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Industry Analysis
Steel Industry
PESTLE Analysis
Political Factors: Government policies: Government policies related to trade, taxation and industrial regulation have a significant impact on the steel industry in India. The competitiveness and profitability of the sector can be affected by policy changes. Political stability: In order to grow the steel industry, political stability is essential. The favorable environment for investments and business operations is supported by the stability of governance.
Economic Factors: GDP growth: The main driver of the steel industry lies in economic growth. In the construction, infrastructure and manufacturing sectors, a growing economy is likely to lead to increased demand for steel. Currency fluctuations: The cost of raw materials and the competitiveness of India's steel on the global market can be affected by currency fluctuations, given that the steel industry is frequently involved in foreign trade.
Social Factors: Urbanization and population growth: demand for construction and infrastructure is directly affecting the steel industry in India, driven by increasing urbanization and growing numbers of people. Changing consumer preferences: The focus and strategy of the industry may be influenced by changes in consumers' preference for steel intensive products, such as automobiles or household goods.
Technological Factors: Technological Advancements: Innovations in steel production technologies can enhance efficiency, reduce costs, and improve the overall competitiveness of the industry. Automation and Industry 4.0: It is possible to increase productivity and reduce labor costs by adopting automation and Industry 4.0 practices, but it may also require significant investments in capital.
Legal Factors: Environmental Regulations: The steel industry needs to comply with environmental regulations at all times. Investing in cleaner technologies and sustainable practices may be needed to meet the requirements of an increasingly strict environment. Trade Policy: The import and export dynamics of steel may be affected by changes in trade policy, tariffs or international agreements that could affect the competitiveness of the industry as a whole.
Environmental Factors: Resource availability: For the steel sector, access to key resources such as iron ore and coal is essential. Supply chains may be affected by environmental concerns related to the extraction of resources. SWOT Analysis Strengths
Availability of raw material.
Availability of labour at low wage.
Quality manpower.
Developed transport & shipping system.
Weakness
Systemic deficiencies
High cost of capital
Low labour productivity
High cost of basic inputs and services
High rate of taxes
Opportunities
Unexplored rural market and other sectors
Export penetration and increase in demand
Mergers and acquisition
Infrastructure development in India & abroad.
Threats
Slow industry growth
Technological change
Price sensitivity and demand volatility
China factor -dumping of low price steel.
Porters 5 forces Threat of new entrants to the market:
Capital Requirement: The steel industry is a business that requires capital expenditure. It is estimated that depending on the location of the plant and technology used, it will require between INR 25 billion and INR 30 billion to set up 1 million tonnes per annum integrated steel production capacity.
Economies of scale: The scale of operations does matter as far as sector forces are concerned. The benefits of economies of scale arise in the form of reduced costs, research and development expenditure and increased bargaining power when it comes to raw materials.
Government Policy: A favourable policy for steel producers is in place by the government. However, the allocation of iron ore mines and acquisition of land has a number of differences. In addition, one of the main challenges for new entrants is regulatory clearance and other issues.
The bargaining power of the supplier:
For fully integrated steel plants, the bargaining power of suppliers is low because they have their own mines for key raw materials such as iron ore or coals like TATA Steel. However, suppliers must be relied upon for those who are not integrated or partial integrated. SAIL, which imports coking coal, can be an example.
Competition:
In the domestic steel industry, it's medium because demand is still outstripping supply. India is a net importer of steel. However, there is a threat of dumping of cheaper products. The steel industry is truly global in terms of competition with large producing countries like China significantly influencing global prices through aggressive exports.
Threat of substitutes:
It's between medium and low. Although aluminium consumption in the automotive and consumer durables sectors continues to rise, it still poses no serious threat to steel as there is no possibility of completely replacing this material due to a very large price differential. In one of its largest markets, which is the automobile industry, plastics and composites pose a threat to Indian steel.
The bargaining power of the consumer:
High bargaining power and favourable prices are enjoyed by some of the major steel consuming sectors such as cars, oil and gas, shipping, consumer durables and power generation.
Contribution of steel sector in the Indian GDP:
Steel now contributes more than 2% to India’s GDP and employs some 6 lakh people directly and 20 lakh people indirectly. There are significant employment opportunities in the steel sector, especially for Tier III cities. Steel has an employment multiplier effect of 6.8x while it has an output multiplier effect of 1.4x. Further, India has now overtaken Japan to become the world’s second largest producer of crude steel, producing more than 100 MT of it each year. In addition, India is a major player on the global steel market due to its strategically located location which enables exports and imports through coastal areas.
Competition structure:
Key players: Tata Steel: The company is one of India's largest steel producers and has a substantial presence on both domestic and global markets. Integrated steel plants and a diversified product portfolio are operated by the company. JSW Steel: Another important player in the Indian steel sector is JSW Steel. It is highly focused on the expansion of production capacity and plays an important role in manufacturing a broad range of steel products. Steel Authority of India Limited (SAIL): SAIL is a government-owned steel manufacturing company and one of the largest steel producers in India. It is in charge of integrating steel production facilities, and plays a key role in meeting the country's demand for steel.
In spite of the dominance of a few large players in the sector, there are also a number of smaller and medium sized steel producers in India, contributing to market fragmentation.
Reasons for choosing the steel sector:
In the steel sector, India has an advantage in terms of competitiveness: Due to the availability of iron ore and coal, which is a necessary input for steel production. The steel industry has a competitive advantage due to the domestic and global market, as well as from the availability of young workers and labour costs that are competitive. India currently consumes 69 kg of steel per capita, which is very low compared to the global average at 208 kg. In the Indian economy, this implies a very strong growth potential for the steel industry. In terms of demand, the government initiatives such as affordable housing in urban and rural areas, expansion of railway network and rising automobile industry are expected to lead to a strong growth over the next decade.
