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Steady recovery by the steel industry but sustainability will be tested as the stimulus package effects fade away Global Steel Report
Highlights of the report
The global steel outlook for 2011 is cautiously optimistic as the possibility of a double-dip recession has eased. India, which was the fifth largest producer of crude steel in the world in 2009, is expected to become the second-largest producer of steel in the world by 201516. Construction and infrastructure remain key steel consumers in India, with a share of 61% in total consumption of steel during 200809 Indias domestic steel demand is expected to grow by around 12% annually over the next two years During the financial crisis, when the global steel consumption witnessed an 8.5% decline year on year the Indian steel sector remained resilient and steel consumption in India remained steady. Consumption and utilization rates have picked up in most major economies, with consumption surpassing its pre-crisis highs in some countries. New Delhi, 16 January 2011: Leading professional services firm Ernst & Young (EY) today released the global steel report at Global Steel 2011 the 6th International conference on steel and steel making raw materials. The report provides insights on the current steel environment and future outlook including forecast scenarios. It also provides a deep analysis on the key drivers behind the shifting dynamics in the industry and the factors that are currently governing the demand and supply situation in the global steel market. According the EY report, the global steel outlook for 2011 is cautiously optimistic as the possibility of a double-dip recession has eased. Growth in developing economies will remain strong and continue to boost total global steel demand. However, the modest recovery in more advanced economies persists on the back of ongoing financial uncertainty and sovereign risk. Demand for raw material is increasing in line with growth in steel production but there is a constraint in the supply side of raw material because of the

lack of adequate infrastructure and the more stringent environmental laws and regulations. Raw material prices in 2011 will likely remain stable or ease slightly due to this supply side squeeze. As per the report, demand from BRIC countries, particularly China, has been a key driver in growth over the last decade. The World Steel Association recorded Chinese crude steel production of 568m tonnes in 2009, an increase of 13.4% year on year, with an increase of around 11% expected in 2010. India has also registered a strong demand in the last five years, although there has not been a significant increase in steel production in the last few years due to stringent mining and land allotment laws, making it a net importer of steel. Brazil and Russia also recovered strongly from the economic crisis and offer an avenue for higher steel production in the medium term. Apart from China, per capita steel consumption in the BRIC nations is significantly below the world average and projected economic growth in these countries indicate a strong demand period for steel going forward. India growing in stature in the global steel landscape Beyond China, there are few other countries with the steel production growth capacity of India which is why it is strategically placed to be the next landmark on the global steel landscape. Abundant iron ore reserves, low per capita steel consumption and strong demand for steel due to strong economic growth gives India the competitive edge over other emerging economies. During the recent financial crisis, the Indian steel sector remained resilient due to strong domestic demand emerging from end users in the country and therefore in 2009, when the global steel consumption witnessed an 8.5% decline year on year, steel consumption in India remained flat. India has been a net importer of steel since 2007 and the difference between demand and supply is expected to widen further over the next ten years. Construction and infrastructure remain key steel consumers in India, with a share of 61% in total consumption of steel during 200809. With approximately US $1 trillion of expected investments in these sectors in the 201217 period, there will be a corresponding increase in steel demand. The automobile sector, which grew by 27% during 2009 and 2010, is estimated to see double digit growth in the short term as the launch of low-cost passenger cars will likely expand the market and hence the demand. Although the outlook for India is optimistic, there are a few challenges that need to be addressed, India imported 23m tonnes of coking coal in FY10 to meet its total requirement of around 40m tonnes. The shortfall in coking coal is a major hurdle besides the issues in the form of infrastructure investment in railways, roads and ports. This leads to delays in rake movement, congestion and a delay of inventory at ports. Other challenges include land acquisition delays and environmental clearances which need focus for the accelerated growth of Indian steel industry.

With the domestic steel demand expected to grow by around 12% annually over the next two years, there is a need for greater support from the Indian Government towards increasing the exploration of raw materials and developing enabling infrastructure. Companies need to and embrace new technologies that will increase productivity, reduce the raw material costs and expand product footprint. Consensus must evolve around socio-economic environment challenges keeping in mind this window of opportunity for growth. The successful model of Ultra Mega Power Projects in India can be replicated in steel sector through the formation of Special Purpose Vehicles (SPVs) for select greenfield projects. The Indian steel industry therefore requires some structural and policy changes to achieve its strong growth potential in the coming decade says Anjani Agrawal, Partner & National Metals & Mining Leader, Ernst & Young The platform is set - Indian steel to witness unprecedented growth in the coming decade India, which was the fifth largest producer of crude steel in the world in 2009, is expected to become the second-largest producer of steel in the world by 201516. Major capacities, which are expected to be operational in the next three years, include projects by Tata Steel (India), JSW Steel and SAIL. Total crude capacity in India is expected to be around 112m tonnes by 2015, registering a CAGR growth of 9%. The steel growth potential in the country has attracted many global steel players to India, with some entering into strategic partnerships with Indian steel majors. The industry will be further supported by the Government, with policy changes planned in iron ore mining towards competitive bidding and transparent allocation of mineral licenses. The beneficiaries of this policy change will be both Indian organizations as well as global stakeholders.

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