Executive Summary

India is a reputed name in the world steel industry; the country's steel industry is
catching up the pace and luring the steel majors from all over the world. The
industry has gained strength from the strong Indian economy, and strong
sectors like infrastructure, construction and automobile.
Although India consumes less steel as compared to other Asian countries, it was
ranked the fifth major crude steel producer in the world in 2008. Thus, the
country offers vast scope for the steel industry in future.
Analyzing the Indian Steel Industry focuses on the Indian Steel Industry and
analyses each and every aspect of the industry. Starting from an analysis of the
competitiveness of the industry to the production/consumption scenario of the
industry, the report analyzes the Indian Steel Industry through a SWOT
framework analysis, a PEST framework analysis, and a Porter's Five Forces
Strategy

Analysis.

To realise the potential of the Indian Steel Industry the steel makers have to
realise the potential of having strategic alliances. There have been almost
revolutionary changes in the global steel scene with fierce competitive pressures
on performance, productivity, price reduction and customer satisfaction. National
boundaries have melted to encompass an ever increasing world market. Trade in
steel products has been on the upswing with the production facilities of both the
developed and the developing countries complementing each other in the
making of steel of different grades and specialty for the world market. The TATACorus
deal viewed as one of the revolution in the Indian Steel Industry. In this
study, the detail aspect of the strategic alliances would be studied. The technical
feasibility, economic feasibility and the social aspects entailed in it.
 Introduction

The global steel industry has been going through major changes since 1970.
China has emerged as a major producer and consumer, as has India to a lesser
extent. Consolidation has been rapid in Europe.

Growth of the industry

Global steel production grew enormously in the 20th century from a mere 28
million tonnes at the beginning of the century to 781 million tonnes at the end.

World Steel Production in the 20th Century

Over the course of the 20th century, production of crude steel has risen at an
astounding rate, now fast approaching a production level of 800 million tons per
year. Today, it is difficult to imagine a world without steel.

During the 20th century, the consumption of steel increased at an average

annual rate of 3.3%. In 1900, the USA was producing 37% of the world’s steel.
With post war industrial development in Asia that region now (at the turn of the
century) accounts for almost 40%, with Europe (including the former Soviet
Union) producing 36% and North America 14.5%.

Steel consumption increases when economies are growing, as governments

invest in infrastructure and transport, and build new factories and houses.
Economic recession meets with a dip in steel production as such investments
falter. If you were to overlay the above graph with a time sheet showing major
historical events, the peaks and dips become meaningful. Note for example the
peaks corresponding to the years of the two World Wars, followed each time by a
dip, and soon after by strong climbs as the major economies recovered from the
war and entered new periods of prosperity and growth, most notably in the
1950s and 1960s. The trend over the past three decades can also be seen to be
in line with cyclical economic trends, with alternating periods of prosperity and
recession. That was the period when the steel industry developed in Western
Europe and the USA followed by the Soviet Union, Eastern Europe and Japan.
However, steel consumption in the developed countries has reached a high
stable level and growth has tapered off.

After being in the focus in the developed world for more than a century,
attention has now shifted to the developing regions. In the West, steel is referred
to as a sunset industry. In the developing countries, the sun is still rising, for
most it is only a dawn.

Towards the end of the last century, growth of steel production was in the
developing countries such as China, Brazil and India, as well as newly developed
South Korea. Steel production and consumption grew steadily in China in the
Initial years but later it picked up momentum and the closing years of the
Century saw it racing ahead of the rest of the world. China produced 220.1
million tonnes in 2003, 272.2 million tonnes in 2004, 500.3 million metric tonnes in 2008
and 567.8 million tonnes in 2009. That is much above the production in 2009 of Japan at
87.5 million metric tonnes, the INDIA at 62.8 million metric tonnes and Russia at 60.0
million metric tonnes.

Growth potential of the industry

Growth of the Chinese steel industry appears to be staggering. However, when

one considers that China has a population of 1.3 billion, the per capita steel
consumption is around or below that of the developed countries. Indeed, while
China has been progressively raising steel production for many years, it has also
been importing substantial quantities of steel. It is only now that China has
become a net exporter of steel. This indirectly means that China has also
reached a level of production saturation and its steel industry is more likely to
witness more of consolidation and reorganisation in coming years rather than
any major expansion of its assets.

Amongst the other newly steel-producing countries, South Korea has stabilised at
around 46-48 million tonnes, and Brazil at around 30 plus million tonnes. This
brings the focus of the industry to India. Considering a steel consumption of
300 kg per man per year to be a fair level of economic development, India will
have to come up to somewhere around 300 million tonnes, if it is to fulfil its
ambitions of being a developed country. That of course is a long journey from
the present production level of around 50 million tonnes but one must consider
its past before coming to a conclusion about its potential. India was producing
only around a million tonnes of steel at the time of its independence in 1947. By
1991, when the economy was opened up steel production grew to around 14
million tonnes. Thereafter, it doubled in the next 10 years, and then it is doubling
again, maybe over a slightly longer span. Steel Production in India is expected to
reach 124 million tons by 2012 and 275 million tons by 2020 which could make it
the second largest steel maker.

In the developed countries, the trend is on consolidation of industry. Crossborder

mergers have been taking place for several years. The focus is on
technological improvements and new products.

Globally, the steel industry became a billion tonne industry in 2004. How much
more it will grow will depend primarily on how much more steel is consumed in
the developing countries.

Reduction in workforce

Steel is no more the labour-intensive industry it used to be. Earlier, it was often
associated with the image of huge work force living in a captive township. All
that has changed dramatically. A modern steel plant employs very few people. 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. It could be less. However, steel being a basic industry; it generates
substantial growth of both upstream and downstream facilities. According to
some estimates one person-year of employment in the steel industry generates
3.5 person-years of employment elsewhere. Considering all these, total
employment generation will be substantial.

The third quarter of the twentieth century witnessed massive growth of the
global steel industry. Annual production rose more than three times in 15 years
from 1960. In the last quarter of the century, production reached a plateau,
rising only by around 100 million tonnes. Increase in production gave way to
increases in productivity.

During the period 1974 to 1999, the steel industry had drastically reduced
manpower all around the world. In USA, it was down from 521,000 to 153,000. In
Japan, it was down from 459,000 to 208,000. In Germany, it was down from
232,000 to 78,000. In UK, it was down from 197,000 to 31,000. In Brazil, it was
down from 118,000 to 59,000. In South Africa, it was down from 100,000 to
54,000. South Korea already had a low figure. It was only 58,000 in 1999. The
steel industry had reduced manpower around the world by more than 1,500,000
in 25 years.

Employment in the steel industry 1974, 1990 and 1996-2000

In thousand

INDIAN STEEL INDUSTRY

India's Steel Industry is more than a century old. Before the economic reforms of
the early 1990s the Indian steel industry was a predominantly regulated one with
the public sector dominating the industry. Tata Steel was the only major private
sector company involved the production of steel in India. Sail and Tata Steel
have traditionally been the major steel producers of India. In 1992, the
liberalization of the India economy led to the opening up of various industries
including the steel industry. This led to the increase in the number of producers,
increased investments in the steel industry and increased production capacity.
Since 1990, more than Rs 19,000 crores (US$ 4470.58 million) has been invested
in the steel industry of India.

India's steel industry went through a rough phase between 1997 and 2001 when
the overall global steel was facing a downturn and recovered after 2002. The
major factors that led to the revival of the steel industry in India after 2002 were
the rise in global demand for steel and the domestic economic growth in India.
India has now emerged as the eighth largest producer of steel in the world with a
production capacity of 35MT. almost all varieties of steel is now produced in
India. India has also emerged as a net exporter of steel which shows that Indian
steel is being increasingly accepted in the global market.

The growth of the steel industry in India is also dependant, to a large extent, on
the level of consumption of steel in the domestic market. Steel consumption is
significant in housing and infrastructure. In recent years the surge in housing
industry of India has led to increase in the domestic demand for steel.
More than 3500 different varieties of steel are available in the steel industry of
India. These can however be classified into two broad categories -

Flat Products - Flat products include plates and hot rolled sheets such as coils
and sheets. Flat products are derived from slabs. One of the major uses of steel
plates is in ship building.

Long Products - Long products include bars, rods, wires, ropes and piers.
These are called long products due to their shapes. Long products are made
from billets and blooms. Long products are mostly used in housing and
construction and also in rail tracks.
 Size of the Indian Steel Industry

The steel industry is one of the major industries of India. It has also gained
considerable importance in the global steel industry. This century old industry of
India was mostly a regulated one till 1990.

The economic reforms undertaken in India in the early 1990s gave a major boost
to the steel industry and it grew considerably in terms of investment, production
capacity and number of producers. The industry faced a downturn during the late
nineties but revived again by 2002.

The size of India's steel industry has increased considerably in recent years.
According to latest available estimates, India ranks eighth among the top steel
producers of the world with a production capacity of 35 MT.
The steel industry of India has capital investments
Of more than Rs 100, 000 crores. The total employment in the industry is more
than two million (including direct and indirect employment).

Some of the major reasons that have led to the growth in the size of
India's steel industry are –

Abundant availability of iron-ore in India

Good facilities for steel production
Increased consumption of steel in the sectors like construction.

Growth Potential of India’s Steel Industry

India has traditionally been one of the major producers of steel in the world. Till
the 1990s the steel industry of India was regulated and controlled by
government policies. After the economic reforms of the early 1990s, the Indian
steel industry has evolved significantly to conform to global standards.
India has set a vision to be an economically developed nation by 2020. The steel
industry is expected to play a major role in India's economic development in the
coming years. The steel industry of India has a very high growth potential and is
expected to register significant growth in the coming decades. India is expected
to emerge as a strong force in the global steel market in coming years.

The two major aspects that are expected to play a significant role in the
growth of the steel industry in India are -

Abundant availability of iron ore in the country

The country has well established facilities for steel production
Steel production in India has grown from 17 MT in 1990 to 36 MT in 2003. It is
expected that by 2011, the steel production in India will grow to 66 MT.
The current scenario of the Indian steel industry indicates that there is huge
growth potential in his industry. The per capita-consumption of steel in India,
according to latest available estimates, is only 29 kg. This is much less compared
to the global average of 140kg. The per capita consumption level of developed
nations like the United States of America is 400kg. In this respect, one of the
major initiatives that need to be taken is to focus on increasing the consumption
of steel in the rural areas of India. The potential for the growth of consumption of
steel in the rural areas of India for purposes like rural housing, rural
infrastructure, etc is high which needs to be tapped efficiently.

In order to realize the growth potential in the steel industry of India, it is

essential
to ensure that the industry can remain competitive. One of the major aspects in
this regard is the availability of inputs. Shortage of inputs like coke has led to
increase in costs earlier. Moreover proper infrastructure facilities like transport
infrastructure, power etc are of prime importance in maintaining the
competitiveness of the industry.

Most developed countries have regulations that are aimed to protect the
domestic steel industry. The Indian steel industry has comparatively much lesser
protection through regulations. Proper regulatory measures should be adopted
by
the government to protect the domestic steel industry.

FDI in Steel Industry

The foreign direct investment in India being made in the steel industry of India
has been picking up in the recent years as a result of the immense growth
potential of the country's steel industry. In the Asian continent India is second
only to China in terms of growth potential. The gross domestic product of India
has increased in the recent times.

This has sparked off the demand for production of steel in the country and the
production has increased as well. In the recent times India has been among the
top producers of crude steel of the world. All these factors are supposed to be
important for attracting foreign direct investment in the Indian steel industry.
The Indian national government also has been pretty liberal with their approach
to the foreign direct investment being made in the country. The Indian
government has also relaxed the various foreign investment laws. This has led to
more international steel giants coming to India to tap the abundant resources
present in the country.

The increased interest shown by such companies has led to a growth in the steel
industry of India. Research and studies have shown that Orissa and Jharkhand
would be the steel junctions of India.

In the recent times these two states, which are located in the eastern part of
India, have been experiencing a number of steel projects in India. These projects
have been funded by the Indian national government, as well as, a number of
companies that are forces to reckon with in the context of the Indian steel
industry.

Since, the government has also been taking steps to make sure that the
production and demand for Indian steel remains high in the international market,
it may be assumed that an increasing number of companies from around the
world would be interested in the Indian steel industry

Challenges before Indian Steel Industry

There are certain challenges before the steel industry of India in the recent
times.
India has been one of the major producers of steel in the world and has also
been attracting a lot of foreign direct investment. A few issues would need to be
attended to if India wants to be counted as one of the major and most
economical
producers of steel. The three areas that need to be improved upon in the view of
the exports are the infrastructure, ability to draw the top names in steel, and
wealth creation issues.

The condition of the infrastructural facilities of the steel industry in India is not at
all conducive to a sustainable growth and development of the steel industry of
the India.

The methods that are adopted for the creation of wealth in the Indian steel
industry are also supposed to act as hindrances to the growth and development
of the Indian steel industry. The Indian steel industry has also not been able to
draw the best professionals in the steel industry and that has been a major
drawback of the industry.

The experts are also of the opinion that not enough policies or measures have
been adopted to amend the situation in case of the infrastructural facilities
available in the steel sector. Even though India is capable of producing steel at a
good rate and also increase the volume of production there is not enough land
available to support such activities. One of the major reasons for such problems
is the consistently increasing population of India.
1. Competition from substitutes.
Increasing substitutes in the form of plastics, aluminium and advanced
composites.
2. Threat of Entry
High barriers to entry in the integrated mill segment. However, with the
mini-mills, the barriers are being lowered due to lower costs (a tenth of
those in the integrated mills per ton of steel produced).
3. Competition from rivals.
Highly competitive since products are not differentiated and have high
fixed costs as well as exit barriers. There is also competition from the
cheaper imports as well as the cyclicity of demand.
4. Bargaining power of buyers
Price sensitive market due to no product differentiation.
5. Bargaining power of suppliers
Unionised labour leading to high bargaining power of labour supply. Cost
competition among steel manufacturers also leads to high bargaining
power of suppliers.
Sources of competitive advantage in the steel industry
1. Length of production time, i.e., technology used in production process.
2. The cost of production, especially since the steel market is highly
price-sensitive. Low-cost, high-quality imports pose a significant threat
to the domestic industry and hence, competitive pricing is essential to
be ahead.
3. “Dependable delivery”, i.e., lower delivery time to consumers.
4. Quality of steel produced and distributed.
5. People
• High productivity of labour at its plants/production facilities.
• High performance orientation through performance linked
compensation plans for employees.
• Dedicated workforce indicated by lower turnover (only 5%) than the
industry average (10%-12%). This could be attributed to the equality of
treatment among workers at the production facilities (same colour
jackets).
6. Firm level capabilities
• Simple and flat organization structure with only about 5 layers.
SWOT Analysis of Indian Steel Industry
Strengths:
1.The government offers a wide range of concessions to investors in India,
engaged in steel industry. The main concessions include, inter alia:
* Steel in specified backward districts is eligible for a complete tax holiday for a
period of 5 years from commencement of production and a 30 percent tax
holiday for 5 years thereafter.
* Environment protection equipment, pollution control equipment, energy saving
equipment and certain other equipment eligible for 100 percent depreciation.
* One tenth of the expenditure on prospecting or extracting or production of
certain minerals during five years ending with the first year of commercial
production is allowed as a deduction from the total income.
* Export profits from specified minerals and ores are eligible for certain
concessions under the Income tax Act.
* Minerals in their finished form exempt from excise duty.
* Low customs duty on capital equipment used for minerals; on nickel, tin, pig
iron, unwrought aluminium.
* Capital goods imported for steel under EPCG scheme qualify for concessional
customs duty subject to certain export obligation.
2. World's largest producer of mica; third largest producer of coal and lignite &
barites; ranks among the top producers of iron ore, bauxite, manganese ore and
aluminium.
3. Labours easily available
4. Low labour and conversion costs.
5. Large quantity of high quality reserves.
6. Exports iron-ore to China and Japan on a large scale
7. Strategic location: Proximity to the developed European markets and
fastdeveloping
Asian markets for export of Steel, Aluminium
Weakness:
Coal steel in India is associated with poor employee productivity. The
output per miner per annum in India varies from 150 to 2,650 tonnes
compared to an average of around 12,000 tonnes in the U.S. and
Australia; and
Historically, opencast steel has been favoured over underground steel.
This has led to land degradation, environmental pollution and reduced
quality of coal as it tends to get mixed with other matter;
India has still not been able to develop a comprehensive solution to deal
with the fly ash generated at coal power stations through use of Indian
coal. Clean coal technologies, such as Integrated Gasification Combined
Cycle, where the coal is converted to gas, are available, but these are
expensive and need modification to suit Indian coal specifications.
Poor infrastructure facilities
Steel technology is outdated
Low innovation capabilities
Labour force is highly un-skilled and inexperienced
High rate of accidents
Lack of R&D programs and training and development
Most of the Indian steel companies do not have access to Indian capital
market
There is a lack of respect for the steel industry and it suffers from the
incorrect perception that ore deposits are depleted.
There is limited access to capital, and mines are increasingly more costly
to find, acquire, develop and produce.
There are long lead times on production decisions.
The Indian steel industry suffers from an out-dated, unattractive approach
to steel education that is partly to blame for insufficient human resources.
Improvement in operational efficiency of the steel companies -
Steel companies are in need of an organizational transformation to
gradually align its operating costs to international standards. Steel costs of
Indian companies are at least 35 percent higher than those of leading coal
exporting countries such as Australia, Indonesia, and South Africa. To
match productivity, they will need to invest in new technologies, improve
processes in planning and execution of projects, and institutionalize a
comprehensive risk management framework.
Steel operations are not environment friendly. Least importance is given
to environment concerns.
High rate of illegal steel
The Opportunities
India has an estimated 85 billion tonnes of mineral reserves remaining to be
exploited. Besides coal, oil and gas reserves, the mineral inventory in India
includes 13,000 deposits/ prospects of 61 non-fuel minerals. Expenditure outlay
on steel is a meagre sum when compared to other competing emerging steel
markets and the investment gap is most likely to be covered by the private
sector. India welcomes joint ventures between foreign and domestic partners to
mobilise finances and technology and secure access to global markets.
Potential areas for exploration ventures include gold, diamond, copper,
lead, zinc, nickel, cobalt, molybdenum, lithium, tin, tungsten, silver,
platinum group of metals and other rare metals, chromate and
manganese ore, and fertiliser minerals.
The main opportunities in the steel sector (excluding coal and industrial
minerals) are in the development and production of surplus commodities
such as iron ore and bauxite, mica, potash, few low-grade ores, steel of
small gold deposits, development of placer gold resources located on the
frontal belt of the Himalayas, steel known deposits of economic and
marginal categories such as base metals in Bihar and Rajasthan and
exploitation of lacerate for nickels in Orissa, molybdenum in Tamil Nadu
and tin in Haryana.
Considerable potential exists for setting up manufacturing units for value
added products.
There exists considerable opportunities for future discoveries of subsurface
deposits with the application of modern techniques.
Current economic steel practices are generally limited to depths of 300
meters and 25 percent of the reserves of the country are beyond this
depth
Strengthening of logistics in coal distribution - In India, the logistics
infrastructure such as ports and railways are overburdened and costly and
act as bottlenecks in development of free market. Privatization of ports
may bring the needed efficiencies and capacities. In addition, capacity
addition by the Indian Railways is necessary to increase freight capacity
from the coal producing regions to demand centres in the northern and
central parts of the country. On the Indian rail network, freight trains get a
lower priority than passenger trains, a problem that promotes delays and
inefficiency. Special freight corridors would raise speeds, cut costs, and
increase the system's reliability.
Focusing on technology for future - India's numerous technology
research institutes are working on energy related R&D. However, there is
a possibility that they are operating in a fragmented fashion. The
Government may get improved recoveries on its investment by
concentrating on few important technology areas. To start with focus may
be applied for tighter emission standards and development of inexpensive
clean-coal technologies viz. extraction of methane from coal deposits.
Estimated 82 billion tonnes of reserves of various metals yet to be tapped
While India has 7.5% of the world's total bauxite deposits, aluminium
production capacity is only 3% of world capacity, indicating the scope and
need for new capacities
Threats:
Foreign Investment in the Steel Sector
During 1999, the Government had cleared 7 more proposals of leading
international steel companies for prospecting and exploration in the mineral
sector to the tune of US$ 62.5 million. 65 licenses have been issued till date for
prospecting an area of around 90,142 skims in the states of Rajasthan,
Maharashtra, Gujarat, Bihar, Haryana and Madhya Pradesh. Prospecting licenses
have been granted in favour of Indian subsidiaries of well-known steel
companies...
Large integrated international metal manufacturers including POSCO,
Mittal Steel and Alcan have announced plans for expansion in India
Steel companies and equipment suppliers are under the constant threat of
being taken over by foreign companies.
A heavy tax burden discourages further investment.
Politicians undervalue the industry's contributions to the economy