INDIAN STEEL OUTLOOK
IISI-OECD CONFERENCE
Date: 16th May, 2006
1
CONTENTS
• MACRO ECONOMIC ENVIRONMENT
• STEEL : DEMAND ANALYSIS
• STEEL : SUPPLY ANALYSIS
• SUMMARY
2
MACRO ECONOMIC ENVIRONMENTINDIA
IISI-OECD CONFERENCE
3
ECONOMIC PARAMETERS ARE FAVOURABLE
PERFORMANCE PARAMETERS
Forex Reserve
GOOD
Overall GDP
External Debt
FUTURE OUTLOOK
Financial Reforms
New Investment
FDI Inflows
Current Account
Service sector Growth
Savings
inflation
Industrial Growth
Economic reforms
Internal Debt
Fiscal Deficit
Agricultural Growth
BAD
CURRENT PERFORMANCE
GOOD
4
Source : Citigroup estimates
& SECTOR WISE GROWTH IS LIKELY TO BE
ROBUST...
17.0%
13.3% 13.9% 14.0% 14.5%
15.3% 15.9% 15.5% 15.0%
15%
10.5%
10%
FY03
FY04
FY05
FY06(E) FY07(F)
…
FY11(F)
FY03
FY04
AUTOMOBILE
11.6%
FY05
FY06(E) FY07(F)
…
FY11(F)
CAPITAL GOODS
12.0% 12.0%
14.4% 12.5% 13.5%
10%
7.4%
9%
7.0%
5.2%
FY03
FY04
FY05
FY06(E) FY07(F)
…
-6.2%
FY11(F)
FY03
CONSUMER DURABLES
Source: Tata Steel
FY04
FY05 FY06(E) FY07(F)
CONSTRUCTION
…
FY11(F)
5
INDIAN ECONOMY IS EXPECTED TO SURPASS
JAPAN BY 2032
6
IN SUMMARY THE FUTURE IS UPBEAT
• Ranked 4th in the world on GDP - Purchasing Power Parity basis,
11th in absolute terms. (IMF)
• > 8% GDP growth targeted in 2006-07 - second only to China;
aspirational 10 % growth looks possible
• Continuously improving macro economic factors
• A strong demographic profile : with a large consumer base
• Growing urbanization
• Stable social and political environment
7
STEEL : DEMAND ANALYSIS, INDIA
IISI-OECD CONFERENCE
8
INDIA HAS A POTENTIAL FOR EXPONENTIAL
GROWTH IN STEEL CONSUMPTION
Peak Point
Point of
Saturation
Singapore
USA
Point of
Inflection
Japan
EU 15
Trigger
Point
Australia
Singapore
USA
India
China
India
0
100
200
300
400
500
600
700
800
Per capita in KG
India will be a part of The new Steel world …
9
CONSTRUCTION & AUTOMOTIVE ARE THE KEY
SEGMENTS TO WATCH
Othrs: 4.0
Galv
6%
Cons Dur : 1.0
Packaging : 1.7
Auto : 2.7
CR
12%
Cap Goods : 3.7
HR
26%
Bars & Rods
43%
Construction : 21
Rails
3%
Structurals
10%
FY06: 34.1 million tonnes
All fig in million tonnes; Tata Steel Estimates
10
GROWTH IN CONSTRUCTION IS LEAD BY RAPID
GROWTH IN HOUSING SECTOR & …
Home Loan Disbursement (Rs bn)
3000
2460
CAGR in %
2200
1400
600
-200
987
197
224
294
FY 00
FY 01
FY 02
517
FY 03
FY07 (P) FY12 (P)
•
A growth of 24% expected till FY 07, with an expenditure of Rs 1,400 bn
•
Housing shortage of 41 million units estimated as per 10th five year (02-07)
•
There is a need to invest over Rs.4,000 bn over 10 years
•
Estimated that every INR 1 invested in housing / construction adds 78 paise
to the GDP
11
Source: National Housing Bank, HDFC, Cris-Infac, www.dwge.com
.. INVESTMENT IN INFRASTRUCTURE SEGMENT
PROJECTED INVESTMENT Till 2012 by Committee on Infrastructure
FY 03
FY 04
FY 05
FY 06
FY 07 F
Planned Exp in
next 5 years
Airports
20
15
15
24
25
400
Irrigation
151
139
208
222
252
1300
Ports
7
5
5
10
20
500
Power
232
312
340
350
346
2000
Railways
121
135
153
146
140
750
Roads
206
190
199
212
213
1700
Telecom
133
126
89
116
116
800
Urban Infra.
162
174
184
220
250
1400
RS Billion
India has potential to absorb US $ 150 billion in next five years in
the infrastructure sector alone.
The tenth plan investment in infrastructure has been revised to Rs.
11,088 Billion from earlier 10,894 Billion during mid term appraisal.
12
WHILE AUTOMOTIVE WOULD REGISTER THE
HIGHEST GROWTH
8000
7000
PV
in '000 nos
6000
CV
PV – Passenger Vehicle
5000
CV – Commercial Vehicle
4000
3000
2000
1000
0
1960
1970
1980
1990
2000
2005
2010
2015
2020
• Government focus on infrastructure & Roads
• Availability of consumer finance at low interest rates
• Excise Duty reduction & Tax SOP’s by government to boost demand
• Higher disposable income – Double working households on the rise
13
THE OVERALL GROWTH IN DEMAND OF STEEL IS
THEREFORE HEALTHY
CAGR in %
ADC : INDIA (till FY-12)
12
9
70
6.7
60
FY05
FY06
FY07
30.0
26.2
23.5
35.0
FY04
30.7
FY03
27.6
20.4
16.5
19.2
15.0
18.0
13.2
31.2
36.9
16.9
10.9
28.8
34.1
15.8
10
26.7
11.9
40
20
56.9
51.1
50
30
65.0
Pess.
Most
Likely
Opt.
0
LONG
All fig in million tonnes
Source : Tata Steel Estimates
FLAT
FY-12
14
STEEL : SUPPLY ANALYSIS, INDIA
IISI-OECD CONFERENCE
15
STEEL PRODUCTION HAS JUMPED SINCE THE
ECONOMIC LIBERALIZATION
42
YEAR
CAGR (%)
1950-’93
6.5
1993-’05
8.8
38.4
29.7
30.6
All fig in million tonnes
23.8
21.4
15.2
13.0
7.5
5.1
1.1
2.4
1950 1960 1970 1980 1990 1993 1995 1998 2000 2001 2004 2005
16
CRUDE STEEL PRODUCTION IN INDIA (million tonnes)
6 MAJOR PRODUCERS ACCOUNT FOR 66% OF
TOTAL FINISHED PRODUCTION
ISPAT
12%
OTHERS
4%
SAIL
38%
Others 12.3
FLAT
ISPAT 2.1
JSW 2.2
ESSAR 2.6
JSW
13%
ESSAR
15%
TATA
STEEL
18%
SAIL
15%
RINL 3.0
TATA
STEEL
8%
TSL 4.6
LONG
SAIL +
9.2
IISCO
All fig in million tonnes
Source : JPC, Team Analysis
OTHERS
61%
RINL
16%
FLAT PRODUCT IS MORE CONSOLIDATED WHEREAS
17
LONG PRODUCT IS HIGHLY FRAGMENTED.
CAPACITY UTILIZATION ARE STRETCHED..
CRUDE
STEEL
SECTOR
No. of
Units
Total
Capacity
Working
Capacity
BF/BOF
Steel
10
21
21
EAF
38
13
7
Indn. Fce
750
16
12.4
Corex
1
1.6
1.6
TOTAL
All fig in million tonnes
Source : JPC, Tata Steel est.
42.0
18
THUS SIGNIFICANT CAPACITIES ARE EXPECTED
IN THE MEDIUM TERM
Both by Capacity Expansion
by existing players * . . . .
and
New Entrants with the
Greenfield projects…
* Incl their Greenfield Projects
Capacity Addition projected : ~ 50 Mill T in next decade.
19
THIS MAY LEAD TO EXCESS SUPPLY SITUATION
IN THE COUNTRY (by FY-12)
100
90
80
GAP: ~ 20-25 mn T
65
60
42
40
34
20
0
Current
Demand
Projected
Demand
DEMAND SIDE
All fig in million tonnes
Capacity
Addition (P)
Current
Supply
SUPPLY SIDE
20
252
271
313
329
343
343
355
370
367
BEING INHERENTLY COMPETITIVE….
• Abundant
Natural
resources
• Human
Resources
• Strategic
Location
USA
Europe
Japan S Korea Global
Avg
China
India
COST OF PRODN OF HRB (USD/MT)
CIS
Brazil
21
INDIA WOULD EMERGE AS A GLOBAL HUB
India to play the Key role in
Steel Market dynamics
22
IN SUMMARY..
IISI-OECD CONFERENCE
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IN SUMMARY..
• The economic indicators are all favorable for Growth.
• Indian steel industry exudes optimism
• Investment in infrastructure is crucial to step up demand for
steel.
• Supply may have to be rationalized in line with the demand
(Dom + exports)
• Integrated Mills would hold the key in future growth of
Indian Steel supplies.
• New technologies to use indigenous natural resources
would have to be developed.
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THANK YOU
25
Backup
• India will become the fastest growing economy
out of 34 developed and emerging markets and
3rd larget economy by 2020.
• Current GDP per capita is USD 2500 and
expected to be USD 5000 in 2020.
• Poverty ratio dropped from 50% of population in
1950 to 26% in 2005.
• Economic growth rose from 3.7% in 50s & 60s to
+6% in 1980s.
• Current population growth rate of 1.5% to
decrease to 1.3% in 2020.
26
Backup
• Household savings rate to increase to 30% from current
23%.
• About 100,000 MW new capacity (90% of present) will
be added in power sector in next 7 years. This should
also act as strong driver of steel growth.
• The Fiscal Responsibility and Budget Management Act,
2002 binds fiscal managers to specific deficit targets
each year with a goal to bring down the total deficit and
revenue deficit to 3% and 0% of the GDP by 2008-09.
27
Backup
• Literacy standards in 1951 was 18% and currently it is
65%.
• FDI inflow is 0.5% of GDP (USD 3 bn) in recent years as
compared to 4% of GDP for China (USD 45 bn)
• One of the lowest electricity consumption at 365 units
per capita as compared to 893 in China and 1729 in
Brazil.
28
The Global Economic Forecast: Asia poised to be the
emerging power house of growth
• In 2020, the US and China will still be the two largest economies in the world (in PPP)
• India leaves Japan behind and moves up to 3rd place
• India, Malaysia and China will post the highest GDP growth rates (above 5%) over 2006-20
• Ireland, the US and Spain are the rich countries expected to grow the most
29
Steel Consumption Vs. GDP
Steel Consumption and GDP per Capita in 2004
Steel consumption (kg/capita)
10000
1000
S.Korea
China
Taiwan
Japan
100
US
India
Other Africa
10
0
5000
10000
15000
20000
25000
30000
35000
40000
GDP per capita (US$000 at PPP rates)
Bubble size represents the population
The growth in BRIC will double the steel demand by 2050
Source: internal analysis
30
Growth in key sectors will drive the steel demand
1400
Kgs per Capita
1200
1000
U
A
E
an
ia w
T
u
So
th
K
800
600
UAE – 1252
ea
or
H
Apparent Steel consumption
of countries
g
on
K
g
on
n
pa
a
J
G
m
er
y
an
400
lia
ra
t
us
SA
A
U
200
e
nc ina
a
h
Fr
C
a
di
n
I
> 150 MT, The
present gap
World Avg. – 170
India – 33
0
Countries
Key Sectors driving growth
• Infrastructure development
• Housing and urban development
• High degree of urbanizations
Only awaiting the
right trigger.
• High demand in the auto sector
• Capacity building in steel making
31
Global Steel Demand Is Expected To Grow At ~3% Till 2015
Global steel demand
Million tons
Decade of 1980’s
Decade of
1990’s
Decade of 2000
Future outlook
CAGR = 2.8%
1,231
CAGR = 4.2%
CAGR =
2%
CAGR =
10%
582
1980
582
1985
644
1990
785
789
834
1,113
887
658
1995
2000
2001
2002
2003
2010E
2015E
Source: IISI Factbook; McKinsey analysis
32
33
34
35
Raw Material demand in India to increase by 13% to meet
the rise in steel demand
Sectoral Share % in 2004 - GDP
growth 6%
Sectoral Share % in 2010 - GDP
growth 8%
14
24.4
24.6
34
Agriculture
Services
Industry
Agriculture
Services
Industry
52
51
Imperatives for 8% GDP Growth
 Manufacturing must grow at 11%
 This means a growth of 13% for Mining Industry if it has to contribute 5% to
GDP by 2010 instead of 2.5% at present.
 13% growth in mining has to be driven by few lead minerals such as coal, iron
36
ore, supported by other minerals.
Robust growth in infrastructure, power, construction
and steel sectors will drive the Steel Demand
Investment in construction sector (Rs m)
2500
2000
Construction sector will grow
at CAGR of 15%.
1500
1000
500
0
FY'03
FY'04
FY'05
FY'06 E FY'07 E FY'08 E FY'09 E FY'10 E
Source: SSKISept’05 issue
Expenditure on Infrastructure
Incremental
Consumption in '000
tons
Incremental Steel demand for
Power Sector
1200
1000
800
600
400
200
0
'04
'06E
'08E
'10E
'12E
In addition there will be investment for additional 25 mt capacity in steel itself37by
2010. Potential for steel - 25-30% of the investment cost.
60
Sectoral Share in GDP
% of GDP
50
40
30
20
Share Indust ry
10
0
Share Agri.
Year : 1971-2004
Share Services
38
39
Global steel demand poised for robust growth
Crude Steel Production (Million Tonnes)
1,200
1,000
800
The Early
Years
The 1st
Plateau
The 1st
Surge
The 2nd
Plateau
600
400
CAGR
5%
200
CAGR
2%
Great
WW 2
Depression
WW 1
CAGR
1%
CAGR
7%
Oil Crisis
The 2nd
Surge
CAGR 5
%
Fall of
USSR
Asian
Financial
Crisis
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
40