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Porters 5 forces

Bargaining Power of Suppliers: MEDIUM to HIGH
  For integrated steel plants: Integrated steel plants have captive mines which supply raw materials at low cost For non-integrated or semi-integrated steel plants: These have to source their raw materials from suppliers who may bargain depending on their size. Globally, the top three mining giants BHP Bilton, CVRD and Rio Tinto supply nearly two-thirds of processed iron ore requirements to steel plants and command very high bargaining powers. In India too, NMDC is a major supplier to these plants.

Barriers to entry: HIGH
 Huge capital investment required: It is estimated that to set up capacity of 1 mega tonne per annum in an integrated steel plant, the investment required is about 25 to 30 bn Rupees Economies of scale: Benefits of economies of scale come from greater bargaining powers with suppliers, R&D expenses, and proportionately lower fixed costs. Integrated steel plants often invest in captive mines to have cheaper raw materials, which is not a feasible option for new entrants. Economies of scale are hence difficult to reach for new entrants Regulatory Clearances: The Indian Government have generally pro-steel-manufacturer policies but the regulatory clearances are difficult to achieve for new entrants Scope of Product Differentiation: There isn’t much scope of product differentiation in steel. The big players have established brand names which have got associated with quality but new entrants will take a long time in achieving this Access to existing distribution channels: The existing distribution channels are working at almost full capacity. If new entrants are to set up new distribution channels they would incur huge expenses

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Threat of Substitutes: MEDIUM to LOW
 Threat in Automotive Market: This is one of the biggest markets of steel. In recent years though, steel has been increasing replaced by Aluminium, Plastics and Composites. Steel, however, cannot be completely replaced. Also, Aluminium is more costly because of the high cost of electricity extraction and purification of aluminium in India In other markets: Steel has been replaced in railway sleepers (RCC sleepers), large diameter water pipes (RCC Pipes) etc. Technological advancements may further make substitution of steel easier but not in the near future

The global steel market had total revenue of $961. The steel industry has a CAGR of 9. Smaller consumers do not get these benefits Competition from existing players: HIGH  Existence of International players: The steel industry is global in nature.2% and this is expected to drive the market to a value of $2310. China continues to be the largest steel producing country and generates almost half of the global output which is 46%. India has acquired a crucial position in the global steel map and has become the fourth largest producer of crude steel with 89 million tonnes as of 2011-12.Bargaining Power of Buyers: MIXED  The major steel consumption sectors like automobiles. This is growing at a rate of 8.9% annually.2% for the period 20062010.The market consumption volumes increased with a CAGR of 3. . the crude steel production in India will grow at a compounded aggregate growth rate of around 10%.6% of the market volume.3 million metric ton in the year 2010. Existing players will fight tooth and nail to supply the unfulfilled demand  Market Assessment of Steel Industry Size and Growth of the Industry Global Scenario The steel industry can be considered to be the backbone of modern society taking into consideration its varied uses.93% of total steel produced globally. Indian Scenario With its giant steel mills. mergers and acquisitions and efficient technology. India accounts for 3. It has been forecasted that by 2015. oil and gas. the demand is still more than the supply because of rapid industrialisation.3% between the years 20062010 and reached a total of 1353. be it for construction or electrical appliances or household. the global crude steel production was a record 1527 million tons in the year 2011 which outperformed the 2010 record of 1414 million tons. As per the “Indian Steel Industry Outlook to 2012” report.1 billion by 2014.8 billion by end of 2015. the CAGR would grow to 19. As per reports. India is a net importer of steel. According to the World Steel Association.8 billion as of 2010 and is expected to grow to a value of $ 1372. Large steel producing countries like China influence global pricing because of volumes and aggressive exports at lower prices which they can afford because of their economies of scale Indian Scenario: In India. Arcelor Mittal is the leading player in the global market and generates a share of 6. shipping. enjoy high bargaining powers because of high volumes. power generation etc.

Tata Steel has concentrated on delivering quality. This mostly includes Wire Drawing and Rebar Products. Segmentation based on products From its inception. building envelope (roofing and wall products) and internal fit out products (used for heating. The demand in this sector is often for a tailored products for individual specifications  General Engineering: Tata Steel manufactures a wide range of products encompassing sections. partition walls etc. Tata Steel serves the following eleven market segments with its range of flat and long products:  Automotive Sector: More than half of the weight of the car is made up by steel. The total turnover for Tata Steel in the year 2012 was Rs 1. Tata steel tries to be as responsive to the customers’ demand as possible  Consumer Goods Sector: Products ranging from hot rolled coil to high gloss pre finished steel perforated blanks from Tata Steel are used in domestic appliances. The organisation has striven to be responsive to the needs of the industry it is supplying. Tata Steel Market Segmentation Steel is the backbone of many industries today. The galvanised corrugated sheets form Tata Steel.1 billion. consumer goods and construction. The requirements of the construction industry are highly geography dependant. plate. Steel Authority of India Ltd (SAIL) is the leading player with a market share of 20. Almost all major vehicle manufacturers buy numerous steel products from Tata Steel  Construction Sector: The construction sector is Tata Steel’s largest single market segment globally. assurance and value to customers.). With a market share of 48%. It is an essential material to produce innumerable products and build structures that affect the everyday life of almost all human beings. ventilation. tubes and composite floors).1% followed by Tata Steel at 10.2 Million tonnes followed by Tata Steel at 13%.900 crores.The current market size is estimated at US $55. Flat Products account for 56% of Tata Steels total sales volume. lighting. Accordingly.2% SAIL is the largest player in India with an installed capacity of 26% which accounts to 15. bearings. Flat Steel crossed the enviable 1 million tonnes sales mark in FY11. sold under the brand name Tata Shaktee is the world’s first branded galvanised cold rolled steel. furniture and office equipment. 32. there are two broad categories of products it manufactures: Flat Products and Long Products. Tata Steel is the market leader in this category. This is used in a wide range of industries like automotive. The products and systems on offer can be further segmented into structural frame (sections. wires and tubes which serves a great number of small and medium sized engineering companies . Long Products account for 44% of Tata Steels total sales volume.

Tata Steel provides high quality steel including tin plate and polymer coated steel to the worldwide can making industry making light metal packaging for foods and beverages.  Lifting and Excavation: This sector manufactures machinery like earth moving equipment. container ships and others  Rail Sector: Tata Steel manufactures a wide range of steel sleeper products. bulb flats. steel is used to make large steel drums. Jharkhand. tramways. Tata Steels manufacturing facility at Europe is capable or satisfying the new and rising demand for longer. there are other subsidiaries which are headquartered at Singapore. . It has a capacity of 1. Tata Steel regularly invests in technology to honour the long term contacts that require satisfaction of stringent approvals  Ship Building: Steel plates. In the industrial sector. The Singapore operations have a capacity of 750000 tonnes per annum which comprises of steel making and rolling operations. Browfield project at Jamshedpur Steel plant. Some of the major projects in this sector include Seraikela Greenfield project.30. Vietnam: NatSteel is a 55% equity partner in a joint venture with VN Steel. All of these subsectors are highly steel intensive and Tata Steel serves many of the world’s largest players in this market  Energy and Power Sector: Tata Steel has significant technical expertise in the energy and power sector offering product packages for energy applications  Aerospace Sector: This is a high value and technology intensive industry having a global supply chain. c. gas cylinders etc. angles. b. Singapore: Tata NYK Shipping Pte Limited is a Singapore based 50:50 joint venture between Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK line). sections etc. Asia : The countries included are: a. The major sub-segments served are ships and submarines. tubes. d. a Japanese shipping major.000 tonnes per year. tankers. Thailand: Tata Steel Thailand is headquartered at Bangkok and has three main subsidiaries. India: Tata Steel has spread its wings all over India. metros and conventional railway tracks. from Tata Steel are used in building vessels like cruise liners. noise reduction systems and other specialised track components for speedlines. mining machinery and cranes used in movement or extraction of materials. with manufacturing operations scattered in 26 countries. The global network of Tata Steel is spread around the following locations: 1. Haldia Plant at West Bengal. Jagdalpur (Bastar) project at Chattisgarh. aerosols etc. protective constructions. ferries. Packaging Sector: Steel is used both in consumer packaging and Industrial Packaging sector. harder steel  Defence and Security Sector: Tata Steel has a range of products that can provide robust protection against bomb attacks to anti attack vehicle barriers to armoured steel for defence components. Apart from this. armoured vehicles and perimeter security Segmentation based on Geography Tata Steel has a global presence in about 50 developed European countries and in many Asian countries. paints. Kalinganagar Greenfield project at Odisha.

crowbar and so on. Domestic appliances: Some of the products purchased by households on a frequent basis are made up of steel. and steel nuts. A few of them are thermos. Australia: Tata Steel has entered into a joint venture with Vale in Australia for a coking coal mine. Spoons and forks. North America: Tata Steel through its subsidiary Tata Steel Global Minerals Holding Pte Ltd. has signed an agreement with New Millennium Capital Corporation based out of Canada for the development of Labmag and Kemag iron ore deposits which is collectively called as the Taconite Project. Direct Shipping Ore Project. steel links. Based on the frequency of use and the type of use. engraving tools. packaging. corkscrew chopper. rifles. handcuffs. gas burner and kitchen utensils. steel pipes. and dental braces. paper clips. multiuse penknife. nail clippers. clamps.5 million tonnes of coking and PCI coal. it can be purchased as and when required. energy and power. crane hooks. needle. scissors. The segmentation is thus based on the use of steel which is as follows:   Agriculture: Steel is used in many tools such as sickle. 5. dental instruments. Industry: It is used for ratchet silver sockets. as it is called. pick axe. nails. pistons of hydraulic systems.2. pumps. keys. microscope. 4. Wire Whisk. pencil sharpener. Construction: Steel has widespread use in the construction activities and the products include wires. electric iron. screw bolt. These are purchased on a regular basis depending on the frequency of use. alligator wrench. and claw hammer. stainless steel pipes. Africa: This includes: a. Office Stationery: This is frequently purchased by offices and companies and the products include steel ruler. corrugated sheets. The Bowen Basin project. aerospace and other industries. compass. Ivory Coast: Tata Steel has entered into a joint venture with SODEMI ( State Owned Company for Mineral Development) for the development of Mount Nimba iron ore deposits. computer video cables.      . and helmets. shovel. Health and Hygiene: Steel is used in a variety of products used by doctors as well as for personal hygiene. fencing. safety pins. blades. Tata Steel is the second largest steel producer and supplies steel related products and services to construction. Some of these are angled forceps clamp. Safety: Steel is used for various products used for safety and security like car seat belts. b. weighing machine. rods. 3. Europe: At Europe. Mozambique: Tata Steel has entered into a joint venture with Riversdale Mining Ltd and has started with the Benga Coal Project c. USB pen drives. has been started at Canada which is still in the nascent stage. South Africa: Tata Steel (KZN) is a South Africa based subsidiary and is focussed on the production of Ferro Chrome and Charge Chrome. security forces. valves. beam. Segmentation based on purchase occasions The uses of steel can range from agriculture to household. automotive. is expected to produce around 2. Another project.

The government aims at achieving this goal by extra spending on extra capital expenditure along with funds for technology up gradation at existing facilities. ferris wheel. However. for the purpose of gifting or as part of the lifestyle. steel offers a favourable cost benefit ratio and low maintenance cost and therefore it has the capability of accessing new market segments every day. with decrease in purchasing power. With the rising prices and inflation there is a decline in the purchasing power. How was the industry positioned when the organization was in the midst of the issue identified? Indian steel industry was freed from the clutters of licensing after opening of economy in 1991. bells. Steel industry is constantly moving towards innovation and in production of cheaper products. real estate and automobiles.It aims at an average 7% growth in production per year. Steel currently finds application in all kinds of industrial and domestic purposes. belt buckles. India. Global steel industry The production capacity of global crude steel industry had grown by 7% from 1. In 2005 government of India released National steel policy with a vision for future of the steel industry.6 billion tonnes in 2007. Government of India adopted new industrial policy which opened up the iron and steel sector for private investment. exempted it from compulsory licensing and allowed foreign direct investment upto certain limits. Segmentation based on purchasing power: Purchasing Power refers to the amount of goods and services that can be purchased with a unit of currency. consumer durable goods. furniture. However. The main objective of policy is creation of an industry with 110 million tonnes of capacity and 100 million tonnes of production by 2019-20. soda cans. cameras. food industry.5% in 1981 to around 3. The demand for steel has increased from sectors like infrastructure. for beautification. . South Korea and Japan).  Transportation and Communications: The transportation and communication industries purchase huge quantities of steel for use in bearings. electric guitars. ship anchor. The policy removed the industry from reserved list for public sector. steel is getting innovated and moving towards making low price yet durable steel for consumption. cleaning and maintenance for domestic consumption. trains and railway tracks. Russia. It is used in cutlery. telecommunications tower. microphone.5 % in 2004. Lifestyle: Steel products are also used for other occasions like those in temples. scuba goggles. About 61% of total global production capacity came from Asian countries (China. both in India and abroad. India’s share in world production of crude steel increased from 1. bridge.5 billion tonnes in 2006 to 1. pocket watches. Some of the products that are purchased frequently and contain steel are steel sculptures. car wheels.

It has shown a growth of 8% CAGR between 2003 and 2007.asp . After the acquisition Tata Steel became 5th largest producer of steel in the world from 55th globally. India continues to be a net importer of steel from 2007 owing to difference in demand and supply.2 billion tonnes in 2007.9 billion from its 18. At the time merger Corus was the 9th largest steel maker in the world with largest market share in construction and packaging in Europe with leading R&D. Apart from lower levels of profitability Corus had total debt of 1. References: http://www. The consumption also registered a CAGR of 8% in line with production during 2003-2007.6% to 1.7million tone capacity by Tata).2 million tonnes production per year when compared to $ 1.tatasteelindia. The cost of acquisition was lesser than setting up a Greenfield project.6 billion pounds.com/key-market-sectors http://www.com/news/home/20110128005996/en/Research-Markets-Global-SteelIndustry-Guide-Forecasts http://www.tatasteel. For long term sustainability Corus decided to sell to low cost manufacturer Tata steel that was having its capacity expansion in India through green field projects.com/sustainability http://www.com/commentary/20510/steel-industry-stock-outlook-march-2012 http://www. The merger offered a lesser risky diversified portfolio for Tata steel along with access to European markets.tatasteel100.com/research/285759/global_steel http://www.com/gallery/100uses.The emerging markets were major drivers of steel consumption with construction and infrastructure sectors being the major drivers of growth.5 billion from 8.The global steel production was 1. Out of the total production china accounted for 36% of global production.zacks.tatasteelindia.3 billion tonnes in 2007.com/corporate-citizen http://www. Tata’s were manufacturing low value long and steel products while Corus manufactures high value stripped products. The global steel consumption also increased by 6.researchandmarkets.businesswire. But Corus was making only a profit of $ 1.

scribd.equitymaster.com/doc/10934106/Merger-and-Acquisition-in-Steel-Industry http://www.asp?date=09/11/2008&story=1&title=Global-steel-industryKey-stats .http://www.cci.com/detail.in/pdf/surveys_reports/iron-steel.pdf http://www.