*• Evolution of industry - Kushal Biswas• Segment of steel industry - – Abhishek Ghosh• Industry Structure• Production function• Economies to scale – Deepak Das• Indian steel industry• Growth Prospectus - Abdul Jabbar S.• Concentration Curve• H Index• Demand Curve – Sanjeet Singh Thakur• SWOT Analysis• Recommendations – Anirban Mukharjee
*• The Indian iron & steel industry is nearly a century old, with TISCO (Tata Steel) as the first integrated steel plant set up in 1907 in Jamshedpur.• First blast furnace of TISCO was blown in on 2nd December 1911, and the first ingot rolled on 16th February 1912.• Afterwards a few more steel companies were established namely Mysore Iron and Steel Company, (later renamed Vivesvaraya Iron & Steel Ltd) in 1923; Steel Corporation of Bengal (later renamed Martin Burn Ltd and Indian Iron & Steel Ltd) in 1939. All these companies were in the private sector.• In 1948, A new Industrial Policy Statement states that new ventures in the iron and steel industry are to be undertaken only by the central government. After that Hindustan Steel created to oversee the Rourkela , Bhilai, Durgapur & Bokaro steel plant.• In 1973, The Steel Authority of India Ltd. (SAIL) is created as a holding company to oversee most of Indias iron and steel production.• A new industrial policy introduced in the wake of the early 1990s balance of payments crisis removed many of the restrictions on the steel industry and tariff barriers were reduced , furthermore, foreign investment in the sector was permitted, with the steel industry included on the list of ‘high priority’ industries for automatic approval of up to 51 per cent foreign equity investment.
** Types of steel – 1) Alloy steel. 2) Non alloy steel.* In 2010-11 non-alloy steel constituted 96 percent of total finished steel production and rest was alloy steel.* The top Six segments are Bars & rods, structural, HR coil/strips/skelps, CR coils/strips, plates and GC/GP sheets.* Of total finished (non-alloy) productions of bars & rods (non-flat product) and hot rolling coils/skelp/strips (flat product) were 37.48 percent and 22.27 percent, respectively. Together these two major products constituted for 59.75 percent of total finished (non-alloy) steel production in 2010-11. This trend has been more or less constant for last five years
*Steel industry shows oligopoly which can be demonstrated by:-1. Few players controlling the largest chunk of business namely TATASTEEL, JINDAL, ESSAR and SAIL.2. Barriers to entry, demonstrated by huge investment and requirement of other resources in quantity.3. Interdependence among the players in the industry, as the actions offew affects the industry on whole.4. COLLUSIVE nature: - All the firms coming together to protect mutualinterests.5. Price leadership: - Minimum price ranges of firms is (2-4)%, displayingthe affinity to avoid price wars which may in turn lower profits. Thus, itcan also be conclude that there is evidence of kinked demand curve, as arise in price will entice customers to switch to lower price products
** production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs.* Mainly two types of input are there1. Fixed – e.g.. plant and a factory shed.2. Variable – e.g.. iron ore serves as a variable input* For a firm minimizing Costs are important.* Costs associated with inputs are1. Total cost - cost of producing any given output level.2. Average Cost - Decreases with increased output.* Decrease in Average Variable Cost increases Profit.* Average variable cost shows U shaped curve (first decrease then increase)Economies to scaleEconomies of scale are defined in terms of the average costper unit of output produced.* In oligopoly companies run in economies to scale.
INDIAN STEEL INDUSTRY A BRIGHT FUTURERESOURCES Abundant Iron Ore reserves Strong Managerial skills in Iron and Steel making Large pool of skilled Man-power Established steel players with strong skills in steel makingOPPORTUNITIES High economic growth driven increasingly by industry Faster Urbanisation Increased Fixed Asset Building Automobiles and component industry growthPOLICY Pro-active stance of Govt. Encouragement for overseas investments
* Steel Consuming sectors Source: CRISIL ResearchConstruction & infrastructure contribute to >60% of steel consumption
*Year Per Capita Steel Consumption 2011-12 48 2019-20 80 2024-25 110 2029-30 135 2034-35 175India’s current population is - 1100 millionIt is assumed that till 2051, population would be about : 1.4 bn.
** Concentration ratio is a measure of the total output produced in an industry by a given number of firms in the industry.* The most common concentration ratios are the CR4 and the CR8.* This ratio shows the degree to which an industry is oligopolistic.* it can be expressed as* CRm = s1 + s2 + .... + sm* where si is the market share and m defines the ith firm* Concentration ratio of Indian steel industryTop 4 Companies in India1. Tata steel – 35.7%2. SAIL – 23.8%3. JSW steel – 9.7%4. RNIL – 8%5. Others – 22.8%CR4 = 35.7 + 23.8 + 9.7 + 8CR4 = 77.8 %Interpretation - Concentration ratio of industry is 77.8% which means it is an oligopoly situationand market is dominated by few major players.
** a measure of the size of firms in relation to the industry.* an indicator of the amount of competition among companies.* It is defined as the sum of the squares of the market shares of the 50 largest firms.* It is expressed as* H Index for steel industry in India H = .3572 + .2382 + .0972 + .082 + 15*.222 H = 0.2033Interpretation:it implies that competition in steel industry is medium to high andhigh concentration.
** In an oligopoly, firms operate under imperfect competition.* firms use non-price competition in order to accrue greater revenue and market share.* Demand curve of oligopoly is kinked (hypothesized convex bend).
* At kink there is the most likely to collusion to take place
• There will is price stickiness in oligopolistic markets.• Firms rely more on non price competition.
STRENGHTH:Increase in demand WEAKNESS:Availability of labour at low Lack of infrastructurewage rate Slow decision makingHuge resource of raw material Low labour productivityEnvironmental laws Insufficient transport system SWOT ANALYSIS THREATS: Cheap imports.OPPURTUNITIES: Slow industry growthHigh potential to be tapped. Technological changeUnexplored rural market. Price sensitivity and demandExport market penetration. volatility
FACTORS HOLDING BACK THE INDIANSTEEL INDUSTRYProblems procuring raw material inputs.Inefficient transport systemTechnological Innovation
RECOMMENDATIONSR&D focus is to be increased substantially.Firms must do technological forecasting.Resource utilization must be more effective to improve on the productivityInvestment in infrastructure is crucial to step up demand for steel