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Industry Analysis of Steel sector

Table of Contents

1 Introduction...................................................................................................................................3

1.1 Varieties of Steel........................................................................................................................3

1.2 Production Technology..............................................................................................................4

1.3 Components of the cost of production......................................................................................5

2 The Global Steel Industry...............................................................................................................7

3 The Structure of Indian Steel Industry...........................................................................................8

3.1 Factors that attribute to the Revival of the Indian Steel Industry..............................................9

3.2 Production and Consumption of Steel in India........................................................................13

4 Quantitative Analysis...................................................................................................................15

5 Qualitative Analysis.....................................................................................................................18

5.1 Understanding the Steel industry using Michael Porter’s Five Forces Model..........................18

5.2 The SWOT Analysis..................................................................................................................19

5.3 Strategic Restructuring — A Comparative Analysis..................................................................24

5.3.1 Impediments to expansion..................................................................................................24

6 Current Global Scenario...............................................................................................................27

6.1 Current crisis in Iron and Steel Industry...................................................................................27

7 Suggestions..................................................................................................................................29

8 Future Outlook............................................................................................................................30

9 Identifying Key Success Factors...................................................................................................31

10 Conclusion...............................................................................................................................32

11 References...............................................................................................................................33

2

1 IntroductionIron is one of the oldest inventions in the world with its first usage reportedly dating back to

4000 BC. Steel is crucial to the development of any modern economy and is considered to

be the backbone of the human civilization. Today Steel (the carbon alloy of Iron) finds

application in every imaginable facet of our life. The global steel industry has been

witnessing many interesting events that have influenced market dynamics in the last ten

years.

1.1 Varieties of Steel

There are more than 3500 grades of steel available today; with about 75% of these

developed in the last twenty years. Finished steel products can be broadly classified into

flats and longs. Longs are used in construction, infrastructure and heavy engineering. Flats

are mainly used in making automobiles, commercial vehicles and consumer durables. Hot

rolled (HR) steel and Bar & Rods are the most popular varieties of steel produced in India.

HR coil and sheets are used in making cold rolled products, pipes and tubes, automobile

components, electronic equipment like fridges and for construction purposes. Currently HR

Coils and Sheets account for about 26% of the total domestic production and its share has

been gradually rising over time. Bars and rods are typically used more extensively in the

construction and engineering sectors.

3

1.2 Production Technology Some of the technological options for converting iron ore to steel products is schematically

shown below. Hot metal and crude steel process are also interlinked among themselves as

represented by arrows.

Source: www.sail.com

Below mentioned are few methods of producing steel:

• Blast Furnace (BF)/ Blast Oxygen Furnace (BOF) route is the most popular way of

producing steel, accounting for nearly 57% of total production. The BF/BOF route is good

for volume production, but involves huge capital costs.

• The Electric Air Furnace (EAF) is rapidly gaining popularity globally and uses sponge

iron/scrap and coke to produce steel. EAF route is flexible to produce different grades of

steel. However, EAF growth is constrained by power and scrap supply constraints in

India.

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• COREX, a new modern smelting technology has been recently introduced in India. It

does not require coke in producing steel and therefore could become popular with

Indian steel majors in time to come.

1.3 Components of the cost of productionAny sustained rise in input prices usually lead to an increase in product prices through the

cascading effect. The major components of the costs of production of finished steel are:

Raw materials - Raw material costs forms roughly about 62% of the total cost of

production. The basic raw materials that are used in producing steel are iron ore, coal

and limestone. India is fortunate to be endowed with one of the largest iron ore

deposits in the world. Limestone is also available in sufficient quantities and as such do

not pose much of a problem. India also possesses one of the biggest coal deposits

(approximately 197 bn tonnes) in the world. However, Indian coal is mostly unfit for

coke production because of its high ash content of 25-40.

.

Power costs - The steel industry is an energy intensive industry with power and fuel

contributing as much as 10.1% of total production costs. It has been estimated that the

global steel industry account for nearly 4% of the total energy consumption in the world.

Most steel majors like SAIL, TSL and JSW have captive power plants but smaller players

have to depend on outside supply.

5

Interest payments - Steel is a capital-intensive industry and as such many companies

resort to outside borrowings, mostly in form of long-term loans. Interest payments

always used to form on average between 7 – 9% of the total costs but have recently

come down to as low as 3.2%. Interest coverage ratio has also shot up to nearly 10 after

hovering above the zero levels for a number of years. Also, it is important to note that

the recent good turn in the sector has enabled many companies to pay off their long-

term debts early and, in general interest payments have come down industry-wide.

Taxes and duties - Excise duties, sales tax, other direct and indirect taxes further push

up costs in the steel sector. Total taxes contribute more than 16% of total costs. Here,

the government can play an active role and provide structured concessions for new and

old capacities.

Other expenses - Wage bills, depreciation costs and distribution expenses are among

the other major cost component

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2 The Global Steel IndustryFollowing the collapse of Soviet Union, the low cost steel makers in the region have been

targeting the global steel market pie, creating a price imbalances as the cost of production

of steel varies drastically across countries The 90’s were crucial for Indian steel industry too.

The ‘controlled’ environment has changed drastically, in the post-liberalization scenario. The

sector was opened up to the entry of private players, while quantitative restrictions on

foreign trade have been removed. The last ten years has also seen inefficient steel mills with

outdated technology perishing, while new capacities that possess latest technology

expertise have come up.

Source: International iron & steel institute

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3 The Structure of Indian Steel Industry

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

The Indian steel industry entered into a new development stage from 2005–06, resulting in

India becoming the 5th largest producer of steel globally. Producing about 53 million tonnes

(MT) of steel a year, today India accounts for a little over 7 per cent of the world's total

production.

India is the only country over world to post a positive overall growth in crude steel

production at 1.01 per cent for the January-March period of 2009. The recovery in steel

production has been aided by the improved sales performance of steel companies. The steel

sector grew by 5.3 per cent in May 2009.

According to a report from Barclays Capital, China and India are going to provide the

impetus for steel demand for the next few years.

The Indian steel industry can be divided into two distinct producer groups; Integrated steel

producers (ISP) with over 1 MT of capacity and smaller stand-alone steel plants that include

producers and processors of steel. The ISP’s include the like of SAIL, Tata Steel, JSW Steel,

and Ispat Industries. They account for most of the mild steel production in the country and

produce most of the flat steel products including Hot Rolled, Cold Rolled and Galvanised

steel. The smaller stand-alone steel plants account for a majority of long products being

produced in the country.

The potential demand for steel in India is vast with the per capita steel consumption. The

level of per capita consumption of steel is treated as one of the important indicators of

socio-economic development and living standard of the people in any country. It is a

product of large and technologically complex industry having strong forward and backward

linkages in terms of material flow and income generation. All major industrial economies are

characterized by the existence of a strong steel industry and the growth of many of these

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economies has been largely shaped by the strength of their steel industries in their initial

stages of development. This offers a huge potential to steel manufacturers, both domestic

and global.

3.1 Factors that attribute to the Revival of the Indian Steel Industry

The factors for revival of Indian steel industry are buoyant global steel consumption,

buoyant local steel consumption, lower cost of production and adequate rise in price against

hike in input costs. Apart from this, backward integration, consolidation and branded

product sales, marketing alliances, etc., have led to the revival of the Indian steel industry.

Government Initiatives

Subsequent to the recent fall in international prices of commodities and to protect Indian

producers, the Indian government has announced some changes in customs duty rates,

which were effective from November 2008.

The government has removed full exemption of customs duty on some industrial and

agricultural commodities. Iron and steel products like pig iron, spiegeleisen, semi-finished

products, flat products and long products are now subject to a basic custom duty of 5 per

cent ad valorem.

The Indian government plans to invest over US$ 350 billion in industries related to

infrastructure and construction which will give a fillip to the steel sector.

Moreover, in the Union Budget 2009-10, the government has made a 23 per cent hike in

allocation for highway development and US$ 1.034 billion increase in budgetary support to

Railways which will further promote the steel industry.

Impact of Liberalization

The economic reforms initiated by the government in 1991 have added new dimensions to

the industrial growth in general, and steel industry in particular. Some of the important

features due to liberalization are:

Licensing requirement for capacity creation has been abolished.

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Steel industry has been removed from the list of industries reserved for the state sector.

Automatic approval granted for foreign equity investment in steel has been increased up

to 74% [Government of India 1999].

Price and distribution controls were removed from January 1992 [Report to the Ministry

of Industry, Science and Tourism 1997].

Restrictions on external trade, both in import and export, have been removed.

Import tariff reduced from 105% in 1992/93, to 30% in 1996-97. [Report to the Ministry

of Industry, Science and Tourism 1997]

Other policy measures like convertibility of rupee on trade account, permission to

mobilize resources from overseas financial markets, and rationalization of existing tax

structure.

There was expansion of the steel sector after the economic reforms. The new entrants as

well as the existing manufacturers went for technical tie-ups with leading steel producers of

the world [Nakra 1996]

Cost Competitiveness of Indian Steel Industry

The cost competitiveness of Indian steel industry can be seen in Table below. The cost of

major raw materials like iron ore, coking coal, and other raw materials is less in India among

the countries mentioned. The labor cost is low, but it is neutralized by its low level of

productivity.

The financial cost and the cost of power, oil and some other materials are high. Energy

accounts for about 35 - 40% of the cost of steel production in India, whereas it is about 28%

in the developed countries. All these make the pre-tax cost of steelmaking in India higher

than that of South Korea, Australia, Mexico, and CIS countries. Considering the low wage

rate and other economic factors, the labor cost in India makes up around 15% of the cost of

the steel as compared to around 30% in developed countries like Japan and United States. In

spite of these advantages, Indian firms could not become cost-effective.

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Source: Iron and Steel Review (1998)

Current Investments

A host of steel companies have lined up major investment proposals. Furthermore, with an

expanding consumer market, the Indian steel industry is likely to receive huge domestic and

foreign investments.

According to the Investment Commission of India investments of over US$ 30 billion

in steel are in the pipeline over the next 5 years.

Arcelor-Mittal, the largest steel maker of the world, is planning to set up a captive

port near Paradip in Orissa. The port will be used to serve two mega integrated steel

plants of the company proposed in Orissa and Jharkhand.

Tata Steel has raised US$ 500 million by issuing 'global depository receipts' (GDRs)

aiming at expansion of its Jamshedpur plant and overseas mining projects.

Japanese steel major, Kobe Steel, has decided set up a subsidiary in Kolkata to

market its steel production machinery in India.

Steel companies have committed US$ 122.50 million for setting up sponge iron units

in Koppal and Bellary in Karnataka.

SAIL will invest US$ 724.12 million to set up a 4-million tonne per annum steel mill at

its Bhilai Steel Plant.

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Bhushan Steel plans to invest US$ 5.72 billion for building 12 million tonne-capacity

in the states of West Bengal, Jharkhand and Orissa.

Non-ferrous metals giant, Vedanta Resources, plans to invest around US$ 4.79 billion

in a 5 million tonne steel plant in Keonjhar district of Orissa and envisages its

commissioning by 2012–13.

Mesco Steel plans to invest US$ 2.20 billion for expansion of two of its steel plants in

Orissa.

Reliance Infrastructure, (part of the Reliance Anil Dhirubhai Ambani Group) plans to

build a 12-million tonne steel plant in Jharkhand, which is likely to be completed by

2012.

Indian Railways plans to invest around US$ 437.25 million per annum to raise its

consumption of stainless steel for adding new alloy-made wagons and coaches to its

portfolio.

Welspun Gujarat Stahl Rohren, (one of the largest steel pipe makers in India), plans

to increase the capacity of its pipe plant by 75 per cent to 1.75 million tonnes with

an investment of US$ 222.52 million.

The JSW group plans an outlay of US$ 40 billion for steel and power projects. These

projects will be completed by 2020.

Visa Steel has lined up a US$ 1.51 billion – US$ 2.02 billion integrated steel project in

Chhattisgarh.

Sarralle India, a subsidiary of Sarralle Equipos of Spain and one of the largest

designers of steel plant equipment, has decided to set up a manufacturing base in

Uluberia in West Bengal.

Interarch Building Products Private, (the largest player in pre-engineered steel

buildings space) plans to set up its greenfield manufacturing facility in Gujarat by

2009–10.

Furthermore, the Confederation of Indian Industry (CII) plans to start six new small and

medium enterprises clusters for steel companies in Visakhapatnam. It will also set up a steel

task force to propel growth in the steel clusters.

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3.2 Production and Consumption of Steel in India

Steel production grew at 1.2 per cent in the January-March quarter of 2008-09 over the

same period last year. The fourth quarter saw most of the large steel companies such as

SAIL, Tata Steel, Essar and JSW operating at full capacity.

The National Steel Policy has a target for taking steel production up to 110 MT by 2019–20.

Nonetheless, with the current rate of ongoing greenfield and brownfield projects, the

Ministry of Steel has projected India's steel capacity is expected to touch 124.06 MT by

2011–12. In fact, based on the status of Memoranda of Understanding (MOUs) signed by

the private producers with the various state governments, India's steel capacity is likely to

be 293 MT by 2020.

In the first 10 months of 2008-09, India's steel production went up to 46.8 MT up by 1.1 per

cent from last year.

Consumption

India accounts for around 5 per cent of the global steel consumption. Almost 70 per cent of

the total steel used is for kitchenware. However, its use in railway coaches, wagons,

airports, hotels and retail stores is growing immensely. Steel consumption grew at 5.2 per

cent during the first quarter of 2009-10 as against 3.8 per cent in the January-March quarter

last year.

A Credit Suisse Group study states that India's steel consumption will continue to grow by

16 per cent annually till 2012, fuelled by demand for construction projects worth US$ 1

trillion.

The World Steel Association has forecast a 2 per cent growth in the country's steel

consumption in 2009, making it the only major economy to post an increase in a year that

will see global consumption of the metal fall by around 15 per cent. India is expected to

consume 53.5 MT of steel in 2009.

The scope for raising the total consumption of steel is huge, given that per capita steel

consumption is only 35 kg – compared to 150 kg across the world and 250 kg in China.

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Steel players like JSW Steel and Essar Steel are increasing their focus on opening up more

retail outlets pan India with growth in domestic demand. JSW Steel currently has 50 such

steel retail outlets called JSW Shoppe and is targetting to increase it to 200 by March 2010.

They expect at least 10-15 per cent of their total production to be sold by their retail outlets.

Essar Steel also has 150 such retail outlets of which 65 are hypermarts across India with the

latest one being opened in Orissa.

Exports

Out of India’s annual iron ore production of more than 200 MT, about 50 per cent is

exported.

Iron ore exports increased 17 per cent to 12.6 MT in February 2009 from 10.8 MT in the

same month a year ago, owing to a moderate revival in demand from Chinese steel

producers, as per the latest data compiled by a group of top Indian mining firms.

Earlier, according to a study, with the rise in demand for steel in China, India’s iron ore

exports went up by 38 per cent to reach 13.6 MT in December 2008 against 9.8 MT in

December 2007. Around 50-60 per cent of India’s iron ore is exported to China.

India’s exports during April-December 2008 were 64.4 MT. The government has reduced

export duty on iron ore lumps from 15 per cent to 5 per cent, which has given a further fillip

to exports. Further, the reduction in railway freight has also benefitted the domestic iron

ore miners.

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4 Qualitative Analysis

4.1 Understanding the Steel industry using Michael Porter’s Five Forces Model

There have been almost revolutionary changes in the global steel scene with fierce

competitive pressures on performance, productivity, price reduction and customer

satisfaction. National boundaries have melted to encompass an ever increasing world

market. Trade in steel products has been on the upswing with the production facilities of

both the developed and the developing countries complementing each other in the making

of steel of different grades and specialty for the world market.

Technological innovations have provided the competitive edge to the technologically strong

companies. Smooth and quick transfer of technology has, however, meant an increasingly

competitive pressure on the companies to be ahead of the others in the race for

technological superiority to maintain and, if possible, to strengthen the bottom lines.

The Indian steel industry comprises of the producers of finished steel, semi-finished steel,

stainless steel and pig iron. Indian steel industry, having participation from both public

sector and private sector enterprises, is one of the fastest growing markets for steel and is

also increasingly looking towards exports as driving the growth of the industry.

Supply With trade barriers having been lowered over the years, imports

15

play an important role in the domestic markets.

Demand The demand is derived from sectors that include infrastructure, consumer durables and automobiles.

Barriers to entry High capital costs, technology.

Bargaining power of suppliers

The government’s move on railway freight costs and grid power costs would determine the final price of the metal.

Bargaining power of customers

High, presence of a large number of suppliers and access to global markets.

Competition High, presence of a large number of players in the unorganized sector.

4.2 The SWOT Analysis

Strengths

Availability of iron ore

Availability of labor at low wage rates

Weakness

Endemic Deficiencies

High Cost of Capital

Low Labor Productivity

High Cost of Basic Inputs and Services

Opportunities

Unexplored rural market

Other sectors

Export penetration

Threats

Slow Industry Growth

Technological Change

Price Sensitivity and Demand

Volatility

Strengths

Availability of iron ore

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India has rich mineral resources. It has the fourth largest iron ore reserves (10.3 billion

tonnes) after Russia, Brazil, and Australia. Therefore, many raw materials are available at

comparatively lower costs.

Availability of labor at low wage rates

India has the third largest pool of technical manpower, next to United States and the

erstwhile USSR, capable of understanding and assimilating new technologies. Considering

quality of workforce, Indian steel industry has low unit labor cost, commensurate with skill.

Weaknesses

Endemic Deficiencies

These are inherent in the quality and availability of some of the essential raw materials

available in India, e.g., high ash content of indigenous coking coal adversely affecting the

productive efficiency of iron-making and is generally imported. Advantages of high Fe

content of indigenous ore are often neutralized by high basicity index. Besides, certain key

ingredients of steel making, e.g., nickel, ferro-molybdenum is also unavailable indigenously.

High Cost of Capital

Steel is a capital intensive industry; steel companies in India are charged an interest rate of

around 14% on capital as compared to 2.4% in Japan and 6.4% in USA.

Low Labor Productivity

In India the advantage of low cost labor gets offset by low labor productivity; e.g., at

comparable capacities labor productivity of SAIL and TISCO is 75 t/man year and 100 t/man

year, for POSCO, Korea and NIPPON, Japan the values are 1345 t/man year and 980 t/man

year.

High Cost of Basic Inputs and Services

High administered price of essential inputs like electricity puts Indian steel industry at a

disadvantage; about 45% of the input costs can be attributed to the administered costs of

coal, fuel and electricity, e.g., cost of electricity is 3 cents in the USA as compared to 10

cents in India; and freight cost from Jamshedpur to Mumbai is $50/tonne compared to only

17

$34 from Rotterdam to Mumbai. Added to this are poor quality and ever increasing prices of

coking and non-coking coal.

Other systemic deficiencies include:

Poor quality of basic infrastructure like road, port etc.

Lack of expenditure in research and development.

Delay in absorption in technology by existing units.

Low quality of steel and steel products.

Lack of facilities to produce various shapes and qualities of finished steel on-demand

such as steel for automobile sector, parallel flange light weight beams, coated sheets

etc.

Limited access of domestic producers to good quality iron ores which are normally

earmarked for exports, and High level taxation.

Besides these, Indian steel makers also lack in international competitiveness on

determinants like product quality, product design, on-time delivery, post sales service,

Performance index (1997-2001): Movement of share prices, distribution network,

managerial initiatives, research and development, information technology and labor

productivity etc. The weaknesses gets reflected in India’s poor standing in the global

competitiveness as measured in terms of indicated parameters.

Opportunities

The biggest opportunity before Indian steel sector is that there is enormous scope for

increasing consumption of steel in almost all sectors in India. There is untapped potential of

increasing steel consumption in India; eg, even to reach the comparable developing and

lately developed economies like China and European nations, a quantum jump in steel

consumption will be required.

Unexplored Rural Market

The Indian rural sector remains fairly unexposed to the multi-faceted use of steel. The rural

market was identified as a potential area of significant steel consumption way back in the

year 1976 itself. However, forceful steps were not taken to penetrate this segment.

Enhancing applications in rural areas assumes a much greater significance now for

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increasing per capital consumption of steel. The usage of steel in cost effective manner is

possible in the area of housing, fencing, structures and other possible applications where

steel can substitute other materials which not only could bring about advantages to users

but is also desirable for conservation of forest resources.

Other Sectors

Excellent potential exists for enhancing steel consumption in other sectors such as

automobiles, packaging, engineering industries, irrigation and water supply in India. New

steel products developed to improve performance simplify manufacturing/installation and

reliability is needed to enhance steel consumption in these sectors. Main objective here

have to be improvement of quality for value addition in use, requirement of less material by

reducing the weight and thickness and finally reduction in overall cost for the end user.

Latest technology must be adopted by Indian steel manufacturers for production of superior

quality of steel for these applications. For example, pre-coated sheets can be used in

manufacture of appliances, furnishings, electric goods and public transport vehicles.

Production and supply of superior grades of steel in desired shapes and sizes will definitely

increase the steel consumption as this will reduce fabrication need; thereby reduce cost of

using steel.

Export Market Penetration

It is estimated that world steel consumption will double in next 25 years. This poses as a

huge opportunity to the steel industry.

Threats

Slow Industry Growth

The linkage between the economic growth of a country and the growth of its steel industry

is strong. The Indian steel industry is no exception. The growth of the domestic steel

industry between 1970 and 1990 was similar to the growth of the economy, which as a

whole was sluggish. This sluggish growth in the steel industry has resulted in enhanced

rivalry among existing firms. As the industry is not growing the only other way to grow is by

increasing one’s market share.

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Consequently, the Indian steel industry has witnessed spurts of price wars and heavy trade

discounts, which has done Indian steel industry no good as a whole.

Technological Change

Technological changes often force the industry structure to change. For a developing

country like India where capital itself is costly, technological obsolescence is a major threat.

Price Sensitivity and Demand Volatility

The demand for steel is a derived demand and the purchase quantity depends on the end-

user requirements. The traders tend to exhibit price sensitivity and buy when there are

discounts. This volatility of demand often affects the integrated steel manufacturers

because of their inability to tune their production in line with the market demand

fluctuations.

Some other threats are:

Ever decreasing import duty on steel.

Dumping of steel by developed countries.

High quality products from developed countries available for import at very

competitive prices.

Non-availability of capital from financial institutions for iron and steel sector.

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5 Current Global Scenario

The foreign direct investment in India being made in the steel industry of India has been

picking up in the recent years as a result of the immense growth potential of the country's

steel industry. In the Asian continent India is second only to China in terms of growth

potential. The gross domestic product of India has increased in the recent times.

This has sparked off the demand for production of steel in the country and the production

has increased as well. In the recent times India has been among the top producers of crude

steel of the world. All these factors are supposed to be important for attracting foreign

direct investment in the Indian steel industry.

5.1 Current crisis in Iron and Steel Industry

Worsening US economic crisis has led to global steel companies pruning their capacity

thereby, lower forecast of iron ore consumption this year. This is evident from the latest

data collated by the Federation of Indian Minerals Industries (FIMI) which states that iron

ore exports from India till December 15, 2008 declined over 13% despite huge price decline

in steelmaking raw materials. According to Labour Department, the US job losses last year

were the most since 1945. Additionally, the federal budget deficit is expected to hit $1.18

trillion this year as the government spends billions on industry bailouts and tax cuts.

Consequently, the US government has pledged more than $8.5 trillion as of November 25

for the bailout package to companies and help the country recover from an economic

recession. The recently elected president Barack Obama has also favoured an additional

stimulus package of at least $775 billion.

Low Iron Ore Exports from India

The latest FIMI data indicates iron ore exports plunged to 55.8 million tons between April 1 -

December 15 of the current fiscal as compared to 64.38 million tons in the corresponding

period last year. Shipment, however, witnessed a marginal decline of 3.81% to 5 million tons

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during the first fortnight of December from 5.2 million tons in the same period last year

(2008).

Source: SteelWorld

Crude Steel Production Down and Domestic Steel Companies Margin under

Pressure

The margins of steel producers will be under severe pressure in the second half of 2009 due

to high cost of coking coal (US$300-350 per ton). Coking coal prices too are likely to correct

sharply in 2009 due to sharp drop in steel production. Currently, capacity utilization of Ispat

Industries is 30%, JSW Steel and Essar Steel is 60-70% each, and Bhushan Steel is 50 percent.

SAIL and Tata steel have not announced production cuts but they have brought forward

repairs. Tata Steel's November production of 570,000 tons was the highest ever despite

three of its smaller blast furnaces under relining. Though JSW Steel announced production

cut of 20%, actual production rates have been worse in November 2008.

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Identifying Key Success Factors

WHAT DO CUSTOMERS

WANT?

(Analysis of demand)

HOW DO FIRMS SURVIVE

COMPETITION?

(Analysis of competition)

KEY SUCCESS

FACTORS

Low price.

Product consistency.

Reliability of supply.

Specific technical

specifications for special

steels.

Commodity products,

excess capacity, high fixed

costs, excess capacity,

exit barriers, and

substitute competition

mean intense price

competition and cyclical

profitability.

Cost efficiency and strong

financial resources

essential.

Conventional sources of

cost efficiency include:

large-scale plants, low-

cost location, and rapid

adjustment of capacity to

output.

Alternatively, high

technology, small scale

plants can achieve low

costs through flexibility

and high productivity.

Differentiation through

technical specifications

and service quality.

23

6 Company profile and history

Company: JINDAL STEEL AND POWER LTD

ABOUT JSPL:

Jindal Steel & Power Limited (JSPL) is engaged in power generation and steel manufacturing

in India. The company is setting up 12.5 million tonne steel plant with 2500MW power

generation in Orissa and 11 million tonne steel plant with 2600 MW power generation in

Jharkhand. JSPL work also extends to exploration and mining of minerals and metals like

diamond, gold, precious stones, base metals, tar sands and platinum group of minerals.

Jindal Power Limited, subsidiary of JSPL, has set up a 1000 MW O P Jindal Super Thermal

Power Plant at Raigarh.

With an annual turnover of over US $2.00 billion (Rs. 10,000 crore), Jindal Steel & Power

Limited (JSPL) forms a part of the US $12 billion (over Rs. 60,000 crore) Jindal Group. JSPL is

a leading player in Steel, Power, Mining, Oil & Gas and Infrastructure.

Mr. Naveen Jindal, the youngest son of the legendry late Shri. O P Jindal drives JSPL and its

group companies Jindal Power Ltd, Jindal Petroleum Ltd., Jindal Cement Ltd. and Jindal Steel

Bolivia with a belief in the concept of self-sufficiency. The company produces economical

and efficient steel and power through backward integration from its own captive coal and

iron-ore mines and passes on the benefits to its customers.

An enterprising spirit and ability to discern future trends have been the driving force behind

the company's remarkable growth. The company has scaled new heights with the combined

force of innovation, adaptation of new technology and the collective skills of its 15,000

strong, committed workforce. It has won wide acclaim for its efficient operations and

commitment to environment & society.

JSPL has consistently tapped new opportunities by increasing production capacity,

diversifying investments, and leveraging its core capabilities to venture into new businesses.

JSPL’s investment commitments in steel, power, oil & gas and mining have touched more

than US $ 30 billion (Rs. 1,50,000 crore). The company, today, is the largest private sector

24

investor in the state of Chhattisgarh with a total investment commitment of over US$ 6.25

billion (Rs. 31,250 crore).

Also JSPL has set its foot in the international arena by acquiring the development rights for

20 Bn tones of Iron Ore in Bolivia. The company also plans to invest US$ 2.1 billion (Rs.

10,500 crore) over the coming years in Bolivia by setting up a 10 million ton capacity Iron

Ore pelletisation plant, 6 million ton capacity DRI plant and 1.7 million ton capacity steel

plant, besides doing mining activity. The company is also exploring possibilities of getting

mineral rights in other parts of the world as well.

The company has also forayed into exploration and mining of high value minerals like

diamonds, etc. in places like Chhattisgarh, Jharkhand and the Democratic Republic of Congo.

Beyond business, JSPL has worked extensively towards environment protection and

upliftment of the socially deprived classes and development of sports. The Company has

received many awards for its social endeavors.

As JSPL goes about contributing to India’s growth, it also expands globally to become one of

the most prestigious and dynamic business groups of the country. The future is studded

with challenges and JSPL is taking them on with vigor and courage.

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7 References1. Analysis of Equity investments: Valuation (By: Stowe, Robinson, Pinto, W. McLeavey)

2. Annual Report (2007-2008) Of Ministry Of Steel

3. Analysis from CRISIL

4. Iron and Steel Review (1998)

5. Online magazine – Metal Bulletin

6. World Class Steel – G. Mukherjee, IMI

7. www.Capitaline.com

8. www.MySteel.com

9. www.SteelWorld.com

10. www.steel.nic.in

11. www.worldsteel.org

12. www.sail.com

13. www.tatasteel.co.in

14. www.welspunpipes.com

15. www.jsw.in

16. www.jindalsteelpower.com

17. www.nseindia.com

18. www.bseindia.com

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