The Indian steel industry had suffered in the past from the structural ailment of fragmentation.
Consolidation efforts were offset by growth in secondary steel units with low capacities, leaving the steel industry highly fragmented. This resulted in structurally imbalanced industry dynamics where capacity utilisations remained depressed for extended periods and average earnings before interest, tax, depreciation and amortisation (EBITDA) margins remained low. The fallout of the fragmented steel industry resulted in under utilisation of capacities due to high cost of production. Since steel making is a capital-intensive process, the following aberrations crept in gradually.
Obsolete technology
Older technology of smelting and steel making is expensive with inefficient utilisation of raw materials and yield inferior quality products. The old technology could not be updated as the investment needed for modernisation was beyond the means of smaller fragmented industry segment.
Lack of technological innovation
Global standards of steel making requires introduction of eco-friendly technologies in the mining and production process. With the help of technologies like recycling of steel, production efficiency, etc. steel making units can sustain and remain competitive globally.
Scarce resources
Depleting resources and reserves of iron ore and other raw materials is one of the biggest challenges. On one hand, competition is increasing and on the other hand, resources are limited and are being utilised less efficiently.
Lower margins for fragmented players
This story is from the February 1-15, 2019 edition of BUSINESS ECONOMICS.
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This story is from the February 1-15, 2019 edition of BUSINESS ECONOMICS.
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