SAIL

STRATEGIC MANAGEMENT PROJECT

Assignment

INDIAN METAL AND MINERALS

INDUSTRY: STEEL AUTHORITY OF

INDIA LIMITED (SAIL)

Submitted to:

Prof. Anshuman Tripathy

Submitted by:

Metals and Mineral Industry- SAIL

Abhinav Prakash (U113063)

Section- B, BM-2013-15

ContentsIntroduction:..............................................................................................................................................3

Indian Mining and Metal Industry –An Overview................................................................................3Comparison of Various Business Model:............................................................................................6

Business Model of SAIL:......................................................................................................................6Business Model of TATA Steel:.........................................................................................................10Business Model of Arcelor-Mittal:......................................................................................................12Business Model of JSW (private player){as SAIL is PSU}:..............................................................15

Activity Chart:.........................................................................................................................................17Vision and Mission Statements of Various Organizations:.....................................................................18

TATA STEEL, INDIA........................................................................................................................18Anglo American - Kumba Iron Ore:...................................................................................................20ARCELOR MITTAL, South Africa....................................................................................................21CMI Industry –Flat Product Equipment(India)...................................................................................22DN STEEL Group of Industries, Philippines :....................................................................................23PHILEXMINING CORPORATION, EUROPE.................................................................................24BEKAERT, North America................................................................................................................25

PESTEL and PORTER’s Model:............................................................................................................26PESTEL Analysis:...............................................................................................................................26Porter’s five forces model:..................................................................................................................28DEMAND Analysis of STEEL industry for complementors:.............................................................31

History, Evolution and Success Factors:.................................................................................................33References:..............................................................................................................................................44

Xavier Institute of Management, Bhubaneswar 2

Introduction:

Indian Mining and Metal Industry –An Overview

Minerals and Metals sector have always been in the forefront of a nation’s economy and India is no exception.

Both ferrous and non ferrous metals are equally important towards building up the country’s future. Ferrous metals are definitely more in use in India, but at the same time non ferrous metals are also gradually taking the centre stage and the time is not far when it will be regarded as the future of the steel industry is considered to be an indicator of economic progress, because of the critical role played by steel in infrastructural and overall economic development. India has one of the richest reserves of all the raw materials required for the steel industry, namely land, capital, cheap labour, iron ore, power, coal etc. Yet we stand 5th in the world ranking for steel production. India produced 66.8 million tonnes in 2010-11, while China, at the top of the list, produced 626.7 million tonnes. For steelmakers, a major cause of volatility is the cost of raw materials, which has been exacerbated by the change from annual to shorter-term price contracts. Shortages in supply have enabled suppliers of iron ore and metallurgical coal to re-engineer the pricing mechanisms. However, this has created challenges for steel producers. They now have to deal not only with the increased volatility in raw material prices, but also with how to maintain margins with fluctuating demand. This development is significantly affecting the earnings of the steel industry. India’s non-ferrous metal industry, mainly consisting of aluminium, copper, lead and zinc has travelled a long way from where it was a decade ago. In the next decade i.e. towards the end of 2020, the industry is expected to see a dramatic turnaround with lots of expansion plans would be running at full capacity. The country is heading towards becoming a global player in non ferrous metal industry with most of production plants would be tapping potentials in the foreign markets.

Currently, India is exporting huge quantity of aluminium, while a minute share of its copper consumption is being imported today because of the lack of copper concentrate reserves. Lead which is a by-product of zinc majorly is being imported. The Indian zinc industry entered its transformation phase with the privatisation of the largest zinc producers. The domestic zinc industry is now completely under the private sector and is in the midst of a serious expansion programme. India’s vision for 2020, besides being a global player in terms of size, should also aim at achieving international standards in terms of consumption.

Mining is one of the core sectors that drive growth in an economy. Not only does it contribute to GDP, it also acts as a catalyst for the growth of other core industries like power, steel, cement, etc., which, in turn, are critical for the overall development of the economy. Our analysis has shown that every one percent increment in the growth rate of mining and quarrying results in 1.2 – 1.4% increment in the growth rate of industrial production and correspondingly, an approximate increment of 0.3 percent in the growth rate of India’s GDP.

After clocking an average growth rate of 4.8% over the 5 years between 2006-07 and 2010-11, the sector has witnessed negative growth of 0.6% for two consecutive years now (2011-12 and 2012-13). The mining sector in the last couple of years has been hit hard due to policy paralysis on a whole gamut of issues, irrespective whether they are in the domain of the Centre of the States. As a result mining projects across the country has remained stalled

owing to court cases, environmental, regulatory and land acquisition issues. The sector has also been reeling under high borrowing costs.

Moreover, despite India’s significant geological potential, the country does not rank very high in terms of its mineral resource base amongst similarly geological endowed nations. It is also a matter of concern that though as per National Mineral policy, 2008, private sector should have been at the forefront of mineral production but the public sector continues to play a dominant role accounting for 68% of mineral production during 2011-12. Clearly policies and incentives have not been conducive for the private sector players to participate more actively.

There is significant mineral potential that still lay untapped in India for the growth of mining but historically, mining sector has struggled to exploit the potential due to three big factors i.e. regulatory and administrative procedures, inadequate infrastructure facilities and sustainability. These challenges have limited the overall investment in mining and exploration activities in India, as evident from very low inflow of FDI in the mining sector, India’s spend on mineral Exploration is less than 0.5% of the global spending on exploration in 2010, much below its fair share given the size of mineral resource potential.

Given the availability of mineral wealth in India, the Ministry of Mines, Government of India, has targeted significantly higher share of GDP from mining. It aims to increase share of mining and quarrying in GDP from current 2% of GDP to 5% of GDP over the next 20 years. This requires mining to grow at 10-12% per annum. On the other hand, within two decades of liberalized economy, much in contrast with the constitutional objectives, mining as a sector has come to be associated with scams, conflicts, violence and ecological degradation. The conflict it engenders is enormous and wide spread. The future should therefore usher in an era of mineral development with socio-economic development as the focus.

At present, nearly half of India’s total mineral production (including oil and gas) in value terms is contributed by seven key mining states, namely Odisha (9.6%), Andhra Pradesh (9.0%), Rajasthan (7.9%), Chhattisgarh (7.8%), Jharkhand (6.5%), Madhya Pradesh (4.8%) and Karnataka (3.6%). The seven big mining states also account for a third of India’s population but are relatively backward. Growth in mining could play a critical role in the social and economic development of the people of these states as these seven states also account for a majority of the key minerals reserves in India.

Comparison of Various Business Model:

1. Compare and Contrast the business model of your organization (ex: Air Deccan) with:

a. An International Organization with a similar Business Model (ex: South West Airlines)

b. A Domestic Organization with a similar Business Model (ex: Indigo)

c. A Government Organization within the same industry (ex: Air India).

Business Model of SAIL:SAIL has entered into a Joint Venture with POSCO, Korea; Kobe Steel Limited, Japan;

Rashtriya Ispat Nigam Ltd; Larsen & Toubro Ltd; National Mineral Development Corporation;

Hindustan Prefab Ltd; and IRCON International Limited, Turkey

SAIL employees bagged the maximum number of Viswakarma Awards declared in Aug 2009

SAIL's expansion plan worth USD15 billion will increase its production capacity from 18

million tonnes per year (current) to 29 million by 2014.

Let’s do the SWOT Analysis of Indian Steel industry first:

The 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 (Chhattisgarh), Rourkela (Orissa), Durgapur (West Bengal), Bokaro

(Jharkhand) and Burnpur (West Bengal). SAIL has three special and alloy steels plants viz.

Alloy Steels Plant at Durgapur (West Bengal), Salem Steel Plant at Salem (Tamil Nadu) and

Visveswaraya Iron and Steel Plant at Bhadravati (Karnataka). In addition to these, a Ferro

Alloy producing plant at Chandrapur is owned by Maharashtra Elektrosmelt Limited which is a

subsidiary of SAIL. SAIL has eleven units viz. Research and Development Centre for Iron

and Steel (RDCIS), Centre for Engineering and Technology (CET) and Management Training

Institute (MTI), all located at Ranchi, Central Coal Supply Organisation (CCSO) located at

Dhanbad, and Raw Materials Division (RMD), Environment Management Division (EMD),

Growth Division (GD) and SAIL Safety Organisation (SSO) all located at Kolkata.

SAIL Ranked amongst the top ten public sector companies in India in terms of turnover, Steel

Authority of India Limited (SAIL) is a fully integrated iron and steel maker, producing both

basic and special steels for domestic construction, engineering, power, railway, automotive

and defence industries and for sale in export markets.

Key Investment rationale:

Capacity Expansion will ensure volume growth: SAIL is all set to bank on the domestic consumption of steel primarily driven by the ongoing infrastructure development in the country with its ambitiousexpansion plans which will increase its crude steel capacity to 23.2mt from 14mt currently.

Value-added Segment:SAIL is banking on the robust demand witnessed for finished and premium steel segment by expanding its value added steelmaking capacity. The value added or premium segment commands 20-25% premium over semi-finished or crude steel.

Strong demand led by domestic consumption:India’s finished steel demand is expected to grow at 12% CAGR over FY 10-13, led by strong demandfrom Automobiles, consumer durables and Engineering sector. India will remain a net steel importerover FY11-13, as demand is likely to outpace supply.

Valuation:At the current price of 188, the stock is trading at just 11.96x and 10.84x times of our estimated FY11E & FY12E earnings. We thus recommend a ‘Accumulate’ with a Price target of Rs 214.

Venturing into premium segment:

SAIL is currently selling both raw steel and semi finished, whereas the contribution from value-addedsegment is low. Going forward company plans to eliminate this segment completely and add differentvalue added products, which commands premium over raw steel. It plans to introduce products likeauto grade CR products, galvanized coils, sheets, plates, pipes to meet up to API 100 grade specification.It also plans the production of rails and wheels to meet the increasing demand requirements of theIndian railways, Universal beams/ Heavy beams in the size up to 1100mm to support increasinginfrastructure requirements. The value added or premium segment commands 20-25% premium oversemi-finished or crude steel.

Capacity expansion will ensure volume growth:Company has planned capex of over Rs 50000cr to increase its crude steel capacity to 23.2mt from 14mt currently. The company has also planned capex for technological up gradation/ modernization, value addition, production mix improvement. Technological up gradation/ modernization will reduce SAIL’s operating cost/ton by around 15-20% over the next three years. The massive capacity addition should help the company to strengthen its leadership position in Indian Steel Industry. SAIL is setting up a Finex plant at the existing Bokaro plant through a JV with Posco in ratio of 49:51, for which DPR is yet to be completed. The iron will be supplied through the FINEX process (0.5mt) and end product capacity is envisaged at ~1.5mt, of which 0.5mt is CRGO steel. The incremental 1mt steel will be supplied through the Bokaro plant as cold rolling mill ordered has a capacity of 1mt, whereas SMS-3 will have a capacity of 1.8mt.

Captive mines to provide hedge against raw material price volatility:

The raw material accounts for over 64% of the total expenditure. The company is in process to securemajor raw material from its captive sources. SAIL is fully integrated with respect to iron ore, which issufficient enough to back its expansion plans. Currently company uses captive mines for iron ore and it has been allotted Chhiria mines which have proven reserve of 2bt of iron ore.SAIL has started production of 10000 tpa coal at Tasra collieries, the expected capacity to produce is 4mt in the near future, which will reduce their raw material cost and improve operating margin. In addition to this the company has formed JV with Tata Steel to explore Coking Coal. The main advantage of having a captive mine is that it insulates the company from volatility in raw material prices and protects its margin.

Domestic focus;SAIL’s entire steelmaking maneuvers are based in India. It is focused on the s domestic market andexports little. Ahead, it expects exports to comprise around 15% of the expanded volume. A favorableproduct mix (60% longs, 40% flats) could make it one of the best beneficiaries of India’s infrastructuregrowth story. The company is one of the key suppliers to the infrastructure sector, with around 60% ofits sales going to this sector. Around 32% of its sales goes to the government sector.The company is well positioned to be benefitted the infrastructure story of India. Large proportion of itsproduct mix will find its application in arge construction and engineering.

Strong balance sheet with good dividend track record:Company enjoys healthy balance sheet with a low debt-equity ratio in the debt range of 0.18 to 0.39 inlast four years, which ensures that SAIL undertake capex without overstretching its balance sheet.

Attractive Dividend Pay-out:SAIL has been rewarding its shareholder by offering regular dividend since lder 2005. The averagedividend yield of the company stood at 2.73%. With huge cash on the book and being one of the mostprofitable maharathna in government entities, we believe the management of SAIL would continue toreward its shareholders with higher dividend pay-out. out.

Key strategic alliance to further boost profitability:Company has signed MOU with Kobe Steel, Japan for exploring feasibility of ITmk3 technology for use of lean iron ore fines & non coking coal. Company is in 50-50 JV with NTPC for 250 MW power generation.Due to this JV, company’s power cost will reduce. There is a possibility of joint collaboration withNippon Steel in the iron and steel area. Company has also proposed owing a port/joint ownership in aport venture in Orissa. This wnership will further reduce logistics cost for the company.

Economies of Scale:SAIL has been enjoying the benefit of improved productivity per employee with its workforce camedown by ~58% (annualized rate of 5.4%) during the past ten years from 208765 in FY2000 to 114160 at the end of FY10. The company’s employee’s remuneration as a % of net sales saw an improvement, its net employee cost stood at 13.37% for FY10, as against 19.82% in FY09 and 19.91% during FY08. The labour productivity has improved to 228tons of crude steel per labour employed during the H1 of FY11 against 214tons of crude steel produced per labour during FY08.

Business Model of TATA Steel:

TATA Steel has an integrated steel plant, with an annual crude steel making capacity of 6.8 milliontonne, located at Jamshedpur, Jharkhand. The crude steel production of TATA Steel during the periodApril-December 2010-11 is 5.81 million tonne. As part of the Brownfield expansion project, TATA Steel has commissioned H Blast Furnace in May 2008, as part of 1.8 million tonne growth plan to reach capacity of 6.8 million tonne. TATA Steel is continuing with its programme of expansion of hot metal and steel making capacity by 3 million tonne to reach 10 million tonne. Crude steel capacity as on March 31, 2009 was 6.8 million tonne (Jamshedpur works). Tata Steel has also envisaged massive expansion of its capacities through various greenfield projects at Saraikela (Jharkhand), Kalinganagar (Orissa) and Bastar (Chhattisgarh).

TATA Steel, the flagship company of Tata group, is among the top ten global steel companies with anannual crude steel capacity of over 28MTPA. It is now the world’s second-most geographically-diversified steel producer with operation in 26 countries and a commercial presence in over 50 countries.

KEY INVESTMENT RATIONALE

Highly Integration levels for TATA Steel to boost Earnings:Tata Steel is in the process of developing a coking coal mine in Mozambique and an iron ore mine inCanada to enhance integration level of TSE. The project is expected to be commissioned by 1QFY12. We expect this backward integration project at Mozambique and Canada to boost Tata Steel’s earnings substantially.

Brownfield expansion on track:Tata Steel’s 3mt Brownfield expansion programme is on track and expected to be commissioned by2HFY2012. Till September 2010, the company has incurred capex of Rs. 5732cr and plans to incur Rs.2963cr in 2HFY2011. The product mix constitutes 2.5mt of HRC and 0.3mt of slabs.

Escalation prospective from domestic operations:To raise RoE, the company has aggressively expanded domestic capacity even during the downturn witnessed in steel industry during 2008-09. It is on track to add 3mt by Jun ’11, taking domestic capacity to 10mt.

ValuationAt the current price of Rs. 660, the stock is trading at just 29.74x and 18.34x times of our estimated FY11E & FY12E earnings. We thus recommend an “Hold” with a target price of Rs. 708.

TATA Steel merger with Corus:Corus joined the TATA Steel family in April 2007 in a transaction that created one of the world largeststeelmakers, with a major presence in Europe as well as in Asia. Corus is Europe second largest steelproducer. Corus supplies steel and related services to the construction, automotive, packaging, mechanical, engineering, and other market worldwide. The combined enterprise has aggregate crudesteel capacity of more than 28mt and approximately 80000 employees across four continents.

Robust performance:In FY 2009-10, the steel division of the Indian operations registered an increase of 20% in their saleable steel from 5.37mt to 6.44mt. The production from the larger furnaces were maximized with better productivity and lower coke consumption while increased vessel life in the steel melting area enhanced the production level. There were several best ever performances recorded by many units in the Steel Works of the Company:* The Ferro Alloys and Minerals division registered an increase of 22% in their saleable production(1302K tonnes during 2009-10 over 1064K tones in 2009-09)** Chrome Alloys export and Manganese Alloys sales also scaled new peaks during 2009-10** Sales in the bearing division registered a growth of 23%, while its production increased by 8%.

Expansion project:Tata Steel India is executing its plan to increase its crude steel capacity from 6.8mt per annum to 9.7mtper annum at its Jamshedpur Works by 2011-12. The company has entered into a Memorandum ofUnderstanding with Nippon Steel Corporation (NSC), Japan for setting up a Continuous Annealing andProcessing Line at Jamshedpur, India with 0.6mtpa capacity.

TATA Steel Europe’s coking coal venture is significant:TATA Steel Europe plans to source coking coal from the Banga Project, joint venture between TATA steel and Riversdal, located in the Tele Province of Mozambique. TATA Steel expects to produce 5.3MT of coal by 2011. The Banga coal has reserves of 502mt and the company is planning to augment production from the Banga project to 20mtpa gradually. The total capex remaining for the Mozambique project Rs 700-800cr .

Captive iron ore project:TATA Steel has planned to protect raw material supply for its European operation by taking a stake inNew Millennium’s Direct Shipping Ore (DSO) projects. Tata Steel owns 27.4% share in New Millennium mining company. Project has probable mineral reserve of 64.1mt for the DSO project and the production is expected to commence in 2011. The company would have 100% off-take rights to the produce of the mine of a specified quality. The iron ore from the project will be supplied to Tata steel group’s facilities located in Europe. This project will involve capex of CAD 350mn. It is expected that the European operations would secure 20-25% backward integration by the end of FY12.

Value Creation Strategy:The element of its value creation strategy is selective growth in emerging markets where the group hasa competitive advantage. The Group therefore continues of selectively invest for the future with an aimto strengthen its position in emerging markets like India and increase the level of raw materialintegration and energy self- sufficiency across the Group. The company has also increased its focus onfinished or premium steel segment; its currently enjoys 40% of the autograde steel and is setting up acontinuous annealing line in a joint venture with its long standing technical partner Nippon Steel ofJapan.

Steel demand expected to grow in near future:India’s finished steel demand is expected to grow at 12% CAGR over FY 10-13, led by strong growthfrom Automobiles, consumer durables and Engineering sector. India will remain a net steel importer

over FY11-13, as demand likely to outpace supply. Emerging market like India, China, Thailand, Korea will likely to remain robust in future.

Business Model of Arcelor-Mittal:

Strategic Goals:

Industry leading value-creation for our shareholdersPositive economic value add over the steel price cycle

Improve operating capabilitiesValue creating throughput increasesSubstantial reduction in hot rolled / coil real costs

Build on existing performance cultureCreate an environment that generates true employee pride and attracts, develops and retains top-performing people

Be a responsible corporate citizen

Evolution of ArcelorMittal South Africa

• 1928 - Iscor founded• 1989 - Iscor privatized & listed on the JSE• 1996 - Iscor embarks on major restructuring programme• 2001 - Unbundling of steel & mining into Iscor & Kumba• 2002 - Iscor gets into strategic partnership with LNM & BAA start-up• 2004/5 - LNM lifts stake to 52% and changes name to Ispat Iscor• 2005 - LNM Holdings and Ispat merge to form Mittal Steel• 2006 - Mittal Steel merge with Arcelor to form ArcelorMittal• 2007 - Name change to ArcelorMittal South Africa

ArcelorMittal South Africa’s standing

• Largest steel producer on the African continent• Produces 5,8 mt of liquid steel per annum• Modern, highly competitive supplier of steel products with turnover of R40bn• Global standing is underpinned by being part of the world’s largest steel producer, ArcelorMittal.

This relationship facilitates:• World-class R & D;• Best practice processes, aggressive procurement contracts, and • international market leverage• ArcelorMittal South Africa is amongst the world’s lowest cash cost producers

The Basket Pricing Model

In 2006, ArcelorMittal South Africa switched to a pricing model that uses a “basket of domestic prices” in a number of comparator countries, such as Korea, Germany, China, Russia, Taiwan, Brazil and the US, to set its domestic (South African) steel prices.

The switch better aligns ArcelorMittal South Africa’s global domestic pricing structures with global commodity costs, taking into account the direction of market movements and exchange rate volatility.

This price represents a world average price and sets the basis for ArcelorMittal South Africa’s maximum domestic price list.

Business Model of JSW (private player){as SAIL is PSU}:

JSW Steel is today an integrated steel manufacturer and is the largest private sector steel manufacturer in terms of installed capacity. In 1994, in order to achieve the vision of moving up the value chain and building a strong, resilient company, Jindal Vijayanagar Steel Ltd. (JVSL) was setup, with its plant located at Toranagallu in the Bellary-Hospet area of Karnataka, the heart of the high-grade iron ore belt and spread over 3,700 acres of land. It is just 340 kms from Bangalore, and is well connected with both the Goa and Chennai ports. JSW Steel is one of the lowest cost steel producers in the world. It has established a strong presence in the global value added steel segment with the acquisition of steel mill in US and a service center in UK. JSW Steel has also formed a joint venture for setting up a steel plant in Georgia. The Company has also tied up with JFE Steel Corp, Japan for manufacturing the high grade automotive steel. JSW Steel has recently acquired a controlling stake in Ispat Industries Ltd. The Company has also acquired mining assets in Chile, USA and Mozambique. JSW Steel offers the entire gamut of steel products - Hot Rolled, Cold Rolled, Galvanized, Galvalume, Pre-painted Galvanised, Prepainted Galvalume, TMT Rebars, Wire Rods & Special Steel Bars, Rounds & Blooms. JSW Steel has manufacturing facilities at Toranagallu in Karnataka, Vasind & Tarapur in Maharashtra and Salem in Tamil Nadu.

JSW Steel Limited (JSWSL) is the second largest private sector steel maker in India. The companyprovides for a broad range of products which include Hot Rolled Product, Cold Rolled Product,Galvanized Product and Pre-painted Galvanized Product. The company consists of the most modern,eco-friendly steel plants with the latest technologies for both upstream & downstream processes.

KEY INVESTMENT RATIONALE:

Leading Player in Steel Manufacturing:JSW Steel, the flagship company of the JSW Group, is the largest integrated private steel manufacturer in India in terms of installed capacity. It is the leading manufacturer of cold rolled, galvanized and colour coated steel with manufacturing facilities at Vasind & Tarapur in Maharashtra. JSW Steel is the largest manufacturer and exporter of galvanized steel in India with its products export to more than 100 countries.

Strong growth expected in Steel Industry:The industry is expected to grow at a pace of 9.1% till FY15 considering the scenario that IndianInfrastructure and other Industries are going to absorb the supply and also considering internationaldemand to increase mainly due to increase in prices in China.

Expansion to facilitate growth:JSW steel has entered into a joint venture with UK’s Severfield and has launched a new plant which will have an annual capacity of 35,000 tonnes of fabricated steel. The company has also recently sought a new coking coal mine in Jharkhand for its new steel plant which would be set up in the same state and would have an annual capacity of 10mt.

Valuation:At the current price of Rs. 1165, the stock is trading at just 15.14x and 9.91x times of our estimatedFY11E & FY12E earning. We thus recommend an “Accumulate” with a target price of Rs. 1293.

Industry growth prospects:The steel industry is slated to add 729,000 tonnes of fresh production capacity at a cost of Rs 240,000cr by March 2013. The largest contributor is expected to be Jindal Steel and Power. It has

plans to commission 128,000 tonnes of manufacturing capacity by March 2013. JSW Steel will increase its capacity by 8,560,000 tonnes, SAIL by 7,260,000 tonnes, Tata Steel by 3,300,000 tonnes and Bhushan Steel and Essar Steel by 2,720,000 tonnes each. We expect the Indian Steel industry to grow 10-12% in coming 2-3 years.

Additional capacity to improve growth prospects:The company has successfully commissioned the Phase I (3.5 Mtpa) of one of the largest new Hot Strip Mill at Vijaynagar. The mill has initiated commercial production on April 10, and it would enable the company to convert all slabs into value added HR Coils on its stabilization. On completion of Phase II, the capacity of mill will go up to 5Mtpa. The expansion project execution work is progressing in full swing to expand the crude steel capacity to 10Mtpa by 2020. JSW Steel plans to set up a 300MW power plant at Vijaynagar. The procedure for which is expected to be commissioned in FY 2011. The company also expects initial production of 1mt in first year (2010-11) which can be ramped up to 3mt by 3rd year. The first year of production has already started in Oct 2010. Additional apex is expected to be Rs 500cr for ramping up. Thus JSW Steel is expected to generate huge revenues once the mining starts initial production.

Reduction in Debt to improve overall growth:JSW Steel has tied-up with JFE Corporation of Japan and will be setting up an autosteel line at itsVijayanagar steel plant. After selling a portion of its equity to Japanese steel maker JFE, JSW’s balance sheet has improved significantly mainly because of the repayment of debt which has resulted in the reduction of debt of the company considerably. The company has repaid Rs 2600cr of debt in theSeptember quarter, this reduced its debt-equity ratio to 0.8 from 1.6 in the previous quarter.Interestcost was down 13% in the quarter and is expected to remain lower as the company has repaid a significant amount of its high-cost debt.

Value-added segment to improved Realization:The future growth of JSW will largely be fuelled by the current capacity expansion plans. Its 3.2mt expansion project at Vijaynagar is on the verge of completion, which will increase the company’s steel production capacity to 11MTPA by March 2011. JSW Steel’s board approved implementation of the West Bengal Project comprising 4.5mtpa Steel plant, 660MW power plant and development of coal and coking coal mines with a project cost of Rs16000cr. This project is planned to be completed by FY14.This would result in company’s growth not only in steel production but also in power and coal mines.The company is slowly ramping up its value–added steel production in the H1 of FY11. The company sold 20% more of its flat-rolled steel and fla posted 52% jump in sales for its long rolled steel, both part of the finished steel category.

Cost reduction through acquisition of coal mines:The company has recently acquired coking coal assets in USA in West Virginia along with Railway Load out and barge facility and has finalized the acquisition of the mine, where the likely resources is around 123mt. One of the mine is operational and others to be operational over 24 months. The total coking coal requirement of the company is estimated at 5mt per annum at current capacity. The proposed coking coal from US will give he integration to the extent of 20% in the first year and goes further at enhanced capacity of 11mt to 35%. We expect with 20-25% interaction of coking coal would improved its 25% EBIDTA margins by 125-150bps, thereby resulting in improved earning 150bps, visibility in near future.

JSW-Severfield have joined hands for India’s first fabricated steel Severfield plantConsidering the huge potential in the infrastructure growth in India especially in the structural steelspace JSW Steel and UK’s top steel Severfield have launched a new plant which will have investments of almost Rs 1000cr in two years. The annual capacity of the 50-50 JV is 50 expected to be 35,000mtpa. The JSW- Severfield project would be financed in the 2:1 debt-equity ratio and is expected to generate equity annual revenue of around Rs 400cr. The target market will initially be commercial structures and simple highway bridges.bridges

JSPL expanding horizons:Jindal Steel & Power Limited is setting up a 10 MTPA Pellet Plant at Barbil, Orissa based on huge stocks of iron ore fines lying with various Iron Ore Mines in Orissa. The first module of 5 MTPA is undergoing trial runs since January, 2010. This project aims to conserve precious iron ore reserves of the country by converting unused fines into pellets for usage in DRI production.The Pellet Plant would be using producer gas derived from coal for its energy requirement to keep its production cost contained and free from fluctuations of petroleum based fuels. The Company has also commenced hot trials of its 0.6 MTPA Wire Rod Mill at Patratu, Jharkhand. Also the Company is setting up a 6 MTPA Steel Plant at Patratu.

Activity Chart:

Vision and Mission Statements of Various Organizations:

3. Identify the leading Organizations Low Cost Providers (ex: Low Cost Air Carriers) as well as the leading Organizations with Diversified Product/ Service Providers (ex: Premium Air Carriers or Business class airlines) for India and for the 5 Continents (Asia, Europe, Africa, North America and South America). Document the Vision, Mission, and Objectives of these companies (ex: airline companies) and identify the key attributes of success for each of these organizations/ industries (ex: International Carriers). Is it in line with the various readings shared with you? Evaluate the Mission statement as per the suggestions given in the website (http://www.strategicmanagementinsight.com/mission-statements/microsoft-mission-statement.html).

TATA STEEL, INDIA

VISION:

We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship.

Mission:

Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives to strengthen India’s industrial base through the effective utilization of staff and materials. The means envisaged to achieve this are high technology and productivity, consistent with modern management practices.Tata Steel recognizes that while honesty and integrity are the essential ingredients of a strong and stable enterprise, profitability provides the main spark for economic activity.Overall, the Company seeks to scale the heights of excellence in all that it does in an atmosphere free from fear, and thereby reaffirms its faith in democratic values.

Evaluation

Does it include…?Does it mention values like…?

Customers Product/Services Markets Citizenship Teamwork

Yes Yes Yes Yes Yes

TechnologyConcern for Survival

Philosophy Excellence Integrity

Yes No Yes Yes Yes

Self- ConceptConcern for public image

Employees

Score 4/4.5Yes Yes Yes

Customer or Product-Oriented?

Product-oriented

AFRASIA, Turkey

Vision statement

To become globally preferred engineering consultancy company in the mining, minerals and energy industries all over the world and pioneer consultancy services in these industries by opening new horizons with new technologies and paradigms.

Mission statement

Providing professional and innovative solutions to create added value to all stakeholders by delivering top class consultancy services at internationally accepted standards in an effective and efficient manner.

Values

Teamwork :Afrasia professionals work together to achieve a common mission. Constructive contributions from the diversity of its individuals, generated through a flat organization and trusted relationships are highly appreciated.

Integrity :Afrasia applies highest ethical and professional principles and behaves reliably and trustworthily in every step it takes.

Excellence :Good, standard or satisfactory… These are never sufficient for Afrasia. Afrasia pursues the excellence and giving the best and world class support to its Clients.

Respect :Afrasia team treats each other, its clients, solution partners, competitors, community, and all other stakeholders in a respectful manner and honours their rights and beliefs.

Evaluation

Yes Yes Yes No Yes

Yes No Yes Yes Yes

Employees

Score ¾.5Yes Yes No

Product-oriented

Anglo American - Kumba Iron Ore:

VISION:

To be a leading, value-adding supplier of iron ore to the global steel industry.

MISSION

People making a difference, in a company making a difference.

VALUESSafety, Care and respect, Integrity, Accountability, Collaboration, Innovation.

Evaluation

Yes Yes Yes No Yes

No No Yes Yes Yes

Employees

Score 2.5/4.5Yes No Yes

Customer- Oriented

ARCELOR MITTAL, South Africa

Vision & Mission

Vision – To be the preferred supplier of steel solutions for the development of sub-Saharan Africa

Mission statement – We aim to achieve our vision by:- Producing safe, sustainable steel- Pursuing operational excellence in all business processes- Producing innovative steel solutions for our customers- Caring for our environment and the communities in which we operate- Striving to become an employer of choice- Living the brand values of sustainability, quality, and leadership.Evaluation

Yes Yes Yes Yes Yes

Employees

Score 3.0/4.5Yes No Yes

Customer- Oriented

CMI Industry –Flat Product Equipment(India)

Vision

Our vision is to exceed customer expectations by delivering quality products and services in time and at competitive prices. Because each project is unique, every project has its own project management team. The customer benefits from the expertise of highly qualified specialists who have an international experience with a deeper knowledge of the customer’s environment.

Mission

The mission statement for CMI Group is ( c.f. www.cmigroupe.com):“The Group’s ambition is to be the leading industrial partner of international customers, to design equipment and develop its overall performance through a combination of expertise in maintenance and engineering”.In line with the mission statement of C MI Group, our mission at C MI FPE Ltd. is as follows :

• Business leadership: To maintain a leadership position globally in the manufacture of Mills and Process Lines for the Steel Industry. To ensure value creation at the workshops through upgrading and enhancing workshop capabilities in a phased manner.To benchmark with other C MI entities to align with their global best practices.To bring about overall cost leadership by instituting productivity improvement measures at the workshops and a strong process orientation across theTo bring about overall cost leadership by instituting productivity improvement measures at the workshops and a strong process orientation across the value chain.

• Customer leadershipTo be the preferred choice of customers for products of world class quality that emerges as industry benchmarks, with on time delivery.To provide cutting edge design and project management capabilities to our customers.To position ourselves as a customer centric organization this proactively responds to customer needs in a timely manner.

• Building stakeholder valueTo create, nurture, sustain and add to stakeholder value on an ongoing basis.

• People leadershipTo create an environment where employees are empowered to act within their sphere of influence.To create a culture of shared values, knowledge and well honed skill sets across all levels of the organization.To foster a corporate culture which has the highest respect for ethical values and which is closely integrated with standard Human Resources and Talent Management Processes.

Evaluation

Yes Yes Yes No Yes

Yes No Yes Yes Yes

Employees

Score 3.5/4.5Yes Yes Yes

Customer- Oriented and Product-oriented.

DN STEEL Group of Industries, Philippines :

MISSION STATEMENT

DN STEEL Group of Companies sincerely upholds the calling of the Philippine Industries for fair trade, quality products and excellent service to our Filipino people. In support of this mission we will provide our valued clients and our end-users a continuous search for advancement and innovation for the Filipino to be competitive in the Globalize World of Commerce.

Create a working environment within the organization dedicated to excellence, quality and mutual respect.Ensure optimism on profitability and return on investment of company stockholders through the employment of efficient and effective use of company resources.

Cooperate with government, business and industry, as well as with other institution in advocating the use of environment friendly construction materials, for the proper utilization of our God-given natural resources, in service to the community for the greater glory of God, the source of our existence.

DN STEEL’S VISION for the 22nd Century Onwards

The DN STEEL Group of Companies aspiring always to be known as Philippine’s best provider of quality construction materials, will provide world-class products and solution to our growing construction industries’ requirement above their standard performance through innovation, advancement and research.

Evaluation

Yes Yes Yes No Yes

Yes No Yes Yes Yes

Employees

Score 2.5/4.5No No Yes

Product-oriented.

PHILEXMINING CORPORATION, EUROPE

Vision

Our vision is to be a highly respected, world-class natural resource company committed to deliver excellent value to its investors, employees, and other stakeholders.

Mission

We are a responsible mining corporation that discovers and processes minerals and energy resources for the use of society.

Evaluation

Yes Yes Yes Yes Yes

Yes No Yes Yes Yes

Employees

Score 3.0/4.5No Yes Yes

Customer-oriented.

BEKAERT, North America

Vision

At Bekaert we focus on sustainable profitable growth. We do this all over the world in a responsible and professional way:

By implementing our worldwide market and technological leadership strategy in the business segments and markets where we are active.

By working for success together with our customers, suppliers and other business partners, within our organization, and throughout the divisions and regions.

Mission

We want to Safeguard the future of our company through sustainable profitable growth. Be recognized as a world leader in our selected business segments, offering our customers – as

their preferred supplier – innovative and high quality products and services. Maintain our position as an employer of choice for the best talent by providing professional

growth opportunities and competitive rewards, thereby reflecting the value we place on global diversity.

Evaluation

Yes Yes Yes Yes Yes

Employees

Score 4.25/4.5Yes Yes Yes

Customer-oriented and Product-oriented

PESTEL and PORTER’s Model:

4. Conduct a External as well as Industry Environment Analysis for the industry in which the company (PESTEL and Porter's 5 Force Analysis) is operating. Identify the strategy of the company's closest competitor? Who are the complementors (company's offering complementary products or services) of the organization?Ans: We Use PESTEL Analysis for external analysis of the Metal and mineral Industry in general and in which ferrous minerals play an important role:

PESTEL ANALYSIS:The PESTEL terms include the political, economic, socio-culture, environmental and legal aspects from which the company is influenced. The growth or the progress of the particular sector or the industry depends upon these factors. These factors are important because these factors are bound with each and every aspect of the society internally as well as externally.

POLITICAL ASPECT:

MEANING OF THE POLITICAL ASPECT:

Political aspect means the aspect which includes the government intervention in the particular sector or for the company. It is basically a political environment under which the company have to perform in well manner to achieve the stability and target goals in sector under which the business is running. This political aspect includes taxation policy by which government decides the various tax implications on the company. It includes the import and export regulation which can be helpful for the growth of the company. The next important aspect in the political factor is of international trade regulations by which the government and various other cabinet departments decide the various rules and regulations regarding the international trade done by the company. Government may also introduce a general initiative which can help in the encouragement of the business which is ultimately leads to the growth of the company. Government stability is also one of the important factor in the business as the many of the important rules and regulations are decided by the government and regarding the business it is important that the government should be stable in nature otherwise with change of the government the policies introduced by the government may also change which can be lead into instability in the business. It is also noted that the international stability is also important in the growth of the business. International stability includes the no war situation and other things which can be dangerous from the point of view of the company.

PESTEL Analysis:

Political Factors: • Recommendations on Captive Mines.

• National Steel Policy to Remove Bottlenecks.

Economic Factors:

• GDP Growth Rate.

• Reduction in Customs Duty.

Social Factors: • Rural-Urban Divide.

• Higher Disposable Income.

Technological Factors: • Popularity of Steel Portals.

• Application of SML (Steel Mark-up Language)

Environmental Factors: The main problem is with the emission of Carbon di-oxide gas in the atmosphere which is the prime

reason. Also the toxic waste of chemical which is produced after production process prove to be a potential

hazard for environment.

Legal Factors: Industry faces legal issues in getting mining rights due to both political and environmental issues. Moreover there were some protests in some areas due to land-acquisitions.

Porter’s five forces model:

Model for Steel, Mining industry:

Following is the model,

Buyers’ Power: • Increasing Demand for Steel.

• Fragmented Coke Suppliers.

Suppliers’ Power: • High Raw Material Prices.

• Lack of Transportation.

Intensity of Competition: • Competition from Foreign Players.

• Spurt in Merger and Acquisition Activities.

Threat of New Entrants: • High Cost of Basic Inputs and Services.

• Industry is Capital Intensive.

Threat of Substitutes: • Use of Aluminium, Plastic, Carbon Fibre.

The closest competitor of SAIL is TATA Steel.

POLITICAL FACTOR OF THE TATA STEEL:

INVESTMENT IN THE UNSTABLE POLITICAL COUNTRIES:Though the Tata steel made various acquisitions for the growth of the company and for the reason of the expansion of the business they took a very high amount of risk by investing in the countries like Bangladesh, Iran, and Thailand. For example: the plan set up in the Bangladesh is getting delayed by the question of gas supply, whereas the issue of lease of the mining of the iron ore in the Iran country is responsible for the increase in the cost of the production.

INFRASTRUCTURAL DEVELOPMENT IN THE INDIA:Now a day’s government is launching the various schemes for the development of the infrastructure of roads and transport. Every year Tata steel and other steel industries in India spend a huge amount on the freight and transportation with the launch of various schemes in Infrastructure Company could be able to save some amount which company spends on the freight and transportation.

EFFECTS OF THE LIBERALIZATION:The various liberalization schemes launched by the government after the year 1991.when the Indian economy opened globally, is responsible for the tremendous growth in the various sectors but particularly in this sector. Various features can be discussed as follows:

The licensing is required for the capacity creation which is removed. Foreign equity investment got the permission up to 74%. Reduction in import and tariff reduced from the 105% in year 1992-1993 to 30% in the year 1996-

1997. Apart from this restrictions on the import and export have been reduced

These are the some important features of the liberalization policy which leads to Tata steel to be on the growth path. Apart from this the mining policies of the government and other policies helped the Tata steel in reduction of import duty, export duty and other things which are responsible for the high growth of the Tata steel industry globally.

ECONOMIC FACTOR:Another important aspect in the PESTEL ANALYSIS is of the economic point of view .the growth and the stability of a particular company is depends on the economic conditions of the country. It may be nation economy or international economy. Various factors are responsible for the change in the economic conditions and with the change in these factors many times the company also gets affected if the economic condition is very unstable in the nature. The economic aspect of pestel analysis includes market trends, inflation rate, demand and supply of the particular commodity and globalization. If these factors are unstable in nature the company may face tremendous loss. With the change in the economic conditions a company should change its policy accordingly and to sustain in the depression period a detail research and survey should be done by the particular country.

ECONOMIC FACTOR OF TATA STEEL:Two years back, United States’ economy faced SUBPRIME CRISIS which affected each and every strong economy in a very negative way. During this period there was a very high risk in the international capital markets regarding the liquidity. In the year 2007, many foreign investments and equities got adversely affected because of the loss of confidence in the liquidity and the returns on the investment. Due to the subprime crisis in US, European markets faced the problems of recession which had bad impact on the Tata steel as the Netherlands, United Kingdom and Germany are the main markets for the CORUS COMPANY. Steel industry may get affected because of the cyclical economic condition because many industries like automobiles, appliances and construction depends on the steel industry and if industries faces any kind of downturn, Tata steel may also face the losses. Steel production processes completely depend on the energy market which can affect the Tata steel in the economic manner. With the acquisition of CORUS, TATA steel made a step forward to meet industry expectations.

SOCIAL FACTORS:Socio-culture aspect means the achievements or the willingness of the company to do the welfare of the people in society without the profit earning motive .The company deals with social responsibilities. It includes the initiatives taken by the company in the form of the skill building, attitudes towards work and other aspects which can be dealt under the development of the society.

SOCIO-CULTURE FACTOR OF TATA STEELTATA STEEL was awarded for the commitments shown by it in the business, ethical behaviour and improving the lives of the employees and their families. For this purpose Tata steel got awarded by the GOLDEN PEACOCK GLOBAL AWARD. TATA STEEL also focused to create the social environment. They constantly made improvements in the health issues, economic wellbeing and educational facilities provided to the nation. This project works in near 800 villages in Jharkhand , Orissa and Chhattisgarh. Hospital on wheels is the basic innovation of the Tata’s whereas Tata is also responsible for the habitation of slum area residents in urban developing cities.

TECHNOLOGICAL FACTOR:Technological aspect in the PESTEL analysis means that how company is able to use the present technologies in the production process. It also states how company is using the technology for the maximum utilization of the resources. It includes the material process and it development, speed in adaption of new technology, and software up gradation in the company for the convenience.

TECHNOLOGICAL FACTOR OF THE TATA STEEL:Technological aspect should be always in the nature of changing as per the new circumstances. Tata steel and SAIL (steel authority of India ) started the E-PORTAL system in middle of year. This technology is also known as the METAL JUNCTION which is helpful for not only to Tata steel but also to entire industry. With the help of this technology e market is the biggest market for purchasing and selling of the steel in the world. To reduce the quantity of Carbon di-oxide in the environment, Tata steel is conducting research of the ultra-low carbon steel .Tata is also engaged with the objective of the energy conservation schemes where Tata is doing research to reduce the energy consumption in the production process.

ENVIRONMENTAL FACTOR:Environmental aspect means how the company is protecting the environment from the pollution and other factors which are harmful for the society and nature .it includes the pollution problem, waste disposal methods of the company, noise control and other factors which can be included under the environmental aspect.

ENVIRONMENTAL FACTOR FOR THE TATA STEEL:In the steel industry there is a major problem of the emersion of the co2 gas during the production process which is extremely harmful for the nature and human being itself. Tata steel is designing a programme in which Tata steel would be able to reduce the co2 emersion by 20 %. The DHAMRA port is the joint venture of the LASRSEN AND TOURBO and TATA STEEL. This joint venture came into existence for the protection of the Olive Ridley sea Turtles. These projects are established near the Orissa .DHAMRA port is also supporting for the saving in the saltwater crocodiles as well as it is contributing the help to save the wildlife in India. It is also providing the breeding grounds for the horse shoe crabs and other rare species of the reptiles and amphibians.

LEGAL FACTOR:Every company is bound with some internal and external rules and regulations which is helpful for the smooth flow of the company. It also includes the international laws and regulations that company are bound to follow. It also includes the safety and health regulations of the employees of the company.

LEGAL FACTOR OF THE TATA STEEL:The main importance is given to the employee’s safety at the work place Tata steel ensures the EHS(ENVIRONMENTAL HEALTH AND SAFETY) under which the each and every employee’s activity is managed by the EHS framework. Along with this positive aspect the company is also facing some legal problems. Though Tata steel is not concerned with the problem of land acquisitions in Singur, west Bengal it is affecting the name of Tata. Unstable government in Jharkhand and various tribal protestors are creating some legal issues for the Tata steel. It should be noted that from past 100 years the company work is not disturbed because of any kind of strikes or internal issues. The introduction of provident fund was introduced by the Tata steel in the year1920. Tata introduced the leave pay scheme to the employees which was actually applied later on in the year 1945 after the independence. Soon these schemes introduced become the legal part of the INDIAN LAW.

The complementor is the automobile industry, manufacturers of construction equipments or household items etc.

DEMAND Analysis of STEEL industry for complementors:

History, Evolution and Success Factors:

5.. Write within 750 words each of the following:i. Comment on the History, Evolution, Growth Rate, Profitabilty Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as well?ii. Size of the Industry across the world and the country where the organization is operatingiii. Key success factors for any organization operating within the Industry and how is your organization performing on those criterias.

Introduction Mining and metallurgy contributed a lot to India’s development. India has been recognized as a country well endowed with various natural resources. Mining was practiced well in the land of India and along with mining, metallurgy of various metals also developed in due course of time. India is ranked 4th amongst the mineral producer countries, behind China, United States and Russia, on the basis of volume of production It is an extremely important sector and contributes significantly to our Gross Domestic Product.

History:

Metals were mined and utilized in the past in processes from the use of native metals, to those metals which could be easily smelted from ores, and to those metals which was hard to be smelted. The common metals in antiquity are gold, silver, copper, iron, lead, tin and mercury. Indian metallurgists’ achievements were indeed significant. Heritage in metallurgy is a matter of pride of India for sure.

Metallurgy in India started during the 2nd millennium BC and continued also in British Raj, British rule in the Indian subcontinent from 1858 to 1947. Recent excavation by an archaeologist Rakesh Tewari in Middle Ganga valley manifest that iron metallurgy began as early as 1800 BC. Other archaeological sites like Malhar, Dadupur, Raja Nala Ka Tila and Lahuradewa in the state of Uttar Pradesh support this by providing iron implements from 1800 BC to 1200 BC. By the early 13th century BC, iron smelting was already used in India. In Southern India, iron objects were found to be created from 11th century BCE to 12th century BCE. However, these developments were too early for important contact with Northern India to take place. Early iron objects such as knives, arrow heads, spoons, bowls etc. ranging from 600 BCE to 200 BCE were found in many sites.

In Modern era, foreign competition, absence of tariff barriers and lack of technological innovation hindered the development of mining and metallurgy in India during the colonial period. British were aware that metal working played a considerable role in supporting indigenous power in the past through the production of firearms and ammunition. Therefore, British took a step to limit Indian metallurgy and mining to prevent future wars and rebellions. In Arms Act in 1878, British limited Indian access to firearms. Rajasthan, the region rich with metals, were considered by British as an important mean that made Indians struggle so hardly against superior British. So by the 19th century, once flourished mines of Rajasthan were mostly abandoned and miners became almost extinct.

Evolution:

The figure below explains the evolution of Indian metal & mineral industry:

In the above figure, we see how the metal and mineral industry has evolved through time.

Strong growth in india’s Metal and Mining Industry over the years:

India’s metals and mining industry recorded a strong 19.8 per cent expansion in 2011 to touch USD141.9 billion Much of the above growth in the industry’s value can be attributed to higher prices given that production volume

growth was relatively lower at 3.2 per cent (total production stood at 716.3 million metric tonnes) Production volumes have been growing steadily over the years – over 2007-11, it registered a CAGR of 5.2 per

cent; with prices also rising during this period, the sector’s value rose by around 17.7 per cent (CAGR) It will be clearer by the following diagram:

Profitability Rate and future of the Industry:

As we can see from the above figure, there are many major factors as listed above which are contributing heavily in the growth of this Industry. Apart from that power sector is also contributing heavily in the growth of this sector.

The power sector accounts for a large share of the consumption of aluminium and coal in the country

Power generation in India expanded at a CAGR of 5.7 per cent during FY06–13

In FY13, total power generation capacity stood at 223,344 MW, with capacity addition of 20,623 MW during the year

In the Eleventh Plan, India is estimated to have added around 60,000 MW of generation capacity at an investment of USD11.5 billion

To meet growing power demand, the Power Ministry has targeted capacity addition of 85,000 MW in the Twelfth Plan (2012-17) period.

This was more or less same for SAIL as well. The rate of growth of the iron and steel industry, and of the engineering and machinery producing sectors with which its fate was so closely linked, declined significantly once the phase of import substitution was complete and the droughts of the mid-1960s had forced a diversion of resources from industry. Pig iron output, which had risen so spectacularly in the 1950s, rose from seven million tons in 1965 to ten million tons in 1985, while production of steel rose from 6 million tons to 12 million tons in the same period. The industry suffered due to state

intervention to keep its domestic prices low as an indirect subsidy to steel users, and--though the technical problems were different--from a heritage of outdated and inefficient plants and equipment.

Indian government policy since 1965 has been to use its iron ore less as a contribution to domestic growth than as an export, earning foreign exchange and helping to reduce the country's chronic deficit on its balance of trade. Production of ore increased, from 18 million tons in 1965 to 43 million tons in 1985, in order to supply a growing number of overseas markets.

The 1980s were not a happy decade for SAIL. It suffered losses between 1982 and 1984 but went back into the black in the following two years. Meanwhile Tata Iron and Steel was consistently profitable. By 1986, when the Indian steel industry's total capacity was 15.5 mt, only 12.8 mt were actually produced, of which SAIL produced 7.1 mt. Thus imports of 1.5 mt were needed to meet total demand, after years of exporting Indian steel. By 1988 all the main steel plants in India except Vishakhapatnam were burdened with obsolescent plants and equipment, and Indian steel prices were the highest in the world.

During this time period, SAIL remained in the public sector as a central instrument of state plans for industrial development. The country's reserves of iron ore and other raw materials for iron and steel made the industry central to the economy. At the beginning of the 1980s India had recoverable reserves of iron ore amounting to 10.6 billion tons, a natural endowment that it would take 650 years to deplete at then current rates of production. The high-grade ore within this total--that is, ore with an iron content of at least 65 percent--was, however, thought likely to reach depletion in only 42 years; yet it still represented about one-tenth of the world total. SAIL struggled to maintain production, let alone expand it, in large part because of circumstances outside its control. Since the purchase of raw materials typically accounted for 30 percent of the Indian steel industry's production costs, any rise in the prices of coal, ferro-manganese, limestone, or iron ore cut into the industry's profitability. In the first half of the 1980s, for example, prices for these materials rose by between 95 and 150 percent, at the same time as electricity charges rose by 150 percent. Most of these increases were imposed by other state enterprises.

Nor did it help SAIL that the high sulphur content of Indian coal required heavy investment in desulfurization at its steel plants. Indeed, the industry had chronic problems in trying to operate blast furnaces designed to take low-sulphur coking coal. The more suitable process of making sponge iron with non-coking coal, then converting it to steel in electric arc furnaces, was introduced in the private sector later, though by 1989 only 300,000 tonnes were being produced in this way. India's basic output costs of INR 6,420 per ton in 1986 compared well with the averages for West Germany (INR 6,438), for Japan (INR 7,898), and for the United States (INR 6,786). What finally kept Indian steel from being competitive was the imposition of levies that raised its price per ton by about 30 percent, and which included excise duties, a freight capitalization surcharge, and a Steel Development Fund charge.

SAIL was no more able than large steel companies in other countries to achieve the optimum balance between demand and supply, between increasing the quantity of output and improving its quality by modernizing, and thus escaping from its heritage of outdated plant and equipment.

5. (ii)

International

Crude Steel Production and Consumption

On the global scene, China dominates the world production of crude steel. In the year 2006 the top five largest producers of crude steel together accounted for 60.62% of the total crude steel production of the world.

Asia with a 54% share (Fig A3.1) in world crude steel production is the largest crude steel producing region followed by European Union (15.88%). The production in Asia is driven by strong demand generated by emerging economies of China and India.

Figure A3.1: Region wise Crude Steel Production, 2006

Source: Steel Statistical Yearbook 2007, IISI Committee on Economic

Studies - Brussels, 2007

Figure A3.2 depicts the production shares of the five largest crude steel producing countries of the world in and 2006. China ranks first in the international production of crude steel with an overwhelming share of 33.81% in 2006, followed by Japan (9.3%), United States (7.88%) and Russia (5.67%). India with a share of 3.96% surpassed South Korea in 2006 to become the fifth largest producer of Crude steel in the world.

The key industries spurring the production of steel in china are the fast growing car-making and shipbuilding and massive expansion in infrastructure with flagship projects like facilities for 2008 Beijing Olympics and the Three Gorges Dam. Figure A3.2: Top Five Crude Steel Producing Countries, 2006

Note: ROW: Rest of the World

Xavier Institute of Management, Bhubaneswar

15.88%

10.53%

54.05%

0.70% European Union

Other europe

C.I.S.

North America

South America

Africa

Middle East

Oceania

39.38%

Russia

33.81%

Russia

Figure A3.3 depicts production of crude steel by different processes in the top five producer countries. In 2005, 65.3% of the total crude steel production of the world was produced through the Oxygen Blower Converter route (OBC), followed by Electric Furnace (EF) and Open Hearth Furnace (OHF). In the world’s largest producer country China, 88.1% of total production is through OBC route. In India too OBC route accounts for largest share in production of crude steel followed by EF.

Figure A3.3: Crude Steel Production by Process, 2005

Note: ROW: Rest of the World

The production of crude steel in India has consistently risen over the ten year period from 1997 to 2006 (Table A3.1). However over the same period, India’s share in world crude steel production has remained fairly static. It recorded a jump between 2004 and 2005 from 3.05% to 3.99%, declining marginally to 3.96% in 2006.

Table A3.1: Production and Share of India in World Crude Steel Production

(in ‘000 tonnes)1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

India 24415 23480 24296 26924 27291 28814 31779 32626 45780 49450

World 798954 777330 788970 847671 850266 903929 969743 1068691 1146203 1249997

Share% 3.06 3.02 3.08 3.18 3.21 3.19 3.28 3.05 3.99 3.96

Source: Steel Statistical Yearbook 2007, IISI Committee on Economic Studies - Brussels, 2007

88.174.4

4561.6

11.725.6

55 16.3 54.1

2.2 2.8

China Japan US Russia India World

Table A3.2 Top steel producers and their shares in the world crude steel production

2005 2006 2007

Company Mmt%

shareCompany mmt

% share

Company mmt%

1 Mittal steel 63.00 5.50 ArcelorMittal 117.20 9.38 ArcelorMittal 116.40 8.66

2 Arcelor 46.70 4.08 Nippon Steel 32.70 2.62 Nippon Steel 35.70 2.66

3 Nippon Steel 32.00 2.79 JFE 32.00 2.56 JFE 34.00 2.53

4 POSCO 30.50 2.66 POSCO 30.10 2.41 POSCO 31.10 2.31

5 JFE 29.90 2.61 Baosteel 22.50 1.80 Baosteel 28.60 2.13

6 Baosteel 22.70 1.98 US Steel 21.20 1.70 Tata Steel 26.50 1.97

7 US Steel 19.30 1.68 Nucor 20.30 1.62 Anshan Benxi 23.60 1.76

8 Nucor 18.40 1.61 Tangshan 19.10 1.53 Jiangsu Shagang 22.90 1.70

9 Corus Group 18.20 1.59 Corus Group 18.30 1.46 Tangshan 22.80 1.70

10 Riva 17.50 1.53 Riva Group 18.20 1.46 US Steel 21.50 1.60

11 Thyssenkrupp 16.50 1.44 Severstal 17.50 1.40 Wuhan 20.20 1.50

12 Tangshan 16.10 1.40 Thyssenkrupp 16.80 1.34 Nucor 20.00 1.49

13 Evraz 13.90 1.21 Evraz Group 16.10 1.29 Gerdau Group 18.60 1.38

14 Gerdau 13.70 1.20 Gerdau Group 15.60 1.25 Riva 17.90 1.33

15 Severstal 13.60 1.19 Anshan 15.30 1.22 Severstal 17.30 1.29

Top 15 producers 372.00 32.46

412.90 33.03

457.10 34.00

Others 774.00 67.54 837.10 66.97 887.20 66.00

Total world production

1146 100.00 1250 100.00 1344.3 100.00

Source: www.worldsteel.org ; and Steel Statistical Year Book 2007, International Iron & Steel Institute, Brussels. *mmt=Million Metric Tonnes.

Top producer countries of crude steel are also the largest consumers except for Russia. Figure 5.4 below shows that China leads in consumption of crude steel as well with a share of 31%. Next is United States (10%) followed by Japan (6.72%), South Korea (4.39%) and India (3.92%). Taken together these five countries accounted for 56% of the global consumption of crude steel in 2006. Out of top five largest consumers, four are the emerging economies of Asia which are generating significant demand for steel.

Figure: A3.4: Top Five Consumer Countries of Steel

Note: ROW: Rest of the World Note: ROW: Rest of the World

The world per capita consumption of crude steel has risen from 143.2 Kg in 1997 to 202.2 Kg in 2006 (Table 5.2). India’s per capita crude steel consumption is only one seventh of China’s 291 Kg. At 42.2 Kg the per capita consumption of India is also very low as compared to the world average of 202.2 Kg. Among the top five crude steel consumers; South Korea has the highest crude steel consumption per capita of 1073.9 Kg.

Table A3.3: Apparent Consumption of Crude Steel Per capita

China JapanUnited States

South Korea

India World

1997 92.7 677.8 449.6 871.4 27.5 143.2

1998 98.4 573.3 484.9 559 26.8 139.1

1999 108.1 560.1 453.9 757.3 29.1 139.6

2000 108.7 626.6 468.1 855.1 28.9 148.3

2001 133.4 590.9 397.4 843.8 29.3 148.3

2002 159.7 577.3 406.7 960.2 27.9 155.4

2003 199.4 598.5 360 1000.2 31.1 165

2004 227.3 629.9 417.2 1029.8 33 179.6

2005 268.9 648.2 377.9 1023.6 38.5 187

2006 291 651 424.5 1073.9 42.2 202.2

China31.02%

United States10.37%Japan

6.72%south korea4.16%

India3.92%

ROW43.80%

United States

south korea

Studies Brussels, 2007

Trade in Iron Ore

Iron ore is the raw material used to make pig iron, which is one of the main raw materials to make steel. 98% of the mined iron ore is used to make steel. Table A3.3 shows that Australia and Brazil are the leading exporters of iron ore in the world. In the year 2006 Australia exported 248147 mT of iron ore closely followed by Brazil. India was the third largest exporter of iron ore in 2006.

Table A3.4: Exports of Iron Ore

Year Australia Brazil India CanadaSouth

Africa(CU)

1997 147266 140419 32856 32340 20730

1998 136424 143197 32828 30601 22093

1999 139420 140200 30972 26886 21096

2000 157331 160114 34918 26510 21397

2001 157079 155741 36607 21981 23520

2002 165583 170015 54929 25638 24304

2003 186123 184442 57345 27126 23412

2004 210450 236758 62650 22453 24745

2005 238763 225135 89585 27303 27413

2006 248147 246580 86785 27484 26161

The top crude steel producing countries China and Japan are also the top two importers of crude steel in 2006 followed by Germany, South Korea and Netherlands (Table A3.4).

Table A3.5: Imports of Iron Ore

Year China Japan Germany South Korea Netherlands

1997 55106 126601 41687 38592 8596

1998 51771 120782 52530 33612 8831

1999 55274 120107 38802 35400 7911

2000 69971 131733 47503 38980 7334

2001 92393 126297 40095 45875 7703

2002 111423 129088 44298 43311 7370

2003 148128 132081 33876 43069 14705

2004 208089 134884 38861 44225 30279

2005 275260 132285 39061 42250 37637

2006 326303 134287 44850 42807 33562

Global Experiences: Competition Issues

The steel industry globally is getting increasingly consolidated with a series of mergers and acquisitions in the past ten years. However, the consolidation in steel has more or less involved only the top players. As a result, the share of the top five steel producers in global total has risen from 12 percent in 1994 to 18 percent in 2007. What is most interesting to observe is that during the same period (only the end years considered), the share of the next five producers have remained intact at 7 percent.

An extrapolation of current trends suggests that the top 10 companies in the world will hold a global market share of almost 35 percent in 2010. This might mean three or four players producing more than 80 million tons, and five or six players producing between 40 mmt and 60 mmt, annually.1

Consolidation has added a new dimension to the steel industry. With multiple locations, across continents, the steel companies have gained a fuller global character. Further, M&A’s follow individual national laws which themselves are fairly diverse. Most of the major M&A’s have been pre-approved by competent authorities, wherever they have been. The national governments, especially in the developed world, has been proactive in supporting their own companies taking over assets in foreign countries, even while they may have at times expressed concern over the foreign companies doing the same and also their own companies getting engaged in the consolidation process.

Table A3.6: Biggest deals in steel Industry since 1995

Target/Nationality Buyer/Nationality Value ($bln) Year

Arcelor/ Luxembourg Mittal Steel/ Netherlands 32.2 *2006

NKK Corp/Japan Kawasaki Steel/Japan 14.1 2001

LNM Holdings/ Netherlands Ispat Intl./ Netherlands 13.3 2004

Corus/UK&Netherlands Tata Steel/India 12.2 *2007

Krupp AG/Germany Thyssen/Germany 8.3 1997

Pechiney SA/France Alcan/Canada 7.8 2003

Alusuisse Lonza Group AG/Switzerland

Alcan Aluminium Ltd/Canada 6.3 1999

Dofasco/Canada Arcelor/Luxembourg 5.2 2005

International Steel Group/United States

Mittal Steel/ Netherlands 4.8 2005

Note: * Year announced. Source: http://www.reuters.com

1 Boston Consulting Group(BCG) Report: “Beyond the Boom: The Outlook for Global Steel,”

The effects of consolidation in the industry are being gradually felt globally in the steel market. For instance it is observed that steel prices are firm even at times of low demand or excess supply. Points are being raised on the role of the consolidated industry and its increased market power in the context of the phenomenal price rise observed in the past couple of years.

What is being apprehended is that the steel majors globally have got together to control prices and market shares to mutual advantage. A recent survey undertaken by Steel Business Briefings among top business executives point to such a possibility.2 Questions have been raised if the steel majors are manipulating by creating artificial shortages around the world adopting non- competitive and unethical practices. While the consolidated steel industry is in command, the iron ore and coal industries globally are far more consolidated and with their oligopolistic control over the market have been able to continuously raise prices irrespective of the actual demand supply conditions in the market. As has happened in the case of these raw materials industry, in steel too, the smaller and marginal players are finding it more convenient to merely follow the leaders instead of attempting to grow competitively.

5. (iii)

We can know of the success factors by doing SWOT Analysis of the Industry and we can also know how the company is performing by doing the same for organization.

SWOT Analysis of Metal and Mining Industry:

SWOT Analysis of SAIL:

STRENGTH

• The diversified product mix and multi location production

• Customer base is another major strength for SAIL as it offers steel at subsidised rates and hence caters to high volume of clients

• Financial Resources, it can use Govt funds for ventures.

• It uses all possible channels for promotion and Sales.

• Low overall borrowings

WEAKNESS:

• Dependency on the market purchase for a key input

• Another weakness is that higher profit margins are possible but not allowed since being a Govt venture.

• Include private players with better quality manpower, strategies and policies.

• skill depletion

• largely in the technical areas.

• At present around 20% of the products are in the form of semi-finished

• steel, resulting in lower value addition

OPPORTUNITIES:

• SAIL also can adopt globalisation with ease using Govt. Support.

• Also SAIL being financially sound can undertake merger and acquisition projects with weaker counterparts.

• Rapidly expanding domestic market particularly infrastructure sector.

• Focus on infrastructure projects

THREATS:

• Threats would include change in Govt Policies and Economy trend which can have a direct impact on the functioning of SAIL.

• Subdued domestic demand for steel could result in excess steel

• capacity in the country

• intensification of competition from domestic as well as foreign steel producers

• Adverse movement in prices of imported coking coal

References:http://www.valmont.com/valmont/company/valmonts-visionwww.afrasia.com.trhttp://www.tatasteelindia.com/corporate/vision-and-strategy.asphttp://www.bekaert.com/en.aspxwww.ibef.orgwww.ficci.comwww.crisil.comWebsites of companies whose business model is shown in assignment.

SAIL

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