PRICE TREND ANALYSIS OF STEEL IN THE FIELD OF

CONSTRUCTION

By
T.R.MANIKANTAN
Reg No.41909631049
Of
SRI SAIRAM ENGINEERING COLLEGE
(SRI SAIRAM INSTITUTE OF MANAGEMENT STUDIES)
A SUMMER PROJECT REPORT
Submitted to the
FACULTY OF MANAGEMENT STUDIES
In partial fulfilment of the requirements
For the award of the degree
Of
MASTER OF BUSINESS ADMINISTRATION
Anna University
Chennai 600 025
July 2010
 TABLE OF CONTENTS

TITLE
LIST OF TABLES
LIST OF FIGURES
ACKNOWLEGEMENT
ABSTRACT
CHAPTER I
INTRODUCTION TO THE STUDY
1.1 INDUSTRY PROFILE
1.2 COMPANY PROFILE
1.3 NEED FOR THE STUDY
1.4 OBJECTIVES
1.5 SCOPE OF THE STUDY
1.6 LIMITATIONS
CHAPTER II
2.1 RESEARCH METHODOLOGY
CHAPTER III
3.1 ANALYSIS AND INTERPRETATION
3.2 FINDINGS AND SUGGESTION
CONCLUSION
APPENDIX
BIBLIOGRAPHY
 LIST OF TABLES

TABLE TITLE PAGE

NO NO

MAIN PRODUCERS TMT PRICE

3.01

SECONDARY PRODUCERS PRICE

3.02

SCRAP PRICE
3.03

DEMAND AND SUPPLY

3.04
 LIST OF FIGURES

TABLE TITLE PAGE

NO NO
MAIN PRODUCERS TMT PRICE

3.01
SECONDARY PRODUCERS PRICE AND SCRAP
PRICE
3.02
ESTIMATE OF SECONDARY PRICE AND SCRAP
PRICE
3.03
DEMAND AND SUPPLY

3.04
ESTIMATE OF DEMAND AND SUPPLY

3.05
PROJECTED STEEL PRICE

3.06
ESTIMATE PROJECTION OF STEEL PRICE

3.07
 CHAPTER I

INTRODUCTION
 INTRODUCTION
PRICE TREND ANALYSIS

The "trend analysis" refers to the concept of collecting information and attempting to
spot a pattern, or trend, in the information. In some fields of study, the term "trend
analysis" has more formally-defined meanings.

Although trend analysis is often used to predict future events, it could be used to estimate
uncertain events in the past, such as how many ancient kings probably ruled between two
dates, based on data such as the average years which other known kings reigned.
In project management trend analysis is a mathematical technique that uses historical
results to predict future outcome. This is achieved by tracking variances in cost and
schedule performance.
Trend analysis is a form of comparative analysis that is often employed to identify
current and future movements of an investment or group of investments. The process may
involve comparing past and current financial ratios as they related to various institutions
in order to project how long the current trend will continue. This type of information is
extremely helpful to investors who wish to make the most from their investments.

The process of a trend analysis begins with identifying the category of the investments
that are under consideration. For example, if the investor wishes to get an idea on the
potential for making a profit with pork bellies, the focus will be on the performance of
pork bellies in a commodities market. The trend analysis will include more than one
supplier for the commodity, in order to get a more accurate picture of the current status of
pork bellies on the market.

Once the focus is established, the investor takes a long at the general performance for the
category over the last couple of years. This helps to identify key factors that led to the
current trend of performance for the investment under consideration. By understanding
how a given investment reached the current level of performance, it is then possible to
determine if all or most of those factors are still exerting an influence.

After identifying past and present factors that are maintaining a current trend in
performance, the investor can analyze each factor and project which factors are likely to
continue exerting influence on the direction of the investment. Assuming that all or most
of the factors will continue to exert an influence for the foreseeable future, the investor
can make an informed decision on whether to buy or sell a given asset.
 1.1 INDUSTRY PROFILE

India has experienced steady growth in the steel industry; the successive governments
have supported the industry and pushed for its robust development.

Further illustrating this plan is the fact that a number of steel plants were established in
India, with technological assistance and investments by foreign countries.

In 1991, a substantial number of economic reforms were introduced by the Indian

government. These reforms boosted the development process of a number of industries -
the steel industry in India in particular - which has subsequently developed quite rapidly.

The 1991 reforms allowed for no licenses to be required for capacity creation, except for
some locations. Also, once India’s steel industry was moved from the listing of the
industries that were reserved exclusively for the public sector, huge foreign investments
were made in this industry.

Yet another reform for India’s steel industry came in 1992, when every type of control
over the pricing and distribution system was removed, making the modern Indian Steel
Industry extremely efficient, as well as competitive.

Additionally, a number of other government measures have stimulated the growth of the
steel industry, coming in the form of an unrestricted external trade, low import duties,
and an easy tax structure.

India continually posts phenomenal growth records in steel production. In 1992, India
produced 14.33 million tones of finished carbon steels and 1.59 million tones of pig iron.
Furthermore, the steel production capacity of the country has increased rapidly since
1991 - in 2008, India produced nearly 46.575 million tones of finished steels and 4.393
million tones of pig iron.

Both primary and secondary producers contributed their share to this phenomenal
development, while these increases have pushed up the demand for finished steel at a
very stable rate.
In 1992, the total consumption of finished steel was 14.84 million tones. In 2008, the
total amount of domestic steel consumption was 43.925 million tones. With the increased
demand in the national market, a huge part of the international market is also served by
this industry. Today, India is in seventh position among all the crude steel producing
countries.

It is common today to talk about "the iron and steel industry" as if it were a single entity,
but historically they were separate products. The steel industry is often considered to be
an indicator of economic progress, because of the critical role played by steel in
infrastructural and over all economic development.
The economic boom in China and India has caused a massive increase in the demand for
steel in recent years. Between 2000 and 2005, world steel demand increased by 6%.
Since 2000, several Indian and Chinese steel firms have risen to prominence like Tata
Steel (which bought Corus Group in 2007), Shanghai Baosteel Group
Corporation and Shagang Group. ArcelorMittal is however the world's largest steel
producer.
In 2005, the British Geological Survey stated China was the top steel producer with about
one-third of the world share; Japan, Russia, and the US followed respectively.
In 2008, steel started to be traded as a commodity in the London Metal Exchange. At the
end of 2008, the steel industry faced a sharp downturn that led to many cut-backs.

Iron and steel are used widely in the construction of roads, railways, other infrastructure,
appliances, and buildings. Most large modern structures, such
as stadiums and skyscrapers, bridges, and airports, are supported by a steel skeleton.
Even those with a concrete structure will employ steel for reinforcing. In addition to
widespread use in major appliances and cars. Despite growth in usage of aluminum, it is
still the main material for car bodies. Steel is used in a variety of
other construction materials, such as bolts, nails, and screws.

Other common applications include shipbuilding, pipeline transport, mining, offshore

construction, aerospace, white goods (e.g. washing machines), heavy equipment such as
bulldozers, office furniture, steel wool, tools, and armour in the form of personal vests
or vehicle armour (better known as rolled homogeneous armour in this role).
 1.2 COMPANY PROFILE
LARSEN & TOUBRO

LARSEN & TOUBRO LIMITED was established in 1938, and a today India’s largest
multi-dimensional engineering and construction company involved in manufacturing
and supplying various types of industrial and household equipment. Two Danish young
men, Mr. HOLCK LARSEN & Mr. S. KRISTIAN TOUBRO attended the same college
and passed out as chemical and civil engineers respectively decided to work in the same
company, F.L. Smith and Co, Copenhagen, Denmark. Mr. Toubro was sent to India in
1934 to help, erect & commission machinery supplied for a cement plant by F.L.Smith
and Co. Fortunately Mr. Larsen was also sent to India in 1935 to assess the cement
manufacturing capabilities of various manufacturing groups. In 1938, the two Danes
decided to seek their fortunes in postwar India and so came together in that age of
entrepreneur to set up Larsen & Toubro, as a partnership firm by setting up a small
office in downtown Mumbai (then Bombay). Initially they began marketing Danish
dairy equipment, which was a great success. A year later, when World War II broke
out, the fledgling Company’s genius for innovation came to the fore. It began to make
the products it used to import. In 1945, L&T was appointed dealers of Caterpillar, the
American earthmoving machinery giant. In 1946, the firm became a limited company,
and soon a nationwide network of offices was set up.
MISSION
L&T believes that the true and full measure of growth, success and progress lies
beyond balance sheets or conventional economic indices. It is best reflected in the
difference that business and industry make to the lives of people. Through its social
investments, L&T addresses the needs of communities residing in the vicinity of its
facilities, taking sustainable initiatives in the areas of heath, education, environment
conservation, infrastructure and community development.

VISION
L&T shall be professionally managed Indian – multinational, committed to total
customer satisfaction and enhance the shareholder values.
L&T-ites shall be an innovative, entrepreneurial and empowered team constantly
creating value and attaining global benchmark.
L&T shall foster a culture of caring , trust and continuous learning while meeting
expectation of employees, stakeholders and society.

L&T had set out a charter for itself: the company would meet the needs of India’s
emerging core sector. ‘In Service Lies Success’ was enshrined as a corporate motto.
Very soon L&T came to be known for its quality and thus began the creation of one of
the largest Indian company. The firm became a public limited company in 1950. L&T
steadily climbed the list of the top 200 Indian companies - from 72 in 1966 to 25 in
1973. By then, it had developed a vast repertoire of skills and a reputation for high
quality goods and services. Over the next decade, most of L&T’s activities had
crystallized into products and services involving high technology and advanced product
development programmes. It has now come a long way from its little office in Mumbai
of 1938. In India, they are a visible and vibrant presence. Some of India’s most
sophisticated projects and most complex industrial equipment carry the L&T insignia of
excellence. Leading-edge capabilities cover every discipline of construction: civil,
mechanical, electrical and instrumentation.

1.3 NEED FOR STUDY

The study is on the price trend of steel in the field of construction. The study
helps to visualize the market status of steel sector which gives the clear view of the
purchased price of steel in L&T. The company needs a study on the price variation on
steel it purchases and to find the impact on the construction contract it undertakes.
The study is conducted to give suggestion to the company about what the
price of steel would be due to the increase in the demand. The study covers the
prediction and estimation of the projected price of TMT Steel.

1.4 OBJECTIVES

PRIMARY OBJECTIVES
• To estimate the price trend of the main producers of TMT and secondary
producers of TMT upto FY 2013.
• To predict the demand and supply of the TMT steel upto FY 2014.

SECONDARY OBJECTIVES
• To project and estimate the steel price.
• To find out how the variation in the price changes shows the impact in the
construction contract of L&T.
• To make projection on variation in the landed cost of steel purchased by L&T.
 1.5 SCOPE OF THE STUDY

The study is covers the landed cost of steel purchased by the company
from the main producers of TMT and also the secondary producers of TMT. The prices
obtained by the estimation of the landed cost for the forthcoming years benefits the
company to have a clear vision about the price variation and its fluctuations in future. .
The study also estimates the demand and supply of TMT steel in the field of
construction which enables the company to evaluate about the purchase estimation of
Steel.
 1.6 LIMITATIONS

• The estimation of trend is done only for next 4 yrs.

• The steel variety concerned with only TMT domestic bars.

• The price trend covers only the landed price of steel in India.

• The limited area of the study is only to the construction sector in India.

• As the data are obtained from the secondary sources, no direct or personal

interaction about the data.

• Though the estimation is done with trend analysis, the projection may not be

absolutely accurate.

• The analysis suggests only about the cost and not the quantity of procurement.
 CHAPTER II

RESEARCH
METHODOLOGY

2.1 RESEARCH METHODOLOGY

A research cannot be conducted abruptly. Every Researcher has to proceed

systematically in a planned direction with the help of a number of steps in sequential
order to make the research systemized for completing the project is called Research
Methodology.
Data becomes information only when a proper methodology is adopted. Thus we
can say methodology is tools which process the data to reliable information.

RESEARCH OBJECTIVE

It is the way scheme the research problem systematically. It may be understood as a

science of studying how research is done scientifically. In other words, it is the
specification of the methods and procedures for acquiring the information needed to
structure or identify the variation. It is the overall operational pattern or framework of
the project that stipulates what information is to be collected, from which sources and
with what procedures.

RESEARCH DESIGN
The research design is Analytical Research. In this the researcher has to use facts or
information already available and analysis these to make critical evaluation of the
material. It is used to estimate the future performance or to identify the effects of the
variation of price.
A research design is an agreement of conditions for collection and analysis of data in a
manner that aims to combine rebalance to the research purpose with economy in
procedure.
Types of research design:
1. Exploratory research design.
2. Experimental research design.
3. Descriptive research design.
Out of the research design above said the research design undertaken for the purpose of
the study was Analytical Research.
STATISTICAL TOOL
 Price trend analysis

CHAPTER III

3.1 ANALYSIS AND

INTERPRETATION
3.2 FINDINGS AND
SUGGESTION

3.1 ANALYSIS AND INTERPRETATION

3.01 PRICE OF MAIN PRODUCERS TMT

PRICE CAPACITY
YEAR (Rs. /Mt) ( per Mnt)

Jan 2005 27020 36.2

Feb 2006 24270 42.6
Dec 2006 28200 55.1
May 2007 35416 58.2
Feb 2008 36031 58.2
Aug 2008 48929 63.4
Aug 2009 33500 63.4
Feb 2010 41700 65.5
May 2010 34500 65.5

INTERPRETATION
From the above table and graph, the price of the main producers reaches its peak to
Rs.48929/- in the FY2008 in the month of August.
 3.01.1 PRICE TREND OF MAIN PRODUCERS TMT

The above prices are basic inclusive of ED and exclusive of VAT

3.02 SECONDARY PRODUCERS PRICE

YEAR SECONDARY TMT PRICE

Nov 2008 31304

Dec 2008 32424
Jan 2009 36722
Feb 2009 35221
 Mar 2009 31308
Apr 2009 34675
May 2009 31057
June 2009 27196
Jul 2009 28434
Aug 2009 29184
Sep 2009 27466
Oct 2009 29482
Nov 2009 30715
Dec 2009 31896
Jan 2010 32300
Feb 2010 32484
Mar 2010 31254
Apr 2010 32570
May 2010 32424
June 2010 31300
Jul 2010 31846
3.03 SCRAP PRICE

YEAR SCRAP TMT PRICE

Nov 2008 208

Dec 2008 233
Jan 2009 273
Feb 2009 203
Mar 2009 198
Apr 2009 225
May 2009 223
June 2009 232
Jul 2009 243
Aug 2009 323
Sep 2009 288
Oct 2009 263
Nov 2009 295
Dec 2009 345
Jan 2010 340
Feb 2010 330
Mar 2010 438
Apr 2010 418
May 2010 400
 June 2010 395
Jul 2010 390
3.02.1 SECONDARY PRODUCERS vs SCRAP PRICE

 - Secondary price
 -scrap price
The above prices are basic inclusive of ED and exclusive of VAT
Scrap prices are in U.S dollars

INTERPRETATION
From the above table and graph the price of the landed cost from the secondary
producers reached its highest to Rs.36722/- and the scrap price is at Rs.438/- in March
2010.

3.02.2 ESTIMATE PROJECTION OF SECONDARY PRODUCERS

TMT AND SCRAP PRICE
INTERPRETATION
From the above calculation and graph it is estimated that the price of the secondary
producers is about to reach the highest of Rs.40644 in the FY2014. While the scrap
price would be Rs.605 in the FY2014

3.04 DEMAND AND SUPPLY

YEAR PRODUCTION CONSUMPTION %OF

CONSUMPTION

2003 -2004 36 31.2 86

2004-2005 40 34.4 86

2005- 2006 43 38.2 89

 2006-2007 55 49.8 90

2007-2008 58 52.1 90

2008-2009 63 52.4 83

2009-2010 65 56.5 86

INTERPRETATION
From the above table of data and graph the production and consumption of the TMT
Steel shows a steady increase in its variation without much fluctuation.

3.04.1 DEMAND AND SUPPLY

DEMAND AND SUPPLY

100
90 89 90 90
86 86 83 86
80
70
63 65
60 58 56.5
55 52.1 52.4
50 49.8
40 40 43
36 38.2
31.2 34.4
30
20
10
0
2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

PRODUCTION CONSUMPTION % of COMSUMPTION

The above figures are in million metric tones

 3.04.2 ESTIMATE PROJECTION OF DEMAND / SUPPLY

INTERPRETATION
From the above graph which shows the estimation of demand and supply along with the
percentage of consumption and the percentage reaches to 102% during FY2014

STATISTICAL ANALYSIS ( TREND ANALYSIS)

 SECONDARY PRODUCERS PRICE

X Y X x2 XY
1 32424 1 1 32424
2 31300 0 0 0
3 31846 -1 1 -31846
SUM 95570 2 578

a= sum of Y/ n

=95570 / 3

a= 31856.66

b= sum of xy/sum of x2

= 578 / 2

= 289

Trend line, Y= a+bx

Y= 31856.66+(289x)

Expected price for FY2010 is

Y= 31856.66+(289 X 2)
= 33438
Expected price for FY2011
Y= 31856.66+(289 X 3)
= 35110
Expected price for FY2012
Y= 31856.66+(289 X 4)
= 36865
Expected price for FY2013
Y= 31856.66+(289 X 5)
= 38709
Expected price for FY2014
Y= 31856.66+(289 X 6)
= 40644
 STATISTICAL ANALYSIS ( TREND ANALYSIS)
SCRAP PRICE

X Y X X2 Xy
1 400 1 1 400
2 395 0 0 0
3 390 -1 1 -390
SUM 1185 2 10

a= sum of Y/ n
= 1185 / 3
a= 395
b= sum of xy/sum of x2
= 10/ 2
=5
Trend line, Y= a+bx
Y= 395+(10x)
Expected price for FY2010 is
Y= 395+(10 X 2)
= 390
Expected price for FY2011
Y= 395 + (10X 3 )
= 510
Expected price for FY2012 is
Y= 395+(10 X 4)
= 515
Expected price for FY2013
Y= 395+(10 X 5)
= 595
Expected price for FY2014
Y= 395+(10 X 6)
= 605
PRODUCTION

X Y X x2 Xy
 58
1 -1 1 -58
63
2 0 0 0
65
3 1 1 65
186
SUM 2 7

a= sum of Y/ n
= 186 / 3
a= 62
b= sum of xy/sum of x2
= 7/ 2
= 3.5
Trend line, Y= a+bx
Y= 62+(3.5x)
Expected price for FY2010 – FY2011 is
Y= 62+(3.5 X 2)
= 65

Expected price for FY2011 – FY2012 is

Y= 62+(3.5 X 3)
= 75
Expected price for FY2012 – FY2013 is
Y= 62+(3.5 X 4)
= 90
Expected price for FY2013 – FY2014 is
Y= 62+(3.5 X 4)
= 100

CONSUMPTION
X Y X x2 Xy
 1 52.1 -1 1 -52.1
2 52.4 0 0 0
3 56.5 1 1 56.5
SUM 161 2 4.4

a= sum of Y/ n
= 161 / 3
a= 53.66
b= sum of xy/sum of x2
= 4.4/ 2
= 2.2
Trend line, Y= a+bx
Y= 53.66+(2.2x)
Expected price for FY2010 – FY2011 is
Y= 53.66 + (2.2 X 2)
= 66
Expected price for FY2011 – FY2012 is
Y= 53.66 + (2.2 X 3)
= 76

Expected price for FY2012 – FY2013 is

Y= 53.66 + (2.2 X 4)
= 88

Expected price for FY2013 – FY2014 is

Y= 53.66 + (2.2 X 5)
= 102
 3.2 FINDINGS

 Keeping all the facts in view, the reinforcement steel prices are expected to

reach highest level of Rs.46000-47000/MT in a span four years (2011-2014).

 As the prices keep on increasing the average price for the secondary producers

of TMT is Rs.36953/ MT

 The average price of the main producers TMT is Rs.44160/MT

 The company would have to spend about 790 crores approximately for the

purchase of steel in the next 4 yrs.

 Though the construction activities would be at its peak, it is more profitable to

procure steel when price drops as per the requirement of the contract.

3.2 SUGGESTIONS

 I would like to suggest that more proper utilization of the resource available
would enhance the profit for the company.

 It would be more wise to procure the steel during the monsoon season when the
price tends to drop down as per the prediction.
 The steel industry is more fast growing and in this field of construction though the
company purchases it as the major component.

 The company invests as main raw material for the construction then the company
would purchase steel as the price is affordable.

CONCLUSION
 CONCLUSION
The primary goal of this project report is to analyze and understand the steel sector
price pattern in the field of construction and to forecast the future cost which is to
occur. The L&T company ECC division department which is expertise in the field of
construction would find this report to be helpful as to analyze the variations in the price
pattern of the TMT bar steel which they have procured for the past 5 yrs and a
completed analysis and deep knowledge is been acquired.
Before the introduction of the Bessemer process and other modern production
techniques, steel was expensive and was only used where no cheaper alternative
existed, particularly for the cutting edge of knives, razors, swords, and other items
where a hard, sharp edge was needed. It was also used for springs, including those used
in clocks and watches. With the advent of speedier and thriftier production methods,
steel has been easier to obtain and much cheaper. It has replaced wrought iron for a
multitude of purposes. However, the availability of plastics in the latter part of the 20th
century allowed these materials to replace steel due to their lower cost and weight.
Today, trend analysis often refers to the science of studying changes in social patterns,
including fashion, and technology.
APPENDIX
BIBLIOGRAPHY
 REFERENCE

 http://business.mapsofindia.com/cement/
 http://www.ibef.org/industry/cement.aspx
 www.lntecc.com
 www.l&t.com
 “International Trend Analysis” , Howard G. Schaefer , British Library Cataloging
Publication in Data.