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Indian steel Strategy to ambition
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Foreword Welcome by conference chairmen, Global economic growth in 2014 is muted and indicators are uneven and even signaling a Global Steel has today become a steel event of international repute and has successfully. slowdown in the recent quarter In the case of the steel industry also we are witnessing a carved out a niche of its own This ninth edition of the event at the business capital of the. role reversal as several rapid growth markets have not performed up to expectations in country is destined to become the stepping stone for India s steel policy in the coming years. creating demand, In India the steel Industry is passing through a challenging phase The demand for steel is at. The global steel industry is getting increasingly intertwined and integrated and the Indian steel its lowest Domestic consumption is severely affected due to lack of activity in infrastructure. industry which was relatively insulated until now will have to factor in these global changes as well as in the manufacturing space The biggest challenge facing the domestic steel industry. In the long run steel scrap shale gas as a cheaper source of fuel stricter environmental is to have the per capita steel consumption in India at par with the average global standards. regulations and availability of capital are some of the factors that the steel industry will. The new Government at the center has however rekindled hope in the industry The ambitious. have to address, infrastructure projects and the thrust in manufacturing through the Make in India campaign. The Indian steel industry is expected to grow moderately in the near future as end user demand are steps in the right direction The plan for smart cities improved road and rail connectivity. starts to pick up Domestic steel capacity is expected to correspondingly mirror the growth of by building highways bridges and dedicated freight and superfast rail corridors have huge. end user industries The Government plans to unveil a policy that targets 300mtpa in a decade potential to spur domestic steel demand. from now While we believe that the target is challenging it is not entirely unsurmountable. The global economy is at crossroads The traditional engine of growth of the past few years. It calls for a concerted effort from all stakeholders This paper has highlighted several critical. namely China is slowing Europe remains stuck in an economic stall and the USA is only. success factors enablers and building blocks for all the stakeholders to deal with from. growing slowly These facts present major problems for the global steel and steelmaking raw. regulatory framework infrastructure and logistics capital availability raw material security and. materials industries Weak steel conditions have seen industry restructuring with much more. talent management to sustainability and environmental reforms and nancial derivatives. to come years of raw materials shortages have led to a strong supply response resulting. EY s Mining Metals sector professionals have developed deep insights into the steel in overcapacity in iron ore and coking coal and prices that are causing major cost reduction. industry and provide support on a wide spectrum of issues strategy regulatory tax policy initiatives and mine closures The situation is not sustainable What will the future hold More. risk management mergers and acquisitions supply chain advisory process improvement of the same Or will there be a realization that current short term actions are not long term. information technology human capital and capital raising for the sector strategies and that a more progressive longer term view is required in both the steel and iron. ore and coking coal industries, We hope this report provides you with insights to help you succeed We express our deep. appreciation to Global Steel and other organizations participating in the conference for giving us Bringing together major players across the spectrum presents a great opportunity to consider. an opportunity to present this report at the conference a new world of mutual bene t rather than the antagonistic approach adopted by selected. participants Global Steel 2014 is that forum and should set the scene for an interesting 2015. and beyond, Anjani K Agrawal Arun Kumar Jagatramka Neil J Bristow.
Partner and Global Steel Leader Chairman and Managing Director Managing Director. Ernst Young LLP India Gujarat NRE Coke Ltd H W Worldwide Consulting Ltd. Indian steel strategy to ambition 3,1 Executive summary 6. 2 Steel in the global economy 8,3 Indian steel update 14. 4 Global developments to shape Indian steel landscape 16. 5 Driving competitiveness in India s steel sector 20. Government support and regulatory framework 21,Infrastructure and logistics 22. Raw materials security 23,Capital 25,Sustainability and environmental reforms 27. Trade agreements ensuring a level playing eld 27,Technological innovation 29.
Supply chain optimization 30,The renewed war for talent 30. Hedging using nancial derivatives 31,6 Boosting demand for steel 33. 4 Indian steel strategy to ambition Indian steel strategy to ambition 5. Executive summary, In an increasingly competitive and complex landscape all. stakeholders will need to collaboratively plan and execute to derive. economic bene ts arising out o the steel sector opportunities. Anjani K Agrawal which are large enough or existing and new players. Partner and Global Steel Leader,Ernst Young LLP India. The global steel sector remains Shale gas emerging as cheaper source of fuel Capital A signi cant investment of capital will be required. for building new capacity In addition steelmakers will need. Supply chain optimization Despite high demand growth. potential for Indian steel the steelmakers are likely to face. Emission norms for end use products driving innovation. under pressure, to constantly evaluate their capital allocation decisions various external and internal risks in a volatile uncertain.
Given the risk pro le of the steel business particularly complex and ambiguous business environment Some key. The overhang of excess capacity continues to put pressure on Stricter environmental regulation impacting feasibility non integrated players and going by lenders experiences approaches that are useful for steelmakers to grow capacity. the global steel sector particularly in light of uneven economic and locations of new capacity availability of large capital in India at reasonable costs is competitively and grow and sustain margins will include. growth and weak steel demand In line with national targets a challenge Moreover consequent to margin shrinkages recon guring supply chain operating models to create. some Chinese capacity is expected to be removed over the Developments in project pipeline of iron ore coke and. balance sheets of several current players are stressed which competitiveness and creating its enabling infrastructure. next few years but overall there will be more investment in their global prices. makes it dif cult to take on additional debt The Government. new capacity than what is removed Global steel demand Sustainability and environmental reforms Steel companies. Capital availability and capital allocation challenges will have to create a supportive environment for investors. forecasts were lowered in the second half of 2014 as the have recognized the need to be more energy ef cient and. lenders and steelmakers to raise the capital required at. earlier positive momentum faltered We are witnessing role lattening global cost curve and shifting manufacturing implement means to control emissions The increasing. competitive costs The global steel players despite their own. reversal as several rapid growth markets have not performed competitiveness scarcity of natural resources has led to introduction of. challenges may be facilitated to invest, up to expectations in creating demand regulations for the use management and protection of. Raw materials security Resource security at competitive resources It is therefore imperative for steelmakers to align. Steel margins are improving as iron ore prices reached new Driving competitiveness and prices has been a critical success factor for steel in India their business growth agenda with a sustainability agenda. lows while an increase in new seaborne supply met reduced. growth in Chinese steel demand However steel prices have. growth in the Indian steel sector but challenges have emerged in the last couple of years. Strategies to address this issue as well as manage the. drifted unable to retain the gains on input costs Competitiveness is an imperative for survival and success volatility should include investing in infrastructure to facilitate Demand growth to fuel ambitions. To achieve sustainable growth and success in the Indian imports joint ventures with global miners vertical integration Despite global overcapacity potential growth in domestic. The Indian steel sector slow steel landscape several critical success factors enablers and. building blocks are essential, diversifying sources of various raw material and the. development of a nancial derivatives market for steel and. demand will continue to fuel ambitions in the Indian steel. landscape Boosting domestic demand will be a critical. but steady Government support and regulatory framework The steel. other types of raw material There are already enabling scal enabler to realize the ambition The steel intensity curve. measures to support conservation of resources for domestic socio economic indicators coupled with announced directional. The growth in Indian steel demand lagged much behind industry generally intertwined with national economies has. industry Extension of these principles to coal and allocating plans of the new Government all indicate potential to. expectations In the next two years India s steel consumption been receiving support from respective governments both. resources to end users may further boost the industry s multiply the industry size in India The focus on the Make. is forecast to grow annually by about 5 6 Indian steel during the development phase and during times of economic. con dence to build new capacity and access funds for growth in India campaign is expected to give a fresh boost to steel. capacity is also expected to rise from 99 million tonnes mt downturn Such bene ts include cheap loans tax incentives. availability of subsidized land and trade tariff mechanisms Renewed war for talent It is critical to bridge the yawning consumption The demand side opportunities discussed in. in 2013 to about 125mt in 2016 registering a CAGR of 8 8. The Indian Government too plans to provide an enabling gap between future demand and likely supply of skilled detail hereinafter indicate concerted efforts would be needed. The Government of India has oated a target to produce. environment and introduce measures such as single e window workforce in the steel sector Recent estimates of the by all stakeholders However the industry must play a leading. 300mt by 2025 26, and creation of special purpose vehicles SPVs to meet the Iron Steel Sector Skill Council show that the industry role in converting these Government is likely to provide. most signi cant challenges of land acquisition regulatory will need an additional 2 4 million skilled professionals support with a new policy Steel being a capital intensive. Global developments will shape approvals and infrastructure access and workers by Y29 30 to meet the growing needs of industry the investments need to be calibrated to realistic. the industry The Government and industry will need plans based on domestic demand while aspiring for increased. the Indian steel landscape Infrastructure and logistics The total transportation needs. to collaborate to overcome this challenge In addition participation in the global arena. of the steel sector will reach about 1 200mt to produce. To date the Indian steel sector has been relatively insular industry must nd ways to attract and retain talent. 300mt of nished steel Much of this additional capacity is. however it will increasingly be impacted by developments in retrain and redeploy invest in new leadership and. likely to be set up in a few clusters To produce and evacuate. global steel raw material and energy spaces Some of the competency development and strengthen knowledge. these clusters will need access to key infrastructure such. key global factors that will be in uential in the extent speed management to provide human capital for the sector. as land railways and ports Land acquisition will need to. and form of domestic growth from a medium to long term be streamlined railways upgraded to deal with increased. perspective include volumes and port ef ciency and capacity to be enhanced. A sizeable surplus of steel scrap in China in future To achieve most of these there needs to be a collaborative. approach between the Government project proponents and. other stakeholders, 6 Indian steel strategy to ambition Indian steel strategy to ambition 7. Global growth in H1 2014 was disappointing relative to expectations Though economic growth indicators improved in Q2 they. have been uneven and signaled a slowdown in recent months Data in second half is expected to be stronger. Manufacturing PMI data is mixed with signs of stalling growth in August and September. China 50 51 50 51 50 49 48 5 48 48 1 49 4 50 7 51 7 50 2 50 2. Brazil 49 50 50 50 51 50 50 8 50 4 49 3 48 8 48 7 49 1 50 2 49 3. India 49 50 50 51 48 49 52 5 51 3 51 3 51 4 51 5 53 52 4 51. Indonesia 49 50 51 50 50 51 50 5 50 1 51 1 52 4 52 7 52 7 49 5 50 7. Russia 49 49 53 49 49 48 48 5 48 3 48 5 48 9 49 1 51 9 51 50 4. US 56 56 56 57 56 56 57 1 55 5 55 4 56 2 57 3 55 8 58 57 5. Eurozone 51 51 51 52 52 53 53 2 53 53 4 52 2 51 8 51 9 50 7 50 3. Japan 52 52 54 55 55 56 55 5 53 9 49 4 49 9 51 1 50 5 52 4 51 7. the global Source Markit Economics via activa, economy While con dence indicators in the US continue to be fairly.
strong fears of a second or triple dip into recession are. increasing for the Eurozone and growth in China has notably. slowed as has growth in Brazil and Russia, There is strong growth in the US automotive and energy. sectors as well as the beginning of a recovery in non. residential construction European recovery is gaining. momentum and the outlook has improved to 4 steel, demand growth in 2014 In India a new steel policy has. Brazil remains caught in a vicious cycle of high in ation. been introduced to increase steel capacity to 300mt. tight monetary policy and low growth Russia s slowing. by 2025 Steel demand in 2015 is forecast to grow by. economy appears on the brink of recession due to the. 1 7 to reach 1 647mt as demand growth in developed. Ukraine crisis and consequent US and EU sanctions, countries moderates There will be growth in demand from. However while economic activity in China is moderating. emerging countries but China s economic rebalancing act. because of the economic rebalancing and policy reforms. will continue to slow overall growth in steel demand 1. in India are yet to bear fruits both these countries. have a more positive mid to long term outlook,Global supply and demand. Steel demand, WorldSteel has lowered its global steel demand forecasts as.
positive momentum in the second half of 2013 slowed in. 2014 Apparent steel usage is currently estimated to increase. by only 2 in 2014 Chinese steel demand is predicted to. slow down to only 1 growth in 2014 as economic factors. moderate steel demand The real estate sector in China. continues to be the biggest downside risk for steel despite a. recent easing of mortgage restrictions, The US is the only market with a truly strong demand. outlook forecasts of 6 7 growth in apparent steel use. 1 Short range outlook for apparent steel use WorldSteel October 2014. 8 Indian steel strategy to ambition Indian steel strategy to ambition 9. Forecast apparent steel usage fails to eventuate in 2014 and 2015 forecasts are lower as Chinese steel Steel production and capacity. demand growth weakens, Global steel production in 2013 continued to increase by. 3 5 to 1 607mt despite weak demand growth in most, 4 9 parts of the world In the rst nine months of 2014. global steel production increased by 2 1 to 1 230mt. 4 3 5 3 5 Sustained overproduction is likely to continue impacting. 3 3 3 2 3 4, 3 1 3 1 3 0 3 0 3 0 the global market in 2015 but the impact will vary. 3 from region to region Reduced Chinese steel demand. 2 0 2 0 also has an effect on the global market since Chinese. 2 exports for the period from January to September have. increased by 39 3 y o y 2 As a result there has been. an increase in import barriers in several countries. World World excl China BRIC excl China China,Oversupply is likely to continue in 2015.
2014 forecast Oct 13 2014 estimate Apr 14,2014 estimate Oct 14 2015 forecasts Oct 14. Steel mt World China India Japan US EU 28, 2014e 2015f 2014e 2015f 2014e 2015f 2014e 2015f 2014e 2015f 2014e 2015f. Source World Steel Association, Production 1 628 1 656 799 819 85 90 111 112 88 89 164 164. Consumption 1 619 1 647 755 775 83 87 71 72 102 102 152 154. Surplus de cit 9 9 44 44 2 3 40 40 14 13 12 10, 2015 outlook for steel and economic growth mapped against the location of major steel markets. Source BREE, Excess capacity and high rates of overproduction combined be reduced by 80mt by the end of 2017 4 In 2014.
with volatile raw material prices have adversely affected steelmaking capacity is still increasing with manufacturers. EU 28 0 1 1 2 0 0 the pro tability of Chinese steelmakers Low raw material adding more capacity than removing it rom 2015 Chinese. United States prices have helped pro tability but weak steel demand due to capacity is expected to decline marginally 5 The national. 1 7 1 4 0 1 3 Japan, 3 1 3 9 1 1 0 housing oversupply has pushed down steel prices According mandates to rationalize capacity will have an effect on supply. China 0 9 3 2 0 9 1 4 to China Iron and Steel Association CISA reports the and as the Chinese economy moves to a more consumer. 6 9 6 7 2 5 2 6 average pro t margin of its 88 members is at 1 52 However driven model steel consumption is expected to moderate. South Korea, fewer Chinese steel companies were making a loss Private China s Ministry of Industry and Information Technology MIIT. 3 6 4 0 0 1 8 steelmakers have increased their pro ts by 203 as compared has stressed the need for structural adjustment in the steel. to the rst eight months of 2013 3 industry over the next 10 years The MIIT has asked local. 5 6 6 0 5 9 4 8 authorities to submit targets by next June for outdated and. The Chinese Government is putting in efforts to restructure. excess steel capacity to be removed by 2020 6, Brazil the steel industry to increase its ef ciency and remove some. excess capacity In October 2013 the Chinese Government. 0 9 1 2 0 3 3, issued a guideline requiring that steel capacity in China should. Industrial Industrial,GDP production GDP production.
2 oreign cooperation aids China steel exports Kl d mkaf kk ja f 21 October 2014 via activa. Source Oxford Economics BREE, 3 Chinese private mill pro ts soar 203 Kl d mkaf kk ja f 23 October 2014 via activa. 4 State Council urges to cut 80m tons of steel capacity in 5 years CCICED cciced net encciced newscenter latestnews 201310. t20131025 262245 html 25 October 2013, 5 Global I O Global Steel S D emergence of protectionist moves advantage for the Europe the US adverse for China UBS 15 October. 6 MIIT stresses structural adjustment on steel policy revision Kl d mkaf kk ja f 17 October 2014. 10 Indian steel strategy to ambition Indian steel strategy to ambition 11. Indian steel update In 2014 India s steel consumption is forecast to grow 5 to. 83mt and by another 4 8 to 87mt in 2015 Government. India is currently the fourth largest producer of steel after investment in public infrastructure projects including. China Japan and the US Rising domestic demand by sectors dedicated freight networks and ongoing rapid urbanization. such as infrastructure real estate and automobiles has put will underpin this growth. the Indian steel industry on the world map Growth in the To cater to this rising demand Indian steel players have made. private sector is expected to be boosted by new policies on heavy investments over the last two to three years Indian. Make in India import of foreign technology and foreign direct steel capacity is therefore expected to rise from 99mt in. investment DI The Government has mooted a perspective 2013 to about 125mt in 2016 registering a CAGR growth. plan to boost domestic steel capacity to 300mt per annum by of 8 8 Simultaneously production and consumption of. 2025 In tandem with a strong economic outlook and plans to steel is expected to increase by a CAGR of 5 2 and 5 6. expand steel production it is likely that India will be on a fast respectively over 2013 16E The less than proportionate. track growth path in steel production to be the second largest rise in domestic demand may lead to deterioration of capacity. steel producer within a few years utilization rates intermittently 8 The recent Supreme Court. Indian steel companies have made investments of US 35 4 decision to de allocate the coal blocks has created disruption. billion over the last seven years 7 and after inordinate delays in the coal supply chain for captive power and coking coal. on account of regulatory constraints the worst in the Indian However following the judgment the Government is moving. Indian steel, steel sector appears to be over We should see the rate of quickly on allocation of mines on a competitive bidding basis. project execution and commissioning pickup aided by new There has been an increase in exports from China to India. policy measures and a supportive regulatory environment Annualizing the current imports per month India will be. Comparing India s growth to China in terms of per capita steel importing about 4mt in Y15E making up about 5 of total. consumption and GDP per capita PPP Indian steel production steel production in the country Since there is no strict anti. could pick up signi cantly in the near future dumping policy these imports have the potential to impact. Steel demand in India is showing signs of rebounding after the domestic pricing and plant utilization rates signi cantly. slowdown of the last two years Cyclicality might be at work. but key demand trends are looking encouraging,Automotive sales growth has rebounded strongly in. In ation has moderated giving comfort that interest rate. cuts are around the corner,Industrial production and GDP are recovering.
Indian steel utilization rate 2001 16E,100 95 95 99 97. 91 92 94 92,90 90 90 86 92,80 76 73 73,Percentage, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E. Source Indian Steel BNP Paribas 6 October 2014, 7 A return to materials intensive growth Deutsche Bank 28 May 2014. 8 Please refer to the chart Indian steel utilization rate 2001 2016E. 12 Indian steel strategy to ambition Indian steel strategy to ambition 13. Until recently the Indian steel sector has been relatively they may not be as bene cial in the Indian context Indian. insular but it now seems to be increasingly affected by steel producers enjoyed the advantage of low priced. developments in global steel and raw material markets in domestic ore to earn healthy margins in comparison with. its quest to play a growing role in the international arena their global peers Despite some current issues regarding. given the signi cant growth of its economy and increasing availability of iron ore it seems likely that India will have. integration with global economies suf cient iron ore to meet its domestic requirement until. 2025 Availability of iron ore at lower prices for global. The following global factors will in uence the extent of. players will narrow the relative advantage of Indian. domestic growth till 2025 and the shape and trajectory the. players in the global market, steel industry will take in India over a mid to long term period. Shale gas emerging as cheap source of fuel could, A sizeable surplus of steel scrap in China by 2025.
change the competitive landscape in steelmaking, China currently plays a critical role in absorbing excess. Countries such as Iran Saudi Arabia and Mexico are. supply of scrap from other parts of the world However. already using natural gas and iron ore to make direct. due to initiatives to accelerate its own scrap industry. reduced iron DRI which is added to scrap to make, China which is currently a net importer of scrap is. steel As the process does not need coking coal, expected to have a surplus of 72mt of scrap by 2025 9. use of DRI is an economical method of steelmaking,developments. This will decrease demand and push down the prices of. depending on the price of gas However Indian, other raw materials such as coking coal and iron ore.
steelmakers have planned capacity expansion,While stand alone Indian steelmakers which do not. using blast furnaces and therefore the increasing, have captive access to such inputs will bene t from. availability of cheap natural gas could prove to be. the availability of cheap raw material the real effects of. disadvantageous for Indian steel s competitiveness. this are unlikely to be felt before the middle of the next. decade and overall steel prices are likely to remain under Capital availability and allocation Increased volatility. pressure in nancial markets over the last few years has made. Indian steel Global iron ore prices under pressure In light of. growing demand particularly from China there were,abundant investments made in iron ore production. investors risk averse Shareholders are looking for. early returns with short term investments India s steel. capacity expansion from here on will require long term. investments in steel infrastructure and new steelmaking. globally Most new mines and expansions are coming,technologies However development and adoption of. online in Australia and Brazil These two countries will. new technologies at commercial scale is high risk area. supply about 90 of all seaborne iron ore by 2020, and Indian players may not nd it easy to attract huge.
up from 73 in 2013 10 This increased supply and, risk capital in the Indian steel sector The stand alone. moderation in demand may continue to exert pressure on. steel players particularly have faced nancial stress. iron ore prices and various estimates indicate an average. and have been undergoing nancial restructuring, of US 90 US 95 tonne over the next ve years This is. Since steel companies will be highly leveraged to create. below the marginal cost of production for many global. additional steel capacities over the next 10 years the. players Much of the new supply is coming at reduced. Government of India will be required to create policies. cost and has the potential to push several high cost. and infrastructure to attract the required risk capital for. production facilities out of the market if iron ore prices. substantial capacity additions planned in the Indian steel. remain subdued for a substantially long period of time. sector This challenge is accentuated by the fact that the. Prima facie low iron prices are good for steelmakers but. steel industry s return on investment as well as enterprise. valuations have generally lagged behind those of several. other emerging businesses that tap entrepreneurial. energy the world over including India, 9 Sifting Through the Steel Scrap Heap OECD Steel Committee 6 December 2013. 10 Australia and Brazil to increase control of global iron ore supply 9mkljYdaYf Eafaf http www miningaustralia com au news australia. and brazil to increase control of global 16 October 2014. 14 Indian steel strategy to ambition Indian steel strategy to ambition 15. New emission norms for end use products driving new Stricter environmental regulations will impact new Shifting manufacturing competitiveness Flattening global cost curve for steel poses. product development Ongoing research in the steel plant feasibility The steel industry is coming under In a broader context general manufacturing competitive challenges and creates new opportunities. industry especially to meet environmental standards will increasing scrutiny from environmental regulators competitiveness is shifting to countries with access to The global steel sector has a at marginal cost curve. bring in a lot of technological changes over the next few to limit its carbon footprint and reduce emissions low cost energy resources particularly for According to industry participants the difference. years The requirements of end user steel markets are Carbon related costs imposed in the EU and elsewhere energy intensive sectors This in uences the decision between the best and worst performer has narrowed. changing rapidly There is a growing demand for lighter have negatively affected their local steel industry for the location of future capacity by global players 85 of steel production is within a band of US 100. and stronger products than steel and the threat of margins to the advantage of regions where such even as their customers shift their production and 46 within a band of US 50 Therefore there is. substitution by aluminum will drive advanced technology regulations are not yet in place Plants in developing bases The principle of follow your customer is little comfort in being at the low end of the cost curve. developments in production of steel as well as in the use countries have typically been slow in adopting latest increasingly being adopted by the steel industry This means factors such as changes in state subsidies. of raw material This will require substantial investment technology to adapt to new environmental regulations India still does not have very competitive positioning operating ef ciencies changes in cost of capital success. over a relatively short span of time and all Indian players Complying with these new environmental standards in this regard despite the administered price of in managing volatility of commodity prices and currencies. may not be able to respond equally swiftly to technology will not only lead to increased capital costs but also coal due to energy security challenges The general may all quickly shift the competitiveness of a steelmaker. changes in product applications result in an ongoing increase in operating costs as business environment productivity cost curves and in a market Hence the growth future shape and health. is being seen in China This may be both a risk and issues relating to other factor inputs also have their of the steel industry in India will be a factor in how the. relative opportunity for steelmaking in India in uences on the growth of industry across regions of industry performs on the above matters. 16 Indian steel strategy to ambition Indian steel strategy to ambition 17. A new steel policy is on the anvil to facilitate increasing The Japanese Government provided support in the form of. its production from 81mt per annum currently to 300mt loans waivers and tax incentives to revive the steel industry. per annum The aspirations are to achieve this by 2025 after the Second World War In South Korea the Government. The policy aims to develop the Indian steel industry into a subsidized transportation allowing POSCO to save 40 50. global leader in terms of production technology quality on rail and port use during its initial stages of growth. and ef ciency While there are debates around whether it. Growth in the Chinese steel sector has been enabled and. is reasonable to expect the quantitative target within the. accelerated through differential government support This. timeline there is a strong conviction about the trajectory of. has been through favorable policies in the form of cash. demand growth The concerns however are more around. grants land grants tax incentives energy price caps and. supply side response in the context of current challenges. support for loan repayments All of these have helped the. and uncertain recovery of the global economy In any case a. Chinese steel sector to remain cost competitive relative to. strong focus on improving competitiveness in the steel sector. foreign competition In addition state support was backed by. is an imperative to ful ll this aspiration The journey will. a process of market liberalization in the steel sector wherein. require long lasting commitment from relevant stakeholders. state owned enterprises SOE were allowed and encouraged. to work in tandem plan and execute comprehensive initiatives. to invest surplus funds to expand production Chinese steel. and sustain their efforts over business cycles, producers bene tted by getting increased access to inbound. There are a number of critical success factors enablers advanced steelmaking technologies 11. and building blocks that can support competitive growth. However prolonged government support of the steel sector. of the steel industry in India including the following The. can have negative effects on steelmakers In 2003 04 the. contributions required by different stakeholders are outlined. competitiveness, US Government tried to arti cially prevent bankruptcies.
with a few global examples of similar initiatives, in the industry by granting loans imposing import quotas. Government support and regulatory framework and hiking tariffs However eventually the sector was left to. Infrastructure and logistics market forces and some of the companies went bankrupt. in India s steel, while others were forced to restructure As a result the US. Raw materials security steel sector made a dramatic turnaround with 17 leading. Capital companies reporting an after tax pro t of US 6 6 billion in. 2004 as compared with a loss of US 1 1 billion in 2003 12. Sustainability and environmental reforms, While China has implemented policies to enable both. Trade agreements and barriers ensuring a level consolidation and value added products the Government has. playing eld been stymied in pushing the worst performers out of business. Technological innovation Currently it is thought that Chinese Government subsidies. may account for up to four fths of pro ts of steelmakers in. Supply chain optimization,the rst half of 2014 13,War for talent. The Government of India faces several challenges in providing. Hedging through nancial derivatives support to the sector The most signi cant so far have been. challenges in land acquisition and infrastructure access. Major steel players have shelved or abandoned projects. Government support and worth more than INR900 billion primarily due to problems. regulatory framework in acquiring land and delays in obtaining environmental and. forest clearances 14 With multiple users struggling for limited. The steel sector has often been supported by favorable resources national and state governments have become more. regulatory frameworks not only during initial phases of stringent around environmental regulations and compliance. development but also during times of economic downturn The work completion rate in general has fallen in the country. These bene ts range from cheap loans tax incentives and from 64 in 2012 13 to 26 in 2013 14 thereby locking in. subsidized land availability to tariff protection measures large capital and not achieving its economic multiplier effect. 11 China s Steel Industry Reserve Bank of Australia December 2010. 12 Revival of U S steel industry offers lessons for automakers The New York Times 23 November 2008. 13 Steel industry on subsidy life support as China economy slows Reuters 18 September 2014. 14 No Promised land Business Today http businesstoday intoday in story narendra modi government land acquistion 1 206795 html. accessed 22 June 2014, 18 Indian steel strategy to ambition Indian steel strategy to ambition 19.
The Indian Government is contemplating inter alia the. following measures to expedite the implementation of. Infrastructure and logistics Raw materials security. steel projects Access to infrastructure is an issue in India To produce 300mt Implications for stakeholders Access to competitively priced raw material is vital to build. A single e window In line with the national e governance of nished steel by 2025 26 the total transportation need of new capacity There are a number of strategies to ensure. the steel sector is expected to be about 1 200mt As most new. Steelmakers How will steelmakers access to raw material as well as manage the volatility. plan the Government plans to introduce an easy and. steel plants are likely to be situated in resource rich states such and the Government collaborate to including the following. transparent system to submit and track the status of. applications for grants of resources or clearances from as Odisha Chhattisgarh Jharkhand and Karnataka these areas develop logistic infrastructure to. Investment in infrastructure to facilitate imports. multiple governmental agencies through a single access will become steel hubs needing access to infrastructure facilitate access to raw materials Several major steel producing countries are not. point Railways Indian railways meet more than 70 of the steel backed by suf cient quantities of domestic raw. Government What support will the, industry s transportation needs The Government will material sources Japan and South Korea for. Creation of SPV Con icting stakeholder interests are Government provide to facilitate the. leading to project delays The Government plans to set therefore need to plan for future rail network capacity and example have been reliant on imports to feed. mobilize funds accordingly In addition the timely execution. entry of new players their domestic steel industries To facilitate large. up a new institution that will encourage the collaboration. of various stakeholders including producers project of railway projects in key mining areas will be critical to ensure Foreign stakeholders Will foreign quantities of raw material imports both countries. availability of raw material in a cost effective manner or have invested in large deepwater ports to facilitate the. evaluators local administration railways Ministry of stakeholders be able to collaborate. Environment orests and port authorities to make example the rakes available for transportation of coal by rail movement of large ships to attain cost ef ciency. are fewer than required Coal India needs 16 more railway. seamlessly with domestic players, informed decisions on site selection for improved Joint ventures with miners Steelmakers have also. rakes in Y15 to ensure ef cient dispatch of coal 15 Railways O Yl Z f lk oadd l q Zjaf lg. implementation of projects invested in joint ventures with miners by taking a stake. need source to destination pairs for integrated network which India s logistic infrastructure. in the mining operation and sometimes an offtake, needs visualizing and planning long term economic activity development agreement or example Chinese steelmaker Ansteel. around those regions Specialized wagons are also necessary. Investment community How increased its stake in Australian iron ore miner Gindalbie. for certain input and new products to be ef cient The. Metals to 52 in March 2014 SAIL and Tata Steel s S T. dedicated freight corridors D C need to be executed in a time can the investor community. Implications for stakeholders bound manner The average payloads also lag behind countries respond to growing demands. Mining recently announced that they were looking to. invest in coking coal assets 16, such as China which has increasingly separated passenger and of logistics infrastructure Will. How will the Government of India freight movements Vertical integration Miners have acquired mines or. monitor projects Is it possible to the new Government s focus on. invested in offtake arrangements to secure their raw. implement participation plans that Ports shipping and inland waterways Indian ports are infrastructure development make it material supplies ArcelorMittal for example has a. currently suffering from low productivity Slow unloading of more attractive to investors. have strong governance processes cargos are leading to increased transaction costs and a loss. signi cant iron ore portfolio that not only feeds its. with reportable milestones steel making business in various parts of the world but. of competitiveness for Indian steelmakers New policies will. also earns revenue on third party sale, be required to increase the seamless connectivity of railways.
What incentives will be available to, and roads to ports and to provide the required technical and Diversifying sources of raw materials China in. domestic and foreign steelmakers to nancial assistance in building deep draft ports to handle large particular has adopted this method to reduce its reliance. invest in new projects vessels Port capacities need to be signi cantly enhanced on traditional suppliers from Australia and Brazil. in terms of ability to handle large cap size vessels space to. How will the Government involve Development of a derivatives market for steel and raw. manage increasing cargo volumes and mechanization for. domestic industry groups in the improved turnaround times Coastal shipping and inland. materials This has been used to secure future suppliers. transformation process and to reduce volatility in prices. waterways need to be encouraged and leveraged for reducing. costs and managing bottlenecks rameworks need to be In the Indian context recent developments in India s mining. How will the Government and, strengthened to streamline multimodal transportation The sector have unexpectedly turned a competitive advantage to a. steelmakers work together to potential to ag shipping vessels in foreign countries to reduce major constraint for both iron ore and coking coal. overcome the challenges of cost of funding is to be explored. The Government s extreme measures to curb illegal,infrastructure resources and access. Land Land acquisition has been an extremely cumbersome mining by imposing bans in major iron ore mining states. to land process with mixed success in the Indian steel sector While have broken down the momentum on mining projects and. How can steelmakers and a new acquisition policy was unveiled it still needs further infrastructure Even after the bans are partially lifted output. improvements to address uncertainty of land acquisition caps and procedural delays have led to muted production. governments work together to, for the entrepreneur The industry in general feels that the volumes in the last few quarters India s iron ore production. demonstrate the socioeconomic Government should still play a facilitator role in identifying has declined from 226mt in Y10 to about 140mt in Y14. value to communities around new special steel zones and create a land bank for potential. steel plants steel projects as well as afforestation as mandated under. environmental guidelines, 16 SAIL Tata Steel JV seeks to buy overseas coal assets metaljunction 21 August 2014.
15 Coal India Delay in clearances Biggest hurdle for production growth UBS research 27 April 2014 via Thomson One. 20 Indian steel strategy to ambition Indian steel strategy to ambition 21. Impact of iron ore mining bans also with implementation of modern technology. and the up skilling of the Chinese workforce The, 90 Implications for stakeholders increasing availability of loans from state banks was. 80 also instrumental in supporting steel intensive sectors. Steelmakers Have domestic players,in China thereby boosting domestic steel demand. 70 assessed the different options to, 60 access raw materials and determine The Japanese steel sector funded most of its rapid growth. during the 1960s on borrowed funds The Government of. which option will provide the most,Million tonnes, Japan arti cially lowered interest rates to reduce the cost of. value creation in the long run capital A system was developed to allocate capital to those. 30 Government Is a new policy required sectors deemed a priority by the Government one of which. was the steel industry 19 The Government and banks also. 20 that fosters development of an, prioritized through a system in which growth and ef ciency.
a fl Yf geh lalan eafaf Yf were rewarded with a license to increase capacity 20. metals industry, 0 During the next 10 years India will require about. FY10 FY11 FY12 FY13 FY14E FY15E Foreign steelmakers and miners US 60 US 70 billion of fresh capital to create an additional. What should be the cornerstone of capacity of 100mt The sector requires additional capital. Karnataka Goa Orissa Others, their strategic intent in engaging to build plants in remote locations deal with resistance. from local communities build adjoining infrastructure. Source India Materials Material Modi cation Barclays 16 May 2014 with this India opportunity access. upgrade plants to include new technology and comply with. to raw material resources or a increasing environmental regulations In the current economic. After the ban was removed iron ore output from Karnataka support conservation of iron ore for domestic use The. growing market for products environment the availability of large investments in India at. has gradually started ramping up and is forecast to increase to Government can reassess resources and reserves by reasonable costs is a challenge Cost of capital is much higher. Investment community How can, 19mt in FY15 However production from Goa is not expected expanding the exploration depth and lowering the Fe in India due to a relatively high interest rate regime whereas. investors create facilitate in an countries such as the US and Europe are providing almost. to resume until the second half of FY15 In addition delays in cutoff requirement which is currently at 50 The. obtaining clearances and mining license renewals are likely to value in use principles may drive this economic decision. expanding derivatives market zero interest rates for the manufacturing industry to recover. restrict supply availability for the next few years In addition a detailed study of the use of technology The availability of such a large investment in India at a. in underground mining could be undertaken to boost reasonable cost will be a challenge especially as FDI into. Coal mining also continues to be impacted by infrastructure. extraction and reduce waste steel is still relatively insigni cant Cumulative FDI into Indian. delays regulatory hurdles and policy paralysis India has been. missing its coal production targets repeatedly every year The Coking coal A demerger of existing coking coal mines metallurgical industries of US 8 26 billion over the last 14. Indian coal industry struggles to bridge the demand supply under the control of Coal India into a separate company years is only 3 6 of total FDI into India 21. gap and dependence on imported coal is increasing every to increase output and ef ciency Under the current coal Recent plans to invest in Indian steel plants by both POSCO. Governments can provide an enabling policy environment for. year In FY14 India imported 168 44mt of dry fuel to meet block auction program the steel sector should get better and ArcelorMittal have experienced delays and this has. growth but signi cant additional investment of capital will still. a demand of 739 42mt as compared to a supply of 571mt access to thermal and coking coal mines at competitive limited the interest of foreign strategic investors in new steel. be required Investments such as vertically integrating mines. registering a growth of 15 7 y o y 17 In line imports have cost levels projects in India In order to ensure suf cient availability. building new plants maintaining old plants and pursuing. registered a CAGR of 25 during FY10 14 increasing to of nancial resources for new plants the Government will. Other raw materials In other raw materials required for potential acquisitions will need to be funded In addition. INR951 billion in FY14 Coal imports are expected to be more need to reallocate priority lending to the sector and increase. steel making India has sizeable reserves for manganese steelmakers need to assess various means to optimize their. than INR1 200 billion by FY16 18 The existing port and rail sectoral lending limits for banks Another possibility to. and chromite However with exports increasing in capital allocation decisions. infrastructure is not suf cient to facilitate the high level of consider is the easing of external commercial borrowing. the last few years there is a need to conserve these. importing coking coal anticipated for India to produce even In China the steel capacity increase was largely funded. resources for growing Indian steel sector requirements standards to attract the required capital. 200mt by 2025 26 through loans from state banks Foreign corporations. The Government needs to encourage more production by The Indian steel sector is very highly leveraged on a net debt. relocated manufacturing bases to China to take advantage. To achieve raw material availability for 2025 steel investment in low grade ores In addition to concentrating EBITDA basis as compared with its peer group Despite this. of low labor costs These investments assisted, production targets the Government could implement on manganese and chromite the Government of India will major steel companies have successfully been able to access. large scale developments not only with capital but. the following initiatives need to focus on limestone as there are very limited steel. making limestone deposits in India, Iron ore Through various scal levies the Government.
has already created an enabling environment to, 19 Shastri Moonan Technology transfer rejuvenating mature industries Garland studies on industrial productivity Jgmld 2013. 17 India imported 168 44mt coal in FY 14 to meet demand Government The Economic Times http articles economictimes indiatimes 20 Paul Krugman Editor Japanese nancial system and the cost of capital in Trade With Japan Has the Door Opened Wider University of. com 2014 07 14 news 51484976 1 coal mines power minister piyush goyal india 14 July 2014 Chicago Press 1991. 18 India Materials Material Modi cation Barclays 16 May 2014 21 Fact Sheet on FDI Reserve Bank of India August 2014. 22 Indian steel strategy to ambition Indian steel strategy to ambition 23. the debt and equity markets to raise capital For example Tata. Steel recently completed a dual tranche bond sale to fund. mood among investors who are hopeful of seeing growth and. progress as evidenced by the rise in the consumer con dence. Sustainability and In India the recently elected Government has reconstituted. a high level advisory group on climate change Headed by. expansion or re nance debt However given the stressed index The incumbent Government is already pushing through environmental reforms the Prime minister the reconstituted council has the task. balance sheets of most players in the steel sector and their growth focused changes most notably approving the of evolving a coordinated national action for assessment. credit ratings taking on signi cantly high levels of debt to proposal allowing 100 FDI for building railway infrastructure Steel companies have recognized the need to be more adaptation and mitigation of climate change at the national. feed target capacity expansion may be a challenge under the in India which indicates the Government s proactive approach energy ef cient and to implement means to control level The ministerial strength of the council was also. current framework toward bridging the investment gap 22 Policy reforms will only emissions The difference in emission standards across increased with the induction of the urban development. help to raise productivity over time and a full recovery could regions is a disadvantage for stringent regimes due to their minister and coal minister as members Given the increasing. An analysis of the top 15 Indian steelmakers by market increased cost of operation For instance due to tough. be seen in the economy in the next few quarters Indian capital scarcity of natural resources and continued stand taken by. capitalization shows that levered free cash ow FCF has carbon regulations in the EU steel manufacturers such. markets are discounting this recovery and indices are trading several governments including India to introduce regulations. not yet returned to positive Cash ow for Indian steelmakers as Tata Steel are facing high operating costs across their. at an all time high AII investment are at all time highs and for use and management of such resources while protecting. remains negative due to aggressive capital expenditure This European facilities Even though tough carbon reduction. give an indication that the investment cycle in manufacturing the environment it is imperative that the industry takes a. can have an impact on serviceability of debt in the short term targets will deliver increased investment in technologies. will pick up gradually with interest rate cuts expected to start proactive approach The industry must realize that. The recent change in Government has led to a more upbeat by the end of this scal year such as renewable energy there are fears that they less demanding regulation is only temporary and hence it. will limit pro table production in the steel sector should not build its long term business model on current. Sustainability measures are causing companies to increase thresholds and must build in future demand from regulators. Levered FCF for top 15 Indian steelmakers remains negative in 2013 but shows signs of improvement One such approach is to align the business growth agenda. their focus not only on air pollution but also on water. 30 000 10 management and maintaining biodiversity Using advanced with the sustainability agenda This will require increased. technologies steel plants in water scarce area are able to focus of senior management in rst de ning and then. recycle and reuse about 98 of their water 23 This requires monitoring non nancial performance of their business and. 20 000 eventually disclosing it in the public domain. 10 a signi cant capital investment which steel companies. 15 000 are nding it dif cult to fund given thin margins This is. particularly so in China where steelmakers will have to invest. more than US 8 3 US 10 per tonne just to achieve emission. Trade agreements ensuring a, levels on par with Japanese and Korean steelmakers 24 The d n d hdYqaf d. Chinese Government has also decreed that companies that fail. 2009 2010 2011 2012 2013 Most economies of the world have entered regional and. to meet environmental standards will be charged increased. loan costs as well as increased electricity prices It is therefore bilateral trade agreements including FTAs PTAs ECAs and. Net debt US Million Lev FCF FY net debt FY likely that small Chinese steel mills will have to close down EPAs and India is no exception Their underlying economic. theory assumes that such agreements must enable trade. Source S P Capital IQ EY analysis In India to ensure environmental sustainability the domestic creation and minimize trade diversion to ensure welfare gains. steel industry is governed by various regulations to protect to all economies involved However the Indian industry is of. the environment and prevent water and air pollution In the opinion that India s trade de cit with FTA partners has. addition the Central Pollution Control Board CPCB along increased to the detriment of its interest. with its state counterparts is responsible for de ning. Implications for stakeholders framework guidelines and implementation of legislation for As a result of excess capacity and oversupply in the steel. prevention and control of environmental pollution industry global protectionism is on the rise Several countries. Steelmakers How will steelmakers demonstrate return on investment to attract including China South Korea Japan Turkey and the CIS have. capital How will steelmakers ensure effective capital allocation to projects In line with international standards the Government of excess capacity The global steel market can be distorted by a. India has realized the need to focus on enhancing energy high level of exports from these countries 25. Government How can the Government and steelmakers collaborate to promote FDI ef ciency rather than only CO2 reduction Accordingly under. into the Indian steel sector the National Action Plan on Climate Change NAPCC the. National Mission for Enhanced Energy Ef ciency NMEEE has. Foreign steelmakers What opportunities are there for steelmakers to invest in. planned many initiatives around energy conservation with an. new plants in India Will they be able to step in to bridge the funding gap What aim to reduce the emissions intensity of its GDP by 20 25. assistance will be provided to overcome regulatory hurdles that have existed to from 2005 levels by 2020. Investment community How will the investor community particularly. entrepreneurs see the risk reward equation in the steel sector given the emergence. of new businesses with potentially more attractive returns. 23 Sustainable Steel Policy and Indicators 2014 Worldsteel Association 06 October 2014. 24 China Environmental Measures Impact on Steel iron ore WoodMackenzie 28 March 2014. 22 Union cabinet approves FDI in defence railways Hindustan Times 6 August 2014 via Factiva 25 UBS Global I O Global Steel S D UBS 15 October 2014. 24 Indian steel strategy to ambition Indian steel strategy to ambition 25. Global steelmaking total capacity production and consumption There are also several factors at play in anti dumping cases are seeking to use innovation as a tool for differentiation and. Before an anti dumping case is considered there may be extension of their competitive position. 2 500 lengthy investigations Even if dumping is proved it takes even. For example labor productivity in the US has been, more time to impose the duties Free trade agreements and. signi cantly enhanced through continuous innovation. political reasons are likely to result in no action being taken. 2 000 Currently US steel production requires an average of 2 man. The European Commission has proposed a modernization of. hours per tonne of steel as compared with an average of 10 1. trade defense instruments, man hours in 1980 and some plants operate as low as. 1 500 These trade facilitation frameworks and protection measures 1 man hour 28. Million tonnes, impact steelmakers market footprint volumes and margins.
Changing consumer demand necessitates new and, signi cantly Hence there is a need to constantly monitor and. improved steel grades for use in infrastructure, 1 000 in uence the policy environment reassess the competitive. buildings and automobiles segments The introduction. scenario in distribution and refresh market strategies. of emissions regulation and increasing competition. 500 from aluminum have also led to the development of. Technological innovation light but strong steel e g advanced high strength. steel for use in the automotive industry, As the global steel sector remains fragmented with the. 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f top ve global companies accounting for only 17 of all. crude steel production in 2013 steel operators are always. Total capacity Production Consumption vulnerable to new market entrants As a result operators. Source BREE UBS estimates World Steel Association EY analysis. We have already seen the imposition of anti dumping duties In India import risk is increasing Chinese rebar imports Increasing competition in customer markets necessitates innovation. on steel imports into the US most notably recently the into India increased by 23 between April and August 2014. imposition of tariffs on OCTG from South Korea However as compared to the same period in 2013 As a result the. the US is not alone in the imposition of anti dumping duties Ministry of Steel is also considering anti dumping duties on. to protect its national steel industry Other countries are Chinese rebar as well as hot rolled stainless steel at products. following suit for example from China Korea and Malaysia 27 The Government of India. uses various mechanisms such as anti dumping anti subsidy New markets for an oversupplied. Egyptian steelmakers have led a petition against rebar Aluminum. and other safeguards to protect the domestic industry commodity. and wire rod imports from China Turkey and Ukraine. However rising Chinese exports and stringent safeguard Expanding market share Lightweight but more expensive Automotive purchasing. South Korea s trade commission is launching a formal duties by developed countries against Chinese steel could considerations. investigation into dumping by two Chinese suppliers make India more vulnerable to the dumping of Chinese steel. Sourcing appropriate and, China is likely to export about 85mt of steel by the end of cost effective material protecting. The EU is considering renewing tariffs on Chinese wire. 2014 a 40 increase y o y and much of these exports are the supply chain. rod imports, targeted to Asian countries such as India and Vietnam Operations adapting processes.
Australia has initiated an inquiry on certain measures Product innovation exible processes. Indian steelmakers have been protesting against dumping. applying to certain zinc coated galvanized steel from Aluminum Adapting product mix Managing costs price volatility. on various international forums but loopholes still allow for. China South Korea and Taiwan hedging, a signi cant amount of Chinese steel to be sold in the Indian Competitive defense Increasing R D. Overall anti dumping measures are likely to provide market According to claims by the industry Chinese mills are Collaboration with Auto OEMS. protection to steelmakers in markets such as the US and adding a negligible amount of boron to ordinary steel and are. Europe but potentially bring about some reduction in capacity claiming an export duty rebate meant for alloy steel There. utilization in the Chinese steel sector This may have the effect is also demand for anti dumping action to be extended to. of reducing some oversupply in the global steel market 26 stainless steel at products from China. 26 Global Steel Market Watch UBS 20 October 2014, 27 Motitlal Oswal Metals Weekly 15 September 2014 UBS Global I O Global Steel S D UBS 15 October 2014 28 Pro le 2014 American Iron and Steel Institute 7 November 2014. 26 Indian steel strategy to ambition Indian steel strategy to ambition 27. Energy costs and environmental regulations are also driving Creating and enabling new revenue sources steel industry will need to design and implement innovative this risk is to use nancial derivative products to address. a move to increased use of scrap to reduce energy costs and Identifying and accessing new applications and markets mechanisms including employee stock option plans commodity prices However several concerns regarding. produce more sustainable steel Producing steel from scrap ESOPs long term deferred cash plans and so forth to hedging commodity price risk using nancial derivatives have. Creating sustainable cost competitiveness, through electric arc furnace instead of using iron ore reduces attract and retain talent to drive their growth engines led to thin participation especially by large steelmakers. energy inputs by about 75 29 The US steel industry has Optimizing throughput Following are some of the key factors behind this. As the industry expands the demand for managers, reduced its energy intensity by 28 and CO2 emissions by 35 Fostering collaborative partnerships and alliances. across junior mid and senior levels will grow The Non transparent raw material pricing. per tonne of steel shipped since 1990 Managing risks industry needs to invest now in leadership and. In South Korea POSCO has developed FINEP technology Establishing robust governance framework capability development to groom leaders who can A steady supply of quality raw material being one of the prime. that directly uses iron ore nes and non coking coal without take up these leadership roles in the near future risks facing the Indian steel industry pricing of raw material. coking and sintering processes In addition to being more in this sector is dominated by traders and miners Imbalance. Superannuation of skilled and experienced workforce in. environment friendly it has helped the company increase in the consolidation levels in the supplier and steel industry. its global competitiveness POSCO is collaborating with SAIL. The renewed war for talent the iron and steel industry is resulting in erosion of tacit. makes it dif cult for steelmakers to have perspectives on raw. knowledge It is imperative to strengthen knowledge. to implement this FINEP technology through a JV at SAIL s The Indian iron and steel industry is expected to register material pricing and hence mitigate the price volatility using. management and succession planning systems to, Bokaro steel plant exponential growth in future riding on a projected growth derivative contracts.
ensure effective transition of knowledge and hasten. The sector innovation is also working on cleaner coke ovens wave of infrastructure automobile and real estate sectors skill upgrade of the workforce joining the industry Liquidity in steel derivatives remains thin. process dust emission and ef cient water usage Finding and notwithstanding challenges of unavailability of land raw. solutions for induction furnace products will also be relevant materials power and unaffordable capital In India concerns in the industry regarding the authenticity. in the Indian context If the industry has to achieve this ambitious target one of of trading volumes observed on commodity exchanges have. India however lags in terms of innovating new technologies the critical imperatives is to bridge the yawning gap between af mkaf fYf aYd ensured thin participation by steelmakers A signi cant. demand and supply of skilled workforce in the iron and steel portion of trading volumes is also contributed by nancial. for steel production largely due to a lack of investment in. R D by major steel players Imported technology is available sector According to recent estimates of the Iron Steel. derivatives players This is seen by producers as distorting prices and. Sector Skill Council the industry will need an additional 2 4 driving them away from physical prices As shown in. but there is a need to develop domestic technologies that Volatility in raw material and steel prices continues to plague. million skilled professionals and workers by FY29 30 to meet Figure 1 which compares average monthly steel. are compatible with domestic raw material Local coal is high Indian steelmakers margins adding signi cant volatility to. the growing needs of the industry long spot prices on NCDEP with India s Steel. in ash content and iron ore is of low grade and therefore their cash ow streams One of the key approaches to manage. Long WPI Index wide price divergence has been, India needs to invest in developing technologies that are While supply of workforce continues to remain a challenge observed between the two from 2009 to 2014. able to upgrade various raw materials for high quality steel it is estimated that only one fth of the available workforce. production A plan has been mooted to set up a national is directly employable and the remaining need training for. steel research institution for furthering the above objectives periods ranging from two months to three years before they. Enhancing R D and innovation in the steel sector will not can be employed by the industry Unless the Government and. only reduce capital costs but also reduce the dependency on the industry join hands and take immediate concrete steps to. imported raw material which will enhance the competitive enhance the skill of the workforce it appears a dif cult target. position of the Indian steel industry to achieve, Indian steel long products physical vs Iron ore physical vs derivative prices. Limited willingness of the aging workforce in the iron and derivative prices. steel industry to upgrade their skills in modern mining iron. Supply chain optimization and steelmaking processes equipment and machinery has. 250 00 10 000, continued to take its toll on the productivity of the Indian iron 200 00 8 000. Despite high demand growth potential for Indian, and steel industry It is imperative to retrain and re deploy. steel the steelmakers will face various external 150 00 6 000. the existing workforce to leverage their knowledge while. and internal risks in a volatile uncertain complex. improving the overall productivity 100 00 4 000,and ambiguous business environment.
Migration of skilled workforce from the manufacturing sector. Steelmakers can adopt the following 50 00 2 000, to the services sector has further aggravated the issue of. approaches to competitively expand capacity, unavailability of skilled workforce Students from traditional. as well as grow and sustain margins, streams such as metallurgy mining mechanical electrical. Recon guring supply chain operating models to create and production engineering are seeking employment in the. competitiveness and its enabling infrastructure IT industry for a variety of reasons including opportunity. Capacity building to manage uncertainty complexity to work in metros international assignments improved STEELLONG spot price NCDEX Settlement price ICEX iron ore futures expiry month. and ambiguity compensation and so forth Organizations in the iron and STEELLONG WPI Index of India Iron ore fine 63 5 FOB India EQUIV INR MT price. 29 Action Plan for a competitive and sustainable steel industry in Europe European Commission 6 November 2013. 28 Indian steel strategy to ambition Indian steel strategy to ambition 29.

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