect Data ....................................................................................... 46
3.3.2 Secondary Sources oI Data Collection ............................................................................ 52
3.4 Proposed Analysis ................................................................................................................... 55
SWOT ANALYSIS INDIAN STEEL INDUSTRY .................................................................. 59
4.1 Strengths ................................................................................................................................. 59
4.1.1 Availability OI Iron Ore & Coal ...................................................................................... 59
4.1.2 Indian Steel Industry Enjoys A Cost Advantage ............................................................. 62
4.1.3 Low labour wage rates & Abundance oI quality manpower ........................................... 64
4.2 W`-Weaknesses:- ................................................................................................................... 65
4.2.1 UnscientiIic mining/ Augmentation oI the resources ...................................................... 65
4.2.2 Low productivity .............................................................................................................. 68
4.2.3 Coking coal import dependence....................................................................................... 70
4.2.4 Low R&D investments:- .................................................................................................. 72

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4.2.5 Inadequate inIrastructure: - .............................................................................................. 75
4.2.6 High cost oI debt .............................................................................................................. 81
4.3 Opportunities........................................................................................................................... 84
4.3.1 Unexplored rural market .................................................................................................. 84
4.3.2 Growing domestic demand .............................................................................................. 86
4.3.3 Growing Exports:- ........................................................................................................... 89
4.3.4 Consolidations/ Mergers and Acquisitions: - ................................................................... 91
4.4 Threats..................................................................................................................................... 93
4.4.1 China becoming net exporter ........................................................................................... 93
4.4.2 Threat oI Substitutes & Technological change ................................................................ 95
SWOT ANALYSIS OF THE CHINESE STEEL INDUSTRY:- ................................................. 96
5.1 Strengths ................................................................................................................................. 96
5.1.1 Availability oI the raw material ....................................................................................... 96
5.1.2 Abundance oI Manpower ................................................................................................. 97
5.1.3 Continuous Ilow oI the Foreign Direct Investment ......................................................... 98
5.2 Weaknesses ............................................................................................................................. 99
5.2.1 Short supply oI domestic steel products .......................................................................... 99
5.2.2 China is restricted by the Iactors like resources, energy and environment. ................... 100
5.2.3 High-end products have weak international competitive strength ................................. 101
5.2.4 Resources distribution starves Ior optimization ............................................................. 102
5.2.5 Autarky: - selI-suIIiciency ............................................................................................. 103
5.3 Opportunities......................................................................................................................... 104
5.3.1 Strong and SuIIicient supply oI Power in the Iuture...................................................... 104
5.3.2 Strong inIlow and outIlow oI Foreign Direct Investment (FDI) .................................... 105
5.3.3 Modernization oI the state owned enterprises ............................................................... 106
5.3.4 InIrastructure development ............................................................................................ 107
5.4 Threats................................................................................................................................... 108
5.4.1 Growing Worker Shortage Threaten China's Low-cost Advantage .............................. 108
5.4.2 Increasing iron ore prices ............................................................................................... 109
COMPARISON BETWEEN INDIAN AND CHINESE STEEL INDUSTRY ......................... 110

viii
CONCLUSION & RECOMMENDATIONS ............................................................................. 116
REFRENCES:- ........................................................................................................................... 120
APPENDIX A.................................133
APPENDIX B.................................137

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List of Figures: -
Figure 1. 1:Furnaces used Ior making pig iron and steels. RH side oI open hearth Iurnace shows
use oI oil instead oI gas ................................................................................................................... 2
Figure 1. 2:Voelklingen Ironworks today: a historical monument awarded the status oI a World
Cultural Heritage by UNESCO. ...................................................................................................... 3
Figure1. 3: Type oI steel ................................................................................................................. 5
Figure1. 4: Crude Steel Production Growth trend .......................................................................... 8
Figure1. 5: Share oI world crude steel production: 2001, 2006, and 2007 ................................... 10
Figure1. 6: Major steel producing nations with their total production Irom the year 2001 to 2007
....................................................................................................................................................... 12
Figure1. 7 Total steel production 2008 ......................................................................................... 12
Figure1. 8: The table below shows the top 80 crude steel producers in 2007 and 2006 .............. 13

Figure: -2. 1; Current Market Drivers India: FY 07-08 ................................................................ 18
Figure: -2. 2 Consumption oI steel ............................................................................................... 20
Figure: -2. 3 Future Market Drivers India: FY 11-12 ................................................................... 22
Figure: -2. 4 Weekly InIlation WPI & Steel .............................................................................. 37
Figure: -2. 5 Relative Movements in WPI - All Commodities and Steel (Percentage Change over
Previous Year) .............................................................................................................................. 38
Figure: -2. 6 Rising input prices ................................................................................................... 39
Figure: -2. 7 Rising Ireight costs domestic & international ....................................................... 39

Figure: -4. 1 Operating cost.............................62
Figure: -4.2 Cost Competitiveness in Steel Production ............................................................... 63
Figure: -4. 3 labour wage rates ..................................................................................................... 64
Figure: -4. 4 Major determinants oI international competitiveness .............................................. 73
Figure: -4. 5 Production Cost ........................................................................................................ 74
Figure: -4. 6 Indian Railways Freight TariIIs ............................................................................... 76
Figure: -4. 7 Total Port Ireight ...................................................................................................... 78

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Figure: -4. 8 TariII at Indian and Foreign Ports ........................................................................... 79
Figure: -4. 9 Power costs .............................................................................................................. 81
Figure: -4. 10 PerIormance index (1997-2001): Debt-equity ratio ............................................... 82
Figure: -4. 11 PerIormance index (1997-2001): Net sales to total assets ratio ............................. 82
Figure: -4. 12 PerIormance index (1997-2001): Return on net worth (post tax) .......................... 83
Figure: -4. 13 PerIormance index (1997-2001): Movement oI share prices ................................. 83
Figure: -4. 14 Per capita steel consumption per kg ....................................................................... 85
Figure: -4. 15 Steel consumption.........................86
Figure: -4. 16 Demand patterns Ior the steel.....................87
Figure: -4. 17 Projected steel demand.......................88
Figure: -4. 18 Major transactions in the last three- Iour years ...................................................... 91
Figure: -4. 19 Net export position ................................................................................................. 94

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List of Tables: -

Table: -2. 1: Productions and Consumption oI Finished Steel ..................................................... 15
Table: -2. 2 current share oI the investment in GDP .................................................................... 19
Table: -2. 3 Indian Steel: Demand Drivers ................................................................................... 19
Table: -2. 4 Rankings .................................................................................................................... 21
Table: -2. 5 WHY DEMAND TO GROW 15 ...................................................................... 23
Table: -2. 6 Hematite Reserves ..................................................................................................... 28
Table: -2. 7 Hamatite Gradewise .................................................................................................. 28
Table: -2. 8 Magnetite -Statewise ................................................................................................. 29
Table: -2. 9 Magnetite Grade wise ................................................................................................ 29
Table: -2. 10 Other Minerals...........................32
Table: -2. 11 Total Production ..........................32
Table: -2. 12 Raw Material Requirement ......................33
Table: -2. 13 Coal Productions in India ........................................................................................ 34
Table: -2. 14 Demand & Availability oI Coal...............................................................................34

Table: -4. 1 Expected requirements .............................................................................................. 60
Table: -4. 2 Trend and the Iuture planned coal production plan. .................................................. 61
Table: -4. 3 Coking coal blocked under Railway Lines, Roads, and Rivers ................................ 71
Table: -4. 4 increase in the railway Ireights Ior the iron ore......................................................... 77
Table: -4. 5 Global scenario oI India steel .................................................................................... 89

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Table: -6. 1 Strengths .................................................................................................................. 110
Table: -6. 2 Weaknesses ............................................................................................................. 111
Table: -6. 3 Opportunities ........................................................................................................... 113
Table: -6. 4 Threats ..................................................................................................................... 114

1
CHAPTER- 1
BACKGROUND OF THE RESEARCH TOPIC

1.1 STEEL:-
'Steel is produced in more than 60 countries worldwide and on every continent except
Antarctica (International Iron and Steel Institute). It is the most important engineering and
construction material in the world. It is vital to our development oI any modern economy and is
the backbone oI the human civilisation. 'Steel is the world`s third largest commodity market
with a dollar value in excess oI $700 billion. In recent years, the industry has undergone radical
restructuring and has become more global, more eIIicient and more Iinancially viable (LME
2008). Steels Iorm a large Iamily oI metals. They are the alloys which are created by melting
various amount materials together i.e. iron mixed with carbon and other elements. Steels are
described as mild, medium- or high-carbon steels according to the percentage oI carbon they
contain, although this is never greater than about 1.5.Adding metals such as nickel, chromium,
and tungsten to iron produces a wide range oI alloy steels, including stainless steel and High
speed steel. (http://resources.schoolscience.co.uk/Corus/14-16/steel/msch3pg1.html)

2
1.2 History of Steel:-

Presently there more than 2500 standard types oI steel worldwide. There is not enough
reIerences regarding when and who produced the Iirst steel. But, since 200B.C steel is produced
in one Iorm or other by many cultures and civilisations. With the development oI the blast
Iurnace in 14
th
century it is possible to heat steel at the required higher temperatures. But
gradually the technology got matured and in 1850s, a British inventor named Henry Bessemer
was able to develop the Iirst technique Ior the mass production oI the steel. His technique was
based on the oxidation, where air is blown through molten pig iron to oxidise the material and
separate the impurities. Till today the Bessemer`s technique is used Ior producing steel on mass
scale but workers manual energy is taken over by the machine power.
(www.discoverychannel.co.uk , 2008 & International Iron and Steel Institute)

Figure 1. 1: Furnaces used for making pig iron and steels. RH
side of open hearth furnace shows use of oil instead of gas
Source: - key-to-steel.com 2005

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Figure 1. 2:Voelklingen Ironworks today: a historical monument awarded the status of a World Cultural
Heritage by UNESCO.
Source: - key-to-steel.com 2005

'The Voelklingen Ironworks was Iounded in 1883 and developed into one oI the leading iron
and steel works in Germany and Europe (key-to-steels.com, 2005). AIter 100 years oI
production this Iacility was shut down in 1986 and was awarded with the status oI a World
Cultural Heritage by UNESCO. This was among the Iirst mass production unit oI steel in the
world.
1.3 Methods of Steel Making:-
There are two main methods by which most oI the steel are made:-
1.3.1 Integrated (blast furnace and basic oxygen furnace)
Raw materials used in this method Ior steel production are iron ore, limestone and coke and
scrap. These raw materials are charged into the Iurnace Irom top and starts getting hotter as they

4
go down and Iorm stack at the bottom. Considerable amount oI oxygen is removed Irom the iron
ore in the top halI oI the Iurnace by the gas Irom burning coke. Limestone in the midway starts
reacting with the impurities present in the ore and the coke to Iorm slag. Temperature at the
bottom oI the Iurnace is well above 3000 Fahrenheit. Slag absorbs ash Irom the coke. At the
bottom there is a pool oI molten iron which is Iour-Iive Ieet deep, on which molten slag Iloats.
Due to this phenomenon it is possible to remove slag and molten iron easily.
1.3.2 Electric arc furnace (EAF).
'The heat required in this process is generated by electric arcs struck between carbon electrodes
and the metal bath. Usually, a charge oI graded steel scrap is melted under an oxidising basic
slag to remove the phosphorus. The impure slag is removed by tilting the Iurnace. A second
limey slag is used to remove sulphur and to deoxidise the metal in the Iurnace. This result in a
high degree oI puriIication and high quality steel can be made, so long as gas absorption due to
excessively high temperatures is avoided. This process is used extensively Ior making highly
alloyed steel such as stainless, heat-resisting and high-speed steels (Key-to-steels.com, 2005).
There are other methods by which steel can be produced like open hearth process, but every
there is gradual decrease in the amount oI steel produced by these methods. Major portion oI
steel is produced by integrated method, then comes EAF and other methods constitutes minutely
to the totally production (key-to-steels.com, 2005).

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1.4 Properties of Steel:-
Composition oI the steel decides the properties oI the steel. Varying carbon contents changes the
properties oI steel and its application. From ladies hairpin to latest automobile, Irom drinks can
to pair oI scissors all are made oI steel but have varying carbon content and thus varying strength
and properties.
Type of steel Percentage of carbon
Up fo 0.Zb7
Medium corbon sfeeI 0.Zb7 fo 0.4b7
High corbon sfeeI 0.4b7 fo I.b0
Figure1. 3: Type of steel
(Source: - http://resources.schoolscience.co.uk/Corus/14-16/steel/msch3pg1.html)

Steel is strong, durable, resilient, and versatile and thus it can be used again and again without
losing any oI its properties. It can be used in extreme climates. Thus it is the 'major raw material
used in the construction oI the railways, bridges inIrastructure and buildings as well as household
appliances and cars (Reuters.com, 2008).

Finished steel products which are Iurther used in the construction and manuIacturing as raw
materials are Iorged Irom semi- Iinished products. Semi-Iinished steel products are produced at
the steel mill during which the molten steel is turned into ingots, bloom, billets or slabs. These

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are generally solid block oI steel, mostly with the square or rectangular cross section. Some oI
the Iinished steel products are Iorged Irom semi-Iinished products. They are classiIied as Cold-
Iinished bars and Ilats (bright bars), Cold-Iinished sections including Iorged and cold-Iormed
sections, Cold-rolled narrow strip, Cold-rolled plate and sheet in coil and lengths, DeIormed
reinIorcing bars, drawn wire, Iorged bars, Iorgings (unworked), heavy sections, pilling and
welded structural sections, hot rolled bars and Ilat in lengths, hot-rolled light sections, hot-rolled
narrow strip including universal plates, hot rolled rod in a coil (including reinIorcement bar in a
coil), hot-rolled wide strip, late and sheet, points, switches, crossing, tyers, wheels and axles,
rails and rolled accessories, silicon electrical steel strip, steel castings (unworked), steel
tubes(seamless and welded, and steel tube Iittings), tin mill products, Zinc and other coated sheet
strip (International Iron and Steel Institute).
Steel is the eco Iriendly material and can be recycled again and again. Steel has better liIe cycle
cost than its substitutes. It is very useIul in the Iast construction in larger spans and has better
Ilexibility than other engineered construction material. Thus there is almost 30 saving in time
with steel as the construction material. Moreover there is larger Iloor space available by 12-15
while using steel Ior construction. Engineered steels are more suitable Ior seismic zones,
thereIore it provide more saIety thus it is very important material in the construction. With
availability oI better type oI steel leads to weight reduction, better Iire saIety and is corrosion
resistant (Singh, 2008). Due to these useIul applications and the advantages, 'steel industry is
oIten considered to be a gauge oI economic health because oI the critical role it plays in
economic development (Reuters.com, 2008).

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1.5 Present World Steel Scenario:-
As mentioned above, steel today is the third largest commodity market and have dollar value in
excess oI $700 billion. With recent radical changes in the industry with extensive reconstruction,
industry has become more global, more eIIicient and more Iinancially sound. The highest
economic growth in the steel sector can be seen in the developing nations where china leads by
Iar in both production and consumption (LME 2008). World crude steel production grew by 7
in last Iive years, with china being the major contributor. Indian and Chinese economic boom
has striking impact on the demand and production oI steel in the recent years. This is due to the
Iact that these two developing nations tend to have steel intensive development approach and
thus steel is important part oI the development oI the emerging economies. Today, developing
economies have exponential growth in the construction industry which is the heaviest consumer
oI steel and account Ior more than 39 oI the total consumption. Thus due to the Iast track
development oI the developing economies, world steel have expanded and increased Irom
international trade oI 167 million tones to projected 353 million by 2015. The predicted growth
rate in the production oI the crude steel is approximately 4 per annum till 2015 (LME, 2008).

According to the International Iron and Steel Institute (IISI) total production oI steel in the year
2007 were 1,343.5 million metric tonnes (mmt) as compared to the year 2006 where the
production oI steel was 1,244 million metric tons. This is an increase oI 7.5 on 2006. This total
output represent the highest level oI crude steel produced in the history oI the steel production
and was the IiIth consecutive year oI more than 7 increase in steel production rate
(International Iron and Steel Institute). European union (EU) countries growth rate oI the

8
production oI steel have Iallen down, 'shares oI emerging markets like Brazil, India, Russia and
China (BRIC) increased to 48.2 percent in 2007 Irom 31 percent in 2001(Reuters.com, 2008).
Asia is the largest producing area region wise Iollowed by Europe and North America (LME,
2008).

Year 2007 instead oI highest total steel production, saw a little slowdown in the growth rate Irom
the previous years. The slowdown was seen in all the major steel producing countries and
regions including china, EU, CIS, with exception in the Middle East where production rose in the
second halI oI the year.

Figure1. 4: Crude Steel Production Growth trend
(Source: - http://www.worldsteel.org/index.php?actionnewsdetail&id228 )

China steel productions rose to a staggering Iigure oI 489 mmt, a 15.7 rise Irom the year 2006
where the production was 422.7 million metric tonnes and remain the Iirst on the list oI the top
steel producing steel countries oI the world. This was less than the growth rate oI 18.8

9
achieved in 2006, 26.8 in 2005and 26.1 in 2004. But China aIter the slowdown remains the
main driving Iorce behind the strong world Iigures as without china world steel production only
grew by 3.3. BRIC countries also maintained relatively high growth where India saw a growth
oI 7.3, Brazil with 9.3 and Russia with only 2 annual growth rate. 'The BRIC share oI
world production has been growing rapidly since 2000. It has grown Irom 31 oI total in 2001
to 48.2 in 2007 (International Iron and Steel Institute, 2008). EU (27) was able to maintain
stable steel production Irom the second quarter and achieve total steel production Iigures oI
210.3 mmt, a 1.7 growth over 2006. Whereas US showed a reduction in the crude steel
production by 1.4 on 2006 Iigures and achieved a total production oI 97.2 mmt.
1.5.1 Share of world crude steel production: 21, 2, and 27

10

Figure1. 5: Share of world crude steel production: 2001, 2006, and 2007
(Source: - Walters, 2008)

AIter China in 2007, which remain at the top with 489 million metric tonne`s oI
production, came Japan with 120.2 mmt which is astonishingly one third oI the total
Chinese production. US came third with 92.7 mmt while India was on IiIth position with
total production oI 53.1 mmt.

11

1.5.2 Major steel producing nations with their total production from the year 21 to 27

12

Figure1. 6: Major steel producing nations with their total production from the year 2001 to 2007
(Source: - Walters, 2008)

1.6 World Steel Review, 2008
According to International Iron and Steel Institute (IISI), there was estimated total production oI
457.3 million metric tonnes Ior the Iirst Iour months oI the year 2008 till June. There was
increase oI 5.7 Ior the Iour months in 2008 as compared to 2007. China accounted Ior the 37
oI the world`s total production during the same period. Chinese exports grew by one third to 68
million tonnes, almost double oI the Japanese total. Total production Ior the month oI January is
112.882 million tonnes, 107.659 million tonnes Ior march, 119.556 Ior April, 119.994 Ior May
and in June it was 119.778 million tonnes (International Iron and Steel Institute, 2008).

Figure1. 7 Total steel production 2008
(Source : -(IISI) International Iron and Steel Institute 2008)

13
1.7 Major Steel Producing Companies:-
Arcelor Mittal remains the top steel producing company Ior the successive year 2006 and 2007
with production oI 117.2 and 116.4 million metric tons respectively. Nippon steel and JFE comes
second and third respectively, with Nippon having 35.7mmt oI production and JFE with 34 mmt.

Figure1. 8: The table below shows the top 80 crude steel producers in 2007 and 2006
(Source: -International Iron and Steel Institute, 2008)

14
CHAPTER: - 2
LITERATURE REVIEW
2.1 Indian Steel Industry
The Indian steel is more than 100 years old. Since independence, the Indian steel industries along
with other large capacity core industries were publicly regulated. Ever since, India has
experienced a steady growth in the steel industry mainly due to the planned government
investments in this area. Indian government had invested in establishing number oI the steel
plants, with technological assistance and support oI the Ioreign countries. BeIore 1990`s there
was only two main producers oI steel SAIL and Tata Steel, where the Tata`s being the only
private player. Back then, Overall prices and the production were used to be totally regulated by
the government. With 23 million metric tonnes oI production in 1991, came subsequent Indian
reIorms where Indian economy became liberalized. Indian economy opened its door Ior the
Ioreign as well as domestic players to enter into the various public sectors. With this Indian steel
sector also saw some major domestic as well as Ioreign private players entering into the steel
market with large amount oI investments, adding new strengths to its capacities. Many
government measures like, no license requirement Ior capacity creation, low duties on imports
and exports and easy tax structure have stimulated the Indian steel growth and helped greatly in
making it more eIIicient and highly competitive. Indian steel industry in the last decade
integrated with the world economy and evolved tremendously to adapt world-class production
capabilities to produce high quality steel (economywatch.com and Indian steel Alliance, 2008).

15
Resurgent Indian Steel Industry
The Indian steel industry is on a high growth trajectory aIter years oI sluggish growth
Table: -2. 1: Productions and Consumption of Finished Steel

Period Production
(MnT)
CAGR () Consumption
(MnT)
CAGR ()
Pre-deregulation
1982-83 to 1991-92 8.48 to 14.33 5.3 9.26 to 14.84 5.3
Post-deregulation
1992-93 to 2007-08 15.20 to 55.26 9.0 15.00 to 51.50 8.6
2001 02 33.38 28.52
2002 03 37.17 11.4 30.68 7.6
2003 04 40.71 8.1 33.12 7.0
2004 05 43.51 6.9 36.38 9.8
2005 06 46.57 7.0 41.43 13.9
2006 07 52.53 12.8 46.78 11.4
2007-08 55.26 5.2 51.50 10.1
(Source: - FICCI- Federation oI Indian Chambers oI Commerce and Industry-Seminar, Indian steel
conclave, 2008)

Indian steel industry has come long way Irom the 1990`s when reIorms were introduced. Today
India is the IiIth largest producer oI crude steel, producing a total oI 53.1 million metric tons in
the year 2007. Its steel capacity is increasing at a good rate oI 7 to 8 per annum and is
producing 'international standard steel oI almost all grades/varieties and has been a net exporter
Ior the past Iew years, underlining the growing acceptability oI its products in the global market
(Indian steel Alliance, 2008). Steel industry saw a major drop Irom the year 1997 to 2001, when
the capacity, proIitability, production and exports all became stagnant during that phase. This

16
downward phase was over by 2002 with strong economic growth oI the emerging economies and
with that the resurgence in the demand oI the global market.
The growth oI the economies can be directly related to the growth oI the steel industries as steel
is cyclic and highly capital intensive industry. This is also because steel is the main component
oI the other primary industries like manuIacturing, housing and inIrastructure. According to the
economist steel have backward and Iorward linkages and thus has multiplier eIIects. And based
on the Indian and input-output model, steel industries got a high multiplier eIIect and a high
Iorward linkage. This compels various economies to set up domestic plants and satisIy the local
demands. Indian iron and steel industry provides direct and indirect employment to more than 2
million people and has capital investment oI over Rs 100, 000 crores. This is because,
'Economists have estimated that Ior every additional one lakh rupees output (2002-03 prices) in
the Iron, Steel and Ferro alloys sector, an additional 1.3 man years oI employment are created
(Indian steel Alliance, 2008). Thus Steel in the Iuture will play a very important and critical role
in transIorming India in to a superpower (Indian steel Alliance, 2008).

2.2 Current Scenario:-
Indian economy presently is one oI the Iastest growing economies oI the world. It is growing at
the rate oI 9 which is quite similar to its steel industry growth. With this rate India is having a
potential to become the second largest producer oI crude steel by 2015. Industrial production as
whole is on the rise, with growing index oI industrial production Ior capital goods and consumer
durables. There are many brownIield as well as greenIield projects likely to come up in the near

17
Iuture and some are on the verge on being executed (Indian steel Alliance, 2008). With robust
growth in economy, there is steady and strong demand growth which has led to the higher
capacity utilization. Per capita steel consumption oI India at 41 kg is low when compared to
world average oI 150 kg, and 300kg Ior china but its growth expected to accelerate with rising
per capita GDP and steel consuming activities. This has in turn resulted in setting up oI the world
class large scale capabilities with Rs. 45,000 Cr invested in Steel Sector. Today the Indian steel
business turnover has crossed over US $ 50 billion and is placed at the topmost position by WSD
and amongst the Iive most attractive countries to build a new steel plant` - along with Russia,
USA, Ukraine & Brazil (Amin, 2008). Due to emphasis on inIrastructure development robust
industrial growth and Iaster urbanization demand Ior steel in India will be consistently higher Ior
the next 2-3 decades. There is estimated investment oI around US $ 50 BILLION in the real
estate sector till 2011 and still according to HDFC there will be 25.3 MILLION housing shortage
by 2011. The 10th plan investment in inIrastructure has been envisaged at around Rs.880, 550
crores. The major sector wise anticipated investment is likely to be Rs.292000 crores in Power,
Rs.145000 crores in Roads & Bridges, irrigation Rs. 111000 crores. With keeping these
investments in mind there is expected production oI 124 million metric tons oI crude steel by
2011-2012 (Singh 2008 & Indian steel Alliance, 2008). These planned investments are acting as
backbone to the Indian steel growth proIile and is guiding it in a positive direction.

18
Figure: -2. 1; Current Market Drivers India: FY 07-08

`Key Segments Size
Mill Tons
Contribution
1 InIrastructure & Construction 37.1 69
a) Construction 13.7 25
b) Physical InIra Urban &
rural utilities
7.1 13
c) Pipes 4.6 9
d) SEZ 4.4 8
e) OCTG 2.1 4
I) Power 1.8 3
g) Misc 3.4 6
2 ManuIacturing sector 7.0 13
3 Auto & Ancillaries 5.7 11
4 Others 4.3 7
Total Demand 54.1 100
(Source: - Amin, 2008)

2.3 Growth in the Steel Industry
Global growth pattern is driven by Fixed Asset Investment. Steel investment is highly related
with share oI investment in GDP, speciIically with share oI investment in secondary sector
(Mining, ManuIacturing, Construction, Electricity, and Gas & Water supply). The current share
oI the investment in GDP

19
Country Investment as
oI GDP
Current steel
consumption (MT)
Growth rate oI
steel consumption
(2007-08)
China 45 408 13.0
India 34 51 10.8
Russia 21 40 14.3
South Korea 30 55 10.0
Brazil 17 22 18.9
Table: -2. 2 current share of the investment in GDP
(Source: - Banerjee, 2008)

Sectors Share in total steel demand
(Global)
Share in total steel
demand (India)
Construction 30 45
Transport Equipment 30 10
Fabricated Metals 15 12
Electrical Equipment and
Appliances
10 6
Industrial Machinery 5 8
Oil & Gas ( incld. Mining) 5 10
Others 5 9
Total 100 100
Table: -2. 3 Indian Steel: Demand Drivers
(Source: - Banerjee , 2008)

20
2.3.1 Each of these segments has good potential to grow
Construction (Infrastructure)
Projects
Residential & Non-residential
Transportation oI Petroleum/ Water
Transmission Line Tower
Rail tracks
Manufacturing
Tube Making
Wire drawing
Fabrication
Fastners
Power plant equipment Figure: -2. 2 Consumption of steel
Agricultural equipments (Source: - FICCI- 2008)
Electrical Equipments
Household appliances
Auto
Commercial Vehicle
Passenger cars
Two wheelers
Auto Components
6onstruct|
on
17
6ap|ta|
Coods,
117
Auto, 87
Packag|n
g, 57
0urab|es,
37
0thers,
127
6onsumpt|on of 8tee| |n |nd|a

21
2.4 Future Prospects for the Indian Steel Industry
India is presently IiIth largest producer oI crude steel and has the potential oI becoming the
second largest producer oI crude steel by 2015. Growing at the rate oI 9 Indian steel industry is
passing through its golden era. 'The Government envisions India becoming a developed nation
by 2020 with a per capita GDP oI $1540. For a nation that is economically strong, Iree oI the
problems oI underdevelopment and plays a meaningIul role in the world as beIits a nation oI
over one billion people, the groundwork would have to begin right now. The Indian Steel
Industry will be required and is willing to play a critical role in achieving this target (Indian
steel Alliance, 2008).
Country Crude Steel
Prodn (M.T.
2006)
Current Rank CAGR (2000-
2006)
Likely Rank by
2015
China 422.7 1 22 1
Japan 116.2 2 1.5 3
United States 98.6 3 -0.4 5
Russia 70.8 4 3.5 4
India 50.7 5 9 2
S. Korea 48.5 6 2 6
Table: -2. 4 Rankings
(Source: - FICCI- Federation oI Indian Chambers oI Commerce and Industry-Seminar, Indian steel
conclave, 2008)

Future market prospects Ior steel in India are looking bright. There is major thrust in the steel
consumption in rural segment where per capita rural consumption is to touch around 20kgs v/s 3
kgs. In urban sector on the other hand Per capita consumption projected to touch 240 Kgs v/s 120
Kgs and Overall per capita steel consumption to touch around 85 Kgs. InIrastructure
developments will be driving growth across India and there will be expected investment oI more
than US $370 BILLION in next 5 years to sustain a GDP growth oI 9. Capital Goods Market

22
Ior steel will touch 15.2 million Tons by 2012 Irom 4.7 million Tons in 2008 and Auto Sector
will witness double digit growth to reach 10 million Tons by 2012 Irom 5.7 million Tons in
2008.

Key Segments Size
Mill
Tons
ContributionKey Drivers of Growth
1 Infrastructure &
Construction
47.8 59% Primary driver of steel
demand
a) Construction 18.4 23% 40% people will live in urban
areas Vs 20% now leading to
higher steel Consumption
b) Physical Infra
Urban & rural
utilities
7.5 9% Expected Investment in
Bridges, Flyovers, MRTS and
water distribution of over
$500b in 11th Plan
c) Pipes 7.3 9% Laying of over 5000 Kms of
Pipe Lines for distribution of
Oil & Gas
d) SEZ 1.7 2% Leveraging the low cost
advantages for tapping global
markets
e) OCTG 4.5 6% Huge Investment in
exploration driven by tapping
of local Crude Oil & Natural
Gas reserves
f) Power 4.6 6% 100,000 MW Capacity to be
added over the next five
years
g) Misc 3.8 4% Driven by overall
development in the economy
2 Manufacturing
sector
18.5 27% Strong growth in
infrastructure, power sector
and setting up of large scale
manufacturing facilities
leading to demand for Capital
Goods
3 Auto & Ancillaries 10.0 12% India emerging as a global
hub for small cars and auto
components
4 Others 5.4 7% Backed by strong growth in
economy
Total Demand 81.7 100%
Figure: -2. 3 Future Market Drivers India: FY 11-12, (Source: - Amin, 2008)

23
There are big opportunities Ior the Steel in the coming years as there will be expected growth oI
15 in the demand oI steel in India. According to the 11
th
plan, there will planned approximate
investment oI US $ 280-370 BILLION on the inIrastructure in next Iive years. Investment on the
national highway in the next Iive years will be US $49 BILLION, US $54 BILLION Ior the 61
GW capacity power generations and US $90 BILLION Ior the power transmission and
Distribution. For Ports, Airports, Railways there will be an investment oI US $12 BILLION, US
$10 BILLION, and US$ 70 BILLION respectively. By 2011-12, steel production will be 124 MT
and by 2020, steel production is expected to be 220 MT. Due to emphasis on inIrastructure
development robust industrial growth and Iaster urbanization, demand Ior steel in India will be
consistently higher (Banerjee, 2008).
2.4.1 WHY DEMAAD 1O CROW 15"
Development Area Steel Intensity
National Highway Next 5 Yrs Presently low but going to increase
Power 61 GW Capacity Generation in 5
yrs.
High
Power Transmission & Distribution High
Ports Several Modernizations & New
Ports
Medium
Airports Green Fields and
Modernization
High
Railway Expansion and Modernization
plus Capacity Increase
High
Rapid Industrialization High
Real state in next 5 yrs. Volume high
and changes oI Mindsets
High
Higher Rate oI Urbanization High
Faster Industrialization High
Table: -2. 5 WHY DEMAND TO GROW 15
(Source: - Banerjee, 2008)

24
Former president of India, Dr. AP1 Adbul Kalam`s vision Ior Indian steel industry Ior the
year 2020 is 'We still have a number oI persons in our country in SAIL, TISCO and other big
and small steel plants who have the capabilities. They have the will to excel and transIorm the
country, given a long term vision. We should be ready to compete in outside markets...II our
steel industry gears up in about 3 to 4 years, Indian steel can be both in Indian and Ioreign
markets. Our vision should be towards this" (Indian steel Alliance, 2008).
Some serious considerations are required so as to take necessary steps to help Indian steel
industry achieve its potential and play a vital role in India`s development. Steel is still very
unpopular or unIamiliar among the millions oI Indians. India has mere per capita income oI 41kg
as compared to world average oI 150kg. India has to speed up its development process via steels
and has to work really hard to achieve consumption levels oI around 400 kg like developed
countries. All the inIrastructure related activities should also be extended to the rural areas in the
India as till today, around 60oI Indian population lives in the villages. Thus it`s a challenge Ior
the development oI the country and simultaneously provides opportunities Ior the Indian steel by
increasing its usage through various projects in these areas. The cost Ior the steel industry is
showing an upward trend recently due to shortage oI inputs. There should be adequate
inIrastructure like roads, power, rail and communication systems, which enable better
connectivity and in turn help Indian steel industry to remain competitive.
Government should start taking necessary steps like Japan to ensure the availability oI the
quality raw material like coal and iron ore, which will saIeguard the interests oI their industries.
There should be prevalence oI Iree market Iorces in the economy instead oI the government
interIerence by regulating the prices. This is so because intervention is a short term solution Ior

25
the price related issues in the country. Indian Government like other developed nations should
protect its domestic steel industry Irom the exposure oI the outer Iorces like cheap imports Irom
competing nations. For the overall health oI the Indian manuIacturing sector, steel industry
should be allowed to have a good return on investment. Indian steel sector recently is showing
healthy trends due to the large exposure by banks and Iinancial institution. Even with such a
phenomenal growth, Indian steel industry has only 2 share in the world trade steel. It should
take some necessary steps so as to make Indian exports more competitive by tapping the
untapped exports and markets (Indian steel Alliance, 2008).

2.5 Steel Companies of India

Integrated Steel Producers (ISPs) comprises a group and generally reIerred as Major Steel
producers. All those producers which have high level oI integration and capacities oI over 1 MT
are part oI this group. The leading steel making company in India is Steel Authority oI India
Limited (SAIL). It`s a government owned company, where Indian Government owns about 86
oI SAIL`s equity and thus retains voting control oI the company. 'It is a Iully integrated iron and
steel maker, producing both basic and special steels Ior domestic construction, engineering,
power, railway, automotive and deIence industries and Ior sale in export markets
(http://www.economywatch.com/). It is being awarded with the status oI 'Navratna, which
means it is one oI the India`s nine gems and thus it enjoys very high operational and Iinancial
autonomy. Integrated steel plants under SAIL are Bhilai Steel Plant (BSP) in Chhattisgarh,

26
Durgapur Steel Plant (DSP) in West Bengal, Rourkela Steel Plant (RSP) in Orissa and Bokaro
Steel Plant (BSL) in Jharkhand. It also comprises oI three special steel plants in West Bengal,
Tamil Nadu and in Karnataka namely Alloy Steel Plants (ASP), Salem Steel Plant (SSP) and
Visvesvaraya Iron and Steel Plant (VISL) respectively. West Bengal`s Indian Iron and Steel
Company (IISCO), Maharashtra`s Maharashtra Elektromelt Limeted (MEL) and New Delhi`s
Bhilai Oxygen Limited are its three subsidiaries (Indian steel Alliance, 2008).

2.5.1 Other Major Producers are:-
Tisco ( Tata Iron and Steel Corporation ltd)
Essar Steel
Jindal Vijaynagar Steels Ltd
Jindal Strips Ltd
JISCO
Saw Pipes
Uttam Steels Ltd
Ispat Industries Ltd
Mukand Ltd
Mahindra Ugine Steel Company Ltd
Tata SSL Ltd
Usha Ispat Ltd
Kalyani Steel Ltd
Electro Steel Castings Ltd
Sesa Goa Ltd
NMDC
Lloyds Steel Industries Ltd
(Source: - economywatch.com)

27
SAIL, TISCO, RNIL produce steel by using Blast Iurnace or basic Oxygen Furnace (BF/BOF). It
requires mainly coal/coke and iron ore as input to operate Iurnace Ior producing steel. While
ESSAR steels and Ispat industries make use oI EAF i.e. Electric Arc Furnace to produce steel
Irom sponge iron and melting scrap. Small producers generally use Electric Arc Furnace (EAF)
or Induction Arc Furnace (IAF) technique to produce steel ingots by using scrap-sponge iron and
pig iron. These ingots are used Ior the production oI the long products (Indian steel Alliance,
2008).

2.6 Raw Materials Scenario of Indian Steel Industry
2..1 Minerals:-
The principal minerals required by Steel Industry are Iron ore BF & SMS Grade, Limestone &
Dolomite. Chromites & Manganese ore in the Iorm oI Ferro-alloys

RESOURCE SCENARIO
As on 1st April 2005, the total resources oI Iron ore (Hematite Magnetite) are 25.2 billion.
tones (Meshram, 2008).

28

Table: -2. 6 Hematite Reserves
(In Million Tonnes)
All Figures are rounded oII. (Source: -Meshram, 2008)

Table: -2. 7 Hamatite Gradewise
(In Million Tonnes)
Grade RESERVES REMAINING
RESOURCES
TOTAL
RESOURCES
Total 7004 7626 14630
High Grade 1,304 629 1,933
Medium Grade 3,544 3,062 6,606
Low Grade 1,989 1,688 3,677
Others 167 2,247 2,414
Figures rounded oII.
(Source: -Meshram, 2008)

STATE RESERVES REMAINING
RESOURCES
TOTAL
RESOURCES
ALL INDIA TOTAL 7004 7626 14630
ANDHRA PRADESH 40 123 163
CHHATTISGARH 761 1,970 2,731
GOA 459 254 713
JHARKHAND 2,494 1,542 4,036
KARNATAKA 940 736 1,676
MADHYA PRADESH 34 171 205
MAHARASHTRA 14 251 265
ORISSA 2,252 2,509 4,761
OTHER STATES
( RAJASTHAN, U.P.,
MEGHALAYA, BIHAR,
ASSAM)
11 70 81

29
Table: -2. 8 Magnetite -Statewise

(Million Tonnes)
State RESERVES REMAINING
RESOURCES
TOTAL
RESOURCES
All India Total 58 10,561 10,619
Andhra Pradesh 0 1,464 1,464
Goa 50 164 214
Jharkhand 3 7 10
Karnataka 0 7,812 7,812
Rajasthan 4 523 527
Tamil Nadu 0 482 482
Other States:
Assam, Bihar,
Kerala,
Maharashtra,
Meghalaya,
Nagaland & Orissa
1 109 110
Figures rounded oII.

Table: -2. 9 Magnetite Grade wise

Grade RESERVES REMAINING
RESOURCES
TOTAL
RESOURCES
Total 58 10,561 10,619
Metallurgical 1 2,185 2,186
Coal Washery 3 5 8
Others 54 8,371 8,425
Figures rounded oII

30
2.7 DEMAND-SUPPLY ANALYSIS OF RAW MATERIALS FOR IRON &
STEEL INDUSTRY
2.7.1 Short 1erm:
Present production oI steel in India is around 50 million tonnes. For this, requirement oI iron ore
will be 80 million tonnes. Around 8 million tonnes oI scrap is being used Ior steel making. Thus
net requirement is 72 million tonnes oI iron ore. Against the current demand oI about 72 million
tonnes , the production is around 181 million tonnes. AIter meeting the domestic demand, about
91 million tonnes oI iron ore is exported (Meshram, 2008). With this India has emerged as the
third largest exporter oI iron ore in the world. First two spots Ior exporting oI the iron ore is
taken by the Brazil and Australia. With the massive growth in the world steel industry, there are
shortages oI the iron ore in the global supply. This enables the growth oI the Indian iron ore
exports in the Iuture (steelguru.com. 2006). According to Indian steel alliance 2008, Out oI this 8
million tonnes is high grade lump ore and Iines are being exported to Japan, Korea & China. Out
oI the all the iron ore producing states in India, Karnataka exports highest number oI iron ore i.e.
32 million tonnes. Then lies Goa with an export oI 28 million tonnes iron ore Iines. Rest, 25
million tonnes are exported Irom Orissa, Jharkhand and Chhattisgarh. Mining rate is alarming in
Karnataka and Goa but Goa has no steel industry. Due to the alarming rate oI mining in
Karnataka, its iron ore reserves will not last Ior more than 15 years.

The anticipated production oI steel by 2011-12 is around 100 million tonnes Ior which iron ore
requirement will be around 140 million tonnes. Thus India has enough resources oI iron ore to
satisIy the domestic demand without any diIIiculties by 2020.

31
2.7.2 LOAC 1ERM DEMAAD

The iron resources which are produced in India have been estimated with a cut oII 55 Fe.
Indian steel industry does not have the technology as the global steel industry to produce steel
Irom the resources with even 50 Fe. Thus the resource scenario will undergo change in the
Iuture with the technological advancements. Further many iron ore bearing resources have not
been surveyed in detail. Hence there are strong possibilities oI Iurther enhancement oI resources
base. Further as more consumption oI steel takes place, the availability oI scrap will also increase
which will provide ease in the requirement oI the iron ore in the Iuture. Further, extraction oI
hematite Irom Banded Iron Formation will be another source oI iron ore. With lowering oI the
cut oII in the iron ore Irom 55Fe to 50 Fe, the resource scenario will undergo change
(Meshram, 2008).

Thus to meet the long term demand of iron from the strategy will be
1. Detailed and scientiIic exploration in already known areas.
2. Fresh exploration in unexplored areas.
3. Extraction oI iron ore Irom Banded Iron Formation like BHQ.
4. Systematization oI scrap generation
(Meshram, 2008)

32
2.8 OTHER MINERALS

Resource positions of other minerals namely limestone, dolomite, manganese ore is
presented below:-
(Million Tonnes)
Mineral Reserves Resources Total
Manganese Ore 138 241 379
Chromite 66 147 213
Limestone
(Other than
cement Grade)
3,033 68,831 71,864
Dolomite 985 6,548 7,533
Table: -2. 10 Other Minerals (Source: -Meshram, 2008)

Thus the total production of the minerals in the year 2006-07are:-

Mineral Total Production in 2006-07
(Thousand Tonnes)
Iron ore 180,917
Manganese ore 2,143
Chromite 4,095
Limestone 179,267
Dolomite 4,783
Table: -2. 11 Total Production (Source: -Meshram, 2008)

33

Requirement of Raw Materials for Estimated Production of Steel (300 Million Tonnes) by
2019-20

Mineral Consumption by
2019-20
(Million Tonnes)
Resources (Million
Tonnes)
LiIe
Indices
(Years)
Iron ore 480 22,849 48
Limestone 75 81,485
(Excluding
Cement Grade)
1,086
Dolomite 60 6,809 113
Manganese ore 4.5 354 79
Table: -2. 12 Raw Material Requirement (Source: -Meshram, 2008)

2.9 COAL

'Coal is the most important and abundant and abundant Iossil Iuel in India (Jha. 2008). It
satisIies about 55 oI commercial energy needs oI the nation. Out oI the total national output,
Coal India Limited (CIL) caters 84 oI the national coal demand. AIter iron ore, coal is the
major raw material Ior the steel sector. There is abundance oI the coal reserves in India but there
is limited availability oI the metallurgical coal in India (Jha. 2008).

34

Table: -2. 13 Coal Productions in India

(Million Tonnes)
COMPANY ACTUAL PROGRAMME
IX PLAN
(01-02)
X PLAN (06-
07)
XI PLAN
(11-12)
XII PLAN (16-
17)
CIL 279.65 360.91 520.50 664.00
S.C.C.LTD 30.81 37.71 40.80 45.00
OTHERS 17.33 32.21 119.70 346.00
TOTAL 327.79 430.83 680.00 1055.00
CAGR 2.53 5.62 9.57 9.18

GROWTH
X OVER IX PLAN XI OVER X PLAN
29 44 (HIGHEST SO FAR)
(Source: -1ha, 2008)

2.9.1 DEMAAD & AJAILABILI1Y
(Million Tonnes)
2011-12
T.Year
XI Plan
Coking
Coal
Non-coking Coal Total
Steel Power(U) Power
(CPP)
Cement Sp.Iron Others Sub
Total

Demand 68.50 483.00 57.06 31.90 28.96 61.68 662.50 731.00
Source INDEGENOUS AVAILABILITY
CIL 18.25 382.35 35.49 21.245 15.55 47.41 502.25 520.50
SCCL 0.00 29.40 2.20 5.50 0.40 3.30 40.80 40.80
Others 9.40 65.95 19.37 0.00 13.01 10.97 109.30 118.70
Total 27.65 477.70 57.06 26.95 28.96 61.68 652.25 680.00
Gap(-) /
Surplus
()
(-)
40.85
(-) 5.30 Nil (-) 4.95 Nil Nil (-)
10.25
(-)
51.10
Table: -2. 14 Demand & Availability of Coal (Source: -1ha, 2008)

35

2.9.2 DEMAAD & SUPPLY CAP
Above table shows that there is gap between the demand & supply in the XI plan (2011-12).
There is a total shortage oI 51.10 million tonnes oI coal including both coking and non-coking
coal. Individually, there is only shortage oI 10.25 million tonnes oI Non-coking coal while there
is massive shortIall oI the coking coal, 40.85 million tonnes.
Projected demand Ior the terminal year oI XII plan (2016-17) is around 1125 MT in total which
includes coking as well as Non-coking coal. Demand Ior the coking coal would be 105 Mt and
Ior the coking coal will be 1020Mt. The total indigenous capacity to produce coal will be 1055
Mt, 35 Mt. will be oI coking coal and 1020 Mt. oI non-coking coal. The gap oI 70 Mt. will be Ior
coking coal only.
2.10 The Policy Environment In The Indian Steel Industry
According to the new industrial policy, iron and steel sector is opened up Ior the private
investment by removing it Irom the Iully government owned entity and by exempting it Irom the
compulsory licensing. There are no restrictions on FDI and the import oI the Ioreign technology
till the certain limit (National Steel Policy, 2005, Ministry oI steel).The long term goal oI
national steel policy is to make Indian steel industry more advanced and eIIicient as per the
world standards. Policy Iocuses on achieving global competitiveness in terms oI cost, quality,
product mix and global benchmarks oI eIIiciency and productivity (National Steel Policy, 2005,
Ministry oI steel).Thus presently there is deregulated price and distribution oI the steel with no
barriers what so ever to entry and exit. With respect to the global market, customs duties are

36
down to 0 and there are no quantitative controls on exports and imports. Only now due to the
inIlation as a cause they have recently imposed an export tax.
According to the Prime Minister oI India Dr. Manmohan Singh, 'The increasing number oI
global steel majors who have announced plans to set up steel-making Iacilities in India gives a
Iair indication oI the comparative advantage oI manuIacturing steel in India provided we can
create the right policy environment. I would like to assure you that our Government would do
whatever is necessary to ensure that our industry is able to meet the growing demand Ior steel. It
is your responsibility to ensure that good quality steel is available at reasonable prices. I would
like to stress that our government is committed to a policy oI growth with equity and social
responsibility (Prime minister`s speech in CII Steel Summit 2007).
2.11 Steel prices

AIter the deregulation oI prices in 1991-92, domestic steel prices have been determined by the
interplay oI the market Iorces. The market prices are depended upon the global prices such that iI
global steel industry downturns, there is Iall in the domestic prices and iI there is upturns in the
international market, domestic prices will rise. Since 2006-07, the domestic steel prices have
shown an upward trend which was intensiIied since Iirst month oI 2008 (National Steel Policy,
2005 & Ministry oI steel).
Market Price
Paid by a consumer, consists oI
a) Producers` price

37
b) Freight cost
c) Taxes & duties
d) Distributors` margin & holding cost.
Producers` Price
Consists oI
a) Cost oI production including normal rate oI return.
b) Market premium / discounts summarizing the eIIects oI demand & supply balance
Discovery of Premium / Discounts in an Open Economy
Benchmarking against international prices:
a) Landed cost oI imported material
b) Relative realization on domestic sales & exports
(FICCI- Federation oI Indian Chambers oI Commerce and Industry, 2008 & Indian Steel
conclave, 2008)
Figure: -2. 4 Weekly Inflation- WPI & Steel

-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
16
1
1
1
6
2
1
2
6
3
1
3
6
4
1
4
6
5
149
1
4
1
9
2
4
2
9
3
4
3
9
4
4
4
927
1
2
1
7
2
2
Week
P
e
r
c
e
n
t
a
g
e
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
16
1
1
1
6
2
1
2
6
3
1
3
6
4
1
4
6
5
149
1
4
1
9
2
4
2
9
3
4
3
9
4
4
4
927
1
2
1
7
2
2
Week
P
e
r
c
e
n
t
a
g
e
2006
2006
2008

38
The above graph shows the comparison between the weekly inIlation rate oI steel and the
Wholesale price index (WPI). WPI is the weekly measure oI inIlation in India. Graph indicates
the very high level oI inIlation in the steel in 2008 as compared to all other commodities
indicated by the WPI. Thus Irom 2006 to 2008, steel saw a staggering inIlation change Irom -5
to 35.

Figure: -2. 5 Relative Movements in WPI - All Commodities and Steel
(Percentage Change over Previous Year)

(FICCI- Federation of Indian Chambers of Commerce and Industry-Seminar, Indian steel conclave, 2008)
Demand and supply balance in the domestic economy, cost oI production in the marginal
units and the international prices are three Iactors that inIluence price levels in an open
economy. Presently, the domestic prices are under an upward pressure by the all the above
Iactors.
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
P
e
r
c
e
n
t
a
g
e
2005 2006 2007 2008
AII Commodities Iron & SteeI
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
P
e
r
c
e
n
t
a
g
e
2005 2006 2007 2008
AII Commodities Iron & SteeI

39
Input Prices
Figure: -2. 6 Rising input prices

(FICCI- Federation of Indian Chambers of Commerce and Industry-Seminar, Indian steel conclave, 2008)

Figure: -2. 7 Rising freight costs - domestic & international

(FICCI- Federation of Indian Chambers of Commerce and Industry-Seminar, Indian steel conclave. 2008)
0 20 40 60 80 100
$ / Tonne of Ore
2006
2007
2008
2009
Iron Ore Contract Price FOB
0 20 40 60 80 100
$ / Tonne of Ore
2006
2007
2008
2009
Iron Ore Contract Price FOB
0 50 100 150 200 250 300 350
$ / Tonne
2006
2007
2008
2009
Coking CoaI Contract Price FOB
0 50 100 150 200 250 300 350
$ / Tonne
2006
2007
2008
2009
Coking CoaI Contract Price FOB

40
2.11.1Strategy to Contain Prices

In short run, prices can be contained by increasing domestic availability oI steel at competitive
prices. This can be done by removing or reducing Iiscal barriers to imported material and by
disincentivizing exports in a rising international market. This can also be done by Iacilitating
access oI steel producers to steelmaking raw-materials and inputs at competitive rates. In long
run, prices can be contained by encouraging creation oI new capacity in both brown Iield as well
as green Iield projects. By providing access to critical inputs like iron ore and coal through
expanded domestic capacity and overseas investments and by creating adequate inIrastructure to
support expanded steel capacity prices can be contained (FICCI- Federation oI Indian Chambers
oI Commerce 2008 and Industry Indian steel conclave, 2008 & Banerjee, 2008).

2.11.2 Fiscal Measures 1aken by the Covernment to contain steel prices
Removal oI custom duty to 0 on the pig iron, non-alloy steel and steel making inputs like Zink,
Met-coke and Ferro Alloys. Several categories oI steel products were exempted Irom the DEPB
beneIits on exports. Railway Irights Ior the domestic steel producers on iron ore Irom
classiIication180 to 170 are reduced (Andhranews.net, 2008). Government suspended CVED on
imported TMT bars and 'imposed 15 export duty on all kind oI semi Iinished and hot rolled
coils and sheet, ten per cent export duty on cold rolled coils and sheets and pipes, tubes and Iive
per cent export duty on galvanized steel in coil and sheet Iorm in order to Iurther curtail rising
prices and increase supply oI steel in the domestic market. 'Notably, the government has taken

41
several measures in the past six months to keep a check on steel prices, which contribute around
3.63 in the WPI (Andhranews.net, 2008 & Banerjee, 2008).

2.11.4 Pro-active Measures by the Producers to contain the steel price
Producers should posses selI restraint on the export oI steel. Large producers should roll back
prices oI long products, especially oI TMT bars used in household construction and they should
also reduce the price oI the CG sheets, used by the common man. By promoting transparent
pricing system and inIormation dissemination by the Main /Major Producers through regularly
updated web-based price list Ior the retail buyers. There should be an increase oI 20 in the
allocation oI the steel supplies to the SSIC and NSIC Ior FY2008-09 (FICCI- Federation oI
Indian Chambers oI Commerce and Industry, 2008 & Indian steel conclave, 2008).

42

CHAPTER: -3

METHODOLOGY:-

3.1 Methodology & Research

'A methodology is a philosophy, guide or blueprint which provides methods/principles Ior the
Iield employing it. These are the strategies with strong Iocus on gathering the inIormation,
planning, and designing elements (Jackson, 2008). Methodology provides the necessary
Iramework Ior successIully conducting the research as it provides guide lines rather than
explanation on how research should be conducted. It is an approach towards any question, which
guides the researcher towards its answer (Remenyi & Williams, 1995).

This chapter will describe the research methodology used to conduct this research and will
Iurther investigate the observations made during the course oI the study and more precisely
identiIy the objective oI the research. Research methodology is a technique to systematically and
scientiIically solve the research questions. It is study oI various processes and steps involved by
the researcher in studying the research in order to IulIil the aims and objectives oI the research. It
is extremely important Ior a researcher to be completely Iamiliarised by the research methods
and techniques with methodology. 'Researchers not only need to know how to develop certain
indices and tests, how to calculate the mean, the mode, the median or the standard deviation or
the chi square, how to apply particular research techniques, but they also need to know, which oI
these methods or techniques, are relevant and which are not, and what would they mean and

43
indicate and why (Kothari, 1990). The various aspects and the speciIic details oI the research
methodology are described in detail in the various sections.

Research in a more general term can be deIined as a systematic way oI getting detail inIormation
and knowledge about the concerned area or topic (Saunders et al, 2007). It is inherently multi-
method in Iocus which privileges no single methodological practice over another (Flick, 1998).
The aim oI this research is to investigate economic impact oI the steel industry on the Indian and
Chinese economies as these economies are completely diIIerent Irom each other. China is
manuIacturing intensive, known as Iactory oI the world and India is rich with intellectual
property, to Iind the various problems Iaced by the two economies in their path to become a Iully
developed economy and to investigate about the various policies oI the two nations to overcome
these problems.

3.2 Selection of research method:

Out oI the two types oI research qualitative and quantitative, qualitative research has been
carried out to IulIil the aims and the objectives oI the research.

Qualitative method Over Quantitative research method:-

'Qualitative research we mean any kind oI research that produces Iindings not arrived by the
means oI quantiIication. It can be reIer to research about person`s lives, stories, behaviour, but
also about organisational Iunctioning, social movements, and behaviour but also about

44
organisational Iunctioning, social movement, or interactional relationships. Some oI the data may
be quantiIied as the census data but the analysis itselI is a qualitative one (Strauss & Corbin,
1990 pp 17). This type oI research is applicable to both descriptive and inductive Iorm oI
research whereas quantitative researches make an extensive use oI the available literature so as to
carry out a detail research on the concerned area. While according to the Marshall and Rossman
(1995), quantitative methods are more suitable Ior the application in veriIication or conIormation
oI theories. These theories mathematically or statistically presents the research Iindings concisely
and systematically (Patton, 2002). As this research will make extensive use oI the available
literature on the steel industry and is a descriptive type oI research where there is no mathematics
involved, qualitative research is preIerred over quantitative. According to Shaw 1999, the
Quantitative methods or approach are more suitable, eIIicient reliable, valid and objective Irom
the subjective point oI view. On the other hand qualitative methods are used to convey and
uncover the details oI phenomenon about which very less is known and are relatively diIIicult to
convey with the quantitative methods (Strauss & Corbin, 1990). Unlike quantitative research,
qualitative research studies the participant`s knowledge and practices. It takes into account their
view points with practices, their actions, impressions, Ieelings in the research (Flick, 2002).

According to the (Strauss, Bucher, Enrilch, Schatzman, & Sabshin, 1964), two types oI method
can be used eIIiciently in the same research project. But majority oI the researcher due to the
nature oI problem in research and partly because oI training and belieI preIer one type oI
research method rather than using two (Strauss & Corbin 1990, pp.17). Thus it is very important
Ior a researcher to careIully select a research method which is appropriate to the research as it

45
has an impact on diIIerent Iindings and results (Davies, 2007). In quantitative method, results
are generally less descriptive and are subjective, representing numbers and statistics. While the
qualitative method oI research is more descriptive and represent the results in the Iorm oI
pictures and words (Shaw, 1999).

For selecting the qualitative research method to conduct the research, one needs to answer some
questions themselves like, 'what do I know about the issue oI study or how detailed is my
knowledge already? How developed is the theoretical or the empirical knowledge in the
literature about the issue? What is the theoretical background oI my study and which methods Iit
the background? What is the claim oI generalization oI my study? What is the aggregate I wan to
study? Personal experiences oI (a group) oI certain people or social process in the making? Or
am I more interested in the reconstructing the underlying structure oI my issue? (Flick, 2002).

AIter discussing the positives and negatives oI both the research methods and answering the
necessary questions in the above discussion, it is appropriate to use the qualitative research in
context to the present research. There are no stats or mathematics involved in conducting the
research and thus qualitative research is preIerred.

46
3.3 Sources of Data Collection:-

In this research, combination oI both Primary and Secondary sources are used to achieve the
aims and objectives oI this research. According to Kumar 1996, sometimes the required
inIormation is already available or present in the various sources and one only need to extract
relevant inIormation Irom them. But sometimes inIormation must be collected or gathered
Iirsthand so as to Iill up the gaps in the researchers conducted so Iar. But none oI the two
methods Ior inIormation gathering are 100 reliable and accurate and each methods have there
plus and minuses (Kumar, 1996). Accuracy and relevance oI the inIormation collected Iorms the
basis oI choice oI method oI data collection (Abramson & Abramson, 1999). The various
resources used in this research are questionnaires to diIIerent companies, Indian Steel Conclave
2008, held on 16
th
and 17
th
July, websites, Ministry oI steel, FICCI- Federation oI Indian
Chambers oI Commerce and Industry 2008, Indian Steel Alliance, books, journals and Articles.

.
S.S.1 Prlmury xourcex to collect utu:-

Questionnaires are one oI the resources used Ior collecting the primary data. Other source used
Ior collecting the primary data is by attending the two day Indian steel conclave on 16
th
and 17
th

July in Delhi, India.

47
Questionnaires are a kind oI survey which comes in many diIIerent Iorms Irom Iactual to
opinion based, Irom tick boxes to Iree text responses (Milne, 1999). According to Oppenheim
1992, they are set oI printed questions which are selI- administered, group administered or postal
questionnaires and are used to Iind out the reIlection oI the people about an issue or any product
or service. Their main Iunction is measurement, which largely depends upon the issue under
concern, aims and design oI the research (Ireespace.virgin.net, 2008). They are commonly used
Ior collection oI the inIormation which takes into account the knowledge oI the people or the
organisation, their attitude, preIerences, belieIs and personalities (Leung, 2001). They are always
made on the lines oI researcher`s own agenda and intend to Iacilitate a brieI communication
(Davies, 2007). Questionnaires are generally regarded as Iast and easy to do and intern Iast and
easy way to gather inIormation. But the main point to consider in the questionnaires is that Ior
getting the useIul response one should be very clear about the aims and the objectives oI the
research and how the responses will help to improve the learning technology or its
implementation (Milne, 1999). The questionnaires are used in this research to gather direct
inIormation Irom the steel companies in India.

The main objectives oI the questionnaires are 'to maximise the proportion oI subjects
answering our questionnaire - that is, the response rate and to obtain accurate relevant
inIormation Ior our survey (Leung, 2001). Thus one has to careIully administer the
questionnaire with careIully explaining the purpose oI survey to maximise the response rate. It
has to appropriate length with careIully selected set oI questions to get an accurate and relevant
response.

48
Questionnaires can mainly be diIIerentiated in two types.

1. The descriptive, enumerative, census type oI survey
2. The analytic, relational type oI survey (Oppenheim, 1992).

The descriptive type oI survey is in the closed` or Iorced choice Iormat` (Leung, 2001). These
types oI surveys are solely made Ior the purpose oI counting. They mainly give us the
inIormation about the numbers oI population having certain opinion or characteristics and what
is the Irequency oI the certain event occurring together. They don`t illustrate any type oI relation
between any variables and are not made Ior giving any sort oI explanation. Any type oI census
like public-opinion polls and commercial investigation belongs to this type oI survey
(Oppenheim, 1992). Their main advantage is that they are easy and quick to Iill in than the
explanatory parts. They are relatively quit easy to code, record, analyse and report results
quantitatively. Another important advantage oI this type is that they largely minimise any sort oI
discrimination against the less literate or less articulate part oI the population (Leung, 2001).

The analytic type oI survey is mainly designed to explain something about the issue being
investigated. They are also known as open Iormat questionnaires and instead oI giving answers
to how many`, it gives answers about why`. With this type oI Iormat one can explore and
investigate range oI possible themes arising Irom an issue. They 'Can be used even iI a
comprehensive range oI alternative choices cannot be compiled (Leung, 2001 & Oppenheim,
1992).

49
As the steel companies are geographically dispersed and because oI the nature oI the research
topic analytic type oI survey is used in this research. Questionnaires are preIerred over
interviews because one, Ior the same reason as mentioned above that steel companies are
geographically disperses Irom each other. All steel plants are situated near the mines and in the
remote areas, thus it is not possible to approach every steel company and conduct Iace to Iace
interviews. Secondly, it is not Ieasible to take telephonic interviews oI the CEOs oI the various
companies due to time constraints.
Due to the nature oI the research conducted and due to the proposed analysis questionnaire was
designed into seven parts or themes and in each part there are some explanatory questions to be
answer by the heads oI the steel companies being approached in India. The questions are
generally based on their experience oI the steel industry in India. The seven parts in which the
questionnaire is divided into are International Impact, National Developmental Impact, Role oI
Government, Environmental Impact, Relationship with China, Problems/Threats, and Future..
These questionnaires were sent to 13 steel companies in India ranges Irom medium to large
scale. These companies manuIacture diIIerent type oI steel product and compete in the domestic
markets as well as in international markets.

50
Advantages and Disadvantages of Questionnaires:

Questionnaires are generally considered as Iast and quick to collect inIormation in most oI the
situations but they can take a long time while designing, analysing and apply. As questionnaires
responses are gathered in a standardised way, thereIore they are considered as more objective
than interviews and other method oI inIormation collection. Unlike interviews, they are used in
the generation oI huge amount oI inIormation Irom the large mass oI the population only iI the
questionnaires are rightIully delivered and responded back in good time (Milne, 1999 &
Abramson & Abramson, 1999). They are much cheaper than any other Iorm oI primary source oI
data collection like interviews especially when there are large numbers oI respondents, who are
geographically dispersed. There is no problem regarding the presence oI the interviewers as in
the case oI an interview and thus there will be no inIluence oI their nature, character, appearance
or rather diIIerence in the social class on the research conducted (Bryman, 1989). By considering
the above advantages questionnaires are preIerred over interviews in conducting the research.

But the there are some disadvantages oI using questionnaires as well. Due to its standardised
nature, questionnaires sometimes are misinterpreted by the respondents as every point in the
questionnaires cannot be explained in detail. Thus to minimise this disadvantage oI the
questionnaire it was made sure that the aims and the objectives oI the research conducted were
explained properly and the desired expectation oI the answers should also be mention in detail.
They are like many other evaluation methods, Iramed aIter the event and thus have very high
chances oI people may be Iorgetting the important issues. In the case oI open-ended

51
questionnaires, large amount oI data can be generated which takes a long time to process and
analyse. This is one oI the main research limitations oI this research, as the amount oI data
generated in any research related to steel industry is extremely high and thus takes huge amount
oI time to analyse and present the research Iindings. Depending upon the type oI questionnaire,
respondents may answer the questions superIicially without taking any interest like in the case
when questionnaire takes large time to Iill. The length oI the questionnaire was again the
problem in the research, as all the companies being approached mentioned the problem that the
questionnaire given was very long. The questionnaire should be as Iar as possible be made
anonymous as sometimes people might hesitate to respond and reveal any real inIormation which
they think will not be beneIicial or in the worst case will result in some sort oI penalty (Milne,
1999 & Abramson & Abramson, 1999).

In the case oI the mail surveys better educated respondents sent back questionnaires much Iaster
than the less educated. One oI the negatives oI the questionnaires is that beIore starting to Iill the
questionnaire Irom start, respondents can read the whole questionnaire. This may inIluence their
later answers on the lines oI their initial answers to the questions. The above mentioned points
have not aIIected this research in any ways due to the nature oI the research and the topic chosen.
The possibility oI collecting additional data through interviews by making observations or
requesting documents is not possible with questionnaires. The most important drawback oI
questionnaires is that in some cases they generate very low amount oI response rates, even lower
than interview based research (Bryman, 1989).

52
Second Source of Primary Data collection is the two day Indian Steel Conclave held
on 16
th
and 17
th
1uly in Delhi, India

A two day Indian Steel Conclave was held on 16
th
and 17
th
July 2008 in Delhi, where diIIerent
steel companies, ministry oI steel and many other organisations connected with steel, gave
presentations. It was a highly enriching experience, where the knowledge was gained about the
present scenario oI the steel industry and its standings in the world. The knowledge gained was
the Iirst hand inIormation about the positives and the negatives, strengths and weaknesses,
emerging trends and the expected Iuture oI the Indian steel industry. All the notes taken and the
data provided in the conclave are being incorporated in this research. This real time data was
clubbed with the data collected Irom the other sources in order to satisIy the aims and the
objective oI this research.

3.3.2 Secondary Sources of Data Collection

Secondary source oI data collection is not the Iirst hand inIormation and is collected via various
mediums like books, web, journals, annual reports, government publications and the views oI the
author. It`s the data which is collected by the other individual or agencies Ior the purposes
diIIerent than that oI the particular research study. For example, the statistics prepared by the
ministry oI steel will be useIul Ior many other people and organisation in their work and

53
businesses related to steel (FAO, 2008). The sources which present Iacts & data and their
description are secondary sources except iI they are based on the direct participation or
observation. They generally depend upon the other secondary sources and standard disciplinary
methods to IulIil their objectives (Penn Libraries, 2007). 'A search oI secondary data sources
should precede any primary research activity. Secondary data may be suIIicient to solve the
problem, or at least it helps the reader better understand the problem under study. Secondary data
is cheaper and quicker to collect than primary data and can be more accurate (FAO, 2008).
Secondary source of information used in this research are:-

Books:-

Books are generally and with academic perspective are very important source oI inIormation.
They are the most useIul and the practical source oI inIormation on which one can Iully depend
on. They cover broad range oI area and topics in detail and were based on the Iully reliable Iacts
and Iigures.

1ournals and Articles:-

They also cover broad range oI issues and topic like books and are academically oriented. But
the main diIIerence between the journals/articles and the books are that the books are generally
updated very rarely maybe once a year. For more up to date current inIormation, journals and

54
articles are more comprehensive and better source oI gathering inIormation. They are based on
the detailed research in accordance with the current trends and happening (Kelley, 2003).

Web and Internet Sites:-

There are more than 85 billion pages, surrounding more than 6 terabytes oI text data on more
than 3 million servers. The World Wide Web has become an important part oI the human day to
day liIe and increasingly becoming popular in all aspects (Lawrence & Giles, 1999). Today
enormous amount oI inIormation and data Irom around the world are available on the World
Wide Web. All other important sources oI inIormation including books, journals, articles,
annual reports and publication are available on the web (Kirk, 1996). One can instantaneously
access any inIormation Irom anywhere in the world and thus being considered as one oI the most
important component oI the globalisation. With such important amount oI inIormation, web has
become an important part oI any learning process. This research was also dependent highly on
the web Ior the secondary data collection.

Some oI the websites used in this research are:-

www.indiansteelalliance.com

http://steel.nic.in/

www.economywatch.com

www.Iicci.com

55

Some other sources of secondary information are:-
Annual Reports

Ministry oI Steel (India) Reports, Iigures, analysis, research

The Indian Steel Industry Journal (Steel World)

3.4 Proposed Analysis:-

Response oI the questionnaires are studied and analysed with rest oI the secondary data
collected. Thematic analysis was carried out on the questionnaires and a common theme/trend
was identiIied and was worked upon to get the desired result. According to the Boyatzis 1998,
'Thematic analysis is a method Ior identiIying, analysing and reporting patterns (themes) within
data. It minimally organizes and describes your data set in (rich) detail. However, Irequently iI
goes Iurther than this, and interprets various aspects oI the research topic (Braun & Clarke,
2006). The important pattern recognised by the analysis IulIils the aim oI the research by relating
the data with the research question. Holloway and Todres 2003, states that the Ioundation
method Ior learning qualitative analysis should be thematic analysis. Thematic analysis provides
necessary core skills to the researchers helping them to conduct various other qualitative
analyses. Inductive` or bottom up` way and the theoretical` or deductive` or top down way`
are two main ways in thematic analysis by which patterns or themes can be identiIied. In this

56
type oI analysis there`s no exact rule Ior deciding what minimum amount oI data is needed to
discover and prove a theme. It is rather analyst driven` and is driven by the theoretical or
analytical interest oI the researcher. Thematic analysis proves to be a very valuable and Ilexible
research tool and provides detailed data oI the research topic (Braun & Clarke, 2006).

There are six diIIerent phases oI thematic analysis oI the questionnaires. First is Familiarizing
yourselI with your data` in which initial ideas are noted down aIter completely understanding the
data. Second phase is Generating initial codes`, in which new and interesting Ieatures are
systematically noted down across the data set. Third is Searching Ior themes` in which the
interesting points are Iormed into probable theme while collecting relevant data to each potential
theme. Reviewing themes` comes Iourth in which a thematic map created relating the coded text
in the level 1 and the entire data set. FiIth is DeIining and naming themes` in which Iurther
reIining oI themes are carried out and clear deIinition and names are generated. And last is
Producing the report` where last analysis is carried out. Here reIerences to the proposed themes
are Iound out Iorm the academic literature which is then related to the research question leading
to produce a scholarly report (Braun & Clarke, 2006).

Second analysis perIormed will be SWOT analysis. SWOT stands Ior Strengths, Weaknesses,
Opportunities and Threats. It is the simple` and easy to understand` analytical technique in
which internal and the external environment oI the organisation is analysed so as to identiIy its
internal strengths. Discovering and identiIying new strengths will make an organisation able oI
taking advantages oI the various external opportunities` and help them to avoid various threats
while considering their weakness (Panagiotou, 2003 & Balamuralikrishna & Dugger, 1995). It is

57
the most straightIorward analysis which involves other people`s perspectives and in turn beneIits
Irom it. It encourages people associated with the organisation to think and consider about the key
points oI their organisation`s environment and helps them managing it (Hill & Westbrook, 1997
& Panagiotou, 2003).

Every organization Iaces with a dynamic environment which includes a number oI internal and
external Iorces. These Iorces aIIect the perIormance oI the organization in both positive and
negative ways and thus it is essential Ior an organization to identiIy these Iorces to Iacilitate the
development oI the strategic planning system. Thus by knowing the diIIerent positives and
negatives associated with the organization, one can get good insights about the whole structure
oI the company and thus managers by gaining this knowledge can take necessary actions
accordingly. ThereIore a company should make an eIIort to identiIy the strengths and its Iuture
objectives and should try to minimize its weaknesses. But Ior the complete progress and success,
a company should try to capitalize on the opportunities and consider threats Irom the outside
environment associated with the company. Thus to identiIy the strengths, weaknesses,
opportunities and threats associated with the company on the basis oI the study is known as
SWOT analysis (Houben et al, 1999). Thus Ior this research SWOT analysis is used to identiIy
strengths, weaknesses, opportunities and threats associated with the steel industries oI India and
China. By conducting SWOT analysis oI steel industries oI India and China, one will get an idea
about the present strengths and weakness associated with the Indian steel industry as compared
to the global steel industry. An idea regarding the Iuture opportunities and threats oI the steel
industry would give an approximation about the Iuture oI the steel industry in both the countries.
But according to the Barney 1999, Swot analysis is the environment analysis and it does not give

58
Iull explanation any time even iI the research is conducted very rigorously and Ior the complete
and Ior the complete understanding oI the sources oI the competitive advantage requires the
analysis oI the Iirms internal strengths and weakness as well` (Barney, 1999).

Research Limitation:-

There was no response Irom the 13 major steel companies in India to whom the questionnaires
were sent. This was mainly due to the unIorced downturn in the global steel market due to which
all the companies and their CEO`s were in the rescue mode and thus were completely inclined to
secure their companies Iuture interest. Other major reasons cited by the steel companies were the
depth and the technicality oI the questionnaire sent. Thus this research is based on the data
collected Irom the second primary source which was Indian steel conclave 2008, held in New
Delhi, India and Irom the secondary sources. A copy oI the questionnaire sent can be Iind out in
Appendix B.

59

CHAPTER: - 4
SWOT ANALYSIS - INDIAN STEEL INDUSTRY

SWOT is the acronym Ior the 'Strength, Weaknesses, Opportunities and Threats oI an
individual, organisation or even a nation. It is a simple and easy analytical technique which
analyse internal and external environment oI the concerned. The aim oI this is to 'identiIying
internal strengths in order to take advantage oI its external opportunities and avoid external (and
possible internal) threats, while addressing its weaknesses (Panagiotou, 2003). It helps
managing the organisation by encouraging the people associated with it to think on the various
aspects oI the its environment

4.1 Strengths
4.1.1 Availability Of Iron Ore & Coal

Steel is one oI the most important materials Ior the development oI the any nation and is
considered as the backbone oI the human civilisation. India is the world`s second Iastest growing
economy in the world aIter China, aiming Ior doubling its capacity to 124 million tonnes by
2012 (http://www.Iinancialexpress.com, 2008). Present capacity oI the steel production in India
is 53.1 million tonnes, Ior which there is a requirement oI the around 80 million tonnes oI iron
ore. Out oI which, 8 million tonnes is used in the Iorm oI the scraps used in the electric arc
Iurnace to produce steel. The total current iron ore production is 181 million tonnes, thus around

60
90 million tonnes oI iron ore is exported. With increase in the demand and production oI the steel
in the Iuture it is expected that the India will be able to Iully satisIy its iron ore needs in the
Iuture (National steel policy, 2005 & Meshram, 2008).

Present productions oI the minerals required in the steel making process are, Iron Ore-180,917
thousand tonnes, Manganese Ore- 2,143 thousand tonnes, Chromite Ore-4,095 thousand tonnes,
Limestone-179,267 thousand tonnes and Dolomite-4,783 thousand tonnes (Meshram, 2008).
With expected production oI 270 million tonnes oI crude steel by 2019-20, the expected
requirements oI the minerals will be:-

Table: -4. 1 Expected requirements

Mineral Consumption by
2019-20
(Million Tonnes)
Resources (Million
Tonnes)
LiIe
Indices
(Years)
Iron ore 480 22,849 48
Limestone 75 81,485
(Excluding Cement
Grade)
1,086
Dolomite 60 6,809 113
Manganese ore 4.5 354 79
(Source: - Meshram, 2008)

These requirements are based on the assumption that production in the Iuture will be 60
through blast Iurnace route, 33 through the sponge iron-Electric Arc Furnace route and the rest
7 through other routes.

61
AIter iron ore the major raw material used in the crude steel production is Coal. Currently the
total coal resources in India are 264.54 billion tones. Out oI which there are only 101.83 billion
tones are proved. There are 124.22 billion tones oI indicated coal resources and 38.498 billion
tones are inIerred. Out oI the total 264.54 billion tonnes oI coal, there are 231.19 billion tones oI
Non-Coking coal and only 33.34 billion tones oI Coking Coal. But out oI this there are
only17.40 billion tones oI proven Coking coal.

Table: -4. 2 Trend and the future planned coal production plan.

(Million Tonnes)
COMPANY ACTUAL PROGRAMME
IX PLAN
(01-02)
X PLAN (06-
07)
XI PLAN
(11-12)
XII PLAN (16-
17)
CIL 279.65 360.91 520.50 664.00
S.C.C.LTD 30.81 37.71 40.80 45.00
OTHERS 17.33 32.21 119.70 346.00
TOTAL 327.79 430.83 680.00 1055.00
CAGR 2.53 5.62 9.57 9.18

GROWTH
X OVER IX PLAN XI OVER X PLAN
29 44 (HIGHEST SO FAR)
(Source: - 1ha, 2008)

Above table shows that there is a steady improvement in the coal production since the IXth plan
until now and the Iuture trend in the production oI the coal is also looking promising. It is
expected that the total production oI the coal according to the XIIth plan by the year 2016-17
will be around 1055 million tones. And there will be a projected demand oI 1125 million tonnes
oI coal. Out oI which there will be demand oI 105 million tonnes oI coking and 1020 million
tonnes oI non-coking coal. But as mentioned earlier, there will be an availability oI 1022 million
tonnes oI coal in which there is only 35 million tonnes oI coking coal and 1022 non-coking coal.

62
Thus there will be a shortage oI around 70 million tonnes in the production oI the coking coal.
With the abundant coal resources and especially oI Non-coking coal, Indian steel industries are
encouragingly taking the path oI the steel production by Sponge iron in Electric Arc Iurnace. To
keep saIe the interest oI the Indian steel industries in the Iuture, Coal India Limited (CIL) is
continuously trying to procure international sites Ior coking and superior grade non-coking coal
(Indian Steel Conclave, 2008 & Jha, 2008).

4.1.2 Indian Steel Industry Enjoys A Cost Advantage

Operating cost*
HRC US$ per ton, (Apr 2007)

Figure: -4. 1 Operating cost (Source: - Indian Steel Conclave, 2008, McKinsey & company, 2008)

By this one can inIer that, Indian integrated steel industry is constantly enjoying the operating
cost advantage when compared to the other competing nation`s integrated steel companies

63
including China, Russia, Japan and United States. 'Indian steel producers are already among the
lowest cost producers in the world (International Metalworkers` Federation Indian Steel Report,
2008). With the growth in the economy as well as in steel industry, Indian steel makers will be
able to manuIacture and supply low cost slabs` to hot strip mills` and plate mills` around the
word (Marcus 2008). In the case oI the downturn in the global steel industry, Indian steel
producers as mentioned above are among the lowest cost producers oI the world and thus have a
hedge against the global Iall. TATA Steels, the sixth largest steel producer in the world claims to
be among the world`s most eIIicient steel producers. It has a vertically integrated structured
company and had made tremendous investments to enhance its product mix so as to minimise the
impact oI the global steel recession (www.rediII.com, 2007).

Figure: -4.2 Cost Competitiveness in Steel Production

(Source: - Indian Steel Conclave, 2008, McKinsey & company, 2008)

64

4.1.3 Low labour wage rates & Abundance of quality manpower

Figure: -4. 3 labour wage rates

It can be seen Irom the above Iigure that India has the lowest labour wages per hour worked in
comparison to the rest oI the major steel producing nations oI the world. Wages per hour are halI
when compared to the China. Thus due to the extremely low wages with an emerging economy,
encouraging energy prices and huge quantity oI resources, Indian steel industry will enjoy cost
advantage in the many coming years. According to Peter F. Marcus 2008 managing director and
CEO oI the world steel dynamics, Indian steel industry has large pool oI skilled and highly
skilled workIorce even with the low wages. The workIorces working in some oI the Indian steel
industries has Iairly good background in the steel sector and even have world class manning
(International Metalworkers` Federation Indian Steel Report, 2008).

65
4.1.4 Mature production base:-

As mentioned earlier, that Indian steel industry is more than 100 years old. It has come oI age
and is considered as the one oI the most eIIicient steel industries oI the world. Indian steel
industry has become mature now and is on the verge oI being the second highest producer oI the
crude steel in the world. Indian steel companies are now among the major players oI steel in the
world. With the presence oI suIIicient amount resources, plenty oI the skilled and unskilled
labour, growing and developing inIrastructure Iacilities including port and shipping Iacilities and
good amount oI investment made Ior the modernisation and maintaining the steel plants, Indian
steel sector is considered as the mature production base. Indian steel companies are now
acquiring and merging with the various steel companies and all the other related companies Irom
around the world. By doing this they are able to secure various resources which would saIeguard
the Iuture interest oI the company and as a result would manage to gather vital inIormation as
well.

4.2 W`-Weaknesses:-

4.2.1 Unscientific mining/ Augmentation of the resources

Estimation oI the various resources is a very vibrant process. Due to the limited demand and
newly available advanced technology, many areas enriched with the minerals have not been Iully
explored. Over the years involvement and participation by private sector on the national level has
been very insigniIicant. Focus has always been on the sectoral priority during the Iormulation oI

66
any kind oI exploration programme. The main exploration agencies at the national level are
Geological survey oI India (GSI), Mineral exploration corporation LTD (MECL), Directorate
General oI Mines SaIety (DGM`s) (Meshram, 2008 & Indian Steel Conclave, 2008).

During the last three decades Indian mining industry has experienced an annual growth rate oI
4 to 5. The price oI this growth has been extremely high as the concept oI growth at all cost`
has been popular over the years. This unscientiIic and unorganised/ unplanned mining has
resulted in the unstable developments (Directorate General oI Mines SaIety, 2008). 'UniIorm
policies need to be Iollowed across the country as the present policies Iollowed by State
Governments have resulted in unscientiIic mining and wastage besides the activity resulting in
environmental degradation oI the area in which such mining activities are being carried out.
Injection oI adequate capital in such mines has been inhibited and required mechanisation
prevented (Jhingran, 1997). Government are not able to take necessary steps on time by
introducing bills in the parliament because oI the resistance posed by the inIlexible labour unions
(Singh & Kalirajan, 2004).

Ex minister oI steel and mines, late S Mohan Kumarmangalam`s book Coal industry in India`
shows the real picture oI the mining sector. In his book he enlightens the Iact that due to the
presence oI the maIia in the mining sector, many workers are not paid Iully and are cheated oI
their rightIul dues. These maIias are known as Lathials` or muscleman` who controls the
mining activities via labor unions and protect the interest oI the mine owners. These people rules
these mines by spreading extensive corruption, enIorced labor activities, uncertain and duplicate
records, stripping oII huge lumps oI minerals and selling them in the black market, neglecting

67
the saIety measure and stealing the money allocated to purchase the saIety equipments. Due to
the above, there have been huge accidents with Iires and collapses in the past due to the
unscientiIic mining or as called slaughter mining. This has resulted in the loss oI the
considerable valuable resources to the nation with the loss oI the many workers lives (Directorate
General oI Mines SaIety, 2008).

Thus there is need to develop technologies which are suitable Ior the environment around the
area. New technologies should be readily adapted in the Iield oI exploration so as to Iully exploit
the iron ore which are in the depth and Ior estimating the resources in the area which are not
accessible. The Iull exploration oI the in-accessible areas will reveal the Iull potential oI the
resource wealth Ior the various minerals like iron ore, limestone which are necessary raw
materials oI the steel industry. The Indian steel industry uses iron ore with the cut oI 55 to 60
Fe Ior Hematite and 30 Ior the magnetite ore and thereIore the estimation oI the resources are
also based on these cut oII. But in the global steel industry resources even with the les than 50
Fe is also used in the steel making process. With the adoption oI the advance technologies, the
cut-oII oI the iron ore will be lowered to 45 Fe and thus will enhance the resource base oI the
nation (Meshram 2008 & Indian Steel Conclave, 2008).

For improving the mining conditions oI India, Indian coal sector should be completely
deregulated as it is observed that deregulation will encourage participation oI both domestic and
Ioreign private sector. Mining in India have not been considered as a proIitable economic
activity until the reIorms in the year 1991. Thus by keeping in mind the various nature oI the
economic activities, a special package including Iavorable taxes and duties have to be put

68
together in order to attract investments Irom the various private sources (Singh & Kalirajan,
2004 & Jhingran, 1997).

.

4.2.2 Low productivity

The growth in the economy oI any nation depends upon its eIIicient utilisation oI the Iactors oI
production which includes capital & labour and its productivity. Productivity is the eIIiciency oI
resource utilisation. With the booming economy, importance oI productivity has increased
recently (Reddy, 2006). India presently enjoys the lowest labour wages in the world but is
Iacing with the problem oI low productivity, which in turn is eIIecting the growth oI the
economy. There are many reasons due to which Indian core industries are Iacing with the
problem oI low productivity. One oI the main reasons is the usage oI the obsolete technology.
Secondly the core industries like steel and iron industries were Iully government regulated until
when the reIorms were introduced aIter which the steel sector was deregulated and private
players were allowed to enter into in this business (International Metalworkers` Federation
Indian Steel Report, 2008).

In the public sector, industries have to meet the required social aims and objectives like
employment and regional growth instead oI Iocusing on generating proIits Ior the company.
Government used to have Iull autonomy on deciding the prices, which was generally decided on
the ad-hoc basis and are not at all related to the cost oI production. The work Iorce employed to
manage these specialised core companies neither have any prior experience and neither have

69
they had any knowledge regarding the concerned Iield. Responsibilities in public sectors are
divided into many departments and the ministries due to which the decision making takes longer
time than in privately owned companies. Thus without the motive oI proIit making, these
companies had suIIered huge losses in the past. Maintenance and the modernisation oI the iron
and steel industries involve massive amount oI investments. But with nil proIits, there was no
extra money generated which could be reinvested Ior purchasing advance machinery and
equipments. Because oI these reasons Indian steel industry could not be able to keep up with the
world standards (Mongia et al, 2001).

It has been observed that the trade integration amongst technologically driven countries was
rewarded with the increase in productivity than the countries which are driven by the public
policy. Even the industrialised economies experience Iailure when less than competitive
productive employment` was attempted to be protected by a public policy (Reddy, 2006). But
even aIter the Iew years Irom the introduction oI the reIorms, productivity steeply Iell which was
due to the decline in the capacity utilisation in the public sector`. InIrastructural problems and
the decrease in the market share due to the emergence oI small steel plants were the main reasons
behind the productivity decline. Furthermore Bureau oI Industrial Costs and Prices (BICP), 1992
states that the mini steel plants use the electric arc Iurnace technology instead oI using blast
Iurnaces Ior making steel. These mini steel plants are comparatively less eIIicient and consume
more amount oI power than the huge steel plants having blast Iurnaces.

The seven determinants oI productivity growth identiIied by the Centre Ior the Study oI Living
Standards (CSLS) are 'the rate oI technological progress, investment in physical capital such as

70
machinery and equipment and structures, the quality oI the workIorce, size and quality oI the
natural resource base, industrial structure and intersectoral shiIts, the macroeconomic
environment or aggregate demand conditions, and the microeconomic policy environment
(Reddy, 2006). Today Indian steel industries are partially satisIying most oI the above mentioned
determinants and thus lagging behind in the productivity
4.2.3 Coking coal import dependence

Presently, India is one oI the biggest coal importers in the world. It is second Iastest growing
economy in the world aIter china and in the last 40 years its energy needs have grown
accordingly by more than 700. India`s 70 oI the current energy requirements are satisIied by
the coal energy (Jenson, 2008).

According to the Jha 2008, India has total coal reserves oI around 264.54 billion tonnes out oI
which there are 231.9 billion tonnes oI Non-coking coal and only 33.34 billion tonnes oI coking
coal. But out oI this there are only 17.40 billion tonnes oI proven coking coal and 13.84 billion
tonnes is indicated and rest are inIerred. According to the XIIth plan, the demand Ior the coal is
projected to be around 1125 million tonnes and production is expected to be raised around 1055
million tonnes. Out oI the 1125 million tonnes oI coal demand, 105 million tonnes oI coking coal
and 1020 non coking coal is required. But out oI the 1055 million tonne production only 35
million tonnes oI coking coal is produced and 1022 oI non-coking coal. Thus there will be a
shortage oI around 70 million tonnes oI coking coal. In the terminal oI X plan 2006-07, 35
million tonnes oI coking coal is consumed out oI which 18 million tonnes are imported and rest
is Irom indigenous sources. There will be an expected growth oI 14 in the consumption oI the

71
coking coal in the XI th plan. OI the mention 33.84 billion coking coal reserves, there are 5.3
billion tonnes oI Prime coking coal, 26.3 billion tonnes oI Medium coking coal and 1.7 billion
tonnes oI Semi-coking coal.

Production trend oI the coking coal shows that the coking coal production in India is on decline
and is stagnated in the last Iiscal year. OI the total production oI the coking coal only 50 could
be used Ior the metallurgical processes and the rest is used Ior the non-metallurgical processes
mainly due to quality reasons. There are many constraints in the production oI the coking coal in
India because oI which India is highly dependent on the imports. The Jharia CoalIield (JCF)
which is the proven and proved reserve Ior the prime-coking coal poses the serious technical
challenge as it is unique with 20 persistent coal horizons oI varied thickness and partings over an
area oI 454sq.km. The indiscriminating mining by the private operators beIore the nationalisation
have resulted in the reduction in the total surIace area Irom 17.32sq.km to 8.9sq.km and coal
blocked have reduced Irom 1864 million tonnes to 1453 million tonnes. The surIace land with
the railway tracks are heavily build up resulting in the land acquisition Ior coal mining projects
(FICCI- Federation oI Indian Chambers oI Commerce and Industry, 2008 & Jha, 2008).
Table: -4. 3 Coking coal blocked under Railway Lines, Roads, and Rivers
(Figs in MT)
Railway Lines Roads Rivers Total
Prime Coking
Coal
588.1 1350.6 480.5 2419.2
Medium
Coking Coal
732.4 316 774.5 1822.9
Total 1320.5 1666.6 1255 4242.1
(Source: - Indian Steel Conclave, 2008 & 1ha, 2008)

72

Furthermore another 2443 million tonnes oI coking coal is blocked under dwellings in JFC.
Other reasons because oI which India will remain the heavy importer oI coal as described by the
Australian Bureau of Agricultural and Resource Economics (ABARE) senior commodity
analyst Alan Copeland, with high ash content and low energy content quality oI the Indian coal
is not very good and thereIore local coal is mixed with the imported coal in order to get the right
mix oI ash and energy content. He also states that it is more suitable and as well as more
proIitable to import coal because the rail transportation oI the domestic coal Irom the producing
to the consuming regions poses big problems and are not very reliable as well. And lastly,
imports are growing because the demand Ior the coking coal is growing Iaster than the supply in
the last Iew years (Jenson, 2008).

4.2.4 Low R&D investments:-

Indian steel industries are lagging behind in the international competitiveness on several areas
like quality, productivity, sales and services, which can be seen in the table below. One oI the
main areas oI concern Ior the Indian steel industries is the low investments in the research and
development. Table below shows that, India is only ahead oI Brazil in the R& D expenditures,
where it is only investing 0.91 oI its GDP. While all developed nations like USA, Germany are
way ahead in investing in the R& D sector.

73
Figure: -4. 4 Major determinants of international competitiveness

(Source: - Mazumder & Ghoshal, 2003)

Research and Development plays an important role in the progression and sustenance oI any oI
any industry. And Ior the highly technical and sophisticated core industries like iron and steel, a
constant and extensive research is required in all spheres oI its production i.e. Irom procurement
oI raw materials till the transIormation oI steel into the desired products. 'Steel R&D need to
Iocus on new ways oI meeting user needs (both internal and external) in an increasingly
demanding market-place; more important, this goal is to be met utilizing existing elements oI
resources, such as available raw material, manuIacturing capacity and marketing capability
(Mazumder & Ghoshal. 2003). Below is the graph by Pohang Iron and Steel Company (POSCO)
showing relationship between the competitive environment and innovative technology:-

74

Figure: -4. 5 Production Cost

The above Iigure explains the scenario that although the production cost will increase during
both sluggish and rapid technological developments, the rate with which it will increase in the
case oI sluggish development will be much higher than the latter case. This trend can be seen in
the case oI India and other developed nations where investment in the R& D is comparatively
much higher. According to Dr S.K. Gupta, Executive Vice-Chairman oI Jindal Vijaynagar Steel
Ltd, private and public producers in the domestic steel sector are continuously investing and lay
emphasis on R& D so as to solve the problems related to plants and to incorporate advance
technology which would enable the eIIicient use the indigenous raw materials. They are also
making constant eIIorts to solve the secondary problems associated with the steel plants like
pollution, wastage oI energy and bad quality. But the investments in the traditional R& D Ior
sustainable technological development are still very much neglected (Sinha, 2002). Thus a
balance should be maintained between the generation oI the new inIormation and technology and
improved utilisation and development oI the existing knowledge. The Iocus oI R& D should be
on the eIIective and eIIicient utilisation oI the existing resources i.e. knowledge, inIormation and
technology, instead oI investing in the completely new technology. Role oI R& D in the
improving any Iorm oI businesses is through gradual changes and sometimes via radical changes.
All aspects oI the steel industry, Irom processes to services (internally and externally) should be
considered in the development process (Mazumder & Ghoshal, 2003).

75
4.2.5 Inadequate infrastructure: -

Charles BradIord, steel analyst Irom the BradIord research said that 'India`s inadequate
inIrastructure makes it diIIicult Ior it to become a major global player in the steel industry
(Reynolds, 2007). II the Indian steel industry was not suIIering Irom the major deIiciencies and
the problems concerning its key areas, it would have passing through the diIIerent phase
altogether. In that case, the growth oI the Indian steel industry would have been phenomenal
covering more portions in the global share oI the total steel production. Booming economy and
emphatic growth in the steel industry have resulted in the huge rise in the inIrastructure
investments but these investments were way below the targets set by the government mainly due
to ineIIiciency and Iinancial problems (Perlitz, 2006). Investment via Purchasing power parity
(PPP) in the inIrastructure sectors needs suIIicient long term Iunds sanctioned by the government
so as to achieve high rate oI return.

IneIIicient and insuIIicient Ireight capacity and poor transport inIrastructure are the main
problems which are seriously hampering the growth oI the Indian economy. India has the biggest
rail transportation system in the world which is two times the rail network oI China. However its
eIIiciency is worse, which results in the poor and ineIIicient delivery oI goods. Airport and port
Iacilities depict the same account as the rail system (Perlitz, 2006). In the next Iive years there
will be a total investment oI around US $350 billion in the inIrastructure which provides the
huge opportunity to the Indian steel sector.

76

Indian railways tariIIs are extremely high in the world even with the largest rail network
globally. Graph below shows that according to the PPP route, Indian railways charges 7.9 US
cents Ior every thousand kilometres which is three time the tariII oI the Chinese railway Ireights.
Next highest railway Ireight tariII are there in France which is one and halI times less than
India`s tariIIs, 5.5 US cents Ior every thousand kilometres (Ministry oI Shipping, Road transport
and Highways, 2008 & Indian Steel Conclave, 2008).

Figure: -4. 6 Indian Railways Freight Tariffs
PPP * US Cents / thkm

(Source: - Ministry of Shipping, Road transport and Highways, 2008 & Indian Steel Conclave, 2008)

2
3.7
5.5
2
2.6
7.9
0
1
2
3
4
5
6
7
8
9
Sweden Japan France Canada China ndia

77
Below is the table showing the increase in the railway Ireights Ior the iron ore Ior both imports
and exports Irom the Iiscal year 2004-05 to the year 2007-08

Table: -4. 4 increase in the railway freights for the iron ore
(Source: -Ministry of Shipping, Road transport and Highways, 2008 & Indian Steel Conclave, 2008)

The conditions oI roads are much worse than the situation with the railway network. An idea oI
the condition oI the roads can be estimated by the Iact that Indian road system is largest in the
world but across the country, burden oI 40 oI the total traIIic is handled by the national
highways which constitutes only 2 oI the total road system. The train stations in this South
Eastern part oI the India are not congested and have the enough capacity to load a good quantity
oI the iron ore rakes. But because oI the miserable conditions oI the roads Iorm the iron ore
Mines to the rail heads, it is not been possible to Iully utilize the capacity oI the rail carriers. Due
to these constraints Freight cost increases and eIIiciency decreases, this will have a net eIIect on
the production cost oI the steel (Indian steel conclave, 2008 & MESCO STEEL Ltd). The above
argument can be supported by the Iigures 1 & 2 in the Appendix- A.
Iron Ore for Exports Iron Ore for SteeI PIants
120 120
2004-05 130(29/10-26/11) 130(29/10-26/11)
140(27/11-31/03) 140(27/11-31/03)
2005-06 160(01/04-30/11)
180(01/12-31/03) 160(15/05-31/03)
160(01/04-30/06)
2006-07 180 170(01/07)
2008 200X*(12/05) 170(01/07)
* 200X involves 100% surcharge on freight charges
Increase in RaiI Freight for iron ore (CIassification)
2004-05 to 2007-08

78
Importance oI ports Ior Indian steel industry can be estimated by the Iact that, around 95 oI
the Ioreign trade volume and 70 oI the total value traded moves through sea. There are 12
major ports in India and 185 non- major ports and all major ports are governed by the
Government oI India. Out oI the 12 major ports, both east and west coast have six ports each.
Capacity oI ports in 2007 was around 516.15 million tonnes and throughput during 2007-08 was
519.24 million tones. Growth in the traIIic in the last seven years Irom 2000-01 to 20007-08 has
been phenomenal with an increase in the capacity by 348 Million Tonnes (Ministry oI Shipping,
Road transport and Highways, 2008 & Indian Steel Conclave, 2008).

Figure: -4. 7 Total Port freight
(Source: -Ministry of Shipping, Road transport and Highways, 2008 & Indian Steel Conclave, 2008)

Ports as with the case oI other transportation systems are Iacing huge amount oI problems which
poses a great threat to the Iuture oI the Indian trade and commerce. They are not very well
equipped to handle such enormous amount oI trade and have resulted in creating high amount oI
ineIIiciencies in the trade cycle. Because oI the lack oI the deep water ports, there are
approximately 10 to 15 ships waiting every day with the waiting times in days. This demands
22.51
44.03
66.04
90.51
165.63
368.5
716.46
0
100
200
300
400
500
600
700
800
1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2007-08
Period
T
r
a
f
f
i
c

i
n

M
i
I
I
i
o
n

T
o
n
n
e
s

79
heavy Iines and penalties Irom the companies involved in the trade and increases the total time oI
the trade. There is also lack oI basic parking Iacilities in and around the port due to which trucks
and tankers have to park Iar away Irom the ports loading berths which in turn increases the
Ireight cost and general mishaps (Amis & Kumar, 2000).

Figure: -4. 8 Tariff at Indian and Foreign Ports

Indexed at Osaka 100

(Source: -Indian Steel Alliance, 2008)

Thus Irom the above graph it is clear that the Indian ports have an extremely high tariII when
compare with the rest oI the major ports oI the world. The tariIIs are more than Iour time the
tariIIs at Osaka and one and a halI times than Tianjin. On the basis oI the parameters like total
employees, traIIic, productivity per man, out per day, containers moves per hour and the idle
time at berth, it is estimated that in comparison to the rest oI the world, India is incurring an extra
cost oI Rs. 4000 CRORES (Indian Steel Alliance, 2008).
100
165
187
325
444
450
0
100
200
300
400
500
Osaka Singapore Hongkong Tianjin Mumbai Chennai

80
Another major inIrastructure related deIiciency is Power supply and its costs. India is
immensely suIIering Irom the huge power shortages around the country which has an adverse
impact on the perIormances oI the various industries. Government is actively taking the initiative
to cut down the power shortages and is trying to provide power to the entire nation by 2012.
Industries are using their own generators to produce electricity to be used in their own industries
as there is massive power shortage. These results in the increase in the production cost as
electricity produced by the personal generators are more expensive (Perlitz, 2006). According to
the 10
th
Iive year plan (2002-03 to 2006-07), target power generation was 41110 MW but actual
power generation was just 23225 MW. In the 11
th
plan (2007-08 to 2011-12) situation have
become better and in its Iirst year 2007-08 target was to generate 12039 MW but 9263 MW is
produced (Ministry oI Shipping, Road transport and Highways, 2008 & Indian Steel Conclave,
2008).

Presently 70 oI the energy needs oI India are satisIied by the coal energy but in the Iuture India
will rely on the nuclear energy Ior the power generation. With the shortage oI power, cost oI
power in India is comparatively higher than the rest oI the world. The graph below shows the
comparison in the power costs between India and some other countries. By the purchasing power
parity method, in India one has to pay 5.9 US Cents Ior every Kilo watt hour power consumed
while in South AIrica, Ior every Kilo watt hour power one has to pay 2.2 US cents (Perlitz,
2006).

81

Figure: -4. 9 Power costs

(Source: -Indian Steel Alliance, 2008)

4.2. High cost of debt

Iron and steel industry is the capital-intensive industry where generally the amounts oI
borrowings are extremely high. (Bhotika, 2006) In 2003, debt equity ratio (D/E) had risen up to
stunning 4.31. This upward trend in the D/E ratio was started in the year 1997 where it was at
2.13 and went to 2.90 in 2001. (Mazumder & Ghoshal, 2003) This trend can be seen in the Iigure
below:-
2.2
3.8
4
4.7
4.3
5.9
0
1
2
3
4
5
6
7
South
Africa
Canada Korea Mexico USA ndia

82

Figure: -4. 10 Performance index (1997-2001): Debt-equity ratio

The Asset turnover ratio (Net Sales/ Total Assets) was improved Irom 0.42 to 0.52 in the same
time period but this asset turnover ratio was still Iar behind according to the international
standards. This slight improvement show that the assets are utilised more eIIiciently or industry
is shedding more assets (Mazumder & Ghoshal, 2003). The perIormance index Ior asset turnover
ratio is given below:-

Figure: -4. 11 Performance index (1997-2001): Net sales to total assets ratio

From the year 1997 to 2001, RONW i.e. return on net worth (Post Tax) tumble Irom 3 to -9
and then recovered slightly to -3. This shows that steel industry is losing money and as a result
becoming unimpressive to the investors (Mazumder & Ghoshal, 2003). Figure below shows
perIormance index Ior RONW

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Figure: -4. 12 Performance index (1997-2001): Return on net worth (post tax)
The ratio oI Net ProIit/Net Sales in the same period was also decreased greatly Irom 2 to a
low oI -6 and then slightly recovered back to -2 in 2000-01. This shows the amount and
intensity oI competition in the Indian steel industry (Mazumder & Ghoshal, 2003)/ Figure below
shows the perIormance index oI the movement oI the share prices.

Figure: -4. 13 Performance index (1997-2001): Movement of share prices

From analysing the above Iour indices, it can be inIerred that Indian steel industry had gone
through very rough patch in the past which was highlighted by the increase in debt, low asset
utilisation, industry wide losses and Iierce competition (Mazumder & Ghoshal, 2003). At that
time, because oI the Iinancial mismanagement, inability oI the companies to raise Iunds and

84
irregularities in the projects, industries have to bear high cost and resultantly Iound themselves in
the debt trap` (Gupta, 2002).

Today the new, highly advance and capital intensive steel plants are still struggling with the huge
debts. They, in the time oI the crises had to borrow at very high interest rate popular at that time
(Gupta, 2002). But in the last 4 years steel industry had seen positive growth and the debt equity
ratio currently have come down to a stable position oI 1. Many companies in the last three- Iour
years have managed to clear their long existing debts because oI the good proIits earned. In these
Iour years there is the drop oI 22 in the long term borrowing in the Indian steel industry. Steel
industry is now looking healthy, leIt with very minimal amount oI the debts and new Iunding is
not a problem anymore (Bhotika, 2006).

4.3 Opportunities

4.3.1 Unexplored rural market

In India, more than 70 oI the population lives in the rural areas (Ruralindia. blogspot.com).
With more than 700 million people, Indian rural sector is one oI the biggest markets Ior steel in
the world. Till date, rural sector in India is reasonably unexposed to the versatile use oI the steel.
Today Indian rural sector poses the biggest challenge to the development oI the country and as
well as provides the biggest opportunity Ior the Indian steel industry to increase the utilization oI
the steel in the rural areas with the new development projects. The Indian steel industry should

85
emphasis on new and improved with better quality and adaptability oI the products which will be
used in the new development projects (Gupta et al, 2007). There is massive scope Ior the
consumption oI steel in the rural sectors as per capita steel consumption in India per kg is very
low in comparison to the rest oI the world. Table below gives the region wise per capita steel
consumption per kg and indicates the untapped potential` in the consumption oI steel in India
(Mazumder & Ghoshal, 2003).
Figure: -4. 14 Per capita steel consumption per kg


Since 1976, Indian rural sector was identiIied with the potential oI considerable steel
consumption. Steel will be used signiIicantly in the area oI housing, Iencing, structure and in all
other possible areas where steel is more eIIective and advantageous than its substitutes.
Increasing usage oI steel would protect the vanishing Iorest resources as well (Mazumder &
Ghoshal, 2003).

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4.3.2 Crowing domestic demand

As mentioned earlier in the literature review, India is the second Iastest growing economy oI the
world aIter china and is growing with the phenomenal rate oI 9 per annum. Indian steel
industry is growing with the similar rate oI 9 and has the potential to become the second
largest producer oI steel in the world. This sturdy growth in the economy has led to the higher
capacity utilisation in which the demand Ior the steel is steady and strong (Indian steel Alliance,
2008). Presently the per capita steel consumption is 41 kgs which is quite low when compared to
the rest oI the world`s average oI 150 kgs and china`s average oI 300 kgs. With the rising per
capita GDP and other steel consuming activities, growth in the Iuture is expected to accelerate
(FICCI- Federation oI Indian Chambers oI Commerce and Industry, 2008 & Indian steel
Alliance, 2008). Global per capita steel consumption and global steel consumption metric tonnes
per annum is tabulated below.

Figure: -4. 15 Steel consumption Source: - Ruia, 2004

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Figure: -4. 16 Demand patterns for the steel Source: - Ruia, 2004

This strong demand pattern has resulted in setting up oI the world class large scale steel
capabilities with an investment oI Rs. 45,000 Cr. Because oI the emphasis on the inIrastructure
development, demand Ior the steel in India will be on high Ior the next two to three decades. The
investment in the inIrastructure according to the 10
th
plan was around Rs.880, 550 crores and
according to the 11
th
plan investment in the inIrastructure will be somewhere around US $370
billion. Out oI this there will be investment oI US $49 billion on the highways, US$ 54 billion on
the generation oI the 61 GW capacity and Iurther US $90 billion on the power distribution and
transmission. With such a massive rural market, whose per capita steel consumption is expected
to be touches around 20kgs Irom the present 3kgs and urban per capita consumption to be
touches around 240kgs as compared to the present 120 kgs. Keeping this in mind it is expected

88
that demand Ior the steel would grow at the rate oI 15 in the Iuture (FICCI- Federation oI
Indian Chambers oI Commerce and Industry, 2008 & Indian steel Alliance, 08). McKinsey &
Company estimated the steel demand by the year 2015 will be 100 million tonnes and 2020 will
be around 225 million tonnes (McKinsey & Company, 2008).

Figure: -4. 17 Projected steel demand Source: - McKinsey & Company, 2008

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4.3.3 Crowing Exports:-

With the booming Indian steel industry, there is a growing trend oI the production and demand
oI steel. Today the world steel trade is on the rise and worth more than US$700 billion, but the
contribution by the India steel industry in this world trade is mere 2.

Table: -4. 5 Global scenario of India steel

Qty. in M1|

Category
Current level oI
Exports
Current Exports
by India
Share oI
Indian Exports
Semi-Iinished 70 0.4 0.6
Bars/Rods/Wires 75 0.2 0.3
Structurals 24 0.07 0.3
HR Coils/Sheets 80 1.4 1.8
CR Sheets 45 0.6 1.3
Plates 35 0.2 0.6
Galvanized/Coated 50 2.0 4.0
Tin Plates 10 0.04 0.4
Railway materials 3 - -
Tubes & Fittings 40 0.2 0.5
Castings/Forging 3.5 0.1 2.9
Total 435.5 5.21 1.2
(Source: - Banerjee, 2008, Indian steel conclave, 2008)

Due to the ever increasing rise in the demand oI steel, demand is outstripping the production in
the integrated sector. With sluggish capacity increase, there is high volatility and intense upward
pressure on the prices oI the steel. Because oI these trends there are stagnating exports and there

90
are quantum jumps in the imports. Keeping these trends in mind India became the net importer in
the year 2007-08 with the net imports oI 5.50 Mt. India in the same year exported 4.56 MT oI
steel and the total production on that year was 50.55 Mt but the demand in that year was around
51, thus there is a net export oI the 5.50 Mt (FICCI- Federation oI Indian Chambers oI
Commerce and Industry, 2008 & Indian steel Alliance, 2008).
There are abundant opportunities Ior the Indian steel industry in the Iuture as Indian steel
industry enjoys many advantages over its competitors. One oI the biggest advantages oI Indian
steel industry is its cost advantage over other countries. With the lowest labor wages, cheap and
abundant presence oI the raw material, Indian steel industry produces steel cheaper per tonne
than the rest oI the steel producing nations. Adding on this, there is abundant presence oI the
resources which are required Ior the production oI the steel like iron ore, coal, limestone. Thus
the Iuture Ior the exports Ior the Indian steel industry is very bright. (FICCI- Federation oI
Indian Chambers oI Commerce and Industry, 2008 & Indian steel Alliance, 2008). This above
argument is backed up by the table 1 and Figure 3 showing comparison between the international
prices and the domestic prices Ior the Re-bars (2007-08) and by table 2 and Figure 4 showing
comparison between the international prices and the domestic prices Ior the Hot Rolled Steel in
the Appendix- A.

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4.3.4 Consolidations/ Mergers and Acquisitions: -

Consolidations and acquisitions is the trend Iollowed by the world steel industry Irom past three-
Iour years. In past three years, mega deals have resulted in the Iormation oI the number one or
number two producers in the steel and in the related industries (Vohra, 2008).
Figure: -4. 18 Major transactions in the last three- four years

Month Year Transaction
June 2003 Xstrata acquired MM to become the largest zinc producer
June 2005 BHPBilliton acquired WMC to become the second largest nickel producer
March 2006 Barrick acquired Placer Dome to remain the largest gold producer
November 2006 Goldcorp acquired Glamis to become the third largest gold producer
November 2006 Vale acquired nco to become the second largest nickel producer
March 2007 RUSAL merged with Sual &Glencore Aluminum to become the largest aluminium
producer
March 2007 Freeport-McMoRan Copper &Gold acquired Phelps Dodge to become the largest
copper producer
August 2007 Norilsk acquired LionOre to remain the largest nickel producer
November 2007 Rio Tinto acquired Alcan to become t he largest aluminium producer
February 2008 Xstrata acquired Jubilee t o become the second largest nickel producer

(Source: - Vohra, 2008 & Indian steel conclave, 2008)

Consolidations are responsible Ior the transIorming the global steel business and have resulted in
the rise oI the new rivals` and cartelization` among the top producers (TiIIany, 2006).
According to the TiIIany 2006, the current phase oI the global consolidation is diIIerent and is
unIamiliar till date. The main motive Ior the consolidation is driven because oI the threat oI the
industry going out oI the business`, instead oI being driven by the usual market opportunity`.
The main drivers oI the consolidations in the last three-Iour years are 'High Commodity Prices,
Rising Global Demand, Resource Security, Economies oI Scale, Greater Marketing Muscle and

92
Risk DiversiIication (Vohra, 2008). Steel companies Irom around the world are trying to secure
resources globally and this is one oI the main reasons because oI which M&A`s are popular
recently. Companies like Baosteel oI China, which is the IiIth largest steel Iirm in the world with
a capacity oI more than 23 million tonnes per year, have only 8 market share in its own
country. This type oI mix where the company`s home market is very small as compared to the
rest oI the world and still be counted among the top producers oI the world is the new trend
(TiIIany, 2006). Same pattern can be seen in the case oI the $16.4 billion TATA -Chorus deal,
where TATA steel positioned at number 65 in the world steel ranking acquires Chorus which is
the Iive times its capacity to become sixth largest producer oI steel in the world.

Resource security mainly drives up the competition, because oI which prices also rise.
Competition due to higher price provides speculative opportunities Ior the Exchange-traded
Iunds (ETFs) and the need oI the supply security has increased strategic option pricing. From the
year 2000 to the year 2007 there was an increase oI 1200 in the BRIC deals i.e. Brazil, Russia,
India and China. This is the strong group oI the 4 leading developing economies which are
presently having the highest growth rates in the world. Indian steel industry saw 5 multibillion
dollar mega deals in the year 2007 having the net worth oI $28 billion dollar. There were in total
15 transactions undertaken by the Indian companies or by the Ioreign operators in India during
2007 (Vohra, 2008).
TiIIany 2006 says that, iI the trend Ior the global consolidation continues in the Iuture then in
that case there will be a global oligopoly in the steel industry. In this there will be only small
number oI Iirms dominating the global steel production and thus can easily handle the Irequent
market downturns (TiIIany, 2006).

93

Keeping in the mind the present situation oI the global steel industry, Vohra 2008 says that
'Everyone is at the table - doing the deal or being the meal (Vohra, 2008).

4.4 Threats

4.4.1 China becoming net exporter

In the last decade, Chinese exports have shown the explosive growth and thus has become a
competitive threat` to the developed as well as developing nation oI the world, including India.
Its total exports oI all commodities in the past decade or so had grown up by 16.6 per annum.
China has become a Iourth largest exporter behind US Germany and Japan (Lall et al, 2004). In
terms oI steel, china became the net exporter oI steel only aIter the year 2005. Its trade balance
had shiIted Irom a net import oI 35 million tonnes to a net export oI 33 million tonnes in 2006.
China being the biggest producer and consumer oI the steel in the world, producing 480 million
tonnes oI steel per annum, its steel trade balances hugely aIIects the global steel market
(www.publications.parliament.uk).

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Figure: -4. 19 Net export position

(Source: - www.publications.parliament.uk)

With the rapid increase in the Chinese steelmaking capacity, there has been an oversupply oI the
steel in its domestic market. With this, Chinese steel companies are trying to manuIacture high
grade steel products which earlier were imported Irom the European nations
(www.publications.parliament.uk). Because oI the Chinese cheap exports, not only Indian steel
industry but global steel industry is under tremendous competitive threat. One oI the main
problem which India had encountered in the last two three years was that its domestic steel
market was competing with the low cost Chinese exports. India is one oI the biggest suppliers oI
the iron ore to china and china is one oI the biggest suppliers oI coking coal to India. Thus both
India and China are mutually depended upon each other. But India, because oI its own cheap
supplies oI the high quality iron ore, has to compete with Chinese exports in its domestic market.
But India is dependent upon China Ior the supply oI coking coal, thus it cannot stop the supply oI
the iron ore as China will resultantly stop the supply oI the coking coal.

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4.4.2 1hreat of Substitutes & 1echnological change

Indian steel industry is under threat Irom the plastics and composites. As in the case oI the
automobile industry, in which a good substitute oI steel is aluminium but because oI the high
cost oI electricity used Ior its extraction, it is not very popular (Mazumder & Ghoshal, 2003).
With the improvement in the plastic technology, steel was substituted with the plastics as a
material Ior manuIacturing automobile components. In this way with the technological change or
with the competitive discontinuities can aIIect the proIitability oI the industries which are
somehow related to the new Iindings. Sometimes the threat Irom the substitution also proved to
be proIitable Ior the company in the long run and help it to grow Iurther in the Iuture (Porter,
2008). Some oI the areas Irom where steel had already been replaced are railway sleepers (RCC
sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes), and
domestic water tanks (PVC tanks)` (Mazumder & Ghoshal, 2003). But the threat posed by the
substitutes and the due to the technological change to the steel industry is very low as compared
to the other core industries. This due to the Iact that steel industries is highly capital intensive
and thus the new players or entrants needs huge amount oI capital to enter and compete with
them.

Other threats faced by the Indian steel industries are: -
3. Slow industry growth.
4. Dumping oI steel by developed countries.
5. Price Sensitivity and Demand Volatility

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CHAPTER: -5

SWOT ANALYSIS OF THE CHINESE STEEL INDUSTRY:-

Chinese steel industry played very crucial role in the development oI the Chinese economy
which is presently the Iastest growing economy in the world. Since the introduction oI the
reIorms in the 1978, the average growth rate oI the output oI the Chinese steel industry has been
11.8 per annum and became the highest producer oI the crude steel in the year 1996. Since
then it has maintain its spot at the top and exhibiting the phenomenal growth rate, leaving Iar
behind all the developed nations oI the world. Growth oI the Chinese steel industry had occurred
mainly because oI its industrial policy has always Iavoured the development oI the core
industries. The growth rate oI the steel sector got a boost only in the last decade or so, aIter the
restructuring oI the industry took place. Today China is producing 489.66 million tonnes oI
crude steel which way ahead oI the second largest producer.

5.1 Strengths

5.1.1 Availability of the raw material

China has got 160 billion tonnes oI total iron ore reserves according to the Vice Minister oI Land
and Resources Wang Min in 2008. Out oI these there are 60.7 billion tones oI the proven iron
reserves and around 100 billion tones oI the unproven iron ore reserves. With the boost in the
global steel industry with the Chinese steel industry, investment in the exploration oI the iron ore
have increased rapidly. The total spending Irom the year 2004 to 2007 was around US $322

97
million (Xinhua, 2008). China is the biggest producer as well as the biggest consumer oI the coal
in the world. Currently the capacity oI the coal mines is to produce around 1500 million tonnes
oI coal in a year. The expected production oI the coal by the year 2010 will be around 1550
million tones and by the year 2020 will be 1430 million tonnes. Thus on the basis oI the
projected demand, there would be a shortage oI around 250 million tones and around 620-
770million tones in the year 2020 (Youguo, 2003). China`s coking coal production in the year
2007 was around 300 million tonnes, which were around 280million tonnes in the year 2006. Its
coking coal exports in 2007, reached around 14.50 million tonnes (Reuters, 2007).

5.1.2 Abundance of Manpower

China is the most populated country in the world having population oI more than 1.4 billion
people. Labor wages in China is considered the lowest in the world and this is one oI the main
reasons because oI which most oI the manuIacturing industries outsource their products to China.
In the 2006, average wage oI a Chinese urban worker is 1,750 Yuan per month, but shockingly
average wage oI the workers in the primary industries was only around 786 Yuan. That is only
around 60 pounds per month (China Labor Bulletin, 2008). Steel industry being the core and
heavy industry provides employments to large number oI people directly and indirectly through
secondary and tertiary industries. The modern day steel industry is considered as knowledge and
capital intensive, but Chinese steel industries competitive advantage lies mostly in its low cost
labors. According to the World Bank, Chinese steel industry gives employment to around 3-4
million urban workers which is considered as very conservative`. Several more people are
employed by the secondary and tertiary industry related to the steel industry. Thus Chinese steel

98
industry enjoys the cost advantage due to the low labor wages and would continue to do, as in
the Iuture as there are more than 12 million urban unemployed workers (Brizendine & Oliver,
2001 & Indian steel conclave, 2008).

5.1.3 Continuous flow of the Foreign Direct Investment

China since their introduction oI the economic reIorms in 1978 has been the primer destination
oI the Ioreign direct investment. FDI since then had grown rapidly each year Irom mere US $1.5
billion in the 1980`s to more than US $40 billion in 1999. In 2007, FDI in China was US $83
billion and will grow with the same rate in the Iuture as well. FDI had played a very important
role in the development oI the Chinese economy and had provided the necessary boost to its
sturdy growth. Steel industry was one oI the major recipients oI this FDI over the years as steel
industry is highly capital intensive industry and steel is considered as the backbone oI the strong
economy. With the growth oI the Chinese economy, developments in the various Iields have
grown rapidly like inIrastructure development. Steel consumption has increased with these
developments as steel is the primary material used in construction and manuIacturing oI most oI
the things. With this pace China the Iastest developing nation in the world became the world
highest producer oI crude steel in the 1996. China today is the biggest producer and consumer oI
steel in the world. In 2007, China produced 489.66 million tonnes oI crude steel. Chinese steel
maker are continuously investing to modernize their plants. They are also heavily investing in
the resources and in other steel plants outside China, thus Iacilitating the outward Ilow oI FDI.
FDI in China is expected to grow in the Iuture (Fung et a,l 2002 & Indian steel conclave, 2008 &
National bureau oI statistics, 2008).

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5.2 Weaknesses

5.2.1 Short supply of domestic steel products

Chinese per capita steel consumption has increased up to 300kgs which is way ahead oI the
world average oI 150 kgs. Its consumption has increased up to a staggering level oI 434 million
tonnes in the year 2007 which was up by 13.1 percent as compared to 2006. This rise in the
consumption level is expected to increase till 2015-17, aIter which it may become, stagnate.
China is not very Iar Irom calling itselI a developed nation but still a lot have to be developed by
them beIore getting that status. China is in its third stage oI development which is known as
metaphase and the latter stage` in which GDP oI the nation would generally be around $2000 -
$4000 and the nature oI steel consumption is high as steel consumption exhibits diIIerent
characteristics in the diIIerent development stages. AIter this came the last stage in which the
GDP oI the nation is generally above $ 4000 and the growth steel consumption become stagnant
as steel consumption in this slows down. But china still being the developing nation, have to
developed a lot more with the same growth and thus have to maintain the rate oI steel
consumption. On comparison with the developed nations oI the world like Japan, U.S whose
total steel consumption Irom the year 1901 to 2007 are 4.5 billion tonnes and 7.7 billion tonnes
respectively, China still lags behind with total steel consumption oI around 3.5 billion tonnes.
Thus, China still has massive scope oI consuming more amount oI steel due to which the demand
iI the steel will increase in the Iuture (www.bulk-online.com, 2008 & Indian steel conclave,
2008).

100

5.2.2 China is restricted by the factors like resources, energy and environment.

China is highly bounded by number oI Iactors which is interIering with its overall growth oI the
economy including its steel industry as well. Chinese steel industry is suIIering Irom the growing
percentage oI iron ore imports, which rose to 53 percent in 2007. Its dependency on the iron ore
imports was 34 in 2000 and had increased with an average oI 20.1 per year. It is expected
that the iron ore dependency will be around 50 mark by 2012. High iron ore dependency oI
China today is due to Iact that China has suIIicient number oI iron ore resources but the quality
oI the iron ore resources is low and on top oI that the cost oI exploration is very high (www.bulk-
online.com, 2008 & Indian steel conclave, 2008).

With iron ore requirements, Chinese steel industries are also suIIering Irom the shortage oI water
resources which is very important resource used in the steel making process. Current water
shortages impose tremendous pressure on the Chinese steel industry. China is also Iacing with
the huge shortage oI the energy supplies due to which its steel industry suIIerers highly. China
has to start modernizing its steel industry which would help them saving on energy and thus
enable them to lower the consumption (www.bulk-online.com, 2008).

Today, Chinese steel industry is also Iacing with the problem oI environment pollution. Till
recently there weren`t any environment protection laws or any kind oI tax code enIorced by the
government on the steel industries. But with severe criticism by the other nations and by the
Chinese local people China have placed some strict environment laws on its steel industries

101
which restrict the steel industries Iurther progress. According to Mr. Xichun Wu in 2006, advisor
to the China Iron and Steel Association (CISA) 'UnIair tax concessions and commercial
advantages extended to otherwise marginal Iirms that made it diIIicult to weed out ineIIicient
capacity. The central government insists on more rigorous enIorcement oI both the tax code and
environmental protection laws to curb low level blinded expansion` (Muller, 2006). He also
emphasized on the Iact that, during the initial phase oI the development oI steel industries, they
had been oIIered to move away Irom the populated and the polluted centres towards the areas
comprising oI their major customers, where there is abundant supply oI the water and iron ore.
But this opportunity was not utilized by the industries which would cause them diIIiculties in
Iuture Ior the sustainable development (Muller, 2006).

5.2.3 High-end products have weak international competitive strength

With the boom in the global steel industry, Chinese steel industry saw an explosive growth and
became the number one producer oI the crude steel in the world in 1996. Since then china remain
as the top steel producer in the world and is now producing close to 500 million tonnes oI crude
steel. The diIIerence between the top producer and the second highest producer oI steel is
stunningly massive, almost around 350million tones. China`s per capita consumption is also
very high at around 300kgs in comparison to the world average oI 150kgs. But the Chinese steel
industries have always been Iocused on completely satisIying the domestic demand
indigenously. They have always been dependent upon the imports Ior the high-end products but
since the increased capacity and change in the domestic steel structure, Chinese became the net

102
steel exporter by the end oI 2005. Because oI the lack oI the advance technology and not having
strong Iocus on the high-valued products, they are now competing only in the low-end products
and thus have weak international competitive strength (www.bulk-online.com, 2008 & Indian
steel conclave, 2008).

5.2.4 Resources distribution starves for optimization

The competition in the steel industry depends upon the capability oI acquiring and identiIying
the necessary required resources as steel is a resource and energy intensive industry. Thus steel
industry requires huge amount oI the social resources. With this steel is also capital and as well
as technology intensive industry. Thus the main Iocus Ior every steel company is to locate and
acquire the resources so as to secure the company`s Iuture. Chinese steel industries have very
low concentration and insigniIicant distribution oI steel production. Due to these reasons Chinese
steel industry is unable to Iully utilize and recognize the resources. Thus China should start
investing more in its ability to recognize the resources (www.bulk-online.com, 2008 & Indian
steel conclave, 2008). Concentration ratio (CR5) in 2004 oI China was only 22, and CR5 Ior
other steel producing nations were 80Ior Russia, 77 oI Japan, Ukraine 72 and Ior U.S it was 65.
Thus the gap between China and the other nations is huge. Because oI this, even being the
number one producer oI steel in the world, China had no bargaining power and resultantly
accepted a 71.5 increase in the iron ore prices in 2005 (Tao et al, 2006). China should start
modernize its steel plants and should stop using obsolete technology Ior making steel which
enable them to eIIiciently utilize and consume various resources. These also enable them to

103
produce more and more high quality and value added Iinished products. They should start
recognizing the inside resources as in technology and management innovation and along with
that they should start recognizing the outside resources as well (www.bulk-online.com, 2008 &
Indian steel conclave, 2008).

5.2.5 Autarky: - self-sufficiency

Chinese always have Iocused on the steel-suIIiciency because oI which their primary goal was to
substitute all imports. These type oI isolated objectives` are common among the developing
countries which never proven good Ior these countries. According to Mr. Xichun Wu in 2006,
advisor to the China Iron and Steel Association (CISA), these type is Autarky should have
discarded by the Chinese, as huge nations like China should decide whether they would go with
the same strategy or not. He said that the strategy oI import substitution charges a huge cost Irom
the economy in two ways. First, it leads to the production oI the goods which are way ahead in
cost as compared to the world market prices. Secondly problem arises when demand is less as
compared to the domestic supplies. Releasing the surplus produced in the domestic market
causes decrease in the proIitability oI the company. He says that the market in which there exists
an oligopoly, where only handIul oI the steel players is dominant can control the price
movements and thus maintain stability in the market. Instead Chinese steel industries reacts to
the misalignment between the demand and supply and is the only nation leIt in the world which
is engaged in active rice competition (Muller, 2006).

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5.3 Opportunities

5.3.1 Strong and Sufficient supply of Power in the future

There is huge scope oI increase in the demand oI steel in China in Iuture. It had been estimated
that iI the problem causing areas or sectors like power shortage are minimized, then in that case
demand oI steel in the rural sector would increase. Among the main problems Iaced by Chinese
steel industry today is the power supply. Fast and rapid development oI the power supply and
generation beneIits the economy oI the state. But currently, rapid increase in the demand is not
being matched by the slow rise in the growth oI electric power (Wu, 2000). According to the Tan
Rongyao, spokesman oI China Electric Power Regulatory Commission (CEPRC), that shortage
oI power supply will continue and will not be solved until the next three to Iive years. This
problem oI power shortage could become more serious in some areas and regions which would
aIIect industries located in these areas (Wei, 2003). Realizing that, China is under the power
expanding phase and government is investing massively so as to boost power supply by building
nuclear power stations and Dams. China has increased investment scales in its 11
th
Iive year plan
Ior the power supply. In the year 2002-03 Chinese state council approved the construction oI 13
new power stations which would be raised by the National Development & ReIorm
Commission`. The total investment promised was around RMB 51.2 billion Yuan and the install
reaches to 11.88 million kilowatt. This is Iirst time in the history oI china that so many projects
have been cleared at one time (Wei, 2003). This expansion in the power will lead to an increase

105
in the demand oI the various products in the rural areas as well including the urban areas and in
turn this will inIluenced the steel industry in terms oI suIIicient power and expanding domestic
market (Wu, 2000).

5.3.2 Strong inflow and outflow of Foreign Direct Investment (FDI)

China over the year is the one oI the biggest recipient oI the FDI in the world and is on the top
among the developing countries. China`s major source oI investment in the Iixed asset today is
FDI. Since1990, FDI saw a phenomenal growth and reached to US$ 40 billion a year in 1999
and in 2007, FDI in china was around US $83 billion (National Bureau oI Statistics, 2008 &
Fung et al, 2002). Thus FDI is playing an important role in the development oI overall Chinese
economy. This inIlow oI FDI is expected to grow with the same rate in the Iuture which would
aIIect every business in the china including steel industry. China being the biggest producer and
consumer oI the crude steel in the world sees the major opportunity in the steel exports in the
Iuture. With the global steel industry booming, China has the potential to become an important
steel exporter in the Iuture. Currently, China competes with other nation only in the low-end
market but in the Iuture with the help Irom FDI`s and the technological experience over the
years, china can give a Iierce competition in the high-end market as well. Another advantage oI
FDI in China in the Iuture is that, with increase number oI investments in the various industries,
requirement oI the steel will increase and thus the demand Ior the steel will continue to increase
in the Iuture.

106
A new trend has emerged in the recent years, in which some oI the developing nations especially
Iorm the Asian region have emerged as an important source oI FDI. Chinese investment projects
in the AIrica and in the Latin America imply that that its outward FDI is due to the countries
growing demand oI the natural resources and these will saIeguard their Iuture needs oI the
natural resources. Steel industry was the main Iocus oI the all the FDI`s came Irom the
developing nations (USCBC: - The US-China Business Council, 2008). 'The Tata Group (India),
Ior example, invested US$ 2 billion in projects in Bangladesh, including a steel mill; Posco Ltd
(Republic oI Korea) agreed to invest US$ 8.4 billion in a steel project in India; and Chinas
Baosteel signed a Iramework agreement with Arcelor and CVRD to build a steel plant in Brazil
Ior a total investment oI US$8 billion (UNCTAD: - United Nations ConIerence On Trade And
Development, 2005).

5.3.3 Modernization of the state owned enterprises

Because oI the China`s communists and ConIucian past, all the major and core industries are sate
owned. Overall Development oI the Chinese economy was used to be the only Iocus oI these
state-owned companies beIore the introduction oI the reIorms in 1978, when China opens itselI
Ior the rest oI the world. These state-owned companies with no proIit earning motive were highly
uncompetitive in the international markets. Today, with the development oI the economy these
public owned companies are generating good amounts oI proIits but still are not at all
competitive in the international market and are lags Iar behind Irom local private players. China
has now planned to modernize these state owned companies, which would enable them to

107
compete in the international market and help them create syndicated corporations`. These
coordinated co operations would 'expand and enhance production outlet, to better manage the
distribution and utilization oI resources; to create a more equitable system Ior the distribution oI
income; to establish a healthy oversight and monitoring system that is responsive to the needs oI
the new economic structure and to raise the quality oI economic management under an
established legal Iramework. Thus China has got the huge opportunities in the Iuture which
would help its industries to grow at a high rate (www.unescap.org, 1996 & Indian steel
Conclave, 2008).

5.3.4 Infrastructure development

China is the Iastest growing economy oI the world having double digit GDP growth rate oI
11.4. With the boom in the economy, inIrastructure development is also on the rise. China is
massively investing in the inIrastructure development which is one oI the main constraints in the
development oI the modern China. China is among the top steel consumers in the world; its
present rate oI consumption according to the GDP is 300kgs which is way ahead oI the world`s
average oI 150kgs. The rate oI steel consumption shows the current state oI the economic
development in China and how the steel is important part oI the country`s inIrastructure
development and thus acting as a catalyst Ior the growth oI overall economy (Hogan, 1999 &
Indian steel conclave, 2008). China by 2010 plans to extend the rail and road networks to
100,000 Km and 1.4 million Km respectively. With this there will be 1000 deep water berths in
the major sea ports around the country. Around three hundred well equipped airports will be
constructed Ior the better connectivity. Quality oI the services and the saIety would meet the

108
expected demand and will be signiIicantly improved. These improved transportation system and
good quality Iacilities aims to provide 'China with a coordinated multi-modal transport system
that is most suited to the Chinese situation (www.unescap.org, 1996). For the cities and Ior the
congested areas, high speed and high capacity under and over ground railway systems are
designed. For the inter-city railway system, high speed, reliable, saIe and comIortable rail
systems are being designed. In cities, multilevel roadways are designed and the density oI the
roadways in the small and big cities is around 10km per sq km (www.unescap.org, 1996). Thus,
Chinese steel industry has got the massive opportunity to grow in the Iuture.

5.4 Threats

5.4.1 Crowing Worker Shortage 1hreaten China's Low-cost Advantage

For the Iirst time in the history oI China, problem oI labour shortage appeared in the late 2004.
China has always been known Ior its low labour wages and surIacing oI such kind oI problem
lead to a question that 'whether China will lose its advantage oI being a low-cost manuIacturing
base. Now days many manuIacturing industries in the rapidly growing areas are struggling to
Iind suIIicient amount workers, a drastic alteration which will have a huge impact on the various
markets oI the world including steel. In the recent years this trend oI the shortage oI labor have
become more prominent and according to the predictions oI the market experts China would lose
its cost competitive advantage in the next three to Iive years. The reason behind this shortage oI
the labor according to the experts is that the Chinese economy is sizzling hot` and Iarming on

109
top oI that has become more proIitable and on other hand industries are expanding even as there
is shortage oI labor. People don`t have to migrate to the diIIerent cities as the prosperity is
moving inland and they can get a decent job near their home town (Barboza, 2006 &
KnowledgeWharton, 2006).

5.4.2 Increasing iron ore prices

Steep increased in the iron ore prices is one oI the major concerns Ior the Chinese steel makers.
As in the last year or two the iron ore prices had increased tremendously, almost up by 80 to
90. China is one oI the biggest iron ore importers in the world and this steep increased in the
prices oI the iron ore would aIIect the strong Chinese steel industry majorly. China has suIIicient
quantity oI iron ore reserves which will support its steel industries Ior long time but due to the
high mining and exploration cost, ineIIicient transport system, dangerous and diIIicult extraction
and low quality oI the iron ore, Iorces China to import large quantity oI its iron ore requirements.
Australia and Brazil are the two main nations which supplies major quantity oI iron ore to China.
Recently, BHP-Billiton and Rio Tinto Irom Australia and Vale Irom Brazil have successIully
increased the iron ore prices by 80 to 97. Thus, as a result the steel prices would go up and this
increase in the steel price would aIIect the secondary industries dependent on the steel like
automotive industry. In the end the consumers would suIIer and bear the increase in the price oI
the diIIerent products (Robertson, 2008 & Keenan & Foley, 2008).

110
CHAPTER: -6

COMPARISON BETWEEN INDIAN AND CHINESE STEEL
INDUSTRY

Table: -6.1Strengths

Indian Steel industry

Chinese Steel Industry
Strengths
1. Availability oI iron ore
and coal

2. Low labour wage rates

3. Abundance oI quality
manpower

4. Mature production base

1. Availability oI the raw
material

2. Abundance oI
Manpower

3. Continuous Ilow oI the
Foreign Direct
Investment

Steel proIile oI both the countries is very strong, India is the IiIth largest producer oI steel in the
world and China is the largest producer oI crude steel in the world. As mentioned in the
literature review, backed by these strengths Indian steel industry have the potential to become the
second largest producer oI the crude steel in the world by the year 2015. Both Indian and
Chinese Steel industries enjoys the abundance oI the man power and low labour wages and thus
enjoy the cost advantage over other steel producing nations. But the Indian steel industry enjoys
the advantage oI having more quality man power as compared to its Chinese counterparts. Both
Chinese and Indian steel sector have no problem oI the raw materials and both have abundant
resource oI raw material. Chinese economy is much stronger than Indian economy and China
which is known as the Iactory oI the world` have much more mature and eIIicient production

111
base than India, which is in the developing phase. China also have the advantage oI the
continuous Ilow oI the FDI Irom the long time where as India have just become FDI Iriendly.
Thus Chinese steel industry enjoys the huge sums oI Ioreign investments which are helping them
to upgrade and expand their existing capacities.

Table: -6. 2 Weaknesses


Weaknesses
1. UnscientiIic mining

2. Low productivity

3. Coking coal import
dependence

4. Low R&D investments

5. High cost oI debt

6. Inadequate
inIrastructure

1. Short supply oI
domestic steel products
2. China is restricted by
the Iactors like
resources, energy and
environment
3. High-end products
have weak
international
competitive strength
4. Resources distribution
starves Ior
optimization
5. Autarky: - selI-
suIIiciency

Both nations have many weaknesses but both steel industries are showing excellent growth
backed by their strong economic growth. By eliminating or overpowering these weaknesses both
steel producing nations can progress at much Iaster rate than the present rate oI development.

112
Indian and Chinese steel industries have diIIerent sets oI weaknesses. Indian steel industry is
Iacing with the problem oI low productivity whereas in the Chinese steel industry low
productivity is not an issue even with the low labour wages as India. Low productivity oI Indian
steel industry is a major problem which needs to be addressed as early as possible. Another
major problem that Indian steel industry is currently Iacing is problem oI unscientiIic mining.
This is one oI the main reasons because oI which the available resources are not properly
utilised, which in turn aIIects the cost oI the production. On the other hand China lately had
invested hugely in the exploration oI resources in comparison to India. Coking coal dependence
is another sever problem that India is Iacing right now. India majorly depends upon the imports
oI coking coal Ior its requirements in the steel industries, while china is one oI the major
exporters oI coking coal to India. Both India and China have inadequate inIrastructure to support
their respective steel industries but China has better inIrastructure when compared to India.
China has a major weakness oI being incompetent in the high-end products in the international
market. China majorly competes only in the low end steel market, which is because oI using
obsolete technology in its steel plants as compared to the developed nations.

113
Table: -6. 3 Opportunities


Opportunities 1. Unexplored rural
market

2. Growing domestic
demand

3. Growing Exports

4. Consolidations/
Mergers and
Acquisitions

5 Strong and SuIIicient supply
oI Power in the Iuture

6 Strong inIlow and outIlow
oI Foreign Direct
Investment (FDI)
7 Modernization oI the state
owned enterprises.

8 InIrastructure development

Indian and Chinese steel industries both have the bright Iuture and have loads oI opportunities in
the Iuture Ior Iurther developments. These opportunities would enable steel industry to grow into
mammoth proportions and along with it would help the respective economies to grow at high
rates as well. Indian steel industry`s biggest opportunity is its unexplored rural market. As
mentioned in the analysis in detail that around 70 oI the Indian population lives in villages,
where steel is still quite unIamiliar. There one can Iind one oI the lowest consumption rates with
mere consumption oI 3kgs as per GDP. Thus with the development oI these areas, steel
consumption will increase rapidly in the Iuture as Indian economy is also growing with the
phenomenal rate. Both India and China is showing strong domestic demand and are showing
strong outIlow oI the investments by doing Mergers and acquisitions. Following the recent trend
oI M & A`s in the global steel industry, both Indian and Chinese steel companies are massively
investing in the Ioreign nations. China with M & A`s is concentrating on its inIrastructure

114
developments and modernization oI its steel plants which would give a boost to its steel industry
and economy as whole.
Table: -6. 4 Threats


Threats 1. China becoming net
exporter

2. Threat oI Substitutes
& Technological
change

3. Slow industry growth

4. Dumping oI steel by
developed countries

5. Price Sensitivity and
Demand Volatility

9 Growing Worker
Shortage Threaten
China's Low-cost
Advantage
10 Increasing iron ore
prices

11 Shortage oI coal in the
Iuture.

Threats to Indian steel industry are more in comparison to the Chinese steel industry. Chinese
steel industry has major threat oI losing its cost competitive advantage because oI the sudden
shortage oI the labour. This is the huge threat to the Chinese economy as whole because oI which
all industries other than steel would also be severely aIIected. Second major concern Ior the steel
sector in China is increase in the global iron ore prices. As China is one oI the highest importing
nations oI iron ore in the world, increase in the iron ore prices by 80 to 90 would aIIects its
Iuture greatly in the international market. Indian steel industry had a major threats Irom the
Cheap Chinese Exports because oI which steel industries in India are greatly aIIected. China on

115
one hand purchase large quantity oI high quality oI cheap iron ore Irom India and then competes
with India in its own domestic market. But India is highly constrained because oI its coking coal
dependence on China.

116
CHAPTER: -7

CONCLUSION & RECOMMENDATIONS

From the research it can be concluded that growth oI an economy is directly related to the steel
production and consumption in that economy. Thus the growth oI Indian and Chinese economies
depends upon its steel production and consumption capabilities in the Iuture. Steel production in
the Iuture will be on the rise and will be produced at a much higher rate than the current rate.
Developing nations around the world are showing staggering rate oI development, oI which India
and China are placed at the top two positions.

The analysis oI the Indian steel industry highlights some oI the emerging trends in the Indian
steel industry. Today the growth in the demand is outstripping that in production and there is
tardy capacity increase in the integrated sector. Due to these trends there is high volatility and
intense upward pressure on prices oI the steel. Because oI these, there are stagnating exports and
quantum jump in the imports. As a result India emerged as a net importer as oI steel in 2007-
2008 with net import oI 5.50 MT. These trends have also resulted in the growth oI small scale
producers to bridge the gap between the demand and supply. By analyzing all the Iactors
associated with the Indian steel industry, it is expected that the in the Iuture the demand Ior the
steel would increase with the rate oI 15. Factors like rate oI inIrastructure development are
very high in the Iuture which will provide a boost to the steel industry. Backed up by all the
strengths and the opportunities available to the Indian steel industry, Indian steel industry in the
Iuture have the potential to become the second largest steel producer in the world.

117

Both Indian and Chinese steel industries are Iacing some serious problems which are restricting
their growth presently and in the Iuture. They have to start concentrating to minimize these
problems as soon as possible so as to Iully utilize their potentials. India should start working on
devising various strategies on how to popularize steel in the rural sector, as the present
consumption oI steel in the rural sector is only 3kgs as per the per capita GDP oI India where,
rural sector represents majority oI Indian population. This rate oI consumption is 50 times less
than the global consumption rate oI 150kgs. Problem oI low productivity in the Indian steel
industry should be careIully addressed as this would not only have an eIIect on the steel industry
but would also eIIects the as whole economy. Because oI its low productivity, Indian steel
industry is lagging behind the set targets and is not being able to completely utilize the Iull
investments made. The Indian government should start taking initiative to improve
inIrastructure which is essential Ior the steel production like expansion, modernization and
maintenance oI the ports, railways and roadways. Indian Government like other developed
nations should protect its domestic steel industry Irom the exposure oI the outer Iorces like cheap
imports Irom competing nations. For the overall health oI the Indian manuIacturing sector, steel
industry should be allowed to have a good return on investment and the exposure by the banks
and by other Iinancial institutions should be made available.

Today, Indian mining industry is governed by the Indian government and only some percentage
oI the mines is in the hand oI private sector. Indian government should start thinking about the
deregulation oI the mining sector like steel sector, which only was deregulated about two
decades ago. Mining conditions and technology in India are very obsolete and huge amount oI

118
investments in this sector is urgently required. For procuring the required quantity oI the various
minerals, detailed and scientiIic exploration is required in all the locations, known and unknown.

China the largest steel producing and consuming nation in the world is also Iacing some
problems that can jeopardize its Iuture steel production and in turn economic growth. The main
problem, which could constrain its growth in the Iuture, is losing its primary and the most
important advantage oI having low labor wages. Recently a new trend oI shortage oI labor has
emerged in China and is the primary cause Ior deep concern Ior the Chinese authorities. This
trend is not only aIIecting steel industry but is also aIIecting other related and unrelated
industries in China. Thus the government should start taking necessary actions to remove this
problem. They should attract workers by improving there working condition in manuIacturing
plants and by increasing their pay scales. China should Iind new ways to procure Iron ore Ior the
manuIacturing oI steel as China is one oI the biggest iron ore importers in the world and last Iew
years have seen the iron ore prices rise up by 80 to 90. Thus, the competition derive steel
industry is very price sensitive and cyclic and slight change in the global prices would lead to the
major crises in the steel industry.

Rapid globalization and Intense competition have given rise to a new trend oI Mergers and
Acquisitions in the last three Iour years. In the same time period every merger or an acquisition
had lead to Iorm a new world leader. Both Indian and Chinese steel industries are in the Iront oI
this completion primarily to expand, modernize and diversiIy their steel plants and to saIeguard
the Iuture interest oI their organizations. The trend oI consolidations would continue in the Iuture

119
as well and both Indian and Chinese steel companies should be ready to grab an opportunity
made available to them.

Both the Indian and Chinese steel industry are heavily investing as per the GDP, where china is
investing 45 oI it GDP in steel sector and India is investing 34 oI its GDP in the steel sector.
Steel industries oI both these nations have to play a critical role in the Iuture so that their
respective economies could possibly achieve their Iuture targets oI developments. Both the
nations should maintain their current percentage oI GDP investment in the Iuture Ior the
expansion and modernization oI their steel plants and should increase the percentage amount
with the increase in their level oI GDP. Thus it can be concluded that the growth oI the steel
industry is closely related to the growth oI the whole economy and a country should always have
a steel growth rate above its GDP growth rate so as to maintain the development level.

120

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APPENDIX-A

An idea of the condition of the roads from mines to the rail heads and the production area
in some of the areas can be estimated by the pictures below:-

Figure: - 1 (Source: -Ministry oI Shipping, Road transport and Highways 2008 & Indian Steel
Conclave 2008)

134

These are the condition of the roads from the mines in the state of Orissa
to the steel industries

Figure: -2(Source: -Ministry oI Shipping, Road transport and Highways 2008 & Indian Steel
Conclave 2008)

135

Relative Movement in International & Domestic Prices for the Re-bars (2007-08) is
tabulated below:-

Re-bars: International price vs Domestic Ex-Works Price ($/T)

Domestic FOB (CIS
Exports)
Oct-07 651 550
Nov-07 657 550
Dec-07 656 580
Jan-08 694 600
Feb-08 741 760
Mar-08 861 930
Apr-08 875 1000
May-08 787 1100
June-08 779 1260
Table: -1 (Source: - FICCI- Federation oI Indian Chambers oI Commerce and Industry 2008 &
Indian steel conclave 2008)

Source: - FICCI- Federation oI Indian Chambers oI Commerce and Industry 2008 & Indian steel
conclave 2008

Rebars: Comparison of InternationaI Price (FOB
Export CIS) and Domestic Ex-Works Price ($/T))
500
600
700
800
900
1000
1100
1200
1300
Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-
08
Apr-08 May-
08
Jun-08
P
r
i
c
e

(
$
/
T
)
Domestic Ex-Works
FOB Export (CIS)

136

Same situation s the Re-bars can be seen in the case of (HR) Hot Rolled steel. Relative
Movement in International & Domestic Prices for the HR (2007-08) is tabulated below:-

HR:International price vs Domestic Ex-Works Price ($/T)

Domestic FOB (CIS Exports)
Oct-07 641 610
Nov-07 645 610
Dec-07 637 620
Jan-08 657 620
Feb-08 706 790
Mar-08 763 1000
Apr-08 828 1000
May-08 779 1000
June-08 774 1065
Table: -2 (Source: - FICCI- Federation oI Indian Chambers oI Commerce and Industry 2008 &
Indian steel conclave 2008)

HR : Comparison of InternationaI Price (FOB Export CIS)
and Domestic Ex-Works Price ($/T))
500
600
700
800
900
1000
1100
Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08
P
r
i
c
e

(
$
/
T
)
Domestic Ex-Works
FOB Export (CIS)

137
APPENDIX-B

QUESTIONNAIRE

The following questions are about your experience of the steel industry in general, and in
India in particular. Your considered answers will greatly assist me in my research on this
industry for purposes of my Masters degree. Thank you for taking the time to answer
them. They have been divided into 7 different topics, as follows.

1. International Impact

What role is the Indian steel industry playing in the international scene?

In your opinion, what are the main reasons that in the recent years Asian players have out-
perIormed global majors?

2. National Developmental Impact

What are the expectations oI industry regarding Ioreign direct investments?

In the present time, when the Indian metal industry is trying to expand around the globe, how
important are mergers and acquisitions Ior the Indian steel industry?

For the current production oI 50 million tonnes, the requirement oI iron ore is 80 million out oI
which 8 million tonnes is scrap thus net is 72 million tonnes. But present the output oI the iron is
181 million tonnes. 90 million tonnes is exported directly without processing. When there are so
many opportunities to expand, why do you think India is still a large exporter oI raw or semi
Iinished goods, instead oI Iinished goods?

Is the Indian steel industry eIIiciently utilising its capacity? Why?

3. Role of Government

What are the contributions Irom the government to realise the great Indian steel dream? It is
expected that India will became the second largest exporter oI steel in around 10 years.

Are you happy with the tax structure associated with the steel industry as steel one oI the highest
tax paying industry?

What are the policies Iramed by the government?

Do you think government should increase the participation and involvement oI Private Sector at
the National Level Ior augmentation oI resources which has been very insigniIicant presently?

138
What progress is being made in the development oI relevant inIrastructure?

Are the port Iacilities suIIicient to handle the imports and exports in the Iuture?

4. Environmental Impact

There is increasing relevance oI sustainability levers as the steel industry is highest emitter oI the
Co2. Please comment.

Among all the industries, the steel industry produces largest amount oI carbon emission and
consumes the second largest amount oI energy. Please comment on how this may aIIect the
industry.

5. Relationship with China

How and in what ways is the Indian steel industry gearing up to Iight ever increasing cheap
Chinese exports?

How do Chinese exports remain the key to the stability oI world steel prices and production?

What eIIorts are being made to develop a sustainable base oI technology Ior the use oI low and
sub-grade ore like in China which uses iron ore with 45 Fe? This is in contrast to Indian steel
plants, use iron ore with a minimum oI 60 Fe.

6. Problems/Threats

What are the threats posed by the ever increasing cost oI inputs (80 rise in the iron ore and
200 rise in the coking coal)?

How is the industry preparing itselI Ior the curse oI the massive shortIall in power generation?
Today when India is the biggest producer oI proIessionals such as doctors and engineers, why is
this sector suIIering Irom the shortage oI skilled and trained man power? How does this aIIect
the prosperity oI the industry?

Why is there still limited availability in the advanced technology oI exploration? What is your
company doing in this regard?

Why is India largely dependent on the import oI coking coal even with the huge abundance oI
coal?

What are the main problems which restricts Indian steel exports?

139
7. Future
What are the impacts oI the mega deals oI 2007 on the Indian metal space? There were 5 multi
million dollar deals signed in 2007.

How important is the nuclear deal to the Indian steel industry, as it will serve the essential need
oI the industry?
What are the main concerns Ior the Indian steel industry presently and in the near Iuture?

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