India is the 8th largest producer of steel in the world, but per capita consumption is one of the lowest.

It accounts for 6% of the world steel production of 1020mt. In FY05, India produced 43mt (million tones) of crude steel and 35mt of finished steel. The demand for steel in India is derived from other sectors of the economy like automobiles, consumer durables and infrastructure. The Vision 2020 brought out by the Ministry of Steel last year aims at increasing steel, demand by 200% in the country by the year 2020. This implies a CAGR of more than 5.5%. Provides direct/indirect employment to over 2 million people and has an employed capital of over Rs 90,000 crores.

INTEGRATED PRODUCERS:
Integrated Producers are 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: Secondary Producers 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.

FINISHED STEEL (MN.Tn)

3.4 4 12

5 SAIL TATA STEEL JINDAL STEEL ESSAR STEEL

PERFORMANCE OF THE STEEL INDUSTRY

TRADITIONAL STEEL CONSUMING SECTOR

Infrastructure and construction
Construction activities of all housing, buildings, factories, roads and bridges power projects and transmission systems, railways and defense projects

Transportation Consumer item & capital goods

Passenger cars, trucks, buses and other automotive Consumer durables (refrigerators, washing machines, electric irons, steel furniture, LPG cylinders and kitchen wares) Capital goods (machinery,equipments,farm tools and storage sheds)

Others

Containers, packaging for food preservation and pipelines

Production
50 45 40 35 30 25 20 Crude Steel Finished Steel

Mn.Tonn

15 10 5 0 OO-O1 O1-O2 O2-O3 O3-O4 O4-O5

Year

The Story So Far

The Indian steel industry has been on a recovery path for the past three years, after being burdened with low steel prices and rising interest rates previously. However, the cycle has turned in the wake of an upsurge in global and domestic demand as well as a sharp fall in interest rates. Also, the steel companies who were caught in a debt trap took advantage of the lower interest rates to restructure their debt, which put their finances back on track.

 And with the steel cycle turning again, thanks mainly to the surging Chinese demand and rising prices, Indian steel companies are now confident enough to think big again, gearing up to meet the expected quantum jump in both global and domestic demand. Global firms are also looking at consolidation, which has resulted in the formation of large companies such as Arcelor, JFE and Nippon Steel, apart from Mittal Steel, which became the largest steel maker in the world through a series of global acquisitions.

Perceptions Vs Ground Realities

Increase in steel prices is an end result of rising input costs

Increase in input costs
Input (US$/T) Price in Dec 2002 Price in Sept 2003 Price in Mar 2004 Difference over 2002 % increase over 2002 317%

Coke Melting Scrap Pig Iron

120.00

200.00

500 300

380

110.00

220.00

190

173%

110.00

220.00

350

240

218%

Iron Ore

28.00

48.50

110

82

293%

Freight

9.00

28.00

40

31

344%

Contrary to popular belief steel does Not account for a significant proportion Of costs of end products
Share of steel in total cost of production of user industries

Product

Input steel (kgs)

Value of steel as % of cost of a product 16 15 7 7 3 N.A.

Value of steel as % Market price of a product (Rs) 7 4 4 5 3 16

Small Car SUV Scooter Refrigerator Washing Mach. Almirah

850 1075 45 15 9 50

New Steel Plant Projects in India.

Orissa attracts green field steel projects.
BHP Billiton Australia in collaboration with Posco of South Korea will set up a 10 Mtpy plant at Duburi at an investment of Rs. 39,000 crore. Which will include the cost of power plants also. Sunflag Iron & Steel Co will set up a 1 Mtpy plant at Sambalpur district at an investment of Rs. 937 crore. Bhushan Steel and Strips Ltd has planned to install a 1.2 Mtpy capacity hot strip plant at Lapanga in Jharsguda district at a cost of Rs. 1,650 crore in the first phase. A further investment of Rs. 1,850 in the second phase will take the capacity to 2.8 Mtpy by 2006-07.

 The Ruchi group's greenfield project is coming up with an investment of over Rs 580 crore

Expansion Boom
RINL plans for a Rs 8250-crore investment to hike its capacity by over 50 per cent to 6.5 million tonnes is reported to be awaiting approval from the union steel ministry,
India's big steel players had already declared their plans long ago. Steel Authority of India is set to augment its production to 20 mt by 2010-11 at a cost of Rs 25,000 crore (Rs 250 billion). Tata Steel is planning an outlay of Rs 23,000 crore (Rs 230 billion) to increase its capacity to 10 mt from the current 4 mt.

Mergers and Acquisitions

Ispat group's acquisition of iron mines in Nigeria. Essar group's plans to pay $500 million to buy out its UK-based partner Stemcor's 51 per cent stake in a pellet plant that feeds one of Essar's steel plants. Mittal Steel has made another step to consolidate its position as the world's largest steel company with the purchase of Ukraine's largest steel plant, Krivorozhstal. The purchase of a 93.02% stake

In recent budget Government increase the custom duty on steel by 5% to 7%. It will help to domestic players but it will increase the price of finished product. Merging small companies into big companies. According to government estimates, domestic consumption of steel will go up to 60 mt by 2010 from the current 35 mt, and to 100 mt by 2020. Removing it from the list of industries reserved for public sector. The steel industry has already invested a capital of over Rs.90,000 crores and would require Rs.75,000 crores additional investment to increase the production capacity.

Exempting steel industry from compulsory licensing. Imports of foreign technology as well as foreign direct investment are freely permitted up to certain limits under an automatic route. The liberalization of industrial policy and other initiatives taken by the Government have given a definite impetus for entry, participation and growth of the private sector in the steel industry.

Recommendations
Develop raw material resources to ensure adequate supply of good quality raw materials Ensure optimal exploitation of iron ore mines Improve infrastructure support to the industry Make available cheaper capital to fund capacity additions Let market forces determine the price of steel

Recommendations
Maintain the current import duty at 15%

Maintain current excise duty on steel to make it affordable to end users Discourage the imports of defectives which is affecting the quality of the domestic steel industry