Indian Steel
Industry
Globalisation And
The Future
By Supriya Das Gupta,Vice
Chairman and Managing Director, M N Dastur & Co. Ltd.
Globalisation
Before Elaboration on
the fact of Globalisation on the World steel industry one needs to define
the concepts of globalisation at the outset. It is clearly seen.That ever
since the globalisation process has taken wing, the world is becoming smaller.That
is to say that the World is moving towards the formation of barrier-free,
single market which has brought sellers and buyers from allover closer
together. The philosophy behind globalisation is the common sharing of
all resources available in the world by all, as also their optimum utilisation.
However it is driven by a free market economy in reality the sharing is
subject to mutual agreement between buyers and sellers. In
the recent past, most industries in developing countries enjoyed considerable
protection thus making them insular to great degree.This phenomenon was
also prevalent with regard to a few select industries in some developed
countries as well. This insularity enhanced their prosperity with in their
National limits in the preglobalisation era, where the competition were
virtually non-existent. These industries were, therefore marked by higher
costs and comparatively lower quality levels. The forces of globalisation
are, however now reshaping markets were weak players have very slim survival
and which is leading to a situation were consolidation of firms within
an industry is gradually becoming the ruling order of the day, with a number
of independent business organisations strategically merging to create big
and powerful global corporate identities.
Besides globalisation
there are number of other factors, which have had a far-reaching effect
on industry, trade and commerce. These include Privatisation, the ongoing
development in Information Technology and environmental awareness. These
factors are here to stay and their impact is not uniform all over the world.
RESTRUCTURING OF THE
WORLD IRON & STEEL INDUSTRY: A REGIONAL ANALYSIS
It may be observed that
even though globalisation is perceived as an all encompassing process,
its effects on the steel industries in different regions or countries have
not been uniformed. This is because each region is unique in its own way
in terms of raw materials availability, technology adopted, market condition,
trading policies etc. The restructuring of the steel industries in these
regions through business reengineering have therefore, had to be done in
a manner that best suits the needs and expectations of the country or the
region. The divergent strategies adopted by the steel industries in selected
countries or regions may be exemplified as follows.
USA
The US steel industry,
marked by the fact that its integrated steel plants have now been rendered
obsolete as there has been little or no modernisation of these plants which
were further plagued by the problems of strong trade unionism. A group
of newcomers in the US steel industry was exploring technological options
which would utilise a cheap power and scrap. Thus in the US the mini mill
concept has taken wing because of its efficient use of capital and higher
employee productivity, at locations away from the conventional steel plants
in non union areas. The commercialization of the thin slab casting-strip
rolling technology has been a major step in the development of mini mills.
In keeping with the
prevail, some mergers and acquisitions have been taken place in US Steel
industry. Among the most recent and notable cases are Bethlehem’s takeover
of Lukens, which was the only recent acquisition by a North American company
of a North American Steel producer. Earlier, Ispat International N V brought
Inland Steel Co., Chicago two yearsago, and operates it as Ispat Inland
Inc. However the North American steel industry still remains fragmented
and the processof consolidation has also slowed down. Unlike the integrated
steel plants the mini steel plants, continue to operate asindependent units
and no mergers and acquisitions have taken place amongst these so far .A
school of thought is , however of the opinion that in the the next decade,
six or seven mini mills and and three integrated units will own about 80
percent of the Us steel market after significant consolidation during the
period.It is even believed that those mini mills which are investing in
sources of primary iron such as DRI, will be the survivors in the long
run.
Latin America
In Latin America, privatisation
created completely a new environment in the steel sector. The mills started
to develop their individual marketing strategies based on the manufacture
of finished products to meet domestic demands. New investment is concentrated
on items which provide cost benefits and future market opportunities. The
mills are investing in meeting the requirements of the emerging auto sector.
As in other regions, steel prices have become more volatile. IMEXSA and
SIDER are two interesting examples privatisation. IMEXSA has been supplying
slabs to the US market-a commodity in good demand.
Immediately upon privatisation,
most Latin American steel makers concentrated more on refurbishing their
run-down equipment on strengthening the finishing and coating ends if their
plants. Expansion was achieved by upgrading existing facilities. Privatisation
of the Brazilian steel industry in particular, was completed in 1993.It
has made an attempt to rationalise the product mix through value added
products and to increase productivity. Small producers like Cimetal, Usiba,
Cosinor and Piratini were bought over by carbon steel bar producer Gerdau,
thus introducing the group to the production of special steel long products.
However, privatisation over larger companies like Usiminas, CST, Acesita,
CSN, Cosipa and Acominas has generated an extremely complex and unstable
ownership structure. This of course, is directly related to Brazil’s unique
privatisation technique-conducting auctions rather than through public
tenders offering in their steel units.
Western Europe
Privatisation has been
an important 1st step towards a more efficient industry structure
in West Europe. The State ownership decreased substantially over the years
– from about 53% in 1985 to 12% in 1997.The privatisation of the Spanish
steel maker, Aceralia has been the most recent one. It may, however, be
mentioned, that there are still some minority state share holding but the
over- all trend towards private ownership is irreversible.
The main impact of privatisation
will be the investors looking at the average return over a given period
of time to evaluate the performance of their investment in the steel industry.
Increased private ownership and commercial awareness has helped the steel
companies to operate outside national boundaries the European steel industry
has become more concentrated in higher value added products.
The most eventful happening
of the European steel Industry’s restructuring in the merger of Thyssen
and Krupp Stahl, forming Europe’s largest producer of flat rolled steel
products; CockerelSambre’s acquisition of Eko Stahl; Arbed’s acquisition
of Usinor(long products),Sidmar(carbon flats) and Aceralia; Hoogoven’s
acquisition of Gustave Boel; subsequent acquisition of British steel Hoogovens
forming the Chorus groups and Ispat’s acquisition of Thyssen’s long products
business(excluding rail).European steelmakers are expected to restructuring
and consolidating further in the coming years.
It is observed that several
West European steelmakers are actively pursuing investment oppertunities
in Central and East Europe,as well as in other continents.One of the recent
happening is the take over of Raymond Steel in India by Thyssen Group.
Eastern Europe
The main strategy for
East European steelmakers is guided by their desire to join the EU. Consolidation
is relatively less advanced in these countries, but is now on the increase.
In the past, East European mills had little experience of marketing and
sales prices were determined by the authorities.
To quote a few examples
of the restructuring has taken place in the East European steel industry
namely in the CIS countries, Bulgaria, the Czech Republic, Hungary, Poland,
Romania, Slovakia and Slovania and former Yugoslav Republics, one might
mention the following:
*The prevalent
trend in the CIS countries has been the formation of joint stock
companies transferring ownership to the workforce and a shift towards hard
selling in many corporations which are concentrating more on exports.The
UK-based Trans World;the Switzerland based training group Glencore; the
UK based Middlesex Holdings and the steel trading company,Metals Russia
taking a large minority stack in the Novolipetsk Works as a move towards
its privatisation in the erstwhile state controlled steel industry.
*Kremikovtzi
Corp, Bulgaria’s most notable steelmaker, is scouting for the foreign
investments to fund increase in production capacity and methods of cost
effective production. It also aims to establish a chain of high quality
service centers in patnership with Voest Alpine. Bulgaria’s other two plants-Stomana
and Promet are currently being evaluated by the Government for privatisation
in future.
*The
Czech
Republic has titled most towards coupon privatisation.The state has
retained shares in the two largest steel plants, Nova Hut and Vitkovice
with the Austrian steelmaker, Voest Alpine Stahl suggesting a joint venture
with Nova Hut to build a hot strip mill, with a minimum strip thickness
of 0.8 mm linked to a thin slab caster. Restructuring of the industry is
expected to be complete by 2003.
*As part of their
restructuring exercise, all Hungarian steel producers have met ISO 9001
or ISO 9002 quality assurance standards . The Hungarian Government is hopefull
that financial stability of the countries steel makers will improve in
the medium term.
*Poland intends
to completely privatise its steel sector by 2001.Sructural modifications
have been introduced in Huta-LW, the metallurgical plant in Poland to have
foreign investment at the moment to need requirements of EU membership.
Huta Katowice were in final stages of discussions for Joint Ventures with
corus in the third quarter of this year. Similarly, the Sendzimira plant
Cracow has attracted interest from Ispat and Thyssem Krupp Stahl.
*The
Romanian
state currently holds a stake in 23 steel companies and evolved a National
strategy for privatisation last year relying heavily on foreign investment.Privatisation
of comapanies like Otelinox, Galfinband, Astrom, Silcotub and Petrotub,
which have high value added products in their product mills in order attract
foreign investers is also on cards.Romania’s high profile steel privatsation/restructuring
program included selling all small and medium sized companies involved
in scrap processing , supplies and transport.
Recently, the
state ownership fund offered a stake of just under 70% in Laminorule Braila
which operates 4 rolling mills and a bright bar plant and 51% of shares
in Intfor SA Galati, a hot and cold roll and coated sheet maker. Romania’s
3 largest steel works–Sidex-SA Galati, COS Targoviste and CSR Resita- are
also up for sale.
*In
Slovakia,
the flat rolled steel producer VSZ is reported to have been taken over
by US Steel.It is reported that ther Slovakian steel industry has
decided to upgrade the quality of its products while increasing its
share of the Central Europe Free Trade Agreement (CEFTA) and West European
markets.
*Slovenia, similarly
is already on the way to privatization.The first round of bids for Jeklo
Store has been completed with Swedish sections producer Inexa being among
the main contenders.Bids will also be shortly accepted for the Ravne and
Jesenice works.
*There is a demand
for steel in the former Yugoslav Republics region and even though some
foreign investors have shown interest, the economic structure of the region
needs to be overhauled completely and this can only be achieved with further
economic involvement with Western Europe.
Japan
Japan’s economic growth
has been a result of a perfect balance between competition and co-operation
amongst different industries.However, given today’s business environment,
the manufacturing enterprises have been forced to go for greater competition
and the steel sector is no exception.Thus the ‘Big Six’ Steel Mills in
Japan are now forming competitive alliances as against adopting business
strategies achieving common growth and success in the past.
The restructuring of
the national economy has forced the ‘Big Six’ steel makers to reduce their
costs substantially and also to re-engineer their businesses.These efforts
have improved their profit and loss situation during 1999, which is likely
to improve further during their current financial year.However, in most
cases the Balance Sheet will still reflect the impact of successive bad
financial performances in the past.
NKK, one of the steel
majors of Japan has made substantial progress in its restructuring.The
company integrated its long and flat products businesses by establishing
NKK Bars and Shapes recently by absorbing Toa – a trouble-ridden producer
within the group.It has also set up three new companies in the course of
its downsizing efforts by spinning of the quoted steel operations at Keihin
Works ;the ferro-chrome and ceramic operations of Toyoma Works, and the
steel frame fabrication facilities at the Shimizu Works.It also has intentions
of establishing a joint venture seamless steel company with Siderca, Argentina
holding 51% while NKK is scheduled to hold the remaining 49%.The seamless
steel unit installed at Keihin has been spun off to this new company.This
is perhaps the first ever case of foreign equity participation in the major
Japanese steel businesses.This will be the world’s largest seamless steel
tube operation with an annual production of 2.25 million tonnes.
Very recently, Nippon
Steel of Japan and Posco of South Korea signed their ‘ Strategic Alliances
Agreement’ .The specific areas of co-operation would be established soon
and some of the likely areas will be R&D in steel production, overseas
joint ventures and information technology.They would also be looking at
joint procurement of commodities such as refractories.Nippon Steel has
been already buying into Posco and is expected to extend its share to 3%
by 2001, by which time it is expected that Posco will be holding about
1.8% of Nippon Steels’ shares.
While the rest of the
world has been talking of retaining only the core businesses, some of the
big Japanese steel producers have been installing power plants to sell
electricity as independent power producers to power companies.These include
Nippon Steel, Kawasaki and Kobe.
The Indian
Steel Plants have been progressively introducing new
technologies.Some
of the major thrust areas have been :
-
Improvement of BF coke
quality through use of partly imported coal, stamp charging and bruquette
blending
-
Increased use of better
quality sinter in blast furnaces
-
Auxilliary fuel injection
through blast furnaces
-
External desulphurisation
of hot metal
-
Improved BOF lining life
-
Increasing adoption of
continuous casting and
-
Increasing use of ladle
metallurgy
|
In discussing the restructuring
of the steel industry, it would be of interest to note that the Japanese
steel majors are facing major blast furnace reliance even when the industry
is trying to reduce the gap between demand and supply.Nippon Steel plans
to reline 5 of its 9 blast furnaces now in operation during the next 4
years.Nogoya No. 3 will be first amongst these and after a 15 – year campaign,
it will be enlarged from 3424 cu m to 4300 cu m.This clearly established
the Japanese philosophy of continuing with the blast furnace route and
their unchanged belief that they must keep on increasing their iron making
unit sizes to remain cost effective.
China
China, being the largest
steel producer in the world, has started a massive restructuring of its
industry, including steel, as a part of its effort to join the World Trade
Organization (WTO).The Chinese steel industry recognizes that it has to
substantially improve the quality of its products and to include high value
products in its product-mix.Accordingly, necessary technological improvements
are now being planned for execution.
China has realized that
production of steel through very small units is not economical.A decision
has, therefore, been taken too shut down blast furnaces below 300 cu m.
size and several small integrated plants.It is, however, interesting to
note that at specific locations, considering the local resources and market
situation, small capacity steel plants based on the BF – BOF route are
still considered viable and are more economical than those operated by
electric arc furnace routes. Under the conditions prevailing in China,
the small BF–BOF plants are the mini steel plants.A lot of obsolescent
units have been shut down.No open hearths will be in operation by end 2000.A
great emphasis is given to improve the techno-economic parameters.
It is reported that in
selected areas, electric arc furnaces have been installed upto a maximum
size of 150 tonnes.Such furnaces are the city peripherals units making
full use of resources, energy and wastage, which come from the city and
around and are being operated to produce special quality steels.However,
there is in general a shortage of high quality metallic feed for such furnaces.China
also plans to set up steel units in ecological industry zones around harbours
or which are near the natural resources and where it will be possible to
construct a comprehensive ecological change in the district by relating
various manufacturing and energy industries like cement, ship building,
automotive and chemicals etc.
Steel prices in China
are by now dictated by the market.It is however felt that to a certain
extant the production of the still industry is still being controlled through
the administrative mechanism. It is understood that the Ministry of Metallurgy
has now been abolished and a Metallurgical Bureau has been set up in its
place.It is anticipated that in the near future the Bureau will be replaced
by a small Trade Committee.It is also expected that the Chinese Society
for Metals will be associated in a bigger way with the Trade Committee.
With regard to privatization,
till the end of 1998, 43 companies were restructured as ‘limited companies’
.These included plants like Wuhan, Handan, Anshan, Panzhihua, Tangshan,
Daye,Benxi etc.The steel plants stocks are being quoted on the stock market
and it is through the secondary market mechanism that privatization is
expected to take place in China.It is, however, not clear to what extent
private equity will be involved.During their IX Five Year Plan, about RMB
17.2 billion ( about U.S. $ 2 billion ) was raised for investment in the
steel industry through the stock market mechanism.
The Chinese steel industry
is currently going through several mergers. Specific may be made of the
merger of Shanghai steel and ferro alloy plants. With Baosteel. The other
notable mergers are of Wuyan steel with Handan, Xialu Steel with Tangshan
Steel and Chengdu Tube plant with Panzhihua etc.
From unconfirmed reports
it appears that in terms of cost competitiveness, the Chinese steel industry
in general has been adversely affected because heavy debt, excessive taxation
and social service costs. Measures are now been taken to convertthe debt
to equity (to be held by the Government ) and also to take away some of
the social services from the industry to local governments. These measures
may help in reducing the impact of these costs to about half of that at
present.The cost competitiveness of Bao Steel is due to the special financial
arrangement made by the government.
The future development
of the steel industry will give greater interest to market pull as well
as to coastal locations.
Thailand
In Thailand 80 bar producers
have closed down since the economic crisis in mid – 1997 according to the
Iron and Steel Industry of the Federation of Thai Industries. Those that
did not close are working at bare minimum capacity utilisation levels.
this has called for a situation where Thai steel mills will now have to
find strategic partners in order to re – structure their debts.
37 steel companies in
Thailand were under debt restructuring as of May 2000,with the steel sector’s
total debt currently standing at US $ 4.15 billion. Sahaviriya Steel industry
has successfully restructured its debts while Nakornthai Strip Millsand
Thai Cold Rolled Steel Sheet managed to raise money from US and Japanese
investors , respectively.
Ratinalisation of capacity
is also expected to offer throughout the region.A part of the rationalisation
will take place naturally trough closure of unproductive assets as also
through mergers.For example, in Thailand, steps were initiated in 1999
to merge four leading long product makers – Cementhai Steel, Namheng Steel,NTS
Steel and Bangkok Steel Industry. While Namheng Steel dropped out in early
2000 – citing its inability to restructure debts , the other three did
signed memorandum ofunderstanding and started due deligance in late 1999
. It is expected that mergers in both long and flat product catagories
will assume increasing importance in years to come.
A GLOBAL OVERVIEW
How then has globalization
effected the worlds steel industry? Historically speaking, the global industry
set three consecutive production records in terms of finished steel from
1994 to 1997 at 640 , 652, 655, and 695 million tonnes, respectively as
figures published by the International Iron and Steel Institute . This
way attributable to the soaring demand in South East Asia and the growth
recorded in Western Europe, which had facing stagnation for sometime. Latin
America , too , following a web of economic liberalization and privatisation
of Government controlled enterprises, managed to elevate it self out of
a long recession and contributed substantially in increasing steel consumption
at that time.
The economic collapse
of South East Asia came as a rude Shock not only to the steel industry
but also to the global economy it self. The economic crisis in Russia coupled
with financial crisis in Brazil that followed helped only to worsen the
situation. Accelerated exports from the CIS countries and also the excess
steel available from several other countries which were the main suppliers
to South East Asia resulted in the price crash in the world steel market,a
problem that steel continues to unsettle the world steel industry even
today.To coat current example , the recent hike in petroleum prices and
the impact of the Middle East on it has led to the closer of four DR units
in USA and Mexico.
Restructuring
To face the situation
created by globalisation the industry is trying to consolidate and restructure
itself in a major way through mergers and acquisitions ; strategic alliances
and privatisation manoeuvres , and this are playing an extremely crucial
role in helping the industry to go global and become more competitive .
Infact, Ispat International, which has long has been pushing for global
industry consolidation , has acquired 9 vertically integrated steel making
facilities in 8 countries in the past 10 years . In 1999 , LNM group, of
which Ispat International is a member, shipped nearly 19 million tonnes
of steel products with the latter contributing 15.4 million tonnes.The
company expects to grow shipments by more than one million tonnes in 2000
from its existing asset base.
Excess Capacity
The ongoing recession
in the global steel industry has created a situation where there is currently
excess capacity in the steel market and this primarily due to a fall in
global demand. It is even predicted that unless demand should fail to grow
in the years ahead, The excess will dwindle for a majority of steel products
and disappear for some . In view of the cancellation of many new projects,
more over , the steel industry’s profitability in the next decade is unlikely
to be threatened by vast amounts of excess capacity. Given the present
depressed Scenario , expansion of existing plants has taken a back seat
with many producers from developing countries being overly traumatised
by severe losses to concentrate on capacity additions at the moment. Moreover
, the problem of dumping has made steel producers hesitant to add capacities
for export purposes.
However , the overall
perception is that even if total capacity should see only limited growth
, there will be some turnover among firms as low – cost producers enter
or expand while obsolescent , marginally efficient mails shut down in part
or completely. Tecnological breakthroughs , for example in the areas of
coal based smelting , strip casting and continuous hot rolling ,Will accelerate
the displacement of old facilities.
Investment in Steel
Given the current situation
in the world steel industry, the natural question that now arises is: Is
still viable investment option steel and would there be fresh investments
in the industry in future? This perhaps leaves us with yet another question
about how to determine whether or not a process metallurgy company is going
to successful. There 3 major criteria which needs to be evaluated in this
regard. The first one is, Whether the company has some technological advantage
with atleast 5–7 years’ life time over its competitors. The second, does
the company have the natural position in a low relative cost of hot metal/liquid
steel. The Third is , where the companies facilities are in their life
cycle.
Plants, which have installed
thin slab custers replacing conventional strip production lines should
be able to produce steel at much cheaper rates . It is this technological
advantage criterion that has been a predominant factor in global competition.
A similar effort is now being made by several steel companies in the field
of strip coating.
With regard to the relative
cost of hot metal/liquid steel, one needs to consider the computed cost
of different competitors in the target market.Take for example the US mid-west
market.The cost of production of liquid steel in Venezuela is about US$
145 per tonne and the transport cost of finished steel of US$ 35 may be
assumed for supplying to midwest US locations.Thus, the adjusted cost of
Venezuelan liquid steel in the market is about US$ 180.The cost of production
of liquid steel in Russia, is about US$ 121 and the transport cost is about
US$50 per tonne.Thus the adjusted cost of Russian liquid steel would be
US$ 171.In a typical US integrated mill, it costs almost US$ 190 to make
a tonne of liquid steel.This would suggest that Russian and Venezuelan
steels are more competitive than American integrated steel plant products
in the US Midwest.
It is already established
that most of the metallurgical production facilities have a lifeline expectancy
of between 20-30 years before obsolescence, assuming that no significant
expenditures have been made to inject incremental technologies.That there
are possibilities of new plants achieving healthy returns is reflected
by the performance of Steel Dynamics.However, such returns tend to decline
rapidly and this is a paradox of the metallurgical industry.
There are various models
of success stories in the steel industry.Most of the highly successful
players have one thing in common – they had made investments in new plants
by building either green fields plants and / or through modernisation with
new technologies.Secondly, many of these have been new comers into steel.There
are also exceptions like the LNM Group, which has carved out a special
position through acquisitions.
It is to be noted that
to remain in the steel business, injection of capital is needed almost
on a regular basis.A part of the investments is towards new equipment at
old plants.While these are essential, the return on these investments is
low.It is the investment on new technologies which keeps it going and without
this, one would be fighting an uphill battle.Thus, investment in steel
will continue but they could be of different types in keeping with the
emergence of a new industry model.However, there are both risks and opportunities
and investors need to be both lionhearted about investments with leopard’s
agility to adjust to changes as and when they occur.
ECONOMIC LIBERALISATION
AND THE INDIAN IRON & STEEL INDUSTRY.
As said earlier, globalisation
is an all encompassing phenomenon, which has left no country in the world
unaffected.Hence, India has been no exception to the rule and its steel
industry too, is undergoing major changes in terms of its structure, technology
content, operational practices and the management philosophy ever since
the Indian economy was liberalised in 1991.
The Indian steel industry
has had to shed its domestic character and insularity thus automatically
entering the global arena, which is now dominated by buyers, rather than
sellers.The other noteworthy change that the industry has undergone includes
the large scale entry of private sector steel makers by way of delisting
of large scale capacities from the list of industries which had hitherto
been reserved strictly for the public sector.This in turn has encouraged
substantial investments from the private sector, which has already added
about 9 million tonnes to the existing capacity at green field locations.In
fact, the share of the private sector in crude steel production has grown
from 51 per cent in 1992-93 to 58 per cent in 1999-2000.
The post-liberalisation
scenario has also resulted in the abolition of licensing for new steel
capacities and removal of the freight equalisation and price and distribution
control systems, which were considered to be the two major hurdles in the
promotion of the steel industry in India.Since 1991,the Indian government
has encouraged free inflow of substantial foreign capital, technology,
equipment, raw materials and personnel and taken a positive step by reducing
peak import tariffs from more than 100 per cent to 30 per cent since 1997-98.
Major Problems of
the Indian Steel Industry.
Historically speaking,
the progress of the Indian steel industry had been seriously limited by
the slow growth in the consumption of steel over the last four decades.This
was largely attributable to the fact that the Indian rural sector remained
fairly unexposed to the fact that the Indian rural sector remained fairly
unexposed to the multifaceted uses of steel.Also, the iron and steel sector
has been experiencing a slow down in the recent past due to the sluggish
demand in the steel consuming sectors, particularly infrastructure.In fact,
the per capita consumption of finished steel in India currently stands
at a little over 24 kgs, which compares rather unfavourably with the world
average of 140 kgs.
Further, the economic
meltdown in South East Asia has resulted in dumping of iron and steel products
from various sources of India thus also weakening our export position.The
other problem is having to cope with the change from administered pricing
to market driven prices together with continuing reduction in import duties
resulting in greater competition from imports.
Besides, the industry
is also plagued by the problems of low productivity both in terms of equipment
and labour; frequent price enhancement of inputs such as power tariff,
railway freight rate and coal prices etc which continue to the under the
administered price regime and an adverse capital output ratio because of
the high cost of capital and the general tendency of over capitalisation
under a protected economic regime.
RESTRUCTURING OF THE
INDIAN IRON & STEEL SECTOR
The forces of globalisation
have now created a situation which has compelled the Indian iron and steel
industry to wake up to ground realities and to reorganise its priorities
on an urgent basis.The industry, accordingly, is trying to restructure
itself from different angles such as manpower, optimisation of operating
units, ownership etc in order to be globally competitive.However, with
a democratic set up and strong trade unions, the pace of implementation
of restructuring is naturally relatively slow.The restructuring of the
Indian steel industry is discussed below.
Manpower
It is already known
that the manpower of the older major integrated steel plants has been inordinately
high and needs to be downsized immediately.The authorities of such plants
have,therefore, proceeded with steps to right size the manpower through
various measures such as non recruitment to repalce retired personnel and
early separation schemes.SAIL, which employs about 140,000 workmen has
a plan to reduce to about 100,000 in the next five years.Similar measures
are also being taken by Tata Steel.The new steel plants, on the other hand,
have adopted the international norms for employment.Essar Steel, for instance,
has a workforce of about 1600 for their 2 million – tonne plant at Hazira.
Optimisation of Operations
Productive assets and
their utilisation has been given top Priority status by steel plants which
are trying to optimise the utilisation of their productive assets.For instance,
some steel plants have shutdown blast furnaces without decreasing the volume
of production demanded by the market thus enabling them to reduce production
costs.
Energy Optimisation
In the field of energy
optimisation similarly, Indian steel plants have started emphasising more
on installation of new equipment with clean and energy saving technologies
as also recycling of wastes generated within their premises, thus contributing
to better performance figures.The thrust today is more on energy recovery
from waste heat including generation of power from dry coke quenching,
recovery turbine for high top pressure blast furnaces, preheating of combustion
air utilising the flue gas heat in hot blast stoves, recovery of BOF gas
for use as a by product fuel; utilising Corex flue gas for generation of
power and utilisation of DR plant rotary kiln exit gas for generation of
power etc. Several steel plants have even set up their own captive power
units to combat the ever-increasing tariff of the public utility power
system.This is predicted to substantially reduce the cost of energy, which
currently constitutes 30 to 33 per cent of the total cost of production
of Indian steel.
Ownership
The philosophy of core
compitence , which has assumed huge significance today has been adopted
by a number of steel plants which are attempting to hive of their non-core
units.For example , Tata Steel has hived-off its slag cement plants and
power plants while essar Steel has offloaded its power and pellete plants
. It has been already announced that as part of its privatisation policy
, the Government is also seriously considering the possibilities of divestment
of plant facilities in the public sector iron and steel units – SAIL and
VSP.There are also hiving-off proposals for three power plants of SAIL
and Joint Venture proposals for the the stainless steel rolling mill of
Salem Steel Plant;and the old integrated steel plant of the Indian Iron
and Steel Co Ltd.In all these ,SAIL is willing to hold a minority share
in the joint venture and in specific cases sell of even 100%.Moreover ,
several private companies including some foreign companies are reported
to have shown interest in hese proposed joint venture.
The ongoing severe funds
crunch has also compelled SAIL to invite private sector players under the
Build-Own-Transfer(BOT) and Build-Own-Operate(BOO) basis to undertake crucial
upgradation and waste utilisation projects . As per of this plan , SAIL
has invited expression of interest from Indian companies for the installation
of a blast furnace cast house slag granulation plant at DSP . It is also
reported that SAIL has already received BOO offers for a top pressure recovery
turbine at BSP and electrode discharge texturising/chromating of rolls
at BSL.
Marketing Strategy
The global steel market
today reveals that there now exists tremendous competition between steel
plants in developed countries and developing countries; Integrated steel
plants and mini mills ; steel products and other materials for substitution
and different kinds of steel produts for substitution. The customer today
is keen and calls for steel producers to maximise customer value and make
it their prime objective while keeping in mind that it is the former who
determines quality standards prices today.All steel producers are aware
that the customer wants flexible delivery shedules with shortest that enable
Just-in-Time inventories to meet his requirements .It is, therefore , imperative
that products and services both need to be clubbed together for customisation
and the marketing of steel products , moreover ,needs to be managed by
cross – functional teams. Keeping the above in mind, Indian steel producers
framing their marketing strategies which varies from company to company.
For instance , SAIL has
decentralised its marketing oraganisation to four regions with two separate
group for long and flat products.There are two more groups- one handling
special items like pipes , tinplate and electrical sheets , and the other-value-added
mild steels , rural marketing and distribution channels . Now , each of
the four regional centres will have two regional managers , one for long
and the other for flat products. It is expected that this re-organisation
will help greater specialisation at the regional level. The other two product
groups will continue to be operated from the central marketing office.
As a move to give customer demand top priority, SALE has redefined its
product mix to develop 90/100 UTS rails and loco wheels at BSP and DSP
, respectively , for the Indian railways which was initially outside ambit
of its production range .
Tata Steel’s strategy
on the other hand , is to narrow their focus and dominate the selected
market through operational excellence and customer satisfaction. In other
words , Tata Steel wants to be the leader in selected markets which demand
the highest quality of products and services. Most other steel producers
are identifing their niche market areas are also exploring oppertunities
to assess short and long term demand for steel products . It would also
be prudent on the part of exporters to get themselves registered in order
to eliminate unscrupulous operators as also to pool their resourcesfor
warehousing facilities abroad. The export scenario, moreover , needs to
shift from “Importer Pull” to “Exporter Push” stage if the real benefits
of globalisation are to be derived.
Steel producers have
also stared carrying out periodic customer feedback surveys by reputed
market research agencies to gauge customer satisfaction and takes corrective
action accordingly. The steel makers , particularly the flat product units
have become very alert about world market dynamics .
Moreover , with e-commerce
slowly becoming the order of the day and the e-fever catching , Indian
steel majors like Tata Steel , Essar Steel and Jindal Strips are shedding
their traditional garb and have started working on e-Commerce as a thrust
area . These organisations are working on a number of initiatives to become
e-savvy and to reduce intemediaries in sales procedure . This in turn is
expected to reduce price volatility because of visibility of price trends
thus preventing global giants to drive prices unfairly.
Technology
This discourse would
certainly remain incomplete if the technological trends prevalent in the
Indian steel industry are not discussed. It is known that steel makers
in India have been traditionally classified into two categories namely,
blast furnace(BF)-based operaters with capacities of 1 million tonnes per
year or more and secondary producers who have mainly adopted the electric
arc furnace (EAF) route.
According to published
figures , there were seven major integrated steel plants of which , one
was in private sector alongwith some 188 EAF units of small size , predominently
in the private sector prior to liberalisation. However , post-liberalisation
, most these EAF units have had to shutdown and only about 41 units are
in operation in 2000, including those of the new major players.
While speaking of the
choice of process routes , it however , needs to specially mentioned that
post liberalisation era has witnessed some very interesting developments
in the field. To quote a few examples , the Ispat Group was the first in
the world to set up a Megamod Midrex unit and later integrated this with
a unique technology of utilising direct reduced iron (DRI) and BF hotmetals
as metallic charge in its twin-shell electric arc furnace followed by thin
slab casting and strip rolling.The first phase this plant with a capacity
of 1.5 million tonnes is alredy in operation. The second phase to double
the capacity is under construction. Essar Steel set up the world’s largest
capacity of hot briquetted iron (HBI) plant and later integrated this plant
(2 million tonnes per year capacity) with steelmaking in the DC electric
arc furnace followed by slab casting and hot strip rolling. Essar has also
developed a hot DRI charging technique. Grasim was globally the first to
install a HyL-III-HBI plant. Jindal Vijaynagar Steels Ltd has opted for
the Corex- BOF route for producing hot rolled coils – the first greenfield
exercise of its kind in the world.
An interesting trend
that is beginning to develop in India is the installation of smaller integrated
steel plants with capacities of about 300,000 tonnes per year adopting
the BF-BOF route for long products. This is based on the Chinese experience
and two such plants are already in operation . Another is already operating
its BF with a provision for integrating with steel making and rolling facilities
in future ; and two other plants are under construction. Some of these
plants are using selected Chinese equipment. The financial viability of
these plants is , however , yet to established .
The Indian steel plants
have been progressively introducing new technologies. Some of the major
thrust areas have been :
·Improvement
in BF coke quality through use of partly imported coal , stamp charging
and briquette blending
·Increased use
of better sinter in blast furnaces
·Auxiliary fuel
injection through blast furnace tuyeres and increased use of oxygen-enriched
blast
·External desulphurisation
of hotmetal
·Improved BOF
lining life
·Increasing adoption
of continuous casting and
·Increasing use
of ladle metallurgy.
The above together with
retirement of old , obsolete technologies have bought about improvement
in performance. But westill have long way to go in joining the club of
leading producers.
THE FUTURE OF INDIAN
STEEL
What then is the the
future of India steel ? Needless to say, the India Steel Industry is passing
through one of its most difficult situations.This is more so as the domestic
consumption is stagnating and the shrinking world market resulting from
several economic downturns in different geographical regions . This in
turn has thrown new challenges to the captains of the industry. The siver
lining in this crowd however ,is that the steel majorsin India hva realised
the importance of their continuing presencein the world steel market as
exporters . As a result ,both traditional Indian majors as also the new
entrants have successful in improving their exports of steel products to
different markets.
Competitiveness
The Indian steel industry
needs to improve its competitiveness and to re-engineer its business to
reduce costs and to improve product quality.The reasons of higher costs
varies from plant to plant. In the older plants generally it is due low
productivity and operational inefficiency. The steel plants in India offer
great possibilities in reducing cost through their improved efficiency
and productivity. For the newer capacities (both at green fields as well
as for expansion) the high cost is due to capital charges.
Most of the steel projects
in India has suffered due to excessive time over–run arising out of inadequate
financial planning and inappropriate management.This true both for the
public and private sectors,particularly for mega projects. This has severely
increased the capital costs and capital charges. It is, however, possible
to complete projets on time and within budget as has been repeatedly demonstrated
at Tata Steel .
High electrical energy
costs indicate that India is perhaps not the the best place to adopt the
American concept of mini mills, predominently using electrical energy for
steel making. Several new plants with a variety of technologies and unit
sizes have been or are being built in India. During the next 4-5 years,
it would be evident with their commercial operation which of these capacities
and processes would survive in this current age of mega competition. On
the positive side , it is to be noted that Tata Steel has claimed to be
the lowest cost hot metal producer in the world.Through appropriate efforts
it could well be possible for India to become the lowest cost steel producer
in future.
Modernisation
To become and remain
competitive , the steel industry would have to be investing for technological
updating in a continuing manner. Regarding brownfeild sites , particularly
in cases of modernisation , it is essential that modernisation is carried
out in phases with each phase being financially viable in itself while
ensuring that there is no loss of production.It also needs to be seen that
each phase should have the capacity of generating surplus for reinvestment
in the continuing technology updating programme.This has been very effectively
employed in transforming the oldest integrated steel plant in India, Tata
Steel, to a state-of-the-art plant in four phases of modernisation spread
over a period of about 20 years.Furthermore, quality consciousness; continuous
research and development and market orientation are the auxiliary tools
that the industry continues to employ in order to retain its position in
the global market.
Like happenings the
world over, consolidation of plants is expected to take place in India
as well.This will take place through acquisitions, mergers, joint ventures,
asset-swaps and strategic alliances.
The Indian steel industry,
which traditionally has been raw materials based has shown signs of transformation
to shift to coast-based and market-based locations.Optimisation of transport
cost will continue to get added importance in the coming years in siting
new capacities.
While there are some
common problems facing the Indian iron and steel industry in general, it
should be realised that every process application in general, it should
be realised that every process application is location and product-mix
specific.Its profitability depends to a large extent on that great imponderable
a company’s work culture and the motivation of the work force.For securing
a competitive position in the global market place, good management will
remain to be the main tool.
CONCLUDING REMARKS
Before I conclude, it
would suffice to say that for a developing country like India, there is
no room for doubt about the need for more steel for rapid economic progress.This
is because of the vast effects of steel on the rest of the economy and
the pivotal role it plays in helping the economy to grow.
The Working Group for
the Ninth Five Year Plan, an expert committee working under the Union Ministry
of Steel is optimistic about the future of Indian steel and envisages a
demand of about 33 million tonnes of steel in 2001-2002.This is scheduled
to rise to about 49 million tonnes by the year 2006-2007 if a GDP growth
of 10 per cent, which the Government of India is hopeful about, is achieved
in the Tenth Five Year Plan period.
It was indeed a matter
of national pride that since its inception in the early years of the 20th
century, the modern steel industry of India was the cheapest producer of
steel in the world for several decades till the 1950s.This status, however,
could not be sustained due to reasons now historic.However, the country
is well endowed the substantial natural resources for steel making, a good
reservoir of skilled manpower and a developing technological and industrial
base which needs to be intellignetly exploited in order to get the maximum
mileage.This would, of course, depend on government policies as also the
efforts of the private sector, which needs to work in tandem with the former.India
is equipped and prepared to meet the challenges of globalisation and with
all the new technological and management improvements taking place, it
can still regain its competitive status and strength in the long run.