33
CHAPTER - II
ROLE OF STEEL INDUSTRIES IN INDIA
INTRODUCTION
Steel plays a crucial role in the development of any modern economy. Per
capita consumption of steel is accepted as a measure of the level of socio
economic development as well as an indicator of living standard of the people.
Also, iron is the second most abundant metal on Earth (first being Magnesium)
and is one of the oldest inventions in the world with its first reported in 4000 BC.
In India, usage of steel is traced back to 4000 BC when the Greek emperor’s
recruited Indian archer for their army who used arrows tipped with steel. One of
the finest and oldest examples of steel usage in India is the famous Sun Temple
at Konark in Orissa, built during 1200 AD, where steel structural has been used
first time in the world.1
GLOBAL STEEL INDUSTRY
Till the early 19th century, the steel industry globally, was primitive and
fragmented in nature as no country took the lead in the production and
consumption of steel. In the late 19th century the UK emerged as the market
leader and globally controlled two thirds of steel production and consumption.
However, by the early 20th century, with its abundant deposits of iron ore and
demand for railroads, the US became the largest producer and consumer of
steel. Moreover, in the 1920’s the phenomenal growth of the automobile industry
in the US, further exploded the demand for steel. General Motors, Chrysler and
Ford cameforth as the major consumers. Between 1920 and 1930, the
34
automotive industry became the most important consumers of steel across the
globe. In the early 1940s, nations like Japan, Korea, Germany, USSR2 and
France, developed their own steel industries based on the state-of-the-art
technology. However till World War II, being the largest producer and consumer
of steel, the US dominated the global steel market. After that, throughout the
1950s and 1960s, the steel industry experienced accelerated growth due to
strong demand from the major economies across the globe. As a result, between
1960s and 1970s, countries like Japan, Germany, USSR3 and Korea started
producing the finest quality steel and had a few world class steel companies, like
Nippon Steel (1961), Thysssen(1964)4, NTMK5 (1965) and POSCO (1968).
Steel industries, till the early 90’s were developed to cater mostly to the
domestic demand, with limited international pressure. Globally, the industry was
fragmented and because of the domestic demand-supply mismatch, individual
nations had excess capacity. This excess capacity put pressure on the global
steel prices and steel industry. In the late 1990s, the industry experienced the
lowest price ever. To survive, some of the larger companies resorted to Merger
and Acquisition ( M&A) strategy.
During the decade of 90s, Mintal Steel (started in 1976 in Indonesia)
acquired six companies across Europe and the US, and has become the second
largest steel company of the world. Towards the end of the 20th and the early 21st
century, the global steel industry experienced a few more M&A as Kawasaki and
NKK of Japan formed JFE Steel Corp 1998), Thyssen and Krupp of Germany
merged into Thyssen-krupp (1999) and British Steel (UK) and RoyalHoogovens
35
(Netherlands) merged to form Corpus (1999). Besides, three of Europe’s major
steelmakers, Usinor (France), Arbeed (Luxembourg) and Arcelia (Spain),
consolidated into Arcelor (2002). Mittal steel, during this period, aggressively
acquired a few companies in East European countries (Romania, and Bosnia) for
consolidating its global presence. The company, after acquiring ISG (US) in
2004, became the largest steel company followed by Arcelor (France), Nippon
Steel (Japan) and POSCO (South Korea). During this period, world’s biggest
steel makers were investing to but smaller competitors to gain market share.
During 2004-05, mergers and acquisitions in the global steel industry have
totalled US$ 25 bn, of which Arcelor and Mittal Steel spent US$10 bn on
acquisitions. This consolidation helped the top five producers account for 60
percent of the total steel production in Western Europe and 50 per cent and 60
percent of that in North America and Japan, respectively. But, the industry
remained highly fragmented globally, among ten largest producers accounting for
only 30 percent of the global steel production. The top five mining and
automobile companies, however, accounted for 90 per cent and 65 per cent of
the global output, respectively.
The Steel industry is grows very fast. Steel, the recycled material is one
of the top products in the manufacturing sector of the world. Over the years,
particularly after the adaptation of the liberalization policies all over the world.
Steel industry is a booming industry in the whole world. The increasing demand
for it was mainly generated by the development projects that have been going on
along the world. Especially the infrastructural works and real estate projects that
36
has been on the boom around the developing countries. Steel Industry was still
recently dominated by the United States of America but this scenario is changing
with a rapid pace with the Indian Steel companies on an acquisition spare. In the
last one year, the world has seen two big Merger and Acquisition (M &A) deals to
take place.
1. The Mittal Steel, listed in Holland, has acquired the world’s largest steel
Company called Arcelor Steel to become the world’s producer of Steel
Arcelor Mittal.
2. Tata Steel of India or TISCO (as listed in BSE) has acquired the worlds
one fifth. The largest steel company, Corus, occupies the highest ever
stock price.
It has been observed that Steel Industry has grown tremendously in the
last one and a half decade with a strong financial condition. The increasing
needs of steel by the developing countries for its infrastructural projects have
pushed the companies in this industry near their operative capacity. The most
significant growth that can be seen in the Steel industry has been observed
during the period 1960 to 1974 when the consumption of steel around the whole
world doubled. Between these years, the rate at which the growth of steel
industry has been recorded to be 5.5 %. This roaring market saw a phase of
deceleration from the 1975 which continued till 1982. After this period, the
continuous fall slowed down and again started its movement from the early
1990s.
37
Steel Industry is becomes more and more competitive with every passing
day. During the period from 1960s and to late 1980s, the steel market used to be
dominated by OECD (Organization for Economic Co-operation and
Development) countries. But with the fast emergence of developing countries like
China, India and South Korea in this sector has led to slopping market share of
OECD countries. The balance of trade line is also tilting towards these countries.
The main demand creators for Steel Industry are Automobile industry,
Construction Industry, Infrastructure, Oil and Gas Industry, and Container
Industry.6
Innovations are also taking place in Steel Industry for cost minimization
and at the same time production maximization. Some of the cutting edge
technologies that are being implemented in this industry are thin-slab casting,
making of steel through the use of electric furnace, vacuum degassing, etc. The
Steel Industry has enough potential to grow at a much accelerated pace in the
coming future due to the continuity of the developmental projects around in the
world. The industry is at present working near its productive capacity which
needs to be increased with increasing demand.
GLOBAL RANKING OF INDIAN STEEL
Global crude steel production reached 1,414 million metric tonnes (mmt)
for the year of 2010. This is an increase of 15% compared to 2009 and is a new
record for global steel production. All the major steel producing countries and
regions showed double-digit growth in 2010. The EU and North America had
38
higher growth rates due to the lower base effect from 2009 while Asia and the
CIS recorded relatively lower growth.
In December 2010, world crude steel production for the 66 countries
reporting to the World Steel Association (world steel) was 116.2 mmt, an
increase of 7.8 per cent compared to December 2009. The crude steel capacity
utilization ratio of the 66 countries in December 2010 declined slightly to 73.8
percent when compared to December 2009, the utilization ratio is 1.1 percentage
higher in December 2010. The world crude steel production is shown in table 2.1.
TABLE – 2.1
WORLD CRUDE STEEL PRODUCTION
Year Million Tonnes % Change
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
847
852
902
959
1002
1041
1053
1066
1097
1124
1414
+7.4
+0.6
+5.8
+6.4
+4.5
+3.9
+1.1
+1.2
+3.0
+5.0
+7.0
Source: Global Steel Industry Review 2010
39
The major steel producing countries in shown in table 2.2
TABLE NO. 2.2
MAJOR STEEL PRODUCING COUNTRIES
Rank Country 2010 2009 % 2010/ 2009
1 China 626.7 573.6 9.3
2 Japan 109.6 87.5 25.2
3 US 80.6 58.2 38.5
4 Russia 67.0 60.0 11.7
5 India 66.8 62.8 6.4
6 South Korea 58.5 48.6 20.3
7 Germany 43.8 32.7 34.1
8 Ukraine 33.6 29.9 12.4
9 Brazil 32.8 26.5 23.8
10 Turkey 29.0 25.3 14.6
Source: World Steel Association 2010.
It is observed from the above table that the Annual production of Asia was
881.2 mmt of crude steel in 2010, an increase of 11.6 per cent compared to
2009. Its share of world steel production increased to 65.5 per cent in 2010 from
63.5 per cent in 2009. China’s share of world crude steel production declined
from 46.7 per cent in 2009 to 44.3 per cent in 2010. Japan produced 109.6 mmt
in 2010, 25.2 percent higher than 2009. In 2010, South Korea’s crude steel
production was 58.5 mmt, a 20.3 per cent growth compared to 2009.
40
FIGURE 2.1
MAJOR STEEL PRODUCING
COUNTRIES
0
100
200
300
400
500
600
700
2010 2009
Year
mm
t
China Japan US Russia
India South Korea Germany Ukraine
Brazil Turkey
41
The EU recorded an increase of 24.5 per cent compared to 2009,
producing 172.9 mmt of crude steel in 2010. However, crude steel production in
the UK and Greece continued to decline in 2010. In 2010, crude steel production
in North America was 111.8 mmt, an increase of 35.7 percent on 2009. The US
produced 80.6 mmt of crude steel, 38.5 per cent higher than that of 2009.The
CIS showed an increase of 11.2 per cent in 2010, producing 108.4 mmt of crude
steel Russia produced 67 mmt of crude steel, an 11.7 per cent increase on 2009
and Ukraine recorded an increase of 12.4 per cent with a year-ended figure of
33.6 mmt. The consumption of steel by major countries is given table 2.3.
TABLE NO. 2.3
CONSUMPTION OF STEEL
Country Per Capita Kg
World Average 190.4
European Union ( 27) 368.9
Taiwan 717.8
South Korea 1210.4
P.R.China 318.5
USA 315.6
Russia 249.6
Canada 451.5
Japan 597.1
India 44.3
Source: Steel Statistical Year Book 2009
42
GLOBAL DEMAND FOR STEEL
Global demand for steel is forecasted to grow 10-12 percent annually in
China, which is already by far the largest market for steel in the world, will
register the biggest gains in terms of the total amount of steel sold.
According to World Steel Association (WSA) figure India ranked fifth
among major steel producing countries at 66.8 mt. That’s still just five per cent of
the world production. Demand has been growing every year at 10-12 per cent.
So the market can absorb the additional capacity. Per capita consumption in
India is 46 kg compared to a world average of 200 kg in the year 2010. However,
the government has set an ambitious target of becoming the second largest steel
producer in the world. That’s based on the Memorandum of Understanding
(MoUs) that have been signed. Around 222 MoU have been signed to create
capacity of 276 mt steel, At present Japan is the second largest producer with a
capacity of 87.5mt.7
43
FIGURE 2.2
CONSUMPTION OF STEEL
190.4368.9
717.8
1210.4318.5
315.6
249.6
451.5
597.1
44.3
World Average European Union ( 27)
Taiwan South Korea
P.R.China USA
Russia Canada
Japan India
44
The Indian Steel Sector Development
At the time of independence in 1947 India had only three steel plants- the
Tata Iron & Steel Company, the Indian Iron and Steel Company and Visveswara
Iron and Steel Ltd and a few electric or furnace based plants. The period till 1947
thus witnessed a small but a viable steel industry in the country, which operated
with a capacity of about 1 million tonne and was completely in the private sector.
From the fledgling one million tonne capacity status at the time of independence,
India has now risen to the 5th largest crude steel producer in the world and the
largest producer of sponge iron. As per official estimates, the Iron and Steel
Industry contributes around 2 percent of the Gross Domestic Product ( GDP) and
its weight in the Index of Industrial Production ( IIP) is 6.2 per cent. From a
negligible global presence, the Indian steel industry is now globally
acknowledged for its product quality. As it traversed its long history during the
past 61 years, the Indian Steel Industry has responded to the challenges of the
ups and downs of business cycles. The first major change came during the first
three Five-Year – Plans (1952-1970) when in line with the economic order of the
day, the iron and steel industry was earnmarked for state control. From the mid -
1990, 50 per cent to the early 1970s, the government of India has set up large
integrated steel plants in the public sector at Bhilai, Durgapur, Rourkela and
Bokaro. The policy regime governing the industry during these years involved.
Capacity control measure: Licensing of capacity, reservation of large-
scale capacity creation for the public sector units.
45
A dual-pricing system: Price and distribution control for the integrated,
large scale production in both the private and public sectors, while the
rest of the industry operated in a free market.
Quantitative restrictions and high tariff barriers.
Railway freight equalization Policy: To ensure balanced regional
industrial growth.
Controls on imports, including technology, capital goods and mobilization
of finances and exports.
The large-scale capacity creation in the public sector during these years
contributed to making India the 10th largest steel producer in the world as
crude steel production grew marketably to nearly 15 million tonnes in the
span of a decade from a mere 1 million tonne in 1947.
1970
But the trend could not be sustained from the late 1970’s onwards, as the
economic slowdown adversely affected the pace of growth of the Indian Steel
Industry. However, this phase was reserved in 1991-92, when the country
replaced the control regime by liberalization and deregulation in the context
of globalization.
1990
The provision of the New Economic Policy initiated in the early 1990’s
impacted the Indian Steel Industry in the following ways.
Large-scale capacities were removed from the list of industries
reserved for the public sector. The licensing requirement for
46
additional capacities was also withdrawn subject to locational
restrictions.
Private sector came to play a prominent role in the overall set- up.
Pricing and distribution control mechanisms were discontinued.
The iron and steel industry was included in the high priority list for
foreign investment, implying automatic approval for foreign equity
participation up to 50 per cent subject to the foreign exchange and
other stipulations governing investments in general.
Freight equalization scheme was replaced by a system of freight
ceiling.
Quantitative import restrictions were largely removed. Export
restrictions were withdrawn.
1992
With the opening up the economy in 1992, the country experienced rapid
growth in steel making capacity: Large integrated steel plants were set up in the
Private Sector by Essar steel, Ispat Industries, Jindal Group etc. Tata Steel also
expanded its capacity. To sum up, some of the notable milestonnes in the period
were.
Emergence of the private sector with the creation of around 9
million tonne of steel capacity based on state-of-the art technology.
Reduction or dismantling of tariff barriers, partial float of the rupee
or trade account, access to best-practice of global technologies and
consequent reduction in costs-all the factors enhanced the
47
international competitiveness of Indian steel in the world export
market.
1997
After 1996-97, with the steady decline in the domestic economic growth
rate, the Indian steel Industry’s pace of growth slowed down and in terms of all
the performance of the industry fell below average. In foreign trade, Indian steel
was also subjected to anti-dumping, safeguard duties as most developed
economies invoked non-tariff barriers. Economic devastation caused by the
Asian financial crisis, slowdown of the global economy and the impact of glut
created by additional supplies from the newly steel active countries.
2002
From the year 2002, the global industry turned, helping to a great extent
by China, whose spectacular economic growth and rapidly-expanding
infrastructure led to soaring demand for steel, which domestic supply could not
meet. At the same time, recoveries in major markets took place, reflected by
increase in production, recovery of prices, return of profitability, emergence of
new markets, lifting of trade barriers and finally, rise in steel demand globally.
The situation was in different for the Indian steel industry, which now had
acquired a degree of maturity, with emphasis on intensive R &D activities,
adoption of measures to increase domestic per capita consumption, and other
market development projects, import substitution measures, thrust on export
promotion and exploring global avenues to fulfil input requirements.
48
2005
The National Steel Policy (NSP) was announced in November 2005 as a
blueprint for the growth of a self- reliant and globally competitive steel sector. The
long term objective of the National Steel Policy is to ensure that India has a
modern and efficient steel industry of world standards, catering to diversified
steel demand. The focus of the policy is to attain levels of global competitiveness
in terms of global benchmarks of efficiency and availability of production inputs,
increased investment in research and development, and creation of road, railway
and port infrastructure. The policy focuses not only on the domestic sector, but
also envisages steel growing faster than domestic consumption, which will
enable export opportunities to be realized.
Indian Steel Industry- Background
Till 1990s, the Indian Steel Industry operated under a regulated
environment with insulated markets and large scale capacities reserved for the
public sector. Production and prices were determined and regulated by the
Government, while SAIL and Tata Steel were the main producers, the latter
being the only private player. In 1990s, the Indian Steel Industry had a production
capacity of 23 MT, in 1992 the onset of liberalization and the Indian economy
was opened to the world. Indian steel sector also witnessed the entry of several
domestic private players and large private investments followed by sector to add
fresh capacities.
Steel Industry in India is on an upswing because of the strong global and
domestic demand. India’s rapid economic growth and soaring demand by sectors
49
like infrastructure, real estate and automobiles, at home and abroad, has put
Indian Steel Industry on the global map. According to the latest report by
International Iron and Steel Institute (IISI), India is the fifth largest steel producer
in the world.
The origin of the Indian Steel Industry can be traced in 1953 when a
contract for the construction of integrated steel works in Rourkela. Orissa was
signed between the Indian government and the German companies Fried Krupp
and Demad AG. The initial plan was an annual outlay of 5 lakh tonnes, but this
was subsequently raised to 1 million tonnes. The capacity of Rourkela Steel
Plant ( RSP), which belongs to the SAIL ( Steel Authority of India Limited.) group,
is presently about 2 million tonnes. At a very early stage the former USSR and a
British consortium also showed an interest in establishing a modern steel
industry in India. This resulted in the Soviet – aided building of a steel mill
boundary which also had a million tonne capacity.
The Indian steel industry is organized in three categories ie., main
producers, other major producers and the secondary producers. The main
producers and other major producers have integrated steel making facility with
plant capacities over 0.5 MT and utilize iron ore and coal/ gas for production of
steel. The main producers are Tata Steel, SAIL, and RINL, while the other major
producers are ESSAR, ISPAT and JVSL. The secondary sector is dispersed and
consists of:
(1) Backward linkage from about 120 sponge iron producers who use iron ore
and non –coaking coal, providing feedstock for steel producers.
50
(2) Approximately 650 mini blast funaces, electrics , induction furnaces and
energy optimizing funaces that use iron ore, sponge iron and melting
scrap to produce steel, and
(3) Forward linkage with about 1,200 re-rollers that roll semis into finished
steel products for consumer use.
Since independence, India has experienced steady growth in the steel
industry, thanks in part to the successive Governments that have supported the
industry and pushed for its robust development. Further illustrating this plan the
number of steel plants were established in India, with technological assistance
and investment by foreign countries.
In 1991, a substantial number of economic reforms were introduced by the
Indian Government. These reforms boosted the development process of a
number of industries the steel industry in particular-which has subsequently
developed quite rapidly.
India continually posts phenomenal growth records in steel production. In
1992, India produced 14.33 million tonnes of finished carbon steels and 1.59
million tonnes of pig iron. Furthermore, the steel production capacity of the
country has increased rapidly since 1991. India produced nearly 46.575 million
tonnes of finished steels and 4.393 million tonnes of pig iron in 2009. Both
primary and secondary producers contributed their share to this phenomenal
development. Hence the steel industry has met demand for finished steel at very
stable rate.
51
In 1992, the total consumption of finished steel was 14.84 million tonnes.
In 2009, the total amount of domestic steel consumption was 43.925 million
tonnes. With the increased demand in the national market, a huge part of the
international market is also served by this industry. Today, India is in seventh
position among all the crude steel producing countries.
The Asian countries have their respective dominance in the production of
the steel all over the world. India, being one among the fastest growing
economies of the world has been considered as one of the potential global steel
hubs internationally.
Under the dispensations of the government’s Industrial Policy of the Post-
liberalization era, four steps changed the direction of the steel industry in India.
The following are:
1. Freedom to set up integrated steel plants in the private sector.
2. Placing imports of steel under OGL (Open General License).
3. Reduction of imports duties on both steel and scrap and
4. Decontrol of domestic prices.
52
TYPES OF STEEL PRODUCT IN INDIA
All steel products are made from semi-finished steel that comes in the
form of slabs, billets and blooms. Though today there are over 3500 varieties of
regular and special steel available, steel products can be broadly classified into
two basic types according to their shape.
a) Flat Products
Derived from slabs this category includes plates and Hot Rolled Steel
such as Coils (or) Sheets. While plates are used for applications such as
construction, shipbuilding etc., HR steel is the most widely used variety of steel
and other downstream flat products such as Cold Rolled Steel and Galvanised
steel are made from it.
HR steel has a variety of applications in the manufacturing sector. It is
primarily used for making pipes and has many direct industrial and manufacturing
applications, including the construction of tanks, railway cars, bicycle frames,
ships, engineering and military equipment and automobile and truck wheels,
frames and body parts. Cold Rolled Steel is used primarily for precision tubes,
containers, bicycles, furniture and for use by the automobile industry to produce
car body panels. Galvanised Steel is used for making roofs in the housing and
construction sector.
b) Long Products
These products derive their name from their shape made using billets and
blooms they include rods, bars, pipes, ropes and wires, which are used largely by
53
the housing/ construction sector. There are also other products like rail tracks in
the category.
Semi finished steel is also used to produce other varieties of specialized
steel such as Alloy Steel.
Growth of India steel industry since 2005
The National Steel Policy 2005 has projected consumption to grow at 7 %
based on a GDP growth rate of 7 – 7.5 % and production of 110 million tonnes by
2019-2020. The estimates will be largely exceeded and it has been assessed on
the basis of the most likely scenario, the crude steel production capacity in the
country by the year 2011-2012 will be nearly 124 million tonnes.
The table 2.4 shows the trend in, import, export and consumption of total
finished steel (alloy + none alloy).
TABLE 2.4
TOTAL FINISHED STEEL
Year Total finished steel (alloy + non alloy ) ( ‘000 tonnes)
Import Export Consumption
2004-05 2293 4705 36377
2005-06 4305 4801 41433
2006-07 4927 5242 46783
2007-08 7029 5077 52125
2008-09 5841 4437 52125
2009-10*
(Apr-Dec)
5210 2099 40997
Source: Joint Plant Committee Report 2010.
54
Crude steel production has shown a sustained rise since 2004-05 along
with capacity. crude steel production, and capacity utilization are given in the
table below 2.5
TABLE 2.5
Crude Steel
Year Capacity
( ‘000 tonnes)
Production
(‘000 tonnes)
Capacity
Utilization (%)
2004-05 47995 43437 91
2005-06 51171 46460 91
2006-07 56843 50817 89
2007-08 59845 53857 91
2008-09 66343 58437 88
2009-10*
(Apr-Dec) 72763 45775 84
Source: Steel Statistical Year Book 2010
Trends in Production, Private / Public Sector
Traditionally, Indian Steel Industry has been classified into three
categories
1) Main Producers are SAIL, and Tata Steel, Vizag Steel, and RINL
2) Major Producers are plants with crude steel making capacity above 0.5
million tonne- Easser Steel, JSW Steel, Jindal Steel & power and Ispat
Industries and
3) Other Producers are the latter comprises of numerous steel making
plants producing crude steel/ finished steel (long product/ flat product/ pig
55
iron / sponge iron) are spread across the different states of the country.
The table 2.6 highlights the total production by the private and public
sector.
TABLE 2.6
INDIAN CRUDE STEEL PRODUCTION
( In million tonnes)
2005-06 2006-07 2007-08 2008-09 2009-10
Public sector 16.964 17.003 17.091 16.372 12.483
Private Sector 29.496 33.814 36.766 42.065 33.292
Total Production. 46.40 50.817 53.857 58.437 45.775
% share of Public
Sector 36.53 33.500 32.000 28.000 27.000
Source: Joint Plant Committee Report 2010.
Present growth scenario of Indian Steel Industry
India was the fifth largest producer of crude steel in the world in 2009,
based on ranking released by World Steel Association. Domestic crude steel
production grew at a compounded annual growth rate of 8.6 per cent during
2004-05 to 2008-09. This growth was driven by both capacity expansion (from
47.99 million tonnes in 2004-05 to 66.343 million tonnes in 2008-09) and
improved capacity utilization. India, the world’s largest producer of Direct
Reduced Iron (DRI) or sponge iron, is also expected to maintain its lead in the
near future. Sponge iron production grew at a CAGR of 11 per cent to reach a
level of 21.09 million tonnes in 2008-09 compared to 12.54 million tonnes in
56
2004-05. India is expected to become the second largest producer of steel in the
world by 2015-16, provided all requirements for fresh capacity creation are met.
Indian steel industry has just come out of the slowdown that affected its
performance during 2008-09. Domestically, 2009 ended on a relatively better and
encouraging note, with CSO reporting an overall improvement of economic
situation through GDP data, which showed a robust 7.9 per cent growth July-
September 2009-10. IIP too had registered a strong 7.6 per cent growth during
April – November 2009-10, further bolstering the idea that the demand side is
back on stable footing. For steel, this is of key importance and the growth rates
registered for leading end-use segments like manufacturing, consumer durables,
construction, the stable growth of the service sector and agriculture sector. Spell
goods news. April – December 2009 provisional data released by JPC indicates
a 7.8 per cent rise in consumption of total finished steel. Globally also there are
signs of improvement in economic conditions and firming up of demand and
prices. The apparent consumption of finished steel in given in table 2.7.
57
FIGURE 2.3
INDIAN CRUDE STEEL PRODUCTION
0
10
20
30
40
50
60
70
2005-06 2006-07 2007-08 2008-09 2009-10
Year
in m
illi
on
to
nn
es
Public sector Private Sector Total Production.
58
TABLE 2.7
APPARENT CONSUMPTION OF FINISHED STEEL
(‘000 tonnes)
Year Production Import Total
Availability Export
Apparent
Consumption
2000-01 29251 1418 30669 2669 28003
2001-02 30624 1271 31895 2704 29191
2002-03 33625 1510 35135 4498 30637
2003-04 36916 1540 38456 4835 33621
2004-05 40000 2109 42109 4375 37734
2005-06 44513 3848 48361 4450 43911
2006-07 50130 4438 54568 4894 49674
2007-08 53253 6579 59832 4600 55232
2008-09 53407 5149 58556 3577 54979
2009-10 53710 5500 58500 3700 54100
Source: Steel Statistical Year Book 2010.
59
The market growth rate in given in table 2.8
TABLE 2.8
MARKET GROWTH RATES ( %)
Steel Strls
1990-91 - 1996-97
1996-97 - 2001-02
2001-02 – 2006-07
2006-07 – 2011-12
2011-12 – 2019-20
9.1
5.3
9.7
6.7
7.3
6.7
0.7
2.2
4.9
3.8
Source: Cygnus Business Consulting & Research Pvt Ltd, 2010.
Liberalization of the Indian Steel Sector
The new economic policies pursued by the government during the post-
liberalization era, since, 1991, opened up floodgate opportunities for the
expansion of the steel industry. The important policy measures, which were
taken for growth and development of the sector since then are as follows;
Removal of iron and steel from the list of industries reserved for the
public sector and also their exemption from the provision of compulsory
licensing Under the Industries Development and Regulation Act.
Inclusion of iron and steel industry in the list of ‘high priority’ industries
for a automatic approval of foreign equity investment up to 51% ( Now
75%).
Deregulation of price and distribution of steel from January 1992, even
when retaining the priority for meeting the requirements of small-
60
scale industries exporters of engineering goods and north region,
besides strategic sectors such as defence and railways.
Liberalization of import regime in respect of iron and steel moving
gradually, From a controlled import by way of licensing, forex release,
canalization and heavy duty to total freeing and lowering for duty
levels. Export of iron and steel items was also freely allowed.
Import duty on capital goods was reduced from 55% to 25%. Duties on
raw materials for steel production were reduced. These measures
reduced the capital cost and production cost of steel plants.
Withdrawals of freight equalization scheme in January 1992, removing
freight disadvantage to states located near steel plants. At the same
time, it was ensured that for a-flung areas and distant states were
protected by stipulating that beyond the freight ceiling distance, the
main producers would continue to bear the freight charges.
Levy on account of Steel Development Fund discontinued from April
1994 providing greater flexibility to main producers to respond to
market forces.
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SWOT ANALYSIS OF INDIAN STEEL INDUSTRY
The strengths, weaknesses, opportunities and threats for the Indian Steel
Industry have been tabulated below. The national steel policy lays down the
broad roadmap to deal with all of them. Chart 2.1 shows the SWOT ANALYSIS.
CHART 2.1
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. Coaking 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. Dumpling by competitors
Addressing the Weakness and Threats
The scale required in key production inputs and supporting infrastructure to
sustain the estimated growth in demand by 2017-18 is outlined in the above
chart.
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Input Weakness
Although India is rich in iron ore, the availability of large lumpy grades
suitable for blast furnace operations are low, constituting only 9 % of the total
deposits. Even this availability has not been exploited fully. Nearly 50 % of the
mining leases granted by the government appear to have remained unutilized.
The government’s strategy to step up iron ore availability would be fourfold.
1. Firstly, to increase mining capacity from the 120 million tonnes per
annum to 180 million tonnes over the next 15 years.
2. Expeditious clearances for commencing mining operation and to
ensure that leases are granted only to genuine parties with feasible
investment plans, technical and financial capability, and encourage
captive mines for integrated players.
3. Leverage iron ore exports high in demand internationally, for import
of high grade coaking coal.
4. Create more sintering and pelletisation capacity to enable iron
ores of smaller sizes and firms. It might be noted that National
Mineral Development corporations ( NMDC) has an agreement with
Russia to adopt Romalt process for using fines of iron ores to make
steel in future. This technology when commercially stabilized
should give a big thrust to Indian steel production.
The coaking coal availability would continue to be a weak link in the
growth of the steel sector. At present, the consumption is estimated at 20 million
tonnes are imported. The coking coal requirement would increase to 70 million
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tonnes per annum by 2019-20, and given the reserve depletions, 85 per cent of
the requirement is expected to be met through imports. The government’s policy
would be to promote the following
Setting up of joint ventures with mining companies abroad by steel
producers and ensure committed lines of supply.
Continued allocation of coaking blocks to steel producers with freedom
to supply surplus to others.
Promote new technologies and aggressively pursue coal washing and
beneficiation.
Non-coaking coal used as a source of energy is also a constraint with
declining mining efficiency and production. Moreover, the high ash content
increases cost of production in terms of washing and removal of
impurities. The government policy would give priority in allocating non-
coaking coal ( with ash content below 12%) to steel and sponge iron
industry. The government would encourage joint ventures between public
sectors and private players to enhance production. Greater flexibility in
diverting surplus to other users and reallocation of unused mining sites
would also be granted.
Natural gas is used as a major source of energy as well as feedstock for
manufacturing sponge iron. Their availability is however limited. The
system of allotment of natural gas and their prices would be continuously
reviewed to protect the interests of producers and users.
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Modernising and upgrading refractory industry, and closer interaction
between steel and refractory industry, to enhance quality of refractory
material used in furnaces and reduce cost of production, by saving on
downtime and facilitating hot repairs.
Infrastructural Bottlenecks
Expand and strengthen the railways network. At present, the railways
suffer lack of cost competitiveness due to a policy of cross-subsidizing
passenger fares with higher freight charges. The steel industry would be
encouraged to collaborate in creating new lines and augmenting wagon
capacity.
Geographical coverage of roads is low with weak linkage to highways,
which put excessive load on highway traffic with resulting slowdown of
ferrying time. The expansion plans of steel industry would require to be
integrated with expansion plans of roadways infrastructure.
Expand cargo handling capacity at major ports, to sustain import and
export growth.
Additional power requirement of 7000 MW to be met by encouraging
captive generation.
Competition Threats
Vertical integration to span larger areas of the value chain is considered a
viable long-term strategy by industry experts. While the iron and coal
mining capacities are concentrated within few players, steel manufacturing
capacity is relatively fragmented. The industry has plans to consolidate to
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realize economies of scale and also integrate backward to reduce cost of
production to withstand competition.
From a commodity product the players are preparing to convert steel to a
value-added branded product with distinctive features.
Expansion Plans in the Industry
The industry has already geared up for major expansion expansions
programs of the leading steel producers in the country are mentioned below:
Steel Authority of India ( SAIL) has planned to add 12 million tonnes
capacity by 2011-12 at an estimated cost of `25,000 cr. This would
double SAIL’s finished steel output to 16.6 million tonnes from the present
level of 8.6 million tonnes. SAIL has planned gradually to reduce the
volume of semi-finished steel products shares in the total production of
saleable steel to 4 per cent by 2011-12 as against the 20 per cent at
present.
TISCO has planned to invest `7,800 cr over the next five years to raise its
capacity by another 2.4 million tonnes to a total of 7.4 million by 2010.
RINL’s Vizag Steel Plant has decided to take its present rated capacity of
3.5 million tonnes of liquid steel to 5 million tonnes by 2009-2010 in its
phase I expansions plant at a cost of ` 2,500 cr.
Ispat Industries Ltd has planned to increase its production capacity at its
Dolvi plant in Maharashtra from 2.5 million tonnes to 3.2 million tonnes at
an investment of `1,000 crore. With balancing and de-bottlenecking, the
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capacity for production of hot-rolled steel would reach 3.6 million tonnes
by 2011-12.
JVSL is installing a new blast furnace and has planned to expand its hot
metal capacity from the existing 1.6 million tonnes to 4.0 million tonnes by
2009-10 at an investment of `2,500 cr.
Essar Steel Ltd. is to set up a 1 million tonnes capacity blast furnace to
expand its existing capacity to 3.4 million tonnes by 2011-12.
Jindal Steel and Power Ltd. (JSPL) will expand the steelmaking capacity
from 1.15 million tonnes to 2.15 million tonnes at an investment of
Rs1,200 cr. The company is also expanding its DRI production capacity
from the existing 0.65 million tonnes per year to 1.31 million tonnes per
year and will increase its power generation capacity from 205 to 255 MW.
Bhusan steel and Strips will expand the production of its Khopoli Plant by
0.5 million tonnes for the production of CRCA coils and sheets, GP/GC
sheets and coils, precision tubes and CDW tubes for application in the
automotive industry.
In the state of Orissa alone, a large number of Greenfield projects
envisaging an investment of over `50,000 cr are expected to come up.
Some of these are,
BHP Billiton Australia in collaboration with Posco of South Korea for a 10
million tonnes plant at Duburi at an investment of ` 39,000 cr.
TISCO’s investment between ` 12,000 to 15,000 cr is to set up a 6 million
tonnes steel plant at Duburi in Orissa.
67
SPS Sponge Iron Ltd. has an installation of a `400 cr sponge iron/ steel
making plant a Jharsaguda in Orissia. The company intends to set up a
0.22 million tonnes sponge iron plant and then add a 0.26 million tonnes
capacity billet caster and install a blast furnace to produce 2,00,000 million
tonnes of cold pig iron and a rolling mill to produce 0.22 million tonnes of
finished steel per annum.
Sunflag iron and Steel Co. is to set up a 1 million tonnes plant at
Sambalpur district at an investment of ` 937 cr.
Orissa Sponge Iron and Steel Co has proposed to invest `1037 cr in two
phases for plants at Gurla and Govindpur in Sambalpur district.
Bhusan Steel and Strips Ltd. has planned to install a 2.8 million tonnes
capacity has strip plant at Lapanga in Jharsguda district at a cost of
`3,500 crore in two phases .
Jindal Stainless steel is to set up a 0.8 million tonnes capacity by 2012.
ENDNOTES
1. Amartya Sen.T., The “Introduction and Importance of Iron and Steel and its
Exports’ sections are complied from the Following sources; “Capabilities,
Freedom and Human Development: Human Science of Development: Part III,
Frontline, Vol.16, July, 1999.
2. Mukerjee, M.K., Union of Soviet Socialist Repuplic (USSR), The business
world in 1922 and dissolved in 1991 in to 12 countries.
3. Steel Year Book, 1999, P.13-15.
4. Thyssen is the largest steel maker of Germany, www. Steelonthenet.com
5. Nizhnity Tagil Iron and Steel Works is the largest steel company of USSR,
Steel World October 1933. p.23.
6. Miller,G., Political Economy of International Agricultural Policy Reforms,
Canberra, Australian Government Publishing House, 1986.
7. World Steel Association year book 2010 p.42 – 43.