CRISIL Limited

Global and Indian Trends in Metal

IndustryApril 8, 2023

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About CRISIL Research CRISIL Research is India’s largest independent research house

and is a 100 per cent subsidiary of CRISIL Ltd. CRISIL Research’s research offering includes

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About CRISIL Research CRISIL Research’s offering in the metals sector includes

Industry Information Service Reports on steel, steel intermediates, aluminum and copper.

CrisilViews Tata Steel Steel Authority of India Limited Jindal South West Limited Hindalco Nalco Sterlite and many others

Syndicated research Global Aluminum company Large Indian Automobile company

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2005-06: Beginning of the meltdown

-40000

-20000

0

20000

40000

60000

80000

100000

120000

140000

2001-02 2002-03 2003-04 2004-05 9M 2004-05 9M 2005-06

(Rs.

mil

lio

n)

-15

-10

-5

0

5

10

15

20

25

30

35

40

(Per

cen

t)

PAT OPM (RHS) NPM (RHS)

Note: Players considered are: Tata Steel, SAIL, Ispat, Essar Steel and JSW SteelSource: CRIS INFAC

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Decline in steel prices

The average international price of hot-rolled coils (HRC) was $460 per tonne (FOB) during the first 9 months of FY 2005-06, 16 per cent lower than the $549 per tonne (FOB) reported during the corresponding period of 2004-05.

Domestic HR prices mirrored the trend in global prices, averaging Rs 28,444 per tonne in April-December 2005, down from an average of Rs 28,778 per tonne in April-December 2004.

Note: International prices are CIS – Black Sea (FoB) pricesSource: Metal Bulletin and CRIS INFAC

15,000

17,000

19,000

21,000

23,000

25,000

27,000

29,000

31,000

33,000

35,000

Apr-0

4

May

-04

Jun-

04

Jul-0

4

Aug-0

4

Sep-0

4

Oct-04

Nov-04

Dec-04

Jan-

05

Feb-0

5

Mar

-05

Apr-0

5

May

-05

Jun-

05

Jul-0

5

Aug-0

5

Sep-0

5

Oct-05

Nov-05

Dec-05

Jan-

06

Feb-0

6

Mar

-06

Apr-0

6

May

-06

Jun-

06

(Rs

per

to

nn

e)

300

350

400

450

500

550

600

650

($ p

er t

on

ne)

Domestic prices International prices (RHS)

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Incremental supplies grew higher than incremental demand

982

1041

974

1013

99

97

940

960

980

1000

1020

1040

1060

2004 2005

(Mil

lio

n t

on

nes

)

96

96.5

97

97.5

98

98.5

99

99.5

(Per

cen

t)

Finished Steel production

Finished Steel Consumption

Consumption/production ratio (RHS)

While the apparent consumption, rose by 4.09 per cent (addition of 39.8 million tonnes) during 2005 over 2004, supplies increased by 6.07 per cent (addition of 59.6 million tonnes)

Reasons Slowdown of demand from the US and

the EU. The regions met most of their consumption needs from their inventories leading to reduced buying

China becomes net exporter in 2005 from net importer in 2004. Over the past 3 years (between 2003 and 2005), China's consumption of finished steel increased at a CAGR of 16.12 per cent, while its production grew by a CAGR of 25.34 per cent over the same period.

Source: IISI

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Higher raw material prices in 2005-06

Iron ore Average international spot iron ore prices increased in 2005 to about $80 per tonne, a rise of almost 70 per

cent from average of around $47 per tonne in 2004. Strong demand from China led to the increase. In April 2005, NMDC increased the domestic contracted price to Rs 1,450 per tonne (inclusive of freight) to

align it with international prices. In FY 2005-06, as per NMDC's annual results, it has sold iron ore at an average price of Rs 1,944 per tonne.

However, players with captive mines such as Tata Steel, SAIL and JSW (to some extent) are insulated from the price hikes.

Coke During the first 9 months of FY2005-06, coke prices averaged $199 CFR. The decline in prices can be

attributed to increased exports from China. Coking coal

The contracted price of coking coal during CY 2005 was $125 per tonne (FOB) as against $57 (FOB) in CY 2004 [source: Tata Steel Analyst Meet presentation]. Hence players, having captive coke ovens – like Tata Steel and SAIL –did not really benefit from the fall in coke prices.

Natural gas Natural gas prices in the domestic market have ruled at a substantial premium during April-December 2005

(Rs 8,022.72 per thousand cubic metres - tcm) over the corresponding period of the previous year (Rs 5,066.62 per tcm) leading to a heavy erosion in margins of gas-based steel makers such as Ispat and Essar.

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Volumes helped achieving stable revenues

Note: The YoY growth is calculated based on results of corresponding period of previous yearSource: CRIS INFAC

29970

22477.5 24277

4375

31623320

6.89

6.4

7.64

0

5000

10000

15000

20000

25000

30000

35000

40000

2004-05 12M 2004-05 9M 2005-06 9M

('000

to

nn

es)

5.6

5.8

6

6.2

6.4

6.6

6.8

7

7.2

7.4

7.6

7.8

(Per

cen

t)

Domestic Demand Exports YOY Growth ( RHS )

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Looking into the crystal ball

Margins of the domestic industry to remain stable during 2006-07 as compared to 2005-06

Prices to increase marginally. However rise in Input costs to keep margins

stable.

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Realization to increase marginally

The International average prices of steel will be around $500 per tonne in CY 2006 as compared to $490 per tonnes in 2005

Global demand to remain healthy Capacity additions; mostly expected in China

Hence Global operating rates to remain stable

The Increase in the domestic prices will be lower due to unfavorable demand-supply Scenario

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