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Alloy and Stainless Steel Industry

Global Dynamics and Strategic Issues


September 2008

Dr. A.S.Firoz
Strategy Consultant
STEEL AND NATURAL RESOURCES Strategy Research
and Former Chief Economist, ERU, Ministry of Steel (on
sabbatical)
Steel Industry Globally
• Sliding down the super-cycle or just
catching a breath?
• Steel prices have come crashing down.
• Stainless steel consumption demand has
fallen. Prices weak.
• Alloy steel looks vulnerable.
World Crude Steel Production

1600

1400 1344

1250

1200 1146
1069

1000 970
904
Million tonnes

848 850
799 777 785
800 734 752 750
720 728 725

tion
600

400

200

0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Crude Steel
World Alloy Steel Production

90

79
80
73

70 67
62
60
53
Million tonnes

50
44
40 39 39 40
40 38 38

30

20

10

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Alloy and Special Steel


World Stainless Steel Production

30,000
28,359
27,836

24,570 24,319
25,000
22,840

20,690
20,000 19,187
Thousand tonnes

15,000

10,000

5,000

0
2001 2002 2003 2004 2005 2006 2007

World
Stainless Steel Production by Region

18,000

16,200
16,000
15,074

14,000
12,498
11,897
12,000
10,645
thousand tonnes

9,972
10,000 9,422
9,048 9,043 8,823
8,628 8,669
8,210 8,403
8,000

6,000

4,000
2,735 2,830 2,933 2,951
2,688 2,604
2,289
2,000

285 279 322 318 310 363 364


0
2001 2002 2003 2004 2005 2006 2007

W.Europe/Africa Central + Eastern Europe The Americas Asia


Countries With Strong Growth in Stainless Steel

3,500

3,000

2,500
Thousand tonnes

2,000

1,500

1,000

500

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Finland Brazil China India South Korea Taiwan South Africa


GDP and Stainless Consumption Per Capita in 2005
Stainless Stainless
GDP US$ Populati GDP $
Consumptio Consumpt
Bn on '000 per
n 000 ion Stainless Steel Production
Nominal Millions Capita
tonnes kg/capita
USA 12,486 2,022 297 42.1 6.8
Year 1995 2005 1995 2005

UK 2,201 234 60 36.6 3.9 Stainless


000 t 000 t Share % Share %
Production
Japan 4,571 2,136 128 35.8 16.7
Asia (ex Japan) 2,194 8,529 14 35
Canada 1,130 275 32 35.1 8.5
China 432 3,185 3 13
Germany 2,797 1,410 82 33.9 17.1
S. Korea 704 2,278 4 9
France 2,106 428 62 33.7 6.9
Italy 1,766 1,386 58 30.5 23.9 India 560 1,550 4 7

Spain 1,127 507 41 27.2 12.3 Taiwan 498 1,516 3 6

South Korea 793 1,015 48 16.4 21.0 Japan 3,925 3,977 25 16


Taiwan 364 982 23 15.1 42.9 Europe 6,547 8,302 42 34
Mexico 768 195 105 7.3 1.9 Americas 2,485 2,765 16 12
Russia 766 260 143 5.4 1.8 Other 500 790 3 3
Brazil 793 260 184 4.3 1.4 Total World 15,651 24,363 100 100
South Africa 239 149 47 5.1 3.2
Thailand 169 206 65 2.6 3.1
China 2,225 5,580 1,307 1.7 4.3
India 775 1,200 1,086 0.7 1.1
Total of Above 35,059 18,245 3,769 9.3 4.8
Excluding China &
32,059 11,465 1,376 23.3 8.3
India
G7 27,058 7,891 720 37.6 11.0
Weathiest 10 Nations 29,324 10,395 832 35.2 12.5
Stainless Steel Trade : Exports 2007 ( thousand tonnes)
Origin Destination
NAFTA Latin Western Eastern Middle Africa Asia Others Total
America Europe Europe East
NAFTA 362.1 22.2 130.4 2.2 4.1 0.8 97.1 1.2 620.1
Latin America 29.8 51.1 37.8 12.2 3.8 6.3 35.8 0.6 177.3
Western Europe 666.3 108.1 5,976.70 544.3 96.9 78.2 761.1 41 8,272.50
Eastern Europe 7.8 0.3 165.8 89.6 2.6 0.2 4 0.5 270.8
Near/Middle East * 2.5 0 2.3 1.4 n/a 0 2.5 0.3 9.1
Africa 92 8 139.2 12.5 21.9 11.3 219.7 1.2 505.9
Asia 359 61.7 868.7 115.2 129.9 59.7 3,930.10 83.9 5,608.20
Others 0.3 0.2 0.5 0 0 0.1 1.5 2.3 4.9
Total 1,519.80 251.6 7,321.30 777.4 259.2 156.6 5,051.90 131.1 15,468.80
Indian Alloy Steel Market
Alloy & Engineering Steel Demand (Million tonnes)• The Indian alloy and special steel long
products demand has grown sharply in
3.6
the past few years with the boom in the
3.0 automotive, capital goods and
2.5
engineering goods industry.
• The consumption could have been
higher but for the lack of adequate
production facilities and quality and
pricing issues related to domestic
production.
• Domestic product development efforts
FY 05 FY 06 FY 07
Total consumption = 3.6 million tonnes
need further boost : not only for the
higher acceptability in the domestic
Bearings
8%
market but also for larger presence in
Springs
the global market. Indian industry is
14% way behind the world leaders.
Forgings
32%
• Indian alloy steel units are tiny by
global standards. Scaling up will only
Seamless
Tubes
help cost competitiveness. The small
10% size of the domestic market is a
constraint currently.
Fastener,
engineering,
miscellaneou
s
36%
Alloy Steel Industry in India : Strategic Issues

• Alloy steel demand depends hugely on the • 60% of the alloy steel is produced in
growth of the manufacturing sector. EAF units.
• It faces a substitution threat from carbon steel • Despite low wage rates and abundance
in the non-OEM products segments.
of labour, the industry faces shortage of
• Alloy steel consumers are either large players skill. Skill development costs have
or organised to a cartel commanding massive
‘pricing power’. fallen on to the industry.
• Whereas the alloy steel producers face a • India’s exports are largely to
volatile market for their inputs, such as scrap, developing nations. Bulk of the
ferro-alloys, DRI and have no control over consumption demand originates in the
them, are forced to accept buyers’ prices. quality sensitive developed country
• This is why the alloy steel producers can markets.
neither hope for windfall ( when the time is
good ) earning stability ( when the production • The industry needs some space for
costs rise). product development, improve
• Product development efforts have often been management and move to higher scale
marred by instability in contracts for long of production to become global players.
term supply. This has reduced risk bearing • For that, the industry needs a
capacity of the alloy steel industry. favourable fiscal environment and
• Most players, therefore, are confined to the support ( also patience ) from the user
lower end of the product with the bulk of the industries.
high end alloy steel products being imported.
Alloy Steel : External Trade Pattern

United Arab Imports of alloy Steel by Source FY 06* %


Others* Emirates
28% 12% Others
Madagascar Mauritius 21%
2% 9%
USA China
Italy 8% 49%
2% Iran
Argentina 7%
2% Frande
Egypt 5%
Kenya
5%
2% Republic
Sri Lanka Bangladesh of Korea
3% 5% 5%
Thailand United Nepal
GermanyKingdom 4% Germany
3%
4% 9%
4%

Japan
Exports FY06 - 0.05 Mn.T 11%

Source: Avalon
Imports of Stainless Steel into India 2005 ( tonnes)
Exports of Stainless Steel from India 2005 (tonnes )

5,976 8396 1284


205 20606

9,952
76,600

47,684 48152

4 , 15 4

70740

362,672
11112

Americas West ern Europe Aust ralasia Asia Af rica East ern Europe Americas Western Europe Africa Asia Australasia Eastern Europe Unallocated
Stainless Steel Industry in India : Strategic Issues

• Stainless steel production growth in India was steered by the demand for
utensils. The share of this has been on the fall continuously in the past years.
• New market development efforts have exhibited enormous potential now
outside of this sector. Commercial housing, public utilities and infrastructure
have the most potential now, especially for flat products.
• Use of stainless steel rebars, fasteners and miscellaneous engineering
applications have potential for long products.
• New demand opens up opportunities for state of the art production at global
scale.
• Greenfield projects are few : brownfield expansions have been on traditional
line.
• Foreign investments have been focused on value addition only.
• Integrated projects faces financial risk due to excess global melting capacity.
• The Indian producers may remain confined to the lower end of the product in
integrated operations and add finishing facilities from imported semis.
• Export potential of India’s stainless steel may also be hurt in the short term.
Stainless Steel Industry in India : Strategic Issues

• China accounts for the bulk of the imports of


stainless steel from India now.
• China and the Middle East offer the best potential
for exports.
• Lower prices of nickel will help Indian producers.
• Lower stainless steel prices will help expand
market. Demand for stainless steel is highly price
elastic.
Demand for Alloy and Stainless Steel in India

25
•Demand growth of alloy steel will
remain moderate and will follow
the growth rate in manufacturing.
20
19.5
•Stainless steel demand growth will
be driven by overall economic
15.2 prosperity, disposal incomes with
15
Million tonnes

the population, lifestyle values,


11.7
11.1 commercial construction, specific
10 9.4 industry sector growth such as
8 chemical and food processing,
7
6.4 5.9 expansion of railways and airport
5 4 4 4 construction.

0
06-07 11-12 15-16 20-21

High Growth Medium Growth Low Growth