INDIA AHOY!!!!!

STEEL SECTOR

World Steel Industry – Top Ten

Source: IISI

9

48

3

2

S. Korea

53.6 mT

5

6

Italy

30.6 mT

10

Germany

45.8 mT

Ukraine

38.6 mT

7

USA

91.4 mT

Russia

68.5 mT

Brazil

33.7 mT

India

58.1 mT

1

China

502 mT

Global crude steel Production: 1326.5 million tonnes (mT)

Japan

118.7 mT

Global ranking of Indian steel

Indian Steel Industry

Supply With trade barriers having been lowered over the years, imports

play an important role in the domestic markets.

Demand The demand is derived from sectors that include infrastructure,

consumer durables and automobiles.

Barriers to entry High capital costs, technology.

Bargaining power of suppliers The government’s move on railway freight costs and grid power

costs would determine the final price of the metal.

Bargaining power of customers High, presence of a large number of suppliers and access to

global markets.

CompetitionHigh, presence of a large number of players in the unorganized

sector.

Skilled Human Resources

Abundant Iron Ore

Government Policy

Huge Potential for Demand

• High GDP growth rate of 7%• 1 billion population• Low per capita steel consumption of 33kg (World av. 181 kg)

Reserves 23 billion tonnes

• Stable currency• Easing of regulations• Strong Banking & judicial

system

Growth factors

for India

•Encouraging trade relations with ASEAN and other countries

• Infrastructure building• Exploring new Energy resources

Indian Potential for Steel

Fifth largest producer of steel in the world and second largest

producer of crude steel - Press Information Bureau Steel production reached 28.49 million tonne (MT) in April-

September 2009.

About 50% of the steel produced in India is exported.

India accounts for over 7% of the total steel produced globally

India accounts for around 5 per cent of the global steel consumption

Huge Iron Ore reserves – 23 bn. tonnes

Indian Steel Producers are increasingly looking for overseas acquisitions in steel as well as raw materials.

Positive overall growth in the production of crude steel

Indian Steel Industry – An Overview

Composition of Steel Production -A Value Proposition

Long Products

HR

Plate

CR

GP

Pipe

HR

Quantity %age

Long

Prods.

13.928 42%

HR 7.254 22%

Plates 1.832 5%

CR 2.251 7%

GP 4.790 14%

Pipes 3.616 11%

Total 33.670 100%

Steel - Products

Indian Steel Industry

SWOT Analysis

SWOT ANALYSIS OF INDIAN STEELINDUSTRY

STRENGTHS•Abundant resources of iron ore

•Low cost and efficient labour force

•Strong managerial capability

•Strongly globalised industry and emerging global competitiveness

•Modern new plants & modernised old plants

•Strong DRI production base

•Regionally dispersed merchant rolling mills

WEAKNESSES•High cost of energy

•Higher duties and taxes

•Infrastructure

•Quality of coking coal

•Labour laws

•Dependence on imports for steel manufacturing equipments & technology

•Slow statutory clearances for development of mines

SWOT ANALYSIS OF INDIAN STEELINDUSTRY

OPPORTUNITIES

• Huge Infrastructure demand

• Rapid urbanisation

• Increasing demand for consumer durables

• Untapped rural demand

• Increasing interest of foreign steel producers in India

THREATS

• Slow growth in infrastructure development

• Market fluctuations and China’s export possibilities

• Global economic slow down

Michael Porters Five Forces Analysis

Buyers’ Power• Increasing Demand for Steel• Fragmented Coke Suppliers

Suppliers’ Power• High Raw Material Prices• Lack of Captive Source Hurting Steel Producers• Lack of Transportation• Backward Integration

Intensity of Competition• Competition from Foreign Players• Spurt in Merger and Acquisition Activities

Threat of New Entrants• High Cost of Basic Inputs and Services

Threat of Substitutes• Use of Aluminum/Plastic

PEST AnalysisPolitical Factors• Recommendations on Captive Mines• National Steel Policy to Remove Bottlenecks

Economic Factors• GDP Growth Rate• Reduction in Customs Duty

Social Factors• Rural-Urban Divide• Higher Disposable Income

Technological Factors• Popularity of Steel Portals• Application of SML (Steel Markup Language)

Top 10 Players

• 1st; 103.3 mmt; ArcelorMittal • 2nd; 37.5 mmt; Nippon Steel • 3rd; 35.4 mmt; Baosteel Group • 4th; 34.7 mmt; POSCO • 5th; 33.3 mmt; Hebei Steel Group • 6th; 33.0 mmt; JFE • 7th; 27.7 mmt; Wuhan Steel Group • 8th; 24.4 mmt; Tata Steel • 9th; 23.3 mmt; Jiangsu Shagang Group • 10th; 23.2mmt; U.S. Steel Source: World Steel Association

ArcelorMittal

• largest steel company, with 315,867 employees in more than 60 countries.

• formed in 2006 by the merger of Arcelor and Mittal Steel. ($38.3 billion )

• It ranks 28th on the 2009 Fortune Global 500 list.

• the market leader in steel for use in automotive, construction, household appliances and packaging.

• ArcelorMittal is looking to develop positions in the high-growth Indian and Chinese markets.

MAJOR PLAYER - SAIL

• fully integrated iron and steel maker.

• GOI - 86% of SAIL's equity

• However, SAIL, by virtue of its "Navratna" status, enjoys significant operational and financial autonomy.

• SAIL and TISCO (which enjoy the benfits of captive ore mines) are among the lowest cost producers of steel in the world.

Major units of SAIL are as under: .Integrated Steel Plants • Bhilai Steel Plant (BSP) in Chhattisgarh • Durgapur Steel Plant (DSP) in West Bengal • Rourkela Steel Plant (RSP) in Orissa • Bokaro Steel Plant (BSL) in Jharkhand

Special Steel Plants • Alloy Steels Plants (ASP) in West Bengal • Salem Steel Plant (SSP) in Tamil Nadu • Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

Subsidiaries • Indian Iron and Steel Company (IISCO) in West Bengal • Maharashtra Elektrosmelt Limited (MEL) in Maharashtra • Bhilai Oxygen Limited (BOL) in New Delhi

SAIL’S GROWTH PLANS

2005-06 2011-12Hot Metal 14.60 22.5

Crude Steel 13.47 21.6

Saleable Steel

12.05 20

mT

- Planned Investments of US$ 7.7 bn.- Includes only growth in existing Units

Other Major steel producers

• Tisco • JSW• Essar Steel • RINL • MECON • MOIL • MSTC • KIOCL • NMDC

TATA STEEL LIMITED

• Tisco -1907• country's single largest• Integrated steel plant• ranks 34th in the world• Technical collaboration with Nippon Steel

& Arcelor• In January 2007 Tata Steel made a

successful $11.3 billion offer to buy European steel maker Corus Group PLC.

STEEL SECTOR TRENDS• India - world’s largest producer of

direct reduced iron (DRI) or sponge iron with nearly 20 million tonnes production in 2008-09.

• Estimated steel production capacity -124 million tonnes by the year 2011-12.

• Generate additional employment of around 4 million by 2020 for production of around 295 million tonnes of crude steel by 2019-2020.

• 222 MoUs have been signed with various States for planned capacity of around 276 million tonnes

Steel: Key facts

Performance of PSUs

Production, consumption and growth of steel

Crude steel production

Trends in production, private/public sector

Turnaround in Industrial Activity

-8

-6

-4

-2

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2008

%

gro

wth

Agriculture Industry Services

Services

Agriculture

Industry

Services and Industry contribute to higher GDP growth

Indian Steel Growth-Slowly, Steadily

1.1 1.1 1.623.23

5.056.75

9.36

12.02

14.3

24.2

26.2

36.5

0

5

10

15

20

25

30

35

40

Stagnation

Controlled Regime

Decontrol

Con

fiden

ce

1951 20051991

Proof of the Pudding !

Booming Capital Market

Indicators 2003-04 2004-05 2005-06

BSE Index as on March 31 5591 6493 11280

Market Capitalisation as on March 31 (US$ bn.)

266.8 377.33 671.5

Foreign Institutional Investors Net Purchases in Equity market (US$ bn.) (For Calendar Year)

6.7 8.65 10.4

Other Key Indicators

Exports crossed US$100bn. mark in 2005-06. Fourth consecutive year of more than 20% exports growth

Imports of Capital goods increasing Moderate inflation rate - within 4-5%Stable Rupee against US dollarGrowing corporate sector profits Growing Forex reserves - US$ 160 bn.Business Confidence at all time high

Steel Sector The Back Seat Drivers!

-10

-5

0

5

10

15

20

00-01 01-02 02-03 03-04 04-05 05-06

% g

row

th

Construction

Manufacturing

Capital Goods

ConsumerDurables

BOOMING STEEL CONSUMING SECTORS

Industrial growth led by Manufacturing

Capital and Consumer Goods sectors flag bearers of manufacturing sector growth

Capital Goods

Manufacturing

Construction

Consumer Durables

0

5

10

15

20

25

30

35

40

45

1949 1953 1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2008

INDIA’S CRUDE STEEL PRODUCTION (MT)HISTORIC TRENDS

* Year indicates FY

SLOW GROWTHMODEST GROWTH

HIGH G

ROWTH

Enabled by India’sEconomic liberalization process

India gains independencein 1947

6.6 mT in 1973

16.2 mT in 1991

1.25 mT in 1948

58 mT in 2008

Apparent Finished Steel Consumption (mT)

14.8 15 15.3

18.7

21.7 22.1 22.6 23.525

26.5 27.428.9

31.233.3

38.4

10

15

20

25

30

35

40

91-92 93-94 95-96 97-98 99-00 01-02 03-04 05-06

mT

CAGR – 7.0%

National Steel Policy

Addressing the Weaknesses &

Harnessing the Opportunities

Approved by Government of India in September 2005

OBJECTIVE

To have modern and efficient steel industry of world standards, catering to diversified steel demand.

To achieve global competitiveness in cost, quality, product-mix, efficiency and productivity

To attain Finished Steel production of 110 mTpa by 2019-20

Production Imports Exports Consumption

2019-20 110 6 26 90

CAGR

(Base – 08-09)

7.3% 7.1% 13.3% 6.9%

STRATEGY

Demand Side

– Strengthening of delivery chain – Interface between producers, designers of steel intensive

products, fabricators and ultimate user– Creating awareness about cost-effective and technically

efficient end-use of steel

Supply side– Enhanced and easy access to critical inputs – iron ore &

coking coal– Expansion and improvement in quality of infrastructure – Well developed financial market – Increased focus on R&D, training of manpower and integrated

information services

New Capacities

Tata Steel

RINL

SAIL

Mittal

POSCO

JSPL

Essar

Bhushan

MMK

JSWIspat

Sterlite

Proposed state-wise capacity additions upto 2012.

J’khand: 34 mtpa

W Bengal: 4 mtpa

Ch’garh: 9 mtpa

Orissa :38 mtpa

AP: 3.3 mtpa

Karnataka: 9.7 mtpa

Future of Indian Steel Industry

You ain’t seen nothing yet !

Projected per Capita consumption of Finished Steel in India (kg)

Year Per Capita Steel Consumption

2011-12 48

2019-20 80

2024-25 110

2029-30 135

2034-35 175

India’s current population is - 1100 millionIt is assumed that till 2051, population would be about : 1.4 bn.

Optimistic Case

Medium

Growth

Conservative

Fin. Steel Cons.

Growth

Rate

Consum-ption

(mTpa)

Fin. Steel Cons. Growth Rate

Consum-

ption

(mTpa)

Fin. Steel Cons. Growth

Rate

Consum-ption

(mTpa)

2005-2020

7.6% 100 6.9% 90 * 5.5% 76

2020-2030

6.5% 188 5.5% 147 4.5% 118

2030-2040

5.0% 305 4.0% 217 3% 158

2040-2050

5.0% 498 4.0% 322 3% 212

GROWTH SCENARIOS

* - Also projected by National Steel Policy

RESOURCESAbundant Iron Ore reservesStrong Managerial skills in Iron and Steel makingLarge pool of skilled Man-powerEstablished steel players with strong skills in steel making

Pro-active stance of Govt.Encouragement for overseas investments

High economic growth driven increasingly by industryFaster UrbanisationIncreased Fixed Asset BuildingAutomobiles and component industry growth

OPPORTUNITIES

POLICY

INDIAN STEEL INDUSTRYA BRIGHT FUTURE

• Currently with a production of 56 million tones India accounts for over 7% of the total steel produced globally, while it accounts to about 5% of global steel consumption.

• The steel sector in India grew by 5.3% in May 2009. Globally India is the only country to post a positive overall growth in the production of crude steel at 1.01% for the period of January – March in 2009.

Highlights of 2008-09

• Crude steel production was at 54.52 million tonnes, a growth of 1.23% over last year with capacity utilisation at 89% during the year. It grew at more than 9% annually from 38.72 million tonnes (MT) in 2003-04.

• The growth was driven by capacity expansion from 43.91 million tonnes per annum (MTPA) in 2003-04 to 64.40 MTPA in 2008-09.

Financial Year '09• first half it experienced an extraordinary spurt in demand backed by

expansion of key consumer sectors. • second half experienced a significant demand contraction on account of the

global financial crisis. • Thus overall, India’s crude steel production grew by 1.2%YoY to 54.5 MT.

• The various monetary and fiscal packages announced by the government helped the domestic steel industry to counter the slowdown and thus the demand started reviving upwards from the fourth quarter onwards.

• Domestic steel prices and international steel prices experienced a divergent trend in FY09. While during the first half, international prices touched an all time high levels backed by robust demand, the second half witnessed more than 50% fall in the prices on account of significant contraction in demand due to the global credit crisis. Raw material prices like iron ore and coking coal also experienced a similar trend. It may be noted that most of the domestic steel players entered into an annual contract for coking coal in June-July 2009 when prices were at their peak. Hence the industry experienced a severe pressure on the margins.