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“COMPREHENSIVE STUDY OF THE INDIAN STEEL INDUSTRY”
Submitted in partial fulfillment of the requirements for the award of Degree of BBM [e-Banking & Finance]
By RAHUL R. FOFALIA (071204047) SURABHI MAHARISHI (071204046) NEHA GOEL (071204067) UNDER THE GUIDANCE OF Ms. Khyati Shetty and Mr. Aunali Rupani May- July 2009
Department of Commerce,
Manipal University, Manipal-576 104
We, the students of BBM [e-Banking & Finance], Department of Commerce, Manipal University, declare that the Project Report entitled
“COMPREHENSIVE STUDY OF INDIAN STEEL INDUSTRY”, being submitted to the Department of Commerce, Manipal University, in partial fulfillment of the requirements for the award of Degree of BBM [e-Banking & Finance], is our original work and the same is / was not earlier submitted to any other Degree, Diploma, Fellowship or any other similar title or prizes
RAHUL R. FOFALIA (071204047) SURABHI MAHARISHI (071204046) NEHA GOEL (071204067)
This is to certify that the Project entitled “COMPREHENSIVE STUDY OF INDIAN STEEL INDUSTRY”, is submitted to Department of Commerce, Manipal University, in partial fulfillment of the requirements for the award of Degree of BBM [e-Banking & Finance].
RAHUL R. FOFALIA (071204047), SURABHI MAHARISHI (071204046) and NEHA GOEL (071204067) have worked under my supervision and guidance and that no part of this Report has been earlier submitted for the award of any other Degree, Diploma, Fellowship or any other similar title or prizes and that the work has not been published in any journal or magazine.
Ms. Khyati Shetty Faculty, Department Of Commerce Manipal University Date:
RAHUL R. We also want to thank our batch mates who have helped me in getting acquainted with various aspects during the project. Khyati Shetty. Without his support and guidance. Finally. we would like to express our deepest gratitude to Mr.ACKNOWLEDGEMENT With regard to the Project. we would like to thank each and every one who offered help. The faculty members of Department of Commerce. who extended her guidance and support in the successful completion of this summer internship. especially. not forgetting the staff of ARM Research Pvt. Ltd. Ltd. for his valuable time and advice in the making of this project. FOFALIA (071204047) SURABHI MAHARISHI (071204046) NEHA GOEL (07120 INDEX 4 . Director of ARM Research Pvt. I want to thank them all. our project guide. We thank our institute. guideline and support whenever required. Ms. Department of Commerce. First and foremost. for providing me with all the information required and co-operating in every possible way that they could. the completion of this project would not have been possible. for providing us a platform and supporting us towards the successful completion of this project. Aunali Rupani.
Properties 5. Vision 4.2: Research Methodology 2. History of steel 5. Introduction 22.214.171.124. Methodology of research Chapter V: Steel: Introduction 5.2.1: Objectives PAGE NO: 1-2 3 4 2. Company Profile 126.96.36.199. Limitations Chapter-III: Literature review Chapter IV: Profile of the Company 4.4 Conclusion 19 15-16 5 5 6-10 11 12 12 13 14 15 16-18 Chapter VI: Cost of Production 20 5 .TABLE OF CONTENTS PARTICULARS Chapter I: Introduction to the title with industry overview Chapter-II: Research Design 2.
Other expenses 21 21-24 24-25 25 25 26 6.2. Components of the cost of production 6.2. Conclusion 26 Chapter VII: Process of Steel Making 7.Power costs 6. Free machining steel 8.Based on application 188.8.131.52.5. High strength low alloy steel 184.108.40.206.Based on chemical composition 220.127.116.11.1.2. Induction Furnace 7.Alloy steel 37 37 37-38 8.1.2.Taxes & duties 6. Bearing steel 38 38 38 38 39 6 .Carbon steel 8.Interest payments 6. Electric Arc Steel-Making 7. Basic Oxygen Steel-making 18.104.22.168.5.Raw materials 6. Wear resistant steel 8.3. CONARK Steel-making 22.214.171.124.126.96.36.199. Conclusion 31-32 27 28-29 30-31 33 34 Chapter VIII: Types of Steel 35 188.8.131.52.1.
7.1.6.Flat products 8. Characteristics 9. Consolidations in the Steel industry 9. Imports & Exports 10.3.8. Tool steel 39 39 39-40 8. Conclusion 43 44-46 46-48 49-57 58-71 71-77 77-81 82 Chapter X: Demand and Supply 10. SWOT Analysis 9. Overview 10. Enterprise Value 9. Electric steel 184.108.40.206.5.2.3. Major players 9. Conclusion 40 40-41 41-42 42 Chapter IX: Indian Steel Industry Overview 9.6. Conclusion 83 84-85 85-89 90-91 92 7 .4.2.4.Based on Shape and Surface 220.127.116.11.3.7.2. Production & Consumption 10. Structure 9. Stainless steel 8.3.2Long products 8.4.
National Steel Policy.Chapter XI: Government Policies and Regulations 11. Ministry of steel 11. Conclusion Chapter XII: Challenges Faced by the Indian Steel Industry Chapter XIII: Conclusion Chapter XIV: Suggestions Chapter XV: Annexure Chapter XVI: Bibliography 93 94-95 95-96 97-99 99 100-103 104-106 107-109 110 111 8 .4.2. Reform measures and policy initiatives 11.1.3. 2005 11.
Comparison among SAIL. & JSW Steel Table 9. Table 9. 4.Calculation of EV/Tonne for SAIL Table 9.Calculation of EV/Tonne for TATA Steel Table 9.2.Calculation of EV/Tonne for JSW Table 18.104.22.168. TATA Steel Ltd.1. Infrastructural activities to boost steel demand 9 .9.8. Types of carbon steel Chapter IX Table 9. Classification of steel producers based on products Table 9.7.6. JSW ltd. Classification of steel producers based on the route of production Table 9.1.LIST OF TABLES: Chapter V Table 5. Table 9. Timeline of Steel Chapter VIII Table 8.3. SAIL Table9. TATA Steel.10 Merger of Arcelor & Mittal Chapter X Table 10.
2. Induction Furnace Steel making Figure 7. Strengths of Indian Steel Industry 10 .LIST OF FIGURES: Chapter VI Figure 6.1. Components of Cost of production of steel Figure 22.214.171.124.1. Types of steel Chapter IX Figure 9. CONARK Steel making Chapter VIII Figure 8.4. Prices of Iron ore and Coking coal Chapter VII Figure 7.1. Electric Arc Steel making Figure 7. Basic oxygen steel-making Figure 7.
Comparison of Cost of production Chapter X Figure 10.12. Indian Steel Production & Consumption Figure 10. Production Capacity Break-up Figure 9. SAIL’s Company Structure Figure 126.96.36.199.7.6. Export.11.9. Steel Emand break-up Figure 10.3 Per Capita steel consumption of various countries & position of India Figure 10. Weaknesses of Indian Steel Industry Figure 9. Shareholding Pattern : TATA Steel Figure 9.1. Production & Planned increase : SAIL Figure 9.5.4. Threats faced by Indian Steel Industry Figure 9.Import of Indian steel 11 .Figure 9. Company Structure: JSW Steel Figure 9. Opportunities in Indian Steel Industry Figure 9.3. Capacity.2.2. Shareholding Pattern : JSW Steel Figure 9. SAIL Plants Figure 9.
EXECUTIVE SUMMARY Steel has been the key material with which the world has reached to a developed position. channels. angles etc 12 . wires. All the engineering machines. rods. mechanical tools and most importantly building and construction structures like bars.
It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flow and income generation. the steel industry will play a critical role in transforming India into an economic superpower. housing and infrastructure. 13 . Its growth is intertwined with the growth of the economy at large. The level of per capita consumption of steel is treated as one of the important indicators of socio-economic development and living standard of the people in any country. This Report will help to know about the future of the Indian steel industry and also the demand & supply of steel in India in the coming years. and in particular the steel consuming industries such as manufacturing. As India moves ahead in the new millennium. The findings and analysis presented in this Project Report is based on primary as well as secondary research. Steel is crucial to the development of any modern economy and is considered to be the backbone of the human civilization. Steel is a highly capital intensive industry and cyclic in nature.are made of steel for its feature being hard and adaptable. This Project gave us a great learning experience and at the same time it gave us enough scope to implement our analytical ability.
The primary data was collected by interviewing the Chief Financial Officer. Ispat industries that helped us in understanding the steel sector in a better manner by providing some new insights into the project topic. The data collected has been well organized and presented. leading market players.The report starts with the very basics of steel covering different aspects like steel manufacturing. government policies with regards to the Indian steel sector etc. types of steel available in Indian cement market etc. We hope the research findings and conclusion will be of use. 14 . The report then goes on to cover industry analysis which includes the present scenario. history. demand & supply situation.
0 INTRODUCTION TO THE TITLE WITH INDUSTRY OVERVIEW 15 .CHAPTER 1.
Scope of the study The scope of the study lies in getting familiar with the problem and challenges faced by the Indian steel manufacturers. Today. It’s because of these reasons it was decided to study the Indian steel sector. The global steel industry has been witnessing many interesting events that have influenced market dynamics in the last ten years.Concept & Significance of the study Steel is crucial to the development of any modern economy and is considered to be the backbone of the human civilization. Steel (the carbon alloy of Iron) finds application in every imaginable facet of our life. 16 . Only the top three steel companies have been studied as a part of this project to get a glimpse of the Indian steel sector.
CHAPTER 2.0 RESEARCH DESIGN 17 .
• To understand the role of raw materials and energy in the steel manufacturing process. • To study the challenges faced by the Indian steel manufacturers.1. To analyze the fundamentals of a company so as to acquire deep knowledge about the Indian steel companies. Research Methodology Primary data was collected by: 18 . To study the importance of fundamental analysis of a company & its importance in the investment decision. Objectives of the study • • To study the structure and performance of the Indian Steel Industry.. To examine the factors influencing the demand for steel in India. 2. • • To study the overall consumption of steel in the world.2. To study the government rules and policies with regards to the Indian Steel Sector. To evaluate the competitiveness of the Indian steel Industry.2. • • • • To study the demand and supply position of steel in India.
Secondary data was collected by: 1) Reading the Annual Reports of various steel producing companies. 2.P.0 LITERATURE REVIEW 19 . 2) Reading various articles and books on steel. 2) Discussing with Mr. The study is limited to the Indian context only. Aunali Rupani. in such a short span was not possible. Director & Mentor. J. Ispat Industries Ltd. CFO. and studying the market keenly in to the depth. CHAPTER 3. Limitations of the study The project was undertaken just for a span of one and a half month.1) Discussing with our Project Guide. ARM Research Ltd.3. 3) Visiting various websites. Mr. Agarwal.
20 . Government of India.National Mineral Policy ( Huda Committee Report) Planning Commision. December 2006 The Huda Comitte Report aims at encouraging the flow of private investments and Introduction of state-of-the-art technology in exploration and mining .
It also analyses raw material supply and logistic management of top Indian Steel Players. The analyst opinion and projections help us in evaluating the future of the industry. etc. This report deals with detail and minute analysis of the Indian Steel Sector’s production Components . their costing . May 2009. business description is given followed by financial highlights and recent developments. Goutam Chakraborty. Steel Sector Watch Pankaj Pandey. availability.com.It also aims at giving suggestions to the planning comisiion. 21 . icicidirect. For each company. Indian Steel Sector Research Prakash Patil. The major companies are profiled in this report. Scope and threats to resources. It gives an insight into the investment opportunities present in the sector. Ferro-Chrome. Abhisar Jain . Silica. Iron-ore. Manoj Mohta CRISIL . March 09. Swati Rajde. Government of India to develop better Infrastructure Support for Minerals like.
Identifying PEST influences is a useful way of summarizing the external environment in which a business operates.PEST Framework Analysis Aruvian Research. It also gives us Recommendation and prefer domestic plays with strong balance sheets. Indian Steel Industry 2009 Credit Analysis & Research Limited. It also emphasizes on Margin improvement after raw material contract renegotiation Furthe analyzing Product price correction . March 2009 22 . stability expected at current levels. Social and Technological issues that could affect the strategic development of a business. Indian Steel Industry . Economic. The acronym stands for the Political. ts projections clearly state expectations of India to log domestic demand growth despite slowdown.This report brings forth the importance of maintaining steel demand-supply balance globally. March 2009 Aruvian Research analyzes the Indian Steel Industry in a PEST Framework Analysis. A PEST analysis is concerned with the environmental influences on a business.
This report on the Indian Steel Industry contains comprehensive data and analysis of the sector apart from giving outlook on the sector. There is inclusion of Trend analysis detects historical patterns that could help in forecasting future demand periods.In this report the Structure of the industry. and growth rates have been analyzed.Critical issues are also reviewed that may become a threat to the industry PEST analysis uses a framework of external factors for macro-environmental scanning of the industry to help in taking advantage of opportunities and making contingency plans for threats The report also gives a picture of Competitive positioning of the industry leaders 23 . monthly updates included with the subscription to this report will help the user to keep abreast of the latest developments Indian Steel Sector : Sector Report By Daedal Research. In addition. market size.. With our established network of primary and secondary sources. we have captured exhaustive data on the various parameters of the industry.The Value chain analysis categorizes the value-adding activities to develop low-cost differentiation strategies. We have also forecasted the future sector-wise demand of finished steel. August 2009 .
The report also includes detailed analysis and future outlook of various industries related to the steel industry. It also covers the information on industry-wise steel demand. including automotive. 24 .alloy and non-alloy. consumer durables. telecom.The report gives a detailed analysis of the forces which have shaped the Indian steel industry over the past years. and housing industries. Aug 2009 . production and trading market. it also provides industry forecast (FY 2010 to FY 2012). power. railways. The report classifies the finished steel product market into two categories . aerospace and marine. stock trend and other performance indicators Indian Steel Industry Outlook to 2012 RNCOS. Apart from this. profitability. overall steel consumption.has been evaluated in terms of sales.
0 INTRODUCTION TO THE COMPANY 4.CHAPTER 4. Company Profile 4.3. Vision 4.2.1. 25 . Methodology of research ARM RESEARCH PRIVATE LTD.
Aunali Rupani.1 Company Profile ARM Research Private Ltd. and believes that there is no replacement for knowledge and true mantra for success lies in implementing it. The number of employees in the company is 18. who is serving as the Director of the company.3 Methodology of research 26 . 4. who are working in a team of 4.4. The Registered office of the Company is at Andheri.2 Vision Introduce innovative and path breaking methods in field of Research and Asset management and empower investors to make investing simple. was established on by Mr. 4. where it is acting as a franchisee of Motilal Oswal Securities Ltd. The average age of employee in the research team is 30 years. It is also a brokerage firm. He is a Self Educated professional with 14 years of market exposure and strong values and vision. It’s basically an equity research and portfolio management company.
• Conduct extensive Sectoral research with the vision and the ability to foresee its growth prospects in years ahead. • Monitor changes in Domestic and World economy & impact of changes in the Government policies on the sectors. • Focus on the Small & Midcap stocks in sunrise sectors with the potential to join the Multi bagger league 27 . • Focus on event based activities that can bring a turnaround/trigger in the Company/Sector performance.
1.2.CHAPTER 5.0 STEEL: INTRODUCTION 5. History of steel 5. Introduction 5.4 Conclusion 28 .3. Properties 5.
ductility. and tungsten. Steel is an alloy consisting mostly of iron. The level of per capita consumption of steel is treated as one of the important indicators of socio-economic development and living standard of the people in any country. 5.14% by weight depending on grade. Properties The amount of alloying elements and their presence in the steel controls qualities such as hardness. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flow and income generation. Carbon is the most cost-effective alloying material for iron. chromium. vanadium. 29 .1. and tensile strength of the resulting steel. with carbon content between 0. but various other alloying elements are used such as manganese. Carbon and other elements act as a hardening agent.2% and 2.2. Introduction Steel is crucial to the development of any modern economy and is considered to be the backbone of the human civilization.5.
40. or a structural beam to the point where it breaks. 30 . History of steel: A Timeline The earliest recorded metal employed by humans appears to be gold which can be found free or "native". 2) Ductility is a mechanical property used to describe the extent to which materials can be deformed plastically without fracture. Small amounts of natural gold have been found in Spanish caves used during the late Paleolithic period.000 BC.1) Hardness refers to various properties of matter in the solid phase that gives it high resistance to various kinds of shape change when force is applied. Steel with increased carbon content can be made harder and stronger than iron. wire. but is also more brittle. The first invention of steel was in 13th century BC when iron and charcoal were combined properly. 3) Tensile strength measures the force required to pull something such as rope.3. 5.
while Noric steel was used by the Roman military. Wootz steel was produced in India and Sri Lanka from around 300 BC. In the 4th century BC. The earliest known production of steel is a piece of ironware excavated from an archaeological site in Anatolia and is about 4. Other ancient steel comes from East Africa. 31 . steel weapons like the Falcata were produced in the IberianPeninsula.000 years old. The mass-production of steel only became possible after the introduction of the Bessemer process. named after its brilliant inventor. the British metallurgist Sir Henry Bessemer (1813-1898).C. dating back to 1400 BC.History of the Steel Industry dates back to the ancient times in Armenia which is approximately around 3500 B.
32 326 BC 300 BC 200 BC 1000 AD 1448 1740 1855 1912 1980 . crucible and stainless steels were invented in India. and were widely exported. Invention of steel when iron and charcoal were combined properly. Steel making widely used in Han Dynasty China.Year 3rd millennium BC 2nd millennium BC 1st millennium BC 16th century BC 13th century BC 400 BC Event Table 5. resulting in "Damascus steel" by the year 1000. Iron pillar of Delhi is the oldest surviving example of corrosion-resistant steel Alexander was presented 30 pound of Indian steel other precious things in 326 BC in northwestern India as a tribute. Timeline of Steel Copper metallurgy is invented and copper is used for ornamentation. a high quality steel making technique believed to have originated in India in 300 BC. Bronze is used for weapons and armour. Pewter beginning to be used in China and Egypt The Hittites develop crude iron metallurgy. The whootz. Whootz steel making. Bessemer process for mass production of steel patented. Benjamin Huntsman developed the crucible steel technique.1. Harry Brearley invents stainless steel. Johann Gutenberg develops type metal alloy. Development of duplex stainless steels which resist oxidation in chlorides.
pipeline transport to office equipments and household appliances. the Damascus swords were made by forging small cakes of steel that were manufactured in Southern India.5. This steel was called wootz steel. 2) The property of finished steel depends upon the percentage of alloying elements present in it. D.Conclusion “Wootz was the first high-quality steel made anywhere in the world. It was only in 13th century that STEEL was invented. 33 . It has a wide range of usage from shipbuilding. 3) The first metal being used by human beings was gold and then copper followed by bronze. steel is the most commonly used material in the world. Pendray. The mass production of steel was possible only after Bessemer invented the Bessemer process in 1855.J. Muse. 1998 1) Today.4.” . Verhoeven and A. It was more than a thousand years before steel as good was made in the West. According to reports of travelers to the East.
188.8.131.52.Raw materials 6. Components of the cost of production 6.5.Other expenses 6. Components of cost of production 34 .1.CHAPTER 184.108.40.206. Conclusion 6.Taxes & duties 220.127.116.11.0 COST OF PRODUCTON 6.Interest payments 6.Power costs 6.4.
1. Components of Cost of production of steel Any sustained rise in input prices usually lead to an increase in product prices through the cascading effect. This only emphasizes on how important sharp movements in 35 .Raw material costs forms roughly about 62% of the total cost of production.Figure 6.1.1. The major components of the costs of production of finished steel are: 6.Raw materials .
HBI are produced in the form of briquettes (small cubes) and have the advantage of higher yields and easier storage and transportability.raw material prices mean for the steel industry. For production of steel. Sponge iron is divided into two types namely Direct Reduced Iron (DRI) and Hot Briquetted Iron (HBI). 98% of the mined iron ore is used to make steel. DRI involves low investment and can be produced by small capacity plants unlike the HBI. pure iron ore can be processed into the following forms. It has a disadvantage of lower yield and rusting easily and thus they are converted into HBI through a gas based route.1.1. iron ore pellets in the solid state. DRI is produced through the coal based route in the form of lumps or pellet of about 4 by 44 mm. 36 .1.Iron ores: Iron ores are rocks and minerals from which metallic iron can be economically extracted. The best kind of iron ore meant for steel manufacturing contains 67% iron. The basic raw materials that are used in producing steel are : 6. Sponge iron is the generic name of metallic product produced through direct reduction of iron. namely sponge iron & pig iron.
3.1. It is used in steelmaking and 37 .1.2. 6. 6. Ferrochrome: Ferrochrome (FeCr) is an alloy of chromium and iron containing 50% 70% chromium.1.5 – 4. Ferrosilicon: Ferrosilicon.1. The balance is largely silicon and manganese with a small percentage of phosphorus. It contains approximately 92% iron and about 3.5 % carbon. sulphur and other impurities. It is produced by electric arc melting of chromite. Kazakhstan and India. or ferrosilicium. an iron magnesium chromium oxide and the most important chromium ore. is a ferroalloy an alloy of iron and silicon with between 15% and 90% silicon. Most of the world's ferrochrome is produced in South Africa.Pig iron is an intermediate product of smelting iron with coke and fluxes like limestone.
is basically bituminous coal.Coking coal: Hard coking coal. Prices of Iron ore and Coking coal 38 . to prevent loss of carbon from the molten steel. 6.4. Yearly. which is “coked” to remove volatile components.1.2. stainless steels. Figure 6. an important input for steel making.1.. over 400 mn tonnes of coke is produced worldwide.foundries as a source of silicon in production of carbon steels.
1. 39 .4. Most steel majors like SAIL. Interest coverage ratio has also shot up to nearly 10 after hovering above the zero levels for a number of years. mostly in form of long term loans. Taxes and duties Excise duties. Interest payments Steel is a capital-intensive industry and as such many companies resort to outside borrowings. the government can play an active role and provide structured concessions for new and old capacities.3.1.1% of total production costs.2. Power costs The steel industry is an energy intensive industry with power and fuel contributing as much as 10.2%. sales tax. It has been estimated that the global steel industry account for nearly 4% of the total energy consumption in the world. TSL and JSW have captive power plants but smaller players have to depend on outside supply. other direct and indirect taxes further push up costs in the steel sector. Total taxes contribute more than 16% of total costs. Interest payments always used to form on average between 7 – 9% of the total costs but have recently come down to as low as 3.1.6. 6. 6. Here.
Other expenses Wage bills. and some other materials are high. 6.17. iron ore and scrap shortage are responsible for the increased cost of production.2. and CIS countries 40 .000 .40% of the cost of steel production in India.18. cost of power. All these make the pre-tax cost of steelmaking in India higher than that of South Korea.5. Mexico. coupled with low average prices of Rs.1.6. 2) The financial cost. whereas it is about 28% in the developed countries. Integrated players with their own captive mines for iron ore and coal will find it an advantage as they will be shielded from the fluctuating prices of raw materials. depreciation costs and distribution expenses are among the other major cost components. Australia. CONCLUSION 1) Coking coal.000 TPA in the past. All these account for about 35 .
4. CONARK Steel-making 7.5. Basic Oxygen Steel-making 7. Electric Arc Steel-Making 18.104.22.168 PROCESS OF STEEL MAKING 7.2. Induction Furnace 7. Conclusion 41 .CHAPTER 7.
1. LD-converter) is a method of primary steelmaking in which carbon-rich molten pig iron is made into steel. BOF. Basic Oxygen Steel-making: Basic oxygen steelmaking (BOS. Linz-Donawitz-Verfahren. 42 . The vast majority of steel manufactured in the world is produced using the basic oxygen furnace.7. Modern furnaces will take a charge of iron of up to 350 tons and convert it into steel in less than 40 minutes. Blowing oxygen through molten pig iron lowers the carbon content of the alloy and changes it into low-carbon steel.
1.Figure 7. Basic oxygen steel-making 43 .
in which heating is accomplished by the exothermic oxidation of elements contained in the charge. External arc heating permits better thermal control than does the basic oxygen process. The shell sits on a hydraulically operated rocker that tilts the furnace forward for tapping and backward for slag removal. The electric-arc furnace (EAF) is a squat. 44 . It has a dish-shaped refractory hearth and three vertical electrodes that reach down through a dome-shaped. Electric Arc Steel-Making: About one-quarter of the world’s steel is produced by the electric-arc method. This allows larger alloy additions to be made than are possible in basic oxygen steelmaking.7. cylindrical vessel made of heavy steel plates.2. removable roof. which uses high-current electric arcs to melt steel scrap and convert it into liquid steel of a specified chemical composition and temperature.
Induction Furnace: An induction furnace is an electrical furnace in which the heat is applied by induction heating of iron ore in a crucible placed in a water- cooled alternating current solenoid coil. Alloying 45 . Electric Arc Steel making 7. Raw materials used are Steel melting Scrap and Direct Reduced Iron.3.2.Figure 7. The various types of Induction Furnaces used for Steel making are Medium frequency and High frequency.
has a capacity up to a maximum of 16-tonne/charge. 46 . Stainless Steel and low and high alloy Steel can be made from these furnaces An Induction furnace today.elements are added as per requirement. Mild steel.
3.Figure 7. Induction Furnace Steel making 47 .
The CONARC design concept combines the conventional BOF process with electric steel making in a single production unit which consists of two identical vessels. This process gainfully utilizes the process advantages of both (BOF & EAF). and to superheat them up to tapping temperature. The steelmaking process in a CONARC unit is consequently split up into two main phases: • Converter process to decarbonizes the liquid hot metal by top lance injection of oxygen and • The electric arc furnace process to melt down all cold charge materials.4. using electrical energy. 48 .7. CONARC Steel-making: CONARC (CONverter process with electric ARC steelmaking) process combines electrode arc melting with the oxygen blowing process.
2) Iron ore fines are used for making Pig Iron.7. coal and gas. Duplexing and Tripplexing process may become necessary to make steel in future. new processes are being developed to use various types of Iron ores. 49 .Figure 7.4. 3) All these processes trim to make cheaper steel and conversation of energy. CONARK Steel making 7. It is to be seen whether new processes are economically viable comparing to old systems. Conclusion 1) Steel making process is going considerable changes.
1.2.Carbon steel 22.214.171.124.1.0 TYPES OF STEEL 8. Free machining steel 126.96.36.199. Wear resistant steel 8. High strength low alloy steel 8.2. Based on chemical composition 8.CHAPTER 8.4.Alloy steel 8. Bearing steel 50 .3. Based on application 8.2.2.
Electric steel 188.8.131.52.1 6.6.3. Stainless steel 184.108.40.206.4.2 Flat products Long products 8.Conclusion Steel can be classified based on three parameters namely- TYPES OF STEEL Based on Chemical Composition Based on Application Based on Shape & surface Carbon Steel Alloy Steel High Strength Low alloy steel Free Machining Steel Wear Resistant Steel Flat products Long Products 51 .8.7. Based on Shape and Surface 6. Tool steel 8.
1. Plates.Bearing Steel Stainless Steel Electric Steel Tool Steel Figure 8.0% Uses Structural steel. Types of Carbon Steel Low carbon steel Mild carbon steel Medium carbon steel High carbon steel Ultra-high carbon steel Carbon Content (%) 0.0–2.05–0. Carbon steel (≤2.30–0.1. low alloy) Carbon steels are most produced and used. Axles Large equipments.1% carbon. is steel where the main alloying constituent is carbon. Types of steel 8.1. Forging.99 1. Carbon steel. Sheets.16–0. Non industrial purpose 52 . BASED ON CHEMICAL COMPOSITION 8.29 0.1. Automotive components Springs & High strength wires.6–0.15 0. Wires. Boilers. accounting for about 90 % of the world’s steel production.59 0. also called plain carbon steel. Pipes Rails.
The HSLA steels have low carbon contents (0. Low-alloy steels can be classified according to Chemical composition & Heat treatment.0%. and they have manganese contents up to 2. Types of carbon steel 8.2. 8.1.Figure 8.25% C) in order to produce adequate formability and weldability.2.05-0. BASED ON APPLICATION 8.Low-alloy Steels: Low-alloy steels constitute a category of ferrous materials that exhibit mechanical properties as a result of additions of alloying elements Total alloy content can range from 2. Free machining steel 53 . provide better mechanical properties and/or greater resistance to atmospheric corrosion. or microalloyed steels.1.2.2.07% up to levels just below that of stainless steels.2. which contain a minimum of 10% Cr. 8. High-Strength Low-Alloy Steels (HSLA) High-strength low-alloy (HSLA) steels.2.
and nuts. Stainless steel is 100% recyclable. 0.2.25 % nickel. Stainless steel Stainless Steel" is a type of alloy steels. 25% originating from end-of-life products and 35% coming from manufacturing processes.35 % sulfur and 0. 8. 54 . In fact.3. crushers. Robert Hadfield. after their inventor. 8. and 0. They are used for roller and ball bearings. that are "stain-less" or resistant to corrosion or staining. 8. piano wire. 1. Wear-resistant steels Wear-resistant steels.4. A special case.2. and power shovels. It is also called corrosion-resistant steel or CRES.2 % chromium.Bearing steels These steels often contain 1% carbon. made into wear plates for rock-processing machinery.This group.5.2.25% molybdenum and are very hard after heat treatment.35 % lead. contains up to 0. developed for good machinability and fabricated into bolts. Manganese steels are often called Hadfield steels. an average stainless steel object is composed of about 60% recycled material. screws.
1. and contain carbide formers such as tungsten.Electrical steels An important group of steels.4%. hot-rolled strip and sheets. They are rolled from slabs or ingots which are semi finished product. 55 . Also called lamination steel.2. Flat products Flat products include plates. and chromium and cobalt or nickel to improve high-temperature performance and carbon content between 0.3.7% and 1. vanadium. molybdenum. silicon steel or transformer steel. is the high-silicon electrical steels (upto 6. 8. Tool Steel Tool steels are produced in small quantities. the manganese content is often kept low to minimize the possibility of cracking during water quenching. BASED ON SHAPE AND SURFACE: 8.7. Tool steels are used for special applications like injection molding. 8.3. and cold-rolled strip and sheets.5%). necessary for the generation (in generators) and transmission of electrical power (in transformer).
flat. They are used in office equipments. oiled. Plates are usually made in small quantities and to a customer’s specification. A special group of rounds are the reinforcing bars. c) Cold-rolled strip is produced from hot-rolled strip. like slabs. they provide tensile strength to concrete sections subjected to a bending load. white goods etc. rectangular. with different dimensions. electrolytically cleaned. It is used in construction. Long products include: a) Bars are long products with square.a) Plates are hot-rolled either from slabs or directly from ingots.3. 8. They are used in boilers and industrial machinery. which are. chromium. chemically treated. b) Hot-rolled strip is often shipped directly from the hot-strip mill in a large coil. 56 . or octagonal cross sections. hexagonal.2. automobile ship building etc. round. Long products Long products are made of either blooms or billets. and aluminum or with organic substances. tin. Cold-rolled products are available with a specific roughness. considered a semi finished product and are cast by a continuous caster or rolled at a blooming mill. or coated with metals such as zinc.
5 mm. Longitudinally welded tubes are normally produced up to 500 mm in diameter and 10 mm in wall thickness. 8. c) Tubular steels are broadly grouped into welded and seamless products. 3) Stainless steel is the most corrosion resistance steel. 57 . The use of wire is extremely wide. Seamless tubes are subjected to more demanding service.b) Hot-rolled wire rods are produced in diameters between 5. they are often rolled in diameters ranging from 120 to 400 mm and in wall thicknesses up to 15 mm.5 and 12. Shapes & Surfaces and Standards. 2) Carbon steel contributes to 90% of the steel production and it is most widely used. ranging from cords for belted tires to cables for suspension bridges. Conclusion 1) Steel is classified on different parameters namely Chemical Composition.4. Application.
5. SWOT Analysis 9. Characteristics 9.0 INDIAN STEEL INDUSTRY OVERVIEW 9.1. CHAPTER 9.2. Enterprise Value 58 . Major players 9.4. Structure 9.3.4) 25% of old scraps (end-of-life product like tanks or industrial equipment) is used in the production of stainless steel as it is 100% recyclable.
2) Continuous production process: Steady supply of raw materials is important to the steel industry since steel manufacture is a continuous process. Most steel manufacturers tend to ink longterm agreements with their local suppliers where possible. heavy capital investment and a gestation of period of 2-3 years for a new plant also contribute to the cyclicality of steel prices. Apart from the cyclicality of the enduser industries.6. Most Indian 59 . automobiles.7.9. since its key users viz.1. Characteristics of the Indian Steel Industry 1) Cyclicality: Steel is a cyclical industry. strongly co-related to economic cycles. construction and consumer durables are heavily dependent on the state of the economy. Conclusion 9. Consolidations in the Steel industry 9.
3) Working capital intensiveness: The long working-capital cycle is primarily due to high inventory maintained by manufacturers both in terms of raw material and finished goods. and manufacture of consumer durables and modes of transportation. infrastructure sector. 4) Ability to pass on input costs to customers: Manufacturers of steel are invariably able to pass on the increase in cost of raw material to consumers in a normal market scenario due to the importance of steel to many economic activities like construction. in a scenario where demand exceeds supply. Additionally. owing to the continuous nature of the production process. rising prices of inventory . the standardized nature of the finished products and the limited and geographically disparate supply of raw materials. results in increased working capital requirements.manufacturers are also currently trying to gain control over mines to ensure steady supply at stable prices.both raw material and finished goods as well as increased stocking of raw materials by steel manufacturers who do not have control over their raw material supply or prices. 5) Entry barriers: 60 .
to circumvent this problem. south and west of the country. Thus. these induction furnaces produce lower quality and quantity of steel. Structure of the Indian Steel Industry The steel industry in India is concentrated in the east. availability of finance for both. its domestic output is insufficient to meet the demand in all segments. expansion as well as running day to day operations in terms of inventory acquisition and holding and payment to creditors is critical. The integrated foundries are located in the east. Although India is now one of the worlds top ten steel producers. However.2. 9.The capital-intensive nature of the steel industry coupled with the long gestation period (2-3 years) acts as an entry barrier to small entrants. However. while electric steel is produced predominantly in the south and west. In the future the east will see rapid expansion asore integrated capacities are being built in Orissa and other eastern states due to its raw materials. 61 . 6) Availability of finance: The steel industry is both fixed capital and working capital intensive. The raw material suppliers tend to dictate the payment terms as there is heavy dependence on the supply of raw materials. a number of players have set up induction furnaces which need less investment. in India.
Ispat Industries..1. Classification of steel producers based on product Name of the product Major producers National Mineral Development Corporation (NMDC). Essar Steel. Uttam Steel and Bhushan Steel are the big producers of cold rolled coils/ sheets (CRC) Pig Iron Sponge Iron Flat steel products Long products and galvanized sheets (GP/ GC). Tata Steel. SAIL. steel RINL. Ispat Industries and Jindal Vijaynagar (JVSL) are the major producers of hot rolled coils (HRC). Jindal group of companies. Vikram Ispat (a division of Grasim) are the major producers of gas based sponge iron. Ispat Industries. Essar Steel. Tata Steel. Mini Blast Furnace (MBF) pig iron producers and even integrated steel plants like SAIL and RINL. Sesa Goa and Usha Ispat. SAIL and Tata Steel 62 Alloy Steel Mukand. SAIL and Tata Steel have their captive iron ore mines. SAIL. Kudremukh Iron ore Iron Ore Co (KIOCL) and Sesa Goa (Sesa) are the major merchant producers of iron ore. KIOCL. Mahindra Ugine (Musco) and Kalyani Carpenter .• The industry classification based on product categories (and the major producers) can be divided into the following: Table 9.
RINL. 2. Essar Steel.2. Ispat Industries and Lloyds steel are the largest producers of steel through the secondary route. 1. Table 9.No. the industry (and major producers) can be classified into the following categories: S. Classification of steel producers based on the route of production 63 . Tata Steel and JVSL are the largest primary steel producers.• Based on the routes of production. Route of Production Integrated Secondary Major Producers SAIL.
It has abundance of iron ore. Brazil.SWOT ANALYSIS 9. and Australia. 64 .3 billion tonnes) after Russia. Strengths of Indian Steel Industry 1) Availability of iron ore India has rich mineral resources.1. Therefore.1. It has the fourth largest iron ore reserves (10.3. many raw materials are available at comparatively lower costs. coal and many other raw materials required for iron and steel making.3.Strengths Figure 9.9.
This gets reflected in the lower production cost of steel in India compared to many advanced countries.2. Considering quality of workforce.2.Weaknesses Figure 9. capable of understanding and assimilating new technologies.3. 9. commensurate with skill. Weaknesses of Indian Steel Industry 65 . Indian steel industry has low unit labor cost.2) Availability of labor at low wage rates India has the third largest pool of technical manpower. next to United States and the erstwhile USSR.
b) Low Labor Productivity In India the advantage of low cost labor gets offset by low labor productivity.1) Endemic Deficiencies These are inherent in the quality and availability of some of the essential raw materials available in India. a) High Cost of Capital Steel is a capital intensive industry. most of the weaknesses of the Indian steel industry can be classified as systemic deficiencies. high ash content in indigenous coking coal adversely affecting the productive efficiency of iron-making and are generally imported. e.. Korea and NIPPON. for POSCO. Some of these are described here. 2) Systemic Deficiencies However. e. steel companies in India are charged an interest rate of around 14% on capital as compared to 2.g..g. 66 . at comparable capacities labor productivity of SAIL and TISCO is 75 t/man year and 100 t/man year.4% in Japan and 6.4% in USA. Japan the values are 1345 t/man year and 980 t/man year.
fuel and electricity. • Limited access of domestic producers to good quality iron ores which are normally earmarked for exports. port etc. about 45% of the input costs can be attributed to the administered costs of coal.g. Lack of expenditure in research and development. and High level taxation.c) High Cost of Basic Inputs and Services High administered price of essential inputs like electricity puts Indian steel industry at a disadvantage. parallel flange light weight beams. and freight cost from Jamshedpur to Mumbai is $50/tone compared to only $34 from Rotterdam to Mumbai. Indian steel makers also lack in international competitiveness on 67 .. Low quality of steel and steel products. Delay in absorption in technology by existing units. Besides these. coated sheets etc. Added to this are poor quality and ever increasing prices of coking and noncoking coal. Other systemic deficiencies include: • • • • • Poor quality of basic infrastructure like road. cost of electricity is 3 cents in the USA as compared to 10 cents in India. Lack of facilities to produce various shapes and qualities of finished steel on-demand such as steel for automobile sector. e.
distribution network. post sales service.3. product design. information technology and labor productivity etc. research and development. 9. managerial initiatives.3.determinants like product quality. on-time delivery.Opportunities Figure 9.3. Opportunities in Indian Steel Industry 68 .
Enhancing applications in rural areas assumes a much greater significance now for increasing per capital consumption of steel. fencing.1. 2. structures and other possible applications where steel can substitute other materials which not only could bring about advantages to users but is also desirable for conservation of forest resources. There is untapped potential of increasing steel consumption in India. New steel products developed to improve performance simplify 69 . packaging. The usage of steel in cost effective manner is possible in the area of housing. engineering industries. irrigation and water supply in India.Unexplored Rural Market The Indian rural sector remains fairly unexposed to the multi-faceted use of steel.Increasing consumption of steel The biggest opportunity before Indian steel sector is that there is enormous scope for increasing consumption of steel in almost all sectors in India. 3.Other Sectors Excellent potential exists for enhancing steel consumption in other sectors such as automobiles.
pre-coated sheets can be used in manufacture of appliances.manufacturing/installation and reliability is needed to enhance steel consumption in these sectors. 4. This poses as a huge opportunity to the steel industry.Export Market Penetration It is estimated that world steel consumption will double in next 25 years. electric goods and public transport vehicles. 70 . furnishings. For example. Production and supply of superior grades of steel in desired shapes and sizes will definitely increase the steel consumption as this will reduce fabrication need. thereby reduce cost of using steel.
4.3.Threats THREAT S 71 .9.
the Indian steel industry has witnessed spurts of price wars and heavy trade discounts. This sluggish growth in the steel industry has resulted in enhanced rivalry among existing firms. which has done Indian steel industry no good as a whole.4. The traders tend to exhibit price sensitivity and buy when there are discounts. Threats faced by Indian Steel Industry 1) Slow Industry Growth The linkage between the economic growth of a country and the growth of its steel industry is strong. For a developing country like India where capital itself is costly. 2) Technological Change Technological changes often force the industry structure to change.Figure 9. This volatility of demand often affects the integrated 72 . The Indian steel industry is no exception. technological obsolescence is a major threat. 3) Price Sensitivity and Demand Volatility The demand for steel is a derived demand and the purchase quantity depends on the end-user requirements. As the industry is not growing the only other way to grow is by increasing one’s market share. which as a whole was sluggish. Consequently. The growth of the domestic steel industry between 1970 and 1990 was similar to the growth of the economy.
Registered Office Incorporated On Chairman New Delhi 24th January.steel manufacturers because of their inability to tune their production in line with the market demand fluctuations. Dumping of steel by developed countries.4. STEEL AUTHORITY OF INDIA LTD. Roongta Table 9.K. Some other threats are: • • • Ever decreasing import duty on steel.3. the Navratna PSU. High quality products from developed countries available for import at very competitive prices. The company produces both basic and 73 . is the largest steel making company in India with strong backward and forward integration.1. Major players in the Indian steel industry: 9. 9. SAIL SAIL. 1973 S.4. • Non-availability of capital from financial institutions for iron and steel sector.
special steel products for sectors like construction engineering. Figure 9. The company has the distinction of being India’s largest producer of iron ore after NMDC and owning the country’s second largest mines network.5. The company has five main integrated steel plants in addition to three special steel plants and boasts of a four decade history of technical. managerial and other know-how in steel making. This gives SAIL a competitive edge in terms of captive availability of iron ore. limestone and dolomite. It has 9 Iron ore mines. railways. SAIL manufactures and sells a broad range of steel products in both flats and longs category. and 3 collieries. 2 dolomite mines. which are key inputs for steel making. 5 limestone mines. SAIL’s Company Structure 74 . automobile and defense.
75 .Figure 9. SAIL is currently implementing a modernization and expansion plan through the Brownfield route to expand its capacity of saleable steel to over 23 MT from the base level of around 13 MT by 2011-12. SAIL Plants In order to achieve long term sales volume growth.6.
Production & Planned increase : SAIL 76 . Capacity.7.Figure 9.
bearings. Tata Steel enjoys a distinct competitive advantage. Tata Steel ranks 34th in the world. TATA Steel Ltd. Tata Steel (earlier known as Tata Iron & Steel Company or Tisco) was established in 1907.8 MTPA of flat and long products. The company has a wide product portfolio. it was ranked first (for the second time) among 23 world class steel companies by World Steel Dynamics in June 2005. ferro-alloys and minerals as well as cargo handling services. 77 .9. It represents the country's single largest. integrated steel plant in the private sector. Mumbai 1907 Ratan Tata Table9. The main plant at Jamshedpur manufactures 6. Registered Office Incorporated On Chairman Bombay House. 4. With its plant located in Jamshedpur (Jharkhand) and captive iron ore mines and collieries in the vicinity. tubes.2. While in terms of size. which includes flat and long steel.4.TATA STEEL LTD.
Figure 9.8. Shareholding Pattern : TATA Steel
The company has proposed three greenfield steel projects in Jharkhand, Orissa and Chhattisgarh with additional capacity of 23 MTPA. Through investments in Corus, Millennium Steel (renamed Tata Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created a manufacturing and marketing network in Europe, South East Asia and the Pacific-rim countries.
Production Capacity break-up (MT)
Figure 9.9. Production Capacity Break-up
Tata Steel India is one of the most operationally sound companies in India and has always maintained high EBITDA margins due to strong backward and forward linkages, good supply contracts in domestic markets and special branded products.
Tata Steel India has achieved a balanced portfolio with 50:50 mix in flats and longs post expansion, which was earlier skewed towards flat products. With flat product sales having declined lately and long product demand remaining robust, Tata Steel has been successful in altering its product mix to align with the industry demand.
9.4.3.JSW STEEL LTD.
Registered Office Incorporated On Chairman Hisar, Haryaa 1982 Savitri Jindal Table 9.5. JSW ltd. JSW Steel Ltd, the flagship company of the JSW group, is a fully integrated steel maker and is ranked second in India in terms of volume. With the commissioning of India’s largest blast furnace (2.8 MT capacity) in February, 2009 JSW Steel became the largest private steel producer in India with a total capacity of 7.8 MT on a standalone basis. JSW Steel is the only company in India to use corex as well as blast furnace technology for steel production. The company’s upstream steel-making facility is located in Vijaynagar, Karnataka, and downstream in Maharashtra. JSW Steel acquired an integrated steel plant in Salem, Tamil Nadu in November, 2004, which primarily produces long category of steel.
10. Shareholding Pattern : JSW Steel 81 .Shareholding pattern Figure 9.
The company’s products range from MS slabs.Company structure Figure 9. The company is on the verge of 82 . hot rolled coils to value-added products like galvanized coils/sheets and cold rolled coils/sheets to long products. Company Structure: JSW Steel The company has a presence in the overseas market also mainly with Houston plate and pipe mill in the US. iron ore mine in Chile and coking coal mine in Mozambique.11. for example. bars and wire rods.
A Comparison Major steel makers in India include SAIL. Among them. Jindal Group is presently a US $5 billion conglomerate and ranks fourth amongst the top Indian Business Houses in terms of assets. SAIL and Tata Steel have both backward and forward integration to a large extent and are low cost manufacturers of steel. all the main producers have aggressive expansion plans through the brownfield and greenfield route lined up for the next five to 10 years to increase capacity and meet demand. Also. 83 . which would take the total capacity to 11 MT.2 million tonnes (MT) to its current capacity of 7. All these players fall into the category of main steel producers.further major expansion plan of adding 3. Jindal Steel is amongst the largest corporate groups in India. Tata Steel and JSW Steel who together control close to 45% of steel making capacity in the country. Jindal Steel is one of the largest steel producers in India with 12 plants in India and 2 in USA.8 MT in India by March 2011.
47 90.86 12456.25 44023.61 73.08 6188.89 80.73 12.02 40214.07 35026.32 4849.84 242.44 1303.88 25213. Comparison among SAIL. & JSW Steel 2006-07 SAIL Net Sales Net Profit EPS TATA STEEL Net Sales Net Profit EPS JSW STEEL Net Sales Net Profit EPS 8594.24 66. Production cost analysis Indian steel players enjoy a competitive advantage over their global peers in terms of cost of production due to availability of captive resources like iron ore and thermal coal.88 12321.16 7536.31 4165.30 15934.6.06 131535.76 177. JSW ranks 3rd .41 14.29 15.65 1658.78 18.18 145686. TATA Steel.21 6202.98 2007-08 2008-09 Sales for TATA steel is more than double than that of SAIL but if we compare their net profits then SAIL is ahead of TATA steel. EPS for TATA Steel is much higher than SAIL & JSW.Table 9. The only laggard is the unavailability of good quality coking 84 .
but only 30% coking coal). Tata Steel is the lowest cost producer of steel in India (with 100% captive iron ore access and 60% captive coking coal) followed by SAIL (100% captive iron ore. Figure 9.coal because of which the current production cost is relatively higher. The biggest beneficiaries would be SAIL and JSW Steel and it would bring their cost of production close to Tata Steel and also provide strong headroom for making decent margins even at HR sales realisations of US $ 450-500/tonne. Comparison of Cost of production The difference between costs of production for various players would be reduced after contract prices for raw materials like iron ore and coking coal are renegotiated at a significantly lower prices. 85 .12.
5.9. preferred stock.Cash Equivalents 9. 9. enterprise value is what it would cost one to buy every single share of a company’s common stock. (In other words. The reason the cash is subtracted is simple: once we have acquired complete ownership of the company. minus total cash and cash equivalents. EV= Mkt Cap + Debt – Cash . the cash becomes ours). often used as an alternative to straightforward market capitalization. minority interest and preferred shares.2 The components of enterprise value: 86 .5.1 Calculation of Enterprise Value: Enterprise value is calculated by adding a corporation’s market capitalization. Enterprise value [EV] – a tool for assessing the efficiency of the enterprise: A measure of a company's value. and outstanding debt together and then subtracting out the cash and cash equivalents found on the balance sheet. EV is calculated as market cap plus debt. preferred stock. and outstanding debt.5.
preferred stock can actually act as either equity or debt. market capitalization is calculated by taking the number of outstanding shares of common stock multiplied by the current price-per-share. the existence represents a claim on the business that must be factored into enterprise value. depending upon the nature of the individual issue.Market Capitalization: Frequently called “market cap”. A preferred issue that must be redeemed at a certain date at a certain price is. preferred stock may have the right to receive a fixed dividend plus share in a portion of the profits (this type is known as “participating”). Why Is Enterprise Value Important? Some investors. the company’s market capitalization would be $50 million (1 million shares x $50 per share = $50 million market cap). Example. for all intents and purposes. particularly those that follow a value philosophy will look for companies that are generating a lot of cash flow in relation to enterprise value. debt. Businesses that tend to fall into this category are more likely to require little 87 . Regardless. A Company had 1 million shares of stock outstanding and the current stock price was $50 per share. In other cases. Preferred Stock: Although it is technically equity.
additional reinvestment. the owners can take the profit out of the business and spend it or put it into other investments.5.60 88 . 9.00.: Total no of shares as on March 2009 Market Price as on 1st July 2009 413.Top 3 players: STEEL AUTHORITY OF INDIA Ltd.2.04. instead. EV.545 153.65 Rs in Cores Market Capitalization 63.463.
469.065.533.Debt Secured loans Unsecured loans Total Debt Rs in Cores 1.08 Table 9.22. Calculation of EV/Tonne for SAIL TATA STEEL: Total no of shares as on March 2009 Market Price as on 1st July 2009 48.Cash Equivalents 4.7.30 Steel production installed capacity (in MT) EV/Tone (Rs) 24 27.722.64 Rs in Cores 89 .60 6.25.538.059.473.79 Rs in Cores Cash EV= Mkt Cap + Debt – Cash .19 7.09 66.747 395 Rs in Cores Market Capitalization Debt 19.
22 Steel production installed capacity (in MT) EV/Tone (Rs) 14 31.Secured loans Unsecured loans Total Debt 3.: Total no of shares as on March 2009 Market Price as on 1st July 2009 18.48.13 26946.633.60 EV= Mkt Cap + Debt – Cash .95 Rs in Cores Market Capitalization Debt 11.590.15 Table 9.18 Rs in Cores Cash 1. Calculation of EV/Tonne for TATA Steel JSW STEEL Ltd.70.8.033.682 621.Cash Equivalents 44.913.05 23.415.49 Rs in Cores 90 .725.
Has the highest EV/Tonne at compared to that of SAIL at and JSW Steel Ltd. TATA Steel is a good scrip for investment in the Indian Steel Sector. 395. 91 .486.02 11.16 Steel production installed capacity (in MT) EV/Tone (Rs) 7.8 28.63 Rs in Cores Cash 419.058. Hence at Rs.Cash Equivalents 22.61 3.272.14 Table 9.00 CMP. at .9.Secured loans Unsecured loans Total Debt 8.214.96 EV= Mkt Cap + Debt – Cash . This shows that TATA Steel has the highest operational and production efficiency and stands higher in its enterprise value per tone when compared to its competitors.828. Calculation of EV/Tonne for JSW Conclusion: TATA Steel Ltd.
Mittal Merger: Founded in 1989 2001 92 .1. Consolidations in the Steel Industry: 9.6.9. Arcelor.6.
1 110.000 Company International acquired LNM Holdings Capacity(MT) Revenues (US$ bn) Employees 63. The deal was split between Mittal Shares (75 percent) and cash (25 percent). Mittal Steel launched a $22. (Ultimately the power to buy or sell the shares rests with the shareholder and the company management can at best advice its shareholders whether to accept or reject the bid) The Controversy Arcelor Management: 93 . Merger of Arcelor & Mittal The original bid: In January 2006.Key people Headquarter L.Mittal Netherland It was formed when Ispat Guy Dolle Luxembourg The company was created by a merger of the former companies Aceralia (Spain).7 billion offer to Arcelor’s shareholders.10.000 Table 9.7 39. Under the Offer. Arcelor shareholders would have received 4 Mittal Steel shares and 35 euros for every 5 Arcelor shares they held.1 224.0 28.N. Usinor (France) and Arbed (Luxembourg) 46.
Moves by Arcelor to counter the bid by Mittal: Declaration of Dividend: On February 16. Arcelor declared a dividend of 1. The European Union approved of the MittalArcelor deal. which was 85 percent higher than the previous dividend in 2004. Arcelor repeatedly played the patriotic card in order for shareholders to reject the bid. (all this despite the fact that most industry analysts and investment banks pointing out that the deal was in Arcelor‘s best interests) European Government: The French government (despite not being a shareholder) was against the deal because of worries over its 28000 Arcelor employees. The government of Luxembourg (a stakeholder) was against the deal as well for a variety of reasons. Despite repeated assurances from Mittal that the deal would not lead to layoffs the government of France was never convinced.2 Euros. The management was extremely hostile to Mittal Steel’s bid from the beginning. The CEO of Arcelor dismissed Mittal Steel as a “company of Indians” and unworthy of taking over a European company. This was seen as an attempt by the 94 .The management believed that Arcelor itself would have been doing the acquisitions and not the other way around.
The Russian Angle: In an attempt to thwart the offer from Mittal Steel. Many analysts accused the company of “creative” accounting.Tata Steel .company to convince shareholders that the situation under the current management was extremely positive. 2007 completed its £6. 9. The shareholders however rejected the merger with not one shareholder voting in favour of them. Arcelor released a 13 billion Euro merger plan with Severstal.5. This merger would have made the new Severstal-Arcelor entity too big for Mittal Steel to buy. Despite the merger plan being fraught with loopholes.2. The enlarged company has a pro forma crude steel production of 27 million 95 . the Arcelor management tried to convince shareholders that this was the best deal for them.Corus Tata Steel on April 2.2 billion (US$12 billion) acquisition of Corus Group at a price of 608 pence per ordinary share in cash. a Russian company.
V. though with its recent acquisitions. the company has become a multinational with operations in various countries. It is part of Tata Group of companies. headquartered in London. India. is a steel company based in Mumbai. It was formed from the merger of Koninklijke Hoogovens N. formerly known as TISCO (Tata Iron and Steel Company Limited). CORUS: Corus Group plc. normally referred to simply as Corus. Its main plant is located in Jamshedpur.tonnes in 2007 and is the world's fifth largest steel producer with 84. is one of the world's largest producers of steel. Background (before the deal) TATA Steel: Tata Steel. Jharkhand.000 employees across four continents. with British Steel Plc on 6 October 1999. The Takeover 96 .
CONCLUSION 1) Tata Steel India has lowest cost of production. 4) Steel is a highly cyclical industry. 75 per cent of Corus shareholders tendered their shares for the acquisition to be complete.As per the agreement. 5) There is an opportunity for India to increase it’s per capita consumption which is. The combined entity of Tata Steel-Corus would have a capacity of 40 million tonne by 2011-12. at present. It’s a very capital intensive industry & there is a huge gestation period of around 2-3 years.The combined entity will have a turnover of $32 billion by 2011-12 with an EBIDTA margin of 25%. 97 . 3) JSW Steel is the only company in India to use corex as well as blast furnace technology for steel production.7. 2) SAIL has a strong Balance Sheet to support the huge capex plan that it is goin to undertake in the coming years. 9. 47 kgs. Steel hasn’t touched the lives of people in rural areas.
CHAPTER 10. its domestic output is insufficient to meet the demand in all segments.0 98 .6) Although India is now one of the worlds top ten steel producers.
were liberalized. Overview 10. Production & Consumption 10.2. Steel production and consumption.1. Along with the opening up of the economy. Imports & Exports 10.4. Private investment flowed into the industry adding fresh capacities. which were earlier controlled by government.DEMAND AND SUPPLY DYNAMICS 10. Conclusion 10. 99 . Indian Steel also saw the entry of a number of domestic players.1. The major growth came after economic liberalization in 1992.3. Overview The 90s were a very tumultuous time for the Indian economy 1992 saw India takes its first step towards economic liberalization.
the last decade saw the Indian steel industry integrating with the global economy and evolving considerably to adopt world-class production technology to produce high quality steel. the Indian steel Industry had a production capacity of 23 MT. especially during 1990-2005. India emerged as the 5th largest crude steel producing country in the world as against 8th position three years back. This growth was driven by both capacity expansion (from 40.This encouraged the growth of private enterprises that were further responsible for the growth of the industry.84 MT in 2006-07) and improved capacity utilization (from 86% in 2002-03 to 89% in 2006-07). 100 .71 MT in 2002-03 to 50. During 2006. The years between 1997 and 2001 once again saw a downturn in the global steel industry. In 1990.41 MT in 2002-03 to 56. Some of the significant characteristics of this period were: • • • Demand supply mismatch Unremunerative prices Erosion of bottom line Crude steel production grew at more than 10 % annually from 34.82 MT in 2006-07.
Indian steel industry was classified into Main Producers (SAIL plants. the classification has been characterized as Main Producers & Other Producers. The graph below shows the crude steel production & apparent consumption in India from FY05 to FY09. Production and consumption Traditionally. Indian Steel Production & Consumption 101 .10. with the coming up of larger capacity Steel making units. of different process routes. There has been a considerable increase in the production & consumption from FY05 to FY08 but due to the global financial crisis. Figure 10. However.1. the domestic steel production and consumption remained flat in FY09. Tata Steel and Vizag Steel/ RINL) and Secondary Producers.2.
The construction and auto sector have shown phenomenal growth over the last few years and were on an upswing till mid 2008 before the global liquidity crunch showed its effects and led to a massive slowdown in these two sectors causing steel demand to slacken. which consumes close to 60% of the total steel consumed in the country with automobile contributing 11%. 102 .Demand driven by construction and automobile Steel demand in India depends mainly on the construction sector. The recent pick up in both these sectors has helped steel demand to bounce back sharply.
The situation seems to be stabilising.Figure 10. Steel demand is expected to remain robust and show 5% growth in FY10 on the back of falling 103 . Steel Demand break-up Infrastructure spend to boost construction activities There has been a pick up in steel demand from both the auto and construction sectors in recent months.2.
We expect 7 MT of incremental steel demand per annum from the planned infrastructure spending programmed of the government during the Eleventh Plan. Bn) Assuming that 70% will be spent Civil Construction (%) Steel Component (%) Total Steel (Rs. Bn) Steel Prices Rs/T Total steel required (MT) Total steel for 11th Five year Plan Average annual steel ccnsumption (MT) 7 3142 2618 1829 2533 1190 2548 6665 2199 100 14 308 32000 10 34 1833 40 25 183 32000 6 1280 60 18 138 32000 4 1773 50 15 133 32000 4 833 40 25 83 32000 3 1784 15 20 54 32000 2 4666 25 15 175 32000 5 Table 10. Infrastructural activities to boost steel demand 104 . 11th Five year Plan Roads/ Railways Urban Irrigation Airport Telecom Power Bridges Investment expected from 11th Plan (Rs.1. return of consumer confidence with infrastructure spend in the Eleventh Plan giving a boost to the construction sector.interest rates. cooling inflation.
It ranks bottom among all developing nations with rural per capita steel consumption as low as 3 kg. falling interest rates and steel use being promoted increasingly. India compares poorly with world average per capita steel consumption of 180 kg and other developing countries like China (310 kg) and Brazil (120 kg). demand is expected to pick up after the recent slowdown and remain robust. going forward. 105 . This would help India improve its per capita steel consumption. With huge infrastructure spending committed by the government in the Eleventh Plan.India’ per capita steel consumption is a dismal 47 kg at present.
Figure 10.3 Per Capita steel consumption of various countries & position of India 10.3. IMPORTS AND EXPORTS Imports are mostly on price considerations and, in some cases, to supplement domestic production. The observed growth in imports is mainly in hot rolled coils, cold rolled coils, semis and steel scrap. Increased emphasis on import substitution has emerged as a key trend in the domestic industry. India has already registered its presence in the global market in the recent years. While India started steel production in the year, 1911, steel exports from India started only in 1964. However, steel exports have been sporadic. From 1964 to 1968 India exported a large quantity of steel mainly due to recession in the domestic iron and steel market. Subsequently, exports declined with revival of the domestic demand.
Figure 10.4. Export- Import of Indian steel The graph above shows the expot and import patten of steel in India. The imports have seen a robust growth since 2005 to 2008 due to the increase in demand of steel from the aoutomobiles and construction sector. Waning demand for steel is evident in a dip in imports, which cumulatively till August-08 had grown by a robust 28%. Then during September, October import fell sharply. As a result aggregate imports decline by 8.6% during April-October 2008. Inventory levels have also piled up, with the same indicating a whopping 128% rise Y-O-Y at the end of October 2008.
1. Steel demand in India is mostly dependant on demand from the Construction & automobile sector, of which construction accounts for close to 60% of total steel demand. 2. There has been a considerable increase in the production & consumption of steel from FY05 to FY08 but due to the decrease in demand from automobile & construction sectors, domestic steel production and consumption remained flat in FY09.
semis and steel scrap.3. Robust infrastructure spending in Eleventh Plan to boost construction activities which will in turn increase the demand for steel. The increase in overall imports of steel is mainly in hot rolled coils. 109 . cold rolled coils. 4. India’ per capita steel consumption is a dismal 47 kg at present .
CHAPTER 11. The main functions of the government are: 110 .4. and other related functions. limestone.2. Reform measures and policy initiatives 11. Ferro alloys. which interalia includes development of essential inputs such as iron ore. Ministry of steel The Ministry of Steel is responsible for the planning and development of the iron & steel industry.3.1. National Steel Policy. Conclusion 11. 2005 11. dolomite. Ministry of steel 11.0 GOVERNMENT POLICIES AND REGULATIONS 11.1. refractories etc. chromite. manganese ore. sponge iron.
distribution.(a) Formulation of policies in respect of production. Liberalization of the Indian steel sector The Indian steel sector was the first core sector to be completely freed from the licensing regime and pricing and distribution controls. The economic reforms and the consequent liberalization of the iron and steel sector which started in the early 1990s resulted in 111 . This was done primarily because of the inherent strengths and capabilities demonstrated by the Indian iron and steel industry. and (d) Overseeing the performance of Steel Authority of India Limited (SAIL) and its subsidiaries and of other Public Sector Undertakings/Government managed companies functioning in the iron and steel sector. (b) Planning. development and facilitation for setting up of iron and steel production facilities. prices. (c) Development of iron ore mines in the public sector and other ore mines used in the iron and steel industry. imports and exports of Iron and Steel and Ferro Alloys.
112 .substantial growth in the steel industry and green field steel plants were set up in the private sector.
Export of iron and steel items has also been freely allowed. analyze price fluctuations and advise all concerned regarding any irrational price behavior of steel commodity. REFORM MEASURES AND POLICY INITIATIVES The important policy measures which have been taken over the years for the growth and development of the Indian iron and steel sector are as under:1) In the Industrial policy announced in July 1991.11. iron and steel industry 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. This limit has since been increased to 100%. 5) Duties on raw materials for steel production were reduced. 3) Pricing and distribution of steel was deregulated from January. These measures reduced the capital costs and production costs of steel plants. 6) Levy on account of Steel Development Fund was discontinued from April.2.6. 1951. 2) With effect from 24th May 1992. 4) The import regime for iron and steel has undergone major liberalization moving gradually from a controlled import by way of import licensing. canalization and high import tariffs to total freeing of iron and steel imports. 1994 thereby providing greater flexibility to main producers to respond to market forces.2006 under the Chairmanship of Honorable Steel Minister. Ministry of Steel has constituted a Steel Pricing Monitoring Committee (SPMC). foreign exchange release. 1992. The aim of the SPMC is to monitor price rationalization. 113 . 7) In pursuance of the decision taken in the Steel Consumer’s Council meeting held on 30. iron and steel industry was included in the list of ‘high priority’ industries for automatic approval for foreign equity investment up to 51%.
2) Thrust on infrastructure related activities There is a need to continue the current thrust on infrastructure related activities and extend them to rural India. The per capita consumption of steel in India is just 47 kg and has to go a long way to reach consumption levels of around 627 kg in developed countries like Japan and 358 kg in USA. 3) Raw materials Current shortage of inputs has pushed up the costs for the steel industry. Rural Indian today presents a challenge for development of the country and the opportunity to increase usage of steel in these areas through projects such as rural housing etc.CHALLENGES BEFORE THE INDIAN STEEL INDUSTRY 1) Disparities in steel consumption The real challenge lies in addressing disparities in steel consumption across different states and regions and also between urban and rural areas. Government should ensure that quality raw material such iron-ore and coke are 114 .
available to the industry. With Ministry of Steel targeting an output of 100 MT of steel by 2020 there is an urgent need to develop raw material resources for inputs like iron-ore and coal within or outside the country. Countries like Japan have already taken similar steps to safeguard their industries. 4) Government intervention Government should not regulate prices and free market forces should prevail. Intervention by the Government is only a short-term solution to the issue of steel prices in the country. Once left alone, market dynamics will automatically ensure price corrections and determine the optimum price of steel.
5) Land Requirements: Choice of location will be governed by various considerations, such as, likely sourcing of raw materials, target markets for finished products, envisage capacity in this case of operation, infrastructure facilities etc. In case of existing plants undergoing expansion/up gradation, the choice of location does not arise but for new capacities which will heavily depend on export of finished products, the coastal location could be advantageous. Any Greenfield project will require land. In India, land is available in remote villages and demographically in backward states like Orissa etc. Numerous problems are there in acquiring lands.
6) Untapped export potential India’s share in world trade steel is a miniscule 2%. Given the capabilities of the Indian steel industry there is tremendous scope to increase this share further. While the steel industry will continue servicing the domestic demand there is a lot of untapped export potential with the industry. Un-interrupted supply of raw material is to be ensured before commissioning or thinking about new projects. The sources of raw materials are limited. Though India has good reserves of iron ore but at the same time lack of matching and adequate reserves of coking coal and non-availability of good quality lime-stone for steel making have also to be technology bypass these primary requirements.
The recent movement of Tata steel is also a big evidence for the development of Indian steel industry. cost effective. participation and growth of the private sector in the steel industry. 5) Although the Indian steel industry is growing and its share of global steel production is rising. 2) Indian steel players. the industry is still being constrained by major deficiencies 118 . state-of-the-art technologies.Conclusion 1) The liberalization of industrial policy and other initiatives taken by the Government have given a definite impetus for entry. 3) Efforts to make this sector more eco-friendly will meet success only if competent authorities take up the developmental jobs in proper spirit. 4) The global steel industry has been notoriously cyclical and although internal demand is likely to remain high in India for the foreseeable future. now. overcapacity in the global market place remains a real threat in the next decade. a large number of new/Greenfield steel plants have also come up in different parts of the Country based on modern. concentrate on the global market as they know the trend of world steel market. Overcapacity would bring about increased competition. While the existing units are being modernized/expanded.
119 . Financing problems mean that although major infrastructure programmes are taking place the amount remains well below Government targets. The factors attributable for driving this variability are global economic conditions with a particular sensitivity to the performance of the automotive. Rural Indian today presents a challenge for development of the country and the opportunity to increase usage of steel in these areas through various projects. 6) The steel industry demonstrates a high degree of variability. rail transport is prerequisite for the Indian steel industry to remain competitive. 8) Adequate enabling infrastructure such as power. ports. 7) There is a need to continue the current thrust on infrastructure related activities and extend them to rural India. capital goods and other industrial products industries. therefore slowing steel demand.in fundamental areas. both in terms of earnings and production. roads. construction.
0 SUGGESTIONS 120 .CHAPTER 14.
5) Organizational adjustments must be made while adopting newer technologies. 4) R&D focus is to be increased substantially. Effective human resource policy will help speedier technology adoption. With a strong R&D base. 3) Steel companies must assess their core competency and realign their strategy to cope with the internal and global competition. more equity participation by foreign partners.Suggestions The following suggestions are given to rejuvenate the Indian steel industry: 1) Technology policy is to be so designed by the government that it will generate the thrust to update the technology by the steel producers. Socio-economic aspects should be dovetailed while selecting a technology. organizations will be able to assimilate the technology faster. 121 . Training programmers should be designed for people from different hierarchy including top level management. full convertibility of Indian currency. rationalization of tax structure etc. 2) Further liberalization towards tariff structure. will be required. Expenditure on R&D by steel plants should be increased. 6) Training and re-training with updated inputs should be a continuous process in steel plants.
steel sector should also tune to it. to take better decisions on product mix and investment proposals. 10) Resource utilization must be more effective to improve on the productivity. which is not common in Indian steel industry. 8) Technology transfer plans are to be worked out more carefully. Indian firms must select appropriate technology with proper scope of adoption. 9) Firms must do technological forecasting. 122 .7) As economy is becoming more and more market driven.
123 . 3.TATA Steel Ltd.CHAPTER 15.SAIL 2.JSW Steel Ltd.0 ANNEXURES • Balance Sheet • Profit & Loss Account • Cash Flow Statement Of 1.
CHAPTER 16.0 BIBLIOGRAPHY 124 .
steelworld.in 12) www.com 8) www.com 125 .com 10) www.com 5) www.tatasteel.in 7) www.com 11) www.mysteel.BIBLIOGRAPHY 1) CMIE Journal 2) Annual Report of Ministry of Steel 3) CRISIL Report 4) www.icicidirect.org 6) www.sail.armresearch.nic.moneycontrol.com 9) www.worldsteel .steel.
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