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    Porters Five Force Analysis of Indian Metals & Mining Industry

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    Srinivas Nandikanti
    The document analyzes Porter's Five Forces for the Indian steel industry. It finds the threat of new entrants is low to moderate due to the industry's capital intensity, economies of scale, and government policies. The threat of substitutes is also low to moderate from materials like plastics and aluminum. The bargaining power of suppliers is low as integrated steel plants have their own mines. The bargaining power of buyers is low despite some major customers having leverage. Finally, competitive rivalry is moderate to high within the domestic industry and from global competitors like China.

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    Porters Five Force Analysis of Indian Metals & Mining Industry

    Uploaded by

    Srinivas Nandikanti
    122 views3 pages
    The document analyzes Porter's Five Forces for the Indian steel industry. It finds the threat of new entrants is low to moderate due to the industry's capital intensity, economies of scale, and government policies. The threat of substitutes is also low to moderate from materials like plastics and aluminum. The bargaining power of suppliers is low as integrated steel plants have their own mines. The bargaining power of buyers is low despite some major customers having leverage. Finally, competitive rivalry is moderate to high within the domestic industry and from global competitors like China.

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    The document analyzes Porter's Five Forces for the Indian steel industry. It finds the threat of new entrants is low to moderate due to the industry's capital intensity, economies of scale, and government policies. The threat of substitutes is also low to moderate from materials like plastics and aluminum. The bargaining power of suppliers is low as integrated steel plants have their own mines. The bargaining power of buyers is low despite some major customers having leverage. Finally, competitive rivalry is moderate to high within the domestic industry and from global competitors like China.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    122 views3 pages

    Porters Five Force Analysis of Indian Metals & Mining Industry

    Uploaded by

    Srinivas Nandikanti
    The document analyzes Porter's Five Forces for the Indian steel industry. It finds the threat of new entrants is low to moderate due to the industry's capital intensity, economies of scale, and government policies. The threat of substitutes is also low to moderate from materials like plastics and aluminum. The bargaining power of suppliers is low as integrated steel plants have their own mines. The bargaining power of buyers is low despite some major customers having leverage. Finally, competitive rivalry is moderate to high within the domestic industry and from global competitors like China.

    Copyright:

    © All Rights Reserved
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    of 3

    PORTERS FIVE FORCE ANALYSIS

    OF INDIAN METALS & MINING INDUSTRY


    Indian metals & mining industry is divided into main segments such as Iron & Steel, Coal,
    Aluminum, Bauxite, Base metals, precious metals and minerals. Thus, it gives a better perspective
    if porter five force analysis is done for each segment. Since my selected companies under Metals
    & Mining Industry – JSW Steel Ltd and Jindal Steel & Power Ltd. both belongs to Steel Sector,
    porters five force analysis of Steel Sector is done and presented here.

    Threat of
    Bargaining power of
    new entrants: LOW
    suppliers: LOW
    TO MEDIUM

    PORTER'S
    FIVE FORCES
    Threat of
    substitutes: LOW TO
    MEDIUM

    Bargaining power of
    buyers: LOW

    Competitive rivalry:
    MODERATE TO HIGH

    THREAT OF NEW ENTRANTS:


    • Capital Requirement: Steel industry is a capital-intensive business. It is estimated that to
    set up 1 mtpa capacity of integrated steel plant, it requires between Rs 25 bn to Rs 30 bn
    depending upon the location of the plant and technology used.
    • Economies of scale: As far as the sector forces go, scale of operation does matter. Benefits
    of economies of scale are derived in the form of lower costs, R& D expenses and better
    bargaining power while sourcing raw materials. It may be noted that those steel
    companies, which are integrated, have their own mines for key raw materials such as iron
    ore and coal and this protects them for the potential threat for new entrants to a significant
    extent.
    • Government Policy: The government has a favorable policy for steel manufacturers.
    However, there are certain discrepancies involved in allocation of iron ore mines and land
    acquisitions. Furthermore, the regulatory clearances and other issues are some of the
    major problems for the new entrants.
    • Product differentiation: Steel has very low barriers in terms of product differentiation as it
    doesn't fall into the luxury or specialty goods and thus does not have any substantial price
    difference. However, certain companies like Tata Steel still enjoy a premium for their
    products because of its quality and its brand value created more than 100 years back.

    Hence for above factors, Threat of new entrants can be considered as low to moderate

    THREAT OF SUBSTITUTES:

    It is low to medium. Plastics and composites pose a threat to Indian steel in one of its
    biggest markets – automotive manufacture. For the automobile industry, the other
    material at present with the potential to upstage steel is aluminum. Perhaps the most
    attractive alternative to stainless is aluminum. Stainless producers themselves are offering
    their customers a range of alternatives in an effort to prevent business being lost to non-
    ferrous or carbon steel materials. Such options include lower-nickel duplex grades and
    ferritic types. In the meantime, nickel’s fluctuations will continue to create problems for
    the stainless industry worldwide.

    At the present, Steel has already been replaced in some large volume applications: railway
    sleepers (RCC sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC
    pipes), and domestic water tanks (PVC tanks). The substitution is more prevalent in the
    manufacture of automobiles and consumer durables.

    Hence for above factors, Threat of substitutes can be considered as low to moderate

    BARGAINING POWER OF SUPPLIERS:


    The bargaining power of suppliers is low for the fully integrated steel plants as they have
    their own mines of key raw material like iron ore coal for example Tata Steel. However,
    those who are non-integrated or semi integrated has to depend on suppliers. An example
    could be SAIL, which imports coking coal. Also, it is an highly regulated industry with
    difficult to get the mining permits.

    Hence for above factors, bargaining power of suppliers can be considered as low
    BARGAINING POWER OF BUYERS:
    Unlike the FMCG or retail sectors, the buyers have a low bargaining power. Demand/supply
    imbalance determines the price of commodities. Major customers typically negotiate
    prices based on current market levels. However, the government may curb or put a ceiling
    on prices if it feels the need to do so. The steel companies either sell the steel directly to
    the user industries or through their own distribution networks. Some companies also do
    exports.
    Some of the major steel consumption sectors like automobiles, oil & gas, shipping,
    consumer durables and power generation enjoy high bargaining power and get favorable
    deals. However, small and retail consumers who are scattered and consume a significant
    part do not enjoy these benefits.
    Hence for above factors, bargaining power of buyers can be considered as low

    COMPETITIVE RIVALRY:
    It is medium to high in the domestic steel industry as demand still exceeds the supply. India
    is a net importer of steel. However, a threat from dumping of cheaper products does exist.
    Commodity prices are set internationally and individual players have no control over it.
    Competition is high to identify commodity reserves leading to more market share.
    The steel industry is truly global in terms of competition with large producing countries like
    China significantly influencing global prices through aggressive exports. The 4 major
    domestic rivals are SAIL, JSW, ISPAT and ESSAR STEEL, which the rests are all smallish mills
    which together accounts for 30 % of the total market share.
    Currently, two Global Steel majors namely Arcelor- Mittal, which is the world’s largest I and
    POSCO, are posed to be the biggest threat as they plan to enter the Indian Steel Industry
    very soon.
    Hence for above factors, competitive rivalry can be considered as medium to high

    CONCLUSION:
    After understanding all the above view points and the current global scenario, we believe
    that the domestic steel industry will likely to maintain its momentum in the long term.
    However, the growth may get affected in short run. Investors need to focus on companies
    that are integrated, have economies of scale and sell premium quality products

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