PEST ANALYSIS

A REPORT ON STEEL INDUSTRY

Submitted To: By:

Prof. Jalpa Patel Nayana khushbu Patel Mayuri

Submitted
Patel Amin

K.J. Institute of Management, Vadasma

PREFACE
As a part of the curriculum of the MBA Programme the students are required to undergo project work in addition to their theoretical study so as to enable them to have the knowledge of the practical aspect of the Business Administration. As students of management it is learning experience to analysis an industry. It is the most essentials tools for us to expose our skill as a future responsible managerial post. So, we decided to STEEL INDUSTRY. It helps us to develop our skill & confidence to do better in all respect in management fields. The project work is required to be undertaking where we get the opportunity to know about the real information of the area we have selected, which altogether different from theory. The report contains the detail information about Steel industry and all the information, which is important for management student.

ACKNOWLEDGEMENT
This report has been submitting in partial fulfillment of the requirement of the award of MBA from K.J INSTITUTE OF MANAGEMENT. It is a universal fact that for study of a project in depth, we need the support of many people right from the stage of conceiving the idea to completion of report. It is difficult for a single person to do the job efficiently without interaction & involvement of others We are also greatful to Miss Jalpa Patel, faculty members of K.J.Institute of Management for their support whenever required. Discussions with friends also have served to provide sought after information. We are thankful to all our batch mates.

TABLE OF CONTENT
Sr. No.
1 2

Particular
History Of Steel Industry List Of Steel Companies in India PEST Analysis 3.1 Political Factor 3.2 Economical Factor 3.3 Social Factor 3.4 Technological Factor

Page No.

4 5

Conclusion Bibliography

HISTORY OF STEEL INDUSTRY

During Ancient Period The history of iron and steel making in India goes back by several centuries. It dates to 480 BC when archers in India used arrows tipped with steel. The iron pillar of Dhar near Indore in Madhya Pradesh dates back to about 321 AD, the iron pillar of Kutab Minar near Delhi dates back to about 400 AD and the iron beams of Sun temple of Konark in Orissa dates back to 13th century. These pillars are a testimony to ancient India's expertise in the making of steel. Before Independence The roots of the Indian Steel industry in modern times can be traced to the year 1874, when a company called Bengal Iron works at Kulti near Asansol in West Bengal produced iron. One of the most important landmarks in the history of Indian steel industry was the commencement of the Tata Iron and Steel Company at Jamshedpur in the state of Bihar in 1907.The other prominent steel manufacturers before independence were Indian Iron and Steel Company (1922),Mysore Iron and Steel Works(1923) and Steel Corporation of Bengal (1937). After Independence India found it difficult to sustain development in steel sector after independence on its own due to the lack of technological development. The high cost of developing technology in this sector proved to be a major hindrance. That's when the government decided to go for synergy with other countries for technology transfer. Some of the prominent steel plant set up then was in Rourkela in collaboration with West Germany and in Bokaro in collaboration with Russia. These steel plants came under the purview of public sector enterprises. Post Liberalization The post liberalization scenario in the Indian Steel industry has witnessed a monumental shift. Some of the salient features are: The need for license for increasing capacity has been abolished. Steel industry has been removed from the list of Industries under the control of state sector.

Foreign equity investment in steel has gone up to 74%. In January 1992 the price and distribution controls were removed. Policies like convertibility of rupee on trade account, freedom to mobilize resources from overseas financial markets and restructuring of existing tax structure have immensely benefited the industry.

Milestone The Indian steel industry has come a long way since its humble beginnings. The takeover of the British steel giant Corus steel by Tata Steel and the acquisition of Arcelor by Mittal Steel herald a new beginning for the Indian steel industry. These events signify the fact that the Indian steel industry has acquired a global identity and is today extremely competitive globally. Some of the prominent steel producers today are Posco, Tata Steel, Essar, Ispat, Sail and Rinl. Future trends It has to be said that the global recession has affected the Indian steel industry especially stainless steel, but the steel industry is trying to offset the negative effect of the recession by focusing on transportation and construction projects which are usually funded by the government. India is the only country globally to record a positive overall growth in crude steel production at 1.01 per cent for the period January -March 2009. It is estimated that India's steel consumption will grow at nearly 16% annually till 2012. The National Steel Policy has forecasted the demand for steel would reach 110 million tons by 2019-2020.

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Indian Steel Industry

India is currently the fifth largest steel-producing nation in the world with production of over 54 million tones (MT). However, it has a very low per capita consumption of steel of around 46kgs as against an average of 198kgs of the world. This wide gap in relative steel consumption indicates that the potential ahead for India to raise its steel consumption is high

Being a core sector, steel industry tracks the overall economic growth in the long term. Also, steel demand, being derived from other sectors like automobiles, consumer durables and infrastructure, its fortune is dependent on the growth of these user industries

The Indian steel sector enjoys advantages of domestic availability of raw materials and cheap labor. Iron ore is also available in abundant quantities. This provides major cost advantage to the domestic steel industry, with companies like Tata Steel being one of the lowest cost producers in the world. However, Indian steel companies have to bear additional costs pertaining to capital equipment, power and inefficiencies (low per employee productivity). This has resulted in the erosion of the edge they would have otherwise enjoyed due to availability of cheap labor and raw materials. The government reinstated basic customs duty on steel imports in order to protect India from dumping of cheap steel products. It has also provided series of benefits to auto,

housing and real estate sector in order to counter the slowdown in the economy.

Steel is an important indicator to analyze the economic development of a country. The steel industry is highly scientific and technology oriented. Technological advancement is very important for the overall health of the steel industry. India is the fifth largest producer of steel in the world. India Steel Industry has grown by leaps and bounds, especially in recent times with Indian firms buying steel companies overseas. The scope for steel industry is huge and industry estimates indicate that the industry will continue will to grow reasonably in the coming years with huge demands for stainless steel in the construction of new airports and metro rail projects. The government is planning a massive enhancement of the steel production capacity of India with the modernization of the existing steel plants. Industry Statistics Government targets to increase the production capacity from 56 million tons annually to 124 MT in the first phase which will come to an end by 2011 - 12. Currently with a production of 56 million tones India accounts for over 7% of the total steel produced globally, while it accounts to about 5% of global steel consumption. The steel sector in India grew by 5.3% in May 2009. Globally India is the only country to post a positive overall growth in the production of crude steel at 1.01% for the period of January - March in 2009. Strengths

There are many strong points of the industry that makes it one of the leading names in the global steel industry. The rate of labor wage in India is among one of the lowest in the world thereby making large scale production feasible. The boom witnessed in the automobile industry has ensured that the demand for steel is increasing gradually and will continue to do so in the near future. There is huge manpower in India which is another reason why steel production in India is high and the industry is doing pretty well both nationally and internationally. Investments
Numerous steel companies some major projects in the pipeline to invest in India Steel industry. Steel companies have earmarked more than 100 million USD for the setting up of sponge iron units in Koppal and Bellary in Karnataka. As per Investment Commission of India more than 30 billion USD are in the pipeline for investment over the next five years. Steel is a deregulated sector and the Government does not directly make investments in the steel industry. However, a Gross Budgetary Support (GBS) of Rs.118 crores has been provided for promotion of Research and Development (R&D) in the Iron and Steel Sector during the Eleventh Five Year Plan. Government implements various fiscal measures in the form of duties and taxes, from time to time with an overall view to regulate economy and boost the industry.

Growth Potential of the Industry

Amongst the other newly steel-producing countries, South Korea has stabilized at around 46-48 million tones, and Brazil at around 30 plus million tones. This brings the focus of the industry to India. Considering a steel consumption of 300 kg per man per year to be a fair level of economic development, India will have to come up to somewhere around 300 million tones, if it is to fulfill its

ambitions of being a developed country. That of course is a long journey from the present production level of around 50 million tones but one must consider its past before coming to a conclusion about its potential. India was producing only around a million tonnes of steel at the time of its independence in 1947. By 1991, when the economy was opened up steel production grew to around 14 million tones. Thereafter, it doubled in the next 10 years, and then it is doubling again, maybe over a slightly longer span. Steel Production in India is expected to reach 124 million tons by 2012 and 275 million tons by 2020 which could make it the second largest steel maker. In the developed countries, the trend is on consolidation of industry. Crossborder mergers have been taking place for several years. The focus is on technological improvements and new products.

List of Steel company in India

Top ten steel companies In India. 1. Rastriya Ispat Nigam Limited (Vizag Steel Plant), Visakhapatnam 2.Steel Authority of India (SAIL), Salem. 3. Tata Steels, Jharkhand. 4. Visveswarayya Steels. 5. Bokaro Steel Plant, Bokaro. 6. Bhilai Steels, Bhilai. 7. Essar Steels Ltd. 8. JSD Steel. 9. KVS Ispat. 10. Jindal Steels Limited.

PEST ANALYSIS
PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macroenvironmental factors used in the environmental scanning component of strategic management. The model has recently been further extended to STEEPLE and STEEPLED, adding education and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro environmental factors that the company has to take into consideration. It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations. The growing importance of environmental or ecological factors in the first decade of the 21st century have given rise to green business and encouraged widespread use of an updated version of the PEST framework. STEER analysis systematically considers Socio-cultural, Technological, Economic, Ecological, and Regulatory factors.

Political Factor:

Political factors are how and to what degree a government intervenes in the economy. Specifically, political factors include areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bad). Furthermore, governments have great influence on the health, education, and infrastructure of a nation.

Economic Factor: Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy.

Social Factor: It includes the cultural aspects and health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor). Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older workers).

Technological Factor: It includes ecological and environmental aspects, such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. 3.1 POLITICAL FACTOR TAX RATE:The tax rates paid by steel companies are about the same as those paid by the average manufacturing firm of equal profitability. This is particularly true now that the 1986 tax reform aims at greater neutrality among corporate taxpayers. But the new tax law even provides the industry with two exceptional benefits. First, the transition rules allow steel companies a refund on unused investment tax credits, which total $500 million for the 10 low largest firms in the industry. These firms have been unable to use the tax credits because they have not been profitable enough to pay taxes. Second, as a permanent feature, the law permits the steel companies to use accumulated net operating losses (over $7 billion at present) to offset future income that would otherwise be taxable. Export-Import Policy:It includes how the government influences the export or import of the particular industry as a whole.

About 50% of the steel produced in India is exported. India's export of steel during April - December 2008 was 64.4 MT as against 9.7 MT in December 2007. In February 2009, steel export increased by 17% to 12.6 MT from 10.8 MT in the same month last year. More than 50% of steel from India is exported to China. The Government's decision to reduce export duty on iron ore lumps from 15% to 5% has given a major boost to the export of steel. Additional items of Engineering, namely, Pipes & Tubes, Electric Generating Sets, Cast Articles of Iron & Steel, Ferro Manganese and Ferro Silicon shall now be entitled for benefit @ 2% under FPS.

Government co-operation:Government regulation of the business may cover a broad spectrum expanding from entry into business to final results of a business. The reservation of industries to small scale, public and co-operative sectors, licensing system etc. regulate the entry. Regulation of product mix, promotional activities etc. amount to regulation of the conduct of business. Government regulation of economy may be broadly divided into direct control and indirect controls. Technology policy of the government is very important element of the technological element of the technological environment. For example, a government may favor or disfavor certain types of technologies.

3.2 Economical Factor

The steel industry is highly cyclical and is affected significantly by general economic conditions and other factors such as worldwide production capacity, fluctuations in steel imports/exports and tariffs. Steel prices are sensitive to a number of supply and demand factors. Steel markets recently have been experiencing larger and more pronounced cyclical fluctuations. This trend, combined with the upward pressure on costs of key inputs, mainly metallics and energy, presents an increasing challenge for steel producers. The key drivers for maintaining a competitive position and good financial performance in this challenging environment are product differentiation, customer service, cost reduction and cash management. The dependence of certain operating subsidiaries of the steel companies on either export or domestic markets may limit its flexibility in managing its business. Some of the steel companies are primarily export oriented, as domestic markets are not adequate to support operations, and some of the companies are substantially dependent on the domestic markets of their countries of operation. Any rise in trade barriers or trade related actions in main export markets, or any fall in demand in the export or domestic markets due to weak economic conditions or other reasons, may adversely affect the Operations of these companies and may limit their flexibility in managing its business. Steel production requires substantial amounts of raw materials and energy, including iron ore fines, iron ore pellets, scrap, electricity, natural gas, coal and coke. Any prolonged interruption in the supply of raw materials or energy, or substantial increases in their costs, could

adversely affect the business, financial condition, results of operations or prospects of steel companies Employment opportunity:The education and training you need to work in the steel industry depends on the kind of job you want. Some companies prefer to hire high school or vocational school graduates for processing jobs. Most training is done on the job, however. Usually, workers start in unskilled jobs and learn by helping experienced workers. It takes up to four years to learn some of the most highly skilled jobs, such as those of blowers or rollers, but you may have to wait much longer for an opening in one of these positions. Steel companies often encourage their employees to take courses in subjects such as chemistry, physics, or metallurgy to upgrade their skills. Advancement in plant jobs in the steel industry usually follows a set pattern. For example, a worker may start as a laborer and become a second helper, a first helper, and then a keeper before advancing to a job as a blast furnace blower. Companies usually consider such factors as experience and leadership ability when promoting workers into positions that require the supervision of other workers. Some steelworkers advance by getting into an apprenticeship program and learning one of the maintenance trades. Professional employees can advance in their departments. Many engineers become executives in the industry. The number of jobs in the steel industry is expected to decline by 13 percent by 2014 as larger companies purchase smaller companies and establish more efficient operations. More opportunities should be available in EAF mills, which are expected to increase their share of the market, than in integrated mills. Throughout the industry, productivity is anticipated to improve through the automation of tasks

formerly handled by lower-skilled workers, and remaining jobs will require higher levels of skill and education. Opportunities are expected to be good for computer scientists and for mechanical, metallurgical, industrial, electrical, and civil engineers. Skilled production jobs will increasingly require associate's degrees in technology. Working Conditions:Working conditions depend on the kind of job. Many steelworkers are exposed to intense heat and noise. Remote-control devices allow some employees, such as furnace operators, to work at a distance from the most extreme conditions. Many processes in the steel industry must be operated around the clock. Therefore, workers work in shifts. In general, the workweek is forty hours long. Most production workers in the industry are members of a labor union. Exchange rate:An exchange rate is the price of a country's currency in terms of another country's currency. Price of one country's money in relation to another's. Exchange rates may be fixed or flexible. An exchange rate is fixed when two countries agree to maintain a fixed rate through the use of monetary policy. Historically, the most famous fixed exchange-rate system was the gold standard; in the late 1850s, one ounce of gold was defined as being worth 20 U.S dollars and 4 pounds sterling, resulting in an exchange rate of 5 dollars per pound. An exchange rate is flexible, or "floating," when two countries agree to let international market forces determine the rate through supply and demand. Price at which one country's currency can be converted into another's. The exchange rate between the U.S. Dollar and the British pound is

different from that between the dollar and the German mark, for example. Most exchange rates float freely and change slightly each trading day; some rates are fixed and do not change as a result of market forces. The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another. For example, the higher the exchange rate for one euro in terms of one yen, the lower the relative value of the yen. The price of a currency expressed in terms of another currency. An exchange rate is the current market price for which one currency can be exchanged for another. If the U.S. exchange rate for the Canadian Dollar is $1.60, this means that 1 American Dollar can be exchanged for 1.6 Canadian dollars. Inflation rate:Inflation in India is at an acceptable level and remains much lower than in many other developing countries. But off late prices of essential commodities such as food grain, edible oil, vegetables etc have risen sharply and in the process driving up the inflation rate. Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, the value of currency goes down. Thus the purchasing power of the currency, i.e. the goods and services that can be bought in a unit of currency, too goes down.

3.3 Social factor

Status:Choosing steel depends on standard of living of the country. If the standard of living is high than they choose more expensive and rich steel products and if it is low than they choose the product accordingly. Population growth rate:The growing population rate may increase the demand of steel for Indian steel industry. As the growth rate is high it affects the demand of the steel product. Age distribution:The demand for product changes according to the age for e.g.: youngsters prefer steel and fancy furnish and old age people choose wood furnish.

3.4 Technological Factor

1. R&D Activity:There are many companies in Steel industry having healthy competition that leads them to invest in Research & Development Activity. At last it results in development of STEEL INDUSTRY.

2. Automation:Before one decade there were so many companies using man power for producing Steel Parts. Which was consumed so much time for making production but now it requires less time and man power because of high technology and Information System.

3. Rate of Technology Change:World is not enough for creative mind thats why the technology change very fast with time and it is necessary for any company to adapt new technology for produced better product within time period. 4. Technology Incentive:As per the technological changes, the new technology should be rewarded that would be an important factor which will help Steel industry to grow.

Conclusion

Today, the buyers of readymade steel furnish, are aware of the running trends, and demand the newest in fashion and products at a reasonable cost. At the front position of this evolution are the smaller players, which private labels that are thoroughly transforming the furnish products for the population. With the supply chain limitations eased, organization in real estate markets, and rationale tax structure, the readymade furniture have became more lucrative and it is anticipated that this will be the main segment in the next five years.

Bibliography
http://en.wikipedia.org/wiki/Global_steel_industry_trends http://indiacurrentaffairs.org/trend-in-steel-industry-in-india/ www.tradechakra.com http://pib.nic.in/feature/feyr2000/fmar2000/f060320002.html