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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
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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 %