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Introduction

The steel industry is one of the major industries in India. It is considered as the backbone of the Indian
economy. Various sectors such as automobile, consumer durables and infrastructure depends on steel and hence
it reflects overall growth of an economy. It contributes to 2% of Indias gross domestic product (GDP). It
enjoys cost advantage in terms of availability of raw material and cheap labor. From 2010 to 2014 steel industry
in India has grown by 35% i.e. from 75 million tons per annum to 101.02 million tons per annum. Future of
steel industry in India is also on bright side. Demand is expected to touch 275 million tonnes by 2020. India is
currently worlds fourth largest producer of crude steel and is expected to become the worlds second largest
crude steel producer by 2016. Major producers in steel industry of India include TISCO, SAIL, and JSW.

Market Structure
Steel

Compositio
n

Form

Liquid
Steel

Crude
Steel

Ingots

Finished
Steel

Flat

Alloy

Semis

Stainless

High Speed

Non-alloy

Silicon
Electrical

Low
Carbon
Steel

Medium
Carbon
Steel

High
Carbon
Steel

Non-Flat

End Use

Structural
Steel

Constructio
n Steel

Rail Steel

Source: Report on Indian Steel Industry by the Competition Commission of India, Arcana Research

Industry Analysis
Tata Steel, Jindal power and steel, JSW steel, Essar steel, Rashtriya Ispat Nigam Ltd., Bhusan power and steel
Ltd, Llyods steel, Steel Authority of India Ltd are the major players in Indian steel Industry. Porter five forces
analysis of this industry reveals the following:
Threat of new entrants:
The threat of new entrants in this industry can be termed as High due to following reasons:
1. Steel Industry is capital intensive. It requires huge investments to set up a steel plant.
2. Although government policies are favorable to steel manufactures but still there is discrepancy in
allocation of mines and lands. Regulatory clearances and other legal issues are some of the impediments
to entry in this industry.
3. Cost of basic inputs and services such as electricity is high. This increases the cost of running steel plant.
Threat of substitutes:
Use of various substitutes such as Aluminum, Plastic, Carbon fire are on rise in automobile and consumer
durable sector. But none of them has been able to replace steel completely and also the cost differential is very
high. Based on this we can say that threat of substitutes in India steel industry is low.
Bargaining power of suppliers:
Many steel companies are integrated that is they have their own mines for key raw materials such as iron ore
and coal and hence does not depend on suppliers for its outsourcing. Tata steel is an example of one such
company. Bargaining power of suppliers is thus low in steel industry.
Bargaining power of buyers:
Although Steel neither falls in luxury goods nor the product is highly differentiated but, major players enjoy
premium for their products because of its quality and brand value they have developed over the years. The
product is very important for buyers and hence they end up paying more. Also, India is net importer of steel
which indicates that demand for steel exceeds supply. Hence, we can say that bargaining power of buyers is low
for Indian steel industry.
Intensity of rivalry
Market share of various major players in steel industry is as follows:
Company name
SAIL
RNL
BHUSAN

Share (in %)
18.7
4.3
3.7

Company name
TATA STEEL
JINDAL
ESSAR,JSW,ISPAT

Share (in %)
11
7.7
14

Market share of major players (%)

18.7; 19%
SAIL

RNL

BHUSAN

TATA STEEL

40.6; 41%

JINDAL

4.3; 4%

ESSAR,JSW,ISPAT

OTHERS

3.7; 4%
11; 11%
14; 14%

7.7; 8%

Herfindahl Index = (18.7^2+11^2+4.3^2+7.7^2+3.7^2+14^2) + 40*1


= 798
As Herfindahl index is less than 1000, this indicates that marketplace is highly competitive. Each player has
significant amount of market share. Thus, Intensity of rivalry in steel industry is high.
Our porter five forces analysis can be summarized as follows:

Buyers
power
(Low)

Barrier
to entry
(High)

Rival
ry
(High
)

Supplier
s power
(Low)

Threat
of
substitut
es (Low)

PEST Analysis of Indian Steel Industry


Macroeconomic environment of steel industry is being analyzed by the PEST analysis. Political, economic,
social and technological factors affecting industry is being analyzed to elicit a meaningful conclusion about
youre the industry.
Political Environment:In Indian steel industry government has given status of Navratna to SAIL and RINL which enables them to
operate with autonomy. Government also allows private ownership as well as foreign investment in the stakes
of steel companies. Foreign investment has provided a significant technological advancement in the sector.
Industry has also experienced the deregulation of pricing by government. A large amount of raw materials are
being imported to country and keeping the same fact in mind government has reduced import duties on the
import of inputs used in the steel industry. National steel policy has been implemented to remove bottlenecks in
the operational system.
Economic Environment:For boosting the growth of industry and providing a conducive environment to operate, government has created
special regions where infrastructure is total created by government and provided to companies. Special
economic zones with benefits like tax holidays exists in the country. There is a conspicuous boom in the
infrastructure of the country which consequently has fuelled the demand in the country.
Social Environment:Indian steel industry employs more than 2 million people in the country. Young and competent labors are in
ample amount in country to provide high efficiency at the workplace. There is a high emphasis on the safety
issues at the workplace. Some of the cities like Jamshedpur, Bokaro etc. are developed at the name of steel plant
in the city.
Technological Environment:-

There has been a continuous effort to improve the existing steel manufacturing processes along with efforts to
carve out new processes to produce the myriad variety of steels with different compositions. There has been a
shift towards greener way of producing steel than blast furnace. Application of SML (Steel Markup Language)
can also be seen in the industry.
Po litic a l

E c o n o m ic

S o cia l

G o v t a llo w in g
p riv a te
o w n e rs h ip
a n d fo re ig n
in v e s tm e n t

S p e c ia l
E c o n o m ic
Z o n e s w ith
b e n e fi ts lik e
ta x h o lid a y s

N a v r a tn a
s ta tu s fo r
S A IL , R IN L
g iv in g m o re
a u to n o m y

S p e c ia l
In v e s tm e n t
R e g io n s
w h e r e in
in fra s tru c tu r
e is to ta lly
c re a te d b y
govt

D e re g u la tio n
o f p r ic in g
a nd red u ce d
d u tie s o n
im p o rt o f
in p u ts

B o o m in
In fr a s tru c tu r
e s e c to r
s p u rs
dem and

Te c h n o lo g ic a l

In d ia n s te e l
In d u s try
e m p lo y s
m o re th a n 2
m illio n
p e o p le

W o rk in g o n
new er
m e th o d s o f
s te e l
m a n u fa c tu rin
g

A v a ila b ility o f
young,
c o m p e te n t
la b o r

S A IL in ta lk s
w ith K o b e
S te e l o f
Ja p a n a n d
POSCO of
S o u th K o re a

E m p h a s is o n
s a fe ty a t th e
w o rk p la c e
a n d b e n e fi ts

B o th th e s e
te c h n o lo g ie s
a re le s s
e x p e n s iv e
a n d g re e n e r
th a n th e
b la s t fu rn a c e

Conclusion
Various initiatives taken by the Government and the liberalization policy has made it possible for private sector
to enter, participate and grow in steel industry. This has helped the existing units to modernize and expand, also
a number of new steel plants have started in different parts of the country. The following graph shows the
growth in the market value of Indian steel sector:

Indian Steel Sector Market Value (in USD billion)


120

95.3

100
80
60
40

30.1

43

46.8

36.5

57.8

20
0

2007

2008

2009

2010
Year

2011

2016E

Source: Ministry of Steel

From 2007-11, the steel sectors market value is estimated to have a CAGR of 17.7%. In 2011 the steel sectors
market value was 57.8 USD billion. In 2016 it is estimated to grow to 95.3 USD billion.
Huge growth in steel sector is expected because of relatively low per capita consumption of steel and the
expected increase in steel consumption. This consumption is expected to increase because of increase in
demand from infrastructure, railway and automobile industry. With the increase in global population and
emerging economies, there is a greater need for steel to build public-transport infrastructure, urbanization and
industrialization purposes. It is anticipated that India's steel sector may witness investment of about US$ 33.26
billion in the coming years, as per Tata Steel.