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INDUSTRYINTERNS

CYGNUS ANALYSIS

INDIAN STEEL
INDUSTRY

Presented by:
Tehseen Khan
Jitin Sachdeva
AGENDA
1. Industry overview
2. Industry Value Chain & Structure
3. Market Size & Growth
4. Industry Segments
5. Major Players & Competition
6. Technology
7. Regulations
8. Issues & Concerns
9. Growth drivers
10. Outlook
Industry Overview
 Fifth largest producer of crude steel in the world
 Largest producer of sponge iron in the world
 Strong public sector presence
 Showed 7.9 % GDP Growth rate during Q2(July-Sep)2009-10
 Showed 7.6 % growth in Index of Industrial Production (IIP)
during Q1(April-Nov)2009
 Likely to become the second largest producer of crude steel
by 2015-16.
 It is expected to achieve a steel production Capacity of
nearly 124mt by year 2011-12
 Steel sector is expected to generate additional employment
of around 4 million by 2020
Global Scenario
 Steel Demand Shift to developing
countries:
 Japan and South Korea saw significant C ru d e S te e l P ro d u c tio n
decline in their production levels 1 9 ,5 8 9
in M T 2 ,8 8 2
 Japan will be still important as an R&D 2 6 ,5 1 1
1 6 ,2 9 9
foothold for major steel-using industries F Y :2 0 0 9 -1 0
 Expansion of automotive steel sheet joint
venture in Brazil
1 5 8 ,0 1 0
 Expansion of automotive steel sheet joint Ja p a n C h in a In d ia Ir a n U S
venture in China
 Starting a new cold rolling mill joint
venture in Vietnam.
 China is the largest producer with 502 MT
with 2.06% growth
 India may become second largest steel
producer in the world by 2015
 World crude steel production rose to
120.3 MT @ 31% in march 2010
Source:Min. of
Steel
a.Industry Value Chain
Steel making process

Iron Ore Fluxes Coal

Sinter plant Coke plant

Blast Furnace

LD1 LD2

Slab caster Continuous billet caster

Slabs

hot strip mill Cold strip mill Billets Merchant mill Wire mill
b.Organized Vs
Unorganized

 Major Chunk of producers are Or gani z ed V s Unor gai ni z ed


Organized
 Steel Authority of India Limited (SAIL) Un-
or ganized,
 Tata Steel Limited (TSL) 40%
 Rashtriya Ispat Nigam Ltd. (RINL)
 ISPAT Or ganized,
 ESSAR 60%
 Jindal South West Limited (JSW)
 Unorganized segment comprises
 Corex /MBF based units
 Pig Iron units
FY:2008-09
 Electric Arc Furnace units
 Producers of HR sheets/coils
 Cold Rolled sheets/coils,
 GP/GC sheets
 Color Coated Sheets
Market Size & Growth
Production & Grow th trend
 Production has increased by 70000 0.1
only 1.96% in FY:2009-10 as 60000
0.08
compared to 8.50% increase 50000

('000 tonne)
40000 0.06 P roduction

in FY:2008-09 30000 0.04


growth(% )
20000
 The growth was driven by

G%
0.02
10000

capacity expansion from 0


2004- 2005- 2006- 2007- 2008- 2009-
0

47.99(mtpa) in 2004-05 to 05 06 07 08 09 10

72.76(mtpa) in 2009-10 Ye a rs

 Present per capita


consumption is only around
47 kg which shows
prospects to grow

Source-Min. of Steel
EXPORT Vs IMPORTS
 With growth in production for sale
lagging behind consumption E x p o r t/ I m p o r t T r e n d o f F i n i sh e d S te e l
growth, India's imports increased in 8000
2007-08 7000
 Exports have declined to ensure 6000
greater domestic availability 5000

million tonne
4000 Im p o r t
 Imports sharply increased from 3000
1.75 MT in 2003-04 to 5.21 MT in Ex p o r t
2000
Q3 2009 to fill up supply-demand 1000
gap in the domestic market 0
 Steel exports decreased by 36% as 2 0 0 4 -0 25 0 0 5 -0 26 0 0 6 -0 72 0 0 7 -0 28 0 0 8 -0 92 0 0 9 -
it reached 2.099 MT Y e a rs 1 0 :Q 3
 Steel imports at 5.21 MT, showed a
growth of 16.6 % in Q3:2009-10

Source-Min. of Steel
Segments of steel
 PRODUCTS
 Flat iron

 Long iron

 VALUE CHAIN
 Integrated steel

producers
 Secondary steel

producers
 CUSTOMERS
 Construction

 Transport equipment

 others
Finished Steel
segments
Finished steel

Long products Flat products

Bars & rods Plate

CTD/MTD Bars & Rods


Sheet
Wire rods
Strips
Angels ,shapes & Sections

Wide
Rails
Narrow
Wires

Bright bars
Finished Steel Products
Long/Fla t iron production
 Long products are produced by
hot rolling/forging of
30000
25000

Bloom/billets/pencil ingots into

000 Mt tonnes
20000
Flat produc ts
15000
useable shape/sizes 10000
Long produc ts

5000
 Flat iron products are produced 0
2005-062006-072007-082008-09 2009-
from slabs/thin slabs in rolling ye ar s
10-Q3

mills using flat rolls


 Both Long iron & Flat iron production
show a positive trend
 Long iron production in Q3 2009-10
was 21119 (‘000tn) which was more
than Flat iron production at
19382(‘000tn)

Source-Min. of Steel
MAJOR PLAYERS
Sales Figures of Major Players-FY2008-09

 SAIL,TSL & JSW are Key 500

400
Players of the industry. 300
Rs.BN
 SAIL is the Largest player 200

100

with Rs 445.29 bn & TSL is 0


SA Tat JS RI IS Bh Utt Llo Es Mu

2nd largest with Rs 240.24 Sales (Rs. Bn)


IL a W NL PA us am yds sar ka
445 240 161 123 85 50 44 26 19 19

bn Companies

 Market leader as per


installed capacity is SAIL Ke
yPla
yersIn
stalle
d Ca
pacit
y (inm
2
m
0
0
t
s
8
)
-09

with capacity of 15.2 Mt


 Public Sector companies Others
Sail
25%

accounts for 32% of


38%

JSW
14%

industry’s total production ISPA


5
T
%
RINL TataSteel
5% 13%

Source-Min. of Steel
Competition

1. Herfindahl Index
2. Michel Porter Analysis
Herfindahl Index
Value of Herfindahl index for Integrated steel manufactures is
2724.56
Company Net sales (RS Market share (%) Index value
lakhs)

TATA STEEL 63074825.47748 649.102

SAIL 969714 39.16916 1534.223

ISPAT 210470 8.501406 72.27391

JSW 516707 20.87108 435.602

BHUSHAN 1429005.772086 33.31698

BSL LTD. 51690.208789 0.043593

TOTAL 2724.561
2475708

It implies that the competition in the steel industry is


medium to high and with high concentration.
Michel Porter Analysis
Michel Porter Analysis of Indian Steel Industry

 Entry barriers: High


 High Capital requirement as it is capital intensive industry, depending on location of plant.
 Government policy: the regulatory clearances and other issues are some of the major
problems for the new entrants.
 Bargaining power of suppliers: High to Moderate
 As its labor intensive company, labor leads to high bargaining power of supply
 High bargaining power of suppliers.
 Competition: High
 The steel industry having global in terms of competition with large producing countries like
China.
 Branding is not common and there is little differentiation between competing products.
 Bargaining power of Buyers: Mixed
 As major steel consumer like oil & gas ,automobiles, shipping, power generation have high
bargaining power but small and retail consumers don’t.
 Threat of substitutes: Low to Moderate

As steel has no strong substitute , but there are some such as aluminum, plastics.
Technology
 SAIL setting up with Posco for
Crude steel productionbyProcessRoute

Induction
Furnace(IF)
using latest technology named
Finex.
33% BasicOxygen
Furnace(BOF)
47%

 Finex makes steel on iron fines


ElectricArc
Furnace(EAF)
20%

& non-coking Coal.


 Main Technologies : Basic Arc

furnace, Induction furnace and


Production of hot rolle d long product Electric Arc Furnace.
(source : Ste e l.nic.in)  Cost competitiveness & quality

22 improvement initiatives
20
18  Auto operation of blast furnace
16
is to increase in Hot metal
2006-07
in million tonne

14
12 2007-08
10 production
2008-09
8
2009-10
6
4
2
0
Bars Structural S pecial Total Source-Min. of Steel
section Reported
Regulations
 Government proactive incentive plans to boost economic
growth in construction,infrastructure,automobile & power
has helped industry to grow
 Currently 100% FDI allowed
 Advance Licensing Scheme allows duty free import of raw
materials for Exports
 Import duty reduced to 5% presently
 Excise duty cuts to 8 %
 Govt. policy allowed private capital in port development so
that steel producers would be encouraged to develop port
and berth facilities so as to improve steel productivity
 Trade policy has been liberalized
Issue & Concerns
 High cost of electricity in India may hamper the steel
industry’s production level
 Low R&D investment
 Coking coal shortage & import dependence
 Infrastructure constraints related to ports, rail, road
network
 Slow environmental clearance for project site as well
as for iron ore and coal mining activities
 Technical constraints
 Unscientific Mining
Growth Drivers
 Key Growth Drivers: Construction, Automobiles, Infrastructure, oil
and Gas
 Abundance of Iron ore, Cheap labor & Quality man power
 Ministry of Steel has approved 64 R&D projects costing Rs. 422
crore
 Merger and Acquisition has evolved to be one of the major
growth drivers in the industry leading to economic of scale
 The Counter Veiling Duty on the TMT roads and bars reduced
from 14% to Nil
 Demand is expected to rise in future with economic and industrial
growth
 Reduction in custom duty in respect of non-alloy steel production
 Steel companies have their own mines for key raw materials
OUTLOOK
 Steel Co. acquiring stakes in the foreign firms to become global
leaders
 Target to achieve an export ratio of around 25% of total production
 Target of 110mT by 2020
 Increasing Demand in automobile and infrastructure will lead to
growth in steel industry
 Per capita consumption is only 47 kg against the world average of
190,so a great potential ahead.
 Shortage of Cocking coal will be huge challenge
 World steel demand to double in next 25 years, a huge opportunities
for the steel industry
 Upcoming Budget certainly will have great impact on steel industry
future
THANK
YOU