STEEL INDUSTRY

CHAPTER 1

INTRODUCTION

It is common today to talk about "the iron and steel industry" as if it were a single entity, but
historically they were separate products. The steel industry is often considered to be an
indicator of economic progress, because of the critical role played by steel in infrastructural
and overall economic development

Steel Industry is becoming more and more competitive with every passing day. During the
period 1960s to late 1980s, the steel market used to be dominated by OECD (Organization for
Economic Cooperation and Development) countries. But with the fast emergence of
developing countries like China, India and South Korea in this sector has led to slipping
market share of OECD countries. The balance of trade line is also tilting towards these
countries.

INDUSTRY PROFILE

India is the fifth largest producer of steel in the world. India’s Steel Industry has grown by
leaps and bounds, especially in recent times with Indian firms buying steel companies
overseas. The scope for steel industry is huge and industry estimates indicate that the industry
will continue to grow reasonably in the coming years with huge demands for stainless steel in
the construction of new airports and metro rail projects. The government is planning a
massive enhancement of the steel production capacity of India with the modernization of the
existing steel plants.

Domestic Scenario

The Indian steel industry have entered into a new development stage from 2005-06, riding
high on the resurgent economy and rising demand for steel. Rapid rise in production has
resulted in India becoming the 5th largest producer of steel.

The scope for steel industry is huge and industry estimates indicate that the industry will
continue to grow reasonably in the coming years with huge demands for stainless steel in the
construction of new airports and metro rail projects. The government is planning a massive

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enhancement of the steel production capacity of India with the modernization of the existing
steel plants.

It has been estimated by certain major investment houses, such as Credit Suisse that, India’s
steel consumption will continue to grow at nearly 16% rate annually, till 2012, fuelled by
demand for construction projects worth US$ 1 trillion. The scope for raising the total
consumption of steel is huge, given that per capita steel consumption is only 40 kg –
compared to 150 kg across the world and 250 kg in China.

The National Steel Policy has envisaged steel production to reach 110 million tonnes by
2019-20. However, based on the assessment of the current ongoing projects, both in
greenfield and brownfield, Ministry of Steel has projected that the steel capacity in the county
is likely to be 124.06 million tonnes by 2011-12. Further, based on the status of MOUs signed
by the private producers with the various State Governments, it is expected that India’s steel
capacity would be nearly 293 million tonne by 2020.

Growth Potential of India’s Steel Industry

India has traditionally been one of the major producers of steel in the world. Till the 1990s
the steel industry of India was regulated and controlled by government policies. After the
economic reforms of the early 1990s, the Indian steel industry has evolved significantly to
conform to global standards.

India has set a vision to be an economically developed nation by 2020. The steel industry is
expected to play a major role in India's economic development in the coming years. The steel
industry of India has a very high growth potential and is expected to register significant
growth in the coming decades. India is expected to emerge as a strong force in the global steel
market in coming years.

Steel Producers
Broadly there are two types of producers in India viz. integrated producers and secondary
producers. Integrated steel producers have traditionally integrated steel units have captive
plants for iron ore and coke, which are main inputs to these units. Currently there are three
main integrated producers of steel namely Steel Authority of India Limited (SAIL), Tata Iron

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and Steel Co Ltd (TISCO) and Rashtriya Ispat Nigam Ltd (RINL). SAIL dominates amongst
the three owing to its large steel production capacity plant size.

Secondary producers use steel scrap or sponge iron/direct reduced iron (DRI) or hot
briquetted iron (HBI). It comprises mainly of Electric Arc Furnace (EAF) and Induction
Furnace (IF) units, apart from other manufacturing units like the independent hot and cold
rolling units, rerolling units, galvanizing and tin plating units, sponge iron producers, pig iron
producers, etc. Secondary producers include Essar Steel Ltd., Ispat Industries Ltd., and JSW
Steel Ltd. There are 120 sponge iron producers; 650 mini blast furnaces, electric arc furnaces,
induction furnaces and energy optimizing furnaces; and 1,200 re-rollers in India.

The integrated producers constitute most of the mild steel production in India. Their main
products include flat steel products such as Hot Rolled, Cold Rolled and Galvanised steel.
They also produce long and special steel in small quantities. On the other, secondary
producers largely produce long steel products. Re-rollers are the units that come under
secondary producers’ category, and produce small quantity of steel like long and flat
products. These units either procure their inputs from the market or through their backward
integrated plants. They use sponge iron, pig iron or combination to produce finished steel or
ingots .

Global steel production:

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Industry-Statistics
Government targets to increase the production capacity from 56 million tones annually to 124
MT in the first phase which will come to an end by 2011 - 12. Currently with a production of
56 million tones India accounts for over 7% of the total steel produced globally, while it
accounts to about 5% of global steel consumption. The steel sector in India grew by 5.3% in
May 2009. Globally India is the only country to post a positive overall growth in the
production of crude steel at 1.01% for the period of January - March in 2009.

The liberalization of industrial policy and other initiatives taken by the Government have
given a definite impetus for entry, participation and growth of the private sector in the steel
industry. While the existing units are being modernized/expanded, a large number of
new/greenfield steel plants have also come up in different parts of the country based on
modern, cost effective, state of-the-art technologies.

Investments in Indian steel industry.

Even if we look into the type of investments that have happened after recession in India we
get very impressive an bullish outlook on the sector.

 According to the Investment Commission of India investments of over US$ 30 billion

in steel are in the pipeline over the next 5 years.
 Very recently Tata Steel has raised US$ 500 for its expansion of Jamshedpur plant
and overseas mining projects.
 Many Steel companies have committed US$ 122.50 million for setting up sponge iron
units in Koppal and Bellary in Karnataka.
 Even SAIL have declared that they will invest US$ 724.12 million to set up a 4-
million tonne per annum steel mill at its Bhilai Steel Plant.
 Uttam Galva Steel plans a capital expenditure of US$ 62.8 million-US$ 104.6 million
over the next two years for setting up of a 60 MW power plant. The power plant will
help reduce its production costs.

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Imports of Steel

 Steel is freely importable as per the extant policy.

 Last five years import of Finished (Carbon) Steel is given below:-

Year Qty. (In Million Tonnes)

2004-2005 2.109
2005-2006 3.850
2006-2007 4.436
2007-2008 6.581
2008-2009 5.149

Exports
About 50% of the steel produced in India is exported. India's export of steel during April -
December 2008 was 64.4 MT as against 9.7 MT in December 2007. In February 2009, steel
export increased by 17% to 12.6 MT from 10.8 MT in the same month last year. More than
50% of steel from India is exported to China. The Government's decision to reduce export
duty on iron ore lumps from 15% to 5% has given a major boost to the export of steel.

Fortune of steel prices in 2010.

 Steel prices are set to go up from January 2010 due to increase in raw material costs,
like iron ore and metal scrap.
 Led by demand from China, prices of iron ore—the key raw material for pig iron—
has gone up sharply over the past two months to $106 per tonne from almost $81-$82
per tonne.
 Coking coal prices have also gone up to $165-$170 per tonne from $128 per tonne as
China imported more coking coal this year.

If we look into the distribution of iron ore inventories we find:

 According to a report by industry consultancy, this week, iron ore inventories at

China's major ports rose by 830,000 tonnes to end at 66.75 million tonnes,
 While stockpiles of ore originating from Brazil increased by 180,000 tonnes to 19.1
million tonnes, and Indian ore rose by 830,000 tonnes at 13.18 million tonnes.
 Australian ore inventories fell by 480,000 tonnes to end at 21.95 million tonnes by the
end of the week.

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 Chinese iron ore prices remained steady, the average price of imported iron ore
increased by 2.3%. Iron ore prices are 25.8% higher than December 2008.

Sector structure/Market size

The steel industry in India has been moving from strength to strength and according to the
Annual Report 2009-10 by the Ministry of Steel, India has emerged as the fifth largest
producer of steel in the world and is likely to become the second largest producer of crude
steel by 2015-16.

Recently, Steel Minister, Mr Virbhadra Singh said that India will become the world's second-
largest steel producer by 2012, more than doubling its capacity to 124 million tonnes (MT) as
part of the push being given to assist overall infrastructure development.

Short Range Outlook:

In 2011, it is forecast that world steel demand will grow by 5.3% to reach a historical high of
1,306 mmt. The resilience of the emerging economies, especially China, has been the critical
factor enabling the earlier than expected recovery of world steel demand.

India’s steel demand maintained stable growth during the crisis and is expected to grow by
13.7% in 2011 respectively, after 7.7% in 2009. In 2011, India’s apparent steel use will reach
71.6 mmt.

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EVOLUTION

At the time of independence, India had a small Iron and Steel industry with production of
about a Million tonnes (mt). In due course, the government was mainly focusing on
developing basic steel industry, where crude steel constituted a major part of the total steel
production. Many public sector units were established and thus public sector had a dominant
share in the steel production till early 1990s. Mostly private players were in downstream
production, which was mainly producing finished steel using crude steel products. Capacity
ceiling measures were introduced.

Basically, the steel industry was developing under a controlled regime, which established
more public sector steel companies in various segments. Till early 1990s, when economic
liberalization reforms were introduced, the steel industry continued to be under the control of
Indian Government, regulation were constituted such as large plant capacities were reserved
only for public sector under capacity control measures; price regulation; for additional
capacity creation producers had to take license from the government; foreign investment was
restricted; and there were restrictions on imports as well as exports.

But after liberalization many reforms and regulation were changed which brought the new era
for development in steel industry. Some of the major developments were:
1. Large plant capacities that were reserved for public sector were removed;
2. Export restrictions were eliminated.
3. Import tariffs were reduced from 100 percent to 5 percent;
4. Decontrol of domestic steel prices;
5. Foreign investment was encouraged, and the steel industry was part of the high
priority industries for foreign investments and implying automatic approval for
foreign equity participation up to 100 percent; and
6. System of freight ceiling was introduced in place of freight equalization scheme.

Due to this, the domestic steel industry has since then, become market oriented and integrated
with the global steel industry. This has helped private players to expand their operations and
bring in new cost effective technologies to improve competitiveness not only in the domestic
but also in the global market.

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Key Events
 1907*: Tata Iron and Steel Company set up.
 1913: Production of steel begins in India.
 1918: The Indian Iron & Steel Co. set up by Burn & Co. to compete with Tata Iron
and Steel Co.
 1923*: Mysore Iron and Steel Company set up
 1939*: Steel Corporation of Bengal set up
 1948: A new Industrial Policy Statement states that new ventures in the iron and steel
industry are to be undertaken only by the central government.
 1954: Hindustan Steel is created to oversee the Rourkela plant.
 1959: Hindustan Steel is responsible for two more plants in Bhilai and Durgapur.
 1964: Bokaro Steel Ltd. is created.
 1973: The Steel Authority of India Ltd. (SAIL) is created as a holding company to
oversee most of India's iron and steel production.
 1989: SAIL acquired Vivesvata Iron and Steel Ltd.
 1993: India sets plans in motion to partially privatize SAIL.
*- new company set up

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MERGERS AND ACQUISITIONS:

On the consolidation front, the steel industry was focused on Mittal’s bid to gain control over
Arcelor. As of July 2006, it appears that Mittal has won its takeover effect for Arcelor, after a
protracted wooing. Mittal’s victory in the battle for global steel industry control is giving the
steel industry a new direction. The world’s number one and two producers have combined
and this will go a long way to push consolidation. The now combined Arcelor- Mittal would
produce more 10 percent of the world output, close to 100 million tons of steel. This would
give an increased pricing power for producers and suppliers, and decrease the fragmentation.
We expect more M&A transactions to occur, with large players buying up the smaller players.
Currently it appears to be that Arcelor laid its weapons, which were out before to defend itself
from being acquired by Mittal, though Mittal has proven itself to be an earnest and hard-to-
shake-off suitor.

Arcelor-Mittal have become the largest steelmaker in the world by turnover as well as by
volume. In early 2006, Arcelor had contacted the Russian steel maker Severstal for a rival
merger, in order to fend off Mittal’s hostile takeover bid, but it was unsuccessful in doing so.
Alexey Mordashov, the owner of Severstal, reacted to the hostile takeover by marching back
to Moscow, to wait and strike when the time is right. After the takeover, Mordashov stated:
“Severstal is reviewing all its options”. This indicated that Severstal might fight Mittal, but no
resistance was seen. Mordashov was planning to collaborate with Roman Abramovich (a
wealthy Russian billionaire with diverse business interests) to raise his offer for Arcelor but
decided to go back and conduct his business at Severstal. A possible candidate for
Mordashov’s future takeover bid would be Corus of UK.  It can be envisaged that in the
medium term that there will be a handful of companies that will control about 1/3 of the
global steel production

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CHAPTER 2
GOVERNMENT POLICY AND REGULATIONS
The Government has also approved the National Steel Policy (NSP) in November 2005. The
long-term goal of the NSP is for India to have a modern and efficient steel industry of world
standards. The focus of the policy would therefore be to achieve global competitiveness not
only in terms of cost, quality and product-mix but also in terms of global benchmarks of
efficiency and productivity.

The policy targets to increase steel production at a compounded annual growth rate of 7.3%
to 110 mt by 2019-2020. It projects domestic consumption to grow at annual growth rate of
6.9% to 90 mt during this period. The policy envisages the share of exports to increase to
25% from present share of 11%.

The government would also encourage investments in creation of an additional modern iron
ore mining and beneficiation capacity of 200 mt. under this policy Recent increase in
infrastructure spending is also expected to have a positive impact on the steel demand. Major
investments planned in infrastructure sector are, national highway network, major ports, and
airports. The Government also proposes to undertake measures to promote usage of steel in
bridges, crash barriers, flyovers and building construction. 100% FDI is allowed under the
automatic route for metallurgy and processing of all metals.

Government Initiative

As per the Press Information Bureau, during 2009, the government took a number of fiscal
and administrative steps to contain steel prices. Central value added tax (CENVAT) on steel
items was reduced from 14 per cent to 10 per cent with effect from February 2009.

Moreover, in the Union Budget 2010-11, the government has allocated US$ 37.4 billion to
the infrastructure sector and has increased the allocation for road transport by 13 per cent to
US$ 4.3 billion which will further promote the steel industry.

Exchange rate used:

1 USD = 46.36 INR (as on February 2010)

1 USD = 44.42 INR (as on April 2010)

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CHAPTER 3

Top ten companies

 Tata Steel Ltd

 SAIL

 J S W Steel Ltd

 Jindal Steel & Power Ltd

 Ispat Industries Ltd

 Welspun-Gujarat Stahl RohrenLtd

 J S L Ltd

 Bhushan Steel Ltd

 Uttam Galva Steels Ltd

 K E C International Ltd

Company

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TATA STEEL LTD

Tata Steel

Type Public (BSE: 500470)

Industry Steel

Founded 1907

Headquarters Mumbai, India

Area served Worldwide

Key people Ratan Tata (Chairman)

B Muthuraman (Vice Chairman)
HM Nerurkar(MD)

Products Hot and cold rolled coils and sheets

Wire and rods
Construction bars
Pipes
Structurals and forging quality steel

Employees 81,269 (2010)

Parent Tata Group

Website TataSteel.com

Company Profile

Formerly known as TISCO and Tata Iron and Steel Company Limited, is the world's
seventh largest steel company, with an annual crude steel capacity of 31 million tonnes. It is
the largest private sector steel company in India in terms of domestic production. Ranked
258th on Fortune Global 500, it is based in Jamshedpur, Jharkhand, India. It is part of Tata
Group of companies. Tata Steel is also India's second-largest and second-most profitable

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company in private sector with consolidated revenues of Rs 1,32,110 crore and net profit of
over Rs 12,350 crore during the year ended March 31, 2008

Its main plant is located in Jamshedpur, Jharkhand, with its recent acquisitions; the company
has become a multinational with operations in various countries. The Jamshedpur plant
contains the DCS supplied by Honeywell. The registered office of Tata Steel is in Mumbai.
The company was also recognized as the world's best steel producer by World Steel
Dynamics in 2005. The company is listed on Bombay Stock Exchange and National Stock
Exchange of India, and employs about 82,700 people (as of 2007).

Managing a global workforce and setting global benchmarks is primarily about managing
diversity. In a process of inclusive growth, every person contributes to the blueprint of the
future and is truly committed to the stated objectives. And one of the key requisites for
successful diversity management is a shared vision.

Tata Steel Today…

The Tata Steel Group has always believed that mutual benefit of countries, corporations and
communities is the most effective route to growth. Tata Steel has not limited its operations
and businesses within India but has built an imposing presence around the globe as well. With
the acquisition of Corus in 2007 leading to commencement of Tata Steel's European
operations, the Company today, is among the top ten steel producers in the world with an
existing annual crude steel production capacity of around 30 million tones per annum and
employee strength of above 80,000 across five continents. The Group recorded a turnover of
Rs.147, 329 Crores (US$ 28,962 million) in 2008 - 2009. The Company has always had
significant impact on the economic development in India and now seeks to strengthen its
position of pre-eminence in international domain by continuing to lead by example of
responsibility and trust.

Tata Steel’s overseas ventures and investments in global companies have helped the
Company create a manufacturing and marketing network in Europe, South East Asia and the
Pacific-rim countries. The Group’s South East Asian operations comprise Tata Steel

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Thailand, in which it has 67.1% equity and Nat Steel Holdings, which is one of the largest
steel producers in the Asia Pacific with presence across seven countries.

Given below is an outline of Tata Steel's operations in Europe and South East Asia.

Corus is Europe’s second largest steel producer. With main steelmaking operations in the UK
and the Netherlands, Corus supplies steel and related services to the construction, automotive,
packaging, mechanical engineering and other markets worldwide. Corus comprises three
operating Divisions, Strip Products, Long Products and Distribution & Building Systems and
has a global network of sales offices and service centers, employing around 37,000 people
worldwide.  (www.corusgroup.com)

Headquartered in Bangkok, Tata Steel Thailand is a major steel producer in Thailand and is
the largest producer of long steel products with a manufacturing capacity of 1.7 mtpa.
(www.tatasteelthailand.com)

 Vision and Mission

The long journey of Tata Steel has seen the Company re-define its performance parameters in
a number of ways to become the global steel industry benchmark for value creation and
corporate citizenship. It ensures a total commitment to its ethical business practices and a
people oriented vision.

Vision

 We aspire to be the global steel industry benchmark for

Value Creation and Corporate Citizenship.

We make the difference through our:

 People, by fostering team work, nurturing talent, enhancing leadership capability and
acting with pace, pride and passion.

 Offer, by becoming the supplier of choice, delivering premium products and services,
and creating value for our customers.

 Innovative approach, by developing leading edge solutions in technology, processes

and products.

 Conduct, by providing a safe working place, respecting the environment, caring for
our communities and demonstrating high ethical standards.

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 Mission

Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives to
strengthen India’s industrial base through the effective utilization of staff and materials. The
means envisaged to achieve this are high technology and productivity, consistent with modern
management practices.

Tata Steel recognizes that while honesty and integrity are the essential ingredients of a strong
and stable enterprise, profitability provides the main spark for economic activity.

Overall, the Company seeks to scale the heights of excellence in all that it does in an
atmosphere free from fear, and thereby reaffirms its faith in democratic values.

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BHUSHAN STEEL LTD

Bhushan Steel

Type Private

Industry Steel

Headquarters India

Key people Brij Bhushan Singhal (Chairman)

Neeraj Singhal
(Managing Director)

Products Cold rolled, galvanised, Bhushan Galume, colour coated tiles,

drawn tubes, strips, wire rods, alloy billets, sponge iron

Revenue Rs. 4202 crore

Website www.bhushan-group.org

Bhushan Steel is the largest manufacturer of auto-grade steel in India and is spending Rs.
260 billion to expand its capacity to 12 million tonnes annually, from the present installed
capacity of around one million tonnes.

Having made a modest beginning in 1978, Mr. Vijay Kumar Dadu and Mr. Parveen Kumar
Dadu, the founders of Bhushan Steel Corporation have developed state of the art
manufacturing facilities for global tractor and auto industry.

With Mr. Vijay Kumar Dadu's dynamism, inspiring leadership and vision, Bhushan Steel
Corporation has grown into a giant in producing high quality tractor and auto parts. With

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persistent research and development on quality of the products manufactured for tractors and
Auto industry the best which has enabled the company to be accredited by ISO 9001 : 2008
certification by British Standards institution (U.K.).

Company has achieved impeccable reputation in terms of reliability, quality & delivery and
thus in last three decades Bhushan Steel Corporation has emerged as first choice supplier of
premier manufacturers of tractors such as OEMs (Original Equipment Manufacturers) such as
international Tractors Ltd. Hoshiarpur (Punjab), Indo Farm Industries Ltd. Baddi, (H.P.) and
auto part industries in india & abroad.

The company has installed latest and imported machines at our works to create state of art
manufacturing facility. Their products in Bax and Bax Gold Trademark have achieved a
phenomenal acceptance both in the domestic and global market.

Mission

“Our mission is to grow our company by providing innovative strong and high
performance products and solutions to meet our global customer needs.”

Vision

“The vision of evolving into a totally Integrated Steel Producer by committing to achieve the
highest standards of Quality through Cutting-Edge Technology

VISION

 About Culture: “to make it a place where all the people can thrive living, learning
and working in a clean, safe and healthy environment.”
 About Values: ”to corporate values as “the rules or guidelines by which a corporation
exhorts its members to behave consistently with its order, security and growth.”
 About People: “See the good in people and try to develop those qualities” i.e
preparation and grooming of the next generation of the young thinkers.

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 About Customers: “Sell good merchandise at reasonable price: treat our customer
like we would treat our friends and the business will take care of itself. Bhushan
steel’s endeavor is to attain the highest level of satisfaction.”
 About Products: “we should always be the pioneers with our products- out front
leading the market.”

CHAPTER 4

SWOT ANALYSIS

Strengths

 Availability of labour at low wage rates.

 Availability of huge resources of raw materials.

 Good brand image of Indian steel makers.

Weaknesses

 Lack of infrastructure.
 Skilled labour deficiency.
 Insufficient logistics.
 Capital investment is huge.

Opportunities

 Export market penetration

 Increasing demand.
 Investments by the state governments in infrastructure

Threats

 Cheap Imports
 Technological change

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 Price sensitivity and demand volatility

 Threat from substitutes
 Huge bottlenecks in foreign invested projects

CONCLUSION

During the 20th century, consumption of steel increased at an average annual rate of 3.3 per
cent. Steel consumption increases when economies are growing, as governments invest in
infrastructure and transport and build new factories and houses.

The changing needs coupled with high degrees of competition in B2C segment make
innovation and differentiation a necessity. Now there is nothing like generic steel and generic
varieties that are manufactured by everyone. The raw materials are the same but the output is
not the same with every manufacturer.

Steel was considered a commodity but that perception is changing gradually. Uniqueness of
brands is being communicated to customers through the inherent attributes of the products
and the value added to them, to the society through the manufacturing processes and the
channel partners through the design of the channel. Hence, there is a conscious effort from
manufacturers, especially primary players with integrated steel plants, to brand not just
products but also their channels.

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