A STUDY ON STEEL INDUSTRIES IN INDIA

INTRODUCTION
The iron and steel industry presents one of the most energy intensive sectors
within the Indian economy and is therefore Increases in productivity through the,
environmental and social development objectives.

India’s economic growth is contingent upon the growth of the Indian steel
industry. Consumption of steel is taken to be an indicator of economic
development. While steel continues to have a stronghold in traditional sectors such
as construction, housing and ground transportation, special steels are
increasingly used in engineering industries such as power generation,
petrochemicals and fertilizers. India occupies a central position on the global
steel map, improving energy efficiency and backward Integration into global raw
material sources. Steel production in India has increased by a compounded
annual growth rate (CAGR) of 8 percent over the period 2002-03 to 2006-07.
Going forward, growth in India is projected to be higher than the world average,
as the per capita consumption of steel in India, at around 46 kg, is well below the
world average (150 kg) and that of developed countries (400 kg). Indian demand
is projected to rise to 200 million tones by 2015. Given the strong demand
scenario, most global steel players are into a massive capacity expansion mode,
either through brown field or Greenfield route.
By 2012, the steel production capacity in India is expected to touch 124
million tones and 275 million tones by 2020. Steel is manufactured as a globally
tradable product with no major trade barriers across national boundaries to be seen
currently. There is also no inherent resource related constraints which may
significantly affect production of the same or its capacity creation to respond to
demand increases in the global market.
THE GLOBAL STEEL INDUSTRY
The current global steel industry is in its best position in comparing to last
decades. The price has been rising continuously. The demand expectations for steel
products are rapidly growing for coming years. There is many more merger and
acquisitions which overall buoyed the industry and showed some good results. The
subprime crisis has lead to the recession in economy of different countries, which
may lead to have a negative effect on whole steel industry in coming years.
However steel production and consumption will be supported by continuous
economic growth.

CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY

Sales

13% 18%
EUROPE
8% USA
BRAZIL
3%
JAPAN
37%
9% CIS
INDIA
8%
CHINA
4%
OTHERS

 The countries like China, Japan, India and South Korea are in the top of
the above in steel production in Asian countries.
 China accounts for 1/3rd of total production i.e. 419m ton,
 Japan accounts for 9% i.e. 118m ton,
 India accounts for 53m ton
 South Korea is accounted for 49m ton,
This all totally becomes more than 50% of global production. Apart from this
USA, BRAZIL, UK accounts for the major chunk of the whole growth.

CONSUMPSION OF STEEL IN INDIA

 Consumption of steel has grown by 16.3 %during the last three years,
This is higher than the world average.
 During the first half of the current year, steel consumption has grown by 16%.
 A study done by the Credit Suisse Group says that India’s steel consumption
will continue to grow by 17% annually till 2015, fuelled by demand for
construction projects worth US$ 1 trillion.
 The scope for raising the total consumption of steel in the country is huge, as
the per capita steel consumption is only 35 kg compared to 150 kg in the
world and 250 kg in China.
 Soaring demand by sectors like infrastructure, real estate and automobiles, at
home and abroad, has put India's steel industry on the world steel map.
 By the end of the Decade India has the potential to replace Japan as the
world’s third biggest economy after the US and China
YEAR WISE DEMAND OF INDIAN STEEL INDUSTRY

YEAR DEMAND (in m t) GROWTH IN %

2000-2001 34.444
2001-2002 36.037 4.625
2002-2003 40.471 12.32
2003-2004 43.O62 6.4
2004-2005 45.387 5.4
2005-2006 50.257 10.73
2006-2007 58.45 16.3

GRAPHICAL REPRESENTATION OF GROWTH &

DEMAND OF INDIAN STEELINDUSTRY

70

60

50

40
DEMAND (in m t)
30 GROWTH IN %

20

10

0
2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
Positive stimuli from construction industry

 The steel industry is one of the key drivers of India’s economic growth. Up to
10 million new homes need to be built each year until 2030.
 Strong population growth, rising incomes and decreasing household sizes are
forcing comprehensive measures to be taken in the housing sector.
 Capital expenditure is to be focused on road building and the rail network, as
well as on the construction and expansion of ports and airports

Strong growth in mechanical engineering

 Mechanical engineering output has increased some 10% p.a. over the past
five years.
 Demand is greatest for building machinery and plastic-molding machines
as well as machine tools and textile machinery. Since the domestic textile
and apparel industry,
 While machine-tool makers are being buoyed by the upturn in the
automobile and auto parts industries
 Germany claims a particularly large share of Indian imports of
Woodworking machinery and machine tools as well as pumps and
compressors.
 The demand for foreign machinery comes from customers requiring
especially high standards of performance and precision.
.
Booming automobile industry

 The automotive industry may consume a relatively small proportion of steel

output, but its growth rate is the highest of the most important clients for the
steel industry.
 The growth of the Indian automobile industry is being driven by healthy
domestic demand.
 The continuing increase in incomes and low-cost financing facilities are
boosting sales.
 At the same time India’s automobile sector is establishing itself as an exporter
to international markets. Hyundai, for example, uses the country as an export
base for small cars, and Ford manufactures vehicles there for South Africa and
other markets.
 India currently produces a total of 711,000 cars each year (Germany: 5.4
million).

Sales
Others
20%

Construction
Automotive Engg. 43%
5%

Mechanical Engg.
32%
MARKET SHARE OF LEADING PLAYERS IN IRON AND
STEEL INDUSTRY
Series 1

TATA Steel Eswar, JSW & Ispat

12% 19% RINL
8% SAIL
TATA Steel
SAIL Eswar, JSW & Ispat
30%
Others RINL
31%
Others

Rank Country/Region 2007 2008 2009

World 1,351.3 1326.5 1,219.7
1 People's Republic of China 494.9 500.5 567.8
2 European Union 209.7 198.0 139.1
3 Japan 120.2 118.7 87.5
4 Russia 72.4 68.5 59.9
5 United States 98.1 91.4 58.1
6 India 53.1 55.2 56.6
7 South Korea 51.5 53.6 48.6
8 Germany 48.6 45.8 32.7
9 Ukraine 42.8 37.1 29.8
10 Brazil 33.8 33.7 26.5
11 Turkey 25.8 26.8 25.3
12 Italy 31.6 30.6 19.7
13 Taiwan 20.9 19.9 15.7
14 Spain 19.0 18.6 14.3
15 Mexico 17.6 17.2 14.2
16 France 19.3 17.9 12.8
17 Iran 10.1 10.0 10.9
18 United Kingdom 14.3 13.5 10.1
19 Canada 15.6 14.8 9.0
20 South Africa 9.1 8.3 7.5
21 Poland 10.6 9.7 7.2
22 Malaysia 6.9 6.4 6.0
23 Austria 7.6 7.6 5.7
24 Belgium 10.7 10.7 5.6
25 Egypt 6.2 6.2 5.5
26 Australia 7.9 7.6 5.2
27 Netherlands 7.4 6.8 5.2
28 Thailand 5.6 5.2 5.0
29 Saudi Arabia 4.6 4.7 4.7
30 Czech Republic 7.1 6.4 4.6
31 Kazakhstan 4.8 4.3 4.1
32 Argentina 5.4 5.5 4.0
33 Venezuela 5.0 4.2 3.8
34 Slovakia 5.1 4.5 3.7
35 Indonesia 4.2 3.9 3.5
36 Finland 4.4 4.4 3.1
37 Sweden 5.7 5.2 2.8
38 Romania 6.3 5.0 2.7
39 Belarus 2.4 2.6 2.4
40 Luxembourg 2.9 2.6 2.2
41 Greece 2.6 2.5 2.1
42 Others 29.8 (est.) 28.3 (est.) 23.3 (est.)
ENGINEERING SECTOR IN INDIA
This sector employs over 4 million skilled and semi-skilled workers.
Broadly categorized into two segments:
• The Heavy Engineering Segment, and
• The Light Engineering Segment

The Heavy Engineering Segment

 The heavy engineering sector can be classified into two broad segments –
Electrical and Non-electrical machinery and equipment segments.
 Electrical machinery includes various machinery and equipments used in the
purpose of power generation, transmission and distribution such as generators
and motors, transformers and switchgears.
 The Non-electrical machinery includes machines/equipments used in various
sectors such as material handling equipments (earth moving machinery,
excavators, cranes, etc), etc.
 Most of the leading players are engaged in the production of heavy engineering
goods and mainly produces high-value products using high-end technology.
 Requirement of high level of capital investment poses as a major entry
barrier.

The Light Engineering Segment

 Health of the light engineering industry is therefore dictated by the demand for
capital goods. The light engineering goods segment, on the other hand, uses
medium to low-end technology.
 Entry barrier is low on account of the comparatively lower requirement of
capital and technology.
 This segment is characterized by the dominance of small and unorganized
players which manufacture low-value added products.
 However, there are few medium and large scale firms which manufacture high-
value added products.
 This segment is also characterized by small capacities and high level of
competition among the players.
 The major end-user industries for heavy engineering goods are power,
infrastructure, steel, cement, petrochemicals, oil & gas, refineries,
fertilizers, mining, railways, automobiles, textiles, etc. Light engineering
goods are essentially used as inputs by the heavy engineering industry.
FACTORS HOLDING BACK THE INDIAN STEEL INDUSTRY
Energy supply
 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 world’s fourth largest energy consumer by
2012 after the US, China and Japan.

Problems procuring raw material inputs

 Since domestic raw material sources are insufficient to supply the Indian steel
industry, a considerable amount of raw materials has to be imported.
 For example, iron ore deposits are finite and there are problems in mining
sufficient amounts of it. India’s hard coal deposits are of low quality. For this
reason hard coal imports have increased in the last five years by a total of 40%
to nearly 30 million tons
 Almost half of this is coking coal (the remainder is power station coal). India is
the world’s fifth biggest coal importer. The rising output of electric steel is also
leading to a sharp increase in demand for steel scrap.
 Some 4.5 million tons of scrap have already been imported in 2008, compared
with just 1 million tons in 2000.In the coming years imports are likely to
continue to increase thanks to capacity increases.
Inefficient transport system
 In India, insufficient freight capacity and a transport infrastructure that has long
been inadequate are becoming increasingly serious impediments to economic
development.
 Although the country has one of the world’s biggest transport networks – the
rail network is twice as extensive as China’s – its poor quality hinders the
efficient supply of goods.
The story is roughly the same for port facilities and airports.

CHALLENGES AND OPPORTUNITIES

Challenges
 Compared to the global average per capita consumption of 150 kgs. India’s per
capita consumption of steel is still a mere 39 kgs. Per head.
 Even by Asian standards India has along way to go in the consumption of steel.
Technologically.
 The main hurdles before Indian steel industry are the cost of power and non
availability of metallurgical coke.
1. Endemic Deficiencies
 These are inherent in the quality and availability of some of the essential raw
material available in India,
 eg, high ash content of indigenous coking coal adversely affecting the
productive efficiency of iron-making and is generally imported.
 Advantage of high Fecontent of indigenous ore is often neutralized by high
basic city index. Besides, certain key ingredients of steel making, eg, nickel,
Ferro-molybdenum are also unavailable indigenously.
1. Systemic Deficiencies
However, most of the weaknesses of the Indian steel industry can be classified as
systemic deficiencies. Some of these are described here.
a. High Cost of Capital:
Steel is a capital intensive industry; steel companies in India are charged an
interest rate of around 14% on capital as compared to 2.4% in Japan and 6.4% in
USA.
b. Low Labour Productivity
In India the advantages of cheap labor gets offset by low labor
productivity; eg, at comparable capacities labor productivity of SAIL and TISCO
is 75 t/man year and 100t/man year, for POSCO, Korea and NIPPON, Japan
the values are 1345 t/man year and980 t/man year.

c. High Cost of Basic Inputs and Services

 High administered price of essential inputs like electricity puts Indian steel
industry at a disadvantage
 About 45% of the input costs can be attributed to the administered costs of coal,
fuel and electricity,
 eg, cost of electricity is 3 cents in the USA as compared to 10 Corporate
Catalyst India A report on Indian Iron and Steel Industry cents in India;
and freight cost from Jamshedpur to Mumbai is $50/tone compared to only
$34 from Rotterdam to Mumbai. Added to this are poor quality and ever
• Poor quality of basic infrastructure like road, port etc
• Lack of expenditure in research and development.
• Delay in up gradation in technology by existing units.
• Low quality of steel and steel products.
• Lack of facilities to produce various shapes and qualities of finished steel on-
demand such as steel for automobile sector, parallel flange light weight beams,
coated sheets etc.
 Limited access of domestic producers to good quality iron ores which are
normally earmarked for exports, and
 High level taxation.
Besides these Indian steel makers also lacked in international competitiveness on
determinants like product quality, product design, on-time delivery, post sales
service, distribution network, managerial initiatives, research and
development, information technology and labor productivity etc.

Opportunities
 The biggest opportunity before Indian steel sector is that there is enormous
scope for increasing consumption of steel in almost all sectors in India.
 India has rich mineral resources. It has abundance of iron ore, coal and many
other raw materials required for iron and steel making. It has the fourth largest
iron ore reserves
 It has the largest pool of technical manpower, capable of understanding
and assimilating new technologies. Considering quality of
workforce,commensurate with skill. This gets reflected in the lower
production cost of steel in India compared to many advanced countries
 a. Unexplored Rural Market
 The Indian rural sector remains fairly unexposed to their multi-faceted use of
steel. The rural market was identified as a potential area of significant steel
consumption way back in the year 1976 itself. However, forceful steps were not
taken to penetrate this segment.
 The usage of steel in cost effective manner is possible in the area of housing,
fencing, 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.
b. Other Sectors
 Excellent potential exist for enhancing steel consumption in other sectors such
as automobiles, packaging, engineering industries, irrigation and water
supply in India.
c. Export Market Penetration
It is estimated that world steel consumption will double in next 20 years. Quality
Improvement of Indian steel combined with its low cost advantages will definitely
help in substantial gain in export market.

Role of Iron and Steel Industry in India GDP-Facts

 The Iron and Steel Industry in India is one of the fastest growing sectors
 The demand drivers for the Indian Iron and Steel industry are increase in the
activities of the automobiles industry, real estates industry,
transportation system, aircraft industry, ship building industry, etc.
 India ranks 5th in the world in terms of production of steel
 The production of finished steel was increased by 16.52%
 It is expected that India would become the second biggest producer of steel
within the year 2016 and the production per year would be 137 million tonnes

Role of Iron and Steel Industry in India GDP-Consumption

 The domestic consumption of steel has grown by12.5% in the past three
years
 The average growth rate of the Indian Iron and Steel Industry is 11.36%
 The construction projects all over India are major consumer of steel
 The per capita consumption of steel in India is 35kgs
 As the per capita consumption of steel is lower than other countries, so the
steel industry has huge opportunities in the future

Role of Iron and Steel Industry in India GDP-Growth in

Future

 Acerinox SA, one of the important stainless steel manufacturers in collaboration

with Nisshin Steel, Japan is setting up a steel plant in India
 The Tata Steel ranks 7th in the world steel production and the company have
plans of expanding its capacity by the year 2015
 SAIL, India's biggest producer of steel has plans of increasing the production to
24.98 million tonnes annually
 The acquisition of the Corus, the Anglo-Dutch steel manufacturer by the Tata
Steel
 The Algoma Steel, Canada was acquired by Essar Global for US$ 1.63 billion
SWOT ANALYSIS

 Strengths
 1. Availability of iron ore and coal
 2. Low labour wage rates
 3. Abundance of quality manpower
 4. Mature production base
 Weaknesses
 1. Unscientific mining
 2. Low productivity
 3. Coking coal import dependence
 4. Low R&D investments
 5. High cost of debt
 6. Inadequate infrastructure
 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
 Summary and Conclusions
 The problems facing workers in the Indian steel industry are many and can be
broken into
 three categories:

Global environment
 The global steel industry has been notoriously cyclical and although internal
demand is likely to remain high in India for the foreseeable future, overcapacity
in the global market place remains a real threat in the next decade.
 Overcapacity would bring about increased competition and damage or restrict
any opportunity for the workers to bargain better conditions.
 In addition foreign direct investment is likely to slow down and production
needs be re-evaluated.
 Acquisitions in India currently appear lucrative with large raw material
deposits, lower wages and favorable energy prices but foreign ownerships often
signals a change in local customs and the approach to industrial relations.

National issues
 Although the Indian steel industry is growing and its share of global steel
production is rising, the industry is still being constrained by major deficiencies
in fundamental areas.
 Financing problems mean that although major infrastructure programs are
taking place the amount
 Power shortages are a regular feature at many production facilities and the
Indian government has committed to improving supplies by 2012.
 Deficiencies have prompted many companies with heavy energy demands
to produce their own electricity through generators.
 India is likely to become the world’s fourth largest energy consumer by 2010
and future energy costs will have an impact on foreign direct investment.
 India does not have enough raw materials to supply its own steel industry and a
considerable amount of materials will have to be imported.
 Currently India is the world’s sixth biggest coal importer and vulnerable to
price increases. The rising output of electric steel also means that there is an
increase in demand for steel scrap and as the steel capacity grows so will
demand for raw materials.

International Metalworkers’ Federation Indian Steel Report

 Inefficient transport systems are also a major impediment to economic
development.
 India has a rail network which is twice as extensive as China’s but its poor
quality constrains the efficient supply of goods. Both the ports and road systems
also need major capital expenditures.
 In the coming years US$ 150 billion are to be invested in transport
infrastructure which offers huge potential for the steel industry.
 Extreme poverty in India is still widespread and wealth distribution is fairly
uneven, with the top 10% of income groups earning 33% of the income.
Poverty is extensive in rural areas and
 Despite government measures the caste system is still widespread through out
India.