Study of Indian Iron and Steel Industry

Submitted to Prof Samik Shome

Finance µD¶ Group 10 Hemanth Kumar (10SBCM0327) Prachi Jain (10SBCM0285) Radha Binigeri (10SBCM0222) Som Shankar (10SBCM0478) Sudeep Reddy (10SBCM0296)

Acknowledgement
We wish to express our sincere gratitude to our faculty Prof Samik Shome, Alliance Business School, who has assisted and guided us throughout the project on study of ³Indian Iron and Steel Industry´ and helped us in all possible ways to successfully complete it. We would also thank our Institution and other faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

Last but not least, our friends for sharing their ideas, thoughts and inputs to improve the quality of this project.

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Executive Summary
Technological innovations have served as the differentiating factors to the technologically strong companies. The Indian steel industry which enjoys participation from both public sector and private sector enterprises is one of the fastest growing markets for steel and is also progressively looking towards exports as compelling the growth of the industry. Trade in steel products has been on the rising with the production facilities of both the developed and the developing countries harmonizing with each other in the making of steel of different grades and specialty for the world market. In this report, we have attempted to analyze the Indian Steel Industry focusing on each and every aspect of the industry. Beginning with an analysis of the competitiveness of the industry to the production/consumption scenario of the industry, this report analyzes the Indian Steel Industry through the marketing initiatives of the top players in the Iron & steel market and a PEST framework analysis. The report also throws light on the mergers & acquisition scenario in the industry as well and with prominence on the restructuring of the Indian Steel industry. An analysis of the economic development of the country is also attempted with respect to the performance of the steel industry. The analysis of the major players in the Indian Iron & Steel Industry lends a final touch to the completion of this comprehensive report.

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Contents

Chapter 1: Introduction to Iron and steel Industry Chapter 2: Literature Survey Chapter 3: The Analysis
3.1: Market Overview 3.1.1: Market Exploration 3.1.2: Market Value and Volume 3.1.3: Global ranking of Indian Steel 3.1.4: Asia Pacific Market Segmentation 3.2: Indian Steel Industry Market-Share 3.2.1: Production, Consumption and Growth of Steel 3.3: Industry Segmentation of Steel Sector 3.4: Competition in Indian Steel Industry 3.5: Business Diversification 3.6: Policy Framwork 3.7: Mergers and Acquisitions 3.7.1 Acquisitions by TATA Steel 3.7.2 : Acquisitions by SAIL 3.7.3 : Acquisitions by Arcelor Mittal 3.7.4 : Acquisitions by Jindal Steel 3.7.5 : Acquisitions by NMDCL 3.7.6 : Rashtriya Ispat Nigam Limited 3.7.7 : ISPAT Industries Ltd 3.8 International Exposure: Imports and Exports 3.8.1 : Export 3.8.2 : Import 3.9: Research and Development 3.9.1 : Research and development: SAIL 3.9.2 : Research and development :TATA Steel 3.9.3 : Research and development: ESSAR Steel 3.9.4 : Research and development:JSW Steel 3.10: Marketing initiatives 3.10.1 : Marketing initiatives of TATA steel 3.10.2 : Marketing initiatives of ISPAT Steel 3.10.3 : Marketing initiatives of JAW Steel 3.10.4 : Marketing initiatives of ESSAR Steel 3.10.5 : Marketing initiatives of SAIL 3.11: Future Outlook 3.11.1 : Growth Potential 3.11.2 : Factors Holding Back The Indian Steel Industry 3.12: Comparison with China and Other Countries 3.12.1 : Top 10 steel-producing countries 3.12.5 : Share of world crude steel production 2009, 2010 3.12.6 : Chinese Steel Industry 3.12.7 : Indian Steel Industry

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Chapter 4: Conclusion Chapter 5: References

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Chapter 1: Introduction

India¶s economic growth is highly dependent upon the growth of the Indian steel industry. Consumption of steel is considered to be an indicator of economic development. While steel continues to have a strong base in traditional sectors such as construction, housing and ground transportation, special steel is increasingly being used in engineering industries such as power generation, petrochemicals and fertilisers. India achieves a central position on the global steel map, with the establishment of new state-of-the-art steel mills, acquisition of global scale capacities by players, continuous modernisation and up gradation of older plants, improving energy efficiency and backward integration into global raw material sources. Indian Steel production has increased by a compounded annual growth rate (CAGR) of 5.5 percent over the period 2005-06 to 2009-10. Moving forward, growth in India is projected to be higher than the world average, as the per capita consumption of steel in India, at around 47 kg, is well below the world average (150 kg) and that of developed countries (400 kg).

Given the strong demand scenario, most global steel players are expanding by increasing their capacity, either through brown field or greenfield route. By 2012, India is expected to touch the capacity of 124 million tonnes of steel production and by 2020 it is expected to achieve a capacity of 275 million tonnes. While greenfield projects are slated to add 28.7 million tonnes, brownfield expansions are estimated to add 40.5 million tonnes to the existing capacity of 55million tonnes. Globally Steel is manufactured as a tradable product with no major trade barriers across national boundaries to be seen currently. The restrictions of government policies have been negligible worldwide and even if there are any, the same to respond to specific conditions in the market have always been temporary. Therefore, the industry in general and at the global level is unlikely to throw substantive competition issues in any national policy framework. Further, there exist no natural monopoly characteristics in steel. Therefore, certain complex competition issues, one should not expect as those witnessed in industries like telecom, electricity, natural gas, oil, etc. However, at the same time, this does not mean that there is no severe competition issue in the steel industry. The consolidation in the steel industry growing worldwide through mergers and acquisitions has already indicated significant concerns. On the other hand, the set of large firms that represents the industry has been changing over a period of time. Subsidies, non-tariff barriers to trade and discriminatory customs duty (on exports and
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imports) may bring in significant distortions in the domestic market and in the process alter the competitive positioning of individual players in the market. The role of the state in creating market distortion and thereby the market competitive conditions are a well-known issue in this country.

This study finds very little evidence or traces regarding cartelization or joint pricing behaviour on the part of the incumbents. It uncovers that government intervention and slow responsiveness to the changing conditions has contributed to shortages in the past, which in turn leads to action by the incumbents that may seem to be anti-competitive behaviour. Irregular access to raw material as well as export/import curbs is the key issues affecting the creation of a level playing field. It is the last two along with ready availability of information at costs and prices across the value chain that could warrant some action by the regulator. Highlights of Steel Industry 2009-10
y

Currently, India is the 5th largest producer of crude steel in the world and is expected to become the 2nd largest producer of crude steel in the world by 2015-16.

y

India also maintained its elite position as the world's largest producer of direct reduced iron (DRI) or sponge iron with around 21 million tonne production in 2008-09.

The industry scenario as compared to same period of2008-09, during April-December 2009-10 (provisional) are as follows:
y

Crude steel production was at 45.775 million tonne, a growth of 4 per cent. The Main Producers produced 17.35million tonne during this period, which was a growth of 5.5 per cent compared to last year. The Major Producers produced 9.835 million tonne during this period, which was a growth of 27.9 per cent compared to last year. The contribution of the other Producers was the rest i.e. 18.59 million tonne, which was a decline of 6.4 per cent compared to last year

y

Pig iron production for sale in April - December 2009-10 was 4.248 million tonne, a 13 per cent decline over same period of last year. The Main Producers accounted for only 14 per cent of the share, the rest (86%) being the share of the Major and Other Producers.

y

In case of total finished steel (alloy + non-alloy) during April - December 2009 :
o Steel production for sale was at 43.849 million tonne (mt), which showed a

growth of 3.2 per cent with respect to last year

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o Exports of steel decreased by 36 per cent as it reached an estimated 2.099 million

tonne while steel imports were at an estimated 5.21 million tonne, a growth of 16.6 per cent
o India remained a net importer of steel.

o Domestic steel consumption was at 40.997 million tonne and increased by 7.8 per
cent, indicating further strengthening of demand.

Global Scenario
The production of crude steel reached 1,414 million metric tons (mmt) for the year 2010 worldwide. This is an increase of 15% compared to 2009 and is a new record for global crude steel production. The major steel-producing countries exhibited a double-digit growth in 2010. The reason attributed to the higher growth rates in USA & EU was the lower base effect from the preceding year while Asia and the CIS recorded relatively lower growth. In December 2010, production of steel for the 66 countries which report to the World Steel Association (world steel) was 116.2 mmt, an increase of 7.8% compared to December 2009. The crude steel capacity utilisation ratio of these countries in December 2010 showed a trivial decline to 73.8% compared to 75.2% in November 2010. There has been a 1.1 points increase in the utilisation ratio in December 2010 when compared to December 2009.

Annual production for Asia was 881.2 mmt of crude steel in 2010, an increase of 11.8% compared to 2009. Its share of world steel production increased to 65.5% in 2010 from 63.5% in 2009. China's crude steel production in 2010 reached 626.7 mmt, an increase of 9.3% on 2009. China's share of world crude steel production declined from 46.7% in 2009 to 44.3% in 2010. Japan produced 109.6 mmt in 2009, 25.2% higher than 2009. In 2010, South Korea's crude steel production was 58.5 mmt, a 20.3% growth compared to 2009.

The EU recorded an increase of 24.5% compared to 2009, producing 172.9 mmt of crude steel in 2010. However, the crude steel production in the UK and Greece persisted to decline in 2010. In 2010, crude steel production in North America was 111.8 mmt, an increase of 35.7% on 2009. The US produced 80.6 mmt of crude steel, 38.5% higher than 2009.

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Role of Iron and Steel Industry in India GDP
The role of Iron and Steel Industry in India¶s GDP is very important for the development of the country. Iron and steel are the vital components required for the infrastructure development in the country.

From the trifle one million tonne capacity status at the time of independence, India has now achieved the 5th largest crude steel producer in the world and the largest producer of this segment is made up of the mini mills sponge iron. According to the official estimates, the Iron and Steel Industry contributes around 2 per cent of the Gross Domestic Product (GDP) and its weight in the Index of Industrial Production (IIP) is 6.2 per cent. In contrast to a negligible global presence, the Indian steel industry, presently, is globally acknowledged for its product quality. The National Steel Policy of 2005 had anticipated consumption to grow at 7% based on a GDP growth rate of 7-7.5% and production of 110 million tonne by 2019-20. These estimates will be, by and large, exceeded and it has been gauged that, on a 'most likely scenario' basis, the crude steel production capacity in the country by the year 2011-12 will be nearly 124 million tonne.

For the 11th Five Year Plan (2007-12), the Planning Commission has granted a total outlay of Rs. 45607.08 crore (i.e. Internal and Extra Budgetary Resources [I&EBR] of Rs. 45390.08 crore and Gross Budgetary Support [GBS] of Rs. 217 crore).

Indian steel industry has recently recovered out of the slowdown that affected its performance during 2008-09. On the domestic front, 2009 ended on a relatively better and encouraging note, with the CSO reporting an overall improvement of economic situation through its GDP data, which showed a robust 7.9 per cent growth during July-September 2009-10. IIP too had registered a strong 7.6 per cent growth during April-November 2009-10, further augmenting the idea that the demand side is back on stable footing. For steel, this is of paramount importance and the growth rates registered for leading end-use segments like manufacturing, consumer durables, construction, the stable growth of the service sector and agriculture sector spell good news. April-December 2009 provisional data released by JPC indicates a 7.8 per cent rise in consumption of total finished steel. Globally also there are indicators of improvement in economic conditions and firming up of demand and prices.
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Chapter 2: Literature Survey
Shankar et al. (2010) found that the Iron and Steel is one of the oldest and most important industries in Indian economy. It can safely be called the backbone of the Indian Economy for various reasons. For centuries iron had been produced in India, while as late as 1810 Indian steel was superior in quality to British steel. When India became independent in 1947 as the biggest, but not the only, successor state to the British raj, the three major iron and steel companies had a total capacity of only 2.5 million tons.

Tata was to dominate the Indian steel industry until the 1950s. The Indian Iron &Steel Company was set up in West Bengal in 1918 by the British firm Burn & Co., with plans to become a rival steelmaker.

In this research we have tried to present the overall structure of the industry and its performance with an emphasis on the effects of liberalization on this industry. The performance of this sector (industry) is also assessed both independently and within the whole sector. With the aid of graphs and pie-charts various aspects of this industry are studied. This research also explains the performance of major companies in this industry. We have also taken help of some reports and studies and they will be appropriately mentioned. Currently India is the 5th largest producer of crude steel in the world and is expected to become the 2nd largest producer of crude steel in the world by 2015-16.

The Indian Steel Industry mainly consists of two groups of producers. The first group comprises of major producers called, Integrated Steel producers (ISPs). This includes large steel producers with high levels of backward integration and capacities of over 1 Million Tonnes. The key companies in this group are: 1. Steel Authority of India Limited (SAIL)[PSU] 2. Tata Iron and Steel Company (TISCO). 3. Rashtriya Ispat Nigam Limited (RINL) [PSU] 4. Jindal Vijayanagar Steel Limited (JVSL). 5. Essar Steel. 6. Ispat Industries.
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The second group comprises of smaller stand-alone steel plants that include producers and processors of steel. 1. Processors/Re-rollers: Units producing small quantities of steel (flat/long products) from materials procured from the market or through their own backward integration system. 2. Stand alone units making pig iron and sponge iron. 3. Small producers using scrap-sponge iron-pig iron combination produce steel ingots (for long products) using Electric Arc Furnace (EAF) or Induction Arc Furnace (IAF) route.

Steel Industry is a highly capital intensive one and cyclic in nature. The growth of this industry is intertwined with that of the economy at large, and in particular the steel consuming industries such as manufacturing, housing and infrastructure. Steel demand shows a significant integration with a country¶s GDP growth. So if one can predict how far a country is faring in its macroeconomic characteristics, one can predict the demand for steel. The main industries providing forward linkage to the Steel Industry, i.e Automobiles, Capital Goods, Construction, Consumer Durables have all optimistic growth projections for near future.

The growth rate of the demand for passenger vehicles has been 11% CAGR during19962005. With overall rising incomes, steel demand is expected to rise too in future. India has fared well in terms of many macroeconomic indicators and the future growth projections are also bright. The market is dominated by the top six producers who account for almost half the market share.

SAIL has forever been a market leader, although its share has declined steadily over a period of time. TISCO is the biggest private player. SAIL along with RINL comprise 26% of market share; i.e. one-fourth of market is still public sector. We found that most of the private companies¶ share has remained almost stagnant. This is due to mushrooming of many small units, which account for SAIL¶s falling market share.

There are a various factors which point towards a very pessimistic future of this industry in India. Current shortage of input materials has pushed up the costs for the steel industry. More protection is the need of the hour as the Indian Steel Industry is amongst the least protected in the world. India¶s share in world trade steel is a miniscule 2%. China is a major competitor here too. Other hindrances include inadequate enabling infrastructure, high cost of basic inputs like power and tariff and high cost of capital.
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Chapter 3: The Analysis
3.1: Market Overview
The steel market mainly consists of the crude steel production in the stated country or region. Crude Steel Production is the production of solid steel product, after the solidification of liquid steel. It includes Ingots (from conventional mills) and Semis (from modern mills with continuous casting facility).

Crude Steel also consists of liquid steel which goes into production of steel castings. Market share represent volumes of steel produced by a company in respective market. In this report, both Global and Asia-Pacific steel market is considered, in which Asia-Pacific comprises Australia, China, India, Japan, Singapore, South Korea, and Taiwan. The Indian steel market had total revenue of $32.9 billion in 2009, which represented a compound annual growth rate of 12.8% for the period spanning 2005-2009.Steel production volumes in the market increased with a CAGR of 5.5% between 2005 and 2009, to reach a total of56,608 thousand metric tons in 2009. The performance of the market is forecasted to accelerate, with an anticipated compound annual growth rate (CAGR) of 20.3% for the five-year period from 2009-2014, which is expected to propel the market to a value of $82.8 billion by the end of 2014.

3.1.1: Market Exploration
The Indian steel market experienced strong growth until 2009, after which it fell into a steep decline. Recovery to double-digit growth is expected in 2010, followed by deceleration during the forecast period, although the market will maintain strong growth levels throughout this time.

The Indian steel market had total revenue of $32.9 billion in 2009, which represented a compound annual growth rate (CAGR) of 12.8% for the period spanning 2005-2009. In comparison, the Chinese market increased with a CAGR of 12%, and the Japanese market declined with a compound annual rate of change (CARC) of -6%, over the same period, to reach respective values of $329.8 billion and $50.8billion in 2009.
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tons. The compound annual growth rate of the market in the period 2005 ±09 was 5.5%.

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3.1.3: Global ranking of Indian Steel
Global production of crude steel is 1220 million tonne in 2009, but as compared to 2008, production of crude steel has decline by 8%. China is the largest crude steel producer in the world.

It has achieved a production level of 567.8 million tonne in 2009, but in comparison with the last year China reported a significant growth of 13.5% in crude steel production. India once again evolved as the fifth largest producer in 2009 and recorded a growth of 2.7 per cent as compared to previous year, 2008, the only other country in the top 10 bracket to register a positive growth during 2009.

India also evolved as the largest sponge iron producing country in the world in 2009, a rank it has achieved since 2002. If as per schedule proposed expansions plans are implemented, India may become the second largest crude steel producer in the world by2015-16.

Table 3.3 :

World Crude Steel Production 2009

Rank
1 2 3 4 5 6 7 8 9 10

Country
China Russia Japan US India South Korea Germany Ukraine Brazil Turkey

Production(million tonne)
567.8 87.5 59.9 58.1 56.6 48.6 32.7 29.8 26.5 25.3

Source : World Steel Association

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3.1.4: Asia Paci ic Market Segmentation
In Asia Pacific Steel Market China is the market leader, where as in contrast India is the third largest contributor in Asia Pacific Steel Market. China accounts for 72.6% of the AsiaPacific market. India accounts for 7.2% of the Asia-Pacific steel market value.

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3.2: Indian Steel Industry Market-Share
TATA steel is the leading player in the Indian steel market, generating a 35.7% share of the market volume. Steel Authority of India Limited accounts for a further 23.8% of the market.

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3.2.1: Production, Consumption and Growth of Steel
According to the projection of National Steel Policy 2005, the consumption of steel will grow at 7% based on a GDP growth rate of 7-7.5% and will achieve a production of 110 million tonne by 2019-20. These estimates will largely exceed and it has been assessed that, the crude steel production capacity in the country by the year 2011-12 will be nearly124 million tonne on a 'most likely scenario' criteria.

The table below shows the production for sale, import, export and consumption of total finished steel (alloy + non-alloy) trends in the country:

Table 3.6 : Steel Year

Consumption of Total Finished Total Finished Steel(alloy + non-alloy) ('000 tonne) Production for sale Import Export Consumption 43513 2293 4705 36377 46566 4305 4801 41433 52529 4927 5242 46783 56075 7029 5077 52125 57164 5841 4437 52351
43849 5210 2099 40997

2004-05 2005-06 2006-07 2007-08 2008-09 Apr-Dec 200910

Source : World Steel Association

Crude steel production has shown a sustained increase since 2004-05 along with capacity. The table below shows the data on crude steel production, capacity and capacity utilization in Indian steel Industry.
Table 3.7 : Crude Steel Production Capacity('000 tonne) 47995 51171 56843 59845 66343 72763 Production('000 tonne) 43437 46460 50817 53857 58437 45775 Capacity utilization(%) 91 91 89 91 88 84

Year 2004-05 2005-06 2006-07 2007-08 2008-09 Apr-Dec 2009-10

Source : World Steel Association

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The growth of steel sector was driven by capacity expansion from 47.99 million tonne per annum (mtpa) in 2004-05 to 72.76 mtpa in 2009-10 (upto December 2009).Crude steel production grew at a CAGR of 8.6 per cent during the five years, 2004-05 to 2008-09.Production for sale of total finished steel was at 57.16 million tonne during 2008-09 as against 43.51 million tonne in 2004-05 at an average annual growth rate of 7%.With growth in production for sale falling behind consumption growth, India has turned into a net importer of finished steel in 2007-08. To ensure greater domestic availability, exports have also declined.

The crude steel performance mentioned above has been contributed largely by the strong trends in growth of the electric route of steel making, particularly the induction furnace route, which accounted for 31 per cent of total crude steel production in the country during 2008-09 and has emerged as a key driver of crude steel production.

3.3: Industry Segmentation of Steel Sector
Indian steel industry consists of three main segments. First of these is the Integrated steel plant. The first of these is the integrated blast furnace plants which were established in the preliberalization period. These plants still form the largest segment in the steel industry. The second is the large mini mills, which have entered the industry post-liberalisation. These are typically efficient plants focused on producing high value steel products using electric arc furnaces. Finally, the third segment is made up of mini mills and rolling mills. These sub-scale plants are largely a legacy of the pre-liberalisation era when the government granted only limited scale licences. 1. Integrated blast furnace plants: These plants from the bulk of the industry which accounts for around 59% of the value created by the steel industry, this segment employs around of the steel workforce. Partly owned and run by the government, they were established in the pre-liberalisation period. These plants suffered from paucity of rolling mills. The players in this segment have been changing their focus from long products, which used to form the bulk production, to high value flat products. 2. Large Mini Mills: These new plants account for 15 percent of the value created by the steel industry and employ only 2 percent of the workforce to achieve this. They produce mainly flat products, especially hot rolled coils. A significant proportion of their output is exported. All the plants in this segment are privately owned.
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3. Small mini mills: Although many of these small mini mills and rolling mills have gone out of business over the last few years, this segment still accounts for 26% of the value created by the steel industry. In addition this segment is the biggest employer, employing around 58% of the steel workforce. Production consists of mainly of low value, often very sub-standard, long products, typically purchased by the local construction Industry. Some niche players in this segment are competing too by producing high value specialised products such as spring steel.

3.4: Competition in Indian Steel Industry
The Indian steel industry mainly consists of the producers of finished steel, semi-finished steel, stainless steel and pig iron. Indian steel industry, having contribution from both public sector and private sector companies, is one of the fastest growing markets for steel and is also increasingly looking towards exports, thus driving the growth of the industry. The nature of competition in the steel market is far more complex especially when examined for each product separately. Due to the specific characteristics of the steel products and the consumer profile, competition for each gets confined only to smaller number of players.
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Flat Products: Flat products are rolled mostly from semi-finished forms called slabs. There are two streams of flat products which are either produced from a plate mill (Plates) or a hot strip mill (HR coils). In 2007-08, the five major companies, SAIL, Tata Steel, Essar, Ispat and JSW together had a share of about 92.4 per cent in total production in the country. While with the entry of few more companies in the narrow segment of the market, the competition seems to be increasing, but no such changes have been visible in the wider segment. The wider HR coils dynamics have also changed alarmingly as all the erstwhile merchant producers of HR coils have added downstream cold rolling capacities. This has, in fact, substantially reduced the merchant HR coils supplying the local market. Since, there are no formal controls or regulations on steel prices; they are to be driven by the market. However, there seems to be market imperfections and which may give rise to possible cartelisation and which in turn has provided the producers of HR Coils greater degree of market power vis-à-vis the buyers. Other steel products: Other steel products such as bars and rods, structurals, plates, CR coils and sheets, GP/GC sheets etc. have not caught much attention of the public from the competition perspectives.. In 2007-08, SAIL accounted for about 93 per cent of the total plates production, which dipped to 88 per cent the next year. Others were small players and were not competing with SAIL on size and grades. SAIL continued with its monopoly position till it met with some competition from plates produced from hot strip mills and expanded capacity from others. Market Sharing and Collusion The very fact that the Indian steel industry, even in the bad times, was out of the consolidation process, always lends support to the hypothesis that the industry instead had chosen to collude rather than consolidate through mergers and acquisitions. However, the major steel producers have substantial pricing power in the market and that they can be expected to act in phase with substantial net impact on the market to move the trends in the desired direction. In fact, although the government action is appeared to correct market imperfection, it has at the same time given rise to competition issues in the market. For example, the government¶s action to restrict prices, through the low cost producers, while at the same time not taking similar action for reduction of prices of sponge iron and steel scrap, has put the small and medium size induction furnace based steel production at jeopardy as they find their output prices not increasing in proportion to their costs.

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3.5 : BUSINESS DIVERSIFICATION
A conglomerate is a combination of two or more corporations engaged in entirely different businesses together into one corporate structure, usually involving a parent company and several (or many) subsidiaries. Often, a conglomerate is a multi-industry company. Conglomerates are often large and multinational. Indian Conglomerates who are into steel Sector are as follows

TATA Group: The Tata Group is almost 150 years old. It currently comprises 96 operating companies, which together employed some 330,000 people and had revenues of US $28.8 billion in 200607, the equivalent of about 2.9 percent of India¶s GDP. Tata is active in seven major business lines: information systems and communications, engineering, materials, services, energy, consumer products and chemicals. Its 28 publicly listed companies have a combined market capitalisation of US $47.6 billion that is the highest among Indian business houses in the private sector, and a shareholder base of over 2 million. The Group has operations in more than 54 countries and its companies export products and services to 120 nations

Founded in 1874 by Jamsetji Nusserwanji Tata with a single textile mill, the group has always been controlled by the Tatas, a Parsi family of the close-knit Zoroastrian community, and the Tata Trusts.3 Prior to independence, Tata Group pioneered several firsts in Indian industry, including the first private sector steel mill, the first private sector power utility, the first luxury hotel chain, the first production of ammonium sulphate, and the first international airline. Table A4 describes the diversification pattern of the group. Tata also helped revolutionize business practices in India. From instituting the eight-hour work day and paid leave to providing a retirement gratuity, it created a standard to which other companies ² and eventually Indian government regulators ² measured themselves.

Tata Sons and Tata Industries (TIL) are the two promoter companies. Tata Sons was established as a trading enterprise in 1868 and continued to promote and manage all major Tata companies until 1970 when the managing agency system was abolished. Although the group is no longer a legal construct, it still holds the bulk of shareholding in these companies. The chairman of Tata Sons has traditionally been the chairman of the Tata Group. Tata Sons is the owner of the Tata name and the Tata trademark, which are registered in India and several other countries. TIL was set up by Tata Sons in 1945 as a managing agency for businesses it
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promoted. Following the abolition of the managing agency system, TIL¶s mandate was recast, in the early 1980s, to promote the entry into new and high-tech areas, including control systems, information technology, financial services, auto vehicle components, advanced materials and telecom hardware, as well as telecommunication services. These ventures are often partly financed by Tata Sons and the main Tata Group companies, with TIL generally maintaining a 10-20 percent stake. The Tata Group is currently headed by Ratan Tata. The Group Executive Office (GEO) and the Group Corporate Centre (GCC) are the two decision-making bodies that define and direct the business endeavours of the Tata Group. Created in 1998, the GEO defines and reviews the business activities of the Tata Group and is involved in implementing programmes in corporate governance, human resources, the environment, etc. The chief objective of the GEO is to make the Tata Group more synergistic and create a shared understanding of a Tata company¶s current activities, its strengths and its weaknesses. The GEO assesses what unique value a company adds to a particular business sector and, conversely, what unique value the Group can bring to the company. The mandate of the GCC is to guide the future strategy and direction of the Tata Group and to work in close coordination with the GEO.

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ESSAR Group Essar Steel Limited (the "Company") is the flagship Company of the Essar Group and looks after the Group¶s interest in the steel business. The Company was incorporated in June 1976 under the name of Essar Construction Limited and was engaged primarily in core sector activities, including marine construction, pipeline laying, dredging and other port-related activities. In 1984, the Company ventured further into other core sectors mainly the field of exploration and development, drilling onshore and offshore oil and gas wells for Indian Public Sector oil exploration companies. In view of this the Company¶s name was then changed to Essar Offshore and Exploration Limited in May 1987. In August 1987, the Company¶s name was changed to Essar Gujarat Limited, to reflect its highly diversified business interest. In 1988, the Company made an initial public offer for its
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shares, which are now listed on Bombay Stock Exchange, National Stock Exchange of India and 2 other Indian Stock Exchanges. The Company diversified into the steel business in late 1980s with the purchase of an HBI manufacturing plant in Emden, Germany, which was dismantled and relocated to Hazira, on the west cost of India. The HBI plant with a capacity of 0.88 MPTA was completed in March 1990 and commenced commercial production in August 1990.

As part of its business strategy of focusing on the iron and steel sector, the Company hived of its unrelated businesses to a series of different companies (each of which form a part of the Group and operate at arm¶s length relationship) - Offshore and energy operations were transferred to Essar Oil Limited in May 1992, Civil and mechanical construction businesses were transferred to Essar Projects Limited in March 1993.

The Company with a vertical integration program in mind, commenced construction of world-class state-of-the-art technology Hot Rolled (HR) sheets and coil plant in 1992. The plant commenced trial production in April 1995 and commenced commercial production in April 1996. To reflect its business strategy of focusing on steel making operations, the name of the Company was changed from Essar Gujarat Limited to Essar Steel Limited in December1995.

The plant has requisite infrastructure like captive jetty, assured power supply, captive lime and oxygen plants and quality raw material from its HBI Plant. The products conform to quality requirements of international rating agencies like TUV Rhineland, Lloyds Register, API etc. This is the first steel plant in India to be awarded ISO 9002certification for the complex as a whole. In addition, it is the first steel plant in India to receive ISO 14001certification for the best environment management. The Steel complex is the first fully integrated large-scale steel manufacturing facility in western India and incorporates the latest state-of-the art equipment and technology for Steel making. The Company has emerged as the largest exporter of flat products from India with total exports aggregating over US$ 1.25 billion since 1996 to different markets including US and Europe.

Jindal Steel & Power Limited (JSPL): Jindal Steel and Power (JSPL), part of the US$4 billion Jindal Organisation, has business interests in steel production, power generation, mining iron ore, coal and diamond exploration/mining. The current turnover of the company is over Rs. 30 billion and on a path of
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catalyzing economic development of the country through its contribution to the infrastructure sector. JSPL with its obsession for excellence is increasing its portfolio of value-added products, bringing the world's best to India and making an international mark. Production Capabilities expanded to serve the infrastructure sector, catalysing economic, development and growth. JSPL has the integrated steel plant (as approved by Joint Plan Committee) at Raigarh in the state of Chhattisgarh, India. The facilities include world's largest coal-based Sponge Iron Plant with a capacity of 1.37 million TPA using ten indigenously developed rotary kilns. The company has achieved complete backward integration with its captive iron & coal mines making it one of the lowest-cost producers of sponge iron The steel making capacity has been expanded from 400,000TPA to 1.15 millio TPA.

JSPL today is the largest private sector investor in Chhattisgarh with a total investment of Rs.100 billion. JSPL has recently signed an MoU with the State Government of Orissa to set up a 2 million tonne steel plant with an investment of Rs.13.5 billion which would be expanded to 6 million tonne and another MoU has been signed with the State Government of Jharkhand to set up a 5 million steel plant with an investment of Rs.120 billion.

Indian Standalone companies who are into steel Sector are as follows Steel Authority of India Limited (SAIL): Steel Authority of India Limited (SAIL) is a leading Public Sector Undertaking (PSU) in which the Government of India owns about 86 per cent of equity. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. It is ranked amongst the top ten public sector companies in India in terms of turnover. It manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels.

SAIL have five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the
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distinction of being India¶s largest producer of iron ore and of having the country¶s second largest mines network. This gives them a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. Bhushan Power & Steel Ltd: Bhushan Power & Steel Ltd., an ISO 9002 certified company, is a merged entity of Bhushan Industries Ltd., Bhushan Metallics Ltd. and Decor Steel Ltd. Bhushan Steel has a turnover of more than USD 540 Million and is a leading manufacturer of Flat, Round and value added products in Steel.Bhushan have 7 World class and state of art plants at Chandigarh, Derabassi, Kolkata and Orissa in India. A completely integrated plant is commissioned under Phase I in Orissa and Phase II is all set for takeoff. In Orissa plant, technology and equipments are procured from world-renowned Companies like Luirgi from Germany, ABB Ltd., SMS Demag, Siemens etc. It is selling its Value added range of products in Secondary Steel through a large distribution network in India (comprising more than 25 sales offices) and Abroad.

3.6 : Policies Framework
3.6.1 : Political Factors

Plan outlay for 11th Five-Year Plan (2007-12) For the 11th Five Year Plan (2007-12), the Planning Commission has approved total outlay of Rs. 45607.08 crore (i.e. Internal and Extra Budgetary Resources [I&EBR] of Rs. 45390.08 crore and Gross Budgetary Support [GBS] of Rs. 217 crore).

During the 11th Five Year Plan, a new scheme viz. "Scheme for promotion of Research and Development in Iron & Steel sector" has been approved with a budgetary provision of Rs. 118 crore for implementation.

The objective of the scheme is to develop path-breaking technologies in an environment friendly manner. The scheme was approved by Ministry of Finance with the observation that the scheme may be initiated in the Financial Year 2009-10.

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The Working Group on Steel Industry set up by the Planning Commission for the 11th Five-Year Plan (2007-12) had projected a total demand of 70.34 million tonne for finished steel and a total production of 80.23 million tonne of crude steel by the end of the 11th Plan, that is, 2011-12. Both the 11th Plan projections and the NSP targets are likely to be considerably surpassed.

The 11th Plan would be crucial for realising the objectives pronounced in the National Steel Policy 2005 of building a modern and efficient domestic steel industry of global standards with a capacity to cater to diversified product demands.

The Working Group on Steel Industry has made recommendations consistent with the targets/objectives of the National Steel Policy, 2005.

In this journey of progress, the Indian steel industry has also taken significant steps in improvement of productivity ,conservation of natural resources and energy, import substitution, quality up gradation; environment management and research and development. Some of the notable developments are as follows:
y

Introduction of Stamp Charging and Partial Briqueting of Coal Charge (PBCC) for production of metallurgical coke.

y

Installation of energy recovery coke ovens to meet power requirements as well as to reduce emission.

y y y y y y y y y y

Use of non-coking coal in iron making: Use of Direct Reduced Iron (DRI)/Sponge iron in steel making Use of hot metal in electric arc furnaces Adoption of continuous casting Import substitution Value-added production: Increasing size/volume of blast furnaces Reducing coke consumption in blast furnaces and improving productivity Enhancing steel quality Efforts to reduce energy consumption and emission

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Recommendation on captive mines: captive mining should be allowed to some extent for the iron and steel industry which may lead to better situation of the iron and steel industry, but this limt should be carefully designed so that it does not totally disregard the iron and steel industry and give huge subsidy to the iron and steel industry. National steel policy to remove bottleneck: Reviews must be conducted to remove infrastructural, procedural bottle neck and to achieve policy coordinating among central ministries and state government. 3.6.2 : Economic Factors GDP growth rate in India is fairly good and the iron and steel industry become as small but still important part of the total GDP. It has CAGR of 8.2% annually. Reduction in customs duty is one of the major factor about which the companies are anxious and the government is reluctant time and again the government has thought of the iron and steel industry as a fat earner of the foreign exchange and thus more taxes to the government import and export . 3.6.3 : Social Factors Rural urban divide: Most if not all iron and steel are placed that are far from urban life and mainly in to rural areas where things are different and people are more easy to bend according to some new proposition.it said in an likeable manner they don¶t cause much trouble and act as cheap labour due to lack of jobs in rural areas. 3.6.4 : Technological factors y Technology policy is to be so designed by the government that it will generate the thrust to update the technology by the steel producers.
y y

Organisational adjustments must be made while adopting newer technologies. Effective human resource policy will help speedier technology adoption. Socioeconomic aspects should be dovetailed while selecting a technology.

y

Training and re-training with updated inputs should be a continuous process in steel plants.

y

Training programmes should be designed for people from different hierarchy including top level management.

y

There are various number of website enlighten people about the industry so that people become more aware about the industry but still become better investors
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3.7 : Mergers and Acquisitions
3.7.1 Acquisitions by TATA Steel Corus Tata steel acquired Corus in April, 2006. Corus was Europe¶s second largest steel producer as well as the 9th largest steel producer in the world. It opened its bid for 100 % stake late in the 2006. Tata Steel & CSN i.e. Companhia Siderurgica Nacional came as one of the most powerful bidders. Corus decided to sell as it was in total debt of 1.6 billion and needed supply of raw material at lower cost. Though Corus had revenues of $18.06bn, its profit was just $626mn whereas Tata¶s revenue was $4.84 bn & profit $ 824mn. Tata was looking to manufacture products in Europe markets and also knew that the cost of acquisition is comparatively lower than setting up a green field plant and marketing and distribution channels it also aimed at reducing employee cost and improving productivity at Corus. After acquiring Corus, Tata Steel became the fifth largest producer of iron and steel in the world up from fifty-sixth position. Experts were of the opinion that the acquisition of Corus did make strategic sense for Tata Steel.

Natsteel Asia

In 2004, NatSteel Asia (Singapore) Pvt Ltd was incorporated, it was the steel business in Singapore which was divested by NatSteel and later renamed as NatSteel Asia Pvt Ltd. NatSteel Asia was sold to Tata Steel in India on Feb 2005, one of the most profitable steel companies in the world. Tata Steel acquired Natsteel Asia for a total of $468.10. Together they forged a partnership built on complementary strengths and purposes. And as part of Tata Steel, Natsteel now is in a unique position to tap growth opportunities in Asia and create a formidable pan-

Asian steel group. The entire business of NatSteel Asia Pvt Ltd was transferred to NatSteel Holdings Pvt Ltd from 1 August 2008 as part of Tata Steel Limited's internal restructuring exercise of its Asia-Pacific subsidiaries. The NatSteel acquisition allowed Tata Steel to establish a beachhead in seven countries across the region, namely Singapore, Thailand, China, Malaysia, Vietnam, the Philippines and Australia and also provided it with a customer base for close to two million tonnes of steel.

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Millenium Steel The acquisition of Millennium Steel, Thailand's dominant steel producer consolidated Tata Steel's gains from the NatSteel deal. Millennium Steel¶s three operating units gave the company a total capacity to produce 1.2 million tonnes/annum of steel through the electric arc furnace route. Along with the long products rolling capacity of 1.7 million tonnes a year towards the construction and automotive sector, Millenium provides Tata Steel strategic space in the heart of the ASEAN region, enhancing its market position in South East Asia. Millennium Steel is a listed company in Thailand. Its major shareholders are Siam Cement with 39.99%, which the company has now sold, Bangkok Bank with 12.20% and Petchburi Asset Management with 3.10%. The Siam Cement Group, which held a stake in Millenium Steel earlier, was looking at divesting its non-core business. Steel is one of its non-core businesses and Siam held close to 45% stake at one point later which was reduced to 39.9%. According to analysts, Millenium Steel is a very attractively priced company. The acquisition would have cost Tata Steel an estimated $73 million. Rawmet Rawmet has its registered office in Kolkata and ferro alloy plant near Cuttack in Orissa, comprising two 16.5 MVA semi-closed electric arc furnace with a 50,000 tonne high carbon ferro chrome capacity. The agreement was signed in Bhubaneshwar by Tata Steel and IMR Metallurgical Resources AG which holds 66.46% Rawmet commodities with 12.48% and other shareholders. Rawmet is an unlisted company. Tata Steel entered into an agreement to acquire 100% equity at the cost of Rs 326.50 crore.

Table 3.8 :

Acquizations by TATA Steel(TISCO) Acquired Company Country Stake Required Value Year

TISCO TISCO TISCO TISCO

Rawmet Industries Corus Millenium Steel Natsteel Asia

India UK Thailand Singapore

NA 100% 67.11% 100%(fully owned)

Rs 326.50 crore NA $73 million $468.10 million

Mar-07 Jan-07 Apr-06 Feb-05

Source : Self Compiled Data

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3.7.2 : Acquisitions by SAIL:
Bharat Refractories Ltd

Bharat Refractories Limited (BRL),a public sector undertaking under the Ministry of Steel, has been amalgamated with Steel Authority of India Limited (SAIL). BRL produces wide variety of refractories used primarily in iron & steel making was incurring losses over the years due to technological obsolescence, ageing of plant and equipment, low capacity utilization and lack of necessary capital investment. Even after the implementation of three revival packages in 1996, 1999 and 2002, BRL continued to make losses till 2006 -07. Since 2007-08, BRL¶s financial position improved and it has started making profits. Its turnover in 2008-09 was Rs. 231 crore. At present, SAIL consumes about 85% to 90% of BRL¶s production. SAIL now utilizes the excess capacity of BRL for its present and future requirem of refractories. The ent merge also provided BRL the right opportunity for its own technological up gradation and resource management. 3.7.3 : Acquisitions by Arcelor Mittal : Arcelor Mittal is a global steel company headquartered in Luxembourg. It is

the largest iron and steel producing company in the world and is also the market leader in iron and steel for use in various fields like automotive, construction, household

appliances and packaging. It holds captive supplies of raw materials and operates extensive distribution networks. The company was formed by the merger of Arcelor and Mittal Steel in the year 2006. The projections shows that Arcelor Mittal¶s output will go up from 100 mt in 2005 to 150-200 mt in 2015. The deal was valued at $33.1 billion.

3.7.4 : Acquisitions by Jindal Steel :
Kiepersol Thermal Coal Mine

Jindal Steel & Power Ltd of India, a unit of JSL Ltd, acquired South Africa based Kiepersol Thermal Coal Mine without disclosing the terms on 31 May 2009. The deal marked the first completed purchase of a coal mine in South Africa by an Indian entity. Jindal is expected to use the coal for power generation rather than a metallurgical application. The energy
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content of the coal is comparable to standard South African RB1 coal but the volatile range is lower.
Rolling Hills Resources LLC

Jindal Steel & Power (Mauritius) Ltd which is a unit of Jindal Steel & Power Ltd acquired the entire share capital of Rolling Hills Resources LLC a uranium mining company. Jindal Steel & Power also purchased from Bluerock Resources Ltd, the uranium sites situated in Mongolia and Uranerz Energy Corporation. The deal price was reported as $2.6 million. The sales included all Mongolian uranium assets and exploration projects held by the in Mongolia. Jindal conducted its due diligence review and completed the agreement in the month of August. Bluerock held 60 percent ownership and Uranerz held the remaining 40 percent in the Mongolian uranium sites.

Globeleq Singapore Pte Ltd

The Mauritius-based company of Lanco Infratech Ltd (LITL), and Jindal Steel & Power Ltd (JSPL) together acquired 100 per cent of the equity holding of Globeleq Ltd on 14 Feb 2007.
UMI Special Steel Ltd-Assets

Umi Special Steel Ltd. manufactures steel forgings and alloys. The company was formerly known as Bihar Alloy Steel Ltd. Jindal¶s acquired the assets of UMI Special Steel Ltd, a steel forgings and alloys manufacturer on 05 Oct 2006. 3.7.5 : Acquisitions by Natinal Mineral Development Corporation Limited: Natinal Mineral Development Corporation Limited plans to acquire 50% stake in Ferrous Resources Ltd's Brazilian operations for $2.5bn. NMDC signed the agreement under which the Ferrous group will issue fresh shares worth $2.5 bn to NMDC over the next few years and decided not to disclose the same. The funds which they were expected to get had to be used for developing mines as well as building infrastructure. After the agreement was done, the partners were expected to divest 20% stake in the joint venture to raise another $1 bn by listing the company ON LSE. After the stakes were diluted both the partner's stake came down to 40% each. NMDC has line up expansion plans that involve an investment of approximately Rs 26,000cr over next few years. The company also has the cash reserves of around Rs 13,000cr which is expected to be used for buying overseas assets. The Government also planned to divest 8.38% in the company to raise around Rs 20,000cr by March 2010.
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The merger of NMDC and Sponge Iron India Ltd is also expected to be completed in that time. It is also expected that National Mineral Development Corporation (NMDC) will acquire a majority stake in the troubled KIOCL (formerly Kudremukh Iron Ore Co Ltd).

3.7.6 : Rashtriya Ispat Nigam Limited: Rashtriya Ispat Nigam Limited (RINL) acquired the Bird Group of Companies (BGC), including Orissa Mining Development Corporation (OMDC) for iron ore reserves with a purpose of expansion. According to RINL, they are willing to invest Rs500 crore to redesign OMDC¶s operations. RINL¶s expansion plan involves raising its steel production capacity to 6.3 MT from the current level of 3.4 MT with a capital outlay of Rs8,692 crore. The company was even mulling importing a shipload of iron ore from Brazil on experimental basis.
3.7.7 : ISPAT Industries Ltd :

Ispat Industries Ltd (IIL) is renamed as JSW Ispat Steel after the joint venture between JSW Steel of Sajjan Jindal group and Kolkata-based Mittals. The approval was done with Ispat's net losses on June 30, 2010 which totalled up to Rs 2,134.23 crore, which was more than 50 per cent of the net worth of the company. JSW Steel bought 41% in Ispat for Rs 2157 cr.

3.8 International Exposure: Imports and Exports
3.8.1 : Export Presently India exports about 60% of its iron ore production and earns over US $ 4 billion. The dollar earnings are a very small proportion of overall merchandise exports but iron ore exports form a crucial element of the bilateral trade with China which is 48% of India¶s total exports of iron ore alone. India has long-term contracts with Japan and South Korea as well. India¶s largest iron ore exporter is Natinal Mineral Development Corporation Limited. According to the Federation of Indian Mineral Industries, MSPL Limited were the first private company in India to receive a license for export of high grade Iron Ore (having a Fe content of 64% or more).The country¶s first priority should be that all iron ore within the country should be utilized for making steel in the country and then exported. The Ministry of Steel is of the view that Policy regarding iron ore export should aim at attracting investment in steel and making

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capacity so that the value additions and export of finished products are promoted instead of exporting raw materials. In the Group of Ministers meeting to consider National Mineral Policy, 2007, there was an agreement that iron ore resources of the country should be conserved for the use of domestic steel industry. It was decided that although conservation of iron ore resources of the country is of utmost importance, the same may not be achieved by banning the export of iron ore but by taking recourse to appropriate fiscal measures. This was approved by the Government. India must take a strategic view that it will be a major exporter of steel and not of iron ore. As India moves to reach its goal of producing 100 million tons of steel locally, the availability of high-grade ore to the local steel industry has to increase. It is also necessary to conserve highgrade iron ore which, is at present, being exported in substantial quantities. China, which buys about a fifth of its iron ore from India, has nearly doubled its iron ore prices since April rising to $110 a ton on a delivered basis. The data from China also shows that so far this year, India has been ahead of Brazil, at number two position, in its iron ore supply to the north Asian giant. Latest data from China¶s customs shows in March, India supplied at 13.46 million tons, up 4.25% on year. In January to March, India supplied to China at 33.26 million tons, down 2.4% on year. If India imposes curbs on exports, the global iron ore prices are set to soar. But the surge in global prices has put increasing pressure on Indian steel mills, and New Delhi has in the past used duties as a way to attempt to stem the rise in domestic prices by keeping more supplies at home. Due to consistent efforts of Ministry of Steel, export duty has been imposed on iron ore. Initially in 2007, an export duty of Rs.50/- per tone was imposed on iron ore fines up to 62% Fe content and Rs.300/-per ton on all other varieties of iron ore. Subsequently, export duty was revised to 15% tax on all varieties of iron ore and thereafter to nil export duty on iron ore fines and 5% tax of export duty on iron ore lumps. The rates of duty on iron ore exports w.e.f. 24.12.2009 are following: i) Iron ore fines (all sorts) - 5% tax ii) Iron ore other than fines (including lumps & pellets) - 10% tax. Keeping in view the trend in the quantum of exports and domestic and international prices Government has raised the export duty on iron ore lumps to 15 % from 10%. Government last raised the duty on iron ore lumps in December to 10% from 5%, and on fines it imposed a 5% duty. Advance Licensing Scheme allows duty free import of raw materials for export.
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Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate exports. Under this scheme exporters on the basis of notified entitlement rates, are granted due credits which would entitle them to import duty free goods. The DEPB benefit on export of various categories of steel items scheme has been temporarily withdrawn from 27th March 2008, to increase availability in the domestic market. Exports of finished carbon steel and pig iron from 2004 to 2009 are as follows :
Table 3.9: Exports (Qty. in Million Tonnes)

Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Source : Joint Plant Committee

Finished (Carbon) Steel 4.381 4.478 4.75 4.627 3.482

Pig Iron 0.393 0.44 0.35 0.56 0.35

3.8.2 : Import It should be taken as a sign of India's evolution as a global rather than a national player that Steel Authority of India, the country's largest steel producer is looking overseas for supplies of iron ore. Although India is a major iron producer, granting of new mining rights have been fraught with local opposition and delays creating a potential gap between steel producers¶ aspirations to build capacity later in the decade against domestic iron ore supplies. It is a big question whether India should export low value resources like iron ore to China rather than converting it into higher value steel products for both a rising domestic market and for export. India produces about 65m tons of steel a year yet with a population of 1.15bn its per capita consumption is just 40kgs a year compared to a global average of 150kgs. This can be explained by the fact that some 300m Indians are at the subsistence farming level and so their steel consumption is minimal but a growing middle class and massive long term infrastructure investment plans means the potential for growth is huge. Therefore, India's Ministry of Steel is preparing a policy document on the infrastructure that will be required by an industry capable of producing as much as 300m tons of steel a year.

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SAIL is not alone. An article reproduced in Mineweb quotes India's Economic Times as saying state-owned National Mineral Development Corporation (NMDC), India's largest iron ore producer is set to make its first venture outside of the country agreeing to pay US$2.5 billion to acquire a 50% stake in Ferrous Resources Brazilian iron ore operations. These investments differ markedly from Tata's purchase of Corus Steel and Hindalco's purchase of Novelis which were more about gaining a foothold in foreign markets. They were much less about positioning themselves for growing demand in their domestic market. Even though India is now one of the world¶s top ten steelmakers its domestic output is insufficient to meet the demand in all segments. In 2005, some 4.7 million tonnes of steel were imported, compared with only 2.2 million ten years earlier (an annual increase of 8%). The growth in Indian import demand in 2005 of around 2 million tonnes is roughly equivalent to the total annual output of Hungary. Low steel prices smooth the way for imports from Russia, Ukraine and Kazakhstan. The geographical proximity of Japan, South Korea and China makes them important suppliers as well. India cannot be self-sufficient in many segments over the medium term cause firstly, steel consumption is rising very fast 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. These include products with surface finishing that helps them to be more durable and retain their value for longer. Moreover, as a member of the WTO (since 1995) India is obliged to gradually abolish import restrictions, so importing steel should be far less problematic in future. Imports of Finished (Carbon) Steel from 2004 to 2009 are as follows:-

Table 3.10: Exports (Qty. in Million Tonnes)

Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Source : Joint Plant Committee

Qty. (In Million Tonnes) 2.109 3.85 4.436 6.581 5.149

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3.9 : Research and Development
Major Research and Development (R&D) in Indian iron & steel sector over the years has remained confined to a few steel companies like Steel Authority of India Ltd. (SAIL) and TATA Steel Ltd. However, gradually, it has been picking up in newly commissioned main/major steel plants like Rashtriya Ispat Nigam Ltd (RINL), JSW Steel Ltd., Essar Steel Ltd., Ispat Industries Ltd. etc. Most of the R&D works in these plants however, relate to incremental research addressing the day-to-day problems of the steel plants or the industry, and investment in largescale R&D work for development of path-breaking innovative technologies has been limited. To encourage and step up R&D investment in the steel sector, Government of India, Ministry of Steel has been extending financial assistance from the interest proceeds of Steel Development Fund (SDF).Competitiveness of the steel industry can only be ensured and sustained through consistent improvements in parameters of technical efficiency. There are many areas where the Indian Steel Industry is lagging behind, though there are some bright spots where the industry has been able to take leading role. The problems are mainly related to obsolescence of technology adopted and lack of timely modernization / renovation, quality of raw material and other inputs, lack of automation and R&D intervention. The specific areas requiring immediate attention have been outlined. The industry is in search of innovative and cost effective solutions, there exists proven technologies in certain other areas. These technologies/practices have been already operating successfully abroad and need to be adopted and assimilated by the Indian industry at an accelerated pace. Another interesting new alternative likely to be suitable under Indian conditions is noncoking coal gasification based on Lurgi technology and use of the gas thus generated in gas based direct reduction process. It is necessary that some of these technologies should be in place during the period so that they contribute considerably to hot metal production. A significant portion of steel projects is still imported leading to high project costs. It is essential to acquire capability for designing of plant and equipments based on R&D results. The academic institutions, researchers and consulting houses need to develop programmes and work in close coordination for this. Attaining indigenous capability for undertaking automation of various processes and developing various design parameters, would be equally important to cut down costs and become globally competitive.

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Indian steel plants waste a lot of energy in its steel making process. There is a good scope to harness these energies by generating power or using hot gases as alternative heating medium. Industry and consulting houses may be encouraged to design and install such facilities to utilize waste energy. The benefits under clean development mechanism (CDM) may be aggressively obtained by the industry.

The Government needs to directly support those research and development (R&D) activities, which are consistent with the national priorities such as conserving the environment and non-renewable resources. Direct financial support may also be essential for basic and applied research for development of breakthrough technologies using indigenously available raw materials. There are many other grey areas requiring R&D intervention. To enhance the in-house R&D activities by the industry, it is essential to extend the tax benefits available under Section 35 of IT ACT beyond March¶2007. The 11th Plan through various incentives should aim to accelerate the R&D expenditure in iron & steel sector to at-least 1% of total sales. Government¶s positive intervention is required in collaboration with the industry in setting up state-of-art education centers for development of manpower to sustain the growth and development of the iron and steel industry and R&D required thereof. there is a need to train and attract talent to the mining sector associated with the iron and steel industry. This is all the more necessary in view of the low productivity in the Indian mining sector compared to international standards. Steel industry, which was earlier concentrated in the eastern region, has spread all over the country after deregulation. In order to address R&D needs of western and southern regions it is necessary to set up a large R&D centre in the western region of the country.

3.9.1 Research and development: SAIL
Research & Development Centre (RDCIS) of the Company have provided innovative technological inputs to different units of SAIL, with special emphasis on cost reduction, quality improvement, product development, energy conservation and automation. In the year2009-10, RDCIS had pursued 111 R&D projects, out of which 66 projects have been completed. The Centre has bagged 10 prestigious awards; 7 of these pertain to National Metallurgists' Day Celebration, 2009.

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TECHNOLOGICAL CONSERVATION

‡ Maharashtra Elektrosmelt Limited (MEL), Chandrapur has entered into an agreement with Western Coal Fields Ltd. (WCL) for dispatching Si-Mn granulated slag for stowing in the underground mines of WCL as partial replacement of sand. ‡ Utilisation of BOF sludge by SP in base mix preparation for sinter making as replacement of equivalent mount of lime. ‡ ~33200 tonnes of iron fines from Hitkasa tailing dam slime by operating Fluidized Bed Classifiers in CSW plant at Dalli (Mech.) Mines.

3.9.2 : Research and development :TATA Steel
Research is now a priority throughout the company. Take, for instance, the patenting of the coal injection process in the furnace, which was licensed to the Vizag Steel Plant, or increasing the rate of combustion at the sinter plant. The formation of Tata Pigments was a result of the discovery of new pigment from its cold rolling pickling process. Today, Tata Steel is the only Indian company to have an ongoing industrial liaison programme with MIT and Sheffield University.

R&D in Tata Steel plays three roles:
1. Defend, support and expand existing business by...
y y y

Discovering and using new process designs, operating philosophies and enabling technology Designing products and services based on customer needs Piloting and controlling the implementation of new or changed processes

2. Drive new business by continuously scanning technology development in steel and other allied areas. 3. Broaden and deepen technological capability by...
y y y

Encouraging creativity and innovation by awarding experimentation and providing an atmosphere of freedom Collaborating with leading international research institutes Sponsoring leading international researchers to participate in Tata Steel¶s programme.

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The objective of its R&D is to make Tata Steel an Economic Value Added (EVA)-positive company and serve the company where it impacts most," says B.Muthuraman, managing director. It is the business strategy that drives the research objective. R&D has a business score card (BSC) which is aligned to the managing director¶s BSC. It contains various strategic measures in the perspectives of finance, customer, internal business processes, people and special projects. R&D is positioned as a complete solution provider, from invention to implementation. Given the vastness of Tata Steel¶s operations and applications, the need for a framework to identify, assess and deploy IPRs is crucial. Innovations that find application beyond industry either go unnoticed or are not exploited commercially.

3.9.3 : Research and development: ESSAR STEEL
Essar Steel has recently set up a dedicated laboratory with qualified engineers/experts for research & development to address the problems/issues concerning their production processes and products with particular emphasis on new product development. the company is reported to have developed 31 new steel grades/products for stringent applications including high strength CRCA steel sheet and high strength dent resistant IF steel for automotive applications, high strength galvanised sheets for structural applications. Highlights of some of the specific R&D activities taken up and benefits derived thereof are given below:
y y y y y y y y

Development of SPRC-35/40 CRCA steel for automobile application. High strength IF CRCA steel as per SPRC-45 for auto application. In-house development of mathematical model for HSM-ROT temperature prediction and Micro-structure evolution model. Development of Dual phase steel- DP-600 (F+M) for automobile application. Development of API 5L X-80 grade steel for line pipe application with HTP concept. Development of API 5L X-65 line pipe steel for sour service application. Development of high strength plates as per caterpillar spec. 1E 1242, as import substitute. Cost reduction w.r.t. ferro-alloys consumption, the approximate saving amounts to Rs. 22 crore (without affectingthe quality parameters).

3.9.4 : Research and Development: JSW STEEL
Highlights of R&D:

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y y y y y y y y y y y

Optimization of the coking time for varying quality of coal blends to improve production at non-recovery coke ovens by 5%. Study on influence of FeO on sinter characteristics and its optimization. Improvement in Pellet Quality by improving pellet CCS > 220 kg/p and RDI < 11.0 %. Study to replace inorganic binder with organic binder for improvement in pellet quality. Development of a mathematical model for estimating hearth wear in Corex. Already in use. Reduction in Fuel Rate at BF-1 and BF-2 by 10 kg/thm. Already achieved. Development of Model for Locating Crack Initiation Point in Slabs at JSW Casters. Already in use. Development of a model to predict optimum Finishing and Coiling Temperatures for a typical HR Product by optimization of Thermal Regime in HSM. Study of thermal profile and wear pattern of rolls in HSM during rolling and improve the critical factors. Development of new process to produce DRI from green pellets, thereby reducing CO2 generation. Development of a novel technique for utilization of steel plant wastes to produce high quality DRI for steelmaking as a replacement of steel scrap.

3.10 : Marketing initiatives
Marketing is not as simple as many may lead you to believe. In order for your business to be effective, you need to understand what is involved in promoting what you are offering in terms of products and services. That is where a good marketing initiative comes in to play. A marketing initiative is essentially anything that is clearly defined as a marketing effort. For larger companies, a marketing initiative can be a theme. For instance, a set of commercials that use a specific character or funny situation over and over may be considered a marketing initiative. A marketing initiative can also be as simple as a shift in an idea. You can have a new marketing initiative that simply changes the way you promote your company, or more specifically what about the company you are trying to promote. A shift in positioning is a good example. 3.10.1 : Marketing initiatives of TATA steel
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Tata Steel Limited has introduced a number of marketing initiatives in recent years. For example, Tata Steel Limited was the first company in India to introduce the concept of a recommended consumer price on a steel product, by fixing the price of Tata Tiscon products for a set period of time according to a pre-determined price list. In 2006, through its Steelium service center, Tata Steel Limited trained through 29 sessions in eight different languages, approximately 550 dealers of Tata Shaktee products on various selling techniques. Through initiatives such as ³Customer Value Management´ and ³Retail Value Management´, Tata Steel Limited has developed new collaborative approaches to meet its customers¶ needs. In addition, on December 12, 2005, Tata Steel Limited inaugurated its Steeljunction store. As India¶s first organized steel retail store, Steeljunction is a mid-size specialty store that sells a range of steel products. The store was launched with the aim of raising awareness about the versatility of steel products and to promote a new and more direct venue for selling steel products to end-users. 3.10.2 : Marketing initiatives of ISPAT Steel Marketing dynamics of Steel business, worldwide, continues to change and evolve constantly. I had earlier indicated to you that the company would continue to drive its avowed CRM initiative to ensure that there is a perceptible and gradual move towards value-added products and growth-segments. The company partners with International steel majors and research institutions for augmenting its efforts towards increasing production of value -added steel. Consequent to company's effort to increase production of value added steel, sales of valueadded grades of Hot Rolled Coils during the year had increased by 32 per cent over the previous year. Strategies aimed at enhancing market share in the State of Maharashtra have helped achieve reduction in logistics costs and optimise the value-added tax chain. Plan of action : The company's internal mechanism is robust enough to adjust strategies to meet its diverse market challenges. Increase vertical integration by reducing dependence on third parties for supplies of key raw materials. Reduce exposure to volatility in prices of raw materials and risks of shortages by producing pellets and coke. Acquiring mining and prospecting leases for iron-ore, non-coking, coking coal and fluxes. Develop value added grades of steel through continuous research and developmental activities. Install and operate a dedicated power plant to meet energy needs and ensure availability of cost-effective power supply. Enhance operational efficiencies at all stages

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of production, by using advanced technologies and processes and implementing best practices through knowledge integration programme.

3.10.3 : Marketing initiatives of JAW Steel JSW steel is moving a head with a two prong strategy wherein on one side it is focusing on the domestic market catering mainly to OEM segment by servicing them with all value added products customized to their requirement and on the other hand a special drive in the retail segment will continue by opening of state-of-the-art branded steel retail outlets with brand name ³JSW Shoppe´. The company is in the process of appointing more District Level Dealers

(DLD) across the length and breadth of the country to have PAN India presence with a special focus on rural and semi urban markets where per capita steel is extremely low. This will help in faster and environment friendly development of rural India and also supports the SME sector growing in this area which is considered to be the back bone of the Indian economy The . company is focusing on various infrastructure projects funded by government as well as private players and signed MoUs with various companies for fixed quantity and at a reasonable rate, to encourage the infrastructure development in the country. Point to be noted that JSW Steel has the only license to manufacture Galvalume in the country, having license from BIEC. 3.10.4 : Marketing initiatives of ESSAR Steel Essar Steel, part of the diversified Essar Group, is planning to nearly double its retail outlets that include both company-owned and franchise outlets and add third party products in its stores, as part of its plans to focus more on retail sales. Essar Steel has identified Andhra Pradesh as one of the potential markets in the country, with plans to increase its network of hypermarts from the present five to six and add about 15 Expressmarts (franchisee-owned outlets) in the State this year. Andhra Pradesh accounts for about six per cent of Essar's total steel business. In order to provide its retail customers with more choice of products, the company, which mainly focuses on flat products, will be adding third party products such as structural steel products, wire rods and pipes, in its outlets. Essar Steel plans to complete the expansion of its Hazira plant from 4.6 million tonnes to 19 million tonnes with an investment of $ 2.5 billion by 2010-end.

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3.10.5 : Marketing initiatives of SAIL Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create and exchange that satisfy individual and organizational objective. The marketing concept requires that customer satisfaction rather than profit maximization is the goal of the organization. In other words, the organization should be consumer oriented and should try to understand consumer s requirement and satisfy them quickly and efficiently, in way that are beneficial to both organization and the consumer. Marketing research is a critical part of a marketing intelligence system, it helps to improve management decision making by providing relevant, accurate and timely information. Every decision poses unique needs for information and relevant strategies can be developed based on the information gathered through marketing research. One of the major tasks in researching a market is to estimate it s a current decisions hang on these estimates whether the market demand upon in future to justify the market entry. Once a company enters a market segment in order to allocate it resources effectively. Thus we can see that demand estimate is essential in carrying out three important functions: y y y

Analysis of market opportunities Planning of marketing efforts Control of marketing performance

A market is a set of all actual and potential buyer of a product. The actual or, available market is a set of buyer who has interest and access to a particular market offer. If the organization is not satisfied with its current sales or has some expansion plans, it could try to attract a large percentage of people from its served market by promoting the product to available market. Untimely it could try to expend the potential market by launching the campaign to convert uninterested buyer into interested buyer.

3.11 : Future Outlook
At the time of independence in 1947, India had only three major steel plants - the Tata Iron and Steel Company, the Indian Iron and Steel Company and Visveswaraya Iron & Steel Ltd and a few electric arc furnace-based plants. Till 1947 we witnessed a small but viable steel industry in the country, which operated with a capacity of about 1 million tonne and was completely in the private sector. From the fledgling one million tonne capacity status at the time of independence, India has now risen to be the 5th largest crude steel producer in the world and the

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largest producer of sponge iron. As per the official estimates, the Iron and Steel Industry contributes around two percent of the Gross Domestic Product (GDP) and its weight in the Index of Industrial Production (IIP) is 6.2 per cent. From a negligible global presence, the India steel industry is now globally acknowledged for its product quality. As it traversed its long history during the past 61years, the Indian steel industry has responded to the challenges of the highs and lows of business cycles. The global steel industry¶s growth has been robust during 2003 to 2008, marked by increasing consolidation among large players. Steel consumption and production expanded at a CAGR of 6.5% during the time. It was evident that the trend had a sharp reversal in the second half of FY08 with a huge slowdown in both production and consumption. Two years ago, the Iron and Steel industry was reeling from the sharpest economic contraction in over almost 75 years. By mid-2009, world steel output had declined by 21.3 percent compared with the first half of 2008. Plant shutdowns and bankruptcies were not uncommon, and mitigating financial risk meant liquidating inventories. The pace of contraction in Iron and Steel production began to slow by the second quarter of 2009, and by end of 2010 output was returning to levels not seen since 2008. However, the speed of recovery has created few problems of its own. The companies that reduced capacity and lowered their inventory levels during the global recession are now struggling to fill customer orders. At the same time, prices for iron ore, coal, and energy are rising, and th trend is is expected to continue. We can begin to build a comprehensive picture of the current and future state of the global steel industry by tracking and analyzing key indicators such as steel production and capacity levels, steel pricing, the state of merger and acquisition (M&A) activities, input prices, and new approaches to demand forecasting and supply chain management. Following a massive global economic downturn, the steel industry is preparing for strong growth in 2010 and beyond. The industry¶s main challenge now is to meet increased demand while maintaining profit margins in the face of rising input costs. With the right strategies and processes, steel producers and distributors can better position themselves for today¶s rapidly expanding global markets.

3.11.1 : Growth Potential The government plans to raise infrastructure spending from the current 5% of the GDP to 10% by 2017. Given India¶s double-digit energy deficit, one third of the allocated amount or infrastructure spending is directed towards power sector. The Indian power sector may expect
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over the next 2-3 years. Besides power plant construction, steel will also be extensively used in making pipelines and power equipment. For the roads and bridges sector, the 11th five year plan envisages a total investment of approximately Rs 1.6 lakh crore. Construction of new ports, new terminals in existing ports, expanding the railway network and building new roads, especially ones involving b ridges, will be the key drivers of steel demand. A scheme for promotion of research and development in iron and steel sector in the 11th five year plan has been approved with a stipulated spending of Rs 118 crore.

Finance minister Pranab Mukherjee provided Rs 1,73,552 core-- constituting over 46% of the total planned allocation -- for infrastructure development in Budget 2010. The steel ministry has stated that, going by MoUs signed by private producers with various state governments over the past few years, India¶s capacity could potentially go up to 293
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orders for over 100 giga watts, worth Rs 1.1 lakh crore

India s e capita c ns ption is a dis al 47 g compared to the global 190 g and 250 g in China. Hence, the scope for improvement is huge. In rural areas, per capita consumption is a dismal 3 g. India has witnessed a significant upturn in steel demand, owing to the automobile sector. Increasing disposable income of the urban middle class, availability of easy credit terms, launch of new models by manufacturers etc, together have turned India into an auto hub. According to the Society of Indian Automobile Manufacturers (Siam), the country s auto industry is expected to grow by 10-15% in FY11.

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million tonnes by 2020. However, the National Steel Policy 2005 seems to be a bit more realistic with steel production target of only 110 million tonnes by 2019-20. Currently, import duty on steel items is 5%. There is none on raw materials such as scrap or coking coal. But, to protect long-term interests of domestic industry, the government recently hiked export duty on iron ore fines to 15%. Of the total outlay of around Rs 17,200 crore in Budget 2010 for the ministry of steel, Rs 12,254 crore(around 70%) has been provided for the Steel Authority of India (SAIL). SAIL, which at 13mtpa production capacity is the biggest domestic steel player, is all set for major expansion and technology upgrades to make it more efficient and world class.

The Indian steel industry has many growth drivers such as easy availability of raw material and workforce. The growth of the construction industry, which is growing at a rate of around 8-9% is one of the major consumers of steel in the country. The eleventh five year plan (2007-2012) by the Indian government, has allocated investment of USD$ 490 billion for the core infrastructure sector, comprising power, roads, railways, ports, airports, which are some of the major consumers of steel. The expansions in the Indian automotive industry and the oil and gas sector.

India is largely sufficient in raw materials for Iron and Steel Industry. 25 billion tonnes of iron ore reserves - the fifth largest reserve base in the world. 253 billion tonnes, (96 billion tonnes proven reserves) Coal- 4th largest proven coal reserves in the world

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India also has world¶s 2nd largest Mn reserves (240 million tonnes), 3rd largest Cr reserves (57 million tonnes) and 4th largest bauxite reserves (2.4 billion tonnes).

3.11.2 : Factors Holding Back The Indian Steel Industry The growth of the Indian steel industry and its share of global crude steel production could be even higher if they were not being held back by major deficiencies in fundamental areas. Investment in infrastructure is rising appreciably but remains well below the target levels set by the government due to financing problems. Energy supply: Power shortages hamper production at many locations. Since 2001 the Indian government has been endeavouring to ensure that power is available nationwide by 2012. The deficiencies have prompted many firms with heavier energy demands to opt for producing electricity with their own industrial generators. India will rely squarely on nuclear energy for its future power generation requirements. In September 2005 the 15th and largest nuclear reactor to date went on-line. The nuclear share of the energy mix is likely to rise to roughly 25% by 2050. Overall, India is likely to be the world¶s fourth largest energy consumer by 2012 after the US, China and Japan.

Problems procuring raw material inputs and raising costs: Since domestic raw material sources are insufficient to supply the Indian steel industry, a considerable amount of raw materials has to be imported. For example, iron ore deposits are finite and there are problems in mining sufficient amounts of it. India¶s hard coal deposits are of low quality. For this reason hard coal imports have increased in the last five years by a total of 40% to nearly 30 million tons. Almost half of this is coking coal (the remainder is power station coal). India is the world¶s sixth biggest coal importer. Rising raw material prices had become a concern for steelmakers worldwide, including in India. Spot prices of iron ore and coking coal had risen by almost 60-70% from the 2009 levels. India¶s largest iron ore producer, National Mineral Development Corp (NMDC), has already announced a provisional hike of 34-56% in base prices in April 2010. While for iron ore fines, the hike is 34% to Rs 2,600 a tonne, for calibrated lump ore it is 46% to Rs 3,800. In March 2010, coking coal prices were hiked by almost 55% to $220/tonne for all long-term contracts. This will increase the cost pressure on companies. The recent demand softening and easing of steel prices have put pressure on raw material prices as well.

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Spot prices of iron ore fines have dropped about $60 a tonne and that of coking coal by $20 a tonne. Ore prices are currently hovering at $120 a tonne and coking coal at $200 a tonne. The recent plunge in iron ore prices has been mainly driven by recent expectations of production cut in China as per the Steel Business Briefing survey.

Inefficient transport system: In India, insufficient freight capacity and a transport infrastructure that has long been inadequate are becoming increasingly serious impediments to economic development. Although the country has one of the world¶s biggest transport networks the rail network is twice as extensive as China¶s its poor quality hinders the efficient supply

of goods. The story is roughly the same for port facilities and airports. In the coming years a total of USD 150 bn is to be invested in transport infrastructure, which offers huge potential for the steel industry. In the medium to long term this capital expenditure will lay the foundations for seamless freight transport. Financing Capacity Expansion: Steel is a capital intensive industry with high fixed cost. To reach the projected CAGR of 7.3%, projects of around 60mtpa will be needed to be commissioned in the next 3-4 years. Such large projects will need an investment of Rs 2.5 lakh crore. Profitability of domestic producers weakened in the second half of FY09. It has picked up in the last 3-4 quarters. Still, internal accruals of manufacturers would be low compared to the estimates at the time of announcement of projects. With a steep hike in raw materials, profit margins will also be under severe pressure. So, dependence on external sources to finance the capital expenditure be larger. Although the Indian equity market has recovered in recent times, its ability to fund such large projects remains uncertain given the scale of government borrowing scheduled for 201011. Bank financing, however, remains a possibility since the Indian banking system still has some liquidity buffer at present. There could be uncertainty over the lender¶s willingness to finance such large-scale projects in the event of steel prices falling again in future. The capital structure of the steel makers can deteriorate due to lower internal accruals and heavy capital expenditure. In the post-de-regulation period, the role of the Ministry of Steel has primarily been that of a facilitator for the Indian steel industry, being responsible for the planning and development of
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the iron and steel industry, development of essential inputs such as iron ore, limestone, dolomite, manganese ore, chromites, ferro alloys, sponge iron, and other related functions. In its present day role, the Ministry of Steel is extending all possible support for the development of the Iron and Steel Industry in the country, in matters like:
y

Facilitating expedited growth of steel capacity investments through active coordination and formulation of right policy directives. An Inter-Ministerial Group (IMG) is functioning in the Ministry of Steel, under the Chairmanship of Secretary (Steel) to monitor and coordinate major steel investments in the country.

y

Providing linkage for raw materials, rail movement clearance etc. for new plants and expansion of existing ones.

y

Facilitating movement of raw materials other than coal through finalisation of wagon requirements and ensuring an un-interrupted supply of raw materials to the producers.

y

Regular interactions with entrepreneurs proposing to set up new ventures, to review the progress of implementation and assess problems faced.

y

Identification of infrastructural and related facilities required by the steel industry, and coordination of infrastructure requirement of steel sector with the concern Ministries/Department.

y

Promoting, developing and propagating the proper and effective use of steel and increasing the intensity of steel usage, particularly in the construction sector in rural and semi urban areas, through "Institute for Steel Development and Growth (INSDAG)" in Kolkata.

y

Encouraging research and development activities in the steel sector. An Empowered Committee under the Chairmanship of Secretary (Steel) provides overall direction to research efforts on iron and steel in the country and approves specific research projects placed before it for funding, fully or partially, from the Steel Development Fund.

y

Efforts are being made to further augment R&D activities in the country with Government budgetary support during the 11th plan period. While exports of finished steel were sustained at a level of 4-5 million tonne per annum

during the 10th Plan, imports sharply increased from about 1.75 million tonne in 2003-04 to 5.21 million tonne in April-December 2009 (provisional data), not because of fall in competitiveness but to fill up supply-demand gap in the domestic market.

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Once these challenges are met and with proper support from the government to minimize the current issues, the Indian steel production can race ahead and produce more Iron and steel. India¶s capacity could potentially go up to 293 million tonnes by 2020.

3.12 : Comparison with China and Other Countries
All the major Iron and Steel producing countries and regions showed double-digit growth in 2010. The European Union and North America had higher growth rates due to the lower base effect from 2009 while Asia and the CIS recorded relatively lower growth. In December 2010, world crude steel production for the 66 countries reporting to the World Steel Association was 116.2 mmt(report as of 21 Jan 2011), an increase of 7.8% compared to December 2009. The crude steel capacity utilisation ratio of the 66 countries in December 2010 declined slightly to 73.8% compared to 75.2% in November 2010. Compared to December 2009, the utilisation ratio in December 2010 is 1.1 percentage points higher.

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WORLD CRUDE STEEL PRODUCTION 2009
Rest Asia 151.88 12.39% India 56.61 4.62% Oceania 6.01 0.49% Europe 194.73 15.88%

C.I.S. (6) 97.36 7.94% North America 82.25 6.71% South America 37.82 3.08%

China 567.84 46.32%
Source: World Steel Association (worldsteel)

Africa 14.84 Middle East1.21% 16.59 1.35%

Commonwealth of Independent States (CIS): Countries include Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan.

3.12.1 : Top 10 steel-producing countries
Rank
1 2 3 4 5 6 7 8 9 10

Country
China Japan US Russia India South Korea Germany Ukraine Brazil Turkey

2010
626.7 109.6 80.6 67.0 66.8 58.5 43.8 33.6 32.8 29.0

2009
573.6 87.5 58.2 60.0 62.8 48.6 32.7 29.9 26.5 25.3

%2010/2009
9.3 25.2 38.5 11.7 6.4 20.3 34.1 12.4 23.8 14.6

Source: World Steel Association (worldsteel)

Annual production for Asia was 881.2 mmt of crude steel in 2010, an increase of 11.8% compared to 2009. Its share of world steel production increased to 65.5% in 2010 from 63.5% in
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2009. China's crude steel production in 2010 reached 626.7 mmt, an increase of 9.3% on 2009. China's share of world crude steel production declined from 46.7% in 2009 to 44.3% in 2010. Japan produced 109.6 mmt in 2009, 25.2% higher than 2009. In 2010, South Korea's crude steel production was 58.5 mmt, a 20.3% growth compared to 2009. The EU recorded an increase of 24.5% compared to 2009, producing 172.9 mmt of crude steel in 2010. However, crude steel production in the UK and Greece continued to decline in 2010. In 2010, crude steel production in North America was 111.8 mmt, an increase of 35.7% on 2009. The US produced 80.6 mmt of crude steel, 38.5% higher than 2009. The CIS showed an increase of 11.2% in 2010, producing 108.4 mmt of crude steel. Russia produced 67 mmt of crude steel, an 11.7% increase on 2009 and Ukraine recorded an increase of 12.4% with a year-end figure of 33.6 mmt.

3.12.5 : Share of world crude steel production 2009, 2010

Source: World Steel Association (worldsteel)

Global Crude Steel production

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YoY(%) growth in crude steel production- India and China

3.12.6 : Chinese Steel Industry Chinese Economy Figures from the World Steel Association show that approximately 158 million tonnes of steel were produced in China during the first quarter of the year. In addition, steel production peaked at 55.4 million tonnes in April 2010, a 27% increase on April 2009, representing the highest amount of crude steel that China has ever produced in a single month. This dramatic surge in production has lead to price correction in the past few weeks in China. In January 2010, Chinese steel prices were approximately $500 per tonne, rising to a peak of $700 per tonne in early April. However, overproduction has led to prices falling back to $550 per tonne by mid-May. The revival of demand in the sector was led by China after the global crisis. China is the biggest consumer as well as producer of steel. It accounted for 47.7% of world steel
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consumption in 2009. Hence, the over-production and subsequent decline of prices will have significant effect on global market. The significant rise in global steel production and consumption since the middle of the nineties to the current period was primarily influenced by the spectacular growth of steel industry in China. A continuous rise in Fixed Asset Investment and Gross Fixed Capital Formation as a percentage of GDP contributed to Chinese economic growth from an average rate of 7 8 % in late 90s to 10-11% by 2008. In 2008, the investment share of GDP rose to 42.4%

and is likely to increase marginally in 2010-11. Chinese consumption of finished steel reached 425 million tonnes in 2008, registering a growth of 4.2 per cent over 2007. The massive investment in infrastructure and high growth in machinery and equipment, shipbuilding, automobile etc. has led to a surge in consumption of steel in China during 2000 2008. Despite this high level of domestic

consumption, China became a major exporters of steel in the current decade. Chinese export of steel reached 60.6 million tonnes in 2008 but this is around 12 per cent less than the high levels achieved in 2007. Further, in the first four months of 2009, China has become a net importer, thereby signifying a dampened international market which is characterized by low priced steel materials available from CIS, Turkey and other countries and comparatively higher level of Chinese domestic prices. China is a major importer of Iron Ore. In 2008, China produced 375 million tonnes of Iron Ore from domestic mines and imported 444 million tonnes of Iron Ore, primarily from Brazil, Australia and India. It may be mentioned here that China accounts for around 96 per cent of India¶s Iron Ore exports. China is a major producer of Coke S. K. Roongta 15.7 and also produced 322 million tonnes of Coke in 2008 with an export component of 12 million tonnes. The demand growth in China, however, needs to be sustained on a long term basis, as only this would entail stability and growth in the global steel industry. In order to sustain the demand growth, the Chinese Government has already announced a stimulus package of US$ 586 billion investment plan over the next few years. The Government is also targeting lower interest rate to reduce new construction costs, enhancement of liquidity flow and reduction of export tariffs to promote exports. Among the other measures, Chinese Government has envisaged closure of inefficient/polluting steel making units which will ensure that excess capacity is brought down to match the demand.

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3.12.7 : Indian Steel Industry Any discussion on the global steel industry would remain incomplete without mentioning a few crucial facts of the Indian steel industry. It is imperative to mention that in the midst of a global recession which has adversely impacted steel production and consumption growth in all the developed countries including China, India¶s steel production and consumption in 2009 is showing a positive trend. In 2008-09, the production of crude steel in India reached 54.5 million tonnes, registering a growth of 0.4 per cent over the previous year, though there is a marginal drop in apparent consumption of steel to 48.8 million tonnes, largely caused by the slowdown in industrial production and market sentiments in Q-3 of 2008-09. The stimulus packages announced by the Government and the installation of a stable government at the Centre, in May 2009, are likely to usher in a new era in the Indian steel industry. There is a huge requirement of investment in infrastructure which is the crying need of the hour. The government is likely to enhance the budgetary allocation of funds in Power, Roadways, Railways, Urban Infrastructure, Ports, Airports, Oil & Gas etc. With this investment, it is likely that the manufacturing sector also would get a boost and the growth of the manufacturing sector that plummeted to a level of 2.3 per cent in 2008-09 is likely to go up to at least 6-7 per cent in the coming months. The Capital Goods sector (heavy machinery and equipment) and consumer durables sector are showing a positive growth and the construction sector is likely to get a much needed boost with increasing investments in infrastructure. The current capacity of around 60 million tonnes is likely to be enhanced by the on-going modernization/expansion of brownfield steel plants of SAIL and other major players. SAIL is planning to enhance its capacity from the current 14 million tonnes to 26 million tonnes by 2011-12. SAIL has given considerable thrusts to producing a number of special grade steels like Rebars for earthquake resistant construction, high corrosive resistant TMT, Long length Rails, S-profile wheels for high speed locos, DMR-249 grade Plates for Naval Warships, Spade M-1 steel for manufacture of battle tanks. Following a massive global economic downturn, the steel industry is preparing for strong growth in 2010 and beyond. The industry¶s main challenge now is to meet increased demand while maintaining profit margins in the face of rising input costs. With the right strategies and processes, steel producers and distributors can better position themselves for today¶s rapidly expanding global markets.

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Chapter 4 : Conclusion
It is globally recognised hat Indian economy is growing at a very high rate presently and the demand for steel is also showing an upward trend. As of 2010 Indian steel Industry is 5th largest in the world, with the kind of investment in this sector it is projected that Indian steel industry iwill be 2nd largest in the world. So, we believe, for the sake of nation and economic growth, growth of Indian iron and steel industry is a must. This is possible only with the active support of the Government with the effort to make this sector grow and make it more eco friendly, which will help the sectors to meet success only if competent authorities take up the developmental jobs in proper spirit.

Chapter 5 : References

1. Ministry Of Steel(2009-10) Annual Report Iron and Steel Industry 2. Narayanswamy A Managerial Perspective 3. Iron and Steel Review (1998) 4. Market segmentation Online Magazine 5. www.Capitaline.com 6. www.MySteel.com 7. www.sail.com 8. www.SteelWorld.com 9. www.steel.nic.in 10. www.worldsteel.org
11. http://planningcommission.nic.in/aboutus/committee/wrkgrp11/wg11_steel.pdf

Financial Accounting

Metal Bulletin

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