views of dr. bhaskar chatterjee secretary general

Is 2018 the comeback year for Indian Steel?

Views of Dr. Bhaskar Chatterjee

Secretary General

A presentation for India Steel Markets ConferenceJune 7, 2018; Kolkata

All the major Public and Private Sector steel enterprises of India joined hands in

August 2014 to form the “Indian Steel Association” (ISA), headquartered in New

Delhi.

ISA was established given the need for a common voice of Indian steel industry

within the folds of an all-inclusive platform. The VISION of Indian Steel

Association is to

“work towards transforming the Indian Steel Industry as a global

leader acclaimed for its Quality, Productivity and Competitiveness, with

focus on health, safety and environment, along with growing thrust on

innovation through R&D, adopting an inclusive and collective approach”.

2

About Indian Steel Association

ISA intends to be focal point for steel industry related deliberations in the

country and abroad.

• ISA represents around 65 percent of the crude steel production capacity of

India.

• ISA represents (fully) 100 percent of the Public Sector steel companies of

India.

• ISA also directly represents the largest segment of the Stainless Steel

producers in the country.

3


4


Our eight Full Members are:

• JSW Ltd.

• Steel Authority of India Ltd.

• Tata Steel Ltd.

• Rashtriya Ispat Nigam Ltd.

• Essar Steel India Ltd.

• Jindal Steel & Power Ltd.

• Bhushan Power & Steel Ltd.

• Bhushan Steel & Strips Ltd.

Our eight 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, Orissa

Metaliks & Electrosteel Steels.

Source: World Bank, Global Outlook Summary, January 2018 Dataset; E – estimates; F - forecasts5

High Growth Forecasts For India exist…

After growing at 8% in 2015, the GDP growth rate subsequently fell due to short-

term disruptions like from the newly introduced GST. However, in the medium

term, India is poised to become the fastest growing economy in the world with the

GDP growth rates predicted to be around 7.5%, on the back of strong private

consumption and services.

Private Investment and Exports can further boost the GDP growth rate.

Real GDP Growth rates (in %) during 2015-2020(F)

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

8.0

7.16.7

7.3 7.5 7.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2015 2016 2017e 2018f 2019f 2020f

China EAP India World Europe and Central Asia Middle East & North Africa

Source: World Bank;* Modelled ILO estimate6

..But socio-economic Indices Need a Glance..

2014 2016

ECONOMY & GROWTH

GDP (at market prices, current USD) USD 2.049 trillion USD 2.263 trillion

GDP growth (annual %) 7.3% 7.1%

GDP per capita (current USD) USD 1,581.5 USD 1,709

SOCIAL

Population 1.295 billion 1.324 billion

Rural Population (% of total population) 68% 66.8%

Unemployment, youth total

(% of male labor force ages 15-24)*

10.02% 10.4%

School enrolment, pre-primary (% gross) 11.74% 12.91%

TRADE & INDUSTRY

Exports of goods and services (% of GDP) 23.2% 19.18%

Imports of goods and services (% of GDP) 25.5% 20.63%

Ease of Doing Business Index 130 100 (2017)

Time required to get electricity (days) 101.8 45.9

Employment in Industry (% of total employment)* 23.93 23.71

3

India’s Consumption of Steel

Source: Ministry websites

Thrust on Manufacturing-led growth

MAKE IN INDIA

24x7 Power for All initiative (by 2019)

Development of Industrial Corridors & National Investment & Manufacturing Zones

75,000 MW Clean-Energy initiative (by 2022)

Stress on Urbanization & Infrastructure Development

Pradhan Mantri AwasYojna- Housing for All & Sardar Patel Urban Housing Mission

100 Smart Cities Mission (by 2022) & Pradhan Mantri Gram SadakYojna

Urban Infrastructure Development Scheme for Small & Medium Towns (UIDSSMT)

National Heritage City Development and Augmentation Yojana (HRIDAY)

Easing the way Business is Done

Digital India & Accessible India

Shram Suvidha & Skill India Campaign

Investor Facilitation & Single Window Clearances for investment

Improved ranking on the World Bank's Ease of doing Business Index

Inspite of Commitment to Reforms..

7

Source: Indian Steel Association8

…Challenges still loom large…

Renewed impetus on reforms

• Implementation of the Goods & Services Tax (GST)

• Introduction of an insolvency and bankruptcy framework

• A new inflation targeting framework

• Containing the level of fiscal deficit

• Energy subsidy reforms

• Fiscal Federalism

• Greater access to financial services to the poor

Growing Challenges

• Limping growth of Indian Manufacturing

• Employment opportunities for the growing workforce

• Constrained private investment

• Slowdown in exports

• Need for recapitalisation of Banks

• Declining share of private consumption as a component of GDP

Source: World Population Prospects: The 2017 Revision, United Nations Population Division; World Urbanization Prospects, 2014 Revision9

..However, there lies a positive horizon…

The silver lining for India, however,

remains its favourable demographics and

increased rate of urbanisation:

• In roughly seven years, the population

of India is expected to surpass that of

China, reaching 1.44 bn people in

2024.

• Thereafter, India’s population is

projected to continue growing for

several decades to around 1.5 billion

in 2030 and approaching 1.66 billion in

2050.

• India, China and Nigeria will account

for 37 percent of the projected

growth of the world’s urban

population between 2014 and 2050.

32.7

50.3

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

2049

High-income countries Middle-income countries

Low-income countries India

Population residing in urban areas (in %)

during 2015-2050

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

Source: The Economist Intelligence Unit, Global Forecasting Service for April 2018; World Steel Association10

Indian Steel Industry growing in tandem…

Real GDP Growth Projections* (2018- 2022; in %)

In % 2018 2019 2020 2021 2022

IndiaReal GDP Growth 7.6 7.9 7.5 7.7 8.0

Inflation 5.1 5.3 4.7 4.8 5.1

ChinaReal GDP Growth 6.4 6.3 6.2 5.5 5.3

Inflation 2.4 3.1 3.0 2.4 2.5

U.S.AReal GDP Growth 2.6 2.5 0.8 1.8 1.8

Inflation 2.4 2.5 1.3 1.8 1.9

JapanReal GDP Growth 1.6 1.7 0.4 1.2 1.1

Inflation 1.3 1.6 1.7 0.9 1.1

• The level of per capita consumption of steel is known to be an important indicatorof economic development and living standard of the people in any country.

• India’s per capita steel consumption, at 65 Kg, is way below the world average of208 Kg in 2016.

• Therefore, in India, consumption of steel products shall naturally increase with thestrengthening of the local economy’s growth over the next few decades.

Production Consumption

China

50%

Japan

6%

India6%

U.S.

5%

Russia

4%

Others

29%

India ranks 3rd in terms of steel production as on 2017

China

46%

USA

7%

India5%

Japan

4%

South Korea

4%

Others

33%

India was the 3rd largest steel consumer as on 2017

World Total:

1,691 MT

World Total:

1,630 MT

5Source: Ministry of Steel; Indian Steel Association; World Steel Association

..Occupying Top Slots Globally..

▪ World crude steel production reached 1,691.2 million tonnes (Mt) for the year 2017, upby 5.3% compared to 2016.

▪ India's crude steel production grew by 6.2 percent to 101.4 Mt in 2017 compared to 95.5 Mt in the previous year.

11

Source: Ministry of Steel; Indian Steel Association; World Steel Association12

..with continued emphasis on competitiveness..

▪ The Indian Steel industry has been on a mode of capacity expansion in last few years,

building around 130 MTPA steel making capacity in April-Dec FY18, in expectation of

a huge spurt in consumption.

▪ Production & Consumption of Steel have witnessed rising trends over the years.

0

2

4

6

8

10

12

14

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Production-Crude Steel

Consumption-Finished Steel

Import of Finished Steel

Export of Finished Steel

Trends in Production, Consumption, Exports &

Imports of Steel in India (2007 – 2017; in Mt)

Huge spurt in imports

(by 100%) & extreme

dip in exports in 2015

India turns net

exporter in 2017,

after 2013

Surge in imports after

the financial crisis of

2008-09

Source: Ministry of Steel

▪ The Government of India notified the National Steel Policy (NSP), 2017, on May 8, 2017;

which was an updated version of National Steel Policy 2005.

▪ One of its objective being to Increase the per Capita Steel Consumption to 160 Kgs by

2030-31.

▪ The policy anticipates that a crude steel capacity of 300 MT will be required by 2030-31,

based on the demand projections.

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..Aiming at further Steel Capacity Addition..

102 110122

128 130

50

90

130

170

210

250

290

330

FY14 FY15 FY16 FY17 FY18

Cru

de S

teel C

ap

acit

y

FY31

300

Governmental

Policy Target

India’s Crude Steel Capacity, FY14-31 (in MTPA)

Basic Assumptions of NSP projections:

o No drastic structural change of the economy will take place involving major parameters such as savings and investment

o There exists a zero trade balance in Steel

3


Source: India Brand Equity Foundation; * includes passenger vehicles, commercial vehicles, three wheelers & two wheelers

..Given Long Term Growth Potential..

14

Automotive

• The automotive industry is forecasted to grow in size by US$ 74 bn in 2015 to US$ 260-300 bn by 2026.

• In 2016, Indian automotive sector is estimated to be 3rd largest automotive market, by volume

Infrastructure

• The infrastructure sector accounts for 9 per cent of steel consumption and expected to increase 11 percent by 2025-26.

• Estimated steel consumption in airport building is likely to grow more than 20 per cent over next few years

Rural India

• Rural India is expected to reach per capita consumption of 12.11 kg to 14 kg for finished steel by 2020.

• Policies like Food for Work Programme (FWP) and Indira AwaasYojana, Pradhan Mantri Gram SadakYojana to drive demand for steel

3


Source: India Brand Equity Foundation

…which portends potential gains for Steel..

15

Power

• The government plans addition of 100 GW target capacity under

the 13th Five-Year Plan (2017–22)

• Conventional power capacity addition of 23.98 GW has registered

to be the highest in FY16

Oil and Gas

• Oil and gas amongst major end-user segment accounted for ~34.4

per cent of primary energy consumption in FY16

• This would lead to an increase in demand of steel tubes and pipes,

providing a lucrative opportunity to the steel industry

Railways

• The Dedicated Rail Freight Corridor (DRFC) network expansion

would be enhanced in future.

• Indian Railways started the PPP mode of funding and has already

awarded projects worth around US$ 1.73 billion during the 1st 7

months (April-October) of FY16

So,

Is 2018 the comeback year for Indian Steel?


Indian Steel Industry has suffered greatly…

National Steel Policy 2017

Policy on Preference to Domestically Manufactured Iron & Steel

Products

Quality Control Order(s)

Introduction of Life Cycle

Assessment in GFR

Amendment

Steel Research and Technology

Mission of India

Imposition of Safeguard &

Anti-dumping Duties

Proactive Trade

Remedial Measures

Enabling Environment

Challenges & Threats

• Growing protectionism in International Trade, courtesy Section 232 &

retaliatory measures globally

• Rise in Imports of Steel Products, on account of Trade diversion from

steel-surplus nations

• Global Excess Steel Capacity, especially in China

• Duty free access to Indian markets through FTAs

• Volatility in international prices of steel-making raw materials

*****************************************************************

• Structural inefficiencies that curtail competitiveness

• High Cost of Transportation & Logistics

• Uncertainties in supply of raw materials

• Over-leveraged balance sheets to invest further

• Shortage of skilled manpower

• Targetted reduction of carbon emissions

External

Internal


..but 2018 brings with it renewed hope..…


2000-2008

• Global demand of steel grows at CAGR of 9%

• Indian demand for steel grew at 11 percent during 2003-2008

• Phase of prosperity, for both Indian and Global companies

2008-2015

• Global Financial Crisis in 2008, followed by Eurozone crisis in 2011

• Global demand of steel grows at CAGR 5%

• Supply glut begins to hit profitability of steel companies globally

2015

• India surpasses USA to become the third largest producer of the world

• India hit with a surge in imports at low prices arising from global excess capacity

• By 2015, China’s steel capacity is 11 times that of India’s

2016

• By March 2016, the total exposure of the steel sector to banks was over Rs. 3.1 lakh crores. Of this, 48% is estimated to be in the stressed category (37% as NPAs & 11% as restructured)

• China begins the process of cutting its excess capacity

2017

• Recovery in the steel sector begins to show courtesy the effects of safeguard duties, minimum import price & other trade remedial measures

• Start of NCLT proceedings against debt ridden steel companies

2018

• India overtakes Japan to become the second largest producer in the world

• Resolution process taking shape, leading to consolidation in the Industry

• Profitability returns to industry, after several years of distress.


..wherein we Make In India, make In Steel…


15.2 17.82 22.72 23.8230.32 33.67

43.0550.81

58.4370.60

78.31 88.1289.79

97.94102.34

0

15

30

45

60

75

90

105

120

India’s Crude Steel Production Growth FY92-18 (in MT)

▪ In spite of numerous challenges, both on account of domestic and global factors, Indian

Steel making enterprises have persistently believed in the India growth story and

invested in R&D, Capacity Expansion & Competitiveness.

▪ Even during the 2008-09 crisis globally, when global steel making peers were hit

adversely, Indian companies continued to add capacities, to meet the growth envisaged

for Indian End Using industries.

2018, will, prove to be a breakthrough year in the growth of the industry!

THANK YOU

Meet us for further discussion, at

Steel Conclave 2018

October 25-26, 2018; The Lalit, New Delhi

views of dr. bhaskar chatterjee secretary general

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