Assignment 1.

Name : Niranjan More Roll No : 127

Michael Porters Five Forces Model Steel industry Introduction India occupies a central position on the global steel map, with the establishment of new state-of-the-art steel mills, acquisition of global scale capacities by players, continuous modernisation and upgradation of older plants, 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 tonnes by 2015. Given the strong demand scenario, most global steel players are into a massive capacity expansion mode, either through brownfield or greenfield route. By 2012, the steel production capacity in India is expected to touch 124 million tonnes and 275 million tonnes by 2020. While greenfield projects are slated to add 28.7 million tonnes, brownfield expansions are estimated to add 40.5 million tonnes to the existing capacity of 55 million . Porters Five force analysis. 1. Entry Barrier:- High a) Capital Requirement: Steel industry is a capital intensive business. It is estimated that to set up 1 mtpa capacity of integrated steel plant, it requires between Rs 25 bn to Rs 30 bn depending upon the location of the plant and technology used.

b) Economies of scale: As far as the sector forces go,scale of operation does matter. Benefits of economies of scale are derived in the form of lower costs, R& D expenses and better bargaining power while sourcing raw materials. It may be noted that those steel companies, which are integrated, have their own mines for key raw materials such as iron ore and coal and this protects them for the potential threat for new entrants to a significant extent. c) Government Policy: The government has a favorable policy for steel manufacturers. However, there are certain discrepancies involved in allocation of iron ore mines and land acquisitions. Furthermore the regulatory clearances and other issues are some of the major problems for the new entrants.

2. Competition:- High The steel industry is truly global in terms of through aggressive exports. Steel, being a commodity it is, branding is not differentiation between competing products. Presence of a large number of players in the unorganized sector. High Competition due cost differentiation from companies like Adhunik , MUSCO, Kalyani Steels, JSW , Viraj It is medium in the domestic steel industry as cheaper products does exist. demand still exceeds the supply. India is a net importer of steel. However, a threat from dumping of common and there is little competition with large producing countries like China significantly influencing global prices

3. Bargaining power of suppliers: High The bargaining power of suppliers is low for the fully integrated steel plants as they have their own mines of key raw material like iron ore, coal for example Tata Steel. However, those who are non-integrated or semi integrated has to depend on suppliers. An example could be SAIL, which imports coking coal. Globally, the Top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly two-thirds of the processed iron ore to steel mills and command very high bargaining power. In India too, NMDC is a major supplier to standalone and nonintegrated steel mills. 4. Threat of substitutes: Low Plastics and composites pose a threat to Indian steel in one of its biggest markets automotive manufacture. For the automobile industry, the other material at present with the potential to upstage steel is aluminium. However, at present the high cost of electricity for extraction and purification of aluminium in India weighs against viable use of aluminium for the automobile industry. Steel has already been replaced in some large volume applications: railway sleepers (RCC sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks). The substitution is more prevalent in the manufacture of automobiles and consumer durables

5. Bargaining power of Customers: Mixed Some of the major steel consumption sectors like automobiles, oil & gas, shipping, consumer durables and power generation enjoy high bargaining power and get favorable deals. However, small and retail consumers who are scattered and consume a significant part do not enjoy these benefits.

Conclusion Industry unattractive because of high compitition and high entry barriers.