Economic Cost Concept Analysis for Tata Steel

1. PROJECT ON
TATA STEEEL
By – Saurabh Maloo

2. About TATA Steel
TATA Steel Limited is an Indian multinational steel making company headquartered in Mumbai, India and a
subsidiary of TATA group. Established in Jamshedpur in 1907, Tata Steel, a Company that took shape from the
vision of Jamsetji N. Tata, is today a global business enterprise having products and services in over 150
countries. Being the world’s second-most geographically diversified steel producer, they operate in 26
countries, have commercial presence in over 50 countries and have employees spread across five continents.
Tata Steel is among the top global steel companies with an annual crude steel capacity of 27.5 MnTPA.
Major products:
• Structural and forging quality steel
• Hot and cold rolled coils and sheets
• Wire and rods
• Construction bars
• Pipes

3. Sales Pattern

4. Coking Coal
&
Coking Coal
Transport
Iron Ore
&
Iron Ore
Transport
Steel Scrap
&
Scrap
Delivery
COST
MODEL
OF
STEEL
Oxygen
Electricity
&
Labor
Ferroalloys
&
Fluxes

5. Factors Affecting Steel Pricing
Demand and Supply - Price of steel depends
upon the supply and demand of steel in
international and domestic market.
Higher demand + Lower supply = High Price
Cost of raw material – The cost of raw
material highly determines the price of steel
in the market.
Market Speculation – The price of steel is
highly volatile and increases with the
increase in speculation in market and vice
versa.
Shipping Cost – Price of the steel also varies
with the price of cost of shipping of steel

6. COSTING & REVENUE CONCEPTS INVOLVED
TR (Total Revenue)
TC (Total Cost)
TFC ( Total Fixed Cost)
TVC (Total Variable Cost)
MR (Marginal Revenue)
MC ( Marginal Cost)
Other Concepts (Output, Quantity and Averages)
Demand Elasticity

7. Revenue and Average Price
30000
35000
40000
45000
50000
55000
2013-14 2014-15 2015-16 2016-17
Total Revenue
(in crores)
Totl Revenue(INR Crores) 42317.24
20000
25000
30000
35000
40000
45000
50000
2013-14 2014-15 2015-16 2016-17
INR
Years
Avg Selling Price per ton
Year Total Revenue(INR Crores) Avg Selling Price per ton
2012-13 42317.24 40067.73
2013-14 46309.34 40430.47
2014-15 46577.26 41803.80
2015-16 42686.29 35161.06
2016-17 52564.93 44939.23

8. Total and Average Cost
Year Fixed Cost(INR Crores) Variable Cost(INR Crores) Total Cost(INR Crores) AFC(INR) AVC(INR) ATC(INR)
2012-13 7663.66 30611.07 38274.73 9651 38548 48199
2013-14 7785.6 32870.64 40656.24 8718 36805 45523
2014-15 7055.37 36337.44 43392.81 7776 40050 47826
2015-16 6574.48 35488.93 42063.41 6779 36594 43373
2016-17 8759.29 42875.09 51634.38 7717 37772 45489
0
10000
20000
30000
40000
50000
2013-14 2014-15 2015-16 2016-17
INRCrores
Years
Average Cost
(in INR)
AFC(INR) 9651 AVC(INR) 38548 ATC(INR) 48199
0
10000
20000
30000
40000
50000
2013-14 2014-15 2015-16 2016-17
INrCrores
Years
Total Costs
Fixed Cost(INR Crores) 7663.66 Variable Cost(INR Crores) 30611.07
Total Cost(INR Crores) 38274.73

9. Marginal Cost
Year
Marginal Cost
(in crores)
2013-14 2.4055
2014-15 19.2716
2015-16 -2.127
2016-17 5.79006
-5
0
5
10
15
20
25
2013-14 2014-15 2015-16 2016-17
INR
(crores)
Years
Marginal Cost(in crores)
Marginal Cost(in crores)

10. Marginal Revenue
Year
Marginal
Revenue
(in crores)
2013-14 4.032
2014-15 1.8867
2015-16 -6.22
2016-17 5.976
-8
-6
-4
-2
0
2
4
6
8
2013-14 2014-15 2015-16 2016-17
INR(crores)
Years
Marginal Revenue(in crores) -
Marginal Revenue(in crores) -

11. Quantity Supplied vs Price
Year
Quantity
(in thousand
Tonnes)
Avg. Selling
Price per ton
(IN INR)
2012-13 7941 40067
2013-14 8931 40430
2014-15 9073 41803
2015-16 9698 35161
2016-17 11351 44939

12. Price Elasticity
Elasticity is the
reaction of customer
towards the change
in price.
In steel industry
price changes day by
day due to various
factors but demand
doesn’t change
drastically with price
resulting in Inelastic
behaviour of steel.
Basically steel
market is demand
driven not price
driven, where the
quantity demanded
determines the price
but the opposite is
not true.
Year
% Change in
Quantity
% Change in
Price
Price Elasticity of
Supply
2014-15 1.59 3.29 0.48
2015-16 6.89 -18.89 -0.36
2016-17 17.04 21.76 0.78

13. National Steel Policy
• Create self-sufficiency in steel production by providing policy support & guidance
to private manufacturers, MSME steel producers, CPSEs
• The New Steel Policy, 2017 aspires to achieve 300MT of steel-making capacity by
2030. This would translate into additional investment of Rs. 10 lakh Crore by 2030-
31
• Development of globally competitive steel manufacturing capabilities
• Cost-efficient production
• Domestic availability of iron ore, coking coal & natural gas,
• Facilitating foreign investment
• Asset acquisitions of raw materials &
• Enhancing the domestic steel demand

14. The Future of Steel Industry
• Steel: Bright future as a material but uncertain outlook as an industry
• Global steel demand is expected to increase to 2.3 billion tonnes in 2025
(CAGR of 3.7%)
• Slowdown of global steel demand growth driven by:
• Reduction of China’s contribution with slower and more service
oriented GDP growth
• Modest steel demand growth in advanced economies
• Less quantity of steel per unit in several industries
• 90% of the expected increase in 2016-2025 from:
• Construction driven by residential and infrastructure projects in
emerging economies (57% of the increase)
• Mechanical engineering (23% of the increase)
• Pipelines, “oil country tubular goods” (OCTG) and other tubes (9% of
the increase)
2016
Mechanical Engineering
(277 mmt)
Transport (310 mmt)
Construction (960 mmt)
Others (65 mmt)
2025
Mechanical
Engineering (355
mmt)
Transport (398 mmt)
Construction (1506
mmt)
Others (88 mmt)

15. Material Substitutes of Steel
Material substitution biggest challenge for
steel industry
The most viable substitute is aluminium
Wood, stone and concrete other substitutes
but with less favourable properties than steel
Trends in the way steel is made and used:
• Using less steel through improved product
design
• Reducing yield losses
• Longer life products