Date Of Submission: 16/9/2012

Submitted By:

Anand Saraf Ekta Aggarwal

Jagadish L. Sarvanan

Praduman Varun Lakra (Section F)

Industry Awareness Steel Industry

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Content

S. No. TOPIC PAGE

1 Overview of Indian Steel industry Status,

Performance and Emerging Trends

3-4

2 Key Events 4

3 Major Players in Steel Industry 5-7

4 Government Regulation & Policy Change 8-10

5 Free Trade 10

6 Recent Development 11

7 Major International players 11-13

8 Key Drivers of Cost / Profitability and Growth 14

9 Latest Key events in the Steel Industry 15-16

10 Budget Announcements related to Steel Industry 17

11 Impact of the announcement 17-18

12 Impact on market and market leaders `17-18

13 Executive Summary 20

3

Overview of Indian Steel industry Status, Performance and Emerging Trends

Indias economic growth is contingent upon the growth of the Indian steel industry.

Consumption of steel is taken to be an indicator of economic development. While steel continues

to have a stronghold in traditional sectors such as construction, housing and ground

transportation, special steels are increasingly used in engineering industries such as power

generation, petrochemicals and fertilizers. India occupies a central position on the global steel

map, with the establishment of new state-of-the-art steel mills, acquisition of global scale

capacities by players, continuous modernization and upgradation of older plants, improving

energy efficiency and backward integration into global raw material sources.

Steel production in India has increased by a compounded annual growth rate (CAGR) of 8

percent over the period 2002-03 to 2006-07. Going forward, growth in India is projected to be

higher than the world average, as the per capita consumption of steel in India, at around 46 kg, is

well below the world average (150 kg) and that of developed countries (400 kg). Indian demand

is projected to rise to 200 million tonnes by 2015. Given the strong demand scenario, most global

steel players are into a massive capacity expansion mode, either through brownfield or greenfield

route. By 2012, the steel production capacity in India is expected to touch 124 million tonnes and

275 million tonnes by 2020. While greenfield projects are slated to add 28.7 million tonnes,

brownfield expansions are estimated to add 40.5 million tonnes to the existing capacity of 55

million tonnes.

Steel is manufactured as a globally tradable product with no major trade barriers across national

boundaries to be seen currently. There is also no inherent resource related constraints which may

significantly affect production of the same or its capacity creation to respond to demand

increases in the global market. Even the government policy restrictions have been negligible

worldwide and even if there are any the same to respond to specific conditions in the market and

have always been temporary. Therefore, the industry in general and at a global level is unlikely

to throw up substantive competition issues in any national policy framework. Further, there are

no natural monopoly characteristics in steel. Therefore, one may not expect complex competition

issues as those witnessed in industries like telecom, electricity, natural gas, oil, etc.

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This, however, does not mean that there is no relevant or serious competition issue in the steel

industry. The growing consolidation in the steel industry worldwide through mergers and

acquisitions has already thrown up several significant concerns. The fact that internationally steel

has always been an oligopolistic industry, sometimes has raised concerns about the

anticompetitive behaviors of large firms that dominate this industry. On the other hand the set of

large firms that characterize the industry has been changing over time.

Trade and other government policies have significant bearing on competition issues. Matters of

subsidies, non-tariff barriers to trade, discriminatory customs duty (on exports and imports) etc.

may bring in significant distortions in the domestic market and in the process alter the

competitive positioning of individual players in the market. The specific role of the state in

creating market distortion and thereby the competitive conditions in the market is a well-known

issue in this country.

The other issue of significant importance in the context of competition is the command over

natural resources that a few players possess and 2 that enable a significant cost advantage over

the rest in the market. These are the result of government policies of the past, to support growth

of a particular industry.

Key Events

1907*: Tata Iron and Steel Company set up.

1913: Production of steel begins in India.

1918: The Indian Iron & Steel Co. set up by Burn & Co. to compete with Tata Iron and Steel Co.

1923*: Mysore Iron and Steel Company set up

1939*: Steel Corporation of Bengal set up

1948: A new Industrial Policy Statement states that new ventures in the iron and steel industry

are to be undertaken only by the central government.

1954: Hindustan Steel is created to oversee the Rourkela plant.

1959: Hindustan Steel is responsible for two more plants in Bhilai and Durgapur.

1964: Bokaro Steel Ltd. is created.

1973: The Steel Authority of India Ltd. (SAIL) is created as a holding company to oversee most

of India's iron and steel production.

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1989: SAIL acquired Vivesvata Iron and Steel Ltd.

1993: India sets plans in motion to partially privatize SAIL.

Major Players in Steel Industry

In 2012, the leading 32 steel companies of India earned a profit of INR 21605.16 crores in

addition to an aggregate revenue of INR 286108.96 crores.

Company Revenue (in crores) MCRP CR (in crores)

Tata Steel Ltd 119734.10 41849.83

Steel Authority of India(SAIL) Ltd 43556.87 43914.85

JSW Steel Ltd 24184.27 13184.45

Jindal Steel & Power Ltd 13193.60 47960.51

JSW Ispat Steel Ltd 8551.63 30943.42

Welspun Corp Ltd 8042.04 2270.25

Jindal Stainless Ltd 7534.42 1722.89

Bhushan Steel Ltd 7072.89 6969.89

Uttam Galva Steels Ltd 5035.27 892.59

Jindal Saw Ltd 4224.30 3779.00

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1. Public Sector

(A) Steel Authority of India Limited (SAIL) : Steel Authority of India Limited (SAIL) is a

company registered under the Indian Companies Act, 1956 and is an enterprise of the

Government of India. It has five integrated steel plants at Bhilai (Chattisgarh), Rourkela (Orissa),

Durgapur (West Bengal), Bokaro (Jharkhand) and Burnpur (West Bengal).

(B) Rashtriya Ispat Nigam Ltd. (RINL) : RINL, the corporate entity of Visakhapatnmam Steel

Plant (VSP) is the first shore based integrated steel plant located at Visakhapatnam in Andhra

Pradesh. The plant was commissioned in August 1992 with a capacity to produce 3 million tonne

per annum (mtpa) of liquid steel.

7 2. Private Sector

The private sector of the Steel Industry is currently playing an important and dominant role

in production and growth of steel industry in the country. Private sector steel players have

contributed nearly 67% of total steel production of 38.08 million tonnes to the country during the

period April-December, 2011.

(A)TATA STEEL LTD. : Tata Steel has an integrated steel plant, with an annual crude steel

making capacity of 5 million tonnes located at Jamshedpur, Jharkhand. Tata Steel has completed

the first six months of fiscal 2010-11 with impressive increase in its hot metal production. The

Company has planned to take the capacity to 10 million tonnes by the fiscal year 2010. Tata

Steels Greenfield projects in Orissa and Chattisgarh are progressing on schedule with placement

of equipment order for Kalinganagar Project in Orissa and commencement of the land

acquisition process. Jharkhand Project is awaiting announcement of Relief & Rehabilitation

policy of the State Government.

(B)ESSAR STEEL LTD. : ESHL has a current global capacity of 8 million tonnes per annum

(MTPA). With its aggressive expansion plans in India and other parts of Asia and North

America, its capacity is likely to go up to 25 MTPA by 44 2012. Its products find wide

acceptance in highly discerning consumer sectors, such as automotive, white goods,

construction, engineering and shipbuilding. Essar Steel Ltd., the Indian Company of Essar Steel

Holdings Limited, is the largest steel producer in western India, with a current capacity of 4.6

MTPA at Hazira, Gujarat, and plans to increase this to 8.5 MTPA. The Indian operations also

include an 8 MTPA beneficiation plant at Bailadilla, and an 8 MTPA pellet complex at

Visakhapatnam.

(C) JSW STEEL LTD. : JSW Steel is a 3.8 MTPA integrated steel plant, having a process route

consisting broadly of Iron Ore Beneficiation Pelletisation Sintering Coke making Iron

making through Blast Furnace as well as Corex process Steel making through : BOF-

Continuous Casting of slabs Hot Strip Rolling Cold Rolling Mills. The capacity as on

1.11.2007 stood at 3.8 MTPA and the capacity is likely to rise to 6.8 MTPA by 2008, and further

to 9.6 MTPA by 2010.45

(D) JINDAL STEEL & POWER LTD. (JSPL) : Jindal Steel & Power Limited is one of the fast

growing major steel units in the country. The Raigarh plant of JSPL has a present capacity of

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1.37 million tonne per annum (MTPA) sponge iron plant, 2.40 MTPA Steel Melting Shop

(SMS), 1.0 MTPA plant Mill, 2.30 sinter plant, 0.8 MTPA coke oven and a 330 Mega Watt

captive power plant. During the year 2006-07, the company produced 1.19 million tonnes of

sponge iron, 0.8 million tonnes of various steel products, 0.57 million tonnes of hot metal and

0.21 million tonnes of rolled products. The performance of JSPL during AprilOctober 2007-08

was 0.68 million tonnes of sponge iron, 0.72 million tonnes of steel products

(slabs/blooms/billets/rounds), 0.68 million tonnes of hot metal, 0.27 million tonnes of rolled

products and 0.11 million tonnes of plates

( E) ISPAT INDUSTRIES LTD. (IIL) : IIL has set up one of the largest integrated steel plants in

the private sector in India at Dolvi in Raigad District, Maharashtra with a capacity to

manufacture 3 million tonnes per annum of hot rolled steel coils (HRC). The Dolvi complex also

boasts of an ultra modern blast furnace (setup by a group company Ispat Metallics India Ltd.)

capable of producing 2.0 million tonnes per annum of Hot Metal/ Pig Iron, a 2.0 million tonnes

capacity Sinter Plant (newly commissioned) and a DRI plant with a capacity of 1.6 million

tonnes per annum.

Government Regulation & Policy Changes

The perceived or real abuse of dominance has been counteracted by constant government

interventions. Intervention by the government on matters of pricing steel long products also in

the recent times has also pointed to the acceptance of the government that the major steel

producers have substantial pricing power in the market and that they can be expected to act in

uniform with substantial net impact on the market to move the trends in the desired direction. In

fact, although the government action is purported to correct market imperfection, it has at the

same time given rise to competition issues in the market. And more importantly, it affects

adversely the large players incentive to invest.

The differential competitive positioning of the steel firms on this count has been derived

historically as a result of the market distorting regulatory government policies in the past. The

erstwhile licensing policy of the government in the first place prohibited private entry into the

integrated route and then gradually allowed private investment only in small EAF based mini

steel plants before deregulating the sector completely in 1991-92. Further, price and distribution

control for steel produced in the integrated sector did not allow for sufficient growth for the

players already in the industry.

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Slow government responsiveness: To some extent, this disparity continued even today. This may

not have been due to any conscious policy of the government to favour any individual group or

segment of the industry, but the slow process of change has resulted in continuation of such

differentiating competitive conditions. Although the choice of technology has become

increasingly market determined and is based increasingly on pure commercial considerations, the

policies related to ownership and leasing of mines and specific government interventions do

significantly influence the technology choice.

Subsidizing the small units: The scheme providing subsidies to the steel distributed through

State Small Industries Corporations (SSICs) goes against consumer and competition interests.

The government, through this scheme, makes SAIL, Tata Steel and RINL to sell steel at a

subsidized price to these SSICs which finally are to go small customers. The subsidy amount is

reimbursed to the producers from Steel Development Fund (SDF). While the objective of this is

to support the interest of very small consumers, a government committee report itself says that

the SSICs act as an agent/trader only and the benefits do not reach the intended beneficiaries and

finally the products are sold either to the significant consumers or large traders. The point is, in

this way, the government creates favorable pricing conditions for a select few and multiple prices

in the market.

Import Policy Induced Distortions in the Competition in the Market The governments fiscal

policy has been somewhat supportive to the domestic steel industry and against the interest of the

consumer industries; these could be considered to be anticompetitive.

1. Take for instance the the import duty on steel, that remained at very high levels for a long

time, at 25 percent till January 2004. It is only now that anti-inflationary action has led to

import duty being waived.

2. Also, the industry benefited from the floor prices imposed on prime steel products, not

only when the global prices dropped to abysmal levels, but also when they started rising to

reasonable positions. Though these have finally been abolished, the protracted protection unduly

supported the steel makers at the cost of the consumers.

3. The industry also gained from certain procedure related non-tariff barriers like mandatory

certification requirement for quality of imported products by the Bureau of Indian

Standards (BIS). This involved lengthy and cumbersome procedures involving high

transactions costs for the importers.

4. The government also designated specific ports for imports of certain categories of steel

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with a clear (though not formally stated) intention to curb their imports.

5. The imposition of an anti-dumping duty on non-alloy steel a few years ago on an

absolutely flimsy ground was also questioned widely by the consumer industry.

6. Further, a prohibitive import duty on seconds and defectives also went against genuine

consumer forcing them to buy prime materials against their wishes and requirement.

Given the fact that there is a large number of diverse industries dependent on low priced

defective materials and there are no specific reasons why such consumers should be forced to

buy high cost raw materials for their low value products, the governments persistent stand

against imports of seconds and defectives violate the spirit of competition with openly doled out

favours to the major steel makers. The steel industry often raised health issues in certain cases

which are nothing but administrative and law enforcement matters having no relation either to

the policy or the market. These measures were against the interests of a certain segments of the

steel industry itself (for example, the merchant CRC and GP/GC producers), and served the

major steel producers when it came to competition with the user industry.

Free trade Agreement

A free-trade agreement (FTA) between two countries helps develop ties between the countries

and eliminates tariffs, import quotas, and preferences on most goods and services traded between

them. Steel is considered to be one of the key components of a growing economy and the growth

of India in the recent years has made the need for importing steel and developing free trade with

countries for this commodity a necessity. India is the fourth largest producer of crude steel but

the per capita production of steel has remained low.

Indian government introduced a policy of allowing 100% FDI in steel industry and developed

free trades with many countries for this commodity. India has been an importer of steel and has

imported 6.83 million tonnes in the previous financial year. The FDI in steel in our country has

seen a steady increase to 60.73%. Steel producers have signed 222 memoranda of understanding

(MoUs) in conjunction with state governments for a planned capacity expansion of around

275.7 MT by 2020. Government has begun encouraging research and development in this sector,

reduced custom duty and has introduced public private partnership in large infrastructure

projects.

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Recent Developments

India had signed FTA with Korea in August 2010 and Japan last year and the imports from this

country of this commodity have been exponentially increasing. The import duty has been cut

down to 3.1% for these countries in 2010 and steel imports have gone up by about 300% in the

last fiscal year. Cashing on the duty benefits, Japan and Korea have also become the leading

exporters of steel to India replacing the traditional exporters European Union and Russia.

Though this marks a healthy trend in steel resource availability, this has affected domestic

players in their steel production. In September 2012, there has been a demand for taking steel out

of the purview of the free trade pact with Japan and Korea by Indian steel giants JSW Steel and

Essar steel. The fundamental reasoning behind this demand is that the economies of these two

countries have been having a slow growth and these countries have turned to India to dump their

steel produce at lower prices thereby affecting domestic growth.

Domestic players argue that high value addition and employment generation potential makes

steel a favourable commodity to be produced in house and wants the government to relook at its

positioning in the steel industry with respect to foreign players and trade agreements.

Major International players

Arcelor Mittal

JFE

Hebei Iron and

Steel

Bao steel Group

POSCO

Investments, Mergers & Acquisitions

JFE (Japan) has invested US$1 billion in JSW Steel involving activities of Technology

tie-up and has acquired a minority stake in the same

Arcelor Mittal has invested in Uttam Galva acquiring significant minority stakes

Joint venture between Nippon Steel (Japan) and Tata Steel for production of Automotive

Steel

Bao Steel (China) entered in a Joint Venture with Visa Steel for production of Ferro

Chrome in India

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POSCO Steel (South Korea) has announced an investment of US$12 billion for setting up

a 12 million tonne steel project in India

Future Outlook

Availability of abundant raw materials, cheap labor force, favorable government policies will

continue to drive foreign investments into the sector. However, difficulties in land acquisition,

regulatory delays in obtaining approvals/licenses will encourage investments/joint ventures with

existing set-ups rather than encourage new Greenfield projects

Technology Trends/Innovation

A recent technology trend in the steel industry has been towards waste reduction and

sustainability practices. Reducing the environmental footprint during the entire life cycle of steel

is the key focus. The Ministry of Steel, Government of India tries to encourage R&D activities in

the steel sector by providing financial assistance from Steel Development Fund.

Key Research areas include,

Mineral and plant waste disposal, utilization and recycling

CO capture and sequestration in ferrous industries,

Development of innovative technology for effective recovery / utilization of waste

heat in different steel making processes

Development of steel intensive low cost mass housing

Development of value added coatings on steel

Development of novel joining processes (e.g. diffusion bonding / friction stir welding) for

steel steel / steel other metals

Electric Arc Furnace Steelmaking

The EAF is more suitable than other liquid steel sources for the simple, flexible and compact

concept, at least in the short to medium term. The growing importance of the electric arc furnace

has given rise to rapid technological progress. In the past decade there have been remarkable

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savings in energy, refractory use and electrode consumption coupled with significant

improvements in productivity. Recent major innovations in electric steelmaking have aimed to

reduce environmental impact, to further improve energy savings and productivity, and to

diversify the charge material

Scrap Issues

It is recognized that increased electric arc furnace utilization is linked to availability of ferrous

charge material, at the moment mainly scrap. This focuses attention on the scrap problem: either

there is enough scrap to meet the likely higher demand, or its price will increase to the point

where electric arc steel will become far less competitive relative to integrated steel production.

Scrap substitutes play an important role in the overall picture. These include directly reduced

iron (DRI) and ordinary iron (either hot metal or cold pig iron). Development of new

technologies may significantly decrease the cost of DRI to the point where it could become

competitive with the scrap price, even in places where energy costs are currently too high for

economic production. In this event, the forecast for future electric arc production could well be

realized. Substitutes for scrap will play an important role as a supplementary charge material in

any event. Some high purity charge material is required to dilute residuals in scrap. The spread of

mini mills for flat products increases the importance of scrap substitutes as a pure charge

material. Even if scrap supplies are readily available, some alternative charge material will be

required for quality reasons.

Replacement Issues

New technologies compete with the traditional blast furnace-basic oxygen steelmaking route and

with scrap based electric arc based plants using conventional continuous casting and rolling

technologies. No doubt the most modern or recently upgraded works will continue producing in

the usual way for many years. It is not economic to replace still efficient plants with new plants

since the extra capital costs cannot be compensated by the flow of lower operating costs. A few

years ago it was thought that coke shortages arising from coke ovens reaching the end of their

lives would result in closure of integrated works. Reconstruction of coke ovens is expensive.

Instead, pulverized coal injection (PCI) is now routinely used to replace coke in the blast

furnace. The technique is likely to be further used and expanded in the near future. In the longer

term blast furnaces might be replaced by smelting reduction plants.

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Key Drivers of Cost / Profitability and Growth:

Demand conditions report weakening in the country

Indian steel consumption is expected to witness some moderation going forward, given the

continuing slowdown in demand from key consuming sectors. The major steel consuming

sectors in India include construction (~65%), capital goods (~15%), and automobiles (~8%).

Already, there has been a slowdown in project off take in India for a variety of reasons, including

problems over land acquisition, resettlement and rehabilitation, uncertainty in global economic

outlook, and a sharp increase in interest rates in the country. The prevailing high interest rates are

also likely to keep demand growth in the rate-sensitive sectors like automobiles, real estate and

housing at moderate levels. Reflecting this trend, the apparent steel consumption in India in the

first six months of FY2012 grew nominally by around 2.5% as against about 14.5% growth rate

recorded in the corresponding period of the previous year

Current weakness in world economy points to likely slowdown in global steel demand too

The construction industry, which accounts for around 50% of global steel demand, remains

weak, with the construction index in the EU remaining significantly lower than what it was in the

pre-crisis months. Additionally, a number of EU countries have recently faced a sovereign debt

crisis situation. With the growing fears of a contagion effect spreading to some of the larger

economies, the focus of macroeconomic management in the EU has shifted to fiscal

consolidation and austerity measures, which in turn is likely to have a dampening effect on steel

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demand in EU countries. China, the EU and the USA accounted for over 60% of the global crude

steel consumption in CY2010. The unfavourable outlook for steel demand growth in these

regions is therefore likely to have a bearing on global steel consumption, at least in the near to

medium term.

High raw material costs likely to exert further pressure on margins of Indian steel players

Indian steel producers have a raw material price advantage over their Asian peers like those in

China, Korea and Japan as far as iron ore is concerned, given the domestic availability of ore.

Domestic iron ore prices are generally lower than prices of internationally traded iron ore.

Indias annual iron ore production is over 200 million tonnes, of which 45-50% is generally

exported. The recent increase in the export duty on iron ore was aimed at improving domestic

availability. However, Indian exports largely consist of iron ore fines, which currently have

limited use in the domestic steel industry. Large steel producers like SAIL, Tata Steel and JSPL

have captive iron ore mines, while others procure iron ore from public sector undertakings like

NMDC Limited, private miners and traders. Although Indian iron ore prices are lower than

international prices, domestic prices nevertheless follow the international trend

Apart from iron ore, coking coal too is likely to exert pressure on Indian producers raw material

costs. Close to 40% of Indias total steel output is produced via the BF route, making

metallurgical coke (coke) a key raw material for steel production. Indian coking coal reserves are

estimated at just 33.4 billion tonnes (that is, about 12.5% of the total coal reserves), most of

which are of low quality, with a high ash content. Thus over 70% of the total coking coal

requirement is currently imported, with imports from Australia accounting for about 80% of the

total imports

Prospect of domestic overcapacity looms in the medium term as large capacities get added

All the major domestic steel producers have embarked on capacity addition, a significant portion

of which is expected to be commissioned over the short to medium term. almost 25 million

tonnes of new capacity, which is about 30% the countrys current production capacity, is

expected to be commissioned in the next 18-24 months. The rate of this capacity addition is

likely to outpace domestic demand growth in the medium term, given the slowdown in demand

growth expected over this period. Thus, the domestic steel industry is likely to face overcapacity

in the medium term, which in turn is likely to push up domestic competition as well as exports.

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Further, while around 60% of the Indian demand is for long products, a significant majority of

the new capacities would produce flat steel products. Given that long products are likely to

maintain a higher consumption pattern in India, driven by the infrastructure and construction

sectors, the capacity mismatch is also likely to prompt producers to explore export markets.

However, in the absence of the 5% duty protection available in the domestic market, export

realisations are likely to be lower.All these factors, along with the higher capital charges for

companies commissioning large projects, are likely to affect the margins of steel producers

adversely in the near to medium term especially given the high interest rates prevailing.

Latest Key events in the Steel Industry

1. JSW Ispat merges with JSW steel

a. The combined entity is the second largest Indian steel company with a capacity of 14.3

million tonne per annum. JSW steel had acquired Ispat Industries from the Mittals in

December 2010 for Rs 2,160 crore.

2. Demand to exclude steel products from ambit of FTA with Japan, Korea gaining

momentum

a. JSW and Essar are arguing that Japan and Korea are dumping steel products in India at a

'very low price' since their own economies were not performing well.

b. There is more than 300% increase in imports of steel in just one year from these

countries.

3. ISI mark on steel products made compulsory

a. As per the BIS new norms, all producers, foreign and domestic both, can not produce,

import, store for sale or distribute steel and steel products, which do not follow the

standards and which do not bear the standard mark (ISI Mark) on receiving certification

marks license.

4. Coalgate Implications

a. Cancellation of mining licence of a coal block held jointly by JSW Steel and

Himachal EMTA

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b. Bhushan Steel and SKS Ispat Ltd also face the cancellation of their coal blocks.

c. IMG has so far cancelled the allotments of four blocks allotted to Castron Mining Ltd,

Fieldmining and Ispat Ltd and DOMCO Smokeless Fuels Pvt Ltd.

d. CBI has filed FIR against Navbharat Steel and AMR Iron and Steel and their officials

for alleged cheating in Coalgate scam. The other companies are Vimmi Iron and Steel,

JLD Yavatmal and Jas Infra

e. The CBI had also examined the past areas of operation of some of the companies

which were allotted coal blocks in Jharkhand, Chhattisgarh and Karnataka, the sources

said alleging some of these firms had been set up only for getting coal blocks allocated

and the same was later sublet to other companies at a premium.

Budget Announcements related to Steel Industry

Union Finance Minister proposed allocation of Rs. 50 lakh crore towards infrastructure

investment during the 12thPlan period. He doubled the tax free bonds for financing infrastructure

projects to Rs. 60,000 crore.

Increase in basic customs duty on non-alloy, flat-rolled steel from 5% to 7.5%

Reduction of basic customs duty on plant and machinery imported for setting up or expansion of

iron ore pellet plants or beneficiation plants from 7.5% to 2.5%, to encourage enrichment of low-

grade iron ore.

Reduction in basic customs duty on coating material for manufacture of electrical steel from

7.5% to 5 % and on nickel ore and concentrate and nickel oxide/ hydroxide from 2.5or7.5% - Nil

Impact of the announcements

In an attempt to lend support to the ailing Indian Steel industry the Finance minister has

proposed to raise spending on infrastructure. Additional expenditure on Infrastructure projects is

expected to lead to higher demand of steel thus supporting higher prices. Further proposal to

increase import duties on flat steel is expected to increase prices of imported flat steel by Rs.

1000 which would discourage imports, thus supporting domestic flat steel prices.

However other announcement like reduction in duties on plants and machinery imported for

beneficiation low grade iron ore may limit the upside. Pellets are made from low-grade iron ore

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and beneficiation refines this lower grade ore. The move may help domestic use of these low

grade iron ore which may increase supply and help in reducing prices of iron ore, key raw

material for steel.

No direct impact on steel long prices is expected out of reducing custom duty on coating material

however it will reduce prices of electric steel, which is used in the power sector. Similarly

reduced import duty on nickel ore and concentrate may put pressure on specialized steel prices.

Impact on Market Leaders

Company name Impact Impact factors

Steel Authority of India Ltd. Yes,increasing A,B,C,D

Tata Steel Ltd. Yes,increasing A,B,C,D

JSW Steel Ltd. Yes,increasing A,B,C,D

Essar Steel Ltd. Yes,increasing A,B,C,D

Bhushan Steel Ltd. Yes,increasing A,B,C,D

Impact factors

A. Increase in customs duty on flat steel, to 7.5 per cent from 5 per cent, is expected to make

landed cost of flat steel imports dearer by Rs 1,000 per tonne. This will provide Indian flat steel

players the flexibility to increase prices by Rs 500 to Rs 1,000 per tonne.

B. The hike in excise duty to 12 per cent from 10 per cent is expected to have a neutral impact on

the steel industry. This is because manufacturers are likely to pass on the impact of excise duty

hike, which will increase the price of steel by Rs 700 to Rs 1,000 per tonne.

C. The full exemption from basic customs duty and a concessional countervailing duty of 1 per

cent on non-coking coal up to March 31, 2014, will not benefit domestic steel manufacturers.

Producers manufacturing steel through the sponge iron route mostly source coal domestically,

where e-auction prices are already at a discount of about 15 per cent to 20 per cent to the landed

cost of non-coking coal.

D. To encourage enrichment of low-grade iron ore fines, the basic customs duty on plant and

machinery imported for setting up iron ore pellet plants or iron ore beneficiation plants has been

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reduced to 2.5 per cent from 7.5 per cent. This will enable the domestic steel industry to utilise

low-cost fines in iron ore in the long run

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Executive Summary

Steel Industry is one of the basic Infrastructure industry of the country and acts as one of

founding pillars of the economy. Steel production in India has increased by a compounded

annual growth rate (CAGR) of 8 percent over the period in the past. Going forward, growth in

India is projected to be higher than the world average.

The growing consolidation in the steel industry worldwide through mergers and acquisitions has

already thrown up several significant concerns. The fact that internationally steel has always

been an oligopolistic industry, sometimes has raised concerns about the anticompetitive

behaviors of large firms that dominate this industry. On the other hand the set of large firms that

characterize the industry has been changing over time.

Major players in Steel Industry in India include Tata Steel,SAIL,JSW Steel, Jindals etc. India

had signed FTA with Korea in August 2010 and Japan last year and the imports from this

country of this commodity have been exponentially increasing. The import duty has been cut

down to 3.1% for these countries in 2010 and steel imports have gone up by about 300% in the

last fiscal year. Cashing on the duty benefits, Japan and Korea have also become the leading

exporters of steel to India replacing the traditional exporters European Union and Russia.

Though this marks a healthy trend in steel resource availability, this has affected domestic

players in their steel production.

A number of International players are also entering India. These are: JFE (Japan), Arcelor Mittal,

Nippon Steel (Japan), POSCO Steel (South Korea).

Availability of abundant raw materials, cheap labor force, favorable government policies will

continue to drive foreign investments into the sector. However, difficulties in land acquisition,

regulatory delays in obtaining approvals/licenses will encourage investments/joint ventures with

existing set-ups rather than encourage new Greenfield projects

A recent technology trend in the steel industry has been towards waste reduction and

sustainability practices. Reducing the environmental footprint during the entire life cycle of steel

is the key focus. Indian steel consumption is expected to witness some moderation going

forward, given the continuing slowdown in demand from key consuming sectors. The major steel

consuming sectors in India include construction (~65%), capital goods (~15%), and automobiles

(~8%). The construction industry, which accounts for around 50% of global steel demand,

remains weak, with the construction index in the EU remaining significantly lower than what it

21

was in the pre-crisis months. Indian steel producers have a raw material price advantage over

their Asian peers like those in China, Korea and Japan as far as iron ore is concerned, given the

domestic availability of ore. Domestic iron ore prices are generally lower than prices of

internationally traded iron ore.

All the major domestic steel producers have embarked on capacity addition, a significant portion

of which is expected to be commissioned over the short to medium term. almost 25 million

tonnes of new capacity, which is about 30% the countrys current production capacity, is

expected to be commissioned in the next 18-24 months. The rate of this capacity addition is

likely to outpace domestic demand growth in the medium term, given the slowdown in demand

growth expected over this period.

Latest Events in Steel industry include: JSW Ispat merges with JSW steel, Demand to exclude

steel products from ambit of FTA with Japan, Korea gaining momentum and the Coalgate

Implications.

In the Union Budget 2012-13, Union Finance Minister proposed allocation of Rs. 50 lakh crore

towards infrastructure investment during the 12thPlan period. He doubled the tax free bonds for

financing infrastructure projects to Rs. 60,000 crore.Increase in basic customs duty on non-alloy,

flat-rolled steel from 5% to 7.5%.Reduction of basic customs duty on plant and machinery

imported for setting up or expansion of iron ore pellet plants or beneficiation plants from 7.5% to

2.5%, to encourage enrichment of low-grade iron ore.

22

SELECT BIBLIOGRAPHY

www.icra.in

CRISIL-Research-budget-analysis-2012-13

KCSL Research - Budget Analysis 2012-13

http://www.cci.in/pdf/surveys_reports/iron-steel-industry.pdf

http://www.business-standard.com/india/news/bhushan-steel-sks-ispat-likely-to-lose-coal-

blocks/486586/

http://timesofindia.indiatimes.com/business/india-business/Coalgate-JSW-Steel-EMTA-to-

lose-coal-mining-licence-Tata-Steel-Reliance-Power-escape-

penalty/articleshow/16405891.cms

http://articles.economictimes.indiatimes.com/2012-09-04/news/33581940_1_coal-blocks-

coal-ministry-officials-coal-secretaries

http://news.indiamart.com/story/demand-exclude-steel-products-ambit-fta-japan-korea-

gaining-momentum-167649.html

http://steelstewardship.com/lifecycle/

23

Annexure-I

State-wise Distribution of Main and Major Steel Producer

Plants

PLANT STATE

Main Producers

1. Steel Authority of India Limited (SAIL) Plants

Bokaro Steel Ltd Jharkhand

Durgapur Steel Plant West Bengal

Alloy Steel Plant West Bengal

IISCO Steel Plant West Bengal

Rourkela Steel Plant Orissa

Bhilai Steel Plant Chhatishgarh

Viswswariya Steel Ltd Andhra Pradesh

Salem Steel Plant Tamil Nadu

2.Rashtriya Ispat Nigam Ltd. /

VizagSteel Plant Andhra Pradesh

3.Tata Steel Jharkhand

Major Producers

1. Ispat Industries Maharashtra

2. JSW Steel Karnataka

3. Essar Steel Gujarat

4. Jindal Steel & Power Chhatisgarh

Source: Joint Plant Committee (JPC)

24

Annexure-II

State-wise Distribution of small / medium scale steel plants

(numbers)

State

Electric Arc

Furnace

Induction

Furnace Re-rolling

Chattisgarh 2 65 133

DNH

26 5

Daman

14

Goa 1 22 14

Gujarat 4 54 142

Maharashtra 9 74 137

M P 1 16 44

Total 17 271 475

Chandigarh 1 3 3

Delhi

4 33

Haryana 3 34 19

H P

15 4

J & K

8 11

Punjab 4 124 375

Rajasthan

31 199

U P 2 131 176

Uttranchal

28 7

Total 10 378 827

Tamilnadu

78 119

25

Pondicherry

27 14

Karnataka

26 23

Kerala 1 42 41

A P

52 57

Total 1 225 254

Assam

11 9

Bihar

16 13

Jharkhand 3 28 31

Orissa 3 74 29

West Bengal 4 61 73

Megalaya

10 9

Total 10 200 164

ALL INDIA 38 1074 1720

Exhibit 1:

COMPANY PRODUCTION OF STEEL (IN MIL. TONNES) MARKET SHARE

SAIL 13.5 32%

TISCO 5.2 11%

RNIL 3.5 8%

ESSAR,ISPAT,JSWL 8.4 19%

OTHERS 14.5 30%

TOTAL 45.1 100%

Source: Joint Plant Committee