INDIAN STEEL OUTLOOK

IISI-OECD CONFERENCE
Date: 16th May, 2006

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 CONTENTS

• MACRO ECONOMIC ENVIRONMENT

• STEEL : DEMAND ANALYSIS

• STEEL : SUPPLY ANALYSIS

• SUMMARY
2
MACRO ECONOMIC ENVIRONMENT-
INDIA

IISI-OECD CONFERENCE

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 ECONOMIC PARAMETERS ARE FAVOURABLE

PERFORMANCE PARAMETERS
Forex Reserve

GOOD Current Account

Overall GDP
External Debt
Service sector Growth
Financial Reforms
FUTURE OUTLOOK

Savings
New Investment inflation
FDI Inflows
Industrial Growth
Economic reforms

Internal Debt

Fiscal Deficit
Agricultural Growth

BAD CURRENT PERFORMANCE GOOD

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Source : Citigroup estimates
 & SECTOR WISE GROWTH IS LIKELY TO BE
ROBUST...

17.0% 13.3% 13.9% 14.0% 14.5%

15.3% 15.9% 15.5% 15.0% 15%
10.5%
10%

FY03 FY04 FY05 FY06(E) FY07(F) … FY11(F)

FY03 FY04 FY05 FY06(E) FY07(F) … FY11(F)

AUTOMOBILE CAPITAL GOODS

14.4% 12.5% 13.5% 12.0% 12.0%
11.6%
10% 9%
7.4% 7.0%
5.2%

FY03 FY04 FY05 FY06(E) FY07(F) … FY11(F)

-6.2%
FY03 FY04 FY05 FY06(E) FY07(F) … FY11(F)
CONSUMER DURABLES CONSTRUCTION 5
Source: Tata Steel
INDIAN ECONOMY IS EXPECTED TO SURPASS
JAPAN BY 2032

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 IN SUMMARY THE FUTURE IS UPBEAT

• Ranked 4th in the world on GDP - Purchasing Power Parity basis,

11th in absolute terms. (IMF)

• > 8% GDP growth targeted in 2006-07 - second only to China;

aspirational 10 % growth looks possible

• Continuously improving macro economic factors

• A strong demographic profile : with a large consumer base

• Growing urbanization

• Stable social and political environment

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STEEL : DEMAND ANALYSIS, INDIA

IISI-OECD CONFERENCE

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 INDIA HAS A POTENTIAL FOR EXPONENTIAL
GROWTH IN STEEL CONSUMPTION

Peak Point
Point of
Saturation
Singapore Japa
n
EU
USA
Point of
Japan
Inflection
a
06 EU 15
in
Ch

-
Trigger
00
Australia

Point
20

Singapore

USA

China

India India

0 100 200 300 400 500 600 700 800

Per capita in KG

India will be a part of The new Steel world … 9

 CONSTRUCTION & AUTOMOTIVE ARE THE KEY
SEGMENTS TO WATCH

Othrs: 4.0
Galv
Cons Dur : 1.0 6%
Packaging : 1.7
Auto : 2.7 CR
12%
Cap Goods : 3.7
HR
26%
Bars & Rods
43%

Construction : 21

Rails
3%
Structurals
10%

FY06: 34.1 million tonnes 10

All fig in million tonnes; Tata Steel Estimates
 GROWTH IN CONSTRUCTION IS LEAD BY RAPID
GROWTH IN HOUSING SECTOR & …

Home Loan Disbursement (Rs bn)

3000 2460 CAGR in %

2200 15

1400 24
987
38 %
517
600 197 224 294

-200
FY 00 FY 01 FY 02 FY 03 FY07 (P) FY12 (P)

• A growth of 24% expected till FY 07, with an expenditure of Rs 1,400 bn

• Housing shortage of 41 million units estimated as per 10th five year (02-07)

• There is a need to invest over Rs.4,000 bn over 10 years

• Estimated that every INR 1 invested in housing / construction adds 78 paise

to the GDP
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Source: National Housing Bank, HDFC, Cris-Infac, www.dwge.com
.. INVESTMENT IN INFRASTRUCTURE SEGMENT

PROJECTED INVESTMENT Till 2012 by Committee on Infrastructure

Planned Exp in
RS Billion FY 03 FY 04 FY 05 FY 06 FY 07 F
next 5 years
Airports 20 15 15 24 25 400
Irrigation 151 139 208 222 252 1300
Ports 7 5 5 10 20 500
Power 232 312 340 350 346 2000
Railways 121 135 153 146 140 750
Roads 206 190 199 212 213 1700
Telecom 133 126 89 116 116 800
Urban Infra. 162 174 184 220 250 1400

India has potential to absorb US $ 150 billion in next five years in

the infrastructure sector alone.
The tenth plan investment in infrastructure has been revised to Rs.
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11,088 Billion from earlier 10,894 Billion during mid term appraisal.
 WHILE AUTOMOTIVE WOULD REGISTER THE
HIGHEST GROWTH

8000

7000
in '000 nos

6000 PV CV
PV – Passenger Vehicle %
5000 15
CV – Commercial Vehicle
G R
CA
4000

3000

2000

1000 CAGR 7 %
0
1960 1970 1980 1990 2000 2005 2010 2015 2020

• Government focus on infrastructure & Roads

• Availability of consumer finance at low interest rates
• Excise Duty reduction & Tax SOP’s by government to boost demand
• Higher disposable income – Double working households on the rise 13
 THE OVERALL GROWTH IN DEMAND OF STEEL IS
THEREFORE HEALTHY

ADC : INDIA (till FY-12) CAGR in %

12

70 9 65.0
6.7 56.9
60 51.1

30.0
50

26.2
36.9
34.1

23.5
40 31.2
26.7 28.8
30

16.5
15.0
13.2
11.9
10.9

20

35.0
30.7
27.6
20.4
19.2
18.0

10
16.9
15.8

0
FY03 FY04 FY05 FY06 FY07 Pess. Most Opt.
Likely
FY-12
LONG FLAT

All fig in million tonnes 14

Source : Tata Steel Estimates
STEEL : SUPPLY ANALYSIS, INDIA

IISI-OECD CONFERENCE

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 STEEL PRODUCTION HAS JUMPED SINCE THE
ECONOMIC LIBERALIZATION
42
YEAR CAGR (%) 38.4
1950-’93 6.5
1993-’05 8.8 30.6
29.7
All fig in million tonnes
23.8
21.4

15.2
13.0

7.5
5.1
2.4
1.1

1950 1960 1970 1980 1990 1993 1995 1998 2000 2001 2004 2005
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CRUDE STEEL PRODUCTION IN INDIA (million tonnes)
 6 MAJOR PRODUCERS ACCOUNT FOR 66% OF
TOTAL FINISHED PRODUCTION
OTHERS
ISPAT 4%
12%

SAIL
38%
JSW
Others 12.3 FLAT 13%

TATA
STEEL
ISPAT 2.1 ESSAR 18%
15%
JSW 2.2
ESSAR 2.6 SAIL
TATA
15%
RINL 3.0 STEEL
8%

TSL 4.6
LONG
OTHERS RINL
61% 16%
SAIL +
IISCO 9.2

All fig in million tonnes

FLAT PRODUCT IS MORE CONSOLIDATED WHEREAS
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LONG PRODUCT IS HIGHLY FRAGMENTED.
Source : JPC, Team Analysis
 CAPACITY UTILIZATION ARE STRETCHED..

No. of Total Working

SECTOR
Units Capacity Capacity
BF/BOF
10 21 21
Steel

CRUDE EAF 38 13 7
STEEL
Indn. Fce 750 16 12.4

Corex 1 1.6 1.6

TOTAL 42.0

All fig in million tonnes 18

Source : JPC, Tata Steel est.
 THUS SIGNIFICANT CAPACITIES ARE EXPECTED
IN THE MEDIUM TERM

Both by Capacity Expansion New Entrants with the

and
by existing players * . . . . Greenfield projects…

* Incl their Greenfield Projects

Capacity Addition projected : ~ 50 Mill T in next decade. 19

 THIS MAY LEAD TO EXCESS SUPPLY SITUATION
IN THE COUNTRY (by FY-12)

100
90

80 GAP: ~ 20-25 mn T
65
60

42
40 34

20

0
Current Projected Capacity Current
Demand Demand Addition (P) Supply
DEMAND SIDE SUPPLY SIDE 20
All fig in million tonnes
 367
BEING INHERENTLY COMPETITIVE….

370

355

343

343

329

313
• Abundant

271
Natural

252
resources
• Human
Resources
• Strategic
Location

USA Europe Japan S Korea Global China India CIS Brazil

Avg

COST OF PRODN OF HRB (USD/MT)

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INDIA WOULD EMERGE AS A GLOBAL HUB

India to play the Key role in

Steel Market dynamics
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 IN SUMMARY..

IISI-OECD CONFERENCE

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 IN SUMMARY..

• The economic indicators are all favorable for Growth.

• Indian steel industry exudes optimism

• Investment in infrastructure is crucial to step up demand for

steel.

• Supply may have to be rationalized in line with the demand

(Dom + exports)

• Integrated Mills would hold the key in future growth of

Indian Steel supplies.

• New technologies to use indigenous natural resources

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would have to be developed.
THANK YOU

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 Backup

• India will become the fastest growing economy

out of 34 developed and emerging markets and
3rd larget economy by 2020.
• Current GDP per capita is USD 2500 and
expected to be USD 5000 in 2020.
• Poverty ratio dropped from 50% of population in
1950 to 26% in 2005.
• Economic growth rose from 3.7% in 50s & 60s to
+6% in 1980s.
• Current population growth rate of 1.5% to
decrease to 1.3% in 2020.

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 Backup

• Household savings rate to increase to 30% from current

23%.
• About 100,000 MW new capacity (90% of present) will
be added in power sector in next 7 years. This should
also act as strong driver of steel growth.
• The Fiscal Responsibility and Budget Management Act,
2002 binds fiscal managers to specific deficit targets
each year with a goal to bring down the total deficit and
revenue deficit to 3% and 0% of the GDP by 2008-09.

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 Backup

• Literacy standards in 1951 was 18% and currently it is

65%.

• FDI inflow is 0.5% of GDP (USD 3 bn) in recent years as

compared to 4% of GDP for China (USD 45 bn)

• One of the lowest electricity consumption at 365 units

per capita as compared to 893 in China and 1729 in
Brazil.

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The Global Economic Forecast: Asia poised to be the
emerging power house of growth
Message

Unit of measure

• In 2020, the US and China will still be the two largest economies in the world (in PPP)
• India leaves Japan behind and moves up to 3rd place
* Footnote

• India, Malaysia and China will post the highest GDP growth rates (above 5%) over 2006-20
Source: Sources

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• Ireland, the US and Spain are the rich countries expected to grow the most
Steel Consumption Vs. GDP

Message Steel Consumption and GDP per Capita in 2004

Steel consumption (kg/capita)

10000

Unit of measure
1000

S.Korea
China Taiwan
Japan
100

US
India
Other Africa
10
0 5000 10000 15000 20000 25000 30000 35000 40000
GDP per capita (US$000 at PPP rates)

Bubble size represents the population

The growth in BRIC will double the steel demand by 2050

* Footnote
Source: Sources

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Source: internal analysis
Growth in key sectors will drive the steel demand

Message
UAE – 1252
Apparent Steel consumption
of countries
Unit of measure
> 150 MT, The
present gap

World Avg. – 170

India – 33

Key Sectors driving growth

• Infrastructure development

• Housing and urban development Only awaiting the

right trigger.
• High degree of urbanizations
• High demand in the auto sector
* Footnote
Source: Sources

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• Capacity building in steel making
 Global Steel Demand Is Expected To Grow At ~3% Till 2015

Global steel demand

Million tons Message

Decade of
Decade of 1980’s Decade of 2000 Future outlook
1990’s
Unit of measure

CAGR = 2.8%

1,231
CAGR = 4.2% 1,113

CAGR =
CAGR =
2%
887
10% 834
785 789
644 658
582 582

1980 1985 1990 1995 2000 2001 2002 2003 2010E 2015E
* Footnote
Source: IISI Factbook; McKinsey analysis
Source: Sources

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Message

Unit of measure

* Footnote
Source: Sources

33
Message

Unit of measure

* Footnote
Source: Sources

34
Message

Unit of measure

* Footnote
Source: Sources

35
Raw Material demand in India to increase by 13% to meet
the rise in steel demand
Sectoral Share % in 2004 - GDP Sectoral Share % in 2010 - GDP
Message
growth 6% growth 8%

Unit of measure 14
24.6 24.4
34
Agriculture Agriculture
Services Services
Industry Industry

52
51

Imperatives for 8% GDP Growth

 Manufacturing must grow at 11%
 This means a growth of 13% for Mining Industry if it has to contribute 5% to
GDP by 2010 instead of 2.5% at present.
* Footnote

 13% growth in mining has to be driven by few lead minerals such as coal, iron
Source: Sources

ore, supported by other minerals. 36

 Robust growth in infrastructure, power, construction
and steel sectors will drive the Steel Demand
Investment in construction sector (Rs m)
Message

2500

Construction sector will

2000
Unit of measure grow at CAGR of 15%.
1500

1000

500

0
FY'03 FY'04 FY'05 FY'06 E FY'07 E FY'08 E FY'09 E FY'10 E
Source: SSKISept’05 issue

Incremental Steel demand for Expenditure on Infrastructure

Power Sector
1200
Consumption in '000

1000
Incremental

800
tons

600

400

200

0
* Footnote
'04 '06E '08E '10E
Source: Sources
'12E

In addition there will be investment for additional 25 mt capacity in steel itself37by

2010. Potential for steel - 25-30% of the investment cost.
 60
Message Sectoral Share in GDP

50 Unit of measure

40
% of GDP

30

20
Share Industry

10 Share Agri.

0 Share Services
* Footnote
Source: Sources Year : 1971-2004
38
Message

Unit of measure

* Footnote
Source: Sources

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Global steel demand poised for robust growth

Crude Steel Production (Million Tonnes)

1,200

1,000
The Early The 1st The 1st The 2nd The 2nd
Years Plateau Surge Plateau Surge
800

600
CAGR 5
CAGR %
CAGR 1%
400 CAGR 7%
CAGR 2%
5%
Fall of
200 Great USSR
WW 2 Oil Crisis Asian
Depression
WW 1 Financial
0 Crisis

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

40