STEEL

November 2010

STEEL

November 2010

Contents

Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework

Opportunities
Industry associations

ADVANTAGE INDIA Steel November 2010

Advantage India
Various states and companies have collaborated to sign 222 MoUs with proposed investments worth more than US$ 229 billion (INR 11,000 billion) to increase capacity to about 275.7 million tonnes.* India is the worlds fifthlargest producer of crude steel (2009), with a production volume of 62.8 million tonnes.

Rising investments

High production volumes

India is the worlds largest producer of direct reduced iron (DRI) or sponge iron, which is used to produce steel, with the production in 200809 reaching about 21 million tonnes.

Easy availability of raw material

Advantage India

Large domestic market

Availability of workforce

India emerged as a net importer of steel in 2009 2010, due to the sustained domestic consumption of steel owing to rising infrastructure and construction activities.

The steel sector is expected to generate additional employment of about four million by 2020.
Source: Ministry of Steel (MoS), Government of India; annual report 2009 2010 MoU* Memorandum of understanding

STEEL

November 2010

Contents

Advantage India

Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations

MARKET OVERVIEW Steel November 2010

Market overview
The production of total finished steel (alloy and non-alloy) registered a compound annual growth rate (CAGR) of 6.7 per cent between 2004-05 and 200809 to reach 56.4 million tonnes in 200809. Consumption increased at a relatively faster rate of 9.3 per cent during the same period.
Production and consumption trends in the total finished steel market
60 50 In million tonnes 40 30 20 10 0 2005-06 2006-07 2007-08 Production Consumption 2008-09 2009-10* 46.6 41.4 52.5 46.8 56.1 56.4 52.1 52.4 43.8 40.1

Source: Ministry of Steel , Government of India, annual report 200910 * Data available only for AprilDecember 20092010

MARKET OVERVIEW Steel November 2010

Product segments
Steel
Alloy steel Non-alloy steel (carbon steel)

Stainless steel
Corrosionresistant steel

Others
Tool steel Heat-resistant steel

Long products
Billets Bars and rods Structurals Rails and wires

Flat products
Hot rolled products Plates and sheets Coils Strips Cold rolled products

Sheets
Coils Strips

MARKET OVERVIEW Steel November 2010

Exports
The value of exports of the iron and steel sector was US$ 4.29 billion in 2009 and constituted 2.4 per cent of the total value of exports from India in 2009.
Steel export
6 5.2 5 In million tonnes 4 3 2.1 2 1 0 2005-06 2006-07 2007-08 2008-09 2009-10* 4.8 5.1 4.4

Sources: Ministry of Steel , Government of India, annual report 2009 10; Trade Competitiveness MapTrade performance HS, International Trade Centre website, http://www.intracen.org/menus/countries.htm, accessed 3 December 2010 * Provisional data available for AprilDecember 20092010.

MARKET OVERVIEW Steel November 2010

Domestic demand (1/5)

The domestic demand for steel is estimated to rise at an annual average rate of more than 10 per cent till 2014.
Capacity and production of crude steel
80 70 in million tonnes 60 50 40 30 20 51.2 56.8 46.5 50.8 66.3 59.8 53.9 58.4 45.8 72.8

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0 2005-06 2006-07 2007-08 Capacity Production 2008-09 2009-10*

Source: Ministry of Steel , Government of India annual report 20092010; * provisional data available for AprilDecember 20092010; Note: 6.42 million tonne capacity added during April to December 2009

MARKET OVERVIEW Steel November 2010

Domestic demand (2/5)

The steel production capacity is estimated to reach 124 million tonnes by 2011 12.
In 20092010, the installed capacity for crude steel was estimated at 72.8 million tonnes. The production during AprilDecember 2009 was estimated at 45.8 million tonnes, resulting in an 84 per cent capacity utilisation up to December 2009. This was primarily a result of the 6.4 million tonnes capacity added during AprilDecember 2009.
Capacity utilisation for crude steel production
92
91 Capacity utilisation (in %) 90 89 88 86 84 84 88 91

82
80 2005-06 2006-07 2007-08 2008-09 2009-10

Source: Ministry of Steel , Government of India, annual report 2009 2010

MARKET OVERVIEW Steel November 2010

Domestic demand (3/5)

Demand from construction and infrastructure constituted 61 per cent of the total finished steel consumption, while demand from the manufacturing sector comprising capital goods, consumer durables and packaging was 19 per cent of the total finished steel consumption during 20092010.

Sector-wise consumption of finished steel (20092010)

12 % 8%

Construction and infrastructure Manufacturing Automobile Others

19 %

61 %

Source: JSW Steel, annual report 20092010

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MARKET OVERVIEW Steel November 2010

Domestic demand (4/5)

The construction and infrastructure sector accounted for 74 per cent of the total long steel production in 2008. Investments in the construction and infrastructure sector, as a percentage to GDP, are estimated to be 9 per cent at the end of the Eleventh Plan (201112), as against 5 per cent of GDP in 200506.
5% 7%

Long-product consumption (200708)

14 %

Construction and infrastructure

Manufacturing Automobile 74 % Others

Sources: Investing in infrastructure, Indian infrastructure, August 2010 ; JSW Steel, annual report 200708

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MARKET OVERVIEW Steel November 2010

Domestic demand (5/5)

The demand for flat steel continues to rise, primarily driven by the 27 per cent y-o-y growth witnessed in the automobile sector in 20092010.

Flat-product consumption (200708)

21 % 39 %

Construction and infrastructure Manufacturing Automobile

20 %

Others
20 %

Sources: Industry statistics, Auto component Manufacturers Association website, www.acmainfo.com, accessed 30 November 2010 ; JSW Steel, annual report 200708

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MARKET OVERVIEW Steel November 2010

Growth drivers (1/4)

Raw materials are easily available

Indias steel sector has a competitive advantage vis--vis the availability of raw materials and workforce, both skilled and unskilled. Iron ore and coal constitute the primary raw materials for steel production. The country is endowed with large reserves of iron ore, with Orissa, Jharkhand and Chhattisgarh featuring among its iron ore-rich states. The National Minerals Development Corporation (NMDC) plans to expand its iron ore production capacity from the existing 30 million tonnes per annum (MTPA) to 50 MTPA by 201415. NMDC plans to achieve this by expanding the capacity of the existing mines as well as by setting up new mines. The total coal production, including raw coal and lignite, stood at 566.1 million tonnes in 2009 2010, and increased at a CAGR of 6.5 per cent between 200405 and 20092010. Metallurgical coal is the key raw material for the production of steel, which accounts for 17 per cent of the countrys coal reserves. India also has a strong workforce base, with about 40 per cent of the countrys population constituting its labour force.
Sources: Employment in organised industry: engineering sector contributes the most, Engineering Export Promotion Council website, www.eepcindia.org, accessed 6 January 2010; Provisional Coal Statistics 200910, Ministry of Coal, Government of India; World Factbook India, CIA website, https://www.cia.gov/index.html, accessed 15 May 2010

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MARKET OVERVIEW Steel November 2010

Growth drivers (2/4)

Sustained growth in the construction and infrastructure sector

The construction sector is a major consumer of long products such as rods, bars/coil sections, wire and reinforcing. The construction industry is expected to regain momentum over the next few years, with the Indian Government laying emphasis on infrastructure development and increasing expenditure on development activities across sectors. The Eleventh Five Year Plan (20072012) has allocated investments worth US$ 514 billion for the core infrastructure sector, comprising power, roads, highways, railways, ports, airports, mining and irrigation.
Source: Indian Engineering and Construction Industry Study Financial Year 200708, Eleventh five year plan (20072012), Planning Commission, Government of India, Ernst & Young

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MARKET OVERVIEW Steel November 2010

Growth drivers (3/4)

Automobile sector regaining demand

India is the worlds second-largest manufacturer of two wheelers and the fifth-largest manufacturer of commercial vehicles. Car and multi-utility vehicle production stood at 2.1 million units in 2009 2010, registering a 16.7 per cent growth over 200809. The automotive sector in India witnessed a steep recovery in 20092010, and is expected to register strong growth in both the domestic market and export segments. The passenger and commercial vehicles segments recorded a growth of 28 per cent and 36 per cent, respectively, in 20092010. Such growth is expected to lend significant impetus to the domestic demand for steel.

The production of passenger and commercial vehicles is expected to reach 4.9 million, and the production of two and three-wheeler segments is expected to reach 36.5 million by 2016, further driving the demand for the flat steel segment.
The demand for steel is expected to increase with major international automobile manufacturers setting manufacturing facilities in India.
Sources: Industry statistics, annual report 20092010, Auto Component Manufacturers Association website, www.acmainfo.com, accessed 26 November 2010

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MARKET OVERVIEW Steel November 2010

Growth drivers (4/4)

Oil and gas sector expanding base

Indias oil and gas sector is on an expansion mode, with the demand outpacing supply and companies aiming at increasing the gas grid network. This sector is expected to raise the demand for pipelines the long-products segment. India had total reserves of 1,201 million metric tonnes (MMT) of crude oil and 1,437 billion cubic metres (BCM) of natural gas as on 1 April 2010. The Krishna-Godavari (KG) basin has proven to be a potential zone for oil and gas extraction and has gained further significance due to back-to-back oil exploration and extraction successes of several oil majors such as Reliance Industries Limited (RIL), Oil and Natural Gas Corporation (ONGC) and Gujarat State Petroleum Corporation (GSPC). The three KG basin gas discoveries by RIL are expected to result in a quantum leap towards achieving India's energy security by accounting for 40 per cent of the country's current hydrocarbon production. This will, once the production starts, lead to reduced dependence on external sources. The volume build up is expected to translate into potential pipeline demand for laying of the transportation networks for both liquid and gas fuel distribution. Apart from the long-product pipeline demand, the oil and gas sector is also expected to drive the demand for steel used in the construction market due to the increase in refinery capacity.
Sources: Basic Statistics on Petroleum and Natural Gas, 20092010, Ministry of Petroleum & Natural Gas, Government of India; Indian Engineering and Construction Industry Study Financial Year 200708, Ernst & Young

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MARKET OVERVIEW Steel November 2010

Key trends

Capacity addition and expansion

Since 200405, capacity additions in the industry have primarily been a result of brownfield projects. which require relatively lower investment commitment compared to greenfield expansion. Tata Steel added 1.8 million tonnes capacity to their crude steel production in 200809 through brownfield expansions to reach 6.8 million tonnes. It plans to add another 3 million tonnes to reach a capacity of 10 million tonnes by 2011. JSW Steel is expanding its Vijayanagar plant (Karnataka) through brownfield expansion to reach a production capacity of 10 million tonnes in 201011. Players are introducing latest technologies such as high top pressure, high blast temperature, pulverised coal injection, attention to burden preparation and distribution, and the higher use of sinter in place of lumps for reducing coke consumption in blast furnaces and improving productivity. Currently, players are producing steel with a lower content of oxygen, nitrogen and hydrogen by introducing technologies such as ladle metallurgy and vacuum degassing, among others.

Technology upgrades

Focus on domestic market

The demand-supply gap in the domestic market is increasing at a faster pace than the export growth, translating into a better opportunity for players to tap the existing domestic market. Domestic demand for steel in India increased y-o-y by 7.8 per cent in 20092010 to reach 40.9 million tonnes, indicating a further increase in domestic demand.

Sources: Ministry of Steel , Government of India, annual report 2008 09, annual report 20092010; Annual report 200809, Tata Steel, Annaul report 20092010, JSW Steel

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MARKET OVERVIEW Steel November 2010

Key players (1/3)

The Indian steel industry is consolidated, with the three main producers accounting for 38 per cent of the total production of crude steel in 20092010. Public sector companies contributed 27 per cent to the total crude steel production till December 2009. Steel Authority of India Ltd (SAIL) and Tata Steel have captive iron ore mines in India to cater to domestic steel manufacturing plants, while other players rely on NMDC and other domestic players for their iron ore requirement.
41 %

Player-wise steel production for 20092010*

22 % SAIL Tata Steel RINL 11 % 5% 21 % Major producers Others

Source: Ministry of Steel , Government of India, annual report 20092010, JSW Steel, annual report 20092010 MBF* Mini blast furnace ETF** Exchange-traded funds

* Provisional data available for April December 2009

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MARKET OVERVIEW Steel November 2010

Key players (2/3)

Steel manufacturers Main producers

Major producers

Mini plants

Steel Authority of India Ltd (SAIL) Rashtriya Ispat Nigam Ltd Tata Steel Ltd

JSW Steel Ltd Essar Steel Ltd Ispat Industries Ltd Jindal Steel & Power Ltd

Electric arc furnace (EAF) based units 33 working units Induction furnace-based units 970 working units MBF*-ETF** based units two units

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MARKET OVERVIEW Steel November 2010

Key players (3/3)

Company Tata Steel Ltd SAIL J S W Steel Ltd Jindal Steel & Power Ltd Ispat Industries Ltd Welspun-Gujarat Stahl Rohren Ltd J S L Ltd Bhushan Steel Ltd Uttam Galva Steels Ltd Sales (20092010) US$ billion (INR billion) 21.99 (1,042) 9.31 (441) 4.25 (201) 2.45 (116) 2 (91) 1.61 (76) 1.37 (64) 1.26(59) 0.99 (47) Products Finished steel (non-alloy steel) Finished steel (non-alloy steel) Hot rolled coils, strips, sheets Iron and steel Hot rolled coils, strips, sheets Tubes and pipes Flat products Cold rolled coils, strips, sheets Flat products

Source: Prowess, 29 November 2010; Centre for Monitoring Indian Economy

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STEEL

November 2010

Contents

Advantage India

Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations

21

INDUSTRY INFRASTRUCTURE Steel November 2010

Industry infrastructure special economic zones (SEZs)

Developer Viraj Profiles Ltd Jindal Stainless Ltd SAIL Salem SEZ Pvt Ltd JSW Bengal Steel Ltd Gremach Infrastructure Equipments & Projects Orissa Industrial Infrastructure Development Corporation Location Thane, Maharashtra Kalinga Nagar, Orissa Salem, Tamil Nadu West Medinipur, West Bengal Kolhapur, Maharashtra Jajpur, Orissa Product Stainless steel engineering products Stainless steel and ancillary/downstream industry Steel Steel Metal Metallurgical-based engineering and ancillary/downstream industry

Source: Formal approvals granted in the Board of Approvals after the SEZ rules coming into force as on 15 January 2009, Special eco nomic zones in India website, www.sezindia.nic.in, accessed 5 January 2010

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STEEL

November2010

Contents

Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework

Opportunities
Industry associations

23

INVESTMENTS Steel November 2010

Investments (1/2)
Merger and acquisition activity increased in the steel sector

The largest inbound deal announced between 1 January 2010 and 30 November 2010 was the 15 per cent acquisition of JSW Steel by JFE Corporation for US$ 1,029 million in July 2010. The largest outbound deal announced was the acquisition of Shadeed Iron & Steel Co LLC by Jindal Steel and Power Ltd for US$ 464 million in May 2010.

M&A scenario details

Period : 1 January 2010 to 30 November 2010

Deal type Inbound Outbound Domestic No of deals 3 5 12 Cumulative FDI inflows Period: April 2000 to September 2010 Sector Metallurgical industries Per cent of total FDI inflow US$ million 4,038.7 3.3 Largest deal value (US$ million) 1,029* 541 239.6

In the largest domestic deal worth US$ 24.6 million, Shree Global Tradefin Ltds interest in Lloyds Steel Industries Ltd increased from 48.23 per cent to 68.23 per cent.

Sources: M&A, Thompson ONE Banker, accessed 30 November 2010; Fact Sheet On Foreign Direct Investment (FDI), Department of Industrial Policy and Promotion website, www.dipp.nic.in, accessed 25 November 2010; JSW JFE Partnership Press Meet Presentation, Press releases, JSW Steel website, http://www.jsw.in/media_zone/press_releses.shtml accessed 30 November 2010; * Deal values not disclosed; Ernst & Young analysis

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INVESTMENTS Steel November 2010

Investments (2/2)

Steel producers have signed 222 MoUs with various states for a planned capacity of about 275.7 million tonnes. Orissa, Jharkhand, Chhattisgarh,West Bengal, Karnataka, Gujarat and Maharashtra are among the major states attracting investments in the steel sector.
State Orissa Jharkhand Chhattisgarh West Bengal Other states Total MoUs signed 49 65 74 12 22 222 Capacity addition (MTPA) 75.7 104.2 56.6 21.0 18.2 275.7

Source: Ministry of Steel, Government of India, Annual Report 2009 10

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STEEL

November 2010

Contents

Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations

26

POLICY AND REGULATORY FRAMEWORK Steel November 2010

Policy and regulatory framework (1/2)

After the de-licensing and liberalisation of the sector in 1991, 100 per cent foreign direct investment (FDI) through the automatic route is allowed in the Indian steel sector. The government also removed price and distribution controls in the sector, and the price is now determined by demand-supply dynamics. However, the government controls the excise, import and export duty levies. Some of the initiatives taken by the government to promote the steel sector include:

National Steel Policy 2005

The national policy seeks to facilitate the removal of procedural and policy bottlenecks that affect the availability of production inputs, increased investment in research and development, and the creation of road, railway and port infrastructure. The policy focuses on the domestic sector, but also envisages the steel industry growing at a faster pace than domestic consumption, which will enable export opportunities to be realised. According to the revised estimates of the Ministry of Steel , the steel production capacity in the country is expected to reach nearly 124 million tonnes by 2011 12.

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POLICY AND REGULATORY FRAMEWORK Steel November 2010

Policy and regulatory framework (2/2)

Some of the initiatives undertaken by the Indian Government in the Eleventh Plan to promote the steel sector include:

The Planning Commission has approved a total outlay of US$ 9.5 billion (INR 456.1 billion) for the development and promotion of the iron and steel sector. The scheme for the promotion of research and development in the iron and steel sector has been approved with a budgetary provision of US$ 24.6 million (INR 1,180 million) to initiate and implement the provisions of the scheme.

Source: Ministry of Steel , Government of India, annual report 2008 09

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STEEL

November 2010

Contents

Advantage India

Market overview
Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations

29

OPPORTUNITIES Steel November 2010

Opportunities (1/3)
The Indian steel industry has been on a high-growth trajectory led by buoyancy in sectors such as infrastructure and construction, oil and gas and automobiles.

The emphasis on infrastructure development is expected to enable a surge in the demand for structural steel components, primarily used for construction purposes. Steel majors such as JSW Steel and Tata Steel are investing to enhance the capacities of products such as TMT bars (rebars). Pre-engineered buildings (PEBs) are also increasingly gaining prominence in the industrial construction area due to the ease of onsite erection and in-house design and fabrication. This segment has opportunities for products such as steel plates, galvanised, colour-coated and galvalume products. The investment in infrastructure is estimated to increase from 5 per cent of GDP in the Tenth Plan to 9 per cent of GDP in 201112, which is the terminal year for the Eleventh Plan.

Increased government focus on infrastructure development

Sources: Eleventh five year planInvestment in infrastructure, The Secretariat for Infrastructure , Planning Commission, Government of India, accessed 30 November 2010; Basic Statistics on Petroleum and Natural Gas, 20092010, Ministry of Petroleum & Natural Gas, Government of India; Exploring opportunities: Growth potential in the Indian natural gas market , Ernst & Young, 2010

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OPPORTUNITIES Steel November 2010

Opportunities (2/3)

The rising costs of coal and crude oil have resulted in a shift towards the use of alternate fuels. To leverage this opportunity, companies are investing in building a pipeline network for gas distribution. The setting up of refineries requires investment in pipe networks to transport crude oil and refined products, resulting in increased demand for steel pipes and tubes. The discovery of natural gas reserves in KG basin by oil majors such as Reliance Industries Limited (RIL) and Oil and Natural Gas Corporation (ONGC) is expected to substantially increase supply. The gas production is estimated to increase from 130 mmscmd in 20092010 to around 265275 mmscmd by 20192020. The current pipeline infrastructure is inadequate to cater to the expected spurt in supply. The Government of India with due assistance from Petroleum and Natural Gas Regulatory Board (PNGRB) is promoting the construction of gas transmission infrastructure. GAIL plans to add 6,663 km of pipeline by 201213, Reliance Gas Transportation Infrastructure intends to add 2,875 km of pipelines and Gujarat State Petronet is targeting to add 800 km of pipelines in Gujarat. These initiatives would result in increased demand for steel.

Increased demand from the Oil & Gas industry

Sources: Eleventh five year planInvestment in infrastructure, The Secretariat for Infrastructure , Planning Commission, Government of India, accessed 30 November 2010; Basic Statistics on Petroleum and Natural Gas, 20092010, Ministry of Petroleum & Natural Gas, Government of India; Exploring opportunities: Growth potential in the Indian natural gas market , Ernst & Young, 2010

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OPPORTUNITIES Steel November 2010

Opportunities (3/3)
Huge potential for growth due to low per capita consumption of steel India is the worlds fifth-largest producer of steel. However, the per capita consumption of steel in the country is 47 kg, which is substantially lower than that recorded in other countries such as China (422 kg), Brazil (103 kg) and Russia (199 kg), which indicates significant potential for growth.

Source: Steel statistical yearbook2010, World steel association

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STEEL

November 2010

Contents

Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework

Opportunities
Industry associations

33

INDUSTRY ASSOCIATIONS Steel November 2010

Industry associations
Indian Stainless Steel Development Association
L-22/4, DLF Phase-II

Gurgaon, Haryana 122 002

Phone: 91-124-4375501 Fax: 91-124-4375509 E-mail: nissda@gmail.com

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INDUSTRY ASSOCIATIONS Steel November 2010

Note
Wherever applicable, numbers in the report have been rounded off to the nearest whole number. Conversion rate used: US$ 1= INR 48

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STEEL

November 2010

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