Iron and steel, is vital to the Indian economy for economic growth, national security, and economic well-being. No practical substitutes exist on a large scale for iron and steel because of the relatively high cost of alternative materials.

Worldwide, there are broadly two major categories of steel players—Integrated steel producers (ISPs) and mini-mills/secondary producers, although variations and combinations of the two exist. The key difference between the two is the type of iron bearing feedstock they consume. In an integrated mill, this is predominantly iron ore, with a smaller quantity of steel scrap. A mini-mill produces steel uses mainly steel scrap, or increasingly, other sources of metallic iron such as directly reduced iron (DRI)/hot briquette iron (HBI).

The iron and steel industry not only directly accounts for about 2% of GDP, it also has a bearing on how the consumer goods and downstream infrastructure sectors develop. Further, with a share of approximately 10%, the sector is amongst the largest contributors to the central excise.  India accounted for 3.4% of the estimated world steel production of 1,129 million tonnes (mt) during 2005. At present, India is the 7th largest crude steel producing country in the world.

In 2006-07, production of Finished (Carbon) Steel was 49.350 million tonnes(Prov). Production of Pig Iron in 2006-07 is estimated to be 4.960 Million Tonnes (Prov). The share of Main Producers (i.e SAIL, RINL and TSL) and secondary producers in the total production of Finished (Carbon) steel was 35% and 65% respectively during the period of April-December, 2006.  

Size

• India is among the top 10 global suppliers of  steel in the world
• About 35 million tonnes of steel is produced in India per annum
• India is also the largest producer of sponge iron in the world
• This sector represents around Rs. 1 trillion of capital investments, and directly provides employment to around 0.5 million, with the integrated steel plants accounting for a 40% share
• The iron and steel sector also contributes around 6.2% of India’s manufactured goods exports, and 4.6% of total exports by value.

Structural Characterstics

• The industry is dominated by large integrated players like SAIL and Tata Steel in steel
• The Public sector has a significant presence in this industry, Steel Authority of India Ltd. (SAIL) has 32% of India’s installed capacity of crude steel
• Tata Steel, and Essar Steel are the major private players in the industry
• The industry’s fortunes depend on general global economic conditions but it is particularly sensitive to the performance of the automotive, construction, durable equipment, and other industrial products industries. The trend in the last few years in steel prices shows that the steel industry is cyclical.
• The global (and Indian) steel industry also suffers from cycles of over capacity and shortages. This too leads to cyclically falling/rising prices and industry losses/profits.
• Integrated steel producers (ISPs)—Tata Steel and SAIL—face high fixed costs, and thus in a downturn, the percentage profit margins come down significantly. The downturn phases have witnessed depressed prices at the firm level and widespread operating losses.
• Economic logic differs for mini mills that can vary output more quickly when prices fall.

Policy

• The steel sector was deregulated in 1991-92, when controls on capacity and prices were abolished along with quantitative trade restrictions. The peak custom duty has seen a significant decline resulting in a greater integration with the global industry and negative implications on sales realisation and hence profitability
• The Government has also approved the National Steel Policy (NSP) in November 2005. The long-term goal of the NSP is for India to have a modern and efficient steel industry of world standards, catering to diversified steel demand. The focus of the policy would therefore be to achieve global competitiveness not only in terms of cost, quality and product-mix but also in terms of global benchmarks of efficiency and productivity.
• The policy targets to increase steel production at a compounded annual growth rate of 7.3% to 110 mt by 2019-2020. It projects domestic consumption to grow at annual growth rate of 6.9% to 90 mt during this period. The policy envisages the share of exports to increase to 25% from present share of 11%.
• The government would also encourage investments in creation of an additional modern iron ore mining and beneficiation capacity of 200 mt. under this policy
• Recent increase in infrastructure spending is also expected to have a positive impact on the steel demand. Major investments planned in infrastructure sector are, national highway network, major ports, and airports. The Government also proposes to undertake measures to promote usage of steel in bridges, crash barriers, flyovers and building construction.
• 100% FDI is allowed under the automatic route for metallurgy and processing of all metals.

Outlook

• India has the potential to become one of the world’s top five suppliers and top five markets for steel
• Steel consumption is expected to grow by 8% p.a. to 60 million tonnes by 2010
• India’s per capita consumption of metals is projected to increase substantially in the future due to high growth patterns in infrastructure, construction and industrial capacity expansion. Construction is already the largest single steel-using sector, with an estimated 39% of steel consumption. In India, construction activity in recent years has been buoyed up by various infrastructure projects and rise in demand for housing
• Low per capita consumption today: 30 kgs. of steel as compared to 150 kgs internationally.
• Globally as India is one of the lowest cost producers of steel, this represents large investment opportunities across the value chain in Integrated steel; there is an investment opportunity of over $10-15 billion in steel by 2010.

References:  http://steel.nic.in/over.htm
http://www.investmentcommission.in