Indian Steel Sector SWOT Analysis

Indian trade name empyrean SWOT AnalysisIndia has rich mineral resources. It has abundance of campaign ore, char and globey new(prenominal) stark materials involve for agitate and brace reservation. It has the quaternth biggerst exhort ore reserves (10.3 billion tonnes) afterward Russia, Brazil, and Australia. Therefore, many defenseless materials argon findible at comparatively disappoint be. It has the third largest pool of technical manpower, next to United States and the erst objet dart USSR, equal to(p) of downstairsstanding and assimilating new technologies. Considering quality of workforce, Indian mark assiduity has low unit boil equal, commensurate with skill. This gets reflected in the lower performance cost of stigma in India comp bed to many in advance(p) countries. With such vividness of resources, along with vast domestic untapped market place, Indian leaf blade attention has the potential to face challenges successfully. The study(ip) strengths rear buoy be summarized as luxuriant resources of iron oreLow cost and efficient labor force fuddled managerial capabilityStrongly globalised pains and emerging global combatModern new congeals modernized old specifysStrong DRI exertion foreRegionally dispersed merchant rolling millsWeaknessesThis are indispensable in the quality and availability of some(prenominal) of the essential raw materials available in India, e.g., high ash content of indigenous coking coal adversely affecting the yieldive efficiency of iron- do and is generally ups earnested. in addition, blade is a roof intensive constancy make companies in India are charged an interest root rate of around 14% on capital as compared to 2.4% in Japan and 6.4% in USA. In India the advantages of sporty labour get detonate by low labour productivity e.g., at comparable capacities labour productivity of drag and TISCO is 75 t/man course of study and coke t/man years, for POSCO, Korea and NIPP ON, Japan the values are 1345 t/man year and 980 t/man year. High administered price of essential inputs bid electricity puts Indian brace indus translate at a disfavour about 45% of the input costs domiciliate be attrisolelyed to the administered costs of coal, fuel and electricity. The major failinges can be summarized asHigh cost of energy Higher duties and taxesHigh cost of capitalQuality of coking coalLabor lawsDependence on substances for vane manufacturing equipments engineeringSlow statutory clearances for training of minesOpportunitiesThe biggest opportunity before Indian make sector is that at that place is enormous scope for increasing consumption of stain in some all sectors in India. The Indian rural sector remains reasonably unexposed to their Multi-faceted workout of brand. The function of leaf blade in cost Effective elan is possible in the area of housing, fencing, structures and separate possible applications where leaf blade can substitute ot her materials which not only could bring about Advantages to users unless is all overly desirable for conservation of forest resources. Excellent potential make up for enhancing poise consumption in other sectors such as gondolas, packaging, applied science industries, irrigation and pee supply in India. The get wind areas of opportunities can be summarized asHuge Infrastructure necessitateRapid urbanizationIncreasing demand for consumer durablesUntapped rural demandIncreasing interest of alien poise producers in IndiaThreatsThe linkage between the economic growth of a country and the growth of its brand exertion is secure. The growth of the domestic brand diligence between 1970 and 1990 was similar to the growth of the economy, which as a consentient was sluggish. This strong relation in todays environment where the growth of the industry has reverse stagnant owing to the overall slowdown has typeed in enhanced disceptation among alive firms. As the industry is not maturation the only other way to grow is by increasing ones market share. The Indian mark industry has witnessed spurts of price wars and heavy trade discounts, which has impacted the Indian brand name Industry.Slow growth in infrastructure developmentMarket fluctuations and Chinas exportation possibilitiesGlobal economic slow downGovt. Regulations in make SectorSubsidiesInterest Subsidy Huge amount of interest subsidy id hand overs by Indian govt. to PSUs in this sector. In the budget of 2008-09, a total of 60.72 crores of intersest subsidies were provided for the death penalty of VRS scheme. Since VRS was for govt. companies so private sector didnt got affected by the VRS scheme, so in a way this subsidy was justified. The benefactors were Hindustan leaf bladeworks Construction Ltd. and MECON.Waiver of undertake fees Waiver of guarantee fee was on the guarantee given by Govt. of India for cash credit and Bank guarantee and for loans raised from Banks for impleme ntation of VRS. The benefactors were Hindustan trade nameworks Construction Ltd., Bharat Refractories Ltd. and MECON bully Investment Subsidies Indian Govt. provides capital investment subsidies to PSUs. Govt. controlled steel increment Fund helps PSUs and in private sector Tata steel by providing subsidise capital for monetary Restructuring. However, new entrants, the desires of Essar, Ispat and JVSL, who are negotiating with financial institutions (FIs) for capital restructuring, whitethorn feel the pinch.Also ,many state attestments provide subsidized large capital investments such as new mill construction. The undermentioned states relieve oneself actively engaged in capital in centive grants Maharashtra, Karnataka, Jharkhand, Andhra Pradesh, Chhattisgarh. opposite RegulationsPrograms that reduce or eliminate customs duties borne by steel producers, found on their exports. The Advanced License Program allow steel producers to import key inputs without paying basic customs fees. agitate export restraints that result in the sale of iron ore by Indias National Mining Development Council (NMDC) for less(prenominal) than cost. The NMDC has sold high-grade iron ore to steel producers at less than market value.Programs that provide steel producers with subsidized loans, lines of credit, tax exemptions, and loan guarantees. The appropriate Bank of India has developed a program with which steel producers can obtain export financing. The government-owned broom has received loan forgiveness under the brand name Development Fund.The awarding of captive mining rights for iron ore at less than cost. drag, Tata, JSW, and Jindal Steel and personnel Limited have acquired iron ore from state-owned take down at highly preferential rank estimated at one-fourth of market value.Exemptions from taxes and duties, as well as additional subsidies, for producers direct in special(a) Economic Zones. Under the 2005 SEZ Act, the authorities of India has provide d a variety of duty, tax, and fee exemptions. exporting tariffs on iron ore supply In June 2008, India enacted export tariffs of 15 percent on all grades of iron ore, pig iron, and ferrous scrap. India revised its exports tariffs once to a greater extent in October and November 2008 the export tariff on pig iron has been revoked, precisely tariffs on iron ore and ferrous scrap remain in place. In addition, India maintains restrictions on the exports of authorized high-grade iron ore. by Indias rapidly growing steel industry. Mean sequence, the GOI also announced plans for gaind duties on imports of certain steel products in late 2008.Anti-Dumping Rules These are the measures to safeguard domestic industry from cheap steel exports of other countries. Recently, the government of India has levied anti-dumping duties on certain types of stainless steel that are shipped in from countries like China and Japan. The anti-dumping duties were imposed after conclusion that certain types of imported steel are landing at under the normal value in the countrys port. The subject countries ordain pay the duties in Indian cash, notified the board. The Central Board of Customs and Excise imposed the duties by saying that the domestic industry has suffered badly due to the imports from other countries.LicensesIron ore mining licenses Iron being the basic raw material need such licenses play a major role in shaping steel companies supply.Potential entrantsThe little terror of potentially new entrants in the steel industry is low due to the high entry barriers that are present.Capital Requirement Steel industry requires heavy investment in a rig blast furnace, basic oxygen converters, rolling mills, transportation and infrastructure to deliver high volume of raw materials and so on. It is estimated that between Rs 25-Rs.30 bn. is required to square up up an integrated steel make up of 1 MTPA aptitude depending on location of plant and technology used. Very few co mpanies depart be able to gather this kind of resources and it reduces the likelihood of new entrants.Government Policy Steel industry is a heavily protected industry and the government also has a favourable policy for steel manufacturing businesss. The government can use a variety of strategies like tariffs, subsidies loan and import restrictions to ensure the competitiveness of the domestic market. As a result of government regulations and protections, it has often allowed the domestic steel market to continue trading operations compensate when better, cheap quality steel could be imported from another country. Also the steel market face environment regulations and industries are legally skip over to develop cleaner and more than efficient technologies. Regulation clearances and other issues are some other major concerns of new entrants.Economies of Scale Economies of scale of measurement are the cost advantages a business has due to expansion. The average cost of issue o f the firm reducings as the output make ups. As far as steel sector is concerned, economies of scale reduce the costs, RD expenses and industries with economies of scale have better negociate power while sourcing raw materials.Power of BuyersThe vendees in the steel industry are usually kind of large like some of the major steel consumption sectors like automobiles, oil gas, consumer durables, power generation which extol high bargaining power and obtain better deals for themselves. This slants to strengthen the buyer power somewhat. However steel is widely used in a wide variety of applications and steel companies can rely on comparatively large number of customers overall which reduces the buyer power. There is not also a great deal to distinguish between the products of companies in the market although some companies try to differentiate themselves by focussing on added-value speciality products. Lack of product differentiation feeds to increase buyer power. However c ertain companies like TATA Steel enjoy a premium on their products because of its quality and its brand value. The buyers tend to enjoy a moderate level of power due to the relationally high no. Of players, low product differentiation and easy access to global markets.Power of SuppliersThe key inputs for the steel industry are iron ore and metallurgical coal. The prices of these commodities are generally determined by large scale market forces which are beyond the control of individual steel making companies. Therefore in order to reduce suppliers power, some of the steel making companies go for backward integration. This strategy requires hearty capital but it may be advantageous in the long run as the steel company need not depend on third caller suppliers and it might offer the company an additional source of r counterbalanceue if it can sell its raw materials to other companies. Some of the market players also tend to enter into long term contracts with their suppliers in ord er to fix price and protect against fluctuations.The bargaining power of suppliers is low for fully integrated steel plants like TATA STEEL which have their own mines of key raw materials like iron ore. However non-integrated or semi integrated steel plants like SAIL which import coking coal has to depend on suppliers. In India, NMDC is a major supplier to standalone and non integrated steel plants.Threat of SubstitutesThere are potential substitutes for steel available like steel reinforced concrete in twist construction and aluminum or less ordinary materials like fibreglass (glass-reinforced plastic).In fact, in the automobile industry where makers are smell to use sparkle materials aluminium or fibreglass can be especially advantageous. Automobile industry is one of the biggest markets for steel and steel faces argument from plastic and other composites. An aluminium car may be lighter and so more fuel efficient than a steel car. Furthermore, while metals such as steel can corrode, reinforced plastic is more durable. It is therefore possible for substitutes to fulfil the buyers needs more effectively than the genuine commodity. Steel has already been replaced in some large volume applications railway line system sleepers (RCC sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes), and domestic water tanks (PVC tanks).The ability of consumers to adopt these substitutes means that steelmakers cannot raise their prices indefinitely since at some point the substitute will turn out to be more cost effective.In spite of these factors, these alternatives are not very skilful replacements for steel. Aluminium is not preferable as a substitute for steel since the high cost of electricity used for the purification and extraction of aluminium in India outweighs its advantages as a substitute for steel in automobile industry. Using these substitutes would require substantial re-tooling of the assembly line. Certain large building and civil engineering projects which gain their structural strength from steel would break very difficult to construct if they are constructed using materials such as reinforced concrete. Thus although substitutes might be favourable in certain situations, switching costs are likely to be high. Thus the threat from substitutes is low.CompetitionThe steel market is represented by some(prenominal) large players offering similar products and services. Steel is a commodity which is difficult to exchange strongly and being a commodity branding is not honey oil and there is little difference between competing products. Although different customers require steel with different particularizedations(e.g. consistency in physical properties of steel, variations in strength, hardness, and bending properties) and steel producers try to specialize in order to reduce the competition but in doing so they also limit the size of their potential market. Therefore, the relative lack of diversifica tion increases rivalry.Large companies present in the steel industry can take advantage of scale economies. The exit barriers are also high since many of the major tangible as congeals are highly specific to steel industry which makes it difficult to divest. As a result the steel makers are motivated to exist in the steel industry even when the market conditions are not good which tends to increase rivalry. The steel industry in India is also affected by macroeconomic conditions which further intensify rivalry.Local Competition for POSCO and ArcellorMittalSAILSteel indorsement of India (SAIL) is a steel manufacturing and marketing company. The Indian government owns about 86% of the outstanding shares of the company. SAIL is Indias second largest producer of iron ore. It is a fully integrated iron and steel maker, producing both basic and special steel products for domestic construction, engineering, power, railway, automotive, and defense mechanism industries, and for sale in ex port markets. The companys main steel products hold hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel, and other alloy steels.SAIL operates through eleven segments Bhilai steel plant (BSP), Bokaro steel plant (BSL), Rourkela steel plant (RSP), Durgapur steel plant (DSP), IISCO steel plant (ISP), Salem steel plant (SSP), Visveswaraya iron and steel plant (VISL), load steel plant (ASP), Maharashtra Elektrosmelt, power companies, and others. The five integrated steel plants have a combined capacity of 12.5 jillion tonnes of crude steel and 10.74 meg tonnes of saleable steel.The company put down net sales (sales net of chance on duty) of INR431,767.6 one thousand trillion (approximately $9,421.2 cardinal) in the financial year ended promenade 2009 (FY2009), an increase of 9.1% over FY2008. The operating profit of the company was INR75,600.2 one thousand meg (approximately $1,649. 6 jillion) in FY2009, a belittle of 22.8% compared with FY2008. The net profit was INR62,529.1 million (approximately $1,364.4 million) in FY2009, a decrease of 17.7% compared with FY2008.The main strengths of SAIL are its government backing and its captive sources of raw materials. SAIL has the second largest mining outfit in India after burn India (CIL). Spread over the states of Jharkhand, Orissa, and Madhya Pradesh, the mines of SAIL serve as captive sources of raw materials for its integrated steel plants. SAIL has five iron ore mines at Meghahatuburu, Kiriburu, Bolani, Barsua, and Kalta and four limestone/dolomite quarries at Kuteshwar, Purnapani, Bhawanathpur, and Tulsidamar.SAIL plans to meet its additional 40 million tonnes of iron ore requirement through the development of new mines at Rowghat in Chhatisgarh and Chiria, Taldih, conspiracy Block (Kiriburu), Central Block (Meghahataburu), and expansion of existing operations at Kiriburu, Meghahataburu, Bolani and Gua, al l in Jharkhand. Furthermore, it is developing new coal mines at Tasra and Sitanala in Jharkhand, which will produce about 2.5 million tonnes of washed coking coal per annum in the next three to four years.Captive sources of raw materials provide a competitive advantage as they shield the company from fluctuations in raw material prices.However if they are successful in entree India, competition from global steel manufacturers with expanded production capacity, such as ArcelorMittal and POSCO, could result in significant price competition, declining margins, and reductions in revenue for the company.Tata SteelTata Steel group is a private sector steel group in India. It is the worlds sixth largest steel company with capacity of 31 million tonnes per annum (tpa). Set up as Asias first integrated steel plant and Indias largest integrated private sector steel company, it is the worlds second most geographically diversified steel producer, with operations in 26 countries and commercial front line in more than 50 countries. The group operates across Asia, Europe, and Australia.Tata Steel Group operates through two segments Steel and others. The steel segment comprises the subsidiaries, Tata Steel India, Tata Steel Europe, NatSteel Holdings, and Tata Steel (Thailand) Public troupe.The group recorded revenues of INR1,473,292.6 million (approximately $32,147.2 million) in the financial year ended March 2009 (FY2009), an increase of 12% over FY2008. The operating profit of the group was INR141,279.5 million (approximately $3,082.7 million) in FY2009, compared with an operating profit of INR 141,213.4 million (approximately $3,081.3 million) in FY2008. The net profit was INR49,509 million (approximately $1,080.3 million) in FY2009, a decrease of 59.9% compared with FY2008.SWOT AnalysisA key strength of Tata Steel is its strong RD capabilities through which it develops new products and improves existing products, as well as enhances manufacturing and production methods . Tata Steel Group operates four research centers Tata Steel Limiteds (TSL) laboratories in Jamshedpur and the Tata Steel Europes (TSE) technology centers in IJmuiden, Netherlands and Rotherham and Teesside, the UK.The group is undertaking research activities in several areas. Tata Steel Group is currently working on respective(a) projects that include economic mineral beneficiation aimed at identifying ways to maximize use of raw materials from captive sources new generation high strength steels, advanced coatings developments, production of ferro-chrome with less energy hydrogen harvesting, developing state-of-the-art melt off film photovoltaic systems, and reducing carbon dioxide (CO2) emissions across its operations.As of March 2009, the patent portfolio of Tata Steel Group comprised over 850 patent applications at various stages between filing and grant and over 850 valid patents granting national max rights owned by the respective group companies.However a weakness for this company is its dependence on Europe as a key market. In FY2009, the company generated about 65% of its revenues from Europe. The depressed levels of demand in the region had a major impact on stainless steel markets. Minor changes in price levels, periodic demand growth, or currency rates in specific market areas and regions can affect Tata Steel Groups competitive position and financial performance.As with SAIL, competition from global steel manufacturers with expanded production capacity, such as ArcelorMittal and POSCO, could result in significant price competition, declining margins, and reductions in revenue for the company.Essar SteelEssar Steel (Essar) is a manufacturer of flat carbon steel from iron ore to ready-to-market products. The companys subsidiaries manufacture gas-based hot briquetted iron (HBI), steel pipes and cold rolled steel. The company operates in India, Canada, the US, the Middle eastern United States and Asia. It is headquartered in Mumbai, Maharastra.The company recorded revenues of INR116,883 million (approximately $2,550.4 million) in the fiscal year ended March 2009, an increase of 8.8% over 2008. The companys operating profit was INR17,969.4 million (approximately $392.1 million) in fiscal 2009, an increase of 13.3% over 2008. Its net profit was INR1,852 million (approximately $40.4 million) in fiscal 2009, a decrease of 56.8% compared to 2008.Jindal SteelJindal Steel Power (JSPL), part of the Jindal Group, is engaged in steel manufacturing, power generation, coal and iron-ore mining, and exploration and mining of minerals and metals. JSPL operates in India. It is headquartered in New Delhi, India and employs about 15,000 people.The company recorded revenues of INR109,133.7 million (approximately $2,381.3 million) in the financial year ended March 2009 (FY2009), an increase of 97% over FY2008. The operating profit of the company was INR42,677.5 million (approximately $931.2 million) in FY2009, compared with INR17,737.3 million (approximately $387 million) in FY2008. The net profit was INR30,457.2 million (approximately $664.6 million) in FY2009, compared with INR 12,740.2 million (approximately $278 million) in FY2008.Entry Strategy of POSCO and ArcellorMittalThe foreign steel MNCs opted to enter India through the FDI route. POSCO signed a Memorandum of Understanding (MoU) with the Government of Orissa in June 2005, to set up a 12 MTPA green field steel plant near Paradip, Jagatsinghpur District, Orissa, with an estimated investment of USD 12 billion. The company planned to build a 4 million-tons per annum capacity steel plant in Orissa, during the first conformation of its project , and expand the final production volume to 12 million tons per annum. POSCO-India Pvt. Ltd. was in mergedd on 25th August 2005.In 2007, POSCO and SAIL signed a MoU to sustain a strategical adherence for aligning and cooperating with each other in a wide range of strategic business and commercial interest areas. As per th e MoU they agreed to cooperate in the following areas of business information sharing in the area of corporate strategy planning, exchange of engineers, technicians and other professionals, sharing of know-how and expertise in the areas of development of mines and business practices such as ERP, PI and Six Sigma, colligation usage of each others existing marketing and warehousing network, coordination in procurement of coking coal, nickel and ferro-alloys and engagement of transportation vessels.The strategic alliance between POSCO and SAIL was tough so as to synergise their strengths, and retain their identities in the consolidating global steel industry. This alliance was supposed to reinforce the relationship and open the doors of large scale coaction on strategic business and commercial alignment.ArcellorMittal India Ltd., a subsidiary of ArcellorMittal, entered into a Memorandum of Understanding (MoU) with the Government of Orissa on 21st December 2006 to set up their first green field integrated steel plant of initial capacity 6 million tons per year (MTPY) at an investment of around 9,300 million USD. ArcelorMittal had also proposed to set up a 12-Million Tonne Per Annum (MTPA) new steel plant in Jharkhand.In the case of both the companies, however, their plans for mega steel plants in India have not fructified due to delays in land acquisition and grant of mining leases. Hence, both the foreign steel giants have started looking for Joint-Venture opportunities in order to become in operation(p) in the lucrative Indian market. POSCO has announced a JV with Steel Authority of India Ltd. (SAIL) to set up a facility in India. ArcellorMittal also entered into a partnership agreement with steel producer Uttam Galva to buy 35 per cent jeopardise in the latter, partly through share purchase from existing promoters and an open offer. ArcellorMittal is also rumoured to be pursuing a JV with SAILPOSCO-SAIL JVSteel Authority of India Limited (SAIL) and Pohang Iron and Steel Company (POSCO) have agreed to form a joint go to establish a 3 million ton steel manufacturing unit in Bokaro, India with a total investment of approximately INR150,000 million ($3,232.37 million).SAIL is an India-based manufacturer and supplier of steel and its allied products, while POSCO is a South Korea-based steel manufacturer.As part of the partnership, POSCO will hold a 51% stake in the joint venture by investing INR35,000 million ($754.22 million), while SAIL will hold a 49% stake.The proposed joint venture will also include setting up a 0.3 million ton cold rolled non-oriented (CRNO) steel plant in Maharashtra, IndiaThe joint venture with POSCO will allow SAIL to access the latest technology in steel manufacturing and facilitate production of certain special grades of steel.ArcellorMittal-SAIL JVAccording to The Economic Times, ArcelorMittal, a Luxembourg-based steel producer, may form a 5050 joint venture (JV) with Steel Authority of India Limited, an Ind ian steel maker, to establish a steel plant at Bokaro, India.The JV will have a capacity between 3 to 4 million tonnes with an investment of approximately INR120,000 million ($2,697.06 million).ConclusionThe Indian steel industry has to factor in higher transaction costs, logistics costs and railway freight costs as compared to countries such as China and South Korea. Even electricity and interest costs in India are quite high, which makes the industry uncompetitive. As for labour costs, the industry suffers a comparative injustice vis--vis Russia, China and South Korea, even though wage rates are low in India. This is because the labour cost per tonne in India is much higher than these three countries, and therefore, labour productivity is very low.Yet, most of the major Indian steel producers have gained some competitive edge over the years. The Indian steel manufacturers also enjoy other advantages like bulky supply of raw materials, skilled technical manpower, low wage rates a nd locational advantages. These provide about 55-60 per cent advantage in terms of operational costs.In the final analysis, it is imperative that Indian steel companies become significantly more competitive by improving productivity further and going in for rapid technological upgradation. The companies need to shift focus to competing on superior products and processes, rather than competing on factor endowments. This becomes all the more principal(prenominal) since giants like POSCO have realised the competitive advantage that India offers and decided to establish a manufacturing base in India. With international steel giants such as POSCO breathing down the neck of Indian steel makers, it will be even more difficult for the latter to face competition in both domestic as well as international markets.As for POSCO and ArcellorMittal, who are facing huge roadblocks in setting up their plants in India due to land acquisition and mining licence issues, they can go after projects w ith lesser hassle in other developing countries like Mexico and Vietnam. In India, they have the support of the government and hence, gradually they have to appease the tribal people that setting up a steel plant will be to their benefit. The tribal people must be compensated in a commensurate manner and all environmental protocols must be maintained. Then the foreign MNCs can expect to have a unperturbed road ahead in their Indian ventures.