a review of developments in global & indian steel industry...–satkhanda block a tender stands...

A Review of developments in

Global & Indian Steel Industry

Bi-monthly edition

Issue No. 3

March 2016 (for the period January & February 2016)

Strictly for internal circulation

Our eight Full Members are:

• Steel Authority of India Ltd.

• Tata Steel Ltd.

• JSW Steel Ltd.

• Rashtriya Ispat Nigam Ltd.

• Essar Steel Ltd.

• Jindal Steel & Power Ltd.

• Bhushan Power & Steel Ltd.

• Bhushan Steel & Strips Ltd.

Our six Affiliate Members are Monnet

Steel, INSDAG (Institute for Steel

Development and Growth), KISMA

(Karnataka Iron and Steel

Manufacturer’s Association), Gerdau

Steel, Visa Steel & Jindal Stainless.

About Indian Steel Association

Slide No.

CONTENTS

RAW MATERIAL 4

PRODUCTION & CONSUMPTION 11

TRADE 16

SHIPPING & RAILWAYS 21

COUNTRY REPORTAGE 24

COMPANY REPORTAGE 28

PRICE & FORECASTS 31

SIGNIFICANT ECONOMIC PARAMETERS 36

RAW MATERIAL

Source: World Bank

Highlights of World Bank’s

Commodity Markets Outlook

5

Report released in January 2016; Points highlighted above in italics have been reproduced verbatim

World Bank’s quarterly report titled “Commodity Markets Outlook” states the following:

• The sharp decline in commodity prices over the past five years has coincided with slowinggrowth in emerging and developing economies (EMDEs).

• Given its direct impact on the demand for commodities and indirect impact through tradingpartner growth, a sharper-than-expected slowdown in China could have additionalrepercussions for commodity markets and, hence, commodity exporters.

• A 1 percentage point drop in China’s growth could result in a decline in average commodityprices of about 6 percentage points after two years.

• Although primary energy consumption in India doubled during the past two decades, thecountry still accounts for only 4.5 percent of global energy consumption. India’s metalconsumption almost doubled over the period, but from a very small base (from a share of 1.9percent to 3.4 percent).

• Energy prices are expected to fall 25 percent from 2015, with oil prices projected to average$37/bbl in 2016.

• Under non energy prices, the largest decline is expected for iron ore in 2016 (-25 percent).

Source: Secondary Sources

Raw Materials related Outlook

6

• Goldman Sachs in its report dated February 15, 2016 has stated that global coal and

liquefied natural gas (LNG) prices are under pressure from rising production

improvements and mining sector reforms in India, the world's leading thermal coal

importer.

o Forecasts that thermal coal prices out of Newcastle, Australia, will fall from USD

48 per tonne in 2016 to USD 45 per tonne in 2018 to reflect the accelerated

erosion of the industry cost curve.

o Downgraded its long-term coal price outlook to USD 42.50 a tonne.

o Lowered its price outlook for spot LNG in Asia for 2016 by 15 percent to USD

5.17 per million British thermal units

• BMI Research, a Fitch Group Company in February 2016 has forecasted that iron ore

prices shall trade between USD 35-45/tonne during Q116-Q316. It also stated that

from 2017 onwards, prices will edge modestly higher as more Chinese ore production

will come offline, reducing the global ore supply glut.

• As per Motilal Oswal’s report dated February 23, 2016, the following has been stated

“Iron ore is enjoying its biggest rally in years, outpacing gold to be the best performing

commodity so far in 2016, but still-weak forward prices show it may be tough to stretch the

bullish outlook.”

Source: MSTC e-commerce

Status of Auction of Mining Blocks

Under Mineral (Auction) Rules, MMDR Act, 1957

7

Name of the

Block

Status Ore Type of Lease/

Licence

Odisha

1 Ghorhaburhani-

Sagasahi

List of Technically Qualified

Bidders

(vide notice dated on

25.02.2016)

Bhushan Steel Ltd.

Bhushan Power & Steel Ltd.

Essar Steel

Jindal Power & Steel Ltd

JSW Steel Ltd.

RINL

Tata Steel Ltd.

Iron Ore Mining Lease

II Khatkurbahal,

Sundergarh District

Withdrawn from the

process of auction

(vide notice dated 08.02.2016)

Limestone Mining Lease




8

Name of

the Block

Status Ore Type of Lease/

Licence

Maharashtra

1 Degve-

Banda

Communication

(vide notice dated on 04.01.2016)

Certain villages in the Degve Banda Iron ore

block are demarcated as Eco-Sensitive

Areas as per MOEF notification. It is

clarified that the MOEF notification is

presently a draft notification; however in

case these villages remain in Eco-Sensitive

Areas in the final notification, mining may

not be permitted. Government of

Maharashtra has submitted its

recommendation to Government of India in

this regard and the final decision is awaited.

Iron Ore Mining Lease

Points highlighted above in italics have been reproduced verbatim




9

Name of the Block Status Ore Type of Lease/ Licence

Jharkhand

1 Hariharpur LemBicha Block I

Announcement of Preferred Bidder

(vide notice dated 05.02.2016)- Burnpur Cement Limited

Limestone Composite Licence

II Hariharpur LemBicha Block II

Announcement of Preferred Bidder

(vide notice dated 05.02.2016)- Burnpur Cement Limited

Limestone Composite Licence

Rajasthan

1 Sindwari-Rama Khera– Satkhanda Block A Tender stands cancelled,

pursuant to clause on rejection of bids(Vide notice dated 14.01.2016)


II Sindwari-Rama Khera– Satkhanda Block B


III Harima-Pithasar- 3D Limestone Mining Lease

Source: Ministry of Coal; Points highlighted above in italics have been reproduced verbatim

Policy of Auction of Coal Linkages

For Non-regulated Sector

10

• With the approval of Cabinet Committee on Economic Affairs (CCEA), the following

policy guidelines for auction of linkages of Non-Regulated Sector have been published

(dated 15.02.2016):

o Proportion of coal allocation between power and non-power sectors may be continued at

the same level as average proportion of the last five years i.e. 75% Power and 25% Non-

power. The Ministry of Coal may review the proportion as and when required.

o All allocations of linkages/LoAs for non-regulated sector viz. Cement, Steel/Sponge Iron,

Aluminium, and Others [excluding Fertilizer (urea) sector], including their CPPs, shall

henceforth be auction based. The tenure of new Fuel Supply Agreements (FSAs) may be as

decided by Ministry of Coal, subject to a maximum of 15 years.

o There may not be premature termination of FSAs of non-regulated sector as of now.

However, there will be no renewal of existing FSAs of non-regulated sectors [except FSAs of

CPSEs and Fertiliser (Urea)] which are maturing in 2015-16 onwards, after completion of

their current agreement tenure.

o For auction of linkages, separate quantities shall be earmarked for subsectors of Non-

Regulated sector. The sub-sectors shall compete within themselves. The sub-sectors could be

Cement, Sponge Iron/Steel, Aluminium, and Others [excluding Fertilizer (urea) sector],

including their CPPs etc. The Ministry of Coal may review the sub-sectors as and when

required.

PRODUCTION &CONSUMPTION

Source: World Steel Association

Crude Steel Output touched 128 MT in Jan’16,

States World Steel Association

According to World Steel Association, the world crude steel output by 66 countries

reporting to the Association in January 2016 declined by 7.1% when compared with

January 2015.

Output of the top 10 countries in Jan’16 is given below:

Rank Nation Output (in ‘000 tonnes)

1 China 63,214

2 Japan 8,772

3 India 7,418

4 United States 6,618

5 South Korea 5,667

6 Russia 5,554

7 Germany 3,605

8 Turkey 2,598

9 Brazil 2,451

10 Ukraine 1,938

12

Source: World Steel Association

Crude Steel Output by EU-28 countries

Declines in Jan 2016

13

According to World Steel Association, the crude steel production by EU-28 countries

declined by 7.6 percent during the month of January year-on-year. The output by the

region totaled 13.428 MT during the month.Country Jan ‘16 Jan ‘15 % Change

Austria 664 687 -3.4

Belgium 660 635 +3.9

Bulgaria 20 47 -57.6

Croatia 5 8 -37.5

Czech Republic 413 487 -15.3

Finland 342 334 +2.4

France 1,150 1,306 -11.9

Germany 3,605 3,679 -2.0

Greece 100 72 +38.9

Hungary 74 125 -40.8

Italy 1,802 1,903 -5.3

Luxembourg 170 173 -2.0

Netherlands 584 598 -2.4

Poland 820 817 +0.3

Slovakia 375 427 -12.2

Slovenia 54 56 -4.5

Spain 1,154 1,275 -9.5

Sweden 376 425 -11.5

United Kingdom 656 1,064 -38.4


Outlook on Production & Consumption

14

• As per a report by Platts, released in February 2016, steel production in India will

continue to grow by almost 7 per cent in 2016. Platts sees long desired and much

needed new investments in infrastructure projects such as roads, railways, ports, power

and water infrastructure are a key driver for steel consumption.

• Fitch Ratings, in February 2016, reported that it expects the gains from the imposition

of MIP and 20 per cent safe-guard duty on imported steel products to be offset by

reduced pricing power on account of lower demand and need to reach full capacity

utilisation.

o Fitch also stated that profitability of the Indian Steel sector as a whole will

improve only when consumption demand is revived.

"We expect the profitability of steel producers to remain weak compared

to the level in the financial year ended 31 March 2015 (FY15). We believe

that further steel price increases, and a significant improvement in steel

producers' profitability will depend on a strong revival in domestic demand

growth,"

Source: ICRA

Outlook on Profitability

15

As per a report by ICRA, released in February 2016, titled “Minimum import price to

provide a temporary relief to the domestic steel industry”, the following has been stated:

• Domestic HRC and CRC prices are expected to recover in the coming months because of the

imposition of MIP.

• Operating margins of the domestic steel industry (collection of 7 large steel players,

accounting for over 40% of the current domestic capacity) declined further to 5.5% in

Q3FY16 from 9.8% in Q2FY16 and 12.1% in Q1FY16 owing to a steady fall in sales

realisations.

• Imposition of safeguard duty failed to improve the profitability of steel producers due to its

limited coverage of products and the fact that international steel prices corrected further after

its imposition. However, with the imposition of MIP, operating margins for domestic blast

furnace players are expected to improve by around 5% as compared to estimated levels

prevailing in the 1st week of February 2016.

• While there could be an improvement in debt protection metrics for steel players in FY17

from current levels following the imposition of MIP, they would still remain weak in absolute

terms. ICRA estimates that even after assuming MIP to be in effect for the entire FY17, the

total debt to operating profit ratio for the industry is likely to remain at above 5 time, and the

interest coverage is likely to be less than 2.5 time.

Source: Joint Plant Committee, Ministry of Steel

Status of India’s Steel Trade

17

Total Finished Steel

(Alloy + Non Alloy)April 2015 – January 2016

Qty (in MT) % Change

Import 9.303 +24.1

Export 3.157 -32.5

• India became net importer of steel during April 2015 – January 2016

o Flat products contributed to 85% of the total finished steel imports, during

this period.

o Total imports [Finished + Semis] during the period stood at 10.04 MT

o Imports at Mumbai port stood the highest at 4.38 MT, during the period

o China accounted for the majority of exports (at 3.08 MT), followed by

Korea (at 2.54 MT) and Japan (at 1.82 MT), during the period

Source: Census Bureau, United States

Status of United States’ Steel Imports

18

U.S. Imports For Consumption of Steel ProductsQuantity in metric tons/value in thousands of dollars. Details may not equal totals due to rounding.

December 2015 Year-to-Date December 2014 Year-to-Date

Final Final

Commodity

Grouping Quantity Value Quantity Value

Total Selected Commodities 35,143,597 30,230,032 40,222,845 37,841,077

Ingots And Steel For Castings 28,297 62,106 46,062 89,014

Blooms, Billets And Slabs 6,588,234 3,162,263 9,558,617 5,532,616

Wire Rods 1,441,866 944,816 1,473,957 1,081,997

Structural Shapes Heavy 824,028 612,986 828,703 687,887

Steel Piling 126,049 132,640 134,323 149,316

Plates Cut Lengths 1,405,087 1,226,350 1,690,296 1,630,188

Plates In Coils 1,816,951 1,138,116 2,022,770 1,445,460

Rails Standard 257,817 201,615 295,358 263,269

Rails All Other 68,969 53,443 35,122 31,862

Railroad Accessories 10,717 12,121 7,420 8,006

Bars - Hot Rolled 1,347,926 1,335,756 1,505,543 1,678,548

Bars - Light Shaped 167,109 150,110 179,039 170,716

Bars - Reinforcing 1,819,301 836,530 1,299,251 768,838

Bars - Cold Finished 337,506 807,620 347,758 903,790

Contd..



19



Final Final

Commodity



Tool Steel 178,310 432,952 159,128 438,960

Standard Pipe 928,288 893,429 823,013 910,444

Oil Country Goods 2,031,839 2,889,377 3,641,974 4,905,854

Line Pipe > 16 Inches In Diameter 1,206,297 1,389,031 742,332 933,071

Line Pipe <= 16 Inches In Diameter 466,070 604,838 641,127 831,182

Line Pipe - Not Specified 632,447 534,311 754,327 667,940

Mechanical Tubing 523,603 817,787 678,156 1,147,125

Pressure Tubing 62,202 129,976 67,997 157,922

Stainless Pipe & Tubing 128,453 832,997 144,235 985,423

Pipe & Tubing Nonclassified 14,554 55,977 23,268 65,075

Structural Pipe & Tube 458,560 468,101 466,629 503,996

Pipe For Piling 21,046 17,736 15,349 13,282

Wire Drawn 805,800 1,077,804 736,299 1,086,695

Black Plate 134,566 99,845 73,941 58,796

Contd..



20



Final Final

Commodity



Tin Plate 698,368 727,833 633,362 695,882

Tin Free Steel 156,330 165,429 165,602 187,283

Sheets Hot Rolled 3,514,116 1,869,670 3,937,302 2,624,323

Sheets Cold Rolled 2,428,408 2,321,050 2,679,514 2,831,489

Sheets & Strip Galv Hot Dipped 3,044,087 2,600,322 3,005,748 2,688,885

Sheets & Strip Galv Electrolyt 115,151 114,449 141,371 142,305

Sheets & Strip All Oth Met Coat 955,947 835,514 926,158 881,385

Sheets & Strip - Electrical 69,332 113,896 67,247 101,626

Strip - Hot Rolled 134,701 112,894 99,747 97,792

Strip - Cold Rolled 195,263 448,342 174,801 442,833

• In January 2016, the U.S. Census Bureau announced that preliminary January steel imports were USD 1.8 billion

(2.3 million metric tons) compared to the preliminary December totals of USD1.8 billion (2.1 million metric tons).

• Decreases occurred primarily in wire rods, plates cut lengths, and tin plate.

• Increases occurred primarily with Brazil.

SHIPPING & RAILWAYS

Source: McKinsey & Co; Draft Perspective Plan on Sagarmala can be read on the website of Ministry of Shipping

STEEL Multiplier Effect - Sagarmala Initiative

Ministry of Shipping

22

Build port capacity with world class

quality and right quantity

▪ Increase port capacity from 1,400 million

tonnes current to 2,500 million tonnes

▪ Mobilise an investment of INR 1 lac crore

in port sector

▪ Improve turnaround time for Indian ports

from 4-5 days to <2 days

Reduce logistics cost and time for EXIM

and for domestic cargo

▪ Save INR 45,000-55,000 crore in logistics

cost per annum

▪ Save 5 days and INR 2,000-3,000 in exporting

container from hinterland

▪ Reduce CO2 emission by 12.5 million tonnes

and fuel consumption by upto 1 million KL

Support ‘Make in India’ through port-

based industrial and manufacturing

clusters

▪ Additional exports of US$ 200 billion by

2025

▪ Generate 40 lakh direct jobs and 1 crore

total jobs

▪ Improve competitiveness of refineries, power

plant, steel, cement through coastal location,

saving upto Rs. 1,000 per tonne in logistics

cost

Development of coastal community

matching skills with opportunities

▪ Develop estimated 21 million skills in coastal

community

▪ Develop fisheries sector

▪ Develop marine tourism to 1 million tourists

by 2025

Sagarmala

Vision

1 2

3 4

Source: Indian Railway Board; Points highlighted above in italics have been reproduced verbatim

Highlights of the Rail Budget

February 2016

23

Highlights of the Rail Budget 2016-17, having an impact on the Steel Industry:

• Faster Project Execution:

o In 2016-17 - targeted commissioning 2,800 kms of track;

o Commissioning Broad Gauge lines @ over 7 kms per day against an average of about 4.3

kms per day in the last 6 years. Would increase to about 13 kms per day in 2017-18 and

19 kms per day in 2018-19;

o Outlay for railway electrification increased in 2016-17 by almost 50%; target to electrify

2,000 kms.

• Dedicated Freight Corridors:

o Almost all contracts for civil engineering works to be awarded by March 31st 2016;

o Propose to take up North-South, East-West & East Coast freight corridors through

innovative financing including PPP.

• Port connectivity:

o Tuna Port commissioned and rail connectivity projects to ports of Jaigarh, Dighi, Rewas and

Paradip under implementation;

o Implementation of rail connectivity for the ports of Nargol and Hazira under PPP in FY17.

COUNTRY REPORTAGE

Source: Goldman Sachs

Highlights of Goldman Sachs Report

on CHINA

25

Report released in January 2016; Points highlighted above in italics have been reproduced verbatim

Goldman Sachs’ Investment Strategy Group report titled “Walled In: China’s GreatDilemma” states the following:

• We believe China will be a source of market volatility not only for 2016, but also for the nextfive years, with the highest impact on emerging market economies.

• We also believe that the attribution of the broad-based decline in commodity prices to theslowdown in China has been overstated.o Some commodities, such as the ones called the “capex commodities” (commodities used

in heavy industry to create infrastructure, such as iron ore, steel, cement and copper), areaffected by the slowdown in China.

o Others, such as what they call the “opex commodities” (commodities used to operate theeconomy, such as oil and natural gas), have not declined because of the slowdown inChina.

• China’s growth is a tale of two economies: the older investment-oriented and export-driveneconomy, which has slowed down considerably, and the consumer-oriented economy, which isgrowing at a steadier pace, albeit more slowly than its average pace since 2000.

• We conclude that while China’s economic slowdown matters to the rest of the world, theextent of the impact has been overestimated by the financial markets.

Source: The State Council, People’s Republic of China

Developments in China

26

At the fifth plenary meeting of the State Council of China presided by

Premier Li Keqiang on Jan 22, 2016, the government in China decided to advance a

new type of urbanization to boost domestic demand and to resolve the overcapacity

problem in the coal and steel industries.

• First, adopt more rigorous standards on safety, quality, and energy consumption to eliminate

outdated capacity. Enterprises can slash capacity through mergers and acquisitions,

transformation or relocation.

China will cut another 100-150 million tons of crude steel production based on the

elimination of a 90-million-ton capacity over the years.

• Second, strictly control new industrial capacity. In principle, China will stop approving new coal

mines, and will adopt technological innovations for new industrial capacity.

• Thirdly, improve supporting policies such as establishing special funds for industrial enterprises

to adjust structures; supporting social capital to participate in corporate acquisition and

reorganization, and taking various measures to resettle the possible laid-off workers.


Source: European Chamber of Commerce in China

Developments in China

27

The European Chamber of Commerce in China on February 22, 2016,

released its report titled “Overcapacity in China: An Impediment to the Party’s Reform

Agenda”, stating that the overcapacity in the Chinese steel industry is mainly driven by:

• The desire on the part of regions to be self-sufficient, leading to capacity duplication at the

national level;

• A combination of State owned Enterprises (SOEs) being insensitive to profit/loss and

small/dirty/inefficient steel mills that suspend activity when price dips and re-open when the

market is more favourable

• Adverse effects of the stimulus package, which encouraged large mills to add capacity and

has made small and medium sized mills, which the government wants to shut down,

profitable; and

• The provision of subsidized energy by regional governments


COMPANY REPORTAGE


Developments with Japanese Steel Makers

29

• Japan’s third-biggest steelmaker Kobe, as per a release, expects a loss of 20 billion yen

(USD166 million) in the year to March 2016 against an earlier forecast that net income

would be 20 billion yen.

o In Feb’16, Kobe Steel entered into a joint venture with listed company Millcon

Steel, to produce special grades of wire-rod steel for supply to the Thai

automotive industry. Kobe and Millcon will each hold 50 percent of the JV

company, named Kobelco Millcon Steel.

• In Feb’16, Nippon Steel & Sumitomo Metal Corp. entered into a MoU to take control

of fourth-ranked rival Nisshin Steel.

o Nippon Steel, which already holds 8.3% of Nisshin, is considering extending its

stake to 51-66%.

• In Feb’16, Gerdau and JFE Corporation signed a technical cooperation agreement for

the production of heavy plate in Brazil.

• In Feb’16, Sumitomo Corp. and The Japan Steel Works (JSW) entered into a JV with

Gerdau to manufacture and sell wind power generation forged products ‘(beginning

2017) under a joint-venture (tentative name Gerdau Summit).

Source: Moody’s Investor Service

Asian steel producers to report lower earnings

and high leverage in 2016, As Per Moody’s

30

• As per a Moody’s report released on February 29, 2016, titled “Steel Producers — Asia:

Supply Glut and Low Prices Will Reduce Earnings and Keep Leverage High in 2016”,

the following has been highlighted:

o Steel producers in Asia will see their overall earnings in 2016 fall to levels even

lower than the weak results reported in 2015 because production volumes and

spreads will contract further, against the backdrop of oversupply and the resulting

low prices.

o Large steel producers can improve their business scale and market share by

acquiring small or inefficient steel producers that become unviable due to the

challenging market conditions.

o Chinese producers will underperform those in other parts of Asia, because of the

massive supply situation in China.

o As for Korean and Japanese steel companies, they are better positioned to weather

adverse market conditions because of their focus on premium products, although

earnings will stay below their historical levels.

o For major Indian steel mills, the ramp-up of new steel-production capacity,

resumption of captive iron ore production and the government's introduction of

minimum import prices will help the sector mitigate earnings pressure during 2016.

PRICE & FORECASTS

Source: SEAISI

Steel Price Report – China

December 2015

as of February 22, 2015

32

Unit: yuan / ton

Product Spec Beijing Tianjin Shenyang Shanghai Nanjing Wuhan Guangzhou Chengdu

Wire Rod

HPB300Φ6.5mm 1980 1920 1960 2080 2070 2030 2090 2220

Rebar HRB400 Φ16mm 1830 1830 1900 1920 1940 1970 2160 2160

Angle Bar

Q2355# 2020 2050 2040 2020 2040 2040 2280 2440

Plate Q235 20mm 1910 1880 1880 2000 2010 2000 2180 2170

HRC Q235 3.0mm 2030 2020 2000 2070 2140 2170 2150 2350

CRS SPCC 1.0mm 2790 2760 2810 2750 2800 2700 2680 2820

Source: The Economist Intelligence Unit, Global Forecasting Service

Individual Commodity Price Forecasts

February 2016

2016 2017 2018 2019 2020

Coal

(US$/tonne,;Australian, thermal, Newcastle/Port

Kembla)

57.3 63.6 66.0 66.0 65.0

Iron ore

(US$/dry metric tonne unit)42.0 44.1 46.3 48.6 51.0

Natural gas

(US$/mmBtu, US; averages)2.29 2.70 3.00 3.10 3.20

Oil: Brent

(US$/barrel; spot price)42.9 60.0 73.5 72.8 71.4

Steel

(US$/tonne; fob Western EU export, HR coil)365 395 425 425 420

33

As of February 17, 2016;

The details on demand and supply dynamics for commodities are available on the website of the Economist Intelligence Unit

Source: Commodity Markets Outlook, World Bank

World Bank’s Commodity Price Forecasts

January 2016

2016 2017 2018 2019 2020

Coal

(USD/tonne;Australia)50.0 51.9 53.9 55.9 58.1

Iron ore

(USD/dmt)42.0 44.1 46.3 48.6 51.0

Natural gas

(USD/mmBtu, US)2.5 3.0 3.5 3.68 3.88

Crude Oil

(USD/barrel; average spot)37.0 48.0 51.4 54.9 58.8

34

As January 2016;

All figures in Nominal US dollars;

mmBtu - One million British Thermal Units;

One barrel - 42 U.S. gallons or 158.9873 litres

SIGNIFICANT

ECONOMIC PARAMETERS

Source: The Economist Intelligence Unit, Global Forecasting Service

Growth Forecasts

February 2016

As of February 17, 2016;

The assumptions for forecasts are available on the website of the Economist Intelligence Unit

In % 2016 2017 2018 2019 2020

IndiaReal GDP Growth 7.4 7.3 7.3 7.2 7.2

Inflation 5.1 5.4 5.2 4.6 4.7

ChinaReal GDP Growth 6.5 6.0 5.7 5.0 4.7

Inflation 1.9 2.1 2.1 1.8 2.1

U.S.AReal GDP Growth 2.0 2.3 2.4 1.4 2.2

Inflation 1.3 2.0 2.4 1.5 1.8

JapanReal GDP Growth 1.0 0.6 1.0 0.6 1.1

Inflation 0.4 1.4 1.2 1.0 1.1

Euro AreaReal GDP Growth 1.5 1.6 1.7 1.6 1.6

Consumer Price Inflation 0.8 1.3 1.6 1.7 1.7

36

Source: CRISIL

Highlights of Union Budget 2016-17

Indian Economic Outlook

37

FY15 FY16 FY17 Budget impact

GDP (y-o-y %)

7.2 7.6 7.9 Supports a pick-up in infrastructure investments, which

can crowd in private investments over time. In addition,

measures to support agriculture and rural development

will be positive for private consumption.

CPI inflation(%, average)

6.0 5.0 5.0 The government’s commitment to adhere to fiscal

consolidation targets is credible and will support the

noninflationary stance of the RBI. Inflation will stay soft

given reasonable increases in the Seventh Pay

Commission pay-outs, huge excess industrial capacities

and weak domestic demand. Soft global oil and

commodity prices to also help tame inflation.

Fiscal deficit (% of GDP)

4.1 3.9 3.5 Headroom created by savings on fuel subsidy bill and

increased income from duty hikes has allowed the

government to tread the fiscal consolidation path with

ease.

10-year G-sec

yield (%, March-end)

7.7 7.6 7.5 A lower fiscal deficit target would result in restrained

market borrowing programme of the government which

would help ease yields.

Source: Ministry of Finance; BCD – Basic Customs Duty


Steel Sector Related

38

• Clean energy cess on coal [being renamed as Clean Environment Cess] increased fromINR 200/MT to INR 400/MT

• Export duty removed on low grade (below Fe 58%) iron ore lump & fines

• Export duty on high grade iron ore lump remains unchanged at 30%

• Export duty removed on Chrome ore

• BCD increased on aluminum products from 7.5% to 10%

• BCD on zinc alloys increased from 5% to 7.5%

• BCD reduced on brass scrap from 5% to 2.5%

• BCD unchanged on steel imports

• Excise duty remains unchanged

• Total Outlay on infrastructure to the tune of INR 2.21 lakh crore

Source: PricewaterhouseCoopers; Ministry of Finance


February 2016

39

Easing the Way Business is Done

Manufacturers with multiple manufacturing units have been allowed to maintain a common warehouse for inputs and distribute inputs with credits to the individual manufacturing units.

Relevant central excise rules have been revised to allow duty exemptions to importers / manufacturers based on self-declaration instead of obtaining permissions.

The period of warehousing has been extended for 100% EOU4, EHTP, STPI6 or any warehouse wherein manufacture or other operations have been permitted:

− Capital goods: Till their clearance from warehouse (currently five years)

− Other than capital goods: Till consumption or clearance from the warehouse (currently three years)

To promote investments in the manufacturing sector, there is a proposal to accord residency status to foreign investors subject to certain conditions. Currently, these investors are granted a business visa only up to five years at a time.

The basket of eligible FDI instruments will be expanded under Foreign Exchange Management Act (FEMA) regulations to include hybrid instruments subject to certain conditions.

Source: PricewaterhouseCoopers; Ministry of Finance


February 2016

40

Changes in FDI Policy• Foreign Investment Promotion Board (FIPB)

approval shall not be required for foreign investment in the insurance and pension sectors. Concerned regulator to verify Indian management and control

• 100% FDI in Asset Reconstruction Companies (ARCs) to be permitted through the automatic route. Foreign portfolio investors (FPIs) to be allowed up to 100% of each tranche in securities receipts issued by ARCs subject to sectoral caps

• Investment limit for foreign entities in Indian stock exchanges to be enhanced from 5 % to 15% on par with domestic institutions

• All financial services activities (except banking) regulated by the financial services regulator shall be under the automatic route

Phasing Out Incentives• Sunset date introduced for claiming a tax

holiday for SEZ units—31 March 2020; deduction for infrastructure facility including power generation and distribution, development of SEZ and production of mineral oil and natural gas—31 March 2017

• Weighted deduction of expenditure incurred on in-house scientific research to be restricted to 150% from 1 April 2017 till 31 March 2020 and 100% thereafter

• Phase out of weighted deductions available for contributions made for scientific research activities and for eligible social and skill development projects

Source: Reserve Bank of India; Points highlighted above in italics have been reproduced verbatim

Highlights of RBI Monthly Bulletin

February 2016

41

Performance of Private Corporate Business Sector during First Half of 2015-16:

• The aggregated sales of the private (non-financial) corporate business sector contractedduring H1:2015-16. The contraction was primarily on account of the manufacturing sectorwhich is predominated by the fall in crude oil prices.

• The Iron & Steel industry posted a contraction in sales by 11.2 per cent in H1: 2015-16 dueto fall in international steel prices.

Important Performance Parameters of Select Industries

Industry Period

Large Medium Small All Companies

Sales EBITDANet

ProfitSales EBITDA

Net

ProfitSales EBITDA

Net

ProfitSales EBITDA

Net

Profit

Iron &

Steel

H1:

2014-1510.9 18.1 5.5 0.6 4.9 -4.0 -32.9 -2.6 -26.7 9.1 16.5 4.2

H2:

2014-15-1.2 13.6 -0.5 -8.5 3.0 -8.3 -9.8 2.1 -9.6 -2.1 12.4 -1.4

H1:

2015-16-9.7 13.4 0.7 -17.9 2.8 -11.4 -36.7 1.3 -9.9 -11.2 11.9 -0.9

Sales measured as growth (y-o-y); EBITDA measured as margin (%); Net Profit measured as margin (%)

Source: Reserve Bank of India

RBI’s Sectoral Deployment of Bank Credit

January 2016

42

Note: Data are provisional and relate to select banks which cover 95 per cent of total non-food credit extended by all scheduled commercial

banks (excludes ING Vysya which has been merged with Kotak Mahindra since April 2015).

Industry-wise Deployment of Gross Bank Credit

(INR Billion)

Industry

Outstanding as on Growth (%)

Mar. 20,

2015

2014 2015Financial year

so farY-o-Y

Dec. 26 Nov. 27 Dec. 25 2015-16 2015

1 2 3 4 5 6

1 Industry 26,576 25,588 26,687 26,952 1.4 5.3

1.13 Basic Metal & Metal

Product3,854 3,683 3,973 4,008 4.0 8.8

1.13.1 Iron & Steel 2,834 2,729 2,967 2,985 5.3 9.4

1.13.2 Other Metal & Metal

Product1,020 954 1,006 1,023 0.3 7.2

Source: Ministry of Finance

Highlights of Economic Survey 2016-17

Analysis of Trade Policy

43

Empirical analysis regarding impact of FTA on trade with respect to ASEAN, Japan & Korea (FTA countries) as given under Economic Survey 2016-17 is as follows:

1. Within the set of FTA countries, ASEAN growth rate of trade after the enactment of FTA is much higher than other FTA countries.

2. Starting 2010, there is an increase in the median log value of imports from FTA countries as compared to non-FTA countries. The value of exports, however, appears to be similar for FTA and non-FTA countries.

Main Findings:

1. Increased Trade: The overall effect of trade of an FTA is positive and statistically significant.2. Persistent Effects: Within an year of the agreement coming into force, the effect of FTAs

become positive & significant, with the effects even increasing in the subsequent few years.3. Effect on Imports: ASEAN FTA seem to have the biggest trade impact, since this

arrangement saw the greatest reduction in Indian import tariffs. With respect to ASEAN, India has benefitted on both sides of trade flows. The effect of Korean FTA is insignificant, whereas Japan FTA has had a significantly negative effect on exports (fall of 18 percent) and a statistically negative effect on exports.

4. Imports of metals: A ten percent reduction in FTA tariffs for metals and machinery increases imports by 1.4 percent and 2.1 percent respectively.

Points highlighted above in italics have been reproduced verbatim from Economic Survey, Vol I, Ch 8, Preferential Trade Agreements

Source: Ministry of Finance

Highlights of Economic Survey 2016-17

Steel Industry Related

44

• Due to near-stagnant demand for steel globally, and in particular in China, major global steelproducers are pushing steel products into the Indian market, leading to a surge in steel imports. The Indian steel industry with higher borrowing and raw material costs and lower productivity is at a comparative disadvantage.

• The steel sector is under severe stress for domestic and international reasons. The cost of production of a few private players for FY15 is significantly greater than that of other firms when benchmarked against international prices.

• Chinese excess capacity in commodity-related sectors such as steel and aluminum will lead to a surge in imports into India.

• Any further safeguards will impact the downstream industries as steel is used as an input in different industries like basic metal and non-metal products, machineries, transport, construction and consumer goods. o It is estimated that for a 10 per cent increase in steel prices due to a hike in anti-

dumping or import duties, the cost of production of basic metal and non-metal products will increase by 5.4 percent, construction by 1.7 percent, machineries by 1.3 percent, transport by 0.7 percent and the consumer goods sector by 0.4 percent.


Source: International Monetary Fund

Highlights of World Economic Outlook

Projections by IMF, Jan 2016 Update

45

For India, data and forecasts

are presented on a fiscal year

basis and GDP from 2011

onward is based on GDP at

market prices with

FY2011/12 as a base year.

The World Economic Outlook Projections by IMF, updated in JANUARY 2016

state the following :

India and the rest of emerging Asia are generally projected to continue

growing at a robust pace, although with some countries facing strong headwinds

from China’s economic rebalancing and global manufacturing weakness.

Overview of World Economic Outlook Projections (%)

2016 2017

United States 2.6 2.6

Japan 1.0 0.3

China 6.3 6.0

India 7.5 7.5

Brazil -3.5 0.0

Russia -1.0 1.0

Mexico 2.6 2.9

Source: World Bank, Global Outlook Summary, January 2016 Dataset; E – estimates; F - forecasts

Highlights of World Bank Forecasts

January 2016

46

World Bank report titled “Global Economic Prospects: Spillovers amid Weak

Growth” released in JANUARY 2016 states the following :

Compared to most other major developing countries, India is well positioned to

withstand near-term headwinds and volatility in global financial markets due to

reduced external vulnerabilities, a strengthening domestic business cycle, and a

supportive policy environment.

Real GDP Growth rates (in %) during 2014-2018(F)

4.9

4.34.8

5.3 5.3

2.6 2.42.9 3.1 3.1

7.36.9 6.7 6.5 6.5

7.3 7.37.8 7.9 7.9

1.7 1.62.1 2.1 2.1

2014 2015E 2016F 2017F 2018F

Developing economies World China India High-income economies

*The country classification by income level is based on 2012 GNI per capita from the World Bank.

Source: Reserve Bank of India

Rates at Reserve Bank of India

February 2016

CRR – Cash Reserve Ratio; SLR - Statutory Liquidity Ratio

CurrencyDate

February 29, 2016

I USD 68.6160

1 EUR 75.0796

1 GBP 95.1978

100 YEN 60.7800

Policy Repo Rate : 6.75%

Reverse Repo Rate : 5.75%

Marginal Standing Facility Rate : 7.75%

Bank Rate : 7.75%

Reference Rates

Policy Rates Reserve Ratios

CRR : 4%

SLR : 21.5%

47

Lending/ Deposit Rates

Base Rate : 9.30% - 9.70%

Savings Deposit Rate : 4.00%

Term Deposit Rate > 1 year : 7.00% - 7.90%

THANK YOU

On behalf of Indian Steel Association,Ms. Ashima Tyagi

DISCLAIMER

The material in this presentation has been prepared by Indian Steel Association (ISA) and is a general background information reviewing the status of the

developments in the global and Indian steel industry as at the date of this presentation. This presentation is strictly for internal use of all the member

companies of ISA, whose names have been stated in the presentation.

Information is given in summary form and does not purport to be complete or all inclusive. The information has been sourced from independent third party

databases, knowledge sources and news reports, and the authenticity of the same has not been independently verified by ISA.

Additionally, any third party forecasts on financial or economic parameters, projections or estimates should not be construed as an investment advice or a

recommendation to any ISA member. Recipients of this presentation from member companies of the ISA should each make their own evaluation of the

contents and adequacy of the information contained in the presentation.

ISA does not undertake any obligation to publicly release any changes to any revisions, modifications or forward looking statements in the subsequent

editions of this bi-monthly presentation. Unless otherwise specified, all information is for the period January & February 2016.

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