Iron And Steel Industry

Contents

1. Introduction 2. Historical prospective 3. Liberalization of the Iron and steel sector 4. Global and Indian scenario of Iron and steel industry 5. Competition scenario 6. Major Players in India 7. Growth Potential 8. Challenges and opportunities 9. Conclusion

IRON AND STEEL INDUSTRY IN INDIA 1.

INTRODUCTION

Iron and Steel is crucial to the development of any modern economy and is considered to be the backbone of the human civilization. The level of per capita consumption of steel is treated as one of the important indicators of socio-economic development and livingstandard of the people in any country. It is a product of a large and technologicallycomplex industry having strong forward and backward linkages in terms of material flowand income generation. All major industrial economies are characterized by the existence of a strong steel industry and the growth of many of these economies have been largely shaped by the strength of their steel industries in their initial stages ofdevelopment. 2. HISTORICAL PERSPECTIVE The Indian iron and steel industry is nearly a century old, with Tata Iron&Steel &Co (Tata Steel) as the first integrated steel plant to be set up in 1907. During the first two decades of planned economic development, i.e. 1950-60 and 1960-70, the average annual growth rate ofsteel production exceeded 8%. However, this growth rate could not be maintained inthe decades that followed. During 1970-80, the growth rate in steel production camedown to 5.7% per annum and picked up marginally to 6.4% per annum during 1980-90.The production during the last decade has doubled. Though India started steel production in 1911, steel exports from India began only in 1964. Exports in the first five years were mainly due to recession in the domestic iron and steel market. Upon revival of the domestic demand there was a decline in exports. India once again started exporting steel only in 1975. Thereafter, exportsagain fell rapidly to meet rising domestic demand. It was only after liberalization of thesteel sector that the exports of iron and steel have once again started increasing. During 2002-03 India exported 4.506 million tones of finished steel recording a growth of 66.6%. This trend has continued with exports of finished carbon steel being 4.835 milliontons during 2003-04. Some quantity of steel is always needed to be imported in small quantities thereby setting up of production capacities. 3. LIBERALISATION OF THE INDIAN IRON AND STEEL SECTOR The important policy measures, which have been taken for the growth and development of the Indian iron and steel sector are as under: In the new industrial policy announced in July, 1991, iron and steel industry among others, was removed from the list of industries reserved for the public sector and also exempted from the provisions of compulsory licensing under the Industries (Development and Regulation) Act, 1951. With effect from 24.5.92, iron and steel industry was included in the list of ‘high

priority’ industries for automatic approval for foreign equity investment up to 51%. This limit has since been increased to 100%.

Pricing and distribution of steel were deregulated from January, 1992. At the same time, it was ensured that priority continued to be accorded for meeting the requirements of small scale industries, exporters of engineering goods and North Eastern Region The import regime for iron and steel has undergone major liberalization moving gradually from a controlled import by way of import licensing, foreign exchange release, canalization and high import tariffs to total freeing of iron and steel imports from licensing, canalization and lowering of import duty levels. Export of iron and steel items has also been 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 costs and production costs of steel plants. Freight equalization scheme was withdrawn in January 1992. However, with the coming up of new steel plants in different parts of the country, iron and steel materials are freely available in the domestic market. >Levy on account of Steel Development Fund was discontinued from April, 1994 thereby providing greater flexibility to main producers to respond to market forces.

3.1 National Steel Policy 2005 The 2005 National Steel Policy (Government of India 2005) sets out the Indian Government’s vision for the future of the steel industry. The central goal is the creation of an industry with 110 million tones of capacity and 100 million production by 2019-20implying an average growth in production of nearly 7 per cent a year . This policy seeks to facilitate the creation of additional capacity, removal of procedural and policy bottlenecks that affect the availability of production inputs , Increased investment in research and development .and the creation of road , railway, and port infrastructure . The policy focusses on the domestic sector but also envisages a steel industry growing faster than domestic consumption, which will enable export opportunities to be realized. .

3.2Institutional and Policy Settings Many government initiatives have been aimed at increasing investment in steel industry in India , with the following issues being prominent in this context 1. Allowing Private Ownership and Foreign Investment Revised foreign investment rules for steel and other higher priorityindustries have increased capital inflow , and ownership of crude steel operations is now split approximately evenly between private and public entities. The Indian government has sought to improve the performance of profitable publicly owned companies by granting some of them ‘Navratna’ status ,which affords them greater autonomy in investment ,joint ventures and commercial decisions. 2. Improving Intellectual Property Laws

The removal of The compulsory Licensing regime from the steel sector has provided a greater security in intellectual property ownership and will facilitate the transfer of intellectual property to India and the development of indigenous technology solutions 3. Deregulation of Pricing and Distribution of Iron and Steel Steel was the first major industry to have pricing and distribution controls removed.

4. Customs Policy The government have significantaly reduced the duty payable on inputs to steel production , on capital equipment and on finished steel products and has streamlined the associated approval process. 5. Special Economic Zones(SEZ) The government introduced “special economic zones’ in June 2005 ,with the aim of creating internationally competitive regions in which exporting business can base their operations. The previously existing Export Processing Zones(EPZ) has been converted to Special Economic Zones(SEZ). Steel plants operating in SEZs are not subject to restrictive normal laws for the purpose of export operations and also receive some additional advantages like tax holidays , freedom to source inputs domestically or externally without any specific approval or duty payable and sales tax reimbursement on domestic purchases 6. Special Investment Regions These regions are planned to support further downstream processing, such as steel production and encompass a number of SEZs with central and state governments providing world class infrastructure linkages to form larger industrial region. This policy is at the early stage of development. 5. Industry Structure Indian iron and Steel Industry can be divided in to two main sectors Public sector and Private sector. Further on the basis of routes of production, the Indian Steel Industry can be divided in to two types of producers. a) Integrated Producers They are those that convert iron ore into steel. There are three major integrated steel players in India , namely Steel Authority of India Limited (SAIL), Tata Iron and Steel Company Limited (TISCO), and Rashtriya Ispat Nigam Limited. b) Secondary Producers There are mini steel plants which make steel by melting scrap or sponge iron or a mixture of the two. EssarSteel,Ispat Industries, and Lloyd Steel are the largest producers of steel through the secondary route. 3.4.Current and prospective demand Scenario The demand for steel in India is expected to rise 7 percent in the next financial year beginning April 1 as compared to the sluggish 5.5 percent projected growth in 2012-13. The overall outlook for the steel sector is positive and the demand was likely to pick up in the next financial year on the back of revival in economic growth and the government's measures to ease infrastructure

investment rules. In fiscal 2012-13, growth in domestic steel demand is expected to be around 5.5percent. In 2013-14, demand is expected to be higher at around seven percent. Consumption The World Steel Association (WSA) has forecasted steel consumption in India to grow at 5% in 2013. According to the Ministry of Steel, domestic real steel consumption grew 6.8 percent yearon-year to 70.92 million tonnes. The growth in consumption of steel has been impacted by lower demand from steel using industries from automobiles and infrastructure to white goods and capital goods, which is likely to remain modes through 2013 as well.

4. Global and Indian scenario of Iron and steel industry 4.1 Production Scenario    

India is the 4th largest crude steel producer of steel in the world. India is currently the world's fourth largest producer of crude steel after China, Japan and the US. The steel production isexpected to reach 200 million tonnes by 2020 as compared to 71 million tonnes recorded last year. In steel production, India is expected to leave behind USA and Japan in a couple of year. It will substantially lag behind China that produces almost 700 million tonnes of steel per year. India is also the largest producer of sponge iron in the world with the coal based route accounting for 76% of total sponge iron production in the country (20.37 mt in 2011-12; prov.)

Last five year's production for sale of pig iron, sponge iron, and total finished steel (alloy + nonalloy) are given below: Indian steel industry : Production for Sale (in million tonnes)

Category

2009-10

2010-11

2011-12*

Pig Iron Sponge Iron Total Finished Steel (alloy+non alloy)

5.88 24.33 60.62

5.68 25.08 68.62

5.78 20.37 73.42

India will have to come up to somewhere around 300 million tonnes, if it is to fulfill its ambitions of being a developed country.. 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. The high share of the secondary sector in finished steel production is largely due to substantial supplies of semis. In the developed countries, the trend is on consolidation of industry. Cross-border mergers have been taking place for several years. The focus is on technological improvements and new products.

Higher production of value-added products, capacity expansion, upgradation of production process achieving cost effective production in an environment friendly manner, have been the major thrust areas of the Indian Iron and steel producers in the recent times. After liberalization, there have been no shortages of iron and steel materials in the country

t  

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The total production of Pig Iron was 5.8 million tonnes in 2009-10 as compared to 3.86 million tonnes in 2005-06. Of late, the share of stand-alone pig iron units has increased significantly. Some of the top countries producing iron ore are China, Australia, Brazil, India, Russia, Ukraine, South Africa, the US, Canada, and Iran. Some of the top iron ore consuming countries are China, Japan, India, Russia, and the US. Some of the top steel consuming countries are China, the US, Japan, South Korea, India, Germany, Russia, Italy, and Brazil India has emerged as the second largest producer of DRI in the world.

4.1 Growth prospects of steel  

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The iron and steel sector has continued to achieve sustainable growth with India ranking fifth. The Indian steel industry accounts for around 5% of the world’s total steel production. During 2010 India’s steel production grew by 6.4% (FY09 8.7%) and for China and rest of the world it grew by 9.3% (FY09 14.6%) and 25.2% (FY09 -25.4%) respectively with maximum contribution of 10.9% coming from manufacturing industries, underpinning the stronger outlook for growth. The per capita consumption of steel in India increased by 6.2% for FY09 with China consumption growing by 24% and degrowth of 7.6% in case of rest of the world (ROW). India’s per capita consumption of finished steel is minuscule as compared with China and ROW. Outlook — steel production and consumption

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The production of steel in India is very low in comparison to China over the years.

4.2 India as an exporter of iron and steel India, which used to be net exporter of finished steel until FY07, has turned a net importer from FY08 and the gap widened to 4.1 MT in FY10. This implies that the disparity between production and consumption of finished steel was met by imports. India as a net exporter of pig iron and imports of pig iron reduced gradually. Iron & steel are freely exportable. Advance Licensing Scheme allows duty free import of raw materials for exports. Duty Entitlement Pass Book Scheme (DEPB) was 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 items scheme is currently applicable for steel exports. The export production of India’s total finished steel (alloy + non alloy) is given below:Total finished steel (alloy + non alloy)

*as per latest figures available

Australia, Brazil, India, South Africa, and Canada are some of the top iron ore exporting countries in the world.

4.3 India as an Importer of Iron and Steel Iron & Steel products are freely importable as per the extant policy. In the past, India has been importing around 1.5 million tonnes annually. Advance Licensing Scheme allows duty free import of raw materials for exports.

Total Finished

Steel (alloy + non alloy)

* as per latest figures available

China, Japan, South Korea, Germany, and Taiwan are some of the top iron ore importing countries across the globe.

Indian steel producers are eyeing and buying when it comes to the international markets. The regulatory environment, too, has changed for the better. Not only is it enabling the industry to stretch out to foreign shores, the country's steel industry is getting renewed global attention.

5. COMPETITION SCENARIO Overview From the biggest players like SAIL and Tata Steel, to mid-level players like Bhushan Steel and Welspun, the next four years are a time to ramp up. SAIL, a state-owned public sector undertaking and India's largest steel manufacturer, is planning to increase its annual production of 12 million tones per annum (mtpa) to 22.5 mtpa by 2011-12.Tata Steel proposes to increase its steel making capacity to 33-34 mtpa by 2015, besides increasing the capacity of its Jamshedpur plant from 5 mtpa to 10 mtpa. In addition, the Tata’s are planning to set up a 12-mtpa greenfield project in Jharkhand, a 6-mtpa plant in Orissa and another 5 mtpacapacity unit in Chhattisgarh. According to London-based Iron and Steel Statistics Bureau (ISSB), India's Tata Steel, which recently acquired Anglo-Dutch firm Corus Group, has been ranked the world's sixth largest producer of the alloy with an output of 24 million MT. Significantly, in the country ranking, India is ranked at theseventh position, with a total output of 44 million MT (up eight percent from previous year). 6.Major Players in India 6.1 Tata Steel Tata Steel (earlier known as Tata Iron & Steel Company or Tisco) represents the country's single largest, integrated steel plant in the private sector. The company has a wide product portfolio, which includes flat and long steel, tubes, bearings, ferro-alloys and minerals as well as cargo handling services. While in terms of size, Tata Steel ranks 34th in the world; it was ranked first (for the second time) among 23 world class steel companies by World Steel Dynamics in June 2005. Recent overseas acquisitions are Tata Steel buying Anglo-Dutch firm Corus for over 12 billion dollars .With its plant located in Jamshedpur (Jharkhand) and captive iron ore mines and collieriesin the vicinity, Tata Steel enjoys a distinct competitive advantage 6.2 Steel Authority of India Limited (SAIL) Steel Authority of India Limited (SAIL) is a leading Public Sector Undertaking (PSU) in which the Government of India owns about 86 per cent of equity. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. It is ranked amongst the top ten public sector companies in India in terms of turnover. They manufactures and sell a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural’s, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL have five integrated plants and three special steel plants, located principally in the eastern and central regions of India. The company has the distinction of being India’s largest producer of iron ore and of having the country’s second largest mines network. This gives them a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making

6.3Bhushan Power & Steel Ltd Bhushan Power & Steel Ltd., an ISO 9002 certified company, is a merged entity of Bhushan Industries Ltd., Bhushan Metallic’s Ltd. and Decor Steel Ltd. Bhushan Steel has a turnover of more than USD 540 Million and is a leading manufacturer of Flat, Round and value added products in Steel. Bhushan have 7 World class and state of art plants at Chandigarh, Derabassi, Kolkata, and Orissa in India. 6.4 Jindal Steel & Power Limited (JSPL) Jindal Steel and Power (JSPL), part of the Jindal Organization, has business interests in steel production, power generation, mining iron ore, coal and diamond exploration/mining. They are on a path of catalyzing economic development of the country through its contribution to the infrastructure sector. JSPL is increasing its portfolio of value-added products, bringing the world's best to India and making an international mark. JSPL has the integrated steel plant (as approved by Joint Plant Committee) at Raigarh in the state of Chhattisgarh, India.The company has achieved a complete backward integration with its captive iron & coal mines making it one of the lowest-cost producers of sponge iron .JSPL today is the largest private sector investor in Chhattisgarh with a total investment of Rs.100crore 6.5 ESSAR Steel Essar Steel Limited (the "Company") is the flagship Company of the Essar Group and looks after the Group’s interest in the steel business. It was engaged primarily in core sector activities, including marine construction, pipeline laying, dredging and other port-related activities. is the first steel plant in India to be awarded ISO 9002 certification for the complex as a whole. In addition, it is the first steel plant in India to receive ISO 14001 certification for the best environmentmanagement. The Company has emerged as the largest exporter of flat products from India with total exportsaggregating over US$ 1.25 billion since 1996 to different markets including US and Europe. 7.Growth Potential The iron and steel industry employs people with many different skills and diverse knowledge, who have the ability to work in multi-disciplinary teams. These include metallurgy, materials science, physics, chemistry, engineering as well as mathematics, IT, languages, business, accountancy and many other subjects. Most of the iron and steel companies can offer challenging and rewarding careers, often in an international context with opportunities for employees to quickly gain experience, responsibility and leadership. Training and recruitment opportunities are available across various functions, including manufacturing & production, engineering & process development, technology, R&D, product development and logistics, among others.

Real GDP forecast of major steel-producing countries

8.CHALLENGES AND OPPORTUNITIES 8.1 Challenges Compared to the global average per capita consumption of 150 kgs, India’s per capita consumption of steel is still a mere 39 kgs. perhead. Even by Asian standards India have a long way to go in the consumption of steel. Technologically, the main hurdles before Indian steel industry are the cost of power and non availability of metallurgical coke. a. Un-remunerative Prices Stagnating demand, domestic oversupply, and falling prices in the last four years have hit Indian steel makers. Barring the sporadic rise in demand in the recent months, it has suffered from un-remunerative prices to the extent that companies have been finding it difficult to maintain capital costs. b. Endemic Deficiencies These are inherent in the quality and availability of some of the essential raw materials available in India, example, high ash content of indigenous coking coal adversely affecting the productive efficiency of iron-making and is generally imported. c. Systemic Deficiencies

However, most of the weaknesses of the Indian steel industry can be classified as systemic deficiencies. Some of these are described here. d. High Cost of Capital Steel is a capital intensive industry; steel companies in India are charged an interest rate of around 14% on capital as compared to 2.4% in Japan and 6.4% in USA.

e. LowLabour Productivity In India, the advantages of cheap labour gets offset by low labour productivity; f. High Cost of Basic Inputs and Services High administered price of essential inputs like electricity puts Indian steel industry at a disadvantage; about 45% of the input costs can be attributed to the administered costs of coal, fuel and electricity, eg, cost of electricity is 3 cents in the USA as compared to 10 cents in India; and freight cost from Jamshedpur to Mumbai is $50/ton compared to only $34 from Rotterdam to Mumbai. Added to this are poor quality and ever increasing prices of coking and non-coking coal. Other systematic deficiencies include i. ii. iii. iv. v. vi. vii. viii.

8.2

Poor quality of basic infrastructure like road, port etc Lack of expenditure in research and development. Delay in absorption in technology by existing units Low quality of steel and steel products. Lack of facilities to produce various shapes and qualities of finished steel on-demand such as steel for automobile sector, parallel flange light weight beams, coated sheets etc. Limited access of domestic producers to good quality iron ores which are normally earmarked for exports High level taxation. Besides these Indian steel makers also lacked in international competitiveness on determinants like product quality, product design, on-time delivery, post sales service, distribution network, managerial initiatives, research and development, information technology and labour productivity etc.

Opportunities The biggest opportunity before Indian steel sector is that there is enormous scope for increasing consumption of steel in almost all sectors in India. a.

Abundance of resources India has rich mineral resources. It has abundance of iron ore, coal and many other raw materials required for iron and steel making. It has the fourth largest iron ore reserves (10.3 billion tonnes) after Russia, Brazil, and Australia. Therefore, many raw materials are available at comparatively lower costs. It has the third largest pool of technical

manpower, next to United States and the erstwhile USSR, capable of understanding and assimilating new technologies. Considering quality of workforce, Indian steel industry has low unit labour cost, commensurate with skill. This gets reflected in the lower production cost of steel in India compared to many advanced countries. b.

Unexplored Rural Market The usage of steel in cost effective manner is possible in the area of housing, fencing, structures and other possible applications where steel can substitute other materials which not only could bring about advantages to users but is also desirable for conservation of forest resources.

c. Uses to other Sectors Excellent potential exist for enhancing steel consumption in other sectors. Main objective here should be improvement of quality for value addition in use, requirement of less material by reducing the weight and thickness and finally reduction in overall cost for the end user. Latest technology must be adopted by Indian steel manufacturers for production of superior quality of steel for these applications. For example, pre-coated sheets can be used in manufacture of appliances, furnishings, electric goods and public transport vehicles. Production and supply of superior grades of steel in desired shapes and sizes will definitely increase the steel consumption as this will reduce fabrication need; thereby reduce cost of using steel. d.

Export Market Penetration It is estimated that world steel consumption will double in next 25 years. Quality improvement of Indian steel combined with its low cost advantages will definitely help in substantial gain in export market.

9. Conclusion

The progress of the iron and steel industry has a critical influence on the pace of India's development and as such great importance is attached to capacity expansion in line with expected demand at cost and prices which make Indian steel internationally competitive .The existing regime of liberalization, decontrol and deregulation of industry in the country has opened up new opportunities for the expansion of the steel industry. With a view to accelerating the growth of the steel sector and attaining the vision of India becoming a developed economy by 2020, the Ministry of Steel is actively engaged in the exercise for formulation of a National Steel Policy. As India surges ahead in building infrastructure and catapulting its industry to new economic highs, investments in iron and steel will pave the way aheadIndia’s ready availability of iron ore and low cost labor contribute significantly to the cost competitiveness of producing steel in India.

References www. steel.gov.in www.steelorbis.com/SteelCompanies www.cci.surveys/Iron-and-Steel-Industry-in-India www.tatasteel100.com/story-of-steel/ www.steel.gov.in/overview.htm www.worldsteel.org