20161203

STEEL INDUSTRY OF INDIA

1.1 introduction of steel industry:

India has become the second best in terms of growth among the top ten steel producing countries in the world and a net exporter of steel during 2013–14. Steel production in India recorded a growth rate of 4.8 per cent in February 2014 over February 2013. The cumulative growth during April–February, 2013–14 stood at 4.2 per cent over the corresponding period of the previous year.

Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilization. The level of per capita consumption of steel is treated as an important index of the level of socioeconomic development and living standards of the people in any country. 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. All major industrial economies are characterized by the existence of a strong steel industry and the growth of many of these economies has been largely shaped by the strength of their steel industries in their initial stages of development. Steel industry was in the vanguard in the liberalization of the industrial Sector and has made rapid strides since then. The new Greenfield plants represent the latest in technology. Output has increased, the industry has moved up i n the value chain and exports have raised consequent to a greater integration with the global economy. The new plants have also brought about a greater regional dispersion easing the domestic supply position notably in the western region. At the same time, the domestic steel industry faces new challenges. Some of these relate to the trade barriers in developed markets and certain structural problems of the domestic industry notably due to the high cost of commissioning of new projects. The domestic demand too has not improved to significant levels. The litmus test of the steel industry will be to surmount these difficulties and remain globally competitive.

Steel contributes to nearly two per cent of the gross domestic product (GDP) and employs over 500,000 people. The total market value of the Indian steel sector stood at US$ 57.8 billion in 2011 and is expected to touch US$ 95.3 billion by 2016. The infrastructure sector is India’s largest steel consumer, thereby attracting investments from several global players. Owing to this connection with core infrastructure segments of the economy, the steel industry is of high priority right now. Also, steel demand is derived from other sectors like automobiles, consumer durables and infrastructure; therefore, its fortune is dependent on the growth of these user industries.

The liberalisation of the industrial policy and other government initiatives has given a definite impetus for entry, participation and growth of the private sector in the steel industry. Allowing foreign direct investment (FDI) has been a positive step since India is heavily dependent on foreign technologies. These foreign technologies generally add life to the plant and production units, which ultimately lead to the country’s economic growth.


1.2 history :

19th century trend :                                          
The growth of pig iron output was dramatic. Britain went from 1.3 million tons in 1840 to 6.7 million in 1870 and 10.4 in 1913. The US started from a lower base, but grew faster; from 0.32 million tons in 1840, to 1.74 million in 1870, and 31.5 million in 1913. Germany went from 0.19 million tons in 1859 to 1.56 in 1871 and 19.3 in 1913. France, Belgium, Austria-Hungary, and Russia, combined, went from 2.2 million tons in 1870 to 14.1 million tons in 1913, on the eve of the World War. During the war the demand for artillery shells and other supplies caused a spurt in output and a diversion to military uses.

Steel was discovered by the Chinese under the reign of Han dynasty in 202 BC till 220 AD. Prior to steel, iron was a very popular metal and it was used all over the globe. Even the time period of around 2 to 3 thousand years before Christ is termed as Iron Age as iron was vastly used in that period in each and every part of life. But, with the change in time and technology, people were able to find an even stronger and harder material than iron that was steel. Using iron had some disadvantages but this alloy of iron and carbon fulfilled all that iron couldn‘t do.


1.3 Steel industry in india :
                                                          Steel has been the key material with which the world has reached to a developed position. All the engineering machines, mechanical tools and most importantly building and construction structures like bars, rods, channels, wires, angles etc are made of steel for its feature being hard and adaptable. Earlier when the alloy of steel was not discovered, iron was used for the said purposes but iron is usually prone to rust and is not so strong. Steel is a highly wanted alloy over the world. All the countries need steel for the infrastructural development and overall growth. Steel has a variety of grades i.e. above 2000 but is mainly categorized in divisions – steel flat and steel long, depending on the shape of steel manufactured. Steel flat includes steel products in flat, plate, sheet or strip shapes.

The plate shaped steel products are usually 10 to 200 mm and thin rolled strip products are of 1 to 10 mm in dimension. Steel flat is mostly used in construction, shipbuilding, pipes and boiler applications. Steel long Category includes steel products in long, bar or rod shape like reinforced rods made of sponge iron. The steel long products are required to produce concrete, blocks, bars, tools, gears and engineering products. After independence, successive governments placed great emphasis on the development of an Indian steel industry. In Financial Year 1991, the six major plants, of which five were in the public sector, produced 10 million tons.

The rest of India steel production, 4.7 million tons, came from 180 small plants, almost all of which were in the private sector. India's Steel production more than doubled during the 1980s but still did not meet the demand in the mid-1990s, the government was seeking private-sector investment in new steel plants. Production was projected to increase substantially as the result of plans to set up a 1 million ton steel plant and three pig-iron plants totaling 600,000 tons capacity in West Bengal, with Chinese technical assistance and financial investment. The commissioning of Tata Iron & Steel Company's production unit at Jamshedpur, Bihar in 1911-12 heralded the beginning of modern steel industry in India. At the time of Independence in 1947 India's steel production was only 1.25 Mt of crude steel.

Following independence and the commencement of five year plans, the Government of India decided to set up four integrated steel plants at Rourkela, Durgapur, Bhilai and Bokaro. The Bokaro plant was commissioned in 1972. The most recent addition is a 3 Mt integrated steel plant with modern technology at Visakhapatnam. Steel Authority of India (SAIL) accounts for over 40% of India's crude steel production.

1.4 The global steel industry in india :
                                                                              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 steel industry is enjoying its 6th consecutive years of growth in supply and demand. And there is many more merger and acquisitions which overall buoyed the industry and showed some good results. The supreme 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.

1.5 Contribution of countries to global steel industry :
                          The countries like China, Japan, India and South Korea are in the top of the above in steel production in Asian countries. China accounts for one third of total production i.e. 419m ton, Japan accounts for 9% i.e. 118 m ton, India accounts for 53m ton and South Korea is accounted for 49m ton, which all totally becomes more than 50% of global production. Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.



1.6 Technology :
                                Before about 1860 steel was an expensive product, made in small quantities and used mostly for swords, tools and cutlery; all large metal structures were made of wrought or cast iron. Steelmaking was centered in Sheffield, Britain, which supplied the European and the American markets. The introduction of cheap steel was due to the Bessemer and the open hearth processes, two technological advances made in England. Before about 1860 steel was an expensive product, made in small quantities and used mostly for swords, tools and cutlery; all large metal structures were made of wrought or cast iron. Steelmaking was centered in Sheffield, Britain, which supplied the European and the American markets.

The introduction of cheap steel was due to the Bessemer and the open hearth processes, two technological advances made in England.. The open-hearth process originated in the 1860s in Germany and France. The usual open-hearth process used pig iron, ore, and scrap, and became known as the Siemens-Martin process. Its process allowed closer control over the composition of the steel; also, a substantial quantity of scrap could be included in the charge. The crucible process remained important for making high-quality alloy steel into the 20th century.

British :
                Britain's demand for iron and steel, combined with ample capital and energetic entrepreneurs, made it the world leader in the first half of the 19th century. 40% of British output was exported to the U.S., which was rapidly building its rail and industrial infrastructure. Two decades later in 1896, however, the British share of world production had plunged to 29% for pig iron and 22.5% for steel, and little was sent to the U.S. The U.S. was now the world leader and Germany was catching up to Britain. Britain had lost its American market, and was losing its role elsewhere; indeed American products were now underselling British steel in Britain. Abé (1996) explores the record of iron and steel firms in Victorian England by analyzing Bolckow Vaughan & Company. It was wedded for too long to obsolescent technology and was a very late adopter of the open hearth furnace method. Abé concludes that the firm—and the British steel industry—suffered from a failure of entrepreneurship and planning.

Australia :
                    McIntyre (2005) looks at its skilled boilermakers, their culture and work roles in the context of the steelworks. Drawing on historical method, cultural studies, and social theory, McIntyre explores the world of the steelworks boilermaker as a species of industrial man, including the ideas, values, symbols, and practices which shaped his expectations, outlook, and actions as a skilled industrial worker.

Germany :
                  By 1850 the Ruhr had 50 ironworks with 2,813 full-time employees. The first modern furnace was built in 1849. The creation of the German Empire in 1870 gave further impetus to rapid growth, as Germany started to catch up with Britain. From 1880 to World War I, the industry of the Ruhr area consisted of numerous enterprises, each working on a separate level of production. Mixed enterprises could unite all levels of production through vertical integration, thus lowering production costs. Technological progress brought new advantages as well.

These developments set the stage for the creation of combined business concerns. it represented the "Americanization" of the German steel industry because its internal structure, management methods, use of technology, and emphasis on mass production replicated the Steel Trust developed a multi-divisional structure and aimed at return-on-investment as a measure of success. The chief difference was that consumer capitalism as an industrial strategy did not seem plausible to German steel industrialists. In iron and steel and other industries, German firms avoided cut-throat competition and instead relied on trade associations.

Germany was a world leader because of its prevailing "corporatist mentality", its strong bureaucratic tradition, and the encouragement of the government. These associations regulated competition and allowed small firms to function in the shadow of much larger companies. With the need to rebuild the bombed-out infrastructure after the war, Plan (1948–51), West Germany rebuild and modernize its mills. It produced 3 million of steel in 1947, 12 million in 1950, 34 million in 1960 and 46 million in 1970. East Germany produced about a 10th as much.

France :
                The French iron industry lagged behind Belgium in the early 19th century, and after 1850 also lagged Germany (and even Luxembourg). Its industry comprised too many small, inefficient firms. Twentieth century growth was not robust, due more to traditional social and economic attitudes than to inherent geographic, population, or resource factors. Despite a high national income level, the French steel industry remained laggard.The industry was based on large supplies of coal and iron ore, and was dispersed across the country. The greatest output came in 1929, at 10.4 million metric tons.[ The industry suffered sharply during the Great Depression and the Second World War. Prosperity returned by themid-1950s, but profits came largely from strong domestic demand than rather than competitive capacity. Late modernization delayed the development of powerful unions and collective bargaining.

Italy :
            In Italy a shortage of coal led the steel industry to specialize in the use of hydro-electrical energy, exploiting ideas pioneered by Ernesto Stassano from 1898. Despite periods of innovation (1907–14), growth (1915–18), and consolidation (1918–22), early expectations were only partly realized.Steel output in the 1920s and 1930s averaged about 2.1 million metric tons. Per capita consumption was much lower than the average of Western Europe. Electrical processes were an important substitute, yet did not improve competitiveness or reduce prices; instead, they reinforced the dualism of the sector and initiated a vicious circle that prevented market expansion. Italy modernized its industry in the 1950s and 1960s and it grew rapidly; it was second only to West Germany in the 1970s. Strong labour unions kept employment levels high. Troubles multiplied after 1980, however, as foreign competition became stiffer. In 1980 the largest producer Nuova Italsider lost 746 billion lira in its inefficient operations.

Japan :
              Yonekura shows the steel industry was central to the economic development of Japan.The transfer of technology from the West and the establishment of competitive firms involved far more than buying foreign hardware. MITI located steel mills and organized a domestic market; it sponsored Yawata Steel Company. Japanese engineers and entrepreneurs internally developed the necessary technological and organizational capabilities, planned the transfer and adoption of technology, and gauged demand and sources of raw materials and finances.

India[Tata Iron and Steel Company (TISCO) was established by Dorabji Tata in 1907, as part of his father's conglomerate. By 1939 it operated the largest steel plant in the British Empire. The company launched a major modernization and expansion program in 1951.
Prime Minister Jawaharlal Nehru, a believer in socialism, decided that the technological revolution in India needed maximization of steel production. He, therefore, formed a government owned company, Hindustan Steel Limited (HSL) and set up three steel plants in the 1950s.

The Indian steel industry began expanding into Europe in the 21st century. In January 2007 India's Tata Steel made a successful $11.3 billion offer to buy European steel maker Corus Group. In 2006 Mittal Steel (based in London but with Indian management) acquired Arcelor for $34.3 billion to become the world's biggest steel maker, ArcelorMittal, with 10% of the world's output.

China :

Communist party dictator Mao Zedong disdained the cities and put his faith in the Chinese peasantry for a Great Leap Forward. Mao saw steel production as the key to overnight economic modernization, promising that within 15 years China's steel production would surpass that of Britain. In 1958 he decided that steel production would double within the year, using backyard steel furnaces run by inexperienced peasants. The plan was a fiasco, as the small amounts of steel produced were of very poor quality, and the diversion of resources out of agriculture produced a massive famine in 1959-61 that killed millions.

With economic reforms brought in by Deng Xiaoping, who led China from 1978 to 1992, China began to develop a modern steel industry by building new steel plants and recycling scrap metal from the United States and Europe. As of 2013 China produced 779 million metric tons of steel each year, making it by far the largest steel producing country in the world. This is compared to 165 for the European Union, 110 for Japan, 87 for the United States and 81 for India. 

1.7 Demand of steel in india :
                                                        Driven a booming economy and concomitant demand levels, consumption 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 consumption amounted to 58.45 mt in 2006-07 compared to 50.27 mt in 2005-06, recording a growth rate of 16.3 per cent, which is higher than the world average. During the first half of the current year, steel consumption has grown by 16 per cent. A study done by the Credit Suisse Group says that India's steel consumption will continue to grow by 17 per cent annually till 2012, fuelled by demand for construction projects worth US$ 1 trillion.

The scope for raising the total consumption of steel in the country is huge, as the per capita steel consumption is only 35 kgs compared to 150 kg in the world and 250 kg in China. With this surge in demand level, steel producers have been reporting encouraging results. For example, the top six companies, which account for 70 percent of the total production capacity, have recorded a year-on-year growth rate of 13.4 per cent, 15.7 per cent and 11.7 per cent in net sales, operating profit and net profit, respectively, during the second quarter of 2007-08 We expect strong demand growth in India over the next five years, driven by a boom in construction (43%-plus of steel demand in India). Soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put India's steel

Demand And Growth Of Steel Industry

YEAR
DEMAND(in mt)
GROWTH IN %
2000-2001
34.444

2001-2002
36.037
4.625
2002-2003
40.471
12.32
2003-2004
43.O62
6.4
2004-2005
45.387
5.4
2005-2006
50.257
10.73
2006-2007
58.45
16.3



1.8 Supply of steel in indian market :
                                                                      Over the past ten years India‘s crude steel output rose nearly 7%per year to 55.3 million tons , while global crude steel output increased by 4% (Germany managed an increase of just under 1%p.a.) Although India is the world‘s eighth largest steel producer, its3%-plus share of global steel output is still very low; it is roughly the same as Ukraine‘s share of world steel production. China, the world‘s biggest steelmaker, produces nearly ten times as much as India. In 2005 India‘s crude steel output of 46.5 million tons was 8%higher than in 2004; only in China was the growth rate considerably higher at 15%. By contrast, production volumes fell in the US and the EU-25 by nearly 5% and roughly 4% respectively. In the first five months of 2006 Indian steel production continued to expand unabated, rising 10% yoy. We forecast a significant increase in output by the Indian steel industry over the medium term. The entire industry‘s contribution to gross domestic product should rise in the coming years to more than 30% – compared to just fewer than 27% at present. The growth drivers are the expanding client industries automotive engineering (production up 16% p.a. between 2000 and 2005), mechanical engineering (up 10% p.a.) and construction (up 6% p.a.).

1.9 Market Size :
                                 India’s real consumption of total finished steel grew by 0.6 per cent year-on-year in April–March 2013-14 to 73.93 million tonnes (MT), according to Joint Plant Committee (JPC), Ministry of Steel. Construction sector accounts for around 60 per cent of the country's total steel demand while the automobile industry consumes 15 per cent.

India became net steel exporter in 2013–14 and is likely to maintain the momentum in 2014-15 as producers are looking to dock more overseas shipment to tide over subdued domestic consumption. Total steel exports by India during 2013–14 stood at 5.59 MT, as against imports of 5.44 MT. During the period, Steel Authority of India (SAIL) clocked a 30 per cent growth in exports and aims to more than double the shipments to 1 MT in 2014–15. Rashtriya Ispat Nigam Ltd (RINL), which exported 1 lakh tonne steel last fiscal, aims to treble that in the current fiscal.

Iron ore export from India has showed a 253 per cent increase during the period October–December 2013, at 3.75 MT as against 1.06 MT in the corresponding period of the previous year, on the back of the opening of new mines in Chhattisgarh, Madhya Pradesh and Rajasthan, as per the Federation of Indian Mineral Industries (FIMI).

1.10 investment :
                                 India needs investment of US$ 210 billion over the next decade to achieve the steel production capacity of 300 million tonnes per annum (MTPA) by 2025 from the current 90 MT, according to Mr C S Varma, Chairman and Managing Director, SAIL.

India's third-largest steel maker, JSW Steel, plans to purchase Welspun Maxsteel for about Rs 1,000 crore (US$ 165.32 million). The acquisition will help JSW secure continuous supply of cheaper raw material as it plans to expand its capacity at Dolvi, Maharashtra, to 5 MT to supply in the western and northern markets.

Prize Petroleum, a wholly-owned subsidiary of Hindustan Petroleum Corporation Ltd (HPCL), has acquired stakes in two Australian hydrocarbon fields for A$ 85 million (US$ 79.27 million). The company has entered into an agreement with Sydney-based AWE Ltd to acquire 11.25 per cent stake in T/L1 area and 9.75 per cent interest in T/18P area.

a)  Total Finished Steel Production for Sale :
The production for sale of total finished steel (alloy+non-alloy) in the country was 73.42 mt in 2011-12 (prov) as compared to 14.23 mt in 1991-92. The high share of the Majors and Other Producers in total finished steel production for sale is largely due to substantial availability of raw materials like sponge iron as well as due to the expansion of capacities and emergence of new units in these segments.
Total Finished Steel (alloy+non-alloy): Production for sale (million tonnes)
Year
Main
Producers
Majors and Other 
Producers
Grand
Total
% of share of
Majors and Other Producers
1991-1992
7.964
6.270
14.234
44.0
1992-1993
8.551
8.335
16.886
49.4
1993-1994
8.912
8.112
17.024
47.7
1994-1995
9.720
10.365
20.085
51.6
1995-1996
10.731
13.562
24.293
55.8
1996-1997
10.689
15.635
26.324
59.4
1997-1998
10.580
16.840
27.420
61.4
1998-1999
10.045
17.513
27.558
63.5
1999-2000
11.407
19.088
30.495
62.6
2000-2001
12.686
19.670
32.356
60.8
2001-2002
13.198
20.178
33.376
60.5
2002-2003
14.534
22.632
37.166
60.9
2003-2004
15.383
25.326
40.709
62.2
2004-2005
15.824
27.689
43.513
63.6
2005-2006
16.413
30.153
46.566
64.8
2006-2007
17.614
34.915
52.529
66.5
2007-2008
18.020
38.055
56.075
67.9
2008-2009
17.216
39.948
57.164
69.9
2009-2010
18.038
42.586
60.624
70.2
2010-2011
18.406
50.215
68.621
73.2
2011-2012 (Prov)
17.842
55.574
73.416
75.7

b)Apparent and Real Consumption of Total Finished Steel :
Real Consumption is obtained from apparent consumption (i.e production + imports - exports +/- variation in stocks) of total finished steel after adjusting for double counting in flat products. The trend in real consumption of total finished steel is shown below, year-wise.
Real Consumption of Total Finished Steel
(million tonnes)
Year
Real Consumption
1991-1992
14.836
1992-1993
15.811 (6.6%)
1993-1994
16.114 (2.0 %)
1994-1995
19.550 (21.3 %)
1995-1996
22.370 (14.4 %)
1996-1997
23.294 (4.1%)
1997-1998
23.808 (2.2%)
1998-1999
24.710 (3.8%)
1999-2000
26.348 (6.6%)
2000-2001
27.649 (4.9%)
2001-2002
28.523 (3.2%)
2002-2003
30.677 (7.6%)
2003-2004
33.119 (8%)
2004-2005
36377 (9.8%)
2005-2006
41.433 (13.9%)
2006-2007
46.783 (12.9%)
2007-2008
52.125 (11.4%)
2008-2009
52.351 (0.4%)
2009-2010
59.339 (13.3%)
2010-2011
66.423 (11.9%)
2011-2012 (prov)
70.915 (6.8%)

1.11 The Growth Profile :

(i) Steel :
                    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. While the existing units are being modernized/expanded, a large number of new steel plants have also come up in different parts of the country based on modern, cost effective, state of-the-art technologies. In the last few years, the rapid and stable growth of the demand side has also prompted domestic entrepreneurs to set up fresh greenfield projects in different states of the country.
Crude steel capacity was 89 mt in 2011-12 (prov) and India, the 4 th largest producer of crude steel in the world, has to its credit, the capability to produce a variety of grades and that too, of international quality standards. The country is expected to become the 2 nd largest producer of crude steel in the world by 2015-16, provided all requirements for creation of fresh capacity are adequately met.
(ii) Pig Iron :
                           India is also an important producer of pig iron. Post-liberalization, with setting up several units in the private sector, not only imports have drastically reduced but also India has turned out to be a net exporter of pig iron. The private sector accounted for 91% of total production for sale of pig iron in the country in 2011-12 (provisional). The production of pig iron has increased from 1.6 mt in 1991-92 to 5.78 mt in 2011-12 (provisional).

(iii) Sponge Iron :
                                     India is the world’s largest producer of sponge iron with a host of coal based units, located in the mineral-rich states of the country. Over the years, the coal based route has emerged as a key contributor and accounted for 76% of total sponge iron production in the country (20.37 mt in 2011-12; prov.). Capacity in sponge iron making too has increased over the years and stands at around 35 mt.

1.12 Market value of the Indian steel sector :
In 2011, the Indian steel sector’s total market value was US$ 57.8 billion.

Market value of the Indian steel sector

1.13 Export and Import of steel from india :
                                                                                           The steel exports of India over the decade have the compounded annual growth rate (CAGR) of 22.27% against CAGR of imports of steel, which accounted 14.20% in the respective period. In 1991-92, very inception of the Liberalization, the steel exports amounted to 368 thousand tons, which increased year-by-year and reached to 5221 thousand tonnes in 2003-04. It accounted for thirteen-fold increase over the period. The Annual growth rates of exports of steel for the period showed the fluctuating trend, which ranged between –14.41% in 1994-95 and 101.36 in 1992-93. In 2003-04, the growth rate was 15.87 %.

1.14 Exprot of Iron & steel :
                                                           Advance Licensing Scheme allows duty free import of raw materials for exports. Duty Entitlement Pass Book Scheme (DEPB) introduced to facilitate exports. Under this scheme exporters on the basis of notified entitlement rates, are granted due credits which would entitle them to import duty free goods. The DEPB benefit on export of various categories of steel items scheme has been temporarily withdrawn from 27th March 2008, to increase availability in the domestic market.
On the other hand, the imports are also growing. In 1991-92, the imports of steel amounted to 1043 tonnes. But in 1999-2000, it touched 2200 tonnes, which is the highest import of steel in India, and then the imports went down and reached 1650 tonnes in 2003-04. In 1991-92, the year of liberalization, the imports of steel in India exceeded over the exports of steel. But in the following years the trend changed. From 1997-98, India exported steel and steel products which was more than its imports of steel and steel products

1.15 SWOT ANALYSIS OF THE INDUSTRY :

Strengths
1. Availability of iron ore and coal
2. Low labour wage rates
3. Abundance of quality manpower
4. Mature production base
Weaknesses
1. Unscientific mining
2. Low productivity
3. Coking coal import dependence
    4.      Low R&D investments
    5.      High cost of debt
6.         Inadequate infrastructure
Opportunities
1.       Unexplored rural market
    2.      Growing domestic demand
3.       Exports
    4.      Consolidation
    Threats
1.       China becoming net exporter
2.       Protectionism in the West
3.       Dumping by competitors.


Bibliography :












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