INTRODUCTION

"Several megatrends at the macroeconomic

as well as sector level are driving the

globalization of the steel business. The

industry must embrace the challenge and

transform itself for success."

The steel industry is the second biggest industry in

the world after oil and gas with an estimated global

turnover of 900 billion USD. Steel is used in every

important industry: energy, construction, automotive

and transportation, infrastructure, packaging and

machinery. It is also the main material used in

delivering renewable energy such as thermal, solar

and tidal power. The housing and construction sector

is the largest consumer of steel today, using around

50% of steel produced. By 2050, steel use is projected

to increase to be 1.5 times higher than present levels

in order to meet the needs of a growing population.

Industry Size and Trends of Growth

Steel Industry is on growth path since 1996, after a long negative growth rate of -0.5%. For

2015, global demand for steel was forecast to grow but industry observers decline in growth

rate. Much of the demand growth was expected to come from outside of China as the

Chinese Government pushes through economic restructuring with a focus on private

consumption.

China is both the largest producer and consumer of the metal. Of its crude steel output of

803 million tonnes - half the world total last year. China’s construction boom during its years

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Average Growth Rates % per annum

Years Worlds1950-55 7.41955-60 511960-65 5.61965-70 5.51970-75 1.61975-80 2.21980-85 0.11985-90 1.41990-95 -0.51995-00 2.52000-05 6.22005-10 4.52010-15 2.5795

Table 1: Average Growth Rate % per Annum for Indian Steel Industry

Source: EY reports 2015-16

of breakneck economic growth drove the global steel industry. Its 2014 consumption was

more than six times higher than that of the US, the next biggest consumer.

Now China’s economy is slowing and turning away from infrastructure, its demand for steel

has weakened, contributing to steel prices worldwide slumping to a 10-year low. China has

been accused of granting unfair subsidies to its steel sector, making its output cheaper than

that of competitors, and of “dumping” its steel on world markets. (Dumping is defined by

the World Trade Organisation as a situation in which a good is sold internationally for less

than its “normal” value.

DOMESTIC SCENARIO

The Indian steel industry entered into a new development stage from 2007-08, riding high

on the resurgent economy and rising demand for steel. Rapid rise in production has resulted

in India becoming the 4th largest producer of crude steel and the largest producer of sponge

iron or DRI in the world.

The production of crude steel grew by about 8% to 59.75 Million tonnes in first eight

months, between April and November, of the last fiscal year compared to 55.32 million

tonnes in the same period in fiscal year 2014-15. For that matter, the production of crude

steel has been steadily increasing in the country – up 13.5% in last two years between 2012-

13 and 2014-15.

The current crude steel capacity in the country is 110 million tonnes per annum and is

expected to increase to 300 million tonnes by 2025. On average Rupees 6000 crore is

required for setting up a steel plant for one million tonnes. Given the current financial stress

of the steel sector such a huge investment seems a daunting task.

The steel sector in India is already reeling under huge debt pressure. Stressed steel

companies with borrowing of $31 billion are likely to be the biggest concern for India’s

commercial banks in the next two years (report by Credit Suisse)

A large number of steel companies have seen their debt levels rise three to six times in past

five years and are now burdened with a debt of $1,000 to $1,400 per tonne of installed

capacity.

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“Most of the large steel companies i.e. Tata Steel, JSPL, JSW steel and SAIL have also moved

to the category of less than 1 per cent IC (interest cover)” reported by ‘INDIAN corporate

health tracker’.

After taking a big hit in 2015 from the sharp fall in prices and the large-scale import of cheap

steel from China, Domestic metals industry is looking to regain its sharp with help from the

government’s effort to curb cheap imports and boost local production in 2016.

Steel supply is expected to increase by around 10% in 2015-1, but a slower growth in

demand may lead to capacity utilization falling below 78%, according to EY.

The steady cut in interest rate in recent months is hoped to reduce the steel sector’s debt

pressure partly, but this can be best give a temporary respite. The Sector right now needs a

long term debt restructuring policy to come out of the impasse.

Spending by Indian Government on infrastructures will be the catalyst for meaningful

improvement in domestic steel demand.

Environmental factors:

The General Environment:

Indian steel is doing well from many years. The industrial growth and other important

developments all over the world have led to the rise in demand of the steel. The major

players in the Indian steel industry are TATA STEEL, SAIL (Steel Authority of India Limited),

Jindal steel and JWS steel. India is contributing total of the 81.2million ton steel in global

market. Indian steel mainly contributes in the finished steels, semi-finished steel, pig iron

and stainless steel. Private sector plays very important role in the Indian steel industry. The

private sector in the steel industry contributes approximately 2/3rd of the total market of

the steel. With the growing position steel industry is supporting in the continuous growth in

the economic. The PESTEL ANALYSIS of the industry is divided into six parts which can be

discussed as follows:

P – Political

E – Economical

S – Socio-cultural

T – Technical

E – Environmental

L – Legal

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POLITICAL ANALYSIS:

The government introduced the National Steel Policy 2012. The main aim of this policy is to

maximize the production and fill the gap between the demand and supply of the steel. The

main objective of the policy is to increase the steel production in India up to million ton.

Various indicatives are taken up in the policy like zero duty on imports, provision of the land

and other infrastructural facilities and the cut in the duty. The policy encourages the

government to use all the opportunities available in the PUBLIC AND PRIVATE PATNERSHIP

(PPP). The policy provide various concessions in custom duty and the government has also

allowed 75% FDI (foreign direct investment) in the industry. Though there is a rise in the

infrastructure facilities in the country and has lead to increase in demand for steel but there

still exists the problem of over capacity.

ECONOMICAL ANALYSIS:

STEEL industry has been booming from past decades. With the opening up of the economy

and also of FDI (foreign direct investment), various foreign players have shown their interest

in India. The advance licensing scheme also allows the duty free imports of raw material for

exports. Although there is boom in the industry, the GDP of the country has been rising at a

very slow rate. The subprime crisis of US also has an effect on the industry.

SOCIO- CULTURAL:

Steel industry has a great impact on the social-culture of the country; the industry provides

permanent employment to lakhs of people. Steel industry is also responsible for the

development in the rural sector which leads to the rise in the standard of the living of the

people. The industry has lead to the development of many areas; Jamshedpur (Tata nagar)

is a great example of development.

But the fact is working conditions are not very good in steel plants, people who are

employed in the steel industry faced many health problems which are incurable in the

nature and many companies are not paying the attention on the health of their employees.

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TECHNICAL:

The Indian steel industry loses on the technological front there has been not much of

innovation in the industry it still uses the traditional technologies. TATA and SAIL introduces

the online trading of the steel. In order to augment R&D initiatives and to step up

investment for it in the steel sector, the Government had decided in1997-98 to fund up to

Rs. 150 core per year for R&D projects in iron & steel sector, from the interest proceeds of

Steel Development Fund (SDF).

However, R&D and investment under this Scheme over the years has not been very

encouraging. This is mainly because of limited number of R&D infrastructure in steel

companies.

ENVIRONMENTAL:

All leading companies are following the environmental norms declared by the governments

and are using the pollution control & energy saving equipment s.

TATA steel has taken an initiative by encouraging Eco-friendly system; it is also trying to

develop an Ultra-Low Carbon steel making process which will result in reduction in

environmental degradation.

LEGAL:

The Government of India and ministry of steel introduced various rules and regulations. The

government has introduced various health policies for the employees working in the steel

industry. Special health care incentives and rules are introduced.

Steel Production

Steel industry was de-licensed and de-controlled in 1991 & 1992 respectively. Today, India is

the 4th largest crude steel producer of steel in the world. In 2015 the total output was 89.6

million tonnes (MT) as compared to 87.29 MT in 2014.

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2009 2010 2011 2012 2013 2014 2015

0102030405060708090

62.868.3 72.2

77.3 81.2 87.2989.6Crude Steel Production

Crd

e St

eel i

n M

T

India has become the second best in terms of growth amongst the top ten steel producing

countries in the world and a net exporter of steel during 2014 – 15. Steel production in India

recorded a growth rate of 2.64 percent in 2015 over 2014, which was competitively low as

compare to previous years but it is in increasing trend. This slowdown in growth rate was

due to saturation in world’s economy and now domestic steel industries are expecting same

old demand to achieve same pace in growth

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Table 4: Crude steel production in IndiaSource: BI Reports, SAIL

Source:

SWOT for JSW Steel

2.3.2 PESTAL Analysis

In

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Strengths

1. India’s third largest steel maker with a combined capacity

of 14+ MTPA hence enjoys economies of scale.

2. High growth prospects with a consistently increasing

revenue and strong financial position.

3. One of the lowest cost steel producers in the world.

4. First steel producer in the world to use Corex Technology

for producing Hot metals.

5. Operates in both upstream as well as downstream sectors.

Weaknesses

1. Limited portfolio diversification compared

to industry leaders.

2. Less number of mines under its hood

affects availability of raw materials.

3. Capacity utilization is not cent percent.

Opportunities

1. Increase in demand from all

sectors in Indian & Global

world.

2. Mergers and Acquisitions to

keep steady supply of raw

materials.

2. Product Development by

investing more in R&D

Threats

1. Cyclical nature of steel industry needs to have efficient process of production.

2. Competition from existing and Foreign players.

3. Government and environmental regulations.

4. Changes in the prices of raw materials and end products.

5.Competitors1. TATA Steel; 2. SAIL;3. Bhushan Steel; 4. Visa steel

SWOT ANALYSIS OF JSW

Industrial Forces

There have been almost revolutionary changes in the steel industry 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. Technological innovations have provided the

competitive edge to the technologically strong companies. Smooth and quick transfer of

technology has, however, meant an increasingly competitive pressure on the companies to

be ahead of the others in the race for technological superiority to maintain and, if possible,

to strengthen the bottom lines. Here, is the effect of various industrial forces explained

using the Porter’s five-Force Model:

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Medium to low

Although usage of aluminium has been raising continuously in

the automobile and consumer durables sectors, it still does not pose any significant

threat to steel as the latter cannot be replaced completely

Competition: High

- Presence of large number of players in the

unorganized sector

- Large number of foreign players entering in

the market

Barriers to entry:

High Capital cost, Technology, Economics of

scale, Government policies

High

Presence of a large number suppliers and access to global

markets

Low

For fully for integrated players who have their own mines for raw materials

Industrial Force through porter’s five force model

2.3.5 Government Initiatives

The Government of India has allowed 100 per cent FDI through the automatic route in the

Indian steel sector. It has significantly reduced the duty payable on finished steel products

and has streamlined the associated approval process. The government is taking steps to

increase industrial activity in Uttar Pradesh (UP).

In order to provide thrust on research and development (R&D), the Ministry of Steel is

encouraging R&D activities both in public and private steel sectors, by providing financial

assistance from Steel Development Fund (SDF) and Plan Scheme of the Central Government.

Under the SDF scheme, 82 R&D projects have been approved in year 2014 with total project

cost of Rs 677 crore (US$ 111.92 million) wherein SDF assistance is Rs 370 crore (US$ 61.17

million).

As steel industries are facing saturation of world economy and dumping issue, Indian

government has come up with protection plan to guard steel industries of India by

announcing the minimum import price for 173 steel products in a bid to curb the dumping

of cheap steel. However, since the MIP is higher than the import price of steel, it is

apprehended that bulk importers may over-invoice imports and transfer the price

differential to India through the hawala route. So the government is closely watching the

situation and will check any attempt by steel companies to form a cartel. It expects steel

consumption demand to grow to 6.3-6.5% in fiscal 2017 on the back of traction in key end-

user industries such as construction, capital goods and consumer durables.

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