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INDIAN STEEL OUTLOOK

IISI-OECD CONFERENCEDate: 16th May, 2006

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CONTENTS

• MACRO ECONOMIC ENVIRONMENT

• STEEL : DEMAND ANALYSIS

• STEEL : SUPPLY ANALYSIS

• SUMMARY

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MACRO ECONOMIC ENVIRONMENT- INDIA

IISI-OECD CONFERENCE

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FU

TU

RE

OU

TL

OO

K

CURRENT PERFORMANCEBAD GOOD

GOOD

ECONOMIC PARAMETERS ARE FAVOURABLE

PERFORMANCE PARAMETERS

Fiscal Deficit

FDI Inflows

Economic reforms

inflationNew Investment

Financial Reforms

Overall GDPExternal Debt

Current Account

Savings

Industrial Growth

Source : Citigroup estimates

Forex Reserve

Agricultural Growth

Internal Debt

Service sector Growth

5

Source: Tata Steel

15%15.0%15.5%15.9%15.3%

17.0%

FY03 FY04 FY05 FY06(E) FY07(F) … FY11(F)

10%

14.5%14.0%13.9%13.3%

10.5%

FY03 FY04 FY05 FY06(E) FY07(F) … FY11(F)

10%13.5%12.5%14.4%

11.6%

-6.2%

FY03 FY04 FY05 FY06(E) FY07(F) … FY11(F)

9%

12.0%12.0%

5.2%7.0%7.4%

FY03 FY04 FY05 FY06(E) FY07(F) … FY11(F)

AUTOMOBILE CAPITAL GOODS

CONSUMER DURABLES CONSTRUCTION

& SECTOR WISE GROWTH IS LIKELY TO BE ROBUST...

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INDIAN ECONOMY IS EXPECTED TO SURPASS JAPAN BY 2032

7

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

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STEEL : DEMAND ANALYSIS, INDIA

IISI-OECD CONFERENCE

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Point of Inflection

Point of Saturation

India

Chin

a

Trigger Point

Singapore JapanEU

USA

Peak Point

0 100 200 300 400 500 600 700 800

India

China

USA

Singapore

Australia

EU 15

Japan

India will be a part of The new Steel world …

2000

-06

INDIA HAS A POTENTIAL FOR EXPONENTIAL GROWTH IN STEEL CONSUMPTION

Per capita in KG

10

CONSTRUCTION & AUTOMOTIVE ARE THE KEY SEGMENTS TO WATCH

CR12%

Structurals10%

Rails3%

HR26%

Bars & Rods43%

Galv6%

All fig in million tonnes; Tata Steel Estimates

FY06: 34.1 million tonnes

Construction : 21

Cap Goods : 3.7

Auto : 2.7

Othrs: 4.0

Packaging : 1.7Cons Dur : 1.0

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GROWTH IN CONSTRUCTION IS LEAD BY RAPID GROWTH IN HOUSING SECTOR & …

197 224 294517

987

2460

-200

600

1400

2200

3000

FY 00 FY 01 FY 02 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

Home Loan Disbursement (Rs bn)

Source: National Housing Bank, HDFC, Cris-Infac, www.dwge.com

38 %

24

15

CAGR in %

12

.. INVESTMENT IN INFRASTRUCTURE SEGMENT

RS Billion FY 03 FY 04 FY 05 FY 06 FY 07 FPlanned 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

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.

PROJECTED INVESTMENT Till 2012 by Committee on Infrastructure

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0

1000

2000

3000

4000

5000

6000

7000

8000

1960 1970 1980 1990 2000 2005 2010 2015 2020

in '000 n

os

PV CV

WHILE AUTOMOTIVE WOULD REGISTER THE HIGHEST GROWTH

• 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

CAGR 7 %

CAGR 15 %PV – Passenger Vehicle

CV – Commercial Vehicle

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ADC : INDIA (till FY-12)15

.8

16.9

18.0

19.2

20.4 27

.6

30.7

35.010

.9

11.9

13.2

15.0

16.5

23.5 26

.2 30.0

26.7 28.8 31.2 34.136.9

51.156.9

65.0

0

10

20

30

40

50

60

70

FY03 FY04 FY05 FY06 FY07 Pess. MostLikely

Opt.

LONG FLAT

Source : Tata Steel Estimates

THE OVERALL GROWTH IN DEMAND OF STEEL IS THEREFORE HEALTHY

FY-12

CAGR in %

6.7

9

12

All fig in million tonnes

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STEEL : SUPPLY ANALYSIS, INDIA

IISI-OECD CONFERENCE

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STEEL PRODUCTION HAS JUMPED SINCE THE ECONOMIC LIBERALIZATION

1.12.4

7.5

13.015.2

21.423.8

29.730.6

38.4

42

5.1

1950 1960 1970 1980 1990 1993 1995 1998 2000 2001 2004 2005

CRUDE STEEL PRODUCTION IN INDIA (million tonnes)

YEAR CAGR (%)

1950-’93 6.5

1993-’05 8.8

All fig in million tonnes

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TATA STEEL

8%

RINL16%

SAIL15%

OTHERS61%

SAIL38%

JSW13%

ISPAT12%

OTHERS4%

TATA STEEL

18%ESSAR15%

LONG

FLAT

Source : JPC, Team Analysis

SAIL + IISCO

TSL 4.6

RINL 3.0

ESSAR 2.6

ISPAT 2.1JSW 2.2

Others 12.3

6 MAJOR PRODUCERS ACCOUNT FOR 66% OF TOTAL FINISHED PRODUCTION

FLAT PRODUCT IS MORE CONSOLIDATED WHEREAS LONG PRODUCT IS HIGHLY FRAGMENTED.

All fig in million tonnes

9.2

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CAPACITY UTILIZATION ARE STRETCHED..

 SECTOR

No. of Units

Total Capacity

Working Capacity

CRUDE STEEL

BF/BOF Steel 10 21 21

EAF 38 13 7

Indn. Fce 750 16 12.4

Corex 1 1.6 1.6

TOTAL 42.0

Source : JPC, Tata Steel est.

All fig in million tonnes

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THUS SIGNIFICANT CAPACITIES ARE EXPECTED IN THE MEDIUM TERM

Both by Capacity Expansion by existing players * . . . .

New Entrants with the Greenfield projects…

and

Capacity Addition projected : ~ 50 Mill T in next decade.

* Incl their Greenfield Projects

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THIS MAY LEAD TO EXCESS SUPPLY SITUATION IN THE COUNTRY (by FY-12)

4234

0

20

40

60

80

100

CurrentDemand

ProjectedDemand

CapacityAddition (P)

CurrentSupply

GAP: ~ 20-25 mn T

DEMAND SIDE SUPPLY SIDE

65

90

All fig in million tonnes

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BEING INHERENTLY COMPETITIVE….367

370

343

343

329

313

271

252

355

USA Europe Japan S Korea GlobalAvg

China India CIS Brazil

COST OF PRODN OF HRB (USD/MT)

• Abundant Natural resources

• Human Resources

• Strategic Location

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INDIA WOULD EMERGE AS A GLOBAL HUB

India to play the Key role in Steel Market dynamics

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IN SUMMARY..

IISI-OECD CONFERENCE

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IN SUMMARY..

• 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.

• The economic indicators are all favorable for Growth.

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THANK YOU

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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.

27

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.

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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.

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The Global Economic Forecast: Asia poised to be the The Global Economic Forecast: Asia poised to be the emerging power house of growthemerging 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

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Steel Consumption Vs. GDPSteel Consumption Vs. GDP

Steel Consumption and GDP per Capita in 2004

10

100

1000

10000

0 5000 10000 15000 20000 25000 30000 35000 40000

GDP per capita (US$000 at PPP rates)

Ste

el c

on

su

mp

tio

n (

kg

/ca

pit

a)

ChinaS.Korea

Taiwan

US

Other AfricaIndia

Japan

Bubble size represents the population

The growth in BRIC will double the steel demand by 2050

Source: internal analysis

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UAE – 1252

World Avg. – 170 India – 33

> 150 MT, The > 150 MT, The present gap present gap

Only awaiting the Only awaiting the right trigger.right trigger.

Apparent Steel consumption of countries

Key Sectors driving growth

• Infrastructure development

• Housing and urban development

• High degree of urbanizations

• High demand in the auto sector

• Capacity building in steel making

Growth in key sectors will drive the steel demandGrowth in key sectors will drive the steel demand

32

Global Steel Demand Is Expected To Grow At ~3% Till 2015Global Steel Demand Is Expected To Grow At ~3% Till 2015

Global steel demand

582 582644 658

785 789 834887

1,113

1,231

CAGR = 10%

2000 2001 2002 2003 2010E 2015E

Million tons

1980 1985 1990 1995

CAGR = 2%

CAGR = 4.2%

Decade of 1980’sDecade of 1990’s

Decade of 2000 Future outlook

Source: IISI Factbook; McKinsey analysis

CAGR = 2.8%

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34

35

36

Raw Material demand in India to increase by 13% to meet Raw Material demand in India to increase by 13% to meet the rise in steel demandthe rise in steel demand

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 ore, supported by other minerals.

Sectoral Share % in 2004 - GDP growth 6%

24.4

51

24.6

AgricultureServicesIndustry

Sectoral Share % in 2010 - GDP growth 8%

14

52

34AgricultureServicesIndustry

37

Robust growth in infrastructure, power, construction Robust growth in infrastructure, power, construction and steel sectors will drive the Steel Demandand steel sectors will drive the Steel Demand

Expenditure on Infrastructure

0

200

400

600

800

1000

1200

Inc

rem

en

tal

Co

ns

um

pti

on

in '0

00

to

ns

'04 '06E '08E '10E '12E

In addition there will be investment for additional 25 mt capacity in steel itself by 2010. Potential for steel - 25-30% of the investment cost.

0

500

1000

1500

2000

2500

FY'03 FY'04 FY'05 FY'06 E FY'07 E FY'08 E FY'09 E FY'10 E

Investment in construction sector (Rs m)

Source: SSKISept’05 issue

Construction sector will grow at CAGR of 15%.

Incremental Steel demand for Power Sector

38

Sectoral Share in GDP

0

10

20

30

40

50

60

Year : 1971-2004

% o

f GD

P

Share Industry

Share Agri.

Share Services

39

40

Global steel demand poised for robust growthGlobal steel demand poised for robust growth

Crude Steel Production (Million Tonnes)

0

200

400

600

800

1,000

1,200

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Great Depression

WW 2 Oil Crisis

Fall of USSR

CAGR 7 %

CAGR 1 %

The Early Years

The 1st Surge

The 2nd Plateau

The 2nd

Surge

Asian Financial

Crisis

The 1st Plateau

CAGR 2 %CAGR

5 %

WW 1

CAGR 5 %