Profitability Analysis of Steel Industry

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  • Topic: Steel, Corus Group, Iron ore
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Industrial Organization and Competitive Strategy

Analysis of competitive advantage of Tata Steel in the Indian Steel Industry.

Submitted by:-
Himanshu Singh, G12024
Paul Jacob, G12034
Aninda Goswamy, G12008

Objective:
This study has multiple goals:-
1. To find out if Tata Steel does enjoy a competitive advantage vis-à-vis other players in the Steel industry in India. 2. To ascertain the source of this competitive advantage.
3. Find out if this competitive advantage is sustainable.

Industry Overview
India today is one of the topmost producers of steel in the world. With the industry attributes like low cost manpower and abundance of iron ore and coal reserves India today is a highly competitive market. The reasons for expansion of the sector can be primarily attributed to the huge expansion of the oil and natural gas sectors on infrastructure projects coupled with growth in housing, and the increase in demand for consumer durables and automobiles. According to the World Steel Association, India is the fourth largest producer of crude steel. India has an annual capacity of 80 million tons. With the government laying a lot of emphases on the infrastructure space the sector is poised to grow. The 1991 economic reforms has propelled the industry and its growth, and the steel industry has been positively been affected by it. With the licence requirement being removed and the Automatic approval of foreign equity investment up to 100 per cent is now available. Price and distribution controls were removed 20 years ago in an effort to make the steel industry more efficient and competitive. Restrictions on external trade, both on imports and exports have been abolished. Meanwhile, import duty rates have been reduced considerably. Certain other policy measures such as the reduction on import duty of capital goods, the convertibility of the rupee on trade accounts, the ability to mobilise resources from overseas financial markets, and the simplification of the existing tax structure for a period of time have all benefited the Indian steel industry. There has been focus on setting up of more steel plants and thus 222 memoranda of understanding (MoU’s) in conjunction with state governments have been signed for a planned capacity expansion of around 275.7 MT by 2020. The construction industry is what amount to 61% of the consumption of steel. Govt expects steel consumption to rise to 120 Mn by 2020 .

Government steps to Promote the steel industry
* 100% FDI is allowed in the steel industry
* Public-Private- Partnership (PPP) mode are being encouraged * R&D in this sector is a prime focus
* Custom duty have been reduced
* National Steel Policy (NSP) to encourage the steel industry to reach global benchmarks Market Size
The current market size at US$55.1 billion. And SAIL is a dominant market player of 20.1 % while tata has 10.2% of the market. Total demand of steel is today looks at 65.2 million tons during FY11 Investments:

* Rashtriya Ispat Nigam Ltd (Visakhapatnam Steel Plant) has announced US$970 million worth of new units through expansion of its plants. * The Steel Authority of India Ltd (SAIL) is to set up processing units in Uttar Pradesh (UP). * India's largest iron ore miner, National Mineral Development Corporation Limited (NMDC) and Russian steel maker Severstal signed the implementation protocol in Moscow for setting up a joint venture steel plant in Karnataka. * Notable overseas investments in the sector include:

* JFE (Japan) investment of US$1 billion in JSW Steel - Technology tie-up and acquisition of minority stake * ArcelorMittal (Global) investment in Uttam Galva
* Joint venture between Nippon Steel (Japan) and Tata Steel for production of Automotive Steel. * Bao Steel (China) entered in a Joint Venture with Visa Steel for production of Ferro Chrome in India. * POSCO Steel (South Korea) has announced an investment of US$12 billion for...
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