INTRODUCTION Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilisation. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. 2
HISTORYSource: IISI Stages in Global Production of Steel
Global Steel Industry The current global steel industry is in its best position in comparing to last decades. The price has been rising continuously. The demand expectations for steel products are rapidly growing for coming years. The shares of steel industries are also in a high pace. The subprime crisis has lead to the recession in economy of different countries, which may lead to have a negative effect on whole steel industry in coming years. However steel production and consumption will be supported by continuous economic growth. 4
INDIAN STEEL GROWTH Slowly and steadilySteel industry reforms – particularly in 1991 and 1992 – have led to strong and sustainable growth in India’s steelindustry.Since its independence, India has experienced steady growth in the steel industry, thanks in part to the successivegovernments that have supported the industry and pushed for its robust development. 40 36.5 35 Confidence 30 26.2 25 Stagnatio 24.2 n 20 15 Decontrol 14.3 12.02 10 9.36 6.75 5 Controlled 5.05 Regime 3.23 1.1 1.1 1.62 0 1951 1981 2005
BASED ON OWNERSHIPPUBLIC PRIVATE • TATA-CORUS• SAIL • ESSAR• VISAKHAPATNAM STEEL PLANT • ISPAT• FERRO SCRAP NIGAM LIMITED • JSW STEEL LIMITED• BIRD GROUP OF COMPANIES • MUKAND LIMITED• SPONGE IRON INDIA LIMITED• MECON LIMITED• BHARAT REFRACTORIES LIMITED
Steel production in India• Indian steel industry is poised for rapid growth.• India’s share in world production of crude steel increased from 1.5% in 1981 to around 7.3% in 2008.• The private sector is considered engine of growth in the steel industry and technological changes and modernization are taking place in both the public and the private sector integrated steel plants in India.
AVERAGE COST AND ECONOMIES OF SCALEEconomies of scale are the cost advantagesthat a business obtains due to expansion.• the average cost of production of Average cost the firm decreases as the output level increases• the firm would like to be at the C minimum average cost point• the average cost is higher in long C1 run than short run and company makes higher profit producing output Q Q1 higher and higher levels of outputs . The increase in output from Q to Q2 causes a decrease in the average cost of each unit from c to C1.
Contd……..• Suppose in SAIL , the average cost per ton of steel at the minimum average cost point with the larger blast furnace may be 20 percent less than the average cost at the minimum average cost point with smaller blast furnace.• Due to technological constraints the average cost is assumed to start rising at some output level even in the long run—that is, the average cost curve is U-shaped even in the long run.
DEMAND OF STEEL• Driven by a booming economy and concomitant demand levels, demand of steel has grown by 12.5 per cent during the last three years, well above the 6.9 percent envisaged in the National Steel Policy.• Steel demand to grow by 8-10 pc in 2010-11: MoS Steel . steel consumption grew at 7.6 per cent in 2009-10 to 56.32 million tonne as against 2008-09.
ELASTICITY OF DEMAND OF STEEL INELASTIC DEMAND P PRICE OF STEEL P 1 O Q Q1 DEMAND OF STEEL
SUPPLY OF STEEL• India is the world’s fifth largest steel producer and its share is 3% plus in global steel output which is still very low.• China, the world’s biggest steelmaker, produces nearly ten times as much as India.• Over the past ten years India’s crude steel output rose nearly 7%per year to 56.3 million tons , while global crude steel output increased by 4% .• ArcelorMittal plans to build greenfield steel production capacity of 30 million tonne per annum in India. While Orissa and Jharkhand will have 12 million tonne capacity each, Karnataka will have a plant with a capacity of six million tonnes.
DEMAND SUPPLY MISMATCH• India is one of the world’s top ten steelmakers its domestic output is insufficient to meet the demand in all segments.• Consumption of steel is very fast and as a consequence of the prospective dynamic economic growth.• Secondly, there is demand for high-quality products which India will not be able to supply in sufficient quantities for the foreseeable future.
MARKET ANALYSIS Concentration ratio of an industry is an indicator of the relative size of firms in relation to the industry as a whole. The 4 firm concentration ratio of the Iron and Steel Industry is 71%. Both homogenous product or product differentiation are possible There is a price war and price rigidity Price output decisions are very difficult and indeterminate. This implies that there is oligopoly in the industry as it is dominated by few major players
Export & Import of Steel in India Quantity (in million tonnes) 5 4 3 IMPORTS 2 EXPORTS 1 0 2003-04 2004-05 2005-06 2006-07 YEARExports have grown fast and at a rate exceeding 25% per annum between 1991-92 and 2002-03. Thereafter, till 2006-07export levels stagnated at around 4-4.5Million Tonnes per year.On the other hand, imports followed a different growth path. In spite of progressivereduction in customs duty levels after deregulation, imports remained around 1-2Million Tonnes per year till 2003-04 and rose rapidly in the last two fiscals.
SUBSIDIES AND ISSUES OF COMPETITIVENESS• India does not provide direct subsidies for exports, although indirect subsidies on the nature of exemption from tax and import duty are provided.• The Government of India implements the Export Promotion of Capital Goods (EPCG) scheme which provides for a reduction or exemption of customs duties and an exemption from excise taxes on imports of capital goods. The EPCG scheme has been countervailed in the US, Canada, as well as the EU. 16
SUBSIDIES AND ISSUES OF COMPETITIVENESS• The income-tax benefits-related export activities are incorporated in sections 80HHC, 10A and 10B of the Income Tax Act.• The reserve bank of India has accordingly issued directions to commercial Banks to provide export credit both at pre- and post- shipment stages.• India also administers a number of duty drawback schemes that allow for the remission or drawback of import charges levied on inputs that are consumed in the production of an exported product. Schemes such as duty Entitlement pass book Scheme (DEPB) and Duty free Replenishment certificate (DFRC) fall under this category. 17
ECONOMIC PARAMETERS ARE FAVOURABLE PERFORMANCE PARAMETERS Forex ReserveGOOD Overall GDP External Debt Service sector Growth Financial Reforms FUTURE OUTLOOK Savings New Investment inflation FDI Inflows Industrial Growth Economic reforms Internal Debt Fiscal Deficit Agricultural Growth BAD CURRENT PERFORMANCE GOOD 18
SWOT ANALYSISStrengths Weaknesses1. Availability of iron ore and coal 1. Unscientific mining2. Low labour wage rates 2. Coking coal import dependence3. Abundance of quality manpower 3. Low R&D investment4. Mature production base 4. Inadequate infrastructureOpportunities Threats1. Unexplored rural market 1. China becoming net exporter2. Growing domestic demand 2. Protectionism in the West3. Exports 3. Dumping by competitors4. Consolidation 4. Global economic slowdown 20
FACTORS HOLDING BACK THE INDIAN STEEL INDUSTRY Energy supply Problems procuring raw material inputs Inefficient transport system RECENT FINANCIAL CRISIS AND INDIAN STEEL INDUSTRY 21
IN SUMMARY..• Indian steel industry exudes optimism but crisis should get over as soon as possible.• Investment in infrastructure is crucial to step up demand for steel.• Supply may have to be rationalized in line with the demand (Dom + exports).• Integrated Mills would hold the key in future growth of Indian Steel supplies.• New technologies to use indigenous natural resources would have to be developed. 22
Man Power in Modern Steel Plants• In South Korea, Posco employs 10,000 people to produce 28 million tonnes. As a thumb rule, one can put the direct employment potential at 1,000 per million tonnes.• At present the per capita steel consumption is 35 kg, whereas for developed countries it is 300kg. 24