INDIAN STEEL INDUSTRY

Presented by:
Pankaj Singh
Ravikant Tiwari
Suman Roy
Swati Arora
Swati Kamra

INTRODUCTION

Steel is crucial to the development of any

modern economy and is considered to be
the backbone of human civilisation.
It is a product of a large and
technologically complex industry having
strong forward and backward linkages in
terms of material flows and income
generation.
2

HISTORY

Source: IISI

Stages in Global Production of Steel

Global Steel Industry

The current global steel industry is in its best position in comparing

to last decades. The price has been rising continuously.
The demand expectations for steel products are rapidly growing for
coming years. The shares of steel industries are also in a high pace.
The subprime crisis has lead to the recession in economy of
different countries, which may lead to have a negative effect on
whole steel industry in coming years.
However steel production and consumption will be supported by
continuous economic growth.
4

INDIAN STEEL GROWTH

Slowly and steadily

Steel industry reforms particularly in 1991 and 1992 have led to strong and sustainable growth in Indias steel
industry.
Since its independence, India has experienced steady growth in the steel industry, thanks in part to the successive
governments that have supported the industry and pushed for its robust development.

Confidence
Stagna
tion

Decontrol
Controlled
Regime

1951

1981

2005

BASED ON OWNERSHIP

PUBLIC

SAIL
VISAKHAPATNAM STEEL PLANT
FERRO SCRAP NIGAM LIMITED
BIRD GROUP OF COMPANIES
SPONGE IRON INDIA LIMITED
MECON LIMITED
BHARAT REFRACTORIES
LIMITED

PRIVATE

TATA-CORUS
ESSAR
ISPAT
JSW STEEL LIMITED
MUKAND LIMITED

Steel production in india

Indian steel industry is poised for rapid growth.

Indias share in world production of crude steel
increased from 1.5% in 1981 to around 7.3% in
2008.
The private sector is considered engine of
growth in the steel industry and technological
changes and modernization are taking place in
both the public and the private sector integrated
steel plants in India.

AVERAGE COST AND ECONOMIES OF SCALE

Economies of scale are the cost advantages

that a business obtains due to expansion.
the average cost of production of
the firm decreases as the output
level increases
the firm would like to be at the
minimum average cost point
the average cost is higher in long
run than short run and company
makes higher profit producing
higher and higher levels of
outputs .

Average cost

C
C1
Q

Q1

output

The increase in output from Q to Q2

causes a decrease in the average
cost of each unit from c to C1.

Contd..

Suppose in TATA STEEL , the average cost per

ton of steel at the minimum average cost point
with the larger blast furnace may be 20 percent
less than the average cost at the minimum average
cost point with smaller blast furnace.
Due to technological constraints the average cost
is assumed to start rising at some output level
even in the long runthat is, the average cost
curve is U-shaped even in the long run.

DEMAND OF STEEL

Driven by a booming economy and

concomitant demand levels, demand of steel
has grown by 12.5 per cent during the last
three years, well above the 6.9 percent
envisaged in the National Steel Policy.
Demand of Steel amounted to 53.10 mt in
2007-08 compared to 49.50 mt in 2006-07,
recording a growth rate of 7.3 per cent, which
is higher than the world average.

ELASTICITY OF DEMAND OF STEEL

PRICE OF
STEEL

INELASTIC DEMAND

P
1
O

Q1

DEMAND OF STEEL

SUPPLY OF STEEL

India is the worlds fifth largest steel producer

and its share is 3% plus in global steel output
which is still very low.
China, the worlds biggest steelmaker,
produces nearly ten times as much as India.
Over the past ten years Indias crude steel
output rose nearly 7%per year to 55.3 million
tons , while global crude steel output increased
by 4% .

DEMAND SUPPLY MISMATCH

India is one of the worlds top ten steelmakers its

domestic output is insufficient to meet the demand
in all segments.
Consumption of steel is very fast and as a
consequence of the prospective dynamic economic
growth.
Secondly, there is demand for high-quality products
which India will not be able to supply in sufficient
quantities for the foreseeable future.

MARKET ANALYSIS

Concentration ratio of an industry is an indicator of the relative

size of firms in relation to the industry as a whole.
The 4 firm concentration ratio of the Iron and Steel Industry is
71%.
Both homogenous product or product differentiation are possible
There is a price war and price rigidity
Price output decisions are very difficult and indeterminate.
This implies that there is oligopoly in the industry as it is
dominated by few major players

Export & Import of Steel in India

Exports have grown fast and at a rate exceeding 25% per annum between 199192 and 2002-03. Thereafter, till 2006-07export levels stagnated at around 4-4.5
Million Tonnes per year.
On the other hand, imports followed a different growth path. In spite of progressive
reduction in customs duty levels after deregulation, imports remained around 1-2
Million Tonnes per year till 2003-04 and rose rapidly in the last two fiscals.

SUBSIDIES AND ISSUES OF COMPETITIVENESS

India does not provide direct subsidies for exports, although indirect
subsidies on the nature of exemption from tax and import duty are
provided.

The Government of India implements the Export Promotion of Capital

Goods (EPCG) scheme which provides for a reduction or exemption
of customs duties and an exemption from excise taxes on imports of
capital goods. The EPCG scheme has been countervailed in the US,
Canada, as well as the EU.

16

SUBSIDIES AND ISSUES OF COMPETITIVENESS

The income-tax benefits-related export activities are incorporated in

sections 80HHC, 10A and 10B of the Income Tax Act.

The reserve bank of India has accordingly issued directions to

commercial Banks to provide export credit both at pre- and postshipment stages.

India also administers a number of duty drawback schemes that

allow for the remission or drawback of import charges levied on
inputs that are consumed in the production of an exported product.
Schemes such as duty Entitlement pass book Scheme (DEPB) and
Duty free Replenishment certificate (DFRC) fall under this category.

17

ECONOMIC PARAMETERS ARE FAVOURABLE

PERFORMANCE PARAMETERS
Forex Reserve

GOOD

Overall GDP
External Debt

FUTURE OUTLOOK

Financial Reforms
New Investment
FDI Inflows

Service sector Growth

Savings
inflation

Industrial Growth
Economic reforms
Internal Debt
Fiscal Deficit
Agricultural Growth

BAD

CURRENT PERFORMANCE

GOOD
18

Source : Citigroup estimates

MERGERS & AQUISITIONS

Arcelor - Mittal
32.2bn$ deal
Mittal pips Severstal

Tata-Corus
11.3bn$ deal
Tatas pip CSN

19

SWOT ANALYSIS

Strengths

Weaknesses

1. Availability of iron ore and coal

2. Low labour wage rates
3. Abundance of quality manpower
4. Mature production base

1. Unscientific mining
2. Coking coal import dependence
3. Low R&D investment
4. Inadequate infrastructure

Opportunities

Threats

1. Unexplored rural market

2. Growing domestic demand
3. Exports
4. Consolidation

1. China becoming net exporter

2. Protectionism in the West
3. Dumping by competitors
4. Global economic slowdown

20

FACTORS HOLDING BACK THE INDIAN STEEL INDUSTRY

Energy supply
Problems procuring raw material inputs
Inefficient transport system
RECENT FINANCIAL CRISIS AND INDIAN STEEL
INDUSTRY

21

IN SUMMARY..

Indian steel industry exudes optimism but crisis should get

over as soon as possible.
Investment in infrastructure is crucial to step up demand
for steel.
Supply may have to be rationalized in line with the demand
(Dom + exports).
Integrated Mills would hold the key in future growth of
Indian Steel supplies.
New technologies to use indigenous natural resources
would have to be developed.
22

THANK YOU

23