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than 2 percent of carbon with smaller amounts of other elements such as manganese, silicon, phosphorus, sulfur and oxygen. There are more than 3,500 different grades of steel with many different properties - physical, chemical, environmental. Steel is the world’s most recycled material. 65 percent of new steel comes from recycled steel. Steel products can be classified according to processes by which they are produced. The basic processes in production of steel are classified in to rolled products, forged products and cast products. The rolled products, based on its shape could be classified as flat products (e.g. Coils, Sheets, Plates etc)) and long products (bars, rounds, angles, channels, rails). Though these are made from both carbon and speciality steels, they are differentiated by size as well as by the end products (e.g. a round is the commonly known ‘saria’ which comes in diameters ranging from 8 mm to 45mm).The finished steel production in India has grown from 1.1 million tones (MT) in 1951 to approximately 32 million tonnes (projected) in 2005-06. During the first two decades of planned economic development, i.e. 1950-60 and 1960-70 the average annual growth rate of steel production exceeded 8%. During 1970-80, the growth rate in steel production came down to 5.7% per annum and picked up marginally to 6.4% per annum during 1980-90. Though the country's production of iron and steel is sufficient to meet the domestic demand, some quantity of steel is always needed to be imported especially those grades and qualities which are required in small quantities, and therefore do not justify setting up of production capacities. The Policy Regime: Apart from a few players in the private sector i.e. TATA STEEL, Burn Standard (now IISCO), creation of additional capacity was reserved for the Public Sector. Steel was classified as a core industry in terms of the Industrial Policy Resolution. Steel was recognized as being directly related to economic growth. Its’ production, pricing and ‘distribution’, therefore, were regulated and controlled by the Government through 5 year plans, administered prices and an institution called Joint Plants Committee1, to oversee allocation of steel. The import barrier was very high, thus insulating the market from international competition. The whole industry was operating under an oligopolistic market and protected environment. During 1991-92, with the economic liberalization, steel was the first core industry to be deregulated and decontrolled. The important policy measures that had a direct bearing on the steel industry were: 1. Iron and Steel Industry, among others, was removed from the list of industries reserved for the public sector and also exempted from the provisions of compulsory licensing under the Industries (Development and Regulation) Act, 1951. 2. With effect from 24.5.92 iron and steel industry was included in the list of 'high priority' industries for automatic approval for foreign equity investment upto 51% (now 74%). 3. Price and distribution of steel were deregulated from January 1992 (except distribution of steel to the priority sector2). 4. Export of iron and steel items was freely allowed. Import duties were brought down from 85% progressively to 25%.
The Joint Plants Committee (JPC) comprises representatives from the main steel plants (SAIL, TATA STEEL, RINL) and a representative from the Indian Railways (Railways being the largest customer). The JPC used to work under the now defunct office of the Development Commissioner for Iron & Steel. 2 Priority Sector consists of Defence, Railways, Power Projects, North Eastern States etc.
5. Import duty on capital goods was reduced from 55% to 25%. Duties on raw materials for steel production were reduced. These measures reduced the capital costs and production costs of steel plants. 6. Freight Equalization Scheme3 was withdrawn in January'92, removing freight disadvantage to states located near steel plants. Effect of Liberalization:The liberalization of the industry has had a significant impact. A total of 19 projects involving an investment of Rs. 308bn (equivalent to a capacity of approx. 13mt per annum) have been cleared by the Financial Institutions. Eight units with a total capacity of approx. 5.4mt have already been commissioned. Table 1 below shows how the production volume has increased and how there has been an increase in the share of secondary producers in the total production:
Changing Trend: Volume and Source of Production (Production Figures in Million Tonnes) Year 1991-92 1995-96 1999-2000 2003-04 2004-05 2005-06 (Apr-Dec) Main Secondary Producers Producers4 7.96 10.59 11.20 15.19 15.6 11.790 6.37 10.81 15.51 21.00 22.8 19.400 Grand Total 14.33 21.40 26.71 36.19 38.4 31.190 % of share of Secondary Producers 14.5% 50.6% 58.07% 58.03 % 59.44 % 62.10 %
Table 1 Industry Structure On the basis of routes of production, the Indian steel industry can be divided into two types of producers (Integrated Producers and Secondary Producers). Exhibit 1 below gives a schematic diagram:
Freight Equalization Scheme was introduced to ensure balanced regional development. Under this scheme, railways were to charge the same freight for transporting steel goods from plants to any destination within India. This denied the advantage that the locations near the plants would have had in terms of freight. 4 “Secondary Producers’ is explained in para 2.3
Exhibit 1 Integrated Producers are those that convert iron ore into steel. There are three major integrated steel players in India, namely Steel Authority of India Limited (SAIL), Tata Iron and Steel Company Limited (TISCO, now TATA STEEL) and Rashtriya Ispat Nigam Limited (RINL). SAIL and RINL are in the Public Sector while TATA Steel is in the private sector. Secondary Producers are the mini steel plants (MSPs), which make steel by melting scrap or sponge iron or a mixture of the two. Essar Steel, Ispat Industries and Lloyds Steel are the largest producers of steel through the secondary route. Exhibit 2 gives a broad categorization of Iron and Steel related products and the major players in each product category.
The Crude Steel production figures for the year 2004-05 for the major producers is given in the Exhibit 3 below5. Other than SAIL, TISCO and RINL, all others have come up after 1992.
Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being India’s largest producer of iron ore and of having the country’s second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. SAIL's wide range of long and flat steel products are much in demand in the domestic as well as the international market. The marketing responsibility is carried out by SAIL's own Central Marketing Organisation (CMO) and the International Trade Division. CMO encompasses a wide network of 34 branch offices and 54 stockyards located in major cities and towns throughout India. With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute
Source: Joint Plants Committee
(MTI) and Safety Organisation at Ranchi. The captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all the plants and major units are ISO Certified. The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its ‘Navratna’ status, enjoys significant operational and financial autonomy. SAIL, in the year 2004, envisaged a scheme to expand and modernize its’ steel plants and support services to cash in on the robust demand growth and also not to be left behind in catering to demands for newer grades of steel which the other plants were producing. Pre 1991, SAIL was operating in a virtual oligopolistic environment with competition from only TATA Steel, RINL and a few small producers. In most of the product categories SAIL enjoyed 45-55% market share. The whole organization was production and volume oriented. Due to shortage of Steel in the country, and import restrictions, it could easily sell whatever it produced. During the eighties, SAIL undertook the first step to modernize and expand the steel plants which were operating on 30-40 year old technologies. During this period (early 1980’s), SAIL was incurring a loss of approximately Rs 1 Crore a day! A turnaround effort was made through involvement of people and also through introducing modernization of the plants.The cost of total modernization was to the tune of Rs 20,000 Crores. However, when the time came to reap the benefits of modernization, the whole industry went into recession. It also coincided with the liberalization process which saw creation of additional capacity in the private sector. Imports too became cheaper and easier making the market fiercely competitive. The period from 1993 to 1996 saw a planned management of change in SAIL, largely to ‘orient’ the whole organization from a ‘volume’ mindset to a ‘customer and market centric’ mindset. The entire Marketing Structure was changed, processes reengineered, and effort was made to increase market interface. People in SAIL, therefore, are adaptable to change, having gone through the process twice. Steel is a cyclical industry. It witnessed high demand since 2002. However, there are signs of demand flattening now. Based on rising demand in 2002, SAIL decided to invest a further Rs 50,000 Crores for modernization, expansion and addition of new product lines in tune with what the market wants. SAIL has one of the largest manpowers for a Steel Company it’s size. SAIL and TATA Steel, are both carrying manpower far in excess of those carried by the newer steel plants and also international steel plants. The only way to restructure was to adopt the voluntary route of separation. From a total manpower of 200,000, SAIL is today operating with 128,000 and an aim to bring it down further to 100,000. However, SAIL invests heavily into competence building and, on an average, each employee undergoes some form of formal training 3 days/year, besides other developmental inputs. It’s Managerial workforce is competent and much in demand outside due to rich experience and continuous training. SAIL has been a pioneer in introducing state of the art in Human Resources Management Systems including a comprehensive “Human Resources Planning Model for Modernization”, “Performance Management System”, ‘Market Orientation through Internal Customer Satisfaction’ etc. The previous modernization (1n 1980s) ran into time and cost over runs. It being a public sector, most of the decisions regarding capital expenditure are taken after a well laid out and elaborate procedure. In fact, it has an elaborate procedure for almost every commercial decision taking. The current Expansion and Modernization involves a whopping Rs 50,000
Crores. SAIL must adhere to the laid down parameters of decision taking, yet adhere to the schedule so as to avoid cost over runs. Annexure 1 Press Report about Expansion and Modernization of SAIL
The Expansion & Modernization (E&M) program of SAIL is witnessing overruns of whopping Rs6,000 crore even as the PSU is struggling to complete it by 2010. “Steel Authority of India Ltd’s expansion and modernization (E&M) costs have shot up to nearly Rs54,000 crore from the envisaged Rs49,000 crore. It is unlikely to complete its modernization programmes in time (by 2010),” a source told PTI. The source said the costs have shot up because Mecon, which had made recommendations for SAIL’s Corporate Plan-2012, had not firmed up the E&M costs nor had it factored in different aspects before submitting its suggestions. This assumes importance amid reports of SAIL chairman S K Roongta assertions that the PSU’s expansion programme may face credit squeeze. “We are looking at different scenarios, but I have a lurking suspicion our debt costs may rise,” the Financial Times had quoted Roongta as saying. “The problem is that SAIL is not in tune with the realities. What is more worrying is that, at the current pace of progress, SAIL may not be able to complete its E&M programmes by 2010. The PSU’s procedures are more cumbersome than that of the government,” the source pointed out. Though Roongta did not speculate on how much higher the borrowing costs would be, the daily pointed out that higher interest rates could raise the company’s borrowing costs by up to $100 million every year. Earlier, the Steel Ministry had told the Prime Minister’s Office the steel giant would be completing its E&M programmes by 2010 to raise its production to more than 20 million tonnes a year. SAIL’s debt is likely to rise to $6-7 billion during the period, and until recently, the PSU was facing an estimated bill of $600 million every year for servicing the debt portions, the Financial Times said. On the raw material front, the PSU was facing problems in securing the Chiria mines for itself, a matter pending before the court, while the iron ore reserves of the Dalli Rajhara mines in Chhattisgarh were getting depleted. Meanwhile, SAIL has posted an 18% rise in profit after tax during the second quarter this fiscal at Rs1,700.24 crore. The rise helped the company achieve its highest-ever net profit of Rs3,225.36 crore for the first half of the fiscal, 14% higher than the comparable period last year. The PSU’s steel plants recorded saleable steel production of 3.25 million tonnes, 10% higher in the second quarter as compared to the same period last year.
Annexure 2 (FY 2007-08) Capacity Utilization Coke Rate 118% 533 KGs/Tonne (Lowest ever, and continuous decline over past 5 years) Energy Consumption 6.95 G Cal/Tonne (Lowest ever and continuous decline ove past 5 years) Crude Steel 14 Million Tonnes (Highest Ever) Production Sales 12 Million Tonnes (Highest Ever) Coke rate is a measure of Coke (a coal based input) used per tonne of steel. Coke rate affects the cost of production. The lower it is the better it is in terms of cost efficiency. Like wise for Energy consumption Sales Turnover Rs 45,555 Crores (increase of 16%) PBT Rs 11,429 Crores (increase of 22%) PAT Rs 7,537 Crores (increase of 22%) EBIDTA/Sales 33% PAT/NW 33% Debt:Equity 0.13:1 (Virtually debt free) EPS Rs 18.25 (up 22%) Market Rs 76,309 Crores Capitalization (FY 2007-08) Total Manpower Labor Productivity (FY 2007-08) Item Hot Metal Crude Steel Saleable Steel Captive Power S.No. 1 2 3 4 5 6 Company SAIL TATA STEEL Bhushan Steel Ispat Industries JSW Steel Jindal Steel & Power 128,000 (31 Mar’ 2008) 214 Tonnes/Man/Year 2008 (Actual) 15.2 MTPA 14 MTPA 13 MTPA 872 MW 75.40 182.80 336.45 10.51 213 814.75 2010 (Planned) 26 MTPA 24.5 MTPA 23 MTPA 1922 MW Share Price (as on Dec 10, 2008)
Advantages Envisaged from the Expansion and Modernization: Enhancing production capacity and Market Share (Current Share approx 26% on an average across all products) World Class Technology and Products Complete elimination of semi finished steel and addition of value added products Enhanced pollution control measures and environmental conservation Assignment: Present 7 to 8 slides commenting on the following: SAIL as an organization, with special reference to: Value creation at different stages Features of SAIL’s Organization Structure ‘Effectiveness’ of SAIL as an organization
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