Mittal Steel

Introduction

India has one of the largest iron ore reserves in the world with proven reserves of 18 billion tonnes. The current capacity of all operating mines is around 110 million tonnes.[1] But the iron ore reserves are not evenly distributed in the country, with around two thirds of the reserves concentrated in the two states of Jharkhand and Orissa.[2]

The Indian Steel Industry produces 38 million tonnes of steel per annum[3]. It has experienced explosive growth for the last couple of years (See Exhibit 1) due to high global prices and strong demand in both export and domestic markets. Almost all the accumulated losses of the steel industry have been cleared in the years 2003-04 and 2004-05. The good times of the industry can be gauged by the combined market capitalization of the major steel producers crossing Rs. 540 billion in March 2005, as opposed to around Rs. 100 billion in March 2003. (See Exhibit 2)

This upturn in the industry is primarily due to export demand mainly from China due to infrastructure investments (and frenzied construction for Olympics). But the downside of the Chinese growth has been the increase in the price of raw materials due to demand from the Chinese Steel Industry.

Future Trends

The National Steel Policy unveiled by the Steel Ministry[4] projects a demand of 90 million tonnes for steel in the year 2019-20. The policy proposes that the production of steel should increase to 110 million tonnes from the current 38 million tonnes to match the demand. The policy also predicts that the domestic iron ore consumption would touch 190 million tonnes from the present 54 million tonnes.

The outlook for the next one year is expected to be positive with a 5% growth in global steel consumption driven principally by China which is expected to have a 10.7% growth.[5]

Indian Steel Industry: An analysis (Porter’s 5 forces model)[6]

Threat of entry

Product differentiation: Steel being a commodity,...