Economics for Managers

PROJECT REPORT
ON

S T E E L S E C TOR I N I N D I A

CONTENTS

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Table of figures..........................................................................................................2
Introduction...............................................................................................................3
Normal Market Structure........................................................................................3
Public Sector Vs. Private Sector.............................................................................3
1. Market Structure of Steel Industry........................................................................3
2. Performance of PSUs vs. private sector...............................................................9
3. Output, efficiency and overall growth of the sector in the past...........................11
4. Which economic factors/policies/Reforms have affected the sector majorly?....13
5. CORRELATION of the performance with GDP.................................................14
6. GDP affects private sector more or public sector................................................15
7. FUTURE of steel industry...................................................................................15
8. The bank lending to this sector............................................................................17
Conclusion...............................................................................................................18
REFRENCES:.........................................................................................................19

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TABLE OF FIGURES
Figure 1: Real consumption of steel..........................................................................5
Figure 2: Steel export and import..............................................................................6
Figure 3: Demand - availability projection...............................................................7
Figure 4: Total crude steel production.......................................................................9
Figure 5: Total finished steel production.................................................................10
Figure 6: Crude Steel Market Share By Production FY15...................................10
Figure 7: Finished Steel Market Share By Production FY15...............................11
Figure 8:Annual growth rate...................................................................................12
Figure 9: Steel production trend in india.................................................................12

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INTRODUCTION
India's iron and steel industries are one of the important backbones in the wealth of
the country. In 2014-2015, India was the third largest producer of raw steel and is
the largest producer of steel in the world and is expected to become the secondlargest producer by 2016. The industry produced 91.46 metric tons of total finished
steel and 9.7 metric tons of pig iron. Driven by rising infrastructure development
and growing demand for automotive, steel consumption is expected to reach 104
metric tons by 2017. Indias steel production is expected to increase from 100
metric tons per annum to 112.5 metric tons per annum by 2016 and 300 metric
tons per annum by 2025. The Government of India has allowed 100 per cent foreign
direct investment (FDI) in the steel sector under the automatic route. The growth in
the Indian steel sector has been driven by domestic availability of raw materials
such as iron ore and cost-effective labour. Consequently, the steel sector has been a
major contributor to Indias manufacturing output. The Indian steel industry is very
modern with state-of-the-art steel mills. It has always strived for continuous
modernization and up-gradation of older plants and higher energy efficiency levels

NORMAL MARKET STRUCTURE

After the era of Globalisation, privatisation and liberlisation (post 1990s),
steel industry and its market structure are undergoing a seismic change. Ltd

PUBLIC SECTOR VS. PRIVATE SECTOR

Major Players in the Industry Steel industry was mostly dominated by Public sector
before liberalization in 1991. But liberalization gives a new life to the industry. It
allows new private players to enter in the market and encourages existing players
to expand their capacity. This eventually brings competition in the market. Presently
India is the 5th largest producer of crude steel in the world and is expected to
become the 2nd largest producer by 2015-16. Production of crude steel (in Mn
tonnes): Public Sector 16.714 Private Sector 48.161 Total 64.875 Percentage share
of Public sector 26% 5

Total 20 Public sector players:

Steel Authority of India Ltd(SAIL) -- market leader public sector company in
the sector Rashtriya Ispat Nigam Ltd. (RINL) NMDC Ltd. MIOL Ltd
MSTC Ltd Hindustan Steelworks Construction Ltd. (HSCL) KIOCL Ltd Bird
Group Of Companies (BGC) Private sector Player: TATA Steel Ltd. Private
sector market leader ESSAR Steel Ltd. MUKAND LTD. Sun flag Iron &
Steel Co. Ltd. JSW Steel Bhushan Steel.

1. MARKET STRUCTURE OF STEEL INDUSTRY

Steel Industry would follow Oligopoly market structure. The characteristics of an
oligopoly are:
Large number of potential buyers but only a few sellers
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Homogenous or differentiated product

Buyers are small relative to the market but sellers are large
Barriers to entry

Current Scenario

The Indian steel industry has 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 3rd largest
producer of crude steel in 2015 and the country continues to be the largest
producer of sponge iron or DRI in the world.
As per the report of the Working Group on steel for the 12 the Five Year Plan,
there exist many factors which carry the potential of raising the per capita
steel consumption in the country. These include among others, an estimated
infrastructure investment of nearly a trillion dollars, a projected growth of
manufacturing from current 8% to 11-12%, increase in urban population to
600 million by 2030 from the current level of 400 million, emergence of the
rural market for steel currently consuming around 10 kg per annum buoyed
by projects like Bharat Nirman, Pradhan Mantri Gram Sadak Yojana, Rajiv
Gandhi Awaas Yojana among others.
At the time of its release, the National Steel Policy 2005 had envisaged steel
production to reach 110 million tonnes (mt) by 2019-20. However, based on
the assessment of the current ongoing projects, both in greenfield and
brownfield, the Working Group on Steel for the 12th Five Year Plan has
projected that domestic crude steel capacity in the county is likely to be
140mt by 2016-17 and has the potential to reach 149 mt if all requirements
are adequately met.
The National Steel Policy 2005 is currently being reviewed keeping in mind
the rapid developments in the domestic steel industry (both on the supply
and demand sides) as well as the stable growth of the Indian economy since
the release of the Policy in 2005.

Production

Steel industry was de-licensed and de-controlled in 1991 & 1992 respectively.
Today, India is the 3rd largest producer of crude steel in the world.
In 2014-15, production for sale of total finished steel (alloy + non alloy) was
91.46 mt, a growth of 4.3% over 2013-14.
Production for sale of Pig Iron in 2014-15 was 9.7 mt, a growth of 22% over
2013-14.
India is the largest producer of sponge iron in the world with the coal based
route
accounting for 90% of total sponge iron production in the country.
Data on production for sale of pig iron, sponge iron and total finished steel
(alloy + non-alloy) are given below for last five years:

Indian steel industry : Production for Sale (in million tonnes)

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Category

2010-11 2011-12 2012-13 2013-14 2014-15

Pig Iron

5.68

5.371

6.870

7.950

9.694

Sponge Iron

25.08

19.63

14.33

18.20

20.38

Total Finished Steel (alloy + non alloy)

68.62

75.70

81.68

87.67

91.46

Source: Joint Plant Committee

Steel demand has outpaced supply over the last five years
In FY15, the consumption of finished steel grew to 76.99 MT while the CAGR
increased to 5.74 per cent during FY08-15
Driven by rising infrastructure development and growing demand for
automotive, steel consumption is expected to reach 104 MT by 2017
It is expected that consumption per capita would increase supported by rapid
growth in the industrial sector, and rising infra expenditure projects in
railways, roads & highways, etc.
For FY15, per capita consumption of steel in India was 60 kg against the
world average of 222 kg

FIGURE 1: REAL CONSUMPTION OF STEEL

Demand supply gap resulting in increased imports

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With growth in demand for steel outpacing growth in domestic production

over the last few years, imports have increased
India was a net importer of steel till FY13, but turned a net exporter of the
same in FY14. In 2015, India imported 9.32 MT of steel while exports declined
to 5.59 MT in FY15 from 5.98 MT during 2013-14
During FY11-15, import of steel grew at a compounded annual rate of 9.01
per cent, whereas, exports increased at a CAGR of 11.32 percent
Total domestic demand for steel is estimated at 113.3 MTPA by 2016-17

FIGURE 2: STEEL EXPORT AND IMPORT

MARKET SIZE
The Indian real estate market is expected to touch US$ 180 billion by 2020. The
housing sector alone contributes 5-6 per cent to the country's Gross Domestic
Product (GDP).
In the period FY08-20, the market size of this sector is expected to increase at a
Compound Annual Growth Rate (CAGR) of 11.2 per cent. Retail, hospitality and
commercial real estate are also growing significantly, providing the much-needed
infrastructure for India's growing needs.
During the first nine months of 2015, PE funds invested about US$ 2.4 billion in the
real estate sector, across 53 transactions compared US$ 1.3 billion across 57
transactions in the same period last year. Deal sizes have also increased in 2015,
and residential projects both luxury and affordable have attracted a substantial
amount of capital.
Private Equity (PE) funds and Non-Banking Financial Companies (NBFCs) in India are
seen increasingly investing jointly in real estate projects, in order to hedge risk and
undertake bigger transactions.
Mumbai is the best city in India for commercial real estate investment, with returns
of 12-19 per cent likely in the next five years, followed by Bengaluru and DelhiNational Capital Region (NCR). Also, Delhi-NCR was the biggest office market in
India with 110 million sq ft, out of which 88 million sq ft were occupied. Sectors such
as IT and ITeS, retail, consulting and e-commerce have registered high demand for
office space in recent times.
India's office space absorption stood at 35 million sq ft during 20152, which is the
second highest figure in the India's history after 2011, and was driven by corporates
implementing their growth plans.
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India had the strongest activity in office leasing space in Asia and accounted for half
of Asias total office leasing in third quarter of 2015, with Delhi being the most
active market3.
Delhis Central Business District (CBD) of Connaught Place has been ranked as the
sixth most expensive prime office market in the world with occupancy costs at US$
160 per sq ft per annum.

FIGURE 3: DEMAND - AVAILABILITY PROJECTION

Demand - Availability Projection

Demand availability of iron and steel in the country is projected by Ministry

of Steel in its Five Yearly Plan documents.
Gaps in availability are met mostly through imports.
Interface with consumers by way of a Steel Consumers Council exists, which
is conducted on regular basis.
Interface helps in redressing availability problems, complaints related to
quality.

Steel Prices
Price regulation of iron & steel was abolished on 16.1.1992. Since then steel prices are
determined by the interplay of market forces.
Domestic steel prices are influenced by trends in raw material prices, demand supply
conditions in the market, international price trends among others.
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An Inter-Ministerial Group (IMG) is functioning in the Ministry of Steel, under the

Chairmanship of Secretary (Steel) to monitor and coordinate major steel investments in the
country.
As a facilitator, the Government monitors the steel market conditions and adopts fiscal and other
policy measures based on its assessment. Currently, basic excise duty for steel is set at 12.5%
and there is no export duty on steel items. The government has also imposed export duty of 30%
on all forms of iron ore except low grades which carry a duty of 10% while iron ore pellets have
an export duty of 5% in order to control ad-hoc exports of the items and conserve them for long
term requirement of the domestic steel industry. It has also raised import duty on most steel
imports by 2.5%, taking the import duty on carbon steel flat products to 10% and that on long
products to 7.5%.
For ensuring quality of steel several items have been brought under a quality control order issued
by the Government.

Imports

Iron & steel are freely importable as per the extant policy.
Data on import of total finished steel (alloy + non alloy) is given below for last five
years:
Indian steel industry : Imports (in million tonnes)

Category

2010-11 2011-12 2012-13 2013-14 2014-15

Total Finished Steel (alloy + non alloy)

6.66

6.86

7.93

5.45

9.32

Source: Joint Plant Committee

Exports
Iron & steel are freely exportable.

Data on export of total finished steel (alloy + non alloy) is given below for last five years:
Indian steel industry : Exports (in million tonnes)

Category

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2010-11 2011-12 2012-13 2013-14 2014-15

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Total Finished Steel (alloy + non alloy)

3.64

4.59

5.37

5.98

5.59

Source: Joint Plant Committee

The Growth Profile

The liberalization of industrial policy and other initiatives taken by the Government have given a
definite impetus for entry, participation and growth of the private sector in the steel industry.
While the existing units are being modernized/expanded, a large number of new steel plants have
also come up in different parts of the country based on modern, cost effective, state of-the-art
technologies. In the last few years, the rapid and stable growth of the demand side has also
prompted domestic entrepreneurs to set up fresh Greenfield projects in different states of the
country.
Crude steel capacity was 109.85 MT in 2014-15 and India, which emerged as the 3rd largest
producer of crude steel in the world in 2015 as per ranking released by the WSA, has to its credit,
the capability to produce a variety of grades and that too, of international quality standards. The
country is expected to become the 2nd largest producer of crude steel in the world soon, provided
all requirements for creation of fresh capacity are adequately met

2. PERFORMANCE OF PSUS VS. PRIVATE SECTOR

Indian steel industry can be divided into two main sectors public and private. Prior to
liberalization public sector had a dominant share in steel production but after economic reforms
the scenario became changed. More of the private companies enter into the competition.
Major public sector steel companies are Steel Authority of India Limited (SAIL) and Rastriya
Ispat Niigam Limited (RINL). The companies under the Ministry of Steel have performed well in
the last five years. Profit after Tax (PAT) of the Companies under the Ministry of Steel was
around Rs.7121.31 cores during the year 2014-15 (up to December 2014). The contribution to
Central and State Government exchequer by way of excise duty, customs duty, dividend,
corporate tax, sales tax, royalty etc. was around Rs. 14325.51 crores during the year 2014-15
(upto December 2014).
The private sector of the Steel Industry is currently playing an important role in production and
growth of steel industry in the country. The private sector units consist of both large scale steel
producers on one hand and relatively smaller and medium scale units. They not only play an
important role in production of primary and secondary steel, but also contribute substantial value
addition in terms of quality, innovation and cost effectiveness. Major players in private sector are
TATA steel, Jsw, Bhusan steel etc.
SECTORWISE STEEL PRODUCTION IN INDIA.
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In 2015, crude steel production was 62.39 (April to December) .Total crude
steel production rose at a CAGR of 5.54 per cent over the last five years to
reach 81.69 MT in FY14.Private Sector has the large share of production in all
the years than that of Public sector firm are concerned.
Private sectors production of crude steel grew at a CAGR of 7.22 per cent
between 2010-15
Finished steel production increased 7.35 per cent from 81.68 MT to 87.68 MT
in FY14; analysts expect production figures to improve rapidly over the next
five years, with the Ministry of Steel forecasting production levels at 115.3 MT
by FY17 .
The steel sector contribute 2% to the GDP of the nation and provides 6 lakh
jobs in the country. PSU No. Of employees (31.12.2010) SAIL 1,13,403 RINL
17,900 , NMDC 5,902 MOIL Ltd 6,676, MECON 1,851, KIOCL 13,491.
The below two graphs depicts the share of production owned by public sector
and private sector firm on the basis of crude steel and finished steel they
produce.

49.13 53.68 57.81 61.94 64.92 49.79

PRIVATE SECTOR
PUBLIC SECTOR

16.71 16.99 16.48 16.48 16.77

12.6

FY10

FY15

FY11

FY12

FIGURE 4:

FY13

FY14

TOTAL CRUDE STEEL PRODUCTION

74.24

PRIVATE SECTOR

55.37

63.18

68.86

13.25

12.52

12.82

13.44

9.38

FY11

FY12

FY13

FY14

FY15

55.82

PUBLIC SECTOR

FIGURE 5: TOTAL FINISHED STEEL PRODUCTION

SHARES IN PRODUCTION:

In 2014, India stood as the largest sponge iron producer in the world, while the total
proposed crude steel capacity during 2016-17* by the private investors is expected to rise
by 76.8 MT

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SAIL is the leader in Indias steel sector; in FY15, the company accounted for 11.55 per
cent of the countrys finished steel production and 16.32 per cent in the countrys crude
steel production. Tata Steel, another household name in the country, leads private sector
activity in the steel sector. During 2015, the firm accounted for 10.12 per cent of finished
steel production and 11.05 per cent in the countrys crude steel production.

16.32
SAIL
11.05
3.84
68.79

TATA
RINL
OTHER

FIGURE 6: CRUDE STEEL MARKET SHARE BY PRODUCTION FY15.

11.55
10.12
2.84

SAIL
TATA
RINL
OTHERS

75.49

FIGURE 7: FINISHED STEEL MARKET SHARE BY PRODUCTION FY15

Growth in market value of the Indian steel sector.

In 2014, the Indian steel sectors total market value was USD81 billion.
The sector has benefitted from the hike in prices and production, especially
since the beginning of the millennium.
Over 200716(E), the sectors market value is estimated to have posted a
strong CAGR of 13.7 per cent.
Market value of Indian steel sector is expected to reach USD95.3 billion by
FY16.

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3. OUTPUT, EFFICIENCY AND OVERALL GROWTH OF THE

SECTOR IN THE PAST
In the era of planned economy, iron and steel, a core and basic sector, received the full
attention of the Government. It became a key sector for public investment in the first Five Year
Plan. So various steel companies where set up by the government over the years. 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 per cent. During 1970-80, this growth rate in steel
production came down to 5.7 per cent per annum and gathered up marginally to 6.4 per cent per
annum during 1980-90. Until the 1990s the iron and steel sector was by and large the exclusive
preserve of only the public sector. The new economic policy announced in 1991 and that makes
significant change in the sector by globalization, liberalization and privatization.
10
8
6
Annual Growt Rate

4
2
0
1950-60

1960-70

1970-80

1980-1990

FIGURE 8:ANNUAL GROWTH RATE

In the post 1990, there are 5 additional major producers of flat products of steel
by private sectors. The response of the private sector in particular has been quite
encouraging in the post-liberalization era. The production of finished steel increased
from 14.33 million tons in 1991-92 to 23.82 million tons in 1998-99. The private
sectors contribution in the availability of finished steel has constantly been
increasing. From 51.4 per cent in 1991-92 it increased to over 68 per cent in 199899. Finished steel production increased from 1.1 MT in 1951 to 14.33 MT in 1991-92.
Post liberalization the growth trend continued however at a higher pace and finished
steel production reached 73.7 MT (provisional) for 2011-12. During the period FY 07
to FY 12 crude steel production has attained growth of about 7.7 %. During the
twelfth five year plan crude steel production is estimated to grow at CAGR of about
11.3 % due to large scale capacity addition plans for steel production during this
period. Production in the world's third largest steel producer -- India -- rose by 2.6
per cent to 89.6 million tonnes (MT) in 2015 as against 87.3 MT in 2014, according
to WSA data. In 2015, out of the 10 largest steel production countries in the world,
nine saw production cuts, the exception was India. In 2016, we continue to see
Indian steel production growing by almost 7 per cent, according to ministry of steel.

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80
60
40

CAGR

20
0
1951

1991

2015

FIGURE 9: STEEL PRODUCTION TREND IN INDIA

4. WHICH ECONOMIC FACTORS/POLICIES/REFORMS HAVE

AFFECTED THE SECTOR MAJORLY?
Being a core industry, Indian steel industry acts as pulse of countrys economic
growth across various sectors like auto-mobile, infrastructure and consumer
durables. The upward growing Indian steel consumption is second only to China.
However, the sector is currently facing multitude of challenges:
Domestic factors including economic factors:
The low per capita consumption of steel in the Indian economy is a nagging.
Imported raw material (E.g.: Coking coal), wage bill, lower labour productivity
and high energy cost are affecting the profitability.
Availability of quality coal is the major hurdle as coal mining is in dismal state
Its an irony that the vary industry that promotes the infrastructure is
suffering due to the lack of it by virtue of tedious electricity generation and
distribution and dismal transport facilities
Outdated technology and lack of state of art methodology.
Delay in allocating coal blocks has seriously hurt the competitive edge of
Indian steel sector.
Weak macro environment, delay in clearances (environmental and land) and
infrastructure gaps.
Increased volatility in the financial markets have shun the investors
Stagnating demand and domestic oversupply
High ash-content of coking coal has an impact on efficiency
High cost of capital. Indian steel companies being charged an interest of 14%
against 2.4% in Japan
Low labor productivity
Poor quality of basic infrastructure like road, power
Absence of concrete policy actions
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Rising NPAs of banks- so they are reluctant to lend.

Tariff rate of railways for freight have always been in high, thus raising the
cost of finished steel transportation.
Cancellation of coal blocks allocation: The cancellation of coal blocks of steel
and associated industries have broken the back of steel industries.

International:

Global economic crisis hampered export ambitions.

Structural shift in Chinese economy.
Surplus capacity of production has caused tight pricing.
Global trade vagaries (Eg: Floods in Australia hampered coking coal import in
2013) in raw material import
Flattened global per capita steel consumption (Eg: USA, Canada and EU)
In such an environment, boosting domestic demand through right policy actions is a
concrete step. Imposing tariff would provide competitive edge to the industry. It can
be a breathing period for the industry to correct its structural issues and focus on
technology up-gradation.
But, imposing higher tariff may cause cascading effect on other link-industriesauto-mobile and construction. It may also deprive them of the low global steel
prices advantage . A balanced path must be carved to accommodate aspirations of
domestic and other stakeholders of sector.

5. CORRELATION OF THE PERFORMANCE WITH GDP

Indian Iron and steel industry with its strong forward and backward linkages contributes
significantly to overall growth and development of the economy. As per official estimates, the
Industry today directly contributes 2 per cent of Indias
Gross Domestic Product (GDP) and its weightage in the official Index of Industrial Production
(IIP) is 6.2 per cent, apart from employing 6 million people directly, it provides associated
employment of more than 2.5-3 million. Globally also, over the last two decades, the industry
has been able to carve out a niche for itself. From a country with a fledgling status of one million
tonnes of capacity at the time of Independence, it has today become the worlds 4 th largest
producer of crude steel preceded only by China, Japan and USA.
Growth in steel consumption in a country depends upon the rate of growth in its
GDP and the estimated GDP- elasticity of steel demand. While growth in GDP is a crucial
determinant of growth in steel consumption, GDP elasticity of steel demand is the definitive
parameter specific to an economy and determines the rate of growth in its steel demand over
time. GDP-elasticity of steel demand at a given period of time, is a function of the development
strategy adopted and is determined by the structure of the economy and the dynamics of its
growth path expressed in shifting shares of the Primary, Secondary and Tertiary sectors,
household consumption patterns, rates of investment, levels of urbanization etc. The value of
GDP elasticity of steel demand, therefore, varies widely amongst countries and over time as
countries achieve economic growth with different combinations of these structural factors over
the short and long run.Inter-Country variations in structural factors lead to wide variations in
steel intensity as measured by Apparent Steel Consumption per unit of Gross Domestic Product
(GDP) or per unit of Gross Fixed Capital Formation (GFCF).
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The Twelfth Five Year Plan envisages a GDP growth of 9% per annum. In the Most Likely
growth scenario i.e. 9% GDP growth, the demand for steel works out to be 113.3 million tonnes
by 2016-17. Therefore, it is likely that in the next five years, demand will grow at a considerably
higher annual average rate of 10.3% as compared to around 8.1% growth achieved during the
last two decades. (1991-92 to 2010-11).
Listed below is a snapshot of Indian steel industrys performance in 2015-16(provisional)
with growth rates compared to 2014-15.
Production of crude steel was at 89.78 million tonnes (mt), a growth of 0.9 per cent.
Crude steel capacity reached 118.2 mt, a growth of 7.6 per cent.
Production for sale of sponge iron was 16.28 mt, a decline of 20 per cent.
Pig iron production for sale was 9.63 mt, a decline of 0.6 per cent.
Hot metal production was 57.13 mt, an increase of 1.3 per cent.
Total finished steel production for sale was 90.39 mt, a decline of 1.9 per cent.
Export of total finished steel reached 4.08 mt, a decline of 27.1 per cent.
Import of total finished steel was 11.71 mt, an increase of 25.6 per cent.
India was a net importer of total finished steel.
Consumption of total finished steel was 80.45 mt, an increase of 4.5 per cent
Per capita total finished steel consumption stood at 61.9 kg, an increase of 1.8 per cent

6. GDP AFFECTS PRIVATE SECTOR MORE OR PUBLIC SECTOR

Growth in steel consumption in a country depends upon the rate of growth in its GDP and the
estimated GDP-elasticity of steel demand. While growth in GDP is a crucial determinant of
growth in steel consumption, GDP elasticity of steel demand is the definitive parameter specific
to an economy and determines the rate of growth in its steel demand over time. GDP-elasticity of
steel demand at a given period of time, is a function of the development strategy adopted and is
determined by the structure of the economy and the dynamics of its growth path expressed in
shifting shares of the Primary, Secondary and Tertiary sectors, household consumption patterns,
rates of investment, levels of urbanization etc. The value of GDP elasticity of steel demand,
therefore, varies widely amongst countries and over time as countries achieve economic growth
with different combinations of these structural factors over the short and long run. There exists
enormous potential in the economy for higher growth of domestic steel demand in medium and
long term. In terms of actual steel usage India lags behind other major steel producing countries.
In 2010 our per capita consumption of steel was only 51.7 Kgs as against the world average of
202.7 kgs. A massive investment to the tune of $ 1 trillion dollars has been envisaged during the
Twelfth five year plan in the infrastructure sector. Besides there is a greater emphasis on the
growth of the Manufacturing Sector in the country.
This augurs well for expansion of the base of steel consumption in the economy. A rough
estimate of incremental demand for steel in the country works out approximately to 40 million
tonnes in infrastructure alone. Hence, it is likely to raise intensity of steel consumption in the
country measured in terms of steel consumption per unit of Gross Domestic Product (GDP). The
post deregulation era has seen significant changes in the structure of the Indian steel industry in
terms of ownership. Capacity addition during the last two decades after deregulation has taken
place entirely in the private sector. As a result, there has been marked shift towards the private
sector both at the crude and finished steel stages. Private sector now accounts for 75% of total
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crude steel output compared to 37% in 1992-93 and 80% of total finished steel output compared
to 67% in 1992-93.
The advent of new production technologies has brought about a significant change in the
composition of the Indian steel industry. Capacities created in the aftermath of deregulation have
been based on technologies as diverse as COREX (JSW Steel Ltd), large-scale hybrid
technologies combining Electric Steel making with BF hot metal with downstream rolling of flat
products (Ispat Industries Ltd.) and large-scale integrated DRI-EAF-Flat products Rolling;
capacities (Essar Steel Ltd.) etc..

7. FUTURE OF STEEL INDUSTRY

Many of the conditions for the global steel industry also apply to India. It is a developing
economy with a large population. The forces of economic growth will require continued
investments in new infrastructure, new and larger cities, machinery and production to employ
more people and drive the economy forward.
India already is the third largest producer of steel, with an expected steel use of 80 million tonnes
in 2015 and 86 million tonnes in 2016. It is also expected to be one of the fastest growing areas
in steel use this year and next year.
The GDP/capita in India of around 5815 US$ per person (2010 PPP), coupled with urbanization
that is below 35% of the total population and a steel use per person of less than 100 kg per
person per year, are all indicating towards an economy that is approaching the structural
conditions for rapid acceleration. This phase usually has its own challenges, such as lack of
adequate availability of land, insufficient infrastructure, inadequate regulatory capacity, lack of
sufficient manufacturing capacity and most large skills shortages. But for a country with
imaginative managers, relatively competent bureaucracy and available raw materials the
positives in the longer term outlast the negatives. In particular, the implementation of the reform
agenda has a crucial importance for growth.
Moreover, with good raw material supply conditions, a growing market and competent
producers, we believe that India is at the start of a new growth curve. It may not come
immediately, but the fundamental conditions for growth is in place and is positive
Also certain initiatives from the part of government such as
The Government of India is aiming to scale up steel production in the country to 300 MT by
2025 from 81 MT in 2013-14.
The Ministry of Steel has announced to invest in modernization and expansion of steel plants of
Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL) in various
states to enhance the crude steel production capacity in the current phase from 12.8 MTPA to
21.4 MTPA and from 3.0 MTPA to 6.3 MTPA respectively.
The Minister of Steel & Mines, Mr Narendra Singh Tomar, has reiterated commitment of Central
Government to support the steel industry to reach a production target of 300 Million Tonne Per
Annum (MTPA) in 2025.
The Ministry of Steel is facilitating setting up of an industry driven Steel Research and
Technology Mission of India (SRTMI) in association with the public and private sector steel
companies to spearhead research and development activities in the iron and steel industry at an
initial corpus of Rs. 200 crore (US$ 31.67 million).
Some of the other recent government initiatives in this sector are as follows:
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Government of India plans to auction eight coal blocks with reserves of 1,143 million tonnes to
steel and cement firms in January 2016, as per coal secretary Mr. Anil Swarup.
Government has planned Special Purpose Vehicles (SPVs) with four iron ore rich states i.e.,
Karnataka, Jharkhand, Orissa, and Chhattisgarh to set up plants having capacity between 3 to 6
MTPA.
SAIL plans to invest US$ 23.8 billion for increasing its production to 50 MTPA by 2025. SAIL is
currently expanding its capacity from 13 MTPA to 23 MTPA, at an investment of US$ 9.6
billion.
A Project Monitoring Group (PMG) has been constituted under the Cabinet Secretariat to fast
track various clearances/resolution of issues related to investments of Rs. 1,000 crore (US$ 152
million) or more.
To increase domestic value addition and improve iron ore availability for domestic steel industry,
duty on export of iron ore has been increased to 30 per cent.
With all this initiatives, road ahead for steel industry is
India is expected to become the world's second largest producer of crude steel in the next 10
years, moving up from the third position, as its capacity is projected to increase to about 300 MT
by 2025. Huge scope for growth is offered by Indias comparatively low per capita steel
consumption and the expected rise in consumption due to increased infrastructure construction
and the thriving automobile and railways sectors.

8. THE BANK LENDING TO THIS SECTOR

The sharp decline in global commodity prices is generally good news for the Indian
economy. There could be one exception to the rule: steel.
Global steel prices are now at their lowest level since 2003and steadily falling.
This has created problems for the steel industry in many countries. Even global
giants such as US Steel, Posco and Nippon Steel have seen profits come under
pressure in their latest quarters. Indian steel companies are unlikely to be
exceptions to the overall global trend.
A further deterioration in the financial health of Indian steel companies can add to
the problems that banks are currently facing. Investment bank Credit Suisse
estimates that the $50 billion of debt in the books of the major steel companies is
around 15 times their collective operating profit in fiscal year 2015. That is very
high. The recent decline in global steel prices could worsen the arithmetic. In fact,
the Credit Suisse analysts believe that the cash costs of Indian steel companies
were higher than steel prices in China. In other words, they would make losses at
current prices even if they have no interest costs to pay.
Banks have good reason to worry. Lending to the steel industry accounts for around
a 10th of the bad loans of the Indian banking system, according to the latest
Financial Stability Report published by the Reserve Bank of India in June. The other
major contributors to the problem are loans to textile companies, power distributors
and infrastructure projects. But the domestic steel industry is particularly exposed
to global price shocks.
But that is not the entire story. The Financial Stability Report also notes: Five out of
the top 10 private steel producing companies are under severe stress on account of
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delayed implementation of their projects due to land acquisition and environmental
clearances, among other factors.
The sectorial credit stress tests conducted by the central bank show that the steel
industry is least able to withstand shocks. The sensitivity analysis showed that the
most significant effect of a single sector shock would be on the steel industry
exposures, in terms of restructured assets becoming non-performing assets. Steel
makers in many countries are already complaining about dumping by Chinese steel
makers. A Bloomberg report cites Chinese customs data to show that steel exports
from China shot up by 28% to 52.4 million tonnes in the six months to July. China is
thus pushing down steel prices in two ways: its economic slowdown has reduced
global demand for steel while domestic overcapacity is pushing firms to cut prices
aggressively to sell abroad.
Some reports suggest that the Indian government is already under pressure to
impose higher tariffs on steel imports. Anti-dumping action has also been initiated
against imports of some steel varieties from China, South Korea and Malaysia.
But there is an interesting twist to this tale: the US commerce department has said
Indian steel companies are among those that are said to be dumping the alloy in the
US market. It seems as if a mild trade war is brewing.
It is quite likely that the coming months will see calls for higher protective tariffs,
regulatory forbearance on bad loans, some attempts to sell assets to reduce debt,
and some general complaints that projects got into trouble not because of business
risks but regulatory problems in the last years of the previous government.
History has a useful lesson to offer. The Indian steel industry has been through a
similar situation in the early years of this century: high levels of debt, excess
capacity, low global prices, Chinese dumping, demands for protection and failure to
service bank loans. The way out of the mess was a long one. Hard decisions had to
be taken. Neither steel company managements nor the bankers who have lent to
the industry can afford to ignore this harsh reality.

CONCLUSION
The liberalization of industrial policy and other initiatives taken by the Government
have given a definite impetus for entry, participation and growth of the private
sector in the
steel
industry. While the existing
units are
being
modernized/expanded, a large number of new steel plants have also come up in
different parts of the country based on modern, cost effective, state of-the-art
technologies. In the last few years, the rapid and stable growth of the demand side
has also prompted domestic entrepreneurs to set up fresh greenfield projects in
different states of the country.
India is expected to become the world's second largest producer of crude steel in
the next 10 years, moving up from the third position, as its capacity is projected to
increase to about 300 MT by 2025. Huge scope for growth is offered by Indias
comparatively low per capita steel consumption and the expected rise in
consumption due to increased infrastructure construction and the thriving
automobile and railways sector

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REFRENCES:
1. Report of the working group on steel industry for The Twelfth Five Year Plan.
planningcommission.gov.in/aboutus/committee/wrkgrp12/wg_steel2212.pdf
2. Ministry of Steel Annual Report 2015http://www.steel.gov.in/Annual%20Report
%20(2014.../Annual%20Report%20 (English).pdf
3. Overview of Steel Sector. http://steel.gov.in/overview.htm
4. http://www.ibef.org/industry/steel.aspx
5. http://www.ibef.org/industry/steel.aspx
6. http://steel.gov.in/overview.htm
7. https://en.wikipedia.org/wiki/Iron_and_Steel_Industry_in_India
8. http://economictimes.indiatimes.com/topic/Indian-steel-sector

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