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ASSOCHAM

3rd India Steel Summit


-Sustainability and Inclusive Growth –
At Hotel Le Meridien – New Delhi
On 08.07.2009

DYNAMICS OF STEEL MARKET

Sushim Banerjee
ED (Commercial)
SAIL

GLOBAL GDP PROJECTION


IMF/World Bank revised the latest global output forecasts
in April/June’09

Country 2008 2009 2010


World 3.2 (1.9) (-) 1.3 (-2.9) 1.9 (2.0)
USA 1.1 (1.1) (-) 2.8 (-3.0) 0.0 (1.8)
Europe 0.9 (0.6) (-) 4.2 (-4.5) (-) 0.4 (0.5)
Japan (-) 0.6 (-0.7) (-) 6.2 (-6.8) 0.5 (1.0)
Russia 5.6 (5.6) (-) 6.0 (-7.5) 0.5 (2.5)
China 9.0 (9.0) 6.5 (6.5) 7.5 (7.5)
India 7.3 (7.3) 4.5 (5.9) 5.6 (8.1)
Advanced economies in deep recession in 2009, little recovery before 2010.
Emerging economies face weak 2009, slow recovery in 2010.

( ): World Bank forecast


RELATIONSHIP AMONG GDP, CAPITAL FORMATION,
INDUSTRIAL PRODUCTION, MANUFACTURING AND
STEEL DEMAND

Year Growth rate (%) Steel


Consumption
GDP GFCF IIP IIP Mfg. Steel
Consumption (Mill. T)
2006-07 9.7 14.5 11.6 12.5 13.0 44.3

2007-08 9.0 12.9 8.5 9.0 11.5 49.4

2008-09 6.7 8.9 2.6 2.5 (-) 1.2 48.8

Source: CSO,
JPC

PROJECTION OF STEEL DEMAND BASED ON MACRO-


ECONOMIC VARIABLES

Year Projected Growth rate (%) Steel


Consumption
GDP GFCF IIP IIP Mfg. Steel
(Mill. T)
Consumption
2009-10 6.5-7.0 9.8-10.6 6.4-6.9 6-6.4 7.5-8.1 52.5-52.8

2011-12 7.0-8.0 10.6-12.1 6.9-7.8 6.4-7.3 8.1-9.2 61.5-62.8

2014-15 7.5-8.5 11.3-12.8 7.3-8.3 6.8-7.8 8.6-9.8 79.6-82.3

2016-17 9.0-9.5 13.6-14.3 8.8-9.3 8.2-8.6 10.4-10.9 98.7-99.6


Projected Availability: 2011-12

Investor Current Total


Capacity Expansion Plan Capacity
2011-12
Brownfield Greenfield
SAIL 13 12 0 25
RINL 3.3 3.5 0 6.8
Tata Steel 6.5 3.5 3 13
Essar 3.3 3.9 6 13.2
JSW Steel Ltd 7 6.9 0 13.9
Jindal Power & Steel Ltd. 2.5 3.0 1.45 6.95
Ispat Inds. Ltd. 3 2 0 5
Welspun 1.2 0.3 0 1.5
Bhusan Steel 1.2 1.8 0 3.0
Other & Secondary 20 2.44 13.27 35.71
TOTAL 61 39.34 23.72 124.06

AVAILABILITY PROJECTION:2011-12

In the post meltdown scenario, following assumptions may be made on


Availability Projections due to uncertainty on future market prospects:-

a) No Greenfield expansion till 2011-12


b) Delay in current expansions

Taken together, a total availability of approx. 75 million tonnes of


Finished Steel (@ 90% capacity utilisation) may be expected by 2011-12.

Thus a surplus scenario may emerge by 2011-12 unless


i) Demand grows at a rate faster than 9.1 percent projected between
2009-10 and 2011-12
or,
ii) Fresh capacity additions get further delayed.
BROAD SECTORAL BREAK-UP OF STEEL DEMAND

Sectors % Share in total % Share in total


steel demand steel demand
(China) (India)
Construction 63 63
Mechanical Machinery 18 10
Metal Products 7 12
Electrical Equipment 3 5
Automobile 4 6
Domestic Appliances 2 2
Other Transport 3 2
Total 100 100

Outlook of the major steel consuming segments


Product Segment Outlook % growth (estimated)
in 2009-10 over 2008-
09
TMT / Structurals Infrastructure Buoyant 10

HR Coils / Sheets Pipe & Tubes, Auto, Domestic market 4.5


Engineering & slowly picking up,
Fabrication exports bleak

Plates Capital Goods & Good Project orders, 9


Fabrication demand for higher
thickness less than
supply.

CRC/Sheets Auto , White Goods Demand pull due to 7


destocking in specific
sector, higher liquidity
flow leading to more
disposable income.

Tin Plate Container Fighting against low 5


cost substitutes.

Pipes Oil & Gas, Water Very positive 11


supply & Sanitation
SHIFTING PATTERN OF STEEL DEMAND

• PREFERENCE FOR A DURABLE, LIGHT AND AESTHETICALLY SOOTHING


COMMODITY. STAINLESS STEEL PENETRATION IN SPECIFIC END USES.

• CHALLENGE TO STEEL PRODUCERS TO SHIFT FROM A COMMODITY GRADE TO A


NICHE GRADE IN EACH CATEGORY-PRODUCT DIFFERENTIATION/IMPROVEMENT.

• IMPROVED PROPERTIES LIKE HIGHER YIELD, HIGHER STRENGTH, HIGHER


CORROSIVE RESISTANCE EQUIVALENT TO IMPORTED GRADE.

• EMERGING DEMAND FOR LOW COST HOUSING DESIGN IN RURAL AND URBAN
AREAS.

• A CONTINUOUS EFFORT TO ADD VALUE AND OFFER CUSTOMISED PRODUCTS


THROUGH PROCESSING/SERVICE CENTRES TO ELIMINATE ALL SECONDARY
PROCESSING COSTS AT CUSTOMERS’ END. INCREASING DEMAND FOR
FABRICATED STEEL STRUCTURE, READY-TO-USE STEEL, EARTHQUAKE AND
FIRE RESISTANT STEEL.

• FROM CRM TO CVM TO PARTNERS IN PROGRESS-IT ENABLED CUSTOMER-


CENTRIC PROCESSES- A PARADIGM SHIFT IN INDIAN STEEL MARKET

YEARWISE PROJECTED INVESTMENT DURING THE 11TH PLAN (BOTTOM-UP


ESTIMATES)
Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Total XI % of Total
Plan

Electricity (Incl.NCE) 81,954 101,553 126,380 158,027 198,611 666,526 32

Roads & Bridges 51,822 54,789 59,200 68,370 79,971 314,152 15

Telecommunications 31,375 38,134 48,593 61,646 78,690 258,439 13

Railways (Incl. 34,225 40,964 49,525 60,393 76,701 261,808 13


MRTS)
Irrigation (Incl.WD) 27,497 35,916 47,189 62,266 80,433 253,301 12

Water Supply and 19,298 22,781 27,323 33,266 41,063 143,730 7


Sanitation
Ports 12,409 14,822 17,374 19,980 23,410 87,995 4

Airports 5,208 5,520 5,904 6,646 7,690 30,968 2

Storage 3,777 4,098 4,446 4,824 5,234 22,378 1

Gas 2,708 3,003 3,332 3,700 4,111 16,855 1

Total Investment 270,273 321,580 389,266 479,118 595,914 2,056,151 100


(Rs. in crore)
As % of GDP 5.98 6.53 7.25 8.19 9.34* 7.6

* In Budget 2009-10, investment for infrastructure to attain 9 percent of GDP by 2014 only
Source: Planning Commission
Growth of Manufacturing & Processing Industries
Category Steel Items % Growth in Production
used 2006 – 07 2007-08 2008-09

Machinery & Equipments Strls/Plates 14.2 9.3 8.7

Transport Equipment Strls/Plates 15.0 2.8 2.2


Capital Goods HRC/Plates 18.2 16.6 7.0
Power & Dist. Transformer CRGO 4.6 2.7 (-) 1.9

Complete Tractors HRS/Strls 22.4 (-) 2.2 (-) 0.4


Refrigerators ( domestic) CRC/S 25.0 14.1 3.1

Bicycles CR/Rounds 27.4 6.8 (-) 2.4


Passenger Cars HR/CR 18.3 14.8 6.7
Two Wheelers CR/Rounds 14.7 (-) 5.2 4.6
Commercial Vehicles CRC/S/Plate 33.0 4.8 (-) 23.6
Drums & Barrels CRC 17.0 3.3 (-) 21.4
LPG Cylinders HRC 51.5 13.4 5.7

A few major segments under Manufacturing showing deceleration in prod. growth


due to lack of demand, excess capacity & poor export order.

Constraints of Manufacturing sector

Low economies of scale due to small domestic market fail to


attract FDI in a bigger volume inspite of superior quality.

Less developed infrastructure (Roads, Ports,Airports, Power).

Lack of Industrial Clusters to create operational advantages


like Replacement facilities, saving tooling costs, decreasing
automation, customised products etc.

Weak export orientation to combine superior tailor-made


quality with mass Production base to take care of excess
capacity situation.
A FEW SUGGESTIONS ON SUSTAINING STEEL DEMAND
Projected Infrastructure investment to generate demand for approx. 125 million tonnes of
steel in 5 years. Assuming at least 50 percent of the projected investment, direct steel
demand generation of 12-13 million tonnes per annum (total and not incremental)

Review of Policy, Regulatory and Institutional bottlenecks for speedy implementation of


infrastructure projects (Budget proposal)

Growth pattern to be investment led.

Low Per capita steel consumption (46kg in India against 342kg in China) indicates
massive potential for steel consumption particularly in Rural and Semi-Urban areas. Bharat
Nirman (Budget allocation > Rs.45,000 crs. in 2009-10) to be implemented.

To make steel available in Rural and Semi-Urban locations through an effective supply chain
mechanism.

Housing shortages to be made up in 11th Plan to generate demand for 60 MT of steel in 5


years. Low cost Housing with cap in interest for loans upto Rs.20 lakhs to generate
additional steel demand. (Budget proposal : 1 lakh dwelling units for Central Para-military
Force personnel)

Manufacturing sector must grow at substantially higher rate to sustain steel demand. Credit
To SMEs at lower interest rate would enhance capacity utilisation.(Budget proposal:
Refinancing by SIDBI to MSEs)

MANAGING RISKS TO KEEP PACE WITH DYNAMICS OF


STEEL DEMAND
Sharp drop in Private Consumption expenditure and Gross Fixed
Capital Formation to be reversed
Political stability to pursue inclusive growth.(Budget proposal: 12
million jobs per Year & BPL to less than half by 2014)
Better quality of life (HDI) in semi-urban and rural areas- higher
demand for steel.
Long term Financing of PPP projects – Massive cost and Time
overruns in infrastructure projects.
Lessons of global slowdown:-
- Cost effectiveness
- Quality upgradation
- High Strength Steel in new Application-Thrust
for innovation
- Internal Resources and capacity addition
- Trust and brand image
are to be ingrained as Corporate Culture.
Shorten supply chain- Direct link between raw material suppliers,
producers and consumers.
Government funded projects (70 percent of the total) to give priority
to “Buy Indian Steel” on the lines of“ Buy American Steel”.
MANAGING RISKS TO KEEP PACE WITH DYNAMICS OF STEEL
DEMAND….contd.

Consolidation amongst Raw material sources


: BHP Billiton – Rio TINTO
: ANGLO – XSTRATA

Threat of cheap imports-rise in import arrivals in Q1’09 against last


year’s level in Plates and HR Coils. Appropriate measures by the
Government (Safeguard or customs duty enhancement) needed.

Protectionism :-

Carbon emission norms in trading rules.


China – VAT export rebates & export duties on raw materials to protect
environment & natural resources (15% on Bauxite, 40% on Coke, 15% on
Silicon etc.)
US & EU – appeal to WTO as indirect subsidy to make raw materials
cheaper for Chinese domestic industries.

Indian HRC- substantial AD duty in USA, EU even after Sunset Reviews.


Restrictive import licensing requirements & New technical regulations
for conformity with Malaysian & Thailand Industrial Standards.
BACK-UP SLIDES

GLOBAL APPARENT STEEL USE


(Million t)

Rank Country 2008 2009* % growth 2010* % growth

1 China 426 451 (+) 6.1% 473 4.7%


2 United States 97.5 62 (-) 37% 75 22%
3 Japan 76 54 (-) 29% 64 18%
4 South Korea 59 48 (-) 18% 55 14%
5 India 52.5 55 4.8% 57.5 4.7%
7 Russia 35 24 (-)32% 26 8.6%
6 Germany 41 26 (-) 37% 31 19%
8 Italy 34 24 (-) 29% 26 6%
9 Spain 20 15 (-) 25% 16 9.6%
10 Turkey 19 16 (-) 17% 18 16.4%
11 Brazil 24 19 (-) 22% 20 8.6%
12 World 1194 1040 (-) 13% 1131 8.8%
Note: 2009 and 2010 figures are as per draft estimates in June’09
Source: WSA