Microsegregation, which is unavoidable during solidification, needs to be controlled as it causes a number of failures during hot working for producing semi finishedlfinished products and subsequent cold-working to produce the finished products. The present work is aimed at achieving just the same, in free-cutting grade steels, by gaining a better under-standing of the relative stability of different sulphide inclusions. FeS or Fe-rich (Fe, Mn)S inclusions are undesirable in free-cutting grade steels as their melting points are below 1000 °C. They lead to hot-shortness and grain-boundary cracking during hot rolling and need to be transferred to beneficial MnS or Mn-rich (Mn, Fe)S which have higher melting points. In the present work, microstructural characterization by optical and scanning electron microscopy followed by XRD was carried out to identify the phases present in the as-cast and heat treated billets obtained through continuous casting. Hot rolled wire rods, of 7mm diameter, which exhibited surface imperfections were also examined to understand the cause of failure. Microstructural studies of the as cast billets confirm the presence of deleterious Fe-rich (Fe, Mn)S inclusions on the grain boundaries. In the heat treated billets, however, these deleterious sulphides were found to be present only in the central region. Regions away from the centre of the billet, showed the presence of stable Mn-rich (Mn, Fe)S on the grain boundary instead of the unstable Fe-rich (Fe, Mn)S. Therefore, it was concluded that the transformation of the Fe-rich ternary phase to a more stable Mn-rich ternary phase was not complete in the central region of the billet due to insufficient heat treatment. Also proposed are alternative soaking time and temperature to facilitate the complete transformation and improve the quality of the rolled products