Report On

“The Nature Of The Indian

Steel Industry”

SUBMITTED TO:
Prof. Arindam Banik

SUBMITTED BY: -

 MODAK PRIY (08XPGDM31)

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 Introduction
The India steel industry is one of the major industries in India and the
Indian government plays a very important role in the development of the
steel industry in India.

The India steel industry is experiencing a slow but steady growth. The
steel industry in India has huge scopes in the future with massive scale
of infrastructural development happening all across the country. The
India steel industry caters to many other industrial sectors such as
construction industry, mining industry, transportation industry,
automobile industry, engineering industry, chemical industry, etc.

The India steel industry has further plans of development. Plans are
being chalked out for setting up of 3 pig iron manufacturing units of a
combined capacity of 6 lakh tons per year and a steel manufacturing unit
of the capacity of producing 1 million tons yearly in West Bengal, with
the technical and financial support of China. With all these
developments, India steel industry is all set to become one of the most
reputed industries not only in India but also in the international market.

The different steel manufacturing plants under the India steel industry:

 Integrated steel plants

1. Durgapur steel plant (DSP) in West Bengal

2. Bhilai steel plant (BSP) in Chhattisgarh
3. Bokaro steel plant (BSL) in Jharkhand
4. Rourkela steel plant (RSP) in Orissa
5.

 Special steel plants

6. Alloy steels plants (ASP) in West Bengal

7. Visvesvaraya iron and steel plant (VISL) in Karnataka
8. Salem steel plant (SSP) in Tamil Nadu

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  Subsidiaries

9. Indian iron and steel company (IISCO) in West Bengal

10. Bhilai oxygen limited (BOL) in New Delhi
11. Maharashtra Elektrosmelt limited (MEL) in
Maharashtra

 Others major steel producers

12. Tata iron and steel corporation ltd (TISCO)

13. Essar steel
14. Jindal Vijaynagar steels ltd
15. Ispat industries ltd
16. Jindal strips ltd
17. Mahindra Ugine steel company ltd
18. JISCO
19. Lloyds steel industries ltd
20. Electro steel castings ltd
21. Saw Pipes
22. Uttam steels ltd
23. Mukand ltd
24. Tata SSL ltd
25. Usha Ispat ltd
26. Kalyani steel ltd

Types of produce in the Steel Industry

 Flat Products - Flat products include plates and hot rolled

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

 Long Products - Long products include bars, rods, wires,

ropes and piers. These are called long products due to their
shapes. Long products are made from billets and blooms.
Long products are mostly used in housing and construction
and also in rail tracks.

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 Statistics

Financial Performance of Selected Companies in Steel

and Steel Products Industry of India
(1998-99 to 2000-01)

(Rs. in Crore)
1998-99 1999-00 2000-01
Company
Sales Net Profit Sales Net Profit Sales Net Profit
Explosives - - - - - -
I D L Inds 143.3 7.7 151.9 5.1 170.6 -14.3
Indo Gulf Expl 41.8 -3.1 - - - -
Noble Explochem 24.4 1.0 - - - -
Premier Explos 34.2 -2.0 - - - -
Metal - Ferrous - - - - - -
Hoganas India 27.6 2.8 29.7 3.1 - -
Kanthal India 14.4 -0.9 - - - -
Ispat Alloys 143.3 0.1 - - - -
Sponge Iron - - - - - -
Ispat Inds 1286.7 25.1 1326.6 4.4 1292.2 3.7
Tata Sponge 82.0 5.2 106.4 9.4 112.9 8.5
Nova Iron & Steel

Monnet Inds 98.6 2.7 104.3 4.9

Steel - - - - - -
Essar Steel 2262.9 -496.5 2421.8 -581.2 2426.4a -164.0a
Jindal Vijaynagar 537.6 -29.0 - - 1160.6 -49.6
Malvika Steel 773.1 11.6 - - - -
Sunflag Iron 347.1 -4.3 415.8 7.8 369.2 10.3
Tata Steel 5584.6 157.0 6044.0 422.6 6838.6 816.0
SAIL 13203.5 7573.7 16722.9 -1134.5 14572.6 -728.7
Ballary Steel 455.9 19.1 - - 196.4a -24.0a
Bhuwalka Steel 253.0 1.5 - - - -
Gandhi Special 21.9 4.0 26.4 4.4 21.9 3.4
Jindal Iron 1007.5 10.8 1083.0 8.7 1536.6 -96.5
Kalyani Steels 197.6 8.2 89.1 -8.6 125.5 -13.7
Tata Yodogawa 67.1 5.4 87.3 4.7 - -
Special Steel - - - - - -
Mukand 595.2 -46.8 844.8 5.9 265.6 32.2

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 Aggregate Investment in Individual Companies under Steel in India
(1998-1999 to 2005-2006)
(Rs. in Lakh)
Share
Paid-Up
Company/Year Loan Application Total
Capital
Money
2005-06
Ferro Scrap Nigam Limited 200 0 0 200
Indian Iron & Steel Co. Limited 0 0 0 0
Maharashtra Elektrosmelt Limited 2400 206 0 2606
Mishra Dhatu Nigam Limited 13734 0 0 13734
Rashtriya Ispat Nigam Limited 782732 0 0 782732
Sponge Iron India Limited 6510 0 0 6510
Steel Authority of India Limited 413040 388126 0 801166
Sub Total 1218616 388332 0 1606948
2004-05
Ferro Scrap Nigam Limited 200 0 0 200
Indian Iron & Steel Co. Limited 38766 20561 0 59327
Maharashtra Elektrosmelt Limited 2400 796 0 3196
Mishra Dhatu Nigam Limited 13734 34 0 13768
Rashtriya Ispat Nigam Limited 782732 0 0 782732
Sponge Iron India Limited 6510 0 0 6510
Steel Authority of India Limited 413040 527398 0 940438
Sub Total 1257382 548789 0 1806171
2003-04
Ferro Scrap Nigam Limited 200 0 0 200
Indian Iron & Steel Co. Limited 38766 23846 0 62612
Maharashtra Elektrosmelt Limited 2400 3477 0 5877
Mishra Dhatu Nigam Limited 13734 194 0 13928
Rashtriya Ispat Nigam Limited 782732 0 0 782732
Sponge Iron India Limited 6510 0 0 6510
Steel Authority of India Limited 413040 709097 0 1122137
Sub Total 1257382 736614 0 1993996
2002-03
Ferro Scrap Nigam Limited 200 0 0 200
Indian Iron & Steel Co. Limited 38766 8718 0 47484
Maharashtra Electrosmelt Limited 2400 2224 0 4624
Mishra Dhatu Nigam Limited 13734 239 0 13973
Rashtriya Ispat Nigam Limited 782732 57484 0 840216
Sponge Iron India Limited 6510 350 0 6860
Steel Authority of India Limited 413040 980244 0 1393284
Sub Total 1257382 1049259 0 2306641

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 Production Of Iron –Ore In India

The production has grown over three times in the last

five years:

Exports of Finished (Carbon) Steel

Performance of Steel Industry
(1997-98 to 2001-02)

Year Production
1997-98 1880

1998-99 1771
1999-2000 2670

2000-01 2664
2001-02 2770

Imports of Finished (Carbon) Steel

Performance of Steel Industry

35.0
(1997-98 to 2001-02)

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 Year Production
1997-98 1588
1998-99 1132

1999-2000 1600
2000-01 1417
2001-02 1375

Analysis
Structural Weaknesses of Indian Steel Industry

 Although India has modernised its steelmaking considerably,

however, nearly 6% of its crude steel is still produced using the
outdated open-hearth process.
 Labour productivity in India is still very low. According to an
estimate crude steel output at the biggest Indian steelmaker is
roughly 144 tonnes per worker per year, whereas in Western
Europe the figure is around 600 tonnes.
 India has to do a lot of catching in the production of stainless
steel, which is primarily required by the plant and equipment,
pharmaceutical and chemical industries.
 Steel production in India is also hampered by power shortages.
 India is deficient in raw materials required by the steel industry.
Iron ore deposits are finite and there are problems in mining
sufficient amounts of it. India's hard coal deposits are of low
quality.
 Insufficient freight capacity and transport infrastructure
impediments too hamper the growth of Indian steel industry.

Strengths of Indian Steel Industry

 Low labour wage rates

 Abundance of quality manpower
 Mature production base
 Positive stimuli from construction industry
 Booming automobile industry

Outlook
The outlook for Indian steel industry is very bright. India's lower wages
and favourable energy prices will continue to promise substantial cost
advantages compared to production facilities in (Western) Europe or the
US. It is also expected that steel industry will undergo a process of
consolidation since industry players are engaged in an unfettered rush
for scale. This is evident from the recent acquisition of Corus by Tata.
The deployment of modern production systems is also enabling Indian

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steel companies to improve the quality of their steel products and thus
enhance their export prospects.

Concentration Ratio
Concentration ratios depend upon technical factor, conduct and
performance variables. The firm’s profit is the net result of two forces: -
higher efficiency (conduct variable) and greater market power (structural
variable). But leading firms may still collude to avoid reductions in their
profitability that arises from competition. In such a case, collusion would
have little or no impact on profitability of the leading firm and might even
have a negative impact. A firm that moves from being a monopolist to
being a duopolist or an oligopolist is no longer able to enjoy monopolist
profits. Although collusion might result in joint profit maximization but it
might not increase the profitability of the leading firm.

The following conclusions have been obtained by running a regression

analysis with data taken from CMIE database for the period covering
1990-2003. Concentration in the Indian Steel Industry is inversely
proportional to government regulation. After analysis it was found that
concentration depends only upon government regulation and not on
technical factors as hypothesised.

The relationship is inverse which suggests that higher the government

regulation, the concentration in the industry will decrease.
Concentration of the steel industry has decreased over the period of
study. CR4 has decreased by 25% from 1990 to 2003 and CR2 has
decreased by 36.8%. Thus the top firms are increasingly losing market
shares to the smaller players. There is an evidence of collusion in the
steel industry. The paper had hypothesised that in the Indian Steel
Industry, firms collude to maximise profits.

Value of Herfindahl index for Indian Steel Industry is 2470. It implies that
the competition in the steel industry is medium to high and high
concentration.

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 INTERDEPENCENCE

Captive Non- Captive

Public Private Public Private Total
Production 2005-06 23.7 11.2 35 84.5 154.4
Export 2005-06 0 0 9 80 89
% of Production 0 0 25 95 57.7

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The data above clearly suggests an interdependence between the public
and private sector undertakings, though there is a strong possibility that
the private sector overtakes the public sector due to technical inductions
and use of superior technology. The public sector though has the
benefits of volume and thus returns to scale.

Abnormal profits are very unlikely in the industry, due to the structure of
the industry, i.e. an open market being existent, fast entry being virtually
impossible because of the massive capital investment required and
availability of resources like huge chunks of land which is imperative for
setup. These can also termed as the barriers to entry and thus also
safeguard the profit margins of the dominant players.

The pricing structure in the industry suggests that there are no price
leaders in the market, the same is demonstrated by the fact that the
difference of prices range in the minimum of 2% and a maximum of 4%.

CONCLUSION
In conclusion we can say that the Indian Steel industry reflects
Oligopolistic nature, the same being demonstrated by

1) Few players controlling the largest chunk of the business namely

TATA STEEL, JINDAL, ESSAR, and SAIL.

2) Barriers to entry, demonstrated by huge investment, and requirement

of other resources in quantity.

3) Interdependence among the players in the industry, as the actions of

few affect the industry on the whole.

4) Collusion- coming together of firms to protect mutual interests.

5) Price leadership- minimum price ranges of firms(2-4%), displaying

the affinity to avoid price wars which may in turn lower profits. Thus it
can also be concluded that there is evidence of a kinked demand
curve, as a rise in price will entice customers to switch to lower price
products. Precisely the reason why the price ranges are low. This

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may involve working out new revenue predictions, and revaluing
stock of finished goods. A tedious task considering the size of the
market and the industry on the whole.

Sources of data / references

 Indiastat.com

 CMIE

 Anupamblogspot.com

 CII

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 ACKNOWLEDGEMENT

We express our deepest gratitude to Prof. Arindam Banik of

International Management Institute for having given us this opportunity
to try our hands on our very first tangible take away. We feel motivated
and encouraged every time we attend his lectures. Without his
encouragement and guidance this term project would not have
materialized.

The guidance and support received from all the team members who
contributed to this project, was vital for its successful completion.

Place: New Delhi

Date : 1st September, 2008

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 TABLE OF CONTENTS

 Acknowledgement

 Introduction

 Statistics

 Analysis

 Concentration Ratio

 Interdependence

 Conclusion

 Sources of data / reference

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