Securing Raw Materials: A Case on the Indian Steel Industry

Abstract

This case is set in November 2014, with major steel makers in India increasing their capacities through either Brownfield expansion or Greenfield projects. With this major boost in mind, raw material security becomes a very critical issue since it contributes to roughly 70% of the total steel making costs. Since capacity addition will be through the Basic Oxygen Furnace (BOF) route, securing iron ores and coking coal blocks become vital. The steel companies must therefore evaluate different options for securing these raw materials. The decisions that they make would have a long-term implication and therefore informed decisions become all the more relevant and crucial. For securing iron ores, the steel companies are favourably placed since India has abundant iron ore reserves, but there are hitches as well; e.g. excessive fine generation and unregulated exports. Exploring overseas acquisition for iron ore mines could be an option that steel companies could look forward to when iron ore requirements are not met through domestic production. Securing coking coal availability is another big challenge that Indian steel companies have as they are dependent on imports to fulfil, on an average, 75-80% of their coking coal requirements. Thus, there are three options before the steel companies with respect to securing coking coal availability. At first, increase contributions of domestic coking coal, second, rely on the global spot markets and third, buy coking coal assets in foreign countries. Uncertainties in domestic production of iron ore and global spot market price fluctuations of coking coal have put the Indian steel companies under a lot of financial strain over the last few years. The case discusses various strategic plans in terms of raw material security that will outline the growth trajectory of the Indian steel industry in years to come.