Iron and Steel Industry Steel is often called the backbone of modern industry.

Almost everything we use is either made of iron or steel or has been made with tools and machinery of these metals. Ships, trains, trucks, and autos are made largely of steel. Even the safety pins and the needles you use are made from steel.

Inflation hitting steel sector Rising inflation and inclusive growth are among the factors affecting growth of the domestic steel industry. Rising inflation, income disparity and inclusive growth are the areas of concern for the steel industry. Concern over the lack of investment in agriculture and burgeoning fiscal reforms that were needed to channelise savings into investment. there was a need to have improved availability of iron ore, ferro alloys and energy to boost the Indian steel industry.

1. Introduction The iron and steel industry presents one of the most energy intensive sectors within the Indian economy and is therefore of particular interest in the context of both local and global environmental discussions. 2.3 Iron and Steel Production in India Although iron and steel is one of the most important industries in the Indian manufacturing sector, As a result, mini steel plants have been challenged by economical problems over the past years. Many plants had to close down or reduce production leading to substantial idle capacity. The economic problems were mainly due to increased power tariffs in connection with high uncertainty about steady power supply, increases in cost and quality of essential inputs, particularly scrap, not only within India but also on the world market, and uneconomic sizes of furnaces. With increasing competition in the steel sector both nationally and internationally the small steel plants, i.e. the EAF industry, are forced to go for modernization and expansion. EAF industries have started using upgraded technology, increasing the use of sponge iron through continuous feeding, scrap preheating and other modern and more efficient features. Furthermore, the

secondary steel industry has more and more turned towards the combined use of mini blast furnaces (to supply hot metal) and electric arc furnaces. This combination basically presents a new approach to integrating steel production. However, although both process routes, direct reduction/mini blast furnace and electric arc furnace, present a cheaper and more easily available alternative they require substantially more energy input than scrap use or the blast furnace/basic oxygen route. Capacity underutilization as in other industrial sectors presents a major drawback in the Indian iron and steel sector. The capacity utilization in mini steel plants is usually very low (around 56%) resulting largely from an inadequate supply of scrap and power. Capacity underutilization resulted in high costs of production and losses. According to Datt and Sundharam (1998) it was due to inadequate supply of coal and power, transport bottlenecks and other infrastructural constraints, lack of proper maintenance, poor management (e.g. caused by frequent changes in the top management of public sector plants), extensive labor troubles and in more recent years due to lack of demand by engineering industries like railway wagons etc. Factors explaining the nature, spatial pattern and future directions of the steel industry Economic factors Steel demand strongly reflects major economic forces and political upheavals. Steel production increases when economies are growing, i.e. more goods are being made and governments are investing in infrastructure and transport. Economic recession means a dip in steel production as investment falls. Major historical events also affect steel production. The two world wars for example represented a peak in production. This was then immediately followed by a dip then a strong climb in production as economies recovered from the war and entered a period of prosperity and growth.

Steel is a strategic industry. Consider the products made from steel, e.g. pipes, railways, tins, concrete reinforcing, wire, screws and nails and the consumer goods, e.g. cars, electrical appliances where steel is an essential input. Every country wants its own steel industry to help give it economic independence and no country wants to rely on others for its steel supply. Since steel is such an important product, many countries protect their local steel industry but on a global scale, this has led to excess productive capacity, lower prices and poor profitability. Add to this new electric arc furnace technology which delivers a high quality product at a lower price and the overall result for the global steel industry is rationalisation and structural change. Companies with older technology are either uncompetitive and have to be closed or their productivity has to be increased by investing in new facilities. Both scenarios invariably lead to job losses. For example, between 1990 and 1996, annual capital investment by BHP across its steel making operations ranged from US$563 million to US$667 million per annum while over the same period, employment by BHP continued to fall from 30 000 workers in 1990 to 21 000 by 1996. Employment factors The steel industry is a major employer and the scale of operations means that steel firms are often a dominant influence in the community where they are located. One of the most significant trends in the steel industry has been the global decline in employment over the last 30 years. Steel requires a highly skilled workforce and companies generally place considerable emphasis on human resource management. Market factors While the global market for steel is extremely large, a number of factors influence the potential market and degree of competition an individual steel maker will face:

transport costs: steel is a heavy product and expensive long distance transport makes it considerably more difficult for export steel to compete with the product made locally.

type and quality of steel: different customers require steel with different specifications and steel producers tend to specialise, thereby reducing competition but also limiting the size of their potential market.

competition from alternatives: alternative products, e.g. aluminium, glass, concrete have taken some of the traditional steel market but on the other hand the steel industry is constantly seeking new applications for their product.

international developments: changes in a large steel producing country can have a significant impact on international competition. For example, Chinas net steel imports fell from 35 million tonnes in 1993 to a mere 3 million tonnes two years later due to a major increase in local production.

Environmental factors Being a heavy industry, steel making has a major impact on the environment. The manufacturing process creates significant air, water and noise pollution while mining raw materials and the high-energy demands of steel making also contribute greatly to pollution of the environment. Globally, the steel industry is acutely aware of the need to improve its environmental record and much is being done to address the issue. There is also no doubt that increased political pressure and associated legislative sanctions are playing a part. major contributions include:

steel has become a major input in the construction of various environmental protection systems, e.g. industrial pollution filters; solar and wind power

steel recycling means that over 40% of all steel produced comes from scrap steel steel uses less energy per ton to produce than many similar competitive materials.

Technological factors Like most manufacturing this century, technological development is a key feature of the steel industry. It has become extremely difficult for older steel making plants to be competitive

with newer plants built since WWII (mainly in SE Asia, e.g. Japan, Korea). Remaining competitive means older firms have to continually invest in multi-million dollar capital improvement programs or increasingly rely on government protection to survive. Steel is not a complex manufactured product, i.e. involving a large number of components and steps, in comparison to a car or computer. The steel making process itself however is very complex and involves high quality technological solutions because of the:

size and scale of the steel making operation skill required to make different types and grades of steel drive to lower production costs.

New technologies relate to environmental protection (see previous section), production techniques, product quality and the development of new products. Some current examples include: Production techniques: direct reduction iron technology; electric furnace operation; use of artificial intelligence in operations Product quality: consistency in physical properties of steel; variations in strength, hardness, and bending properties New products: new types of steel alloys; building and construction products. Political factors Steel is a heavily protected industry. Governments use a variety of strategies, e.g. tariffs, subsidies, loans and import restrictions to ensure that their steel industry remains competitive domestically. In many cases, this has allowed the local steel industry to continue operations even when better quality, cheaper steel could be imported from another country.

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Among major sectors hit by economic downturn, steel occupies the top position with demand falling by 18%.

The steel sector which derives most of its demand from auto and construction sector is hit

hard. higher.

the rise in the prices of steel during the three months, the fall in demand was much

Sustaining the revival trend

With most of the banks finding that the retail sector is quite creditworthy and has a lower default rate than other sectors, they are taking keener interest in this sector and, thus, lending support to such industries as house-building, automobile and other consumer durables. A revival of these industries, in turn, would help the recovery of such vital industries as cement and steel, besides others.

It would, however, be naive to expect the credit policy, or other monetary policy measures, along to ensure an economic revival unless the Government follows these up with effect and adequate fiscal policy measures. For, in the ultimate analysis, what determines the direction of the economy is the fiscal policy.

While any further cuts in interest rates, for example, will depend upon the extent to which the Government can reduce fiscal deficit, the consumer demand will depend upon not only tax rates but also the number of jobs the economy generates. A fiscal policy that does not put money in the hands of housewives by generating and providing more jobs will not help raise the consumer demand. For, credit can raise the demand for manufactures and other goods and services only if the consumers have the required earning potential and repayment capacity.

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The current reduction in steel prices is likely to impact profit margins of some of the companies, especially those that do not have backward linkages into raw material supplies. However, a stable steel price scenario is indirectly beneficial to steel companies. Volatility in prices does not augur well in terms of demand or marketing of steel products. A stability in

price always proves beneficial for producers and consumers while fluctuations always keep both sections players in dark fearing further uncertain direction which may or may not lead to profitability. One can think of profitability only when there is a stability in price. SAIL has all along been a strong believer in stabilisation of steel prices and has substantially reduced exports to make more steel available in the domestic market. A price reduction by SAIL will have a positive impact in lowering domestic steel prices. The benefit of higher profit margins will be directly passed on to consumers.