CRITICAL ANALYSIS OF ESSAR STEEL

Essar Steel is a versatile manufacturer, capable of producing highly customized products. The
new competitive arena in 2005 Indian mills are among the lowest cost produce in the world.
Essar steel limited is a key component of Essar Group. Located at Hazira in the state of
Gujarat, Essar steel has a current capacity will be increased to 3.0 million tpa by the year
2003. the company is one of the India’s largest HRC producers and is India’s largest exporter
of HRC to discerning customers in all corners of the globe. Using state-of-the-art technology,
Essar steel manufactures an extensive product range, tailored to high demands of a wide
customer base. Essar steel is one of the lowest cost producers in the world and is successfully
competing internationally in very demanding value –added products. The company also has
the largest DC electric steel making plant the World, with 3 x 150t electric Arc Furnace. It
was the first Indian steel company to be awarded ISO 9002 for its entire operations and was
also the first to receive the prestigious ISO 14001 certificate for its complete environmental
management from Det Norske Veritas.
It is a global producer of steel with a footprint covering India, Canada, USA, the Middle East
and Asia. It is a fully integrated flat carbon steel manufacturer—from iron ore to ready-to
market products. Essar Steel has a current capacity of 9 million tonnes per annum (MTPA).
With its aggressive expansion plans in India as well as Asia and the Americas, its capacity
will go up to 20 to 25 MTPA by 2012. Its products find wide acceptance in highly discerning
consumer sectors, such as automotive, white goods, construction, engineering and
shipbuilding. In 2007, Essar Steel acquired Algoma Steel in Canada, which has a capacity of
4 MTPA, and Minnesota Steel, which has iron ore reserves of over 1.4 billion tonnes. While
the company is building a 4.1 MTPA steel plant in Minnesota, it is also setting up a 2 MTPA
hot strip mill in Vietnam and a 2.5 MTPA integrated steel plant in Trinidad & Tobago. In
Indonesia, it operates a 400,000 TPA cold rolling complex with a galvanising line of 150,000
TPA, making it the largest private steel company in that country.
Essar Steel is the largest steel producer in western India, with a current capacity of 4.6 MTPA
at Hazira, Gujarat, and plans to increase this to 10 MTPA. The Indian operations also include
an 8 MTPA beneficiation plant at Bailadilla, Chattisgarh, and an 8 MTPA pellet complex at
Visakhapatnam. Additionally, Essar is setting up a 6 MTPA integrated steel plant in Paradip,
Orissa.
The Essar Steel complex at Hazira in Gujarat, India, houses the world’s largest gas-based
single location sponge iron plant, with a capacity of 5.5 MTPA. The complex also houses the
steel plant and the 1.4 MTPA cold rolling mill. The steel complex has a complete
infrastructure setup, including a captive port, lime plant and oxygen plant. The company is
also building a 1.5 MTPA plate mill and a 0.6 MTPA pipe mill in Hazira to make further
value addition to its product portfolio.
Essar Steel produces highly customized products catering to a variety of product segments
and is India’s largest exporter of flat products to the highly demanding US and European
markets, and to the growing markets of South East Asia and the Middle East. It has invested
in downstream capabilities to evolve from being a product-based company to becoming a
value-added service provider. It has a global network of retail steel outlets, called Steel Hyper
marts, and offers services, like cutting, slitting and blanking of steel sheets, through
specialized Steel Service Centres worldwide.

ESSAR HAZIRA STEEL PLANT

SWOT ANALYSIS OF ESSAR

1. STRENGTHS
 India’s Largest steel exporter
 Cost leadership
 Assured supply of input.
 Controlled infrastructure facilities.
 Highly experienced management.
 Educated work force.
 Excellent brand equity and quality

2. WEAKENESSES
 Cost of raising fund is high.
 Cost of raw-material is high since Essar don’t have its own mines. So, getting Raw-
Material market is costly affair.

3. OPPORTUNITIES
 Enormous scope for increasing consumption of steel in India.
 Maximum utilization of cash flow through new business & avenues like online sales,
steel retail outlets & service centres.
 Trapping the retail segment for steel.
 Unexplored rural market.
 Increasing steel consumption in other sectors.
4. THREATS
 Technological changes.
 Ever decreasing import duty on steel i.e. high quality of product from developed
countries available for import at very competitive prices.

CRITICAL ANALYSIS OF THE STEEL INDUSTRY

India's Steel Industry is more than a century old. Before the economic reforms of the early
1990s the Indian steel industry was a predominantly regulated one with the public sector
dominating the industry. Tata Steel was the only major private sector company involved the
production of steel in India. Sail and Tata Steel have traditionally been the major steel
producers of India. In 1992, the liberalization of the India economy led to the opening up of
various industries including the steel industry. This led to the increase in the number of
producers, increased investments in the steel industry and increased production capacity.
Since 1990, more than Rs 19,000 crores (US$ 4470.58 million) has been invested in the steel
industry of India.

India's steel industry went through a rough phase between 1997 and 2001 when the overall
global steel was facing a downturn and recovered after 2002. The major factors that led to the
revival of the steel industry in India after 2002 were the rise in global demand for steel and
the domestic economic growth in India.
India has now emerged as the eighth largest producer of steel in the world with a production
capacity of 35MT. almost all varieties of steel is now produced in India. India has also
emerged as a net exporter of steel which shows that Indian steel is being increasingly
accepted in the global market.

The growth of the steel industry in India is also dependant, to a large extent, on the level of
consumption of steel in the domestic market. Steel consumption is significant in housing and
infrastructure. In recent years the surge in housing industry of India has led to increase in the
domestic demand for steel.
More than 3500 different varieties of steel are available in the steel industry of India. These
can however be classified into two broad categories -
Flat Products - Flat products include plates and hot rolled sheets such as coils and sheets.
Flat products are derived from slabs. One of the major uses of steel plates is in ship building.
Long Products - Long products include bars, rods, wires, ropes and piers. These are called
long products due to their shapes. Long products are made from billets and blooms. Long
products are mostly used in housing and construction and also in rail tracks.
Size of the Indian Steel Industry
The steel industry is one of the major industries of India. It has also gained considerable
importance in the global steel industry. This century old industry of India was mostly a
regulated one till 1990.The economic reforms undertaken in India in the early 1990s gave a
major boost to the steel industry and it grew considerably in terms of investment, production
capacity and number of producers. The industry faced a downturn during the late nineties but
revived again by 2002.
The size of India's steel industry has increased considerably in recent years. According to
latest available estimates, India ranks eighth among the top steel producers of the world with
a production capacity of 35 MT.

The steel industry of India has capital investments

Of more than Rs 100, 000 crores. The total employment in the industry is more than two
million (including direct and indirect employment).
Some of the major reasons that have led to the growth in the size of India's steel
industry are -
-Abundant availability of iron-ore in India
-Good facilities for steel production
-Increased consumption of steel in the sectors like construction.

Growth Potential of India’s Steel Industry

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

India has set a vision to be an economically developed nation by 2020. The steel industry is
expected to play a major role in India's economic development in the coming years. The steel
industry of India has a very high growth potential and is expected to register significant
growth in the coming decades. India is expected to emerge as a strong force in the global
steel market in coming years. Steel production in India has grown from 17 MT in 1990 to 36
MT in 2003. It is expected that by 2011, the steel production in India will grow to 66 MT.
The current scenario of the Indian steel industry indicates that there is huge growth
potential in his industry. The per capita-consumption of steel in India, according to latest
available estimates, is only 29 kg. This is much less compared to the global average of
140kg. The per capita consumption level of developed nations like the United States of
America is 400kg. In this respect, one of the major initiatives that need to be taken is to focus
on increasing the consumption of steel in the rural areas of India. The potential for the
growth of consumption of steel in the rural areas of India for purposes like rural housing,
rural infrastructure, etc is high which needs to be tapped efficiently.

In order to realize the growth potential in the steel industry of India, it is essential to ensure
that the industry can remain competitive. One of the major aspects in this regard is the
availability of inputs. Shortage of inputs like coke has led to increase in costs earlier.
Moreover, proper infrastructure facilities like transport infrastructure, power etc are of prime
importance in maintaining the competitiveness of the industry.

Most developed countries have regulations that are aimed to protect the domestic steel
industry. The Indian steel industry has comparatively much lesser protection through
regulations. Proper regulatory measures should be adopted by the government to protect the
domestic steel industry.

Challenges before Indian Steel Industry

There are certain challenges before the steel industry of India in the recent times. India has
been one of the major producers of steel in the world and has also been attracting a lot of
foreign direct investment. A few issues would need to be attended to if India wants to be
counted as one of the major and most economical producers of steel. The three areas that
need to be improved upon in the view of the exports are the infrastructure, ability to draw
the top names in steel, and wealth creation issues.
The condition of the infrastructural facilities of the steel industry in India is not at all
conducive to a sustainable growth and development of the steel industry of the India.
The methods that are adopted for the creation of wealth in the Indian steel industry are also
supposed to act as hindrances to the growth and development of the Indian steel industry.
The Indian steel industry has also not been able to draw the best professionals in the steel
industry and that has been a major drawback of the industry.
The experts are also of the opinion that not enough policies or measures have been adopted
to amend the situation in case of the infrastructural facilities available in the steel sector.
Even though India is capable of producing steel at a good rate and also increase the
volume of production there is not enough land available to support such activities. One of
the major reasons for such problems is the consistently increasing population of India.

Competition Analysis of the Steel Industry

 Differential Pricing

 Downstream producers compete with integrated producers for the same end-
product

 Allegations of differential pricing between the intermediate and the end

product

 Cartelization?

 Threat of imports, public perception, users’ of HRC constitute a large lobby

 Suspicions of concerted action by steel majors (PSUs operation)

 Cartelization, when the market is strong, but not when it is weak

 Single largest steel product traded, and requires large investment

 Five producers dominate the market

 Vertical integration: example, SAIL and TISCO also manufacture downstream

products, though much of it is merchandised

 Intra-industry competition is complex due to merchant operations, where users of

intermediate face competition with the same finished product also produced by the
producers of intermediates

 Government intervention has played a major role in determining the competition

scenario