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Steel Industry: Globally and In India : Times to Come

Dr. A.S.Firoz

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Issues In This Presentation

Overview of the global steel market Factors determining the future Indian steel market growth

prospects Competitiveness. Externalities and constraints

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Global Steel Market Strong Demand Everywhere Construction, auto leading growth Huge increases in production Shortages still perceived Extraordinary increases in price of flat

products Metallics and raw materials in tight supply Steel production costs up Yet, profitability is at record high

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Where is the Global Market Heading?

Past trends are interesting

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Global Steel Production Growth Rates (CAGR %)

1970-75 1.61975-80 2.21980-85 0.11985-90 1.41990-95 -0.51995-00 2.42000-03 4.4

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Global Steel Production Trend

Period Growth Rate(%)

1975-85 11.6

1985-95 4.6

1995-2003 28.3

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Why Global Demand Has Risen Extraordinary growth in China Low global inflation has led to increased

savings and assets building Relocation of industrial production to

developing countries - reason for low inflation and global asset building

Infrastructure renewal in developed nations

New infrastructure in developing nations Increased steel intensive construction in

developing nations

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Why Global Prices have Risen? Demand pull Supply constraints - not enough HR Coils

capacity Speculation amidst uncertainty Increase in raw materials and metallics

prices and huge price volatility Consolidation of the steel industry and

oligopolistic control of the individual domestic markets

High ocean freight costs Lethargic markets

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Will the Global Boom Continue? Positives China will remain

strong Global industrial

relocation will gather momentum

Global capital will move to leading developing economies

Technology changes will favour steel in construction

Negatives Global inflation up Energy prices high Recession may hit

global economies Raw materials and

logistics will cost much more

High steel prices will lower its demand

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Are We in 1960s or 1970s? 1960s Huge uninterrupted

increase in steel demand

Massive infrastructure and industrial capacity building in the developed nations

Emergence of developing industrial nations

1970s Oil Crisis and

Recession Drop in Steel

consumption growth Beginning of

Cyclicality

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How do we see the world then? Chinese steel appetite will reduce but will still be

substantial With curb on new capacity, Chinese steel

production will slow down Flat products demand to remain strong and supply

constraints to continue for another two years Coking coal will remain in tight supply Raw materials costs, especially metallics, will keep

long products prices up Greater stability in the market with contract sales

taking larger share 5% growth in global steel demand expected for 3-5

years

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Indian Steel Industry(1993-94) Production (Finished Steel) : 15.2 million

tonnes Consumption (Finished Steel) : 15.3

million tonnes Imports ( Semis + Finished ) : 1.09

million tonnes Exports ( Semis + Finished) :

1.56million tonnes

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Indian Steel Industry(1999-00) Production (Finished Steel) : 29.7 million

tonnes Consumption (Finished Steel) : 23.8

million tonnes Imports ( Semis + Finished ) : 2.2

million tonnes Exports ( Semis + Finished) : 3 million

tonnes

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Indian Steel Industry (2003-04) Production (Finished Steel) : 35.9 million

tonnes Consumption (Finished Steel) : 29.9

million tonnes Imports ( Semis + Finished ) : 1.61

million tonnes Exports ( Semis + Finished) : 5.9 million

tonnes

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Growth Trends(CAGR %)

Item 1993-99(%)

1999-03(%)

Production 10.8 5

Consumption 6.5 5.9

Exports 11.8 19

Imports 12.9 (-)7

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Why Is Steel Consumption Low in India? Low income economy Low savings rate Low industrial growth Rural character of the economy Unplanned urban growth Inadequate infrastructure development Low quality public assets High inflation rates in the past Late starter

High price of steel (?)

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Steel Price and Per Capita Income

Country Average Steel price

Per Capita Income (est)

Ratio

USA $700 $35,000 0.02

China $500 $1200 0.42

India Rs.25,000 Rs.21,000 1.19

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Big Mac IndexCountry HRC

Price/tonne Big Mac price/piece

Big Mac Index

USA $800 $2.5 320

China $550 $1.2 458

India Rs.30,000 Rs.59 508

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What Can Lead Steel Demand Growth? High economic growth driven by industry Industrial capacity building Increased attention

to infrastructure : Ports, Railways, Power Generation, Airports

Urban Infrastructure Urban Commercial and Residential Construction Consolidation of urban land ownership Steel based construction Low inflation Increased asset building Automobiles and components industry growth,

also for world production

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What can lead to high economic growth? Administrative reforms and good

governance Political stability Social stability Reduced protection to industry Low inflation Land law reforms

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Not to forget, the potential of Commercial and residential

construction in Semi Urban Areas Road Projects Engineering and capital goods

sector

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Domestic Steel Demand Projection

(At 6% Rate of Growth ) (Mill.tonnes)

Year Carbon Steel

Stainless Steel, Alloy

Total

2010-11 45 3.8 48.8

2020-21 90.4 7.6 98

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Domestic Steel Demand Projection

(Good Growth Scenario ) (Mill.tonnes)

Year Carbon Steel

Stainless Steel,Alloy

Total

2010-11 49.4 4.1 53.5

2020-21 103.2 9.5 112.7

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Domestic Steel Demand Projection

(Strong Growth Scenario ) (Mill.tonnes)

Year Carbon Steel

Stainless Steel,Alloy

Total

2010-11 56 4.5 60.5

2020-21 150.1 10.4 160.5

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Projections of External Trade(Million tonnes)

Year Exports Imports

2010-11 6 4

2020-21 10 5

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Crude Steel Production Forecast

(Million tonnes)

Year Moderate Growth

Strong Growth

2010-11 56 64

2020-21 124 177

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Strength of Indian Steel Industry Abundant supply of iron ore Low cost but reasonably efficient labour

force Strong managerial capability and

improving labour productivity History in steelmaking and acquired

skill Reasonable availability of other raw

materials to back up Strongly globalised Industry and

emerging global competitiveness

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Strength of Indian Steel Industry

•Modern new plants•Modernised old plants•Strong DRI production base•Regionally dispersed merchant rolling mills•High Degree of Entrepreneurship•Strong Banking Industry and Capital Market for Investment•Reasonable Confidence of Foreign Investors•Stable Currency and Economic Policy Regime•Strong Judiciary and English Language Spread•Democratic Political System

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Constraints and Concerns

Coking coal : limited local supply Energy cost : to remain high Infrastructure :shortages everywhere Scrap : quality shortage Iron ore supply logistics : medium term

problems Steel industry’s image in the capital

market :selective support Iron ore ownership : too fragmented

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Facilitating Conditions Infrastructure spending up ( although a

long way to go !)

Infrastructure efficiency up ( only moderately till now )

Private sector and captive mining ( slow pace of state governments )

High growth in production in states with sea ports ( Karnataka and Orissa)

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Concluding Remark

India can do it in steel and even much more than the

best talked about!

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THANK YOUViews expressed and the estimates shown are personal