Steel Sector

STEEL SECTOR
BY ANISHA FERNANDES
UNDER THE GUIDANCE OF RAGHUNANDAN
Steel is the common name for a large family of iron alloys .

Steels are commonly made from iron ore, coal, limestone and other
traces of elements.

Steel is not a single product.

Steel industry was de-licensed and de-controlled in 1991 & 1992

respectively.

Unit of Measurement – Million Tonne

STEEL INTRODUCTION
 Natural Resources – Ore, Coal, Water
etc.

Manufacturers

Government – Infrastructure
Ecosystem Development, policies, allocation of
resources, lending

Investors

Institutional and Retail consumers

 Steel-
Categories

Non-alloy Sponge
Alloy Steel Pig Iron
Steel Iron (DRI)

Wrought Iron Stainless Steel- Pig Iron Sponge Iron

Kitchen utensils
 Steel Industry
Structure

Primary Players Secondary players

(Basic oxygen (Electric Arc
furnace) furnace Route)
 Global crude steel production - 1,808.6 million
tonnes (Mt) for the year 2018, up by 4.6%
compared to 2017.

Crude steel production increased in all regions in

2018 except in the EU, which saw a 0.3%
contraction.

Global In China:
2018-928.3 MT

Scenario 2017- 870.9 MT

Global crude steel industry has grown at a CAGR

of 2.2 per cent between 2007-2017

Per capita finished steel consumption in 2017 is

placed at 212 kg for world and 523 kg for China
by World Steel Association
Top 10 steel-producing countries
 China’s Producin
National g Quality
Strategy Steel

China’s
Domestic
Steel
demand
exports

Why China is a pioneer in Steel?

 • India has replaced Japan as world's second largest steel
producing country in 2019

• Largest producer of sponge iron or DRI in the world and

the 3rd largest finished steel consumer in the world
after China & USA.

• In 2017-18, production of total finished steel (alloy +

Indian non alloy) was 126.85 mt, a growth of 5.6% over last
year.

Scenario • Indian Steel Industry currently accounts for 2.0 per cent
of India’s GDP

• Finished steel consumption grew at a CAGR of 5.69 per

cent during FY08-FY18 to reach 90.68 MT.

• Crude steel and finished steel production increased to

102.34 MT and 104.98 MT in 2017-18, respectively.

• There are more than 50 iron and steel industries in

India.
 KEY PLAYERS OF THE INDUSTRY IN INDIA

Total Capacity (MT)

18

16

14

12

10

8 Total Capacity (MT)

0
di
a el we
r m
In Ste Po Ni ga
of ta & at
Ta el
r i ty te I sp
ho lS a
Aut da tri y
el Ji n sh
Ste Ra
Iron & Steel Producing Regions in India

• Jharkhand
• Chhattisgarh
• West Bengal
• Orissa-potential
to produce 100
MT of steel, 1/3
would be from
orissa
• Maharashtra
 Steel Prices
• Domestic - Hot Rolled Coil Prices (Rs/Tonne)

Source: Edelweiss, Steel Mint

 Steel Prices
• China Hot-Rolled Coil Export Prices (In $/MT)

Source: Bloomberg
 • The coal based route accounted for 79% of total
sponge iron production (30.51 mt) in the country in
2017-18
• India produced 9.2 MT of crude steel in January
2019
• India’s crude steel and finished steel production
increased to 102.34 MT and 104.98 MT in 2017-18,
respectively.

Production

Source: JPC
 National Steel Policy 2017

Crude Steel Capacity

Crude Steel Production

Domestic Demand

Import

Export
India is the world’s ninth-largest steel exporter and fifteenth-largest steel importer.

In 2017-18, the country’s finished steel exports increased 17% year-on-year to 9.62 million
tonnes (MT), as compared to 8.24 MT in 2016-17.

Top five source countries for India’s steel imports represented about 79% of the total steel
import volume

Imports- Iron & steel are freely importable as per the extant policy.

Exports- Iron & steel are freely exportable.

India emerged as a net exporter of total finished steel in 2016-17 and 2017-18.

Indian Steel Export-Import

 Percentage

Steel Imports 30

25

• Imports 20

represented
about 79% of the Percentage
15
total steel import
volume.
10

0
South Korea China Japan Indonesia Taiwan
 Percentage

Steel Exports 20

18

16

14

12

• Top 10 steel 10

markets 8
represented 62%
6
of India’s steel
export volume in 4

2018 2

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Un
eel Production (million tonnes)

Key Foreign Players

Total Capacity (MT)

100
90
80
70
60
50
40 Total Capacity (MT)
30
20
10
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al ow
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eta up SC
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it a M ro O
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Value Drivers
 Key Parameters to Evaluate Steel
Companies
Sound Financials EBIDTA, Debt on Total assets, Free Cash Flows, Profitability

Promoters Background Management profile, Experience and expertise

Location Proximity to iron ore, coal, water, labour, roadways etc.

Government
Environment, Land Acquisition, Water Access
Clearances

Long Term And Stable

Captive power plants
Power Agreement
 Key Parameters to Evaluate Steel Companies
(Contd.)
• Product Diversification

• Capacity Utilization

• Fuel
Import From
other countries

FSA
 Opportunities for growth of Iron and Steel in Private Sector

• The New Industrial Policy Regime:

1. Removing it from the list of industries reserved for public sector
2. Exempting it from compulsory licensing
3. Imports of foreign technology as well as foreign direct
investment are now freely permitted up to certain limits under
an automatic route.
• The Growth Profile
1. Pig Iron
Important producer of pig iron
India has turned out to be a net exporter of pig iron
Private sector accounted for 94% of total production of pig iron in the
country in 2017-18
2. Sponge Iron
Many coal based units located in the mineral-rich states of the
country,
Capacity stood stood at 49.6 mt (2017-18).
 Distress in the Indian Steel Sector
• Largest contributor to the banking system’s overall non-
performing assets (NPAs)

• Accounted for nearly 42 per cent of the stressed assets

among the top 35 companies facing bankruptcy
proceedings

• GNPAs) of 9.5% of gross advances valuing by the end of

2017
• upto Rs 7.65 lakh crore.

• Aggregate debt of the five companies stood at ₹1,48,289

crore at March-end 2016

• Steel exposure as a percentage of gross credit exposure

was highest in public sectors banks compared to private
Reasons for Distress in Steel Sector
• Invested in new capacity to capture rising demand.

• Environmental clearances
Eg. Closedown of iron ore mines in Goa

• Slowdown in global demand and over capacities in a

number of countries including China

• Cyclical in nature
 Colgate scam
• 1.86 Lakh Cr Scam

• March 2012 CAG’s draft report accuses govt of ‘inefficient’

allocation of coal blocks in 2004-2009; estimates windfall gains to
allottees at Rs 10.7 lakh crore

• May 29, 2012 Prime Minister Manmohan Singh offers to give up

his public life if found guilty in the scam. Two days later, CVC
directs a CBI enquiry

• November 25, 2014 CBI informs a special court that it was not

permitted to question former Prime Minister Manmohan Singh. The
investigating agency also said it wasn't necessary.

• December 17, 2014 Special court ordered the CBI to examine

former Prime Minister Manmohan Singh.

•  January 20, 2015 CBI records the statement of former Prime

Minister Manmohan Singh.
• The top five steel companies — Essar Steel, Monnet Ispat,
Bhushan Steel, Electrosteel Steels and JSPL — seen having the
maximum NPA.

• Tata steel acquired Bhushan Steel

• Bhushan Steel had a total debt of ₹ 57,160 crore.

 Outlook for the Sector
• Ataining 300 million tonne (MT) steel production target by 2030-31.

• Preference given to domestic manufacturers through Domestically Manufactured

Iron & Steel Products (DMI&SP) policy-RELATED TO MAKE IN INDIA

• Ministry is commited towards 100 per cent quality control regime.

• Become a USD 10 trillion economy in the coming years.

• Demand for steel expected to grow further:

1. GDP expected to grow five fold by 2032
2. Low steel penetration in rural areas; expected to increase in future
3. Manufacturing sector to grow from 17% to 25% by 2025 in contribution towards GDP
4. Per capita steel low as compared to global average = Immense opportunity for growth
Demand Generation Policy support

• Make in India - to drive • 100 per cent FDI in the

manufacturing growth steel sector

• Power for All - to drive • Encouragement of sector-

electricity sector growth based R&D activities by
the government
• Smart cities - to drive
urbanization • Reduced custom duty and
other favourable measures
• Planned investment of
USD 34 Bn in
infrastructure- to drive
growth of infrastructure
sector
 Government Initiatives
• An export duty of 30 per cent has been levied on iron ore

• Government of India’s focus on infrastructure and restarting

road projects is aiding the boost in demand for steel

• NSP 2017 envisages 300 million tonnes (MT) steel-making

capacity and 160 kgs per capita steel consumption by
2030-31.

• The Ministry of Steel is facilitating setting up of an industry

driven Steel Research and Technology Mission of India
(SRTMI) initial corpus of Rs 200 crore (US$ 30 million).
Government introduced initiatives such:

Pradhan Mantri Awas 100 Smart Cities Sardar Patel Urban

Yojna-Housing for All Mission (by 2022) Housing Mission

Medium Towns 24x7 Power for All

HRIDAY
(UIDSSMT) initiative (by 2019)

Manufacturing Zones,
75,000 MW Clean- Housing and
Energy initiative (by construction sector
2022)
 Glossary
• Mt- Millon Tonne

• CAGR- Compound annual growth rate

• Crude steel - Steel in the first solid state after melting,

suitable for further processing or for sale. 

• Finished steel-Finished steel products produced normally by

hot rolling/ forging of Bloom/billets/pencil ingots into
useable shape/sizes.

• Alloy- Alloy steels have enhanced properties due to the

larger proportion of elements such as manganese and
silicon present in carbon steels.
 Glossary
• DRI-A group of processes for making iron from ore without
exceeding the melting temperature. No blast furnace is
needed.

• Sponge iron- The product of the direct reduction process

• Hot-rolled s
• NSP- National steel policy
THANK YOU
 Import and Export
• India imported 14.5 MT of steel
• It is reported by JPC that exports of iron and steel related products of 11.5
MT worth Rs 59,475 crore have been undertaken during the period
resulting in trade deficit of Rs 22,661 crore.