Steel Industry

ICRA

ICRA Sector Analysis

STEEL
The Indian Steel Industry
October 2004

[Link]
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 Steel Industry

Contacts:
Rajeev Thakur Research Head
Amul Gogna Executive Director

Date October 2004

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TAB LE OF C ONTENTS

EXECUTIVE SUMMARY ...................................................................................................................... 4

EVOLUTION AND GROWTH............................................................................................................ 4
KEY ISSUES .................................................................................................................................. 5
KEY SUCCESS FACTORS ............................................................................................................... 5
PERFORMANCE DURING FY2004 .................................................................................................. 6
MAJOR PROJECTS ......................................................................................................................... 6
OUTLOOK ..................................................................................................................................... 6
OTHERS ........................................................................................................................................ 6
OUTLINE OF THE SECTOR .................................................................................................................... 7
MARKET SIZE AND SEGMENTATION, INDUSTRY STRUCTURE ....................................................... 7
MARKET CHARACTERISTICS ......................................................................................................... 8
PLAYERS ................................................................................................................................................... 12
PLAYER TYPES AND OUTLINES OF MAJOR PLAYERS .................................................................. 12
RANKING .................................................................................................................................... 20
KEY SUCCESS FACTORS ............................................................................................................. 22
INVESTMENT CLIMATE ....................................................................................................................... 23
GROWTH TREND ......................................................................................................................... 23
PRODUCTION OF IRON & STEEL ................................................................................................. 24
IMPORT AND EXPORT OF IRON & STEEL..................................................................................... 26
APPARENT CONSUMPTION OF FINISHED CARBON STEEL........................................................... 27
INDIA ADVANTAGE / DISADVANTAGE ......................................................................................... 27
REGULATIONS ............................................................................................................................ 28
CRUCIAL ISSUES THAT NEED TO BE ADDRESSED ........................................................................ 28
HUMAN RESOURCES AND INFRASTRUCTURE.............................................................................. 29
POLICY FRAMEWORK.......................................................................................................................... 29
IMPORTANT POLICY MEASURES ................................................................................................. 29
TAXATION ................................................................................................................................... 31
MAJOR PROJECTS.................................................................................................................................. 34
SAIL........................................................................................................................................... 34
TISCO........................................................................................................................................ 35
RINL.......................................................................................................................................... 35
ISPAT ........................................................................................................................................ 36
ESSAR ....................................................................................................................................... 36
JINDAL ..................................................................................................................................... 36
FINANCIAL PERFORMANCE OF MAJOR COMPANIES................................................................ 37
PERFORMANCE DURING 2003-2004............................................................................................ 37
OUTLOOK ................................................................................................................................... 39
OTHERS ..................................................................................................................................................... 39
INITIATIVES UNDERTAKEN IN UNION BUDGET FY2005 ............................................................ 40

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EXECUTIVE SUMMARY
Evolu t ion an d Growth

Post-independence, the Government of India worked on a strategy of regulating all the core
sectors of the economy in consonance with its socialistic ideals that were relevant at that
point of time. The steel industry also came under the regulatory framework, which
stipulated:

• Reservation of steel industry for the public sector (TISCO was a private-sector company
that was incorporated much before Independence. Efforts were made by the Government to
nationalise it, but had to be put off owing to stiff resistance from the company
stakeholders, including the employees);
• Requirement of licensing for creation and addition of capacity; and
• Controls on pricing and distribution of steel

However, the economic reforms initiated with the New Industrial Policy in 1991 added new
dimensions by opening up the industry first to the private sector and then to foreign
participation. Licensing requirements for capacity creation were abolished in 1991. Steel was
removed from the list of industries reserved for the public sector in 1992. Automatic approval
of foreign equity investment up to 74% is now available. Price and distribution controls were
removed from January 1992, with a view to make the steel industry efficient and
competitive. Restrictions on external trade, both in import and export were removed. Over
the years, import duty rates have been reduced drastically. Pre-liberalisation levies like Steel
Development Fund (SDF) levy and Engineering Goods Export Assistance Fund (EGEAF)
levy have been scrapped. Certain other policy measures such as reduction in import duty of
capital goods, convertibility of the rupee on trade account, permission to mobilise resources
from overseas financial markets and rationalisation of the existing tax structure for a period
of time have also benefited the industry.

Liberalisation gave a definite fillip to the growth of this industry. During the period FY1992
– FY2004, production of pig iron and finished steel increased by 228% and 153%,
respectively.

In the first half of the 1990s, lured by high global prices and strong domestic demand arising
out of post-reform industrial growth, large investments were made in steel. New capacities
were added, especially in the private sector, often without proper analyses of either
feasibility or business cycles. As these players were restricted from using the Blast Furnace –
Basic Oxygen Furnace route for making steel, they set up electric arc furnaces fed by Direct
Reduced Iron (gas based). However, the second half of the decade saw demand dropping, as a
result of decline in investments as well as tardy progress in large infrastructure projects. The
impact of recession in the automobile industry was significant in this context. Moreover,
there was a marked slowdown in investments by the Government, the largest consumer of
steel in India. To make matters worse, with import tariffs being brought down in phases
from the peak level of 100% to 10%, the indigenous industry had to face international
competition.

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The Current Industry Position

• The Indian steel industry ranks 8h in the world with an annual production of 31.8 million
tonnes per annum. It accounts for 3.3% of the world steel production.
• As a market, India presents a good potential with a low per capita consumption level
(around 20 kgs as against 80 kgs in China, 405 kgs in Malaysia and 925 kgs in South
Korea)
• The structure of the steel industry comprises the following sectors:
o Primary producers – three integrated steel producers (ISPs) who convert iron ore
into steel through Coke oven-BF-BOF route - Steel Authority of India Limited
(SAIL), Tata Iron and Steel Company Limited (TISCO) and Rashtriya Ispat Nigam
Limited (RINL), which have among them nine operational units
o Secondary producers: These are the mini steel plants (MSPs), which make steel by
melting scrap or sponge iron or a mixture thereof in an electric arc furnace (EAF) or
an induction furnace (IF). There are approximately 190 EAF units and 950 IF units.
o Small sector stand-alone processors: These include small stand-alone units for
making pig iron and sponge iron, hot and cold rolling units, re-rollers, galvanising
and tin plating units

Ke y I ss u e s

Key Issues facing the players include:

• Global over-supply and cyclical nature of industry
• Low margin business as compared to many other commodities
• Waning cost competitiveness
• Shortage of coking coal, coke and scrap
• High level of debt exposure
• Low labour productivity
• Disadvantage due to plant locations
• Declining duty protection

Ke y S u cc es s F ac to r s

The key success factors in the industry include:

• Level of integration and captive facilities
• Product Mix
• Branding
• Location of Steel Plants
• Cost competitiveness
• Conservative Capital Structure
• Marketing Alliances

As an Investment destination, India has several advantages such as – low per capita steel
consumption, increasing infrastructure spending, increasing per capita income and consumer
spending, low interest rate & inflation, low cost iron ore and low labour costs. The
disadvantages associated with the Indian market are – shortage of coking coal, coke & scrap,
high energy costs, infrastructure bottlenecks, declining duty protection and poor labour
productivity.

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P e r f o r m a n ce d u r i n g F Y2 0 04

The Indian Steel Industry has continued its growth momentum during 2003-2004.
Production and apparent consumption were higher by 7.5% and 5% respectively. High steel
prices coupled with volume growth translated into growth in topline as well as bottomline of
steel companies.

Ma j or P r oj ec ts

Major projects include: Rs.25,000 crore capex plan of SAIL, 3.4 mtpa capacity expansion by
TISCO, Rs. 18,000 crore capex plan of RINL, 0.6 mtpa HR coil expansion plan of ISPAT, 0.6
mtpa HR coil expansion plan of Essar and Rs. 180 crore capex plan of the Jindal group.

Outlook

The fundamentals of the Steel Industry appear to be improving in the near to medium term.
Rising Steel prices and growth in the export markets are playing an important role in
improving the fortunes of the Indian Steel Industry. International Steel prices (and hence
the domestic steel prices) and volume offtake in the export markets are expected to be
sustained in the near future, till the new capacities (particularly those coming in China)
further deteriorate the demand supply balance. Input prices (eg. Coal, freight etc.) have also
seen significant growth in the recent times. Accordingly, there is an imperative need for the
Indian steel companies to improve operating profitability so as to withstand all phases of the
steel price cycle. This is expected through varied measures such as – implementing cost
control measures, enhancement of capacity utilization, improvement of operational
efficiencies, altering the product mix for maximizing share of value-added products and
targeting niche markets.

Others

Impact of the initiatives undertaken in Union Budget FY2005: Reduction in custom

duties on steel is likely to negatively impact the operating margins of the steel companies.
The combined impact of reduction in custom and excise duties could lead to a marginal
decline in steel prices. On the positive side, maintaining status quo on railway freight is
likely to have a positive impact on the operating costs. The initiatives in the infrastructure
sector may translate into increased steel demand. Additional depreciation benefits may
result in increased investments in brownfield projects.

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OUTLINE OF THE SECTOR

M a r k et S i z e a nd S eg men t a t i on , In du s t r y S t ru ct u r e

• The Indian steel industry ranks 8th in the world with an annual production of 31.8
million tonnes per annum. It accounts for 3.3% of the world steel production.
• As a market, India presents a good potential with a low per capita consumption level
(around 20 kgs as against 80 kgs in China, 405 kgs in Malaysia and 925 kgs in South
Korea)
• The structure of the steel industry comprises the following sectors:
! Primary producers – three integrated steel producers (ISPs) who convert iron ore
into steel through Coke oven-BF-BOF route - Steel Authority of India Limited
(SAIL), Tata Iron and Steel Company Limited (TISCO) and Rashtriya Ispat Nigam
Limited (RINL), which have among them nine operational units
! Secondary producers: These are the mini steel plants (MSPs), which make steel by
melting scrap or sponge iron or a mixture thereof in an electric arc furnace (EAF)
or an induction furnace (IF). There are approximately 190 EAF units and 950 IF
units.
! Small sector stand-alone processors: These include small stand-alone units for
making pig iron and sponge iron, hot and cold rolling units, re-rollers, galvanising
and tin plating units

The Steel sector has a significant importance to the Economy. It not only directly accounts
for about 1.3 per cent of GDP, it also has a bearing on how the consumer goods and
downstream infrastructure sectors develop. Further, with a share of approximately 10%, the
sector is amongst the largest contributors to the central excise. The industry provides
employment to a large workforce (approximately 0.4 mn. people directly), with the integrated
steel plants accounting for a 40% share.

Sector Type No. of Working Total Working % of Working Capacity

Units Units Capacity Capacity to Total Capacity

Primary Integrated Plants 9 9 18.90 18.90 100

Secondary EAF Units 188 35 12.80 6.70 52.34
IF Units 967 635 10.29 7.19 69.87
Small Pig iron Units 21 18 4.83 4.16 86.13
scale
Sponge Iron Units 56 51 7.24 6.88 95.03

Re-rolling Units 1270 743 24.62 14.26 57.92

HR Units 13 8 6.63 6.37 96.08
CR Units 85 54 4.59 3.89 84.75
GP/GC Units 20 16 2.10 1.96 93.33
Tin Plating Units 3 2 0.15 0.09 60.43
Source: Ministry of Steel, Government of India

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The integrated steel plants account for around 60% and the large mini mills account for
around 15% of the total value created by the Indian steel industry.

Ma r k e t Cha r ac te r is ti c s

The competitive forces affecting the Indian Steel Industry, as per Michael Porter’s model is
shown in the following chart.
Threat of Substitutes – Medium
Steel faces competition from
substitutes such as Aluminium,
Plastic and Copper. However, high
strength of Steel prevents large
scale substitution.

Bargaining Power of
Buyer- Medium to
Bargaining Power of Inter-firm Rivalry – High
High Diversified set of
Supplier – High The steel industry is extremely
users prevents significant
Supplier of Raw Material fragmented. In India, apart from
buying power with
(Coal, Iron ore, Scrap) have the 3 integrated players, there are
buyers. However,
high bargaining power vis a vis 190 Electric Arc Furnaces, 950
individual nations often
non-integrated players. Induction Furnaces and 1500 small
initiate actions, which
scale stand alone producers.
affect global trade (eg.
Section 201, USA)

Entry Barriers: Medium - High

Capital investment is the main entry barrier for players
who wish to enter the steel sector as an integrated
player. For example, setting up a 1mtpa blast furnace
alone would cost upwards of Rs.18 bn. However, if the
player wishes to operate in specific segments of the steel
value chain on a stand-alone basis (like sponge iron
units, re-rolling units etc.), the entry barriers would be
limited. For example, the cost of setting up a 60,000 tpa
sponge iron unit would be just around Rs.0.15 bn.

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Key Issues facing the industry are as follows.

• Global Oversupply and Cyclical Nature of Industry
The trend in the last few years in steel prices shows that the steel industry is cyclical. While
the demand growth is usually governed by economic growth (because of a large end user
demand base), the steel sector globally is marked by overcapacity. The trough in the steel
cycle is usually caused by deterioration in demand conditions, as was the case in FY2002.
The upward movement in steel cycle is the result of improvement in demand conditions (eg.
Chinese demand because of Olympics, recovery in global economic conditions) and/or capacity
rationalisation (by around 20 mn. tonnes by the OECD nations). The cyclical behaviour has a
huge impact on the performance on steel companies.

Production vs. Capacity (mn. HRC Price ($/tonne)

tonnes)
600
500
1200
400 CIS
1000
300 Europe
800 China
200
600 Production 100
Capacity 0
400 Apr-95

Apr-96

Apr-97

Apr-98

Apr-99

Apr-00

Apr-01

Apr-02
200

0
1995 1996 1997 1998 1999 2000 2001 2002

Compiled by INGRES

• Low Margin Business

The steel industry is extremely fragmented both locally as well as globally. Although, some
signs of consolidation (eg. Usinor, Arbed, Arcelia – Arcelor; NKK, Kawasaki; US Steel,
National Steel, Bethlehem Steel; Nippon, Arcelor, Tata Steel) is being witnessed globally, the
top 5 companies account for just around 15% of the industry concentration. In India, apart
from the 3 integrated players, there are 190 Electric Arc Furnaces, 950 Induction Furnaces
and 1500 small scale stand alone producers. High level of competition has resulted in low
operating profit margins relative to other commodity industries.

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Concentration
(%)

Operating Margin (%)

Compiled by INGRES

• Oversupply in the domestic market: The demand for steel in India has grown at a
CAGR of about 5% over the last five years, whereas the capacity has increased by about
18%. The HR coil market is expected to continue to be marked with oversupply for the
next two to three years on account of huge capacity addition in the last three years.
Similarly, the CR coil and GP/GC sheets markets are also likely to face oversupply for
the next two to three years. The total oversupply position in the Flat products have been
over 4 mn. tonnes since the last few years. Given the growth in domestic demand as well
as the increasing trend in exports, this is likely to reduce. The demand-supply scenario in
the longs segment is however, more favourable compared with that of flat products.
The demand for longs is likely to pick up driven by the construction of roads and
increased housing activity. However, any sustained upturn in the demand for longs can
come only from investment in the infrastructure sector.
• Waning cost competitiveness: The advantage of cheap labour and raw material of the
Indian steel manufacturing companies is gradually getting nullified by poor labour
productivity and higher expenditure on other cost heads like power, fuel and freightage.
Low material costs and labour costs make the Indian steel industry (mainly the ISPs)
globally competitive. India has rich reserves of iron ore and is self-sufficient. The ore is of
good quality with an average Fe content of about 61%.. The coal available in the country
is of low quality with high ash content ranging between 20% and 25%. Most producers
are forced to import coking coal and are exposed to international price fluctuations.
Indian labour costs at less than $3/hour are the lowest in the world. However, the main
producers1 are burdened with huge workforces, resulting in poor labour productivity.
Indian steel companies, however, have lower wage outgo as a percentage of sales due to
the abundance of cheap labour.

Power costs in India are amongst the highest in the world and are growing at the rate of
about 10% per annum. Power is a major input for EAF steel producers, accounting for
20% of variable production costs. While BOF users consume just 100 kw/tonne to150
kw/tonne, the EAF route consumes as much as 600 kw/tonne to 700 kw/tonne. This has
prompted many BOF and EAF users to set up captive power plants to reduce the cost of
power and to enhance supply reliability. Natural gas prices in the country have been low
because of control. However, decontrol of gas prices may result in sharp rise in gas prices.

1 In contrast, the newer private sector steel mills report high levels of labour productivity (at over 3000 tonnes steel

sales per man year)

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Railway freight rates and fuel prices have witnessed a compounded growth of about 5%
and 20% respectively over the last five years. As a result, the freight costs for steel
companies have witnessed a rising trend. Indian steel producers have tried to optimise
between usage of road and rail transport to reduce the average transportation costs but
road transportation is expensive too.
Some of the players point out a couple of other areas where the Indian steel industry is
not competitive. Firstly, on the quality front, while the quality of Indian Steel may be
comparable to the quality of steel produced by countries like Saudi Arabia, Libya,
Romania, Iran, Turkey, Russia, Venezuela, Poland, it may not compare with the quality
of steel produced by countries like Japan. Poor quality of steel is largely produced by the
smaller unorganised players in India. This largely happens as the local construction
industry encourages usage of inferior material so that the builders can save cost.
Further, absence of strict enforcement of building codes creates a large market for sub-
standard steel. Secondly, on the quantity front, the Indian steel industry with a capacity
of about 30 million tonnes is very small by global standards and as a result its players
are unlikely to have a major influence in the international markets.

• Low Productivity
The total factor productivity (TFP) of the Indian steel industry has been estimated to be
around 25 per cent of US levels, with labour productivity at around 11 per cent and capital
productivity at around 39 per cent of US levels. This is lower than developing countries such
as Brazil and Korea and developed countries such as the US and Japan. However, India’s
potential productivity is very high. At current factor costs, India’s TFP potential is 94 per
cent that of the US. Both integrated blast furnace producers (IBFPs) and large mini mills
have a capital productivity potential that is 100 per cent of the US average. Moreover,
productivity varies significantly across different segments in the industry. Large mini mills
have an average labour productivity of 76 per cent of US levels, IBFPs have an average
labour productivity of 17 per cent and small mini mills have a mere 5 per cent. There are
several factors responsible for India’s low productivity in steel. The key operational factors
include poor organisation of functions and tasks (OFT) in plant operations and plant
construction, low capacity utilisation and sub-scale operations, particularly in the small mini
mill sector.

Inspite of the above factors, TISCO is one of the lowest cost steel producers in the world due
to several factors such as: captive iron ore and coal mines, depreciated plants, high level of
operational efficiency and dynamic management.

• Huge Debt exposure of the Steel companies. Most of the steel companies in India
have huge debt exposure. The total debt exposure of the Indian Financial Institutions
and Banks to the iron & Steel sector is over Rs. 400 bn. Further, these debt (which were
taken in mid 90s) carry high interest of 18-19%. Thus, pressure on operating profits
because of depressed steel prices (till March 2002) had raised concerns on servicing of
debt. With the recovery of steel prices since April 2002, the prospects of servicing debt
appears to be improving. Further, the FIs have worked out a restructuring package for
improving the repayment prospects from three steel companies – Essar, Ispat and Jindal
Vijaynagar.

• Cost advantage/disadvantage due to locations: Because of proximity to raw

material sources and the pre-liberalisation industrial policy of the government, most of
India’s ISPs (TISCO and SAIL) are located in east India, at significant distances from the
major consumption centres in west and south India. Thus, producers like Ispat
Industries and Essar Steel, in the west and Jindal Vijaynagar in the south have freight
cost advantages over integrated players like TISCO and SAIL. Also, increasing freight

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costs in the face of declining import duties put TISCO and SAIL at a major disadvantage
against low- cost imports in west India. Apart from distances, poor quality of road
infrastructure in the country also results in time delays and enhances the delivery costs
of the finished products. Thus, in view of these concerns, the golden quadrilateral and
the other road projects initiated by the government, appear to be steps in the right
direction.

• Declining duty protection by Government:

The basic import duty on steel has been consistently brought down as shown in the
following Table. This has made the industry vulnerable to international competition.
However, the peak duties at 15% may still limit large-scale steel imports into the
country.

Basic Custom Duty (%)

FY FY FY FY FY FY FY FY FY FY FY Mini-
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Budget
2004*
HR Coils 50 40 30 25 25 25 25 25 25 25 25 20
CR Coils 75 50 40 30 25 30 35 35 35 30 25 20
Plates 75 50 40 30 30 30 35 35 35 30 25 20
Structurals 85 50 40 30 30 30 35 35 35 30 25 20
*Duties on HR Coil and CR Coil reduced further to 15% in February 2004 and further to 10% in July 2004 (Union
Budget FY2005)
Source: Union Budget, various years

Players

PLAYERS
P l a ye r T y pe s a n d O u tl i n e s o f Ma j o r P la ye r s

The players in the public sector include SAIL and RINL. Other players are in the private
sector. Profile of the important players are mentioned as follows.

S A IL
Steel Authority of India Limited (SAIL) is the leading steel-making company in India. 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.
Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL
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 produces iron and steel at four 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.
SAIL's wide range of long and flat steel products are much in demand in the domestic as well
as the international market. This vital responsibility is carried out by SAIL's own Central
Marketing Organisation (CMO) and the International Trade Division. CMO encompasses a
wide network of 38 branch offices and 47 stockyards located in major cities and towns
throughout India.

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With technical and managerial expertise and know-how in steel making gained over four
decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and
consultancy to clients world-wide.
SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at
Ranchi, which helps to produce quality steel and develop new technologies for the steel
industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET),
Management Training Institute (MTI) and Safety Organisation at Ranchi. Our captive mines
are under the control of the Raw Materials Division in Calcutta. The Environment
Management Division and Growth Division of SAIL operate from their headquarters in
Calcutta. Almost all our plants and major units are ISO Certified.

Major Units
Integrated Steel Plants
• Bhilai Steel Plant (BSP) in Chhattisgarh

• Durgapur Steel Plant (DSP) in West Bengal

• Rourkela Steel Plant (RSP) in Orissa

• Bokaro Steel Plant (BSL) in Jharkhand

Special Steel Plants
• Alloy Steels Plants (ASP) in West Bengal

• Salem Steel Plant (SSP) in Tamil Nadu

• Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiaries
• Indian Iron and Steel Company (IISCO) in West Bengal
• Maharashtra Elektrosmelt Limited (MEL) in Maharashtra
• Bhilai Oxygen Limited (BOL) in New Delhi

Joint Venture
SAIL has promoted joint ventures in different areas ranging from power plants to e-
commerce.

• NTPC SAIL Power Company Pvt. Ltd

Set up in March 2001, this 50:50 joint venture between SAIL and the National Thermal
Power Corporation (NTPC) operates and manages the Captive Power Plants-II of the
Durgapur and Rourkela Steel Plants, which have a combined capacity of 240 MW.

• Bokaro Power Supply Company Pvt. Limited

This 50:50 joint venture between SAIL and the Damodar Valley Corporation formed in
January 2002 is managing the 302-MW power generation and 1880 tonnes per hour
steam generation facilities at Bokaro Steel Plant.

• Bhilai Electric Supply Company Pvt. Limited

Another SAIL-NTPC joint venture on 50:50 basis formed in March 2002 manages the 74
MW Power Plant-II of Bhilai Steel Plant which has additional capacity of producing 150
tonnes of steam per hour.

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• UEC SAIL Information Technology Limited

This 40:60 joint venture between SAIL and USX Engineers & Consultants, a subsidiary
of the US Steel Corporation, promotes information technology in the steel sector.

• [Link] Private Limited

A joint venture between SAIL and Tata Steel on 50:50 basis, this company promotes e-
commerce activities in steel and related areas.

• SAIL-Bansal Service Center Pvt. Ltd.

SAIL has formed a joint venture with BMW industries Ltd. on 40:60 basis to promote a
service centre at Bokaro with the objective of adding value to steel.

• North Bengal Dolomite Limited

A joint venture between SAIL and West Bengal Mineral Development Corporation ltd on
50:50 basis was formed for development of Jayanti Dolomite Deposit, Jalpaiguri for
supply of Dolomite to DSP and other plants.

• Romelt-SAIL (India) Ltd

A joint venture between SAIL, National Mineral Development Corporation (NMDC) and
Russian promoters for marketing Romelt Technology developed by Russia for reducing of
iron bearing materials, which is carried out with carbon in single stage reactor with the
use of oxygen.

The Government of India owns about 86% of SAIL's equity and retains voting control of the
Company. However, SAIL, by virtue of its "Navratna" status, enjoys significant operational
and financial autonomy.

T I S CO
Established in 1907 by its Founder J N Tata, Tata Steel is Asia's first and India's largest
integrated private sector steel company. Over the years, Tata Steel has emerged as a
thriving, nimble, steel enterprise, due to its ability to transform itself rapidly to meet the
challenges of a highly competitive global economy and commitment to become a supplier of
choice by delighting its customers with services and products. Constant modernisation and
introduction of state-of-the-art technology at Tata Steel has enabled it to stay ahead in the
industry and successfully meet the expectations of all sections of stakeholders. Tata Steel's
four-phase Modernisation Programme in the steel works has enabled it to acquire the most
modern steel making facilities in the world. Recently, Tata Steel commissioned its 1.2 million
tonne capacity Cold Rolling Mill complex at 'Global Speed and Cost'. Its fifth phase of the
Modernisation Programme leveraged the intellectual capabilities of its employees to generate
sustainable value for the stakeholders. Tata Steel is taking better Knowledge Management
initiatives to shift focus from creating new physical assets to utilising them with ingenuity
and a sturdy business sense, the company has been recognised as Asia's Most Admired
Knowledge Enterprise at the World Knowledge Forum, Seoul, Korea. Most recently, it has
embarked on programme for expansion of its existing steel making capacity by 1million
tonne to reach a rated capacity of 5 million tonnes per annum.
Tata Steel's turnover in fiscal 2002-03 was nearly Rs 9800 crores. The company's profit in the
same year was Rs 012 crores, which is its highest ever profit and it produced a record-
breaking 3.98 million tonnes of saleable steel. The company has declared a record dividend of
80% for the year 2002-03.

The Company's community based initiatives far exceeds its business mandate. Its numerous
socially responsible activities are aimed at those living in and around its areas of operations,

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 Steel Industry

including it's, mines and collieries. The Community Development and Social Welfare, Rural
and Tribal Services, Centre for Family Initiatives and Sports departments run and manage
programmes which are designed to improve living conditions of the socially and economically
under privileged. These are self-sustaining programmes and involve the maximum
participation by the target groups. Income generation schemes for women, farmers and
youth, safe drinking water in rural areas, health clinics, drugs, alcohol and HIV/AIDS
awareness programmes, youth involvement in sports and cultural pursuits are some of the
significant activities taken by the Company. Tata Steel has also been conferred with the
Global Business Coalition Award for 2003 for Business Excellence in the Community for its
outstanding HIV/AIDS awareness work. It manages the municipal and all other civic
services and amenities for the township of Jamshedpur and has been given the ISO 14000
Environment Management System Certification, the first in the country.

A determination to move up the value chain in process, products and performance has
resulted in Tata Steel being acknowledged for its excellence. It was adjudged the Best-
Integrated Steel Plant by the Ministry of Steel for 2000-01 and was conferred the Prime
Minister's Trophy, for the third time in row and four times in all. The JRD Quality Value
Award and Sustained Excellence Award for the third consecutive year of business excellence;
the CII-EXIM Award for corporate excellence; the Corporate Governance Award, instituted
by the Union Finance Ministry for excellence in corporate governance, are testimony to the
Steel Company's commitment to excel in all activities it undertakes. Tata Steel has been
awarded the Export Engineering Promotion Council Award 2000-01 and the Tata Steel
Website has been Declared Best for 2002 by International Iron & Steel Institute, Belgium in
the "IISI People's Choice Award" category. Till date, eight divisions, including its steel works
and its mines and collieries have been ISO-14001 certified for environment management.
This certification is a reaffirmation of Tata Steel's belief that better environmental
management leads to superior business performance.

Tata Steel has been recognised by World Steel Dynamics as a "world class" steel maker. The
steel company caters to a wide gamut of customers in India and abroad. They include
automobile manufacturers, producers of white goods, construction industry, and consumers
of tubes, bearings, agricultural implements, etc. Its well-known branded products are Tata
Steelium, Tata Shaktee, Tata Tiscon, Tata Pipes, Tata Bearing and Tata Agrico. The
intrinsic strength of the company such as low operating costs, special organisational culture
and good profitability has been widely appreciated and this has led to establishing strategic
partnership with such international players as Nippon Steel Corporation, Japan; Arcelor,
France, POSDATA, South Korea (a subsidiary of POSCO), Ryerson (a JV with Ryerson Tull
of USA) and Paul Wurth, Luxemborg.

Tata Steel's continuous success, over a period of more than nine decades, is due to its ability
to transform rapidly to meet the challenges of a highly competitive global economy and
commitment to become a supplier of choice by delighting its customers with its products and
services. It has continuously been on the growth path and is constantly striving to improve
the EVA of the company by seizing the opportunities of tomorrow and by exploring newer
avenues of operations such as a ferro-chrome and titanium. In ferro-chrome Tata Steel has
evaluated its chromite business and explored its future systematically, and is poised to
become the only ferrochrome producer in the world to have a multi locale supply base. The
selection of Richards Bay, South Africa for the plant with an efficient port structure and
minimisation of power and logistic costs and sourcing of high quality chrome from its mines
at Sukinda, India are corner stones of this endeavour. And in Titania, Tata Steel signed an
agreement with its international consortium partners for setting up its Titania project, in the
State of Tamil Nadu for which feasibility studies are underway and prospecting license has
been granted by the state over an area of 80 square kilometers.

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 Steel Industry

Rashtriya Ispat Nigam Ltd.

RINL is a government of India owned fully integrated steel plant and manufactures long
products only. It uses cost efficient process of Blast Furnace - LD Converter - Continuous
Casting route. Minimization in plant shut down time, reduction in lead-time and production
bottlenecks has helped RINL to achieve improved operating performances. Over the last few
years, RINL has made significant improvements in techno-economic parameters like coke
rate, blast furnace productivity, labour productivity and specific energy consumption, and it
currently compares favourably with other integrated steel producers (ISPs) in India on all
these parameters.

I s p a t I n d us t r i e s L t d .
Ispat Industries Limited (IIL) is one of the leading integrated steel makers and the largest
private sector producer of hot rolled coils in India. Set up as Nippon Denro Ispat Limited in
1985 by founding chairman Mr M L Mittal, IIL has steadily grown into a Rs 4,000-crore
company, assuming its position as flagship of the reputed Ispat Group. A corporate
powerhouse with operations in iron, steel, mining, energy and infrastructure, the Group
today figures among the top 20 business houses in the country.

Headquartered at Mumbai, IIL employs a total of 2000 people and is the leader in the
national speciality steel market. The company's core competency is the production of high
quality steel, for which it employs cutting edge technologies and stringent quality standards.
It produces world-class sponge iron, galvanised sheets and cold rolled coils, in addition to hot
rolled coils, through its two state-of-the art integrated steel plants, located at Dolvi and
Kalmeshwar in the state of Maharashtra.

The sprawling 1,200 acre Dolvi complex houses the 2.4 million tonne per annum hot rolled
coils plant, that combines the latest technologies - the Conarc process for steel making and
the compact strip process (CSP) - introduced for the first time in Asia.

The complex also has a 1.4 million tonne per annum sponge iron (DRI) plant, which was
commissioned in 1994 as the world's largest and most efficient gas-based single mega module
plant. Moreover, the Dolvi complex is home to a 2 million tonne blast furnace and also boasts
a mechanised multi-functional jetty situated nearby, that facilitates the automation of raw
material handling.

Ispat is the only steel maker in India and among a few in the world to have total flexibility in
choice of steel making route, be it the conventional blast furnace route or the electric arc
furnace route. Its dual technology allows Ispat the freedom to choose its raw material feed,
be it pig iron, sponge iron, iron ore, scrap or any combination of various feeds. It also has
total flexibility in choosing its energy source, be it electricity, coal or gas.

The Kalmeshwar complex houses Ispat's 0.5 million tonnes cold rolling complex, which also
includes the galvanised plain/ galvanised corrugated (GP/GC) lines and India's first colour
coating mill.

Technology and innovation have always been the cornerstones of IIL's quest for excellence
and these state-of-the-art plants facilitate the company's mission to attain and sustain
market leadership, through technological and product superiority.

The company's strengths lie in its integrated process management, knowledge management
and control systems. And its seamless supply chain management systems further the
efficient use of raw materials, while its staff of highly skilled engineers, technicians and

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managers with specialised domain knowledge, ensure the choice of the relevant technology
and the ability to produce international quality products at a competitive price.

In line with its vision for the future, IIL is expanding its HRC capacity to 3.6 million tonnes
and its CRC capacity to 1 million tonnes. Moreover, it aims to complete its vertical
integration process, increase the proportion of high-grade and value-added steel products in
its product mix and leverage the advantage the modern design and the size of the facilities
offers.

With investments of over US $2 billion, IIL is the seventh largest Indian private sector
company in terms of fixed assets. It aims to consolidate its market leadership in the national
speciality steel market by capitalising on the proximity of its manufacturing facilities to
major consumers of flat steel products in Maharashtra, while increasing its presence in
international markets by using its convenient port location.

In the short span of time since its inception, Ispat Industries has steadily raised the bar - in
terms of its relentless pursuit of technological advancement, unwavering focus on innovation,
strident emphasis on quality products and its constant initiatives aimed at ensuring
customer satisfaction. As it rapidly forges ahead on all these fronts, IIL has successfully
reinforced its position as market leader, while simultaneously making technological
breakthroughs and setting even higher standards for itself.

E ssar S teel
Essar is an integrated steel producer, with operations all along the value chain

Pelletisation Plant

Essar has set up a 3.3 MTPA pelletisation plant at Vishakapatnam (Vizag) to supply high
quality iron ore pellets at competitive prices to its hot briquetted iron(HBI) plant. Essar Steel
consumes about half the production of this plant. The world-renowned steel trading company
Stemcor of the UK has a 51% stake in the company christened Hy-Grade Pellets Ltd.

Hot Briquetted Iron Plant

A 2 MTPA hot briquetted iron plant at Hazira is the world's largest gas-based producer of
sponge iron. This plant supplies sponge iron as the raw material to the adjacent hot rolled
coils plant.

Hot Rolled Coils Plant

A 2.4 MTPA hot rolled coil (HRC) plant at Hazira is the first and the biggest of India's new-
generation steel mills.

Downstream Complex
The complex has downstream facilities for highly customised products through its service
centre, which has the capacity to process 1 MTPA of hot rolled coils. This centre, unique in
India, includes two flying shear lines and two slitting lines of 0.2 MTPA capacity each,
catering to the plates and sheets market. Essar is the only Indian plant with a 1.2 MTPA hot
skin pass mill, where the steel's surface quality is enhanced to international standards.

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Cold Rolled Coils Plant

Cold rolled coil (CRC) manufacturers are major customers for its hot rolled coil production.
As part of its strategy of integrating operations vertically and becoming a global player in the
steel industry, Essar Steel co-promoted PT Essar Dhananjaya, a 200,000 tonne cold rolling
complex in Indonesia along with the Garama Group, one of the most respected business
houses in Indonesia.

Essar Steel produces some of the world's best steel at its state-of-the-art steel complex in
Hazira, Gujarat.

JINDAL GROU P

This $ 2 billion Jindal Organisation has expanded and diversified into core business areas
ensuring synergy amongst its various business ventures, spreading over 13 plants at 10
pivotal locations in India and two plants in USA.

The Jindal team embodies one of the most coveted talent pools of technological acumen
available in the country today. With experience that has enabled the Organisation to put up
large scale projects in record time. The group is considering merger between group
companies Jindal Iron & Steel Company Ltd. and Jindal Vijaynagar Steel Ltd. This merger
is still awaiting court approval.

Group Companies
Group companies of the Jindal Group include the following.
" Jindal Stainless Ltd.
" Jindal Iron & Steel Company Ltd.
" Saw Pipes Ltd.
" Jindal Steel and Power Ltd.
" Saw Pipes USA Inc.
" Jindal United Steel Corporation
" Jindal Thermal Power Company Ltd.
" Jindal Praxair Oxygen Company Ltd.
" Vijaynanagar Minerals Pvt. Ltd.

JINDAL STAINLESS LIMITED

India's largest integrated manufacturer of Stainless Steel catering to about 40% of Indian
demand.
• Plant Location - Hisar, Harayana
• Capacity - 500,000 tpa
• High Carbon Ferro Chrome plant at Vishakhapatnam, Andhra Pradesh

JINDAL IRON AND STEEL COMPANY LIMITED

India's largest integrated galvanising facilities in private sector accounting for 25% of total
galvanising production in the country. Engaged in Hot Rolling, Cold Rolling and
Galvanising business. Export of 75% of production to over 45 countries.
• Plant Locations - Vasind and Tarapur, Maharashtra
• Capacity - HR 280,000 tpa, CR 750,000 tpa, GP/GC 710,000 tpa

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S AW PI PE S L I MI T E D
Manufacturer of large diameter U-O-E submerged arc welded pipes. Also has protective
coating application facilities viz. Polyethylene, Polypropylene, Fusion Bond Epoxy, Coal Tar
enamel / Bitumen and Concrete coating.
• Plant Location - Kosikalan - Uttar Pradesh, Mundra - Gujarat
• Capacity - 485,000 tpa
• Manufactures Seamless pipes at Nashik
• Capacity - 50,000 tpa
• Swastik Foils, a division of SPL manufactures cold rolled steel coils in thin and ultra thin
gauges.
• Capacity - 6000 tpa

JINDAL VIJAYANAGAR STEEL LIMITED

An environment friendly integrated steel plant manufacturing HR coils using the
revolutionary Corex technology for iron making. Supplies HR coils to group company
JISCO for value addition and to South India. Only HR coil manufacturer in South India. Tie
up with world steel leaders gives unique advantage in manufacturing and technology.
• Plant Location - Toranagallu, Karnataka
• Capacity - 1.6 million tpa

JINDAL STEEL AND POWER LIMITED

Asia's largest and world's second largest coal based sponge iron plant. Also manufacturing
Rails, Blooms and Power
• Plant Location - Raigarh, Madhya Pradesh
• Capacity - 650,000 tpa, Steel - 400,000 tpa, Power - 150 MW
• 150 MW Power plant also at Raigarh. Iron ore mining in Orissa and coal mining in
Madhya Pradesh ensure quality raw material at a lower cost.

SAW PIPES USA INC.

Manufacture large diameter DSAW pipes using the U-O-E process.

• Location - Bay Town, Texas, USA
• Capacity - 500,000 tonnes

JINDAL UNITED STEEL CORPORATION

Manufactures steel plates for use in large diameter pipes, construction and fabrication
industries.
• Plant Location - Bay Town, Texas, USA
• Capacity - 1.2 million tpa

JINDAL THERMAL POWER COMPANY LIMITED

Produces power from both coal and Corex off gas of JVSL steel plant.
• Plant Location - Toranagallu, Karnataka
• Capacity - 2 x 130 MW

JINDAL PRAXAIR OXYGEN COMPANY LIMITED

Joint venture with Praxair Inc. World's largest air separation plant. Supplies necessary
oxygen for JVSL plant for both iron and steel making.
• Location - Toranagallu, Karnataka
• Capacity - 2 x 2500 tpd

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VIJAYANAGAR MINERALS PRIVATE LIMITED

A Joint venture for mining of iron ore.
• Plant Location - 20 km from JVSL plant
• Capacity - 3 million tpa

Ra nk ing

The ranking of the key players on important operating and financial parameters is presented
as follows:

Pi g Iron
Company Production Share
Secondary 82%
VSP 8%
SAIL 6%
IISCO 4%

VSP – Vijaynagar Steel Plant of RINL

HR Coils/Skelp
Company Production Share
Secondary 57%
SAIL 28%
TISCO 15%

CR Coils/Sheets
Company Production Share
Secondary 68%
SAIL 17%
TISCO 15%

GP/GC Sheets
Company Production Share
Secondary 70%
TISCO 17%
SAIL 13%

Crude Steel
Company Production Share
Secondary 38%
SAIL 37%
TISCO 13%
VSP 11%
IISCO 1%

Finished Steel
Company Production Share

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 Steel Industry

Secondary 57%
SAIL 24%
TISCO 10%
VSP 8%
IISCO 1%

Flat Products
Company Production Share
Secondary 58%
SAIL 29%
TISCO 13%

Non-Flat Products
Company Production Share
Secondary 58%
VSP 19%
SAIL 16%
TISCO 5%
IISCO 2%

Revenue
Company Revenue (Rs. mn.)
SAIL 219957
TISCO 107024
Jindal 43547
Ispat 37343
Essar 37010

Operating Profit
Operating Profit
Company ([Link].)
SAIL 45148
TISCO 34954
Jindal 14997
Essar 8425
Ispat 5461

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Net Profit
Net Profit
Company (Rs. mn.)
SAIL 25121
TISCO 17462
Jindal 8022
Essar 600
Ispat 443

Operating Margin
Company Operating Margin
Essar 34.4%
TISCO 32.7%
Ispat 22.8%
SAIL 20.5%
Jindal 14.6%

Net Margin
Company Net Margin
Jindal 18.4%
TISCO 16.3%
SAIL 11.4%
Essar 1.6%
Ispat 1.2%

N.B. Jindal includes the combined results of Jindal Iron & Steel Company and Jindal
Vijaynagar Steel Ltd.

Ke y S u cc es s F ac to r s

The key success factors in the Iron & Steel Industry are mentioned as follows:

• Level of Integration and Captive facilities: There are primarily two routes of steel
making: The Primary route (Blast Furnace – Basic Oxygen Furnace route) and the
Secondary Route (Electric Arc Furnace/Induction Furnace Route). While the former route
is capital intensive, the cost of production is relatively lesser as compared to the
Secondary route where the manufacturer is exposed to the volatility in raw material
(Scrap/Sponge Iron) prices along with high power tariffs. In both the cases however, it is
important to have an integrated operation (with captive coal/iron ore mines) so that one
is not exposed to the volatility in the prices of the intermediate products. Integration into
downstream value added steel production also enhances the margins and profitability.

• Product Mix: Higher realisations and margins are associated with Flat products
(especially Cold Rolled or CR products). Accordingly, we are witnessing an increasing
share of value added products in the product mix of the leading players.

• Branding: Branding has started playing an important role in the steel business. Not
only does branding enhance customer acceptance and loyalty, it also allows steel
companies to charge a premium on branded steel. Accordingly, we are witnessing

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companies like Tata Steel increasingly focussing on branding steel. For Tata Steel,
branded sales accounted for 12% of total sales in 2002-03 as compared to 9% in 2001-02.
Share of branded products in sale of Flat products increased from 6% to 8%. The increase
was from 15% to 19% in Long products.

• Location of Steel plant: High freight costs associated with product movement makes it
important for the manufacturing units to be located close to the consumption centres.
Because of proximity to raw material sources and the pre-liberalisation industrial policy
of the government, most of India’s Integrated Steel Producers (TISCO and SAIL) are
located in east India, at significant distances from the major consumption centres in west
and south India. Thus, producers like Ispat Industries and Essar Steel, in the west and
Jindal Vijaynagar in the south have freight cost advantages over integrated players like
TISCO and SAIL. Also, increasing freight costs in the face of declining import duties put
TISCO and SAIL at a major disadvantage against low- cost imports in west India. Apart
from distances, poor quality of road infrastructure in the country also results in time
delays and enhances the delivery costs of the finished products. Thus, in view of these
concerns, the golden quadrilateral and the other road projects initiated by the
government, appear to be steps in the right direction.

• Cost competitiveness: Steel is a commodity business with significant volatility in

prices. Also, globally it is a relatively low margin business. Accordingly, it is important
for players to be cost competitive so as to be in a position to withstand all phases of the
steel cycle. Sources of cost competitiveness include: large size for economies of scale, high
labour productivity, operational and process cost control measures, and sound working
capital management.

• Conservative Capital Structure: As steel is a relatively low margin, capital intensive

business with severe steel cycles, it is important to have a conservative capital structure
so as to be in a position to service debt in time.

• Marketing Alliances: Tie-ups with bulk consumers (such as automobile Original

Equipment Manufacturers) mitigates demand risk and accordingly ensures product
offtake and high level of capacity utilisations.

INVESTMENT CLIM ATE

Growth Trend

The economic reforms initiated by the Government since 1991 have added new dimensions to
industrial growth in general and steel industry in particular. Licensing requirement for
capacity creation has been abolished, except for certain locational restrictions. Steel industry
has been removed from the list of industries reserved for the public sector. Automatic
approval of foreign equity investment upto 100% is now available. Price and distribution
controls have been removed from January, 1992, with a view to make the steel industry
efficient and competitive. Restrictions on external trade, both in import and export have been
removed. Import duty rates have been reduced drastically. Certain other policy measures
such as reduction in import duty of capital goods, convertibility of rupee on trade account,
permission to mobilise resources from overseas financial markets and rationalisation of
existing tax structure for a period of time have also benefited the Indian Steel Industry.

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T h e Gro w t h P r o f i l e

(i) Steel
The liberalization of industrial policy and other initiatives taken by the Government have
given a definite impetus for entry, participation and growth of the private sector in the steel
industry. While the existing units are being modernized/expanded, a large number of
new/greenfield steel plants have also come up in different parts of the country based on
modern, cost effective, state of-the-art technologies.
At present, total (crude) steel making capacity is over 34 million tonnes and India, the 8th
largest producer of steel in the world, has to its credit, the capability to produce a variety of
grades and that too, of international quality standards. As per the ratings of the prestigious "
World Steel Dynamics", Indian HR Products are classified in the Tier II category quality
products – a major reason behind their acceptance in the world market. EU, Japan have
qualified for the top slot, while countries like South Korea, USA share the same class as
India
(ii) Pig Iron
In pig iron also, the growth has been substantial. Prior to 1991, there was only one unit in
the secondary sector. Post liberalization, the AIFIs (All India Financial Institutions) have
sanctioned 21 new projects with a total capacity of approx 3.9 million tonnes. Of these, 16
units have already been commissioned. The production of pig iron has also increased from 1.6
million tonnes in 1991-92 to 5.28 million tonnes in 2002-03. During the year 2003-04, the
production of Pig Iron was 5.221 million tonnes.

Production of Iron & Steel

(a)Finished Carbon Steel Production

The total production of finished carbon steel in the country has been 30.11 million tonnes in
2001-02 as compared to 14.33 million tonnes in 1991-92, indicating an increase of 110.12%.
Producer-wise production of finished steel. The high share of the secondary sector in finished
steel production is largely due to substantial supplies of semis, the basic feed material from
the main producers for conversion to needed shapes by rolling.

PRODUCTION OF FINISHED CARBON STEEL

(In million tonnes)
Main Secondary % of share of
Year Grand Total
Producers Producers Secondary Producers
1991-92 7.96 6.37 14.33 14.5%
1992-93 8.41 6.79 15.20 44.7%
1993-94 8.77 6.43 15.20 42.3%
1994-95 9.57 8.25 17.82 46.3%
1995-96 10.59 10.81 21.40 50.6%
1996-97 10.54 12.18 22.72 53.6%
1997-98 10.44 12.93 23.37 55.32%
1998-99 9.86 13.24 23.82 57.32%
1999-2000 11.20 15.51 26.71 58.07%
2000-2001 12.51 17.19 29.7 57.88%
2001-2002 13.05 17.58 30.63 57.4 %
2002-2003 14.39 19.28 33.67 57.27 %
2003-04 (Prov) 15.19 21.00 36.19 58.03 %

(b) Pig Iron Production

The total production of Pig Iron was 3.946 million tonnes in 2001-02 as compared to 1.59
million tonnes in 1991-92 registering an increase of 148.18% during the considered period.

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 Steel Industry

Earlier Pig Iron was produced primarily by the integrated steel plant of SAIL and RINL. Of
late, the share of stand-alone pig iron units has increased significantly.

PRODUCER - WISE PRODUCTION OF PIG IRON (In million tonnes)

Main Secondary Grand %age share of the
Year
producers producers total Secondary Producers
1991-92 1.49 0.10 1.59 6.3%
1992-93 1.68 0.17 1.85 9.2%
1993-94 1.98 0.27 2.25 12.0%
1994-95 2.01 0.78 2.79 28.0%
1995-96 1.74 1.06 2.80 37.9%
1996-97 1.73 1.57 3.30 47.5%
1997-98 1.70 1.68 3.39 49.5%
1998-99 1.37 1.60 2.97 53.87%
1999-2000 1.24 1.94 3.18 61.08%
2000-2001 0.96 2.15 3.11 69.13%
2001-2002 1.02 3.05 4.07 75.04 %
2002-2003 1.11 4.18 5.29 79.05 %
2003-04 (Prov) 0.97 4.25 5.22 81.48 %

(c) DRI Production

The production of DRI has increased from 1.31 million tonnes in 1991-92 to 5.403 million
tonnes in 2001-02, registering an increase of nearly 4.12 times over the considered period.
India has emerged as the second largest producer of DRI in the world after Venezuela.

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PRODUCTION OF DRI (In million tonnes)

Year Production % increase
1991-92 1.31 -
1992-93 1.60 22.1%
1993-94 2.40 50 %
1994-95 3.39 41.3%
1995-96 4.34 28.02%
1996-97 5.05 16.4 %
1997-98 5.32 5.34%
1998-99 5.12 (-)3.8%
1999-2000 5.34 4.30%
2000-2001 5.44 1.90%
2001-2002 5.40 (-) 0.70 %
2002-2003 6.91
2003-04 (Prov) 8.08

Import and Export of Iron & Stee l

IMPORT OF IRON AND STEEL (In 000 tonnes)

Steel Total Value (Pig Iron + Steel)
Year Pig Iron
TOTAL (CARBON) (Rs. In Crores)
1991-92 152 1043 1441.32
1992-93 73 1115 1676.00
1993-94 21 1153 1613.00
1994-95 1 1936 2536.00
1995-96 8 1864 3181.00
1996-97 15 1822 3053.00
1997-98 3 1815 2904
1998-99 2 1637 N.A.
1999-2000 3 2200 N.A.
2000-2001 2 1632 N.A.
2001-2002 2 1375 N.A.
2002-2003 1 1510 N.A.
2003-04
2 1650 .N.A.
(Prov)

Although India started exporting steel way back in 1964, exports were not regulated and
depended largely on domestic surpluses. However, in the years following economic
liberalisation, export of steel recorded a quantum jump.

EXPORT OF IRON AND STEEL (In 000 Tonnes)

Finished Total Total Value
Year Pig Iron Semis
Carbon Steel Steel (Rs. Crores)
1991-92 - 5 368 373 283
1992-93 16 154 741 895 708
1993-94 620 585 1020 1605 1678
1994-95 466 399 873 1272 1438
1995-96 502 395 925 1320 1939

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 Steel Industry

1996-97 451 300 1622 1922 2231

1997-98 785 503 1880 2383 2512
1998-99 281 174 1770 1944 N.A.
1999-2000 290 328 2670 2998 N.A.
2000-2001 230 195 2805 3000 N.A.
2001-2002 242 270 2730 3000 N.A.
2002-2003 629 460 4506 4966 N.A.
2003-04 (Prov) 576 701 5221 5922 N.A.

A p p a r e n t C o n s u m p t i o n o f F i n i s h e d C a r b o n S t ee l

Apparent consumption (i.e production + imports - exports +/- variation in stocks) of finished
steel, year-wise, has been shown below. Apparent consumption represents the actual demand
of steel in a particular period/year. It has increased from 14.84 million tonnes in 1991-92 to
27.35 in 2001-02. Increase in apparent consumption has not been uniform, fluctuating from a
high of 21.8% to low of 1.2 % reflecting uneven growth in steel demand.

APPARENT CONSUMPTION OF THE FINISHED STEEL(CARBON)

(in million tonnes)
Year Apparent Consumption of Finished Steel
1991-92 14.84
1992-93 15.00 (1.2 %)
1993-94 15.32 (2.0 %)
1994-95 18.66 (21.8 %)
1995-96 21.43 (14.8 %)
1996-97 22.12 (3.2%)
1997-98 22.63(2.3%)
1998-99 23.15(2.3%)
1999-2000 25.01(8.03%)
2000-2001 26.87(7.44%)
2001-2002 27.350 (3.1%)
2002-2003 28.897 ()
2003-04
30.328 (5%)
(Prov)
(The figures in brackets indicate the percent increase over the previous year/corresponding period.)

A d d it ion al C ap ac it y C r eat ion in Pr ivat e S ec t or S inc e 1991

After de-licensing of Indian Iron and Steel Industry and as a result of the steps taken for
creation of additional capacity in the private sector, 19 projects involving a total investment
of Rs. 30,835 crores equivalent to a capacity of approx. 13 million tonnes per annum have
already been cleared by Financial Institutions and are in various stages of implementation.
Already 8 units with a total capacity of approx 5.45 million tonnes have already been
commissioned.

I n d i a Adv a n ta ge / Di sa d va n ta g e

Advantages Dis-advantages
Low per capita steel consumption Shortage of coking coal and coke
Increasing Infrastructure spending Shortage of Scrap
Increasing per capita income and consumer spending High Energy Costs

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 Steel Industry

Low interest rate and inflation Poor quality of Infrastructure

Low cost Iron Ore Declining trend in duties
Low Labour costs Poor Labour productivity

Regulations

The Steel Ministry is the governing body of the Indian Iron & Steel Industry. The key
activities of the Steel Ministry are as follows.
• Co-ordination and planning of the growth and development of Iron and Steel Industry in
the country (including Re-rolling Mills, Alloy Steel and Ferro Alloy Industries,
Refractories) both in the Public and Private Sectors;
• Formulation of policies in respect of production, pricing, distribution, import and export
of iron & steel, ferro alloys and refractories; and
• Development of input industries relating to iron ore, manganese ore, chrome ore and
Refractories etc., required mainly by the steel industry.
The regulatory aspects of the Indian Steel Industry is mentioned as follows.

• Steel industry was de-licensed and decontrolled in 1991 and 1992 respectively. Price
regulation of iron & steel was abolished on 16.1.1992.

• Distribution controls on iron & steel removed except 5 priority sectors, viz. Defence,
Railways, Small Scale Industries Corporations, Exporters of Engineering Goods and
North Eastern Region.

• Allocation to priority sectors is made by Ministry of Steel.

• Government has no control over prices of iron & steel.

• Iron & Steel are freely importable as per the extant policy.

• Iron & Steel are freely exportable and India is a net exporter of steel.

• Advance Licensing Scheme allows duty free import of raw materials for exports.

• Duty Entitlement Pass Book Scheme (DEPB) also facilitates exports. The Govt. had
temporarily suspended the DEPB benefits on iron & steel & ferroalloys w.e.f 27th March
2004 as a measure to increase iron & steel availability in the domestic market. DGFT
vide their public Notice No-71 dated 12.7.2004 has restored the DEPB eligibility for steel
items.

Cr u c i a l Is s u es tha t n ee d to b e a d d re s se d

The Indian Steel Industry faces the following constraints, on which remedial measures are
desired.
• Rising raw material costs due to lack of availability of good quality raw materials in India. High
ash content of domestic coke forces producers to import at high cost and high basicity index of
domestic ore also makes imports a necessity. Steel producers have limited access to good quality
iron ore, which is earmarked, for exports.
• High cost of basic inputs and services such as electricity and transportation. Cost of electricity in
US is 3 cents and in India it is 10 cents. Freight cost from Jamshedpur (in Jharkhand where
TISCO’s steel plant is located) to Mumbai is $50/tonne as compared to only $34 from Rotterdam to
Mumbai.

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 Steel Industry

• High cost of capital and basic inputs hampers the profitability of the company.
• Poor quality of basic infrastructure like roads, ports etc. add to the problems of the industry.
Indian ports lag way behind in terms of competitiveness when compared with their Chinese
counterparts. Indian Ports have some of the highest tariff rates in the world. The average cost of
EXIM trade is about 10% of landed cost compared to world average of 6%.
• High tariff and non-tariff barriers by developed nations on Indian Steel exports.

Hum a n Re s o u r ce s a n d I n fr a s tr u c tu r e

With capital investment of over Rs. 1000 bn., the Indian Steel Industry currently provides
direct/indirect employment to over 2 million people. Company wise Infrastructure has been
discussed earlier in their individual profiles.
Policy Framework

POLICY FRAMEWORK

I m p o r t a n t P o l i c y M e as u r e s

i. In the new Industrial Policy announced in July, 1991 Iron and Steel industry, among
others, was removed from the list of industries reserved for the public sector and also
exempted from the provisions of compulsory licensing under the Industries (Development
and Regulation) Act, 1951.

ii. With effect from 24.5.92, Iron and Steel industry has been included in the list of `high
priority' industries for automatic approval for foreign equity investment upto 51%. This
limit has been recently increased to 100%.

iii. Price and distribution of steel were deregulated from January 1992. At the same time, it
was ensured that priority continued to be accorded for meeting the requirements of small
scale industries, exporters of engineering goods and North Eastern Region of the country,
besides strategic sectors such as Defence and Railways.

iv. The trade policy has been liberalised and import and export of iron and steel is freely
allowed. There are no quantitative restrictions on import of iron and steel items, covered
under Chapter No. 72 of the ITC (HS) Code. The only mechanism regulating the imports
is the tariff mechanism. Tariffs on various items of iron and steel have drastically come
down since 1991-92 levels and the government is committed to bring them down to the
international levels.

v. Iron & Steel are freely importable as per the Extant Policy.

vi. Iron & Steel are freely exportable.

vii. Advance Licensing Scheme allows duty free import of raw materials for exports.

viii. The floor price for seconds and defectives continues till date.

ix. Imports of seconds and defectives of steel are allowed only through three designated
ports of Mumbai, Calcutta and Chennai.

x. Mandatory pre inspection certificate by a reputed international agency for every import
consignment of seconds and defectives.

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xi. The EXIM policy has been amended vide notification on 24.11.2000 prescribing
mandatory Indian quantity standard for imports of many items of steel.

xii. Concessional duty of 5% for BOF and Corex units for import of steel melting scrap at par
with electric arc furnace, induction furnace and cupola furnace.

xiii. The import duty on seconds and defectives has been revised to the peak rate of 40%.

Manganese Ore
• For the year 2002-2003 the maximum ceilings of manganese ore allowed for export
are as follows:
ITEM Ceiling
(in lakh tonnes)
i) Medium Grade Manganese Ore/ blended ore 0.25
containing 46% - 49% manganese only with not less within
than 0.24% Phos overall
ii) Medium Grade Manganese Ore/blended ore containing ceiling of
38% to 46% manganese and more than 0.15% Phos. 1.50
Or 1.25 lakh
Medium Grade Manganese ore/blended ore containing tonnes
38% to 46% manganese and more than 0.10 % Phos.
iii) Low grade manganese ore/blended ore containing less 4.00
than 38% manganese.
iv) Manganese ore fines below 12mm in size containing 1.50
less than 44% manganese.

Chromite Ore
• The maximum ceilings for export of Chromite ore for 2001-02 is as follows :
ITEM Ceiling
(in lakh tonnes)
i) Low silica friable / fine chromite ore with 0.40
chromium oxide in the range of 52%-54% only
and Silica exceeding 4%.
ii) Low silica friable/fine chromite ore with 3.60 within overall
chromium oxide not exceeding 52% only & ceiling of 4 lakh
Silica exceeding 4% tonnes
And
Chromite lumps containing chromium oxide
not exceeding 40%
iii) Beneficiated chromite concentrates (maximum No ceiling
feed grade to be less than 42% Cr203).

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Assistance being provided by Ministry of Steel to Private Sector

Ministry of Steel is extending all possible support, as detailed below, for the development of
Iron and Steel Sector in the country :

a) The Ministry is providing linkage for raw materials, rail movement clearance etc. for new
plants and expansion of existing ones, wherever applied for. There are two linkage
committees, viz.,
- Linkage Committee for finalising and reviewing the linkage of coal as well as iron ore
supply to the Sponge Iron Plants set up/being set up in the country; and
- Linkage Committee for finalising and reviewing the linkage of coal as well as Iron Ore
supply to the Pig Iron plants, new steel plants and coke oven setup/ being set up in the
country.
b) For movement of raw materials other than coal, a quarterly meeting of Central board of
Transport (CBT) is held under the Chairmanship of Development Commissioner for Iron and
Steel wherein the major producers and consumers of Iron and Steel units and
representatives of railways are co-opted. The primary function of this committee is to finalise
the wagon requirements and ensure an un-interrupted supply of raw materials to the
producers. With closure of the office of DCI&S this task is being co-ordinated by a Jt.
Secretary in the Ministry of Steel who has been designated as the DCI&S.
c) The Ministry has been interacting with All India Financial institutions to expedite
clearance of projects. The ministry has also been making presentations to the financial
institutions and banks highlighting the emerging scenario in steel sector, technological
issues need for development of the steel industry in India etc.
d) In order to review the progress of implementation of new steel projects and assess the
problems faced by new units, regular interactions with Entrepreneurs proposing to setup
Iron and Steel Plants are held at the level of Secretary.
e) Ministry of Steel identifies infra-structural and related facilities required by steel industry
so that their absence does not lead to bottlenecks in the future growth of the Iron and Steel
Sector, and takes up these issues with the concerned ministries.
f) The Ministry has encouraged the setting up of "Institute for Steel Development and
Growth(INSDAG)" in Calcutta in August, 1996. The leading steel producers in the country
are members of this Institute, which has been set up with the objective of promoting,
developing and propagating the proper and effective use of steel and increasing intensity of
steel usage particularly in the construction sector and in rural and semi urban areas.
g) In order to resolve the problems faced by existing & new steel plants & to assist major
steel plants being implemented, Govt. has setup a Project Coordination Group under the
Chairmanship of Steel Minister .

T a x a ti o n

The duty structure till FY2004 is provided in the following table. The changes in the duty
structure in the Union Budget of FY2005 are presented in the Section on “Others”.

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DUTY STRUCTURE AT A GLANCE

Sr. Item CTH Basic Custom Basic Basic Changes Changes
No. No Duty in 2001-02 Custom Custom made in made in
Duty in Duty in Jan.'04 Feb'04
2002-03 2003-04
1. Pig Iron 72.01 15% 15% 15% 15% 5%
2. Semis 72.07 25% 25% 25% 20% 15%
3. Bars & Rods 72.13 35% 30% 25% 20% 15%
4. Structurals 72.16 35% 30% 25% 20% 15%
5. HR Sheets/Plates 72.11 35% 30% 25% 20% 15%
6. HR Coils 72.08 25% 25% 25% 20% 15%
7. CR Coils/ Sheets 72.09 35% 30% 25% 20% 15%
8. GP/GC Sheets 72.10 35% 30% 25% 20% 15%
9. HRGO/HRNGO 72.08 35% 25% 25% 20% 15%
72.11
10. HR Alloy Steel 72.25 35% 30% 25% 20%
(Flat rolled) 72.26
11. Tinplates W/W 72.10 35% 40% 40% 40%
and TFS seconds 72.12
12. Defectives/CR/ 72.09 35% 40% 40% 40%
Coils
13. Stainless Steel 72.19 35% 0% 25% 20%
HR Coils for coin
blanks
14. Melting Scrap 72.04 5% 5% 5% 5%
15. Re-rollable Scrap72.07 25% 25% 25% 20% 15%
16. Ships for
89.08 5%+SAD+CVED 15% but 15% but 15% but no SAD &
breaking no SAD no SAD CVED
& CVED & CVED
17. Coking Coal of 27.01 5% 5% 5% 0%
ash content
below 12%
18. Non-coking coal 27.01 25% 25% 25% 15% 5%
19. Metcoke 27.04 15% 15% 10% 10% 5%
(No SAD (No SAD)
20. Charge Nickel 75.01 15% 5% 10% ( NO 5% (No SAD)
SAD)
21. Graphite 85.45 25% 15% 15% 15%
Electrodes (only for (only for (only for size > 20"
size > size > DIA)
20" DIA) 20" DIA)
22. Copper Scrap 74.04 35% 35% 35% 20%
23. Furnace Oil 27.10 20% 20% 20% 20%
24. Refractory 69.02 25% 25% 25% 20%
69.30
25. Lime Stone with 15% 15% 15%
Silica 1% or less
26. Refractory Raw Materials
a) Natural Graphite 2504.10 35% 25% 25% 20%

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Powder
b) Andalusite 2508.50 25% 15% 15% 15%
c) Fused Mullite 2508.60 25% 15% 15% 15%
d) Aluminous 2523.30 35% 25% 25% 20%
Cement
e) Silicon Metal 2804.61 35% 25% 25% 20%
(99% purity)
f) Micro/Fumed 2811.22 35% 25% 25% 20%
Silica
g) Calcined 2818.20 35% 25% 25% 20%
Alumina
h) Brown fused 2818.20 35% 25% 25% 20%
alumina
i) Sintered/Tabular 2818.20 35% 25% 25% 20%
Alumina
j) Fused Zirconia 2825.20 35% 25% 25% 20%
k) Sodium 2835.29 35% 25% 25% 20%
Hexameta
Phospate
l) Silicon Carbide 2849.20 35% 25% 25% 20%
m) Boron Carbide 2849.20 35% 25% 25% 20%
n) Reactive 3802.90 35% 25% 25% 20%
Alumina
o) Phenolic Resins 3909.00 30% 30% 30% 20%
p) Sea Water 2519.10 15% 15% 15%
Magnesite
q) Dead Burnt 2519.90 15% 15% 15%
Magnesite
r) Fused Magnesite 2519. 15% 15% 15%
s) Fused Silica 2811.12 35% 35% 20%
27 Ferro Alloys
a) Ferro- 7202.70 25% 25% 25% 20%
Molybdenum
b) Ferro Nickel 7202.60 5% 5% 5% 5%
c) Moly Oxide 25% 25% 25% 20%
d) Other Ferro 72.02 25% 25% 25% 20%
Alloys
• In January, 2004 4% SAD withdrawn from all imports.

• In February, 2004 the excise duty on all steel items under Chapter 72 has been reduced
from 16% to 8%.

• DEPB rates revised downward w.e.f 9/2/2004. Decision taken to freeze DEPB benefits
upon exports of steel items w.e.f 27/03/2004.

• DGFT vide their public Notice No-71 dated 12.7.2004 has restored the DEPB eligibility
for steel items.

Levies on Iron & Steel

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SDF (Steel Development Fund) Levy- This was a levy started for funding modernisation,
expansion and development of steel sector.

The Fund, inter-alia, supported :

1) Capital expenditure for modernisation, rehabilitation, diversification, renewal &

replacement of Integrated Steel Plants.
2) Research & Development
3) Rebates to SSI Corporations
4) Expenditure on ERU of JPC
• SDF levy was abolished on 21.4.94

• Cabinet decided that corpus could be recycled for loans to Main producers

• Interest on loans to Main Producers be set aside for promotion of R&D on steel etc.

• An Empowered Committee has been set up to guide the R&D effort in this sector.

• EGEAF – Was a levy started for reimbursing the price differential cost of inputs used
for engineering exporters. Fund was discontinued on 19.2.96.

MAJOR PROJECTS
Company wise major projects is mentioned as follows.

SAIL

SAIL has planned an investment of Rs 25,000 crore for its mega expansion project, which
envisages a production capacity of 20 million tonne per annum by [Link] company has
charted a two phase corporate plan, which envisages a slew of capacity enhancements at its
four steel plants - Bhilai, Durgapur, Bokaro and Rourkela.

The capital expenditure to achieve the targeted levels of growth is estimated in the region of
Rs 25,000 crore by 2012. The first phase will entail an investment of Rs 4,000-4,200 crore by
2006-07.

While the capacity at the Bhilai and Bokaro steel plants will go up 2 million tonne each to 7
million tonne per annum and 6.5 million tonne per annum, respectively, the capacities at
Durgapur and Rourkela will be enhanced by 1.5 million tonne each to 3.2 million tonne per
annum and 3 million tonne per annum, respectively.

The company will finance the capex mainly through internal accruals. A cash flow generation
of around Rs 3,000 crore per annum is expected, which will enable the company to take care
of the bulk of capex through internal accruals. The company is also looking at moving up the
value chain, with a focus on increasing finished steel production.

SAIL is aiming to reduce the percentage of semi-finished products from the existing 22 per
cent of saleable steel to 5 per cent by 2012. This will allow it to produce more value-added
products. The company has also outlined several forward integration projects. The plan
includes setting up a 1.1 million tonne hot strip mill, a 1 million tonne bar & rod mill and a

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0.2 million tonne pipe plant at Bhilai and a 1.4 million tonne bar & rod mill and a 0.4 million
tonne structural mill at Durgapur.

While a 0.7 million tonne plate mill will be set up at Rourkela, a 2.5 million tonne hot strip
mill will come up at Bokaro. The Durgapur steel plant will be developed into a continuous
casting unit.

TISCO

TISCO is undertaking the following projects.

• 1 mtpa expansion at Jamshedpur.
The project is on schedule. Facilities & Commissioning dates are as follows:
_ ‘G’ Blast furnace upgradation: Jan’05
_ Sinter Plant # 3: Dec’04
_ Balancing facilities in steel making: Mar’05
_ New Rebar Mill: Sep’05
• 2. 4-mtpa expansion at Jamshedpur: to be commissioned by 2008. The facilities would
include:

_ Coke Ovens (two batteries)

_ Sinter Plant
_ Two Blast Furnaces
_ LD #3 for Steel Making
_ Thin Slab Caster
_ Power Plant
_ Iron Ore Mine expansion
_ Water, Utility and Power Distribution System etc
• Limestone JV in Thailand for establishing globally low cost raw material sources

• Ferro Chrome Project in South Africa by 2006

• Coke plant at Haldia

• TISCO has received 3 prospecting licences covering 80 sq. km of mineral sands in Tamil
Nadu for the Titania project. Environment clearance for the project has also been received. A
consortium comprising Outokumpu, PAH and L&T has been appointed to conduct Phase 1 of
the feasibility study, upto mining, mineral separation and preliminary study for limonite
upgradation.

• Low cost port infrastructure at Dhamra, Orissa

RINL

IN a three-phase expansion plan that extends to 2018, Rashtriya Ispat Nigam Ltd (RINL)
has chalked out an investment requirement of Rs 18,000 crore to raise steel production to 10
million tonnes in the Vishakapatnam Steel Plant (VSP).
The first phase envisages increasing production from 3 mt to 5 mt at a cost of Rs 3,000 crore,
which will be met entirely through internal accruals.

In the second phase, production will be further increased to 6.8 mt and to 10 mt in the third
phase. However, these expansions will be taken up at the end of each phase depending on the
market scenario. Of the 10 mt, 75 per cent will comprise long products and the rest flat
products.

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Meanwhile, RINL is also scouting for iron ore and coalmines. As for iron ore, it is in talks
with the Governments of Orissa and Chhattisgarh for seeking the lease of iron ore mines in
these States.

As metallurgical coal deposits are few in the country, the company is looking at acquiring
coalmines overseas. It has been in talks with mines in Canada, Russia, China and Australia.
The company has zeroed in on Australia and envisages either a joint venture participation or
an equity holding arrangement.

ISPAT

The capacity of the company’s Hot Rolled Coil Mill stands enhanced to 2.4 million tonnes per
annum (MTPA). It is now going ahead with the remainder of its expansion programme
during 2004-05 by augmenting its capacity to 3 MTPA.

ESSAR

Essar Steel's retail network allows it to reach different segments directly and quickly. For
example, it is now targeting the unorganised segment to satisfy rural India's large appetite
for steel. It is also focusing on specific high-growth, high-value areas including products for
the petroleum and LPG sectors, the automobile segment and water line projects.

To increase shareholder value, Essar Steel is implementing a three-point programme:

increasing production volumes, raising operating margins and reducing finance costs. This
strategy has already begun to pay off through increased profitability.

Within a year, it aims to raise its HRC capacity from 2.4 MTPA to 3 MTPA, with only a
marginal additional investment, lowering per tonne costs and raising profits.
Simultaneously, it is squeezing improved productivity out of all its operations. Similarly to
how it raised its sponge iron capacity from 1.7 MTPA to 2 MTPA through process
improvements such as using waste gases to generate energy. Or how it saved Rs. 47 crore in
power costs by reducing consumption. Or when it implemented a myriad measures to cut
costs and raise production. In short, Essar is not satisfied with being among the 25% of
lowest cost producers worldwide: its aim is to graduate to the lowest 5%.

Through strategic divestments, Essar Steel is also strengthening its balance sheet. For
instance, to capitalise on assured export markets and expertise and free up capital, it sold a
51% stake in its pellet plant to Stemcor, UK. This move reduced its debt substantially while
still ensuring high-quality raw materials at a reasonable price. Its debt will fall further once
it divests its 42% stake in Essar Power, first intended as a captive unit but now a profitable,
independent power company. At the same time, it is restructuring its debt profile by
lengthening the maturity profile of its loan liabilities. This move away from short-term, high-
cost debt will bring down our interest costs.

J I NDAL

Jindal Vijaynagar Steel Ltd. (JVSL) enhanced its pellet plant capacity from 3 million tonnes
per annum (MTPA) to 4.2 MTPA in May 2004. Effective July 2004, JVSL's steel plant
capacity is being upgraded to 2.5 MTPA through commissioning the blast furnace set up by

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Euro Ikon Iron & Steel Pvt Ltd and to be operated by JVSL under an operation and
maintenance agreement.
There is a plan to hike this capacity further from 2.5 MTPA to 4 MTPA at a cost of Rs 1,100
crore by the financial year 2006.
The company will also have captive coke supply from September 2004 once the coke project
being set up by Euro Coke Energy Pvt Ltd is commissioned. Plans are afoot to set up a 200
MW gas-based power plant, expected to be ready in two phases over December 2004 and
September 2005.

For Jindal Iron & Steel Company, new capacities being added include 0.9 million tonnes in
cold rolling, 0.8 mt in galvanising, and 0.1 mt in colour coating.

The total capital expenditure for FY2005 is pegged at Rs 180 crore, Rs 60 crore at JVSL and
the balance at Jisco. Additionally, Rs 100 crore from an estimated Rs 200 crore investment in
the hot strip facility will be incurred this year.
For FY2006, total capex is forecast at Rs 280 crore.

FINANCIAL PERFORM ANCE OF M AJOR COMPANIES

P e r f o r m a n ce d u r i n g 20 03 - 2 0 04

The Indian Steel Industry has continued its growth momentum during 2003-2004.
Production and apparent consumption were higher by 7.5% and 5% respectively. Growth was
recorded more in the Non-Flat segment with a growth in production and apparent
consumption of 8.6% and 7% respectively. The corresponding figures for the Flat segment
were 6.7% and 3.2% respectively. The overall exports were higher by 15.9% during FY2004
with the Flat segment reporting a higher exports growth of 16.4%. Exports growth was
12.0% for the non-Flat segment. Steel imports witnessed a growth of 9.3% during FY2004,
with the Flat segment reporting a growth of 14.6 % as against a decline in import growth of
39.3% in the non-Flat segment.

(‘000 tonnes)
FY2004 FY2003
Growth in
Apparent Apparent Growth in Apparent
Production Consumption Production Consumption Production Consumption
Pig Iron 5216 4657 5285 4644 -1.3% 0.3%
Semis 10232 9608 9880 9401 3.6% 2.2%
Finished Steel 0 0 0 0 0 0
Bars & Rods 11136 10621 10676 10337 4.3% 2.7%
Structurals 3056 3037 2368 2420 29.1% 25.5%
Rly. Material 929 930 884 882 5.1% 5.4%
Non-Flats 15121 14588 13928 13639 8.6% 7.0%
Plates 2155 2438 1832 1961 17.6% 24.3%
HR Coils/Skelp 9154 7442 8735 7320 4.8% 1.7%
HR Sheets 727 757 519 570 40.1% 32.8%

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CR Sheets/Coils 5602 2978 5041 3202 11.1% -7.0%

GP/GC Sheets 2549 1199 2790 1265 -8.6% -5.2%
Elec. Sheets 137 171 158 192 -13.3% -10.9%
Tinplate 153 138 148 189 3.4% -27.0%
Tin Mill Black
Plate (TMBP) 32 12 33 10 -3.0% 20.0%
Pipes (Large Dia) 557 590 487 497 14.4% 18.7%
Tin free Steel 0 15 0 52 NA -71.2%
Flats 21066 15740 19743 15258 6.7% 3.2%
Total Finished
Steel 36187 30328 33671 28897 7.5% 5.0%
Compiled by INGRES

Domestic prices of steel have been moving upwards since the beginning of 2002-2003 in line
with global prices. During the period April – December 2003, the domestic steel prices are
much higher as compared to the corresponding prices during April – December 2002. This
trend has been carried forward in the month of January, February and March 2004 also.

Steel Prices at Mumbai (Rs./tonne) during 2003-2004

YoY YoY YoY
April- July- Oct.- Growth Growth Growth
June Sep. Dec. (Q1) (Q2) (Q3)
Billets 14500 17700 16733.33 25.0% 36.9% 25.5%
Wire Rods, 8 mm 18067 20667 20583.33 16.3% 26.0% 26.5%
Rounds, 12 mm 17167 19767 20533.33 11.5% 25.1% 32.8%
Plates, 6 mm 21500 22667 23720 26.5% 15.8% 17.2%
HR Coils, 3.15 mm 23033 22833 23790 37.7% 13.2% 19.0%
CR Coils, 0.63 mm 26333 27883 28166.67 28.5% 18.7% 20.7%
GP Sheets, 0.63 mm 30667 29900 30200 21.1% 10.7% 8.5%
Compiled by INGRES

Steel Prices at Mumbai (Rs./tonne) during 2003-2004

Growth Growth Growth
(Jan. (Feb. (March
over over over
Dec-03 Jan-04 Feb-04 Mar-04 Dec.) Jan.) Feb.)
Billets 17200 18200 19200 18700 5.80% 5.50% -2.6%
Wire Rods, 8 mm 20300 22100 21400 24000 8.90% -3.20% 12.1%

Rounds, 12 mm 21500 21700 24000 25000 0.90% 10.60% 4.2%

Plates, 6 mm 25010 27250 32000 31500 9.00% 17.40% -1.6%
HR Coils, 3.15 mm 24920 27500 31600 31850 10.40% 14.90% 0.8%
CR Coils, 0.63 mm 28750 31000 34000 34750 7.80% 9.70% 2.2%
GP Sheets, 0.63 mm 31000 32000 38250 38500 3.20% 19.50% 0.7%
Compiled by INGRES

Growth in volume sales coupled with significant improvement in steel prices have resulted in
a large positive impact on the profitability of the steel companies in India.

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Financial Performance of TISCO

(Rs. mn.)
Q4 2003- Q4 2002- Growth 12M 2003- 12M 2002-03 Growth
04 03 04
Sales 32002.7 26647.6 20.1% 107023.9 87213.2 22.7%
Other Income 398.4 129.8 206.9% 1405.1 503.9 178.8%
Total Exp. 20168.3 18664 8.1% 72069.8 64193.4 12.3%
Operating profit 11834.4 7983.6 48.2% 34954.1 23019.8 51.8%
Interest -710.2 578.2 -222.8% 1221.7 3048.2 -59.9%
Depreciation 1856.4 1327.9 39.8% 6251.1 5554.8 12.5%
Extraordinary items -1384.4 -144.9 NA -2226.8 -2295.7 NA
Tax 3413.4 1371.6 148.9% 9197.4 2501.9 267.6%
Net Profit 6288.8 4690.8 34.1% 17462.2 10123.1 72.5%
Source: TISCO

Financial Performance of SAIL

(Rs. mn.)
Q4 2003-04 Q4 2002-03 Growth 12M 2003-04 12M 2002-03 Growth
Net Sales 67,809 56,070 20.9% 219,957 173,553 26.7%
Other Income 435 654 -33.5% 1,354 2,358 -42.6%
Total Exp. 52,805 48,519 8.8% 174,808 154,263 13.3%
Operating profit 15,004 7,550 98.7% 45,148 19,290 134.1%
Interest 1,854 2,947 -37.1% 8,994 13,340 -32.6%
Depreciation 2,747 2,841 -3.3% 11,226 11,467 -2.1%
Tax 695 0 1,161 -116
Net Profit 10,143 2,417 319.7% 25,121 -3,043
Source: SAIL

Outlook

The fundamentals of the Steel Industry appear to be improving in the near to medium term.
Rising Steel prices and growth in the export markets are playing an important role in
improving the fortunes of the Indian Steel Industry. International Steel prices (and hence
the domestic steel prices) and volume offtake in the export markets are expected to be
sustained in the near future, till the new capacities (particularly those coming in China)
further deteriorate the demand supply balance. Input prices (eg. Coal, freight etc.) have also
seen significant growth in the recent times. Accordingly, there is an imperative need for the
Indian steel companies to improve operating profitability so as to withstand all phases of the
steel price cycle. This is expected through varied measures such as – implementing cost
control measures, enhancement of capacity utilization, improvement of operational
efficiencies, altering the product mix for maximizing share of value-added products and
targeting niche markets.

OTHERS
Impact of Union Budget FY2005

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In it iat ives Un d er t ak en in Un ion Bu d get FY2005

• Reduction in customs duty on non-alloy steel from 15 per cent to 10 per cent and increase
in excise duty on steel from 8 per cent to 12 per cent
• Reduction in customs duty on alloy steel and refractories from 20% to 15%
• Thrust to Infrastructure sector2
• No increase in railway freight
• Educational cess of 2%
• Lower increase in incremental capacity required for additional depreciation of 15%

2 Revival of Rural Infrastructure Development Fund; Constitution of Inter-Institutional Group for funding

Infrastructure; Increased allocation for Accelerated Rural Supply programme, Urban Water Supply Programme,
Indira Vikas Yojana; Construction of International Container Transshipment Terminal at Vallarpadam; Increased
target under Golden Jubilee Rural Housing Scheme; Extension of time limit for benefits to housing projects under
Section 80 IB; Relaxation of minimum plot size for housing projects

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IMPACT : NEGATIVE
Reduction in custom duties on steel is likely to negatively impact the operating margins of
the steel companies. The combined impact of reduction in custom and excise duties could
lead to a marginal decline in steel prices. On the positive side, maintaining status quo on
railway freight is likely to have a positive impact on the operating costs. The initiatives in
the infrastructure sector may translate into increased steel demand. Additional depreciation
benefits may result in increased investments in brownfield projects.

Steel Authority of India Limited NEGATIVE IMPACT

Major Raw % of Operating Custom duty Custom duty Impact

Material Cost existing proposed
Iron ore 5.8% 5% 5% Neutral
Coal 25.3% 0% 0% Neutral
Coke 0.4% 5% 5% Neutral
Limestone 2.2% 20% 20% Neutral

Finished Custom duty Custom duty Impact Excise duty Excise duty Impact
Goods existing proposed existing proposed
Saleable Steel 15% 10% Negative 8% 12% Negative

Reduction in the custom duty on saleable steel is likely to negatively impact the operating
margins of the company. The sales realization is expected to decline marginally. Maintaining
status quo on railway freight is a positive development for the company given the freight
intensive nature of the industry. Thrust to infrastructure sector is a positive development as
it may increase growth in sales volume.

Tata Iron and Steel Company Limited NEGATIVE

IMPACT

Major Raw % of Operating Custom duty Custom duty Impact

Material Cost existing proposed
Iron Ore 2.5% 5% 5% Neutral
Coal 1.5% 0% 0% Neutral
Coke 11.6% 5% 5% Neutral
Limestone 2.7% 20% 20% Neutral

Finished Custom duty Custom duty Impact Excise duty Excise duty Impact
Goods existing proposed existing proposed
Saleable Steel 15% 10% Negative 8% 12% Negative

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Reduction in the peak custom duty coupled with increase in excise duty is likely to have a
marginal negative impact on the sales realisation. The operating margins are expected to
decline due to reduction in customs duty. However, the thrust on housing and infrastructure
sector is expected to have a positive impact on the volume offtake (particularly of long
products). Maintaining status quo on railway tariff to have a positive impact on the
operating costs.

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