INDIAN STEEL OUTLOOK

IISI-OECD CONFERENCE Date: 16th May, 2006

CONTENTS
MACRO ECONOMIC ENVIRONMENT STEEL : DEMAND ANALYSIS STEEL : SUPPLY ANALYSIS SUMMARY
2

MACRO ECONOMIC ENVIRONMENTINDIA IISI-OECD CONFERENCE

ECONOMIC PARAMETERS ARE FAVOURABLE

PERFORMANCE PARAMETERS
Forex Reserve

GOOD
Overall GDP External Debt Financial Reforms
New Investment FDI Inflows

Current Account Service sector Growth

Source : Citigroup estimates

FUTURE OUTLOOK

Savings inflation

Industrial Growth Economic reforms

Internal Debt Fiscal Deficit Agricultural Growth

BAD

CURRENT PERFORMANCE

GOOD
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& SECTOR WISE GROWTH IS LIKELY TO BE ROBUST...

17.0% 15.3% 15.9% 15.5% 15.0% 15%

13.3% 13.9% 14.0% 14.5% 10.5% 10%

FY03

FY04

FY05

FY06(E) FY07(F)

FY11(F)

FY03

FY04

FY05

FY06(E) FY07(F)

FY11(F)

AUTOMOBILE

CAPITAL GOODS

11.6%

14.4% 12.5% 13.5% 10%

12.0% 12.0% 7.4% 7.0% 5.2% 9%

FY03

FY04

FY05

FY06(E) FY07(F)

FY11(F)

-6.2%
CONSUMER DURABLES

FY03

FY04

FY05 FY06(E) FY07(F)

FY11(F)

CONSTRUCTION

Source: Tata Steel

INDIAN ECONOMY IS EXPECTED TO SURPASS JAPAN BY 2032

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

INDIA HAS A POTENTIAL FOR EXPONENTIAL GROWTH IN STEEL CONSUMPTION

Peak Point Point of Saturation Singapore USA Point of Inflection Trigger Point
Japan EU 15 Australia Singapore USA

India

China India 0 100 200 300 400 500 600 700 800

Per capita in KG

India will be a part of The new Steel world

CONSTRUCTION & AUTOMOTIVE ARE THE KEY SEGMENTS TO WATCH

Othrs: 4.0 Cons Dur : 1.0 Packaging : 1.7

Galv 6% CR 12% HR 26%

Auto : 2.7 Cap Goods : 3.7

Bars & Rods 43%

Construction : 21
Rails 3% Structurals 10%

FY06: 34.1 million tonnes

All fig in million tonnes; Tata Steel Estimates

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GROWTH IN CONSTRUCTION IS LEAD BY RAPID GROWTH IN HOUSING SECTOR &

Home Loan Disbursement (Rs bn)
3000 2200 1400 600 -200

2460

CAGR in %

987 197
FY 00

224
FY 01

294

517

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
11 Source: National Housing Bank, HDFC, Cris-Infac, www.dwge.com

.. INVESTMENT IN INFRASTRUCTURE SEGMENT

PROJECTED INVESTMENT Till 2012 by Committee on Infrastructure
RS Billion Airports Irrigation Ports Power Railways Roads Telecom Urban Infra. FY 03 20 151 7 232 121 206 133 162 FY 04 15 139 5 312 135 190 126 174 FY 05 15 208 5 340 153 199 89 184 FY 06 24 222 10 350 146 212 116 220 FY 07 F 25 252 20 346 140 213 116 250

Planned Exp in next 5 years

400 1300 500 2000 750 1700 800 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. 11,088 Billion from earlier 10,894 Billion during mid term appraisal.
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WHILE AUTOMOTIVE WOULD REGISTER THE HIGHEST GROWTH

8000 7000 6000

PV

CV

in '000 nos

5000 4000 3000 2000 1000 0 1960

PV Passenger Vehicle CV Commercial Vehicle

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 SOPs by government to boost demand Higher disposable income Double working households on the rise
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THE OVERALL GROWTH IN DEMAND OF STEEL IS THEREFORE HEALTHY

ADC : INDIA (till FY-12)

12

CAGR in %

70 60 50 40 30 20 10 0 FY03 FY04 FY05 FY06 FY07 26.7

10.9

9 6.7

65.0

56.9
26.2 30.0

51.1 34.1
15.0 23.5

36.9
16.5

28.8
11.9

31.2
13.2

15.8

16.9

18.0

19.2

20.4

Pess.

27.6

Most Likely

30.7

Opt.

LONG
All fig in million tonnes
Source : Tata Steel Estimates

FLAT

FY-12

35.0

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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 1993-05

6.5 8.8
29.7 23.8 21.4 15.2 13.0 7.5 5.1 30.6

All fig in million tonnes

1.1

2.4

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

ISPAT 12% OTHERS 4%

SAIL 38%

Others 12.3

FLAT

JSW 13%

ISPAT 2.1 JSW 2.2 ESSAR 2.6

RINL 3.0 TSL 4.6

ESSAR 15%

TATA STEEL 18%

SAIL 15%

TATA STEEL 8%

LONG
SAIL + 9.2 IISCO
OTHERS 61% RINL 16%

All fig in million tonnes Source : JPC, Team Analysis

FLAT PRODUCT IS MORE CONSOLIDATED WHEREAS 17 LONG PRODUCT IS HIGHLY FRAGMENTED.

CAPACITY UTILIZATION ARE STRETCHED..

SECTOR BF/BOF Steel CRUDE STEEL EAF Indn. Fce Corex TOTAL

No. of Units

Total Capacity

Working Capacity

10 38 750 1

21 13 16 1.6

21 7 12.4 1.6
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 by existing players * . . . .
and

New Entrants with the Greenfield projects

* Incl their Greenfield Projects

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

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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 Demand
All fig in million tonnes

Projected Demand

Capacity Addition (P)

Current Supply
20

DEMAND SIDE

SUPPLY SIDE

BEING INHERENTLY COMPETITIVE.

367

370

355

343

343

329

313

Abundant Natural resources Human Resources Strategic Location

271

USA

Europe

Japan S Korea Global Avg

China

India

CIS

Brazil

COST OF PRODN OF HRB (USD/MT)

252

21

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 would have to be developed.

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THANK YOU

25

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.

27

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

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 India, Malaysia and China will post the highest GDP growth rates (above 5%) over 2006-20 Ireland, the US and Spain are the rich countries expected to grow the most
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Steel Consumption Vs. GDP

10000

Steel Consumption and GDP per Capita in 2004

Steel consumption (kg/capita)

1000

China
100

S.Korea

Taiwan

Japan 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

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

1400 1200
Kgs per Capita

E an w i Ta ea or g on n pa a J G y an lia ra t us SA A U

UAE 1252 Apparent Steel consumption of countries

g on K

1000 800 600 400 200 0

u So

th

> 150 MT, The present gap

World Avg. 170 India 33

m er

e nc ina a h Fr C

a di n I

Countries

Key Sectors driving growth

Infrastructure development

Housing and urban development High degree of urbanizations

Only awaiting the right trigger.

31

High demand in the auto sector

Capacity building in steel making

Global Steel Demand Is Expected To Grow At ~3% Till 2015

Global steel demand Million tons

Decade of 1980s Decade of 1990s Decade of 2000 Future outlook

CAGR = 2.8%

1,231
CAGR = 4.2% CAGR = 2%

1,113 887

CAGR = 10%

785 658

789

834

582

582

644

1980

1985

1990

1995

2000

2001

2002

2003

2010E

2015E

Source: IISI Factbook; McKinsey analysis 32

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

24.6

24.4
34

14

Agriculture Services Industry

52

Agriculture Services Industry

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. 13% growth in mining has to be driven by few lead minerals such as coal, iron 36 ore, supported by other minerals.

Robust growth in infrastructure, power, construction and steel sectors will drive the Steel Demand
Investment in construction sector (Rs m)
2500 2000 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

Construction sector will grow at CAGR of 15%.

Source: SSKISept05 issue

Incremental Steel demand for Power Sector

Incremental Consumption in '000 tons
1200 1000 800 600 400 200 0

Expenditure on Infrastructure

'04

'06E

'08E

'10E

'12E

In addition there will be investment for additional 25 mt capacity in steel itself37 by 2010. Potential for steel - 25-30% of the investment cost.

60 50
% of GDP

Sectoral Share in GDP

40 30 20
Share Indust ry

10 0 Year : 1971-2004

Share Agri.

Share Services
38

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Global steel demand poised for robust growth

Crude Steel Production (Million Tonnes) 1,200 1,000 800 600 400
CAGR 5% CAGR 2% CAGR 7% CAGR 1%

The Early Years

The 1st Plateau

The 1st Surge

The 2nd Plateau

The 2nd Surge

CAGR 5 %

200

Great WW 2 Depression WW 1

Oil Crisis

0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Fall of USSR Asian Financial Crisis

40