05-11-2012, 05:23 PM
Future Prospects of Setting up Steel Retail Network by Large Steel Manufacturers
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Introduction
Steel retailing industry is at a nascent stage. There are large national steel manufacturers, steel traders (intermediaries) and end consumers (small manufacturers). Presently most of the end user groups procure steel from manufacturers through intermediaries (traders etc.). However, in last five years, large steel manufacturers have started offering their products directly to end consumers, eliminating intermediaries.
Steel retailing has two major differences as compared to normal consumer goods retailing. First is, steel is bought to meet a particular need and secondly, there is no product differentiation in steel industry.
Steel retailing/stockholding is aworking capital intense industry. Capital is required for enabling stock availability and for providing credit period.The role of stockholder involves break bulking activities also. To match a customer’s requirements, large quantities of steel are to be cut into small sizes and small quantities.
Steel Industry Analysis in India
India’s economic growth is dependent upon the growth of the Indian steel industry. Consumptionof steel is taken to be an indicator of economic development. While steel continues to have astronghold in traditional sectors such as construction, housing and ground transportation, specialsteels are increasingly used in engineering industries such as power generation, petrochemicalsand fertilisers. India occupies a major position in the global steel industry, with the establishment ofnew state-of-the-art steel mills, acquisition of global scale capacities by players, continuousmodernisation and up-gradation of older plants, improving energy efficiency and backwardintegration into global raw material sources.
India is the 5th largest producer of crude steel in the world and is expected to become the 2nd largest producer by 2015-16, as India is able to produce steel at a lower cost because of availability of cheap raw material and labour. While huge cost advantage has helped India to find a place in the world production map, also, growing consumption in India has also helped India emerge as one of the biggest user of steel.
Almost everything that we use is either made from or manufactured with steel.Ships, trains, trucks, and autos are made largely of steel. Even the safety pins and the needles are made from steel. Oil wells are drilled with steel machinery. Minerals are mined with steel equipments. Large buildings have steel framework. However, the main demand for steel comes from infrastructure, housing, automobile, gas and oil pipelines, capital goods (machinery) and consumer goods industry. It is a very versatile material and is widely regarded as a high performing, contemporary engineering material continuously being improved to meet new market demands.
History of Steel Industry in India
The establishment of Tata Iron and Steel Company (TISCO) in 1907 was the starting point ofmodern Indian steel industry. Afterwards a few more steel companies were established namelyMysore Iron and Steel Company, in 1923; SteelCorporation of Bengal in 1923; andSteel Corporation of Bengal in1939. All these companies were in the private sector.
Steel Production Processes
Iron ore and coal coke are the primary raw materials for Steel production. There are various technologies for manufacturing of steel, which are listed below.
Blast Furnace/Basic Oxygen Furnace (BF/BOF): BF basically converts iron ore into liquid form ofiron. Iron produced by BF contains high amount of carbon and other impurities, this iron is calledpig iron. Pig iron due to its high carbon content has limited end use application. To make steel products out of pig iron it is further processed into BOF where itscarbon content and other impurities are burnt or removed. Main inputs toBF are iron ore and coal/coke. BOF is also called oxygen furnace because oxygen is the only fuelused in the process. Generally, integrated milling use BF/BOF routes to produce finished steel.
Electric Arc Furnace (EAF): Basic purpose of the EAF is remelting sponge iron, melting scrap,its main inputs, to produce finished steel. It uses electricity as much as 400-500 kWh/ton.
COREX or Cipcor Process: COREX is an advance process of making steel. Though few use this process, it is possible to use non-coking coal directly in smelting work and it also makes it possible to use lump ore and pellets as inputs. These two advantages allow steel producers toeliminated coking plants and sinter plants. Purpose of coking plant is to convert non-coking coalinto more efficient fuel and purpose of sinter plant is purify lump ore or pellets for furtherprocessing. Basic inputs to COREX are iron-ore and coal.
Types of Steel
Steel is an iron based mixture containing two or more metallic and/or non-metallic elements usually dissolving into each other when molten. Since it is an iron based alloy—as per its end use requirements—other than iron it may contain one or more other elements such as carbon, manganese, silicon, nickel, lead, copper, chromium, etc. For example, stainless steel (a type of steel) mainly contains chromium that is normally more than 10.5 percent with/without nickel or other alloying elements. Steel is produced using Steel Melting Shop that includes converter, open hearth furnace, electric arc furnace and electric induction furnace.
There are broadly two types of steel according to its composition: alloy steel and non-alloy steel. Alloy steel is produced using alloying elements like manganese, silicon, nickel, chromium, etc. Non-alloy steel has no alloying component in it except that are normally present such as carbon.
Steel Sector Wise Distribution
One of the important aspects about attaining efficiency in production of flat steel is that India has become a dominant player in HR coils. Amongst the various by products of flat steel, HR Coils is amongst one of the highest produced flat steel in India.
Hot – Rolled Coils / Sheets are the most important products in the flat steel segment, as their downstream products like CR Sheets / Coils, GP/GC Sheets Tinplates, Pipes etc. play a significant role in the industrial development of a country. The global market demand and prices of HR Coils determine the fate of all its downstream products. Often the performance of this product is linked to performance of the whole steel industry, as almost all the industrial sectors consumes HR coil directly or indirectly. HR coils is an important input for the production of many important by products of both flat and long steel and products of total finished steel products. And since the various steel products are used indifferent industrial applications, it can be rightly said that performance of this product is linked to performance of the whole steel industry. Steel units primarily consume HR coils/skelps/sheets for further processing into CR products. CRcoils/sheets may be further processed into GP/GC sheets.
Tata Steel
Tata Steel offers its retail services through its subsidiary Tata Steel Processing and Distribution Ltd. (TSPDL). As a service centre, TSPDL provides both processing and distribution services. The company's business is categorised in two parts viz. Tolling and Distribution. In Tolling business, only processing services are provided by Tata and materials are supplied and owned by customers. In Distribution business, the ownership of the material lies with TSPDL and it's the finished output that reaches the final consumer. Presently its competencies lie in HR and CR Sheets and coils, Stainless Steel and Rebar Processing.
Tolling:
In Tolling, TSPDL processes the materials, which is provided by its customers. In this business model TSPDL doesn't take the ownership of the material and only the processing initiative is taken by the Company. The core competence of TSPDL lies in its state-of-the-art machinery, excellent inventory system and JIT availability at the customer's door.
Distribution:
In distribution, TSPDL is responsible for the steel purchase, processing, inventory and dispatch. This model adds a huge value to the production chain of the customers as it relieves them from the burden of identification of Steel mills, quality check, processing, inventory management and dispatch. In distribution, the customers specify the grade of steel that they require and Tata Steel Processing and Distribution Limited takes responsibility to supply them the same grade of steel in the agreed cut to size condition. In retail distribution, TSPDL maintains stocks of materials for feeding its retail chain and provide value for money products.