Group Name:

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UTTARA
SATISH
LOKITA
PRASHAN
T
RAHUL
RINALDO
INDUSTRY OVERVIEW AND PROMINENT PLAYE
THE MAKING OF STEEL
SWOT ANALYSIS
LOCATION OF STEEL INDUSTRY
GOVERNMENT POLICIES
FDI
MERGERS AND ACQUISITIONS
COMPETITION/EFFECTS
 Production wise India accounts
4.7% of the total steel production.

 India is the 5th largest producer

globally.

 Installation Capacity of 66.8 mmt

 Contribution of Steel Industry is

near to 2% of the GDP
Industry Structure:
Industry Structure:

Integrated producers
 Those that convert iron ore into steel. There are three major integrated steel
players in India, namely Steel Authority of India Limited (SAIL), Tata Iron and
Steel Company Limited (TISCO) and Rashtriya Ispat Nigam Limited (RINL).

Secondary producers
 These are the mini steel plants (MSPs), which make steel by melting
scrap or sponge iron or a mixture of the two. Essar Steel, Ispat Industries
and Lloyds steel are the largest producers of steel through the secondary
route.
Company Sales (08-09) US$ billion (INR billion) Product
Tata Steel Ltd 31.01 (1488) Finished Steel

SAIL 11.11(533) Finished Steel

JSW Steel 3,72(179) Hot Rolled Coil;Strips,Sheets

Jindal Steel & Power 2.47(119) Iron & Steel

Ispat Industries 1.98(95) Hot Rolled Coil;Strips,Sheets

Welspun Gujarat 1.38(66) Tubes & Pipes

J S L Ltd 1.134(54) Flat Products

Bhushan Steel 1.11(53) Cold rolled coils,strips,sheets

Uttam Galva Steels Ltd 0.94(45) Flat Products

KEC International 0.73(35) Heavy Structurals

 People have been using steel since centuries and today it is used in
just about every aspect of our lives.
 Over the years, steel making process has evolved drastically from
the early techniques to automated, large-scale processes today.
 Steel plays a key role in the industrial development and the
economic growth of a country.
 Therefore, the selection of very efficient and effective
metallurgical processes at the time of installation and their
continuous upgradation through research and development is
very vital.
 The ores used in making iron and steel are iron oxides,
which are compounds of oxygen.
 The major iron oxide ores are hematite, limonite,
taconite, magnetite (highest iron content).
 Coke, which is the residue left after heating coal in the
absence of air, generally containing up to 90% carbon.
 Limestone or burnt lime, which is added to the blast
furnace to remove impurities.
 The coals are crushed, screened, and blended. The
coals are fed to coke ovens to make coke suitable for
use in the blast furnaces.
 The coke from coke ovens, Iron ore after
beneficiation and Lime Stone as a flux along with hot
blast of air are main raw materials which are used to
make molten pig iron in the blast furnaces.
 The liquid steel is cast into ingots and fed to soaking
pits for primary rolling into blooms, slabs and billets.
 The electric arc furnace is used to reduce iron from iron ore. Heat is generated from an
electric arc between electrodes. Oxygen is blown into the furnace, and lime and other
materials are added to combine with the impurities and form slag. Molten iron is
extracted and poured out via a tapping spout. It is then processed again in an electric arc
furnace to make steel – particularly special quality steel.
 The process for making steel
is called the basic oxygen
steel-making process
or BOS process. Oxygen gas
is blown through the oxygen
lance at high pressure, this
reacts with impurities such
as carbon and sulphur and 
oxidises them. These leave
as gas (carbon dioxide and
sulphur dioxide) and pure
iron remains. Calculated
amounts of carbon or other
metals are added to make a
range of different alloys.
 Availability of labour at low wage
rates

 Third largest pool of technical

manpower

Low unit labor cost

 Huge Resources Of Raw material

 Abundance of iron ore & coal

Fourth largest iron ore reserves

Increase Demand

Environment laws
High cost of capital

Lack of infrastructure

Slow decision making

Research & Development

Inefficient transport system

 High potential to be tapped

 Unexplored rural market

 Export market penetration

 Consolidation
 Cheap Imports

 Slow Industry Growth

 Technological change

 Huge bottlenecks in foreign

invested projects
 Raw Material
 Market
 Transportation
 Labour
 Government Policy
 Technology
 Iron and Steel industry is a Weight Losing Industry .All the raw materials of
this industry – Coking Coal, Iron Ore, Limestone, Dolomite, mainly are heavy
and bulky.
 Location is governed by proximity to raw materials particularly coking coal
and Iron ore.
 Localization either near coal and Iron ore or in between.
 VISW is an exception, located far from main coal producing areas. Earlier it
used locally available charcoal and now using HEP from Sharavati Power
Project.
 Finished steel products are quite bulky, and transport cost per tone km of
steel product is about 3 times more than that of coal and iron ore. Therefore
market plays an important role in localization.
 Agglomeration of market forces brings economics in the cost of production,
thus making market favorable location.
 One of the major consumers of steel industry is Automobile industry which in
itself prefers a market location. These industries have also raised the
importance of market for iron and steel industry. Further their waste in the form
of scrap provides additional raw material for iron & steel industry.
 Both raw materials & finished products are bulky and
require big transportation facilities.
 Optimum transportation cost of carrying raw materials
from source and finished products to market play
important role.
 However, setting up of large integrated steel plants
boosted the growth of infrastructure, especially road and
rail links in these regions.
 Increasing popularity of Open Hearth Process. It
uses scrap as raw material (1/2 of world’s raw
material). It is easier to transport in raw form.
Therefore, changed location of industry from
traditional raw material site to market.
 Port locations provide easy and cheap means of
transportation. These are also highly helpful in
the import of raw materials and export of
finished products.
 The Vizag Plant is a glaring example of this kind
of location.
 Trickle down hypothesis for balanced regional development guided
tremendously the location of I&S industry in the backward regions.
 Policy of developing Growth Centers & Growth Poles with I&S industry
as their core also influenced its location in India.
 Political lobbying at times influences greatly its location.
 VISW Plant was set up to fulfill Defense requirements.

LABOR
 Cheap and abundant labor is required for this industry. Therefore
Chottanagpur, West Bengal and the nearby regions were favorable
locations.
 Government Policies
Licensing requirement for capacity creation has been abolished, under
Industries Act,1951.

Steel industry has been removed from the list of industries reserved for
the public sector.

With effect from 24th May 1992,Automatic approval granted for foreign
equity investment.

Price and distribution controls were removed from January 1992.

Restrictions on external trade, both in import and export, have been

removed.

Import tariff reduced from 105% in 1992/93, to 30% in 1996-97,and

then to 20% .
 Imports of seconds and defectives of steel are allowed only through
three designated ports of Mumbai, Calcutta and Chennai.

 Mandatory pre inspection certificate by a reputed international agency

for every import .

 Iron and steel became freely importable and exportable products.

 Continued…

India’s exports during April-December 2008 were 64.4 MT. The

government has reduced export duty on iron ore lumps from 15
per cent to 5 per cent, which has given a further fillip to exports.

Out of India’s annual iron ore production of more than 200 MT,
about 50 per cent is exported.

Earlier, according to a study, with the rise in demand for steel in

China, India’s iron ore exports went up by 38 per cent to reach
13.6 MT in December 2008 against 9.8 MT in December 2007.
Around 50-60 per cent of India’s iron ore is exported to China.
 Plan outlay for 11th Five-Year Plan (2007-
12)
For the 11th Five Year Plan (2007-12), the Planning Commission has
approved total outlay of Rs. 45607.08 crore (i.e. Internal and Extra
Budgetary Resources [I&EBR] of Rs. 45390.08 crore and Gross
Budgetary Support [GBS] of Rs. 217 crore).

“Scheme for promotion of Research and Development in Iron & Steel

sector”.

The Working Group on Steel Industry set up by the Planning

Commission for the 11th Five-Year Plan (2007-12) has projected a total
demand of 70.34 million tonnes for finished steel and a total production
of 80.23 million tonnes of crude steel by the end of the 11th Plan, that is,
2011-12. Both the 11th Plan projections and the NSP targets are likely to
be considerably surpassed.
 Continued…

 The 11th Plan would be crucial for realizing the objectives

pronounced in the National Steel Policy 2005 of building a
modern and efficient domestic steel industry of global standards
with a capacity to cater to diversified product demands.

The Working Group on Steel Industry has made

recommendations consistent with the targets/objectives of the
National Steel Policy, 2005

The rejuvenated steel market in the country has already

witnessed the announcements of mega expansion plans of leading
domestic producers in the form of Greenfield and/or Brownfield
projects in different parts of the country.
The decision of Posco, South Korea, to set up their 12 million
tonnes integrated steel plant in Orissa has given the Indian steel
industry a feel of what ‘globalization’ is all about. This was soon
followed by Mittal Group’s announcement of plans to set up their
12 million tonnes integrated steel unit in Orissa.

However, the domestic Indian steel producers did not lag behind.
Indian conglomerate TATA Steel’s $12 billion takeover of Anglo-
Dutch giant Corus Group Plc, transformed TATA Steel Ltd. into
the world’s 5th largest steel producer, which may well be regarded
as a benchmark even in the history of the Indian steel industry.
 Other Major policies from Union budget 2011

 Hike in Export duty on Steel by 20 per cent.

 Government abolished import duty on steel scrap from
2.5 percent earlier
 Definition of Foreign direct Investment(FDI).

 Purpose of FDI.

 Factor responsible for FDI taking place in India.

 FDI plays an important role in Global business.

 It can be define as investments made to acquire lasting

interest in enterprises operating outside of the economy
of the investor.

 The investment must afford the parent enterprise control

over its foreign affiliate in order to qualify as FDI
 Foreign Direct Investment in steel sector is
picking up in India.

 Factors attracting Foreign Direct Investment.

 According to the Investment Commission of

India, investments of over US$ 30 billion in steel
are in the pipeline over the next 5 years
 Companies involve in Foreign investment in
India are:
 Posco steel

 Arcelor Mittal steel.

 Apart from foreign companies ,many Indian
company are planning to invest in India.
 SAIL Steel.

 TATA Steel

 Varun Steel
4500

4000

3500

3000

2500

FDI (in Rs.)

2000
FDI (in US$)

1500

1000

500

0
2006-07 2007-08 2008-09 2009-10 (Apr-Dec)

1 2 3 4
Objective of M&A in the Steel Industry:
•Consolidation among top steel companies since industry players
engaged in an unfettered rush for scale.

•To purchase additional production capacity to improve the cost

structure and increase market clout.

•To increase commercial production capacity within the stipulated

time period with minimum investment.
Consolidation among industry players would be driven by
strategic fits between companies, rather than financially centered
deals.

Strategic fit for merger:

Attractive access to raw materials
Production capabilities
Proven success in complementary markets
New technologies or patented products
Successful global supply network.
 Jindal Vijayanagar Steel (JVSL) acquired Euro
Coke and Energy Pvt Ltd, Euro Ikon Iron & Steel
Pvt Ltd and JSW Power Ltd (JPL) April 1, 2005.
 Jindal Stainless acquired a cold rolling unit in
Indonesia in 2004 with a capacity of 50,000 tonne
per annum (TPA)
 Tata Steel which bought out Rawmet Ferrous
Industries, an unlisted Kolkata-based Ferro alloys
player
Tata Steel acquired the Anglo Dutch steel producer
Corus Group Plc for US$ 12.11 billion (€ 8.5 billion) On
January 31, 2007
Nine rounds of bidding against the Brazil based
Companhia Siderurgica Nacional (CSN)
Fifth largest steel producer in the world after the
acquisition.
Deal links low-cost Indian production and raw materials
and growth markets to high-margin markets and high
technology in the West.
Corus' expertise:
Grades of steel used in automobiles and in aerospace to boost Tata
Steel's supplies to the Indian automobile market.
Better technology from Corus can work in the Asian markets
Significant presence in value-added steel segment
Strong distribution network in Europe.

Tata Steel's expertise:

Low cost manufacturing of steel
Supply semi-finished steel to Corus for finishing at its plants,
which were located closer to the high-value markets
Arcelor Mittal is a global steel company headquartered in
Luxembourg
On 25 June 2006, Arcelor SA accepted India-born L N Mittal
group's takeover bid with improved quoting by 10% to 25.9 billion
Euros ($32.4 billion)
Severstal Russian steel giant which was perceived to be as a last
ditch effort to thwart Mittal's bid
Positioned Mittal Steel as the largest steel producer in the world
Contributes 10 per cent of total steel production worldwide with
annual production capacity of more than 110 million tons per
annum
Output is nearly four times as much as that of the next biggest
player(Nippon Steel) and eight times as much as SAIL’s
Benefits of the Merger
No Geographical overlap nor do they compete with each other.

Prior to the deal Mittal didn‘t have a presence in Europe, where

Arcelor was essentially
concentrated.

Merger created the worldwide leader in the steel industry,

increasing its bargaining power with suppliers and consumers.

Arcelor Employing 310,000 employees in over 60 countries

Largest steel manufacturer in terms of turnover
ANALYSIS OF COMPETITION
 ANALYSIS OF COMPETITION

 Difference between domestic ex-plant prices and low or average

export realization is positive
 Export at a relatively lower price to create an artificial shortage in the
domestic market, so that they can adjust their prices to the landed costs
of imports or higher???
 Tradable product one cannot question why did the producers choose to
sell in the international market and not in the domestic market
 Many products are developed and produced only for exports.
 The same action may cause artificial shortages or mere perception of
shortages in the domestic market leading to price increases. In that case
exports are used as a gaming device and as a threat to domestic buyers.
 We do see this as an issue of competition
 Lack of consistent price data prevents to conclusively demonstrate this
 ANALYSIS OF COMPETITION

Intra-Industry issues

HRC users are medium size firms but together they make a big clout
in the political and administrative system forcing the government to
intervene frequently and decisively in their favour whenever the
pricing scenario turns against them

On the other hand: undue protection provided to the HRC

manufacturers by high import duty, non-tariff import barriers like
floor prices etc.
 ANALYSIS OF COMPETITION

Government intervention

Differential competitive positioning due to historical market

distorting policies
Restricted entry, then only in mini steel plants
Actions are generally response to popular sentiments and public
outcry than genuine intentions to correct market failure
Affects adversely the large players’ incentive to invest
Price and distribution control for steel produced in the integrated
sector did not allow for sufficient growth
Policies related to ownership and leasing of mines and other
interventions do significantly influence the technology choice
 ANALYSIS OF COMPETITION

Price/cost that has no relevance to the value of the asset, especially

when other producers who are dependent on the same raw material
are outside of this favour

Prospective investment incentivised with the promise of a captive

mining lease by the state government

Significant resources getting locked up under the lease holding of a

few companies which in turn in creating a shortage of capacity and
subsequent rise in the prices of iron ore in the open market
 ANALYSIS OF COMPETITION

Policy induced distortions Subsidies to State Small Industries

Corporations (SSICs)

High Import duties

Floor prices imposed on prime steel products
Existence of non-tariff barriers
Imposition of anti-dumping duty
Prohibitive duty on seconds and defectives
Export Tax
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