India - Steel Sector

Industry Research Report

November 2009
WhiteMonk Research & Analysis

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10/9/2009
 Table of Contents

Executive Summary.......................................................................................................................................3
Steel Price Forecast....................................................................................................................................... 4
Global Steel Industry Demand Landscape .................................................................................................... 4
Steel Sector Outlook ..................................................................................................................................... 5
Indian Steel Industry (Key Data Analysis) ..................................................................................................... 6
Industry Segment Analysis........................................................................................................................6
Top fifteen firms operating in India (Market cap wise) ............................................................................6
Conclusion..................................................................................................................................................... 6
Disclosures and Disclaimer ........................................................................................................................... 8
Confidentiality........................................................................................................................................... 8
Analyst Certification.................................................................................................................................. 8
Legal Disclaimer ........................................................................................................................................ 8

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 Indian Steel Sector: Poised to grow well in 2010

Executive Summary
To boost the Indian economy, In FY08-09, Indian Government has provided fiscal stimulus estimated to
be over US$60B to various industries including steel sector as well. In addition to other benefits,
government has reduced export duty for steel related products by 5%. As expected it has had positive
impact on the steel sector, which resulted in increased demand and consequently steel firms posted
higher quarterly earnings and profits. So far in the current financial year production grew at 7.06%
compared with a 6.61% growth last year. According to data from Office of the economic advisor to
Ministry of Commerce & Industry, the Indian finished steel production fell by .4% to 45.5 lakh tonn in
September 2009 as against 2.1% rise to 45.77l tonn in September 2008. White monk forecast a growth
of 6.2% in carbon steel by January 2009 over same period in 2008. (Table 1) This is the first fall in
production in the current fiscal. Index of basic metal and alloy recorded an 8.55% growth rate in August
2009 compared with an 8.99% increase in the same month last year. SAIL has forecasted a solid growth
for steel related products in 2010, which expected to be in the range of 6%-7%. Because of good growth
in steel sector (7.06%), SAIL has posted a net profit of US$571M for FY09 and has beaten global steel
majors such as Posco, Nippon.

Production of bars and rods recorded 19.67% growth in August 2009 compared with 34.57% growth in
August 2008. One of the major item in the index that is structural (light, medium, and heavy) recorded a
10.53% growth in August 2009. Production of steel wires recorded 11.11% growth in August 2009
compared with 25% growth in the same month last year. In April-August 2009-10, production was up
27.96% compared with 3.91% growth in the same period last year.

Production (Finished Steel)

Units (000T)
%
Month FY09-10 Change FY08-09 FY0708
April 4339 0.037542 4182 4209
May 4524 0.019148 4439 4297
June 4572 0.061774 4306 4079
July 4602 0.021758 4504 4248
Aug 4854 0.043422 4652 4497
Sep 4558 -0.4% 4577 4483
Oct(forecast) 4606.8 3.0% 4471 4545

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 Nov (f) 4656.2 7.7% 4323 4444
Dec(f) 4706.1 8.6% 4334 4479
Jan(f) 4756.6 6.2% 4477 4481
Feb(f) 4807.5 9.3% 4398 4370
March(f) 4859.1 0.5% 4837 4965
Apr-Sep 27449 0.029595 26660 25813
Table 1

Steel Price Forecast

Table 2 gives detailed pricing of HR coils for current fiscal year, 2008 and 2007. In comparison with FY08,
steel price are still significantly down in the range of 27%-29%.The reason for prices are lower is because
input prices in making steel such as iron ore, coal have also fallen significantly. WhiteMonk forecast a
gradual recovery in the prices and should recover modestly by 2% in March 2010.(Table 2)

Prices
Price-HR Coils
%
Month FY09-10 change FY08-07 FY07-06
April 34319 -27% 46838 35300
May 33994 -28% 47200 35925
June 33993 -29% 47875 36275
July 33999 -25% 45410 35675
Aug 34246 -25% 45381 35288
Sep 34590 -24% 45502 35888
Oct(forecast) 34645.25 -24% 45375 36913
Nov (f) 34700.6 -20% 43441 37000
Dec(f) 34756.03 -11% 39222 35988
Jan(f) 34811.55 0% 34795 37175
Feb(f) 34867.15 4% 33667 38250
March(f) 34922.85 2% 34314 42125
Apr-Sep 34190 46368 35725

Global Steel Industry Demand Landscape

In FY10, Total global demand for steel went down from 1036MT to 866MT; approximately it was 16%
drop in total world demand for steel related prodcuts. China saw a big increase in demand for steel by
29% in the month of September 2010. The total demand for steel in September was about 50.7MT in
comparison with 39.4MT in same period in FY08. The demand is driven largely because of higher GDP
and other strong market macroeconomic parameters. In contrast with Asia, Europe, the steel demand

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was mainly negative. The demand for steel went down by 21% and 16% in Germany and in France and
by 39% in EU. (Table 3)

Sep-09
Geography 2009 2008
Total world steel production 107 106.4
China 50.7 39.4
Germany 3.2 4.1
France 1.3 1.5
Russia(Nine Month ) 41.7 57.0
US(Nine Month) 40 58.3
European Union(Nine Month) 97.2 160.1
Total World Production(Nine
Month) 866 1035.9
Table 3

Steel Sector Outlook

We believe that outlook for steel sector is positive which is reflected in our price and volume forecast. In
India, The overall GPD growth is expected at 6.2% and consequently current double digit growth in Auto,
real estate and Infrastructure will have a good impact on steel sector. According to Goutam Kumar
Basak, Executive Secretary, Joint planning committee (JPC), India is likely to emerge as the world’s third
largest steel producer in FY09-10. If one compares the steel production for April-August 2009, India has
produced 22.14MT of steel which is more than 50% of total US production for last nine months. The
National steel policy has ambitious plan to take total production up to 110MT by 2019-20, which
represents an impressive 7% CAGR. To take advantage of expected growth in demand, both
government and private firms have committed significant investments to increase the capacity.
According to Investment commission of India, Investment of over US$30B is expected between 2009
and 14. Some of the key investment in this sector is as given below:-

Entity Total Value Objective

TATA Steel US$500M Expanding Capacity
To set up Additional 4-million tonne per
SAIL US$ 724M annum steel mill at its Bhilai Steel Plant.
To set up sponge iron units in Koppal and
Other Steel Firms US$122.5M Bellary in Karnataka.

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Indian Steel Industry (Key Data Analysis)
Quarter Year TTM
Company Net Market Net Net
Name Sales Profit Cap P/E Sales Profit Sales Profit
Steel 457 237507.9 17582.57 245896.31 43756.84 3624.64 208339.2 13247.63
Large - Steel 28 159018 15267.22 156935.51 9.51 29669.94 3073.36 143586.9 11736.82

Industry Segment Analysis

Top fifteen firms operating in India (Market cap wise)

Conclusion
We expect the demand for steel will continue to grow due to impressive growth in most of the key
sectors such as Infrastructure, Construction, Auto, Steel Tubes and pipes, Transportation. The steel firms
are also now getting orders from technology intensive industries such as Petrochemicals, Fertilizers,
Bangalore Metro projects and new airports, which are being constructed in various part of the country.
Now with increased demand for oil in emerging countries, steel would be a key inputs to leverage
transportation so that oil can be transported cheaply over long distance. This will have a positive impact

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on expected demand of steel related products (Tubes) in coming time. With positive GDP, various
government initiatives to bolster the demand and receding recession in US and in EU, makes it an
attractive sector.

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Disclosures and Disclaimer
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