AN ASSIGNMENT

ON
BUSINESS POLICY & STRATEGIC MANAGEMENT

SUBMITTED TO: SUBMITTED BY:

Dr.FRANCIS CHERUNILAM LINO LAWRENCE
S4 MBA
AIM
INTRODUCTION
Steel is crucial to the development of any modern economy and is considered to be the
backbone of human civilisation. The level of per capita consumption of steel is treated as
an important index of the level of socioeconomic development and living standards of the
people in any country. It is a product of a large and technologically complex industry
having strong forward and backward linkages in terms of material flows and income
generation. All major industrial economies are characterised by the existence of a strong
steel industry and the growth of many of these economies has been largely shaped by the
strength of their steel industries in their initial stages of development.

Steel industry was in the vanguard in the liberalisation of the industrial sector and has
made rapid strides since then. The new Greenfield plants represent the latest in
technology. Output has increased, the industry has moved up i n the value chain and
exports have raised consequent to a greater integration with the global economy. The new
plants have also brought about a greater regional dispersion easing the domestic supply
position notably in the western region. At the same time, the domestic steel industry faces
new challenges. Some of these relate to the trade barriers in developed markets and
certain structural problems of the domestic industry notably due to the high cost of
commissioning of new projects. The domestic demand too has not improved to
significant levels. The litmus test of the steel industry will be to surmount these
difficulties and remain globally competitive.
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 need of steel by the developing
countries for its infrastructural projects has pushed the companies in this industry near
their operative capacity.

INDUSTRY OVERVIEW

Steel is the world’s third largest commodity market with a dollar value in excess of $700
billion. In recent years, the industry has undergone radical restructuring and has become
more global, more efficient and more financially viable. Events have resulted in high
prices, supply disruptions and increased volatility, all elements which the existence of
futures contracts can help the industry to manage.
Exceptional growth continues to be seen in the global consumption of finished steel
products. Growth in steel demand is highest in the developing world. China has increased
its domestic consumption from 53 million tonnes in 1990 to nearly 350 million tonnes in
2005.
Economic growth in the developing world tends to be more steel intensive than growth in
developed nations. As a result, steel plays a vital role in these new economies.
World steel trade has expanded as global consumption has increased. In 1990
international steel trade was 167 million tonnes and is forecast to grow to 353 million in
2015.Global steel production has continued to increase but, at a lesser rate to previous
years. In 2005, the total world crude steel production was 1,107.2 million metric tons
and was valued at over $700 billion. This growth is estimated to continue until 2015 at a
rate of approximately 4% per year. Previously from 1990 to 2000, the growth rate was
only 1.6% per year.

THE GLOBAL STEEL INDUSTRY

The current global steel industry is in its best position in comparing to last decades. The
price has been rising continuously. The demand expectations for steel products are
rapidly growing for coming years. The shares of steel industries are also in a high pace.
The steel industry is enjoying its 6th consecutive years of growth in supply and demand.
And there is many more merger and acquisitions which overall buoyed the industry and
showed some good results. The subprime crisis has lead to the recession in economy of
different countries, which may lead to have a negative effect on whole steel industry in
coming years. However steel production and consumption will be supported by
continuous economic growth.
The most significant growth that can be seen in the steel industry has been observed
during the two decades that is 1960s and 1970s, when the consumption of steel around
the whole world doubled. Between these years, the rate at which the steel industry grew
has been recorded to be 5.5 %. In late 70s the industry showed a deceleration in growth.
After this period, the continuous fall slowed down and again started its upward
movement from the early 1990s.
New 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.

INDIAN STEEL INDUSTRY

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 like
infrastructure, real estate and automobiles, at home and abroad, has put Indian steel
industry on the global map.
The finished steel production in India has grown from a mere 1.1 million tonnes in 1951
to 36.957 million tonnes in 2003-04. During the first two decades of planned economic
development, i.e. 1950-60 and 1960-70, the average annual growth rate of steel
production exceeded 8%. However, this growth rate could not be maintained in the
decades that followed. During 1970-80, the growth rate in steel production came down 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 touching a figure of 1 million tonnes
of pig iron export and 1.40 million tonnes of steel export in 1976-77. Thereafter, exports
again fell rapidly to meet rising domestic demand. It was only after liberalisation of the
steel sector that the exports of iron and steel have once again started increasing.
Transformation of Indian steel industry after liberalisation
India's Steel Industry is more than a century old. Before the economic reforms of the
early 1990s the Indian steel industry was a predominantly regulated one with the public
sector dominating the industry. Tata Steel was the only major private sector company
involved the production of steel in India. Sail and Tata Steel have traditionally been the
major steel producers of India. In 1992, the liberalization of the India economy led to the
opening up of various industries including the steel industry. This led to the increase in
the number of producers, increased investments in the steel industry and increased
production capacity. Since 1990, more than Rs 19,000 crores (US$ 4470.58 million) has
been invested in the steel industry of India.

India's steel industry went through a rough phase between 1997 and 2001 when the
overall global steel was facing a downturn and recovered after 2002. The major factors
that led to the revival of the steel industry in India after 2002 was the rise in global
demand for steel and the domestic economic growth in India.

India has now emerged as the eighth largest producer of steel in the world with a
production capacity of 35MT. Almost all varieties of steel is now produced in India. India
has also emerged as a net exporter of steel which shows that Indian steel is being
increasingly accepted in the global market.

The growth of the steel industry in India is also dependent, to a large extent, on the level
of consumption of steel in the domestic market. Steel consumption is significant in
housing and infrastructure. In recent years the surge in housing industry of India has led
to increase in the domestic demand for steel.
Policy changes
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 upto 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, besides strategic sectors such as Defence and Railways.
• The import regime for iron and steel has undergone major liberalisation moving
gradually from a controlled import by way of import licensing, foreign exchange
release, canalisation and high import tariffs to total freeing of iron and steel imports
from licensing, canalisation 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 equalisation 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
• Industrial and Trade Policy Resolutions in 1991 with regard to the Steel industry
– Exempted from industrial license system
– Abolition of price controls
– Liberalising conditions for FDIs
– Liberalisation of imports and exports
– Lowering tariff level

Changes after the economic liberalisation

• Steel production and export increased much faster than before
• This increase attributable to new comers
• Technology catching up rapidly
• New type of steel firms appeared
• Flat products imported and exported
Emerging trends in steel industry
An increasing investment in infrastructure, construction and urbanisation as well as
growth in automobile, white goods and industrial sector is a further boost to the optimism
within the domestic steel industry.
Power: Addition of 41,000 MW of power generating capacity between 2002 and 2007
and about 61,000 MW between 2007 and 2012 should drive steel off take, leading to an
incremental consumption of 0.4 million tones in FY2006 itself.
Roads: The government intends to embark on the construction of 48 new projects with a
view to four lane about10,000 kms of roads in addition to the existing ongoing
programme of National Highway Authority of India.With steel intensity in the roads
under construction being considerably higher than the legacy infrastructure, the outlook
for increased steel consumption on this count appears to be brighter.
Housing: Low interest rates and easy availability of housing finance has resulted in a
housing boom; the Housing and Urban Development Corporation intends to add two
million houses every year (35 per cent in urban areas), estimated to create an additional
annual demand of 0.6 to 0.8 mtpa of steel.
Malls: From 25 malls in 2003, India expects to commission more than 220 malls by 2006
(estimated 40 million sq ft) and 600 malls by 2010 (100 million sq ft).
Automobile and ancillaries: In 2004-5, India’s auto industry consumed about 2.8 mt of
steel (about 8 per cent of India’s steel consumption). This is expected to grow at 11-12
per cent over the next three years following India’s emergence as a global outsourcing
hub for the auto industry.
White goods: Rising income and the easy availability of low cost finance has started a
white goods (refrigerators, air conditioners and washing machines) revolution in India,
leading to an increased consumption of steel.
Industrial Projects: India’s industrial growth is encouraging a number of companies to
reinvest leading to an increased consumption of steel, the steel industry is expected to
emerge as a major steel consumer itself.
The positive outlook for increasing steel demand in India along with the strategic
advantages offered have resulted in a keen interest from domestic and international steel
majors for setting up steel projects in India.

JSW Steel Ltd

JSW Steel Ltd. is one among the largest Indian Steel Companies in India today. India’s
third largest steelmaker, JSW Steel Ltd. consists of the most modern, eco-friendly steel
plants with the latest technologies for both upstream & downstream processes.
We are among the largest integrated steel companies in India, having established
production facilities at close proximity to the mineral resources as well as to the market
for its products. Our cost of production is among the lowest in the country due to
locational advantages, strong leadership, and committed work force.
The integrated steel plant at Toranagallu in Bellary District of Karnataka produces hot
rolled coils of various Carbon and Low Alloy grades of steel for wide application ranging
white goods, automotive, line-pipe, railway wagons etc. We have adopted the technology
of iron making using pellets through the novel Corex process as well as in the
conventional Blast Furnace route. We are among the few plants in the world to adopt and
successfully operate Vibro-compacted non-recovery coke-oven, utilizing the heat of the
flue gases for power generation.
Competitive Strengths
• Location: Upstream facility is located in the Iron Ore rich belt of Bellary- Hospet region
of Karnataka. The strategic location of the manufacturing units with respect to established
ports and well connected rail and road networks ensures reliable and cost efficient receipt
of raw materials and dispatch of finished steel.
• Technology: In order to maintain quality and cost of products they have adopted
technologies such as Vibro compacting non-recovery Coke Ovens, the novel Corex
Process as well as the conventional Blast Furnace route of Iron Making.
• Integrated operations: They have a vertically integrated company with operations
spanning across iron ore mining to manufacture of value added galvanized and colour
coated products. For preserving competitive advantage, they focus on developing
advanced skill sets within the organization through internal research and development
efforts as well as tie up with leading companies.
• Marketing: Having one of the largest galvanising capacities in the country, JSW is one
of the largest exporters of galvanized products to over 50 countries in five continents.
Professional Management: As part of corporate governance practices, they have a
qualified and experienced management in addition to a diversified independent board.

Business Strategy
• Capacity enhancement: They intend to leverage proximity to iron ore reserves and
the existing infrastructure to expand capacities at low specific investment cost per
ton..
• Increase vertical integration: Their impetus has been to increase the vertical
integration through strategic tie up, long-term linkages and acquisitions aimed at
ensuring availability of critical raw materials at low cost.
• Improve product profile: They intend to improve the value added products in
product mix to withstand the vagaries of price volatilities besides being able to
offer suite of products to meet the growing requirements of the customers.
Aligned to this strategy, they had merged the steel business of JISCO, which was
into manufacture of value added products – HR Plates, Cold Rolled and
Galvanised.We are modernizing hot strip mill to increase hot rolled product
capacities while also setting up a 1 mtpa CRM complex to meet the growing
demand for value added products.
• Improve financial profile: Being part of a capital-intensive industry with high
volatility in the product prices, they need to maintain a healthy financial profile.
They have accordingly reduced debt significantly over the last couple of years
bringing down the gearing levels and also intent to maintain low gearing ratio and
propose to reduce debt levels going forward to make resilient to any downward
pressure of steel prices and continue smooth operations.
• Investing in technology to improve productivity and reduce wastage: they have
invested in latest technologies for efficient operations and are continuing to
improve to ensure that best operating practices are followed.
 The initiatives are adopted across company including areas related to coal
distribution, refractory relining file and plant availability enabling to improve
efficiencies resulting in reduced costs.

Swot Analysis

Strengths
• They are one of the major players in the steel sector and have a diversified client base.
They have adequate experience and expertise as an integrated steel producer and have
withstood the cyclic fluctuations that have characterized the steel industry in the past.
• They are one of the low cost producers of Hot Rolled coils, which forms a key input
for their CRM project. They also use the Corex-BOF route for making steel, which
requires less amount of coke.
• They have sourcing arrangements with suppliers of power and oxygen which reduces
vulnerability to fluctuations in the prices of these raw materials.
Weaknesses
• The debt / equity ratio or gearing is relatively high compared to some of the other
integrated steel producers in India. They are actively taking steps to rationalize further
high cost debt to reduce interest burden.
• The profitability of the Company is dependent on prices of key inputs such as iron ore,
coal and zinc. Though the Company mitigates these risks by entering into strategic tie-
ups / sourcing contracts with raw material suppliers, any adverse fluctuations in the input
costs would affect the margins of the Company.
Opportunities
• Compared to the global per capita steel consumption average and the steel
consumption average for developed world, India’s per capita consumption of steel is
extremely low. To address this low consumption of steel the National Steel Policy 2005
envisages steel production to grow at 7.3% CAGR to 110 Mtpa from the present levels of
finished steel production at 38 Mtpa. It also envisages steel imports growing at 7.1%
CAGR (Compound Annual Growth Rate) from the present level of 2 Mtpa to 6 Mtpa and
steel exports to grow at 13.3% CAGR from the prevailing 4 Mtpa (Metric Tons Per
Annum) to 26 Mtpa leading to a healthy apparent steel consumption of 90 Mtpa by the
F.Y. 2019- 20, a 6.9% CAGR growth. Several initiatives taken by the Government of
India in the form of infrastructural development programs such as the National Highway
Development Programme, the Indira Awas Yojna and the National Urban Renewal
Programme are expected to have a beneficial impact on the demand for steel.
Demand for Hot Rolled, Cold Rolled and Hot Dipped Galvanized Steel products –
forming the steel-valuechain for the Company is expected to substantially benefit from
the positive impact of these initiatives.
• The Cold rolled products are used in the automobile sector. There is a major
opportunity for them to market their products on a large scale to the automobile sector
resulting from robust growth in the demand for automobiles combined with stringent
regulations on pollution control pertaining to old vehicles.
• India is perceived to be one of the manufacturing destinations for steel making globally
and this may propel to meet the demand not only domestically but also internationally.
Threats
• The steel industry is characterized by cyclical fluctuations in prices of finished steel
products as well as those of the key inputs. Any downward cyclical movement in the steel
sector could reduce the demand for steel and reduce profitability.
• Operating margins could come under pressure if there is a fall in the demand for steel
and increase in input costs. However, since JSW is one of the lowest cost producers in the
market, they may still be able to maintain reasonable operating margins for their
products.
• The Indian steel industry is highly competitive. They face substantial competition in
the steel industry, both from Indian and international companies. Domestic as well as
international steel majors like Tata Steel, POSCO and Mittal Steel have announced plans
to set up manufacturing facilities in India. This could lead to excess capacity and
consequently downward pressure on the prices of finished steel products.