Main Details
Main Details
Main Details
Particular Introduction History of Steel The global Steel Industry Contribution of Countries to Global Steel Industry Steel Industry in India Demand of Steel in India Supply of Steel in the Indian Market Risk Factors Steel Production in India Production Function and Input Fixed and Variable Inputs Total and Average costs Average cost and Economies of scales Economies of scale and oligopoly Economies of scale and international trade Export and Import of Steel form India Exports of Iron & Steel Subsidies and Issues of competitiveness Major players of Steel in India Swot analysis of the Steel Industry Expected Growth Factors Holding Back the Indian Steel Industry Recent Financial crisis and Indian steel Industry Reference:
24
Page No. 25 25 26 27 28 29 30 30 31 33 34 35 35 36 36 37 38 39 40 46 47 48 49 50
INTRODUCTION :
Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilization. The level of per capita consumption of steel is treated as an important index of the level of socioeconomic development and living standards of the people in any country. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. All major industrial economies are characterized by the existence of a strong steel industry and the growth of many of these economies has been largely shaped by the strength of their steel industries in their initial stages of development. Steel industry was in the vanguard in the liberalization of the industrial Sector and has made rapid strides since then. The new Greenfield plants represent the latest in technology. Output has increased, the industry has moved up i n the value chain and exports have raised consequent to a greater integration with the global economy. The new plants have also brought about a greater regional dispersion easing the domestic supply position notably in the western region. At the same time, the domestic steel industry faces new challenges. Some of these relate to the trade barriers in developed markets and certain structural problems of the domestic industry notably due to the high cost of commissioning of new projects. The domestic demand too has not improved to significant levels. The litmus test of the steel industry will be to surmount these difficulties and remain globally competitive.
HISTORY OF STEEL:
Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD. Prior to steel, iron was a very popular metal and it was used all over the globe. Even the time period of around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly used in that period in each and every part of life. But, with the change in time and technology, people were able to find an even stronger and harder material than iron that was steel. Using iron had some disadvantages but this alloy of iron and carbon fulfilled all that iron couldnt do. The Chinese people invented steel as it was harder than iron and it could serve better if it is used in making weapons. One legend says that the sword of the first Han emperor was made of steel only. From China, the process of making steel from iron spread to its south and reached India. High quality steel was being produced in southern India in as early as 300 BC. Most of the steel then was exported from Asia only. Around 9th century AD, the smiths in the Middle East developed techniques to produce sharp and flexible steel
25
blades. In the 17th century, smiths in Europe came to know about a new process of cementation to produce steel. Also, other new and improved technologies were gradually developed and steel soon became the key factor on which most of the economies of the world started depending.
Chart-2.1
26
accounted for 49m ton, which all totally becomes more than 50% of global production. Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.
Table NO.2.1 Country Wise Crude Steel Production During The Year Of 2007-08 Country Crude Steel Production (mtpa) CHINA JAPAN UNITED STATES RUSSIA SOUTH KOREA F.R.GERMANY UKRAINE BRAZIL INDIA ITALY 272.5 112.7 98.9 65.6 47.5 46.4 38.7 32.9 32.6 28.4
27
Chart no.2.2
plants, almost all of which were in the private sector. India's Steel production more than doubled during the 1980s but still did not meet the demand in the mid-1990s, the government was seeking private-sector investment in new steel plants. Production was projected to increase substantially as the result of plans to set up a 1 million ton steel plant and three pigiron plants totaling 600,000 tons capacity in West Bengal, with Chinese technical assistance and financial investment. The commissioning of Tata Iron & Steel Company's production unit at Jamshedpur, Bihar in 1911-12 heralded the beginning of modern steel industry in India. At the time of Independence in 1947 India's steel production was only 1.25 Mt of crude steel. Following independence and the commencement of five year plans, the Government of India decided to set up four integrated steel plants at Rourkela, Durgapur, Bhilai and Bokaro. The Bokaro plant was commissioned in 1972. The most recent addition is a 3 Mt integrated steel plant with modern technology at Visakhapatnam. Steel Authority of India (SAIL) accounts for over 40% of India's crude steel production. SAIL comprises of nine plants, including five integrated and four special steel plants. Of these one was nationalized and two were acquired; several were set up in collaboration with foreign companies. SAIL also owns mines and subsidiary companies.
29
like infrastructure, real estate and automobiles, at home and abroad, has put India's steel industry on the world steel map. Table No. 2.2 Demand And Growth Of Steel Industry YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 DEMAND(in mt) 34.444 36.037 40.471 43.O62 45.387 50.257 58.45 4.625 12.32 6.4 5.4 10.73 16.3 GROWTH IN %
RISK FACTORS :
Even though India is now one of the worlds top ten steelmakers its domestic output is insufficient to meet the demand in all segments. In 2005, some 4.7 million tons of steel were imported, compared with only 2.2 million ten years earlier (an annual increase of 8%). The
30
growth in Indian import demand in 2005 of around 2 million tons is roughly equivalent to the total annual output of Hungary. Low steel prices smooth the way for imports from Russia, Ukraine and Kazakhstan. The geographical proximity of Japan, South Korea and China makes them important suppliers as well. We do not expect India to be self-sufficient in many segments over the medium term. There are several reasons for this: firstly, steel consumption is rising very fast as a consequence of the prospective dynamic economic growth. Secondly, there is demand for high-quality products which India will not be able to supply in sufficient quantities for the foreseeable future. These include products with surface finishing that helps them to be more durable and retain their value for longer. In general, the trend towards weight-optimized components persists; this improves the prospects for Western European exporters in the Indian market. As a member of the WTO (since 1995) India is obliged to gradually abolish import restrictions, so importing steel should be far less problematic in future.
31
production growth for 2008-2009 comes to around 14 %. However the joint plant committee has been revising its annual figures upwards for the last 2-3 years. In the event of an upward revision in the figures of 2007-2008, the actual growth in steel production in 2008-2009 would turn out to be less as compared to our estimates.
32
33
hearth furnaces, basic oxygen furnaces, or electric furnaces. Similarly, Better Steel Corporation can choose from various types of iron ore and coal. Given that Better Steel has decided to produce a certain quantity of steel, which production technique will it use; that is, what particular combination of inputs will it decide on? An economist's answer to this question is: the one that minimizes the firm's costs and maximizes its profits. Given that a technology has been chosen, in general, as inputs used in the production of a commodity increase the total output increases as well. It is useful to understand different kinds of inputs.
34
35
When a firm has to add to production capacity in the long run, this may be done by either duplicating an existing fixed input (for instance, a plant) or increasing the size of the plant. Usually, as the plant size increases, a firm is able to achieve a new minimum average cost point (lower than the minimum average cost achieved with the previous smaller capacity) plant. For example, in the case of Better Steel Corporation, the average cost per ton of steel at the minimum average cost point with the larger blast furnace may be 20 percent less than the average cost at the minimum average cost point with smaller blast furnace. Thus, in the long run, a firm may keep switching to larger and larger plants, successively reducing the average cost. One should, however, be warned that due to technological constraints the average cost is assumed to start rising at some output level even in the long runthat is, the average cost curve is U-shaped even in the long run. Therefore, while looking at the average cost per unit of output is the key to understanding economies of scale, it is useful to remember that the average cost declines up to a point in the short run, and it may decline even more in the long run (also up to a point), as higher and higher levels of output are produced.
36
commodity (for instance, steel). However, this country is producing this commodity at such a low output level that the average cost per unit of the output is high. Due to the high average cost it does not have the comparative advantage in exporting this product to foreign countries. Now, assume that this country specializes in production of this commodity and exports to another country. The other country does the sameit specializes in the production of another product (say, aluminium) and exports to the first country. Thus, the first country specializes in the production of steel and the second country specializes in the production of aluminium. If economies of scale exist in steel and aluminum industries, firms can serve the combined markets of both countries and supply both goods at lower prices (assuming some of the advantages of lower costs are passed on) than if they only reach their respective domestic markets. This is a major argument for an international economic association such as the European Common Market. In addition to the pure economies of scale in production, there are "economies of scale" in learning associated with specialization in the foreign trade context. In this the average cost per unit goes down as economic efficiencies increase due to learning. In the aircraft and machine tool industries, manufacturers are well aware of reductions in average costs due to learning. It has been estimated that the average cost per unit of new machine tools tends to decline by 20 percent each time the cumulated output is doubled, due to improvement in efficiency through learning by individuals and organizations. In an industry where learning is an important factor in causing economies of scale, there are advantages in one country specializing in the production of that product. In such a case, specialization can reduce average costs and retail prices to lower levels than if each nation attempts to be self-sufficient in the products subject to economies of scale in learning.
37
(Qty. in Million Tonnes) years 2002-2003 2003-2004 2004-2005 2005-2006 20062007(Prov. estimated) 2007-2008(April-June 07) (Prov. estimated) Finished (Carbon) Steel 4.506 4.835 4.381 4.478 4.750 Pig Iron 0.629 0.518 0.393 0.440 0.350
1.310
0.120
On the other hand, the imports are also growing. In 1991-92, the imports of steel amounted to 1043 tonnes. But in 1999-2000, it touched 2200 tonnes, which is the highest import of steel in India, and then the imports went down and reached 1650 tonnes in 2003-04. In 1991-92, the year of liberalization, the imports of steel in India exceeded over the exports of steel. But
38
in the following years the trend changed. From 1997-98, India exported steel and steel products which was more than its imports of steel and steel products
rationale for operating such schemes is to ensure that manufacturers should not be made to bear the costs of import charges on imported goods that are never sold within the manufacturers domestic market. These duty drawback schemes cannot be classified as export subsidies per se. However, the administration of the schemes in certain cases have been determined or confer export subsidy by various countervailing duty investigations to the extent they have resulted in a remission or drawback of import charges in excess of those levied on inputs that are consumed in the production of the exported product.
40
namely, ISO 9001:2000, ISO 14001: 1996 and OHSAS 18001: 1999. RINL was accorded the prestigious Mini Ratna status by the Ministry of Steel, Govt. of India in the year 2006 and the company is gearing up to complete the ambitious expansion works to increase the capacity to 6.3 mtpa by 2009. RINL has prepared a road map to expand the plants capacity up to 16 mtpa in phases.
(C)
Metal
Scrap
Trade
Corporation
Ltd.
(MSTC)
MSTC Ltd. (formerly Metal Scrap Trade Corporation Ltd.) was set up on the 9th September, 1964 as a canalizing agency for the export of scrap from the country. With the passage of time, the company emerged as the canalizing agency for the import of scrap into the country. Import of scrap was de-canalized by the Government in 1991-92 and MSTC has since then moved on to marketing ferrous and miscellaneous scrap arising out of steel plants and other industries and importing Coal, Coke, Petroleum products, semi finished steel products like HR Coils and export primarily Iron ore. The Company has also established an e-auction portal and undertakes e-auction of Coal, Diamonds and Steel Scrap and has developed an eprocurement portal in house.
41
the company intensified its activities in other sectors like Power, Coal, Oil and Gas. Besides this, HSCL diversified in Infrastructure Sectors like Roads/Highways, Bridges, Dams, Underground Communication and Transport system and Industrial and Township Complexes involving high degree of planning, co-ordination and modern sophisticated techniques. The company has developed its expertise in the areas of Piling, Soil investigation, Massive foundation work, High rise structures, Structural fabrication and Erection, Refractory, Technological structures and Pipelines, Equipment erection, Instrumentation including testing and commissioning. The company has also specialized in carrying out Capital repairs and Rebuilding work including hot repairs of Coke Ovens and Blast Furnaces and other allied areas of Integrated Steel Plants.
(F) MECON LTD. MECON is one of the leading multi-disciplinary design, engineering, consultancy and contracting organization in the field of iron & steel, chemicals, refineries & petrochemicals, power, roads & highways, railways, water management, ports & harbors, gas & oil, pipelines, non ferrous, mining, general engineering, environmental engineering and other related/ diversified areas with extensive overseas experience. MECON, an ISO: 9001- 2000 accredited company, registered with World Bank (WB), Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), African Development Bank (AFDB), and United Nations Industrial Development Organization (UNIDO), has wide exposure and infrastructure for carrying out engineering, consultancy and project management services for mega projects encompassing architecture & town planning, civil works, structural works, electric, air conditioning & refrigeration, instrumentation, utilities, material handling & storage, computerization etc. MECON has collaboration agreements with leading firms from the USA, Germany, France, Italy, Russia, etc. in various fields. The authorized share capital of the company is Rs. 10,400 lakh (previous year Rs. 4,100 lakh) against which the paid up capital is Rs. 10,313.84 lakh (previous year Rs. 4,013.84 lakh). All the shares are held by the Government of India.
42
2.Private Sector
The private sector of the Steel Industry is currently playing an important and dominant role in production and growth of steel industry in the country. Private sector steel players have contributed nearly 67% of total steel production of 38.08 million tonnes to the country during the period April-December, 2007. The private sector units consist of both major steel producers on one hand and relatively smaller and medium units such as Sponge iron plants, Mini Blast Furnace units, Electric Arc Furnaces, Induction Furnaces, Rerolling Mills, Coldrolling Mills and Coating units on the other. They not only play an important role in production of primary and secondary steel, but also contribute substantial value addition in terms of quality, innovation and cost effective. (A)TATA STEEL LTD. Tata Steel has an integrated steel plant, with an annual crude steel making capacity of 5 million tonnes located at Jamshedpur, Jharkhand. Tata Steel has completed the first six months of fiscal 2007-08 with impressive increase in its hot metal production. The hot metal production at 2.76 million tonnes is 4.6%more compared to the corresponding period of the previous year. The crude steel production during the period was 2.43 million tonnes which is marginally lower than the production of 2.45 million tonnes last year. The saleable steel production was at a lower level during the period April September, 2007 (2.34 million tonnes) compared to the corresponding period of last year (2.36 million tonnes). Tata Steel is continuing with its programme of expansion of steel making capacity by 1.8 million tonnes to reach a rated capacity of 6.8 million tonnes. The Project is reported to be moving ahead of schedule and is likely to be commissioned by May 2008 against the original schedule of June 2008. The Company has planned to take the capacity to 10 million tonnes by the fiscal year 2010. Tata Steels Greenfield projects in Orissa and Chattisgarh are progressing on schedule with placement of equipment order for Kalinganagar Project in Orissa and commencement of the land acquisition process. Jharkhand Project is awaiting announcement of Relief & Rehabilitation policy of the State Government. (B)ESSAR STEEL LTD. Essar Steel Holdings Ltd. (ESHL) is a global producer of steel with a footprint covering India, Canada, USA, the Middle East and Asia. It is a fully integrated flat carbon steel manufacturerfrom iron ore to ready-to-market products. ESHL has a current global capacity of 8 million tonnes per annum (MTPA). With its aggressive expansion plans in India and other parts of Asia and North America, its capacity is likely to go up to 25 MTPA by
43
2012. Its products find wide acceptance in highly discerning consumer sectors, such as automotive, white goods, construction, engineering and shipbuilding. Essar Steel Ltd., the Indian Company of Essar Steel Holdings Limited, is the largest steel producer in western India, with a current capacity of 4.6 MTPA at Hazira, Gujarat, and plans to increase this to 8.5 MTPA. The Indian operations also include an 8 MTPA beneficiation plant at Bailadilla, Chattisgarh which has worlds largest slurry pipeline of 267 km to transport beneficiated Iron Slurry to the pellet plant, and an 8 MTPA pellet complex at Visakhapatnam. The Essar Steel Complex at Hazira in Gujarat, India, houses the worlds largest gas-based single location sponge iron plant, with a capacity of 4.6 MTPA. The complex also houses the steel plant and the 1.4 MTPA cold rolling complexes. The steel complex has a complete infrastructure setup, including a captive port, lime plant and oxygen plant. Essar Steel produces highly customized value-added products catering to a variety of product segments and is Indias largest exporter of flat products, selling close to half of its production to the highly demanding US and European markets, and to the growing markets of South East Asia and the Middle East. The companys products conform to quality specifications of international quality certification agencies, like ABS, API, TUV Rhine Land and Lloyds Register. Essar Steel is the first Indian steel company to receive an ISO 9001 and ISO 14001 certification for environment management practices. Essar Steel utilizes Hot Briquetted Iron-Direct Reduced Iron (HBIDRI) technology supplied by Midrex Technology, USA along with four 150 tonnes DC electric arc furnaces imported from Clecim, France. The Hazira unit of Essar Steel is equipped with 5.5 million tonnes per annum (MTPA) hot briquetted iron plant, 4.6 MTPA electric are furnace, 4.6 MTPA continuous caster, 3.6 MTPA hot strip mill and 1.4 MTPA Cold Rolling Mill. During the year 2007-08, Essar was awarded costs ISO/TS 16949 and OHSAS 18000 certification. (C) JSW STEEL LTD. JSW Steel is a 3.8 MTPA integrated steel plant, having a process route consisting broadly of Iron Ore Beneficiation Pelletisation Sintering Coke making Iron making through Blast Furnace as well as Corex process Steel making through : BOF- Continuous Casting of slabs Hot Strip Rolling Cold Rolling Mills. JSW Steel has a distinction of being certified for ISO-9001:2000 Quality Management System, ISO-14001:2004 Environment Management System and OHSAS 18001:1999 Occupational Health and Safety Management System. The capacity as on 1.11.2007 stood at 3.8 MTPA and the capacity is likely to rise to 6.8 MTPA by 2008, and further to 9.6 MTPA by 2010. 44
(D) JINDAL STEEL & POWER LTD. (JSPL) Jindal Steel & Power Limited is one of the fast growing major steel units in the country. The Raigarh plant of JSPL has a present capacity of 1.37 million tonne per annum (MTPA) sponge iron plant, 2.40 MTPA Steel Melting Shop (SMS), 1.0 MTPA plant Mill, 2.30 sinter plant, 0.8 MTPA coke oven and a 330 Mega Watt captive power plant. During the year 2006-07, the company produced 1.19 million tonnes of sponge iron, 0.8 million tonnes of various steel products, 0.57 million tonnes of hot metal and 0.21 million tonnes of rolled products. The performance of JSPL during AprilOctober 2007-08 was 0.68 million tonnes of sponge iron, 0.72 million tonnes of steel products (slabs/blooms/billets/rounds), 0.68 million tonnes of hot metal, 0.27 million tonnes of rolled products and 0.11 million tonnes of plates ( E) ISPAT INDUSTRIES LTD. (IIL) IIL has set up one of the largest integrated steel plants in the private sector in India at Dolvi in Raigad District, Maharashtra with a capacity to manufacture 3 million tonnes per annum of hot rolled steel coils (HRC). The Dolvi complex also boasts of an ultra modern blast furnace (setup by a group company Ispat Metallics India Ltd.) capable of producing 2.0 million tonnes per annum of Hot Metal/ Pig Iron, a 2.0 million tonnes capacity Sinter Plant (newly commissioned) and a DRI plant with a capacity of 1.6 million tonnes per annum. The complex boast of an ultra modern captive jetty which meets the plants requirement with regard to import of various raw material. In the coming years, after augmenting necessary infrastructure facility, it has planned to export the goods from the captive jetty. Further, the complex envisages adding a 110 MW captive power plant (which will use the Blast Furnace gas) in near future. The integrated steel plant is using the converter-cum-electric arc furnace route (CONARC process) for producing steel. In this project, IIL have uniquely combined the usage of hot metal and DRI (sponge iron) in the electric arc furnace for production of liquid steel for the first time in India. For casting and rolling of liquid steel, IIL has the state-of-the art technology called compact strip production (CSP) process, which was installed for the first time in India and produces high quality and specifically very thin gauges of Hot Rolled Coils.
45
Table No.2.5
Market Share Of Leading Players In Iron And Steel Industry
COMPANY
OF MARKET SHARE
(IN
PERCENTAGE TERMS)
SAIL
13.5
32%
TISCO
5.2
11%
46
Opportunities 1. Unexplored rural market 2. Growing domestic demand 3. Exports 4. Consolidation Threats 1. China becoming net exporter 2. Protectionism in the West 3. Dumping by competitors.
EXPECTED GROWTH :
The International Iron and Steel Institute(IISI) has forecasted that the steel demand will go of from 1.12 billion ton to 1.19 billion ton in 2008.And this will further increase in a higher rate up to 2010.In India the growth will be more prominent because of the growth in Real estate, Aviation, Manufacturing, Automobile sectors. Graphs Chart 2.3
47
1.Energy supply
Power shortages hamper production at many locations. Since 2001 the Indian government has been endeavoring to ensure that power is available nationwide by 2012. The deficiencies have prompted many firms with heavier energy demands to opt for producing electricity with their own industrial generators. India will rely squarely on nuclear energy for its future power generation requirements. In September 2005 the 15th and largest nuclear reactor to date went on-line. The nuclear share of the energy mix is likely to rise to roughly 25% by 2050. Overall, India is likely to be the worlds fourth largest energy consumer by 2010 after the US, China and Japan.
48
49
REFRENCES : Website:
1. www.capital line .com 2. www.economictimes.com 3. www.blonnet.com 4. www.moneycontrol.com 5. www.reportgallery.com 6. www.annualreportservice.com 7. www.pwcglobal.com 8. www.nse-india.com 9. www.ft.com 10. www.sebi.in 11. www.sec.gov 12. www.business-standard .com 13. in.finance.yahoo.com
50