Challenges & future scenario of steel industry 1

Challenges & Future Scenario of Steel Industry

PRESENTED BY : GS DHIR

Executive Summary

Globally, steel players have been operating in a challenging environment with rising input costs and persistent lower capacity utilization. This is driven by Low demand growth in developed markets, accompanied by a structural shift in the global steel industry to developing countries like China and India.

Over the last decade, Indian steel companies have consistently achieved higher earnings before interest depreciation taxes and amortization (EBIDTA) margins as compared to their global peers and have delivered steady growth despite external challenges.

Having established quality assets, Indian steel companies are now well poised to take advantage of expansion and growth opportunities in India. However, six long-term challenges are confronting the Indian steel industry’s growth aspirations

•Volatile domestic iron ore supply is forcing Indian steel companies to pay higher prices or import this key raw material thereby exposing them to global iron ore price volatility.

•Flat products supply will exceed demand, leading to an overcapacity situation. This coupled with the muted demand growth will put significant pressure on margins.

• Customers are maturing and increasingly demanding value-added products and services.

•Existing supply chains are stretched in order to cope with the wide range of customers and product specifications— original equipment manufacturers (OEM) at one end, to the rural retail markets at the other—which impact service levels.

•In the race to maintain market share, incumbents have taken on Greenfield and brownfield expansion plans at a pace and scale unprecedented in the Past. Skill gaps and other challenges have led to cost and time over-runs on these projects, putting further stress on the already stretched balance sheets.

•Investments in management processes, systems and people capabilities have not kept pace with the investments in assets and the changing market place. This is increasingly becoming a bottleneck for growth.

Key Capabilities to become game changers

Resource acquisition, development and operations

The pursuit of raw material security has led Indian steel companies to seek mining leases and assets globally. The capability to acquire, develop and operate these assets has become a key strategic imperative. These assets provide a natural hedge at the raw material portfolio level, and are also important for overcoming the short-term domestic challenges.

Efficient capital project management

TheIndian steel companies are increasingly undertaking larger, more complex and riskier projects to meet their capacity goals. Their ability to successfully execute these projects is hindered by regulatory challenges, limited talent pools, contractors and construction labour constraints, increasing infrastructure requirements, and expectations of compliance with superior safety and environmental norms. Capital investments have not been accompanied by a commensurate investment in enhancing capability to plan and execute these projects.

Customer-Centric Sales and MarketingAs Indian steel companies expand, they are increasingly facing an overlap in their market and product footprint. This coupled with a lower demand growth has led to increased price competition and pressure on margins. In this scenario, increased customer centricity will differentiate the high performers.

Differentiated Supply Chains

Global trends are driving increased product and distribution complexity, as diverse and digitally-empowered customers demand ever-more tailored products and services. To remain competitive, companies across industries must embrace this growing complexity while maintaining the benefits of simple, streamlined supply chains to deliver their aspirations of growth, cost, working capital and sustainability.

Human capital managementIndia steel companies’ ability to manage and leverage its human capital will become a key differentiator and will play a key role in enabling their growth aspirations. We believe Indian steel companies will need to address the 4 D’s of managing talent.

Define Discover Develop Deploy

Current state of Indian Steel Industry

The Indian steel industry has entered into a new era of development since 2007-08, riding high on the resurgent economy and robust demand for steel. Rapid rise in production has resulted in India becoming the 4th largest producer of crude steel and the largest producer of sponge iron in the world.

Domestic steel demand to remain muted during FY2012–17 on account of a weak macro economic environment The demand for longs is expected to increase by 19 million ton (MT) at a CAGR of 9 percent and for flats by 16 MT at a CAGR of 8 percent between FY2012 and FY2017 . This is due to relatively weaker growth prospects of flats end-user industries (such as automotive and consumer durables) than those for longs.

Increased domestic competition Incumbents and challengers have announced 71 million ton per annum (MTPA) of steel capacity addition between FY2012 and FY2017 through both brownfield and greenfield routes. However, there is considerable uncertainty on the actual capacity addition as many projects are yet to achieve financial closure due to delays or lack of regulatory clearances.

Based on our bottom-up assessment of the announced capacity additions, projects aggregating to 35 MTPA of crude steel capacity have already achieved financial closure. Hence, we expect a minimum aggregate capacity of 122 MTPA to be commissioned by FY2017.

This capacity addition will lead to two structural changes. First, the concentration in the longs segment will increase by 5–7 percent in the medium term, deepening the sustainability challenge for secondary producers. Second, it will shift the current flats-longs capacity split of 50:50 to 60:40 by FY2017, if all the announced projects are commissioned. As a result, one can expect oversupply in flats and a capacity shortfall in longs.

Major steel producing countries 2012:China (716.5mt) Japan (107.2mt) United States (88.7mt) India (77.6mt)Russia (70.4mt)

Major Exporter of steel according to 2012:China (54.8mt)European Union (47.1mt)Japan (41.5mt)Russia (26.7mt)India 17th place (8.2mt)

Major Importer of steel according to 2012:

United States (31.5mt) European Union (29.5mt) Germany (22.9mt)South Korea (20.4mt)India 13th place (9.3mt)

List of Top Steel Companies in India:

TATA steel (20%) - Mumbai SAIL (10%)- New Delhi JSW steel (8%)- Mumbai Visa steel (5%)- JaipurBhushan steel (3%)- New Delhi

5045.5

45

40

35

30

75.6 4.7 4.5 4.5

2.3 2.3

23.6

0

5

10

20

15

25

China Japan US India Russia South Korea

Ukraine Brazil ROW

Market share of steel by countries in 2012

Fourth-largest producer of crude steel

• Steel production in India has increased at a CAGR of 7.7 per cent over 2005–12. The country is slated to become the second-largest steel producer by 2015 as large public and private sector players strengthen steel production capacity in view of rising demand

Strong growth opportunities

• Huge scope for growth is offered by India’s comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors

Technological advancements

• Increased government and corporate sector focus on using innovative production techniques for enhancing operational as well as financial performance is a positive

Rising domestic and international investments

• Domestic players’ investments in expanding and upgrading manufacturing facilities are expected to reduce reliance on imports. In addition, the entry of international players* would provide benefits in terms of capital resources, technical know-how and more competitive industry dynamics

Notes: * - Arcelor Mittal and POSCO

Notes: TISCO - Tata Iron and Steel Company; IISC - Indian Iron & Steel Company; SAIL - Steel Authority of India Ltd

• Production of steel started in India (TISCO was setup in 1907)

• IISC was set up in 1918 to compete with TISCO

• Mysore Iron and Steel Company was set up in 1923

• According to the new Industrial Policy Statement (1948), new ventures were only undertaken by the central government

• Hindustan Steel Ltd and Bokaro Steel Ltd were setup in 1954 and 1964, respectively

• In the early 1990s, the public sector dominated steel production

• Private players were in downstream production mainly producing finished steel using crude steel products

• SAIL was created in 1973 as a holding company to oversee most of India's iron and steel production

• In 1989, SAIL acquired Vivesvata Iron and Steel Ltd

• In 1993, the government set plans in motion to partially privatise SAIL

1907–1918

1923–1948

1993–2012

1973–1992

1954–1964

• Foreign players began entering the Indian steel market

• No license requirement for capacity creation

• Imposition of export duty on iron ore, to focus more on catering growing domestic demand

• Decontrol of domestic steel prices

• Launch of Scheme for promotion of Research and Development in Iron& Steel sector

Steel

End use

Structural steel

Construction steel

Rail steel

Form

Liquid steel Crude steel

Ingots

Semis

Finished steel

Flat

Non-flat

Composition

Non-alloysteel

Low carbon steel

Mediumcarbon steel

High carbon steel

Alloy

Stainless

Silicon electrical

High speed

Source: Report on Indian steel industry by Competition Commission of India, Aranca

Research

Total crude steel production (million tonnes)

Total crude steel production rose at a CAGR of 6.6 per cent over FY08–11 to 69.6 MT; production in the first nine months of FY12 was a little more than three-fourth of FY11 levels

Finished steel production stood at 66.0 MT in FY11, recording a CAGR of 4.2 per cent during FY08–11; analysts expect production figures to improve rapidly over the next five years with the Ministry of Steel forecasting production levels at115.3 MT by FY17

Total finished steel production (million tonnes)

FY08 FY09 FY10 FY11* FY12* (April - Dec)

Public sector Private sector

FY08 FY09 FY10 FY11*

Private sector

FY12* (April - Dec)

Public sector

Source: Ministry of Steel, Aranca Research; Notes: FY - Indian Financial Year (April – March); MT - Million Tonnes, * - Provisional; CAGR - Compound Annual Growth Rate

52.6

49.1

42.136.8 41.1

17.1 16.4 16.7 17.012.3

52.947.6

42.6 44.543.4

13.5 12.7 13.0 13.18.6

India crude steel market share by production -- FY12* (Apr-Dec)

SAIL is the leading player in India’s steel sector; in the first nine months of FY12, the company accounted for 18.7 per cent of the country’s crude steel production and had a 13.5 per cent share in finished steel production

Tata Steel, another household name in the country, leads private sector activity in the steel sector; during April– December 2011, the firm accounted for 9.9 per cent of crude steel production and 7.8 per cent of finished steel production

India finished steel market share by production- FY12* (Apr-Dec)

Source: Ministry of Steel, Aranca Research; Notes: RINL - Rashtriya Ispat Nigam Limited, * - Provisional

9.9%

18.7%

4.3%67.1%

Tata Steel

SAIL

RINL

Other

7.8%

13.5%

4.0%

74.7%

Tata Steel

SAIL

RINL

Other

Market value of the Indian steel sector (USD billion)

In 2011, the Indian steel sector’s total market value was USD57.8 billion

The sector has benefitted from rises in price andmillennium

Over 2007–11, the sector’s market value is estimated to have posted a strong CAGR of 17.7 per cent 30.1

43.036.5

46.8

2007 2008 2009 2010 2011

CAGR: 17.7%

Source: Datamonitor, Aranca Research

Note: E - Estimates

Consumption of steel (in million tonnes)

Total consumption of steel exceeded production and grew to 70.9 MT in FY12 as against 66.4 MT in FY11; overcent

Driven by rising infrastructure development and growing demand for automotives, steel consumption is expected to grow at an average rate of 6.8 per cent, reaching 104 MT by 2017

Source: Ministry of Steel, Indian Steel Markets Conference,

Datamonitor, BMI, Aranca Research Notes: FY12* - Data for FY12 is provisional, MT - Million Tonnes

46.852.1 51.9

59.3

66.470.9

FY07 FY08 FY09 FY10 FY11 FY12*

CAGR: 8.7%

Steel demand and production (in million tonnes)

With steel’s demand growth outpacing growth in domestic production over the last few years, import dependency has increased

Imports have increased at a CAGR of 6.8 per cent over FY07–

12 In FY12, total imports stood at about 6.8 MT

Steel exports and imports (in million tonnes)

Source: Ministry of Steel, JSPL presentation, Aranca Research Notes: FY - Indian Financial Year (April - March), * - Data for FY12 is provisional

67 71 6964 7.0 7.4

55 53 55 55 60 57

50 50

2007 2008 2009 2010 2011 2012 FY07 FY08 FY09 FY10 FY11 FY12*

Demand Production Imports Exports

6.8

6.8

5.8

4.9 5.2 5.1 4.4

3.5 4.0

3.3

Source: JSPL May 2013 presentation, Aranca Research

Sector-wise steel consumption FY12

Infrastructure is India’s largest steel consumer, accounting for 63 per cent of total consumption in FY11

This is not surprising given the heavy use of steel in this sector and soaring construction and infrastructure activity in the country over the past decade

Engineering and fabrication is the next largest consumer, with 22 per cent of total consumption

63%

22%

10%

2%3%

0 Infrastructure

Engineering and fabrication

Autos

Packaging

Transportation

Source: Aranca Research

Company Products

Tata Steel Ltd Finished steel (non-alloy steel)

SAIL Finished steel (non-alloy steel)

JSW Steel Ltd Hot-rolled coils, strips and sheets

Jindal Steel & Power Ltd Iron and steel

Ispat Industries Ltd Hot-rolled coils, strips and sheets

Welspun-Gujarat Stahl Rohren Ltd Tubes and pipes

Bhushan Steel Ltd Cold-rolled coils, strips and sheets

Source: Ministry of Railways, Aranca Research Notes: MOUs - Memorandum of Understanding, MT - Million Tonnes

Growing investments

• SAIL has modernised and expanded its integrated steel plants in Bhilai, Bokaro, Rourkela, Durgapur, Burnpur and Salem

• The company is in the process of expanding its crude steel production capacity to 21.4 MTPA by 2013

• Completed mega expansion of Rashtriya Ispat Nigam Limited (RINL) to more than double capacity of plant (from 2.9 MT to 6.3 MT) from 2013-14

Strategic alliances

• International Coal Ventures Pvt Ltd, comprising SAIL, RINL, CIL, NTPC and NMDC, has been set up for acquisition of coal mines overseas

• The consortium of SAIL and National Fertiliser Limited (NFL) has been nominated for revival of Sindri Unit of the Fertiliser Corporation of India Limited

• RINL, Vishakhapatnam Steel Plant and the Power Grid Corporation of India Ltd (POWERGRID) signed an MoU to set up a joint venture company to manufacture transmission line towers and tower parts including R&D of new high-end products

Entry of international companies

• Attracted by the growth potential of the Indian steel industry, several global steel players have been planning to enter the market

• National Mineral Development Corporation (NMDC) has signed an MoU with Russia’s third-largest steelmaker, Severstal, for a greenfield steel plant in Karnataka

• Posco Steel to invest USD12 billion in setting up a 12 MT project in India

Increased emphasis on technological

innovations

• Indian steel companies have now started benchmarking their facilities and processes against global standards, to enhance productivity

• These steps are expected to help Indian companies improve raw material and energy consumption as well as improve compliance with environmental and pollution yardsticks

• Companies are attempting coal gasification and gas-based direct-reduced iron (DRI) production. Other alternative technologies such as Hlsmelt, Finex and ITmk3 being adopted to produce hot metal

Source: Aranca Research

Steel integrated plants under SAIL (Bhilai, Rourkela,

Bokaro, Durgapur and Burnpur)

Tata Steel’s largest steel plant, based in Jamshedpur

RINL steel plant in Vishakhapatnam

Alloy and special steel plants under SAIL

(Bhadrawati and Salem)

Source: Company websites, Aranca Research

Policy support

100 per cent FDI in the steel sector

Encouragement of sector-based R&D

activities by the government

Reduced custom duty and other

favourable measures

Growing demand in the construction

industry

Increasing investments

Rising investments from domestic and

foreign players

Increasing number of MoUs signed to boost investment

in steel

Foreign investment of nearly USD40

billion committed in the steel sector

Inviting Resulting in

Growing demand in the automotives

sector

Rising demand for consumer durables and capital goods

Growing demand

Note: FDI - Foreign Direct Investment

Projected values of investment in infrastructure (USD billion)

Investment in infrastructure by the Planning Commission is expected to expand at a CAGR of 14.5 per cent over FY12– 17

investment to be USD1 trillion in the 12th Five-Year Plan (2012–17), from USD428 billion in the 11th Plan

This increase in infrastructure investment is set to raise steel demand by roughly 40 MTPA during FY13–17

Source: Planning Commission, Aranca Research Notes: MTPA - Million Tonnes Per Annum

97.3114.1 131.2

149.1169.0

191.4

FY12 FY13 FY14 FY15 FY16 FY17

CAGR: 14.5%

Consumer durables market size (USD billion)

Over FY03-FY11, consumer durables has grown at a CAGR of 12.2 per cent as growth in disposable income resulted rise in their demandCapital goods and consumer durables are expected to grow at a 7.5 per cent to 8.8 per cent over 2012-2021 Automotives production expanded at a CAGR of 22.2 per cent over FY09–12Commercial vehicles are the fastest growing segment with a CAGR of 29.8 per cent over the same period Over FY12-FY21, the automotive sector is projected to grow at a CAGR of 11.5 per cent to 12.5 per cent

Total production of automobiles in India (million units)

Source: SIAM, JSPL May 2013 presentation, Corporate Catalyst India, Aranca Research

Notes: E - Estimate; FY - Indian Financial Year (April - March)

2.93.2

3.53.8

4.2

5.24.7

6.3

7.3

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

FY11

1.8

0.4

2.4

3.0

0.8 3

.10

.9

5.1

9.7

0.6 1.4 2.4

8.9 11

.1 14

.2 16

.3

21

.0

30

.2

FY09 FY10 FY11

Passenger vehiclesThree wheelers & two wheelers

FY12 FY16EFY21E

Commercial vehicles

CAGR: 12.2%

National Steel Policy 2012

• In view of the sector’s changed dynamics, globally as well as domestically, the Ministry of Steel has initiated the process of drafting a new National Steel Policy to replace the existing National Steel Policy of 2005

• The government has set up a committee headed by the Steel Secretary to monitor theformulation of the new National Steel Policy

• Four task forces have been constituted to study, analyses, consult and formulate draft policy documents on different aspects of the policy

• The current policy draft proposes allotment of captive iron ore mines to producers through open bidding and putting some mines in the general category

R&D and innovation

• A new scheme, ‘The scheme for the promotion of R&D in the iron and steel sector’, has been approved with budgetary provision of USD24.6 million to initiate and implement the provisions of the scheme as per the 11th Five-Year Plan

• USD10.7 million had been spent under the scheme up to December 2012• The development of technology for cold-rolled grain oriented (CRGO) steel sheets

and other value-added products is also included under the policy purview and is allocated USD6.7 million

Source: Ministry of Steel, Aranca Research

Foreign Direct Investment

• 100 per cent FDI through the automatic route is allowed in the Indian steel sector

Rise in export duty on iron ore

• The government hiked the export duty on iron ore to 30 per cent ad valorem on all varieties of iron ore* (except pellets)

Source: Ministry of Steel, Aranca Research Notes: * - w.e.f. 30th

December 2011

• Export duty on iron ore has been increased to 30 per cent ad valorem on all varieties of iron ore (except pellets), to preserve iron ore resources for domestic use

As per the government’s decision, the Government of India’s 51 per cent shareholding in Eastern Investments Company Limited (EIL), under Bird Group of Companies, was transferred to RINL

•

• New Research and steel sector have implementation

Development policy for the beenfinalised/adopted

for• New techno-economic benchmarks have been evolved on international patterns to improve performance of steel PSUs; implementation is being monitored closely

• Under the Ministry, the Joint Plant Committee (JPC) studied 300 districts, 1,500 villages, 4,500 manufactures and 8,000 retailers spread over India’s 28 states and 7 union territories to assess steel demand in the rural areas and examine the potential to increase steel consumption levels

The Ministry of Steel set up the Steel Innovation Council to promote innovative ideas in the steel sector

The New National Steel Policy for the forthcoming years is under finalisation

In April 2013, the Ministry of Steel signed a Letter of Intent (LoI) with the Tanzanian Government to strengthen cooperation in steel and mining activities

•

•

•

Source: Ministry of Steel, Aranca Research

Notes: W.E.F - With Effect From 30th December, 2011

Source: Formal approvals granted in the Board of Approvals after the SEZ rules coming into force,”

Special Economic Zones in India website, www.sezindia.nic.in

Developer Location Product

Viraj Profiles Ltd Thane, Maharashtra Stainless steel engineering products

Jindal Steel Ltd Kalinganagar Stainless steel

SAIL Salem SEZ Pvt Ltd Salem, Tamil Nadu Steel

Orissa Industrial Infrastructure Development Corporation

Jajpur, Orissa Metallurgical-based engineering and ancillary/downstream industry

http://www.sezindia.nic.in/










Source: Thomson ONE Banker, “Fact Sheet On Foreign Direct Investment (FDI)”, Department of Industrial Policy and Promotion

M&A scenario – details

Period: 1 January 2012 to 21 June 2013

Deal type Number of deals Largest deal (USD million)

Inbound 2 -

Outbound 1 -

Domestic 3 232.6

Cumulative FDI inflows

Period: April 2000 to March 2013

Sector

Metallurgical industries USD7.5 billion

Per cent of total FDI inflow

3.9

Source: Ministry of Steel, Annual Report 2011-12; Note: MTPA - Million Tonnes Per Annum, * - Estimated figures

State MoUs signed (2011) Capacity addition (MTPA)

Orissa 63 81.2

Jharkhand 49 105.1

Chhattisgarh 76 60.0

West Bengal 16 39.4

Karnataka 57 173.0

Andhra Pradesh 18 11.8

Other states 22 18.2*

Total 301 488.6

Capacity addition plans 2012

Company Plans

SAIL SAIL plans to invest USD27.3 billion in increasing capacity from 21.4 MTPA to 45 MTPA. In its recent expansion plan, the company modernised and expanded its integrated steel plants at Bhilai, Bokaro, Rourkela, Durgapur, Burnpur and a special plant at Salem

NMDC NMDC is setting up a greenfield integrated steel plant of 3 MTPA capacity in Nagarnar, Chhattisgarh at an estimated cost of about USD3.2 billion

Jindal Steel and Power Limited

Incorporated in 1979, Jindal Steel and Power Limited

(JSPL) is an integrated steel producer and the largest

coal-based sponge iron manufacturer in the world. The

company has an installed steel production capacity of 3

MTPA. JSPL is engaged in manufacturing long products

and is specialised in producing long rails for railways and

large sized H-beams as well as columns for the

infrastructure and construction sector

JSPL also has significant presence across the mining,

power generation and infrastructure sectors

• Achievements:

• 2011 – Ranked third in the Metals category

of Business World’s Most Respected

Companies Survey, 2011

• 2010 – Rated the World’s Second-Largest Value Creator by the Boston Consulting Group (BCG) and the World’s Largest Value Creator in the Mining and Materials category

Projected crude steel capacity in the 12th Plan(million tonnes)

Source: Company website (www.jindalsteelpower.com), Planning Commission, Aranca Research

3.0 3.0

4.5

7.0

8.0

10.0

11.5

FY11 FY12 FY13 FY14 FY15 FY16 FY17

CAGR: 25.1%

Financial growth (USD million)Sale of steel (million tonnes)

0.3 0.5 0.2

0.71.0

1.2

1.6

1.9

0.8

1.4 1.6

2.0 2.3

2.82.8

3.8


Semi steel products

FY12

PelletsFinished steel products

671816

1,803

2,287

3,315

3,007

103197

431 438 395

818 721

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13Gross revenue PBIDT

Source: Company website (www.jindalsteelpower.com) Notes: Company clubs iron and steel segment ‘s performance; PBIDT (Profit Before Interest, Depreciation and Tax)

1991 1993 1995 1997 1999 2002 2006 2010 2012

Long track rails

Hot-rolled parallel

flange beams

Column sections

Plate and coils

Wire rods

Organic growth through capacity

additions

Foray into the oil & gas and cement sectors as a part of diversification

1991Commencedoperations

FY08ISO

9001:2008accreditatio

n

FY 13–14Steel capacity to

rise from 3.5MTPA to7.0MTPA

The iron and steel segment continues

to be a major contributor (~75%)

Strong diversified customer base of 2,758 customers

TMT Re-barsExpansion in international

markets

Bhushan Steel Limited

Established in 1983, Bhushan Steel Limited (BSL) is

the third-largest secondary steel producer in India. The

company has an existing steel production capacity of

2.5 MTPA. It primarily manufactures flat steel products for

the automobile industry

Products – Cold-rolled closed annealed coils, galvanised

coils and sheets, high tensile steel strapping, colour

coated coils, galume sheets and coils, hardened and

tempered steel strips, billets, sponge iron, precision tubes

and wire rods

• Milestones:• 2004 – Commissioned secondary steel production at

Khapoli, Maharashtra

• 2006 – Commissioned primary steel production

at Meramandali, Odisha

• 2006 – Commissioned secondary steel production at

Sahibabad, Uttar Pradesh


5.0 5.0 5.0 5.0


Source: Company website (www.bhushansteel.com), Planning Commission, Aranca Research

4.5

2.22.5

Financial growth (USD million)Production of steel (million tonnes)

Source: Company website (www.bhushansteel.com), Aranca Research

Notes: NPAT - Net Profit After Tax

1.1

2,2512.1


FY06 FY07 FY08 FY09 FY10 FY11 FY12 9MFY13

Gross revenue NPAT

1.8

1.6

1.2

1.0

1,662 1,541

1,1611,1781,266

116

178928 10

5693

35 69 92 221 213

1989Secondary

steel production in

UP

1989

1991

1993 1995 1997 1999 2002 2006 2010 2012Cold-rolled

Wheel, tyre andand pipes axle plant (railways)

Alloy steel

Organic growth in steel and flat

products

FY06Primary steel production in

Odisha

Galvanised

Color coated tiles

IroSnpmonagkei

nigroannd

castings

Capacityexpansion

(0.9 MT to 2.5 MT)

Partnership with Japanese steel

producer, Sumitomo

FY12USD2.5 billion

turnoverAlloy billets

Other developed products

Technological upgradation and further capacity

addition

Strong diversified customer base of 3,300 customers

Tata Steel Limited

Established in 1907 by the visionary founder – JN Tata,

Tata Steel is among the top ten global steel companies

with an annual crude steel capacity of over 28 MTPA

The company caters to sectors such as

automotive, construction, consumer goods, engineering,

packaging, energy & power, ship building, rail and defense

& security

• Milestones:

• 2009 – Tata Ryerson and HMPCL merge with

Tata Steel

• 2007 – Tata Steel and Corus were integrated

at USD12 billion, making Tata Steel one of the top

ten global steel producers


Source: Company website (www.tatasteel.com), Planning Commission, Aranca Research

6.8 7.69.2

11.0

15.1

17.5

20.0


CAGR: 19.7%

Financial growth (USD million)Production and sales of steel division (million tonnes)

Source: Company website (www.tatasteel.com), Aranca Research

Notes: NPAT - Net Profit After Tax

4.6 4.4 4.9 4.8 4.9 4.8 5.4

6.4 6.76.4 7.0 6.6

7.9 7.5

5.26.2

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13

Production Sales

0.80.9 1.2 1.1 1.1

1.5 1.4

3.94.5

5.6 5.9 5.8

7.2 7.1


NPAT Gross revenue

1997 1998 1999 2000 2002 2004 2006 2008 2010 2011 2012 2013

Source: Company website (www.tatasteel.com), Aranca Research, * - Revenues from Indian operations

Note: M&A - Mergers and Acquisitions

1912 1995 1996Blast furnace

Organic growth in steel

Capacity expansion

(3 MT)

M&A (Tata-Corus)

Developed productsTechnologicalupgradation

1912Production

capacity (1.6 lakh tonnes)

Diversification (coal injection

unit)

FY06 USD3,625

million turnover

FY13USD7.0billion

turnover*

Pig iron and

steel ingots

Wheel, tyre and

axle plant (railways)

Alloy steel

Iron making

and

castings

Announced plans to merge Tata

Metaliks Ltd and Tata Metaliks

Kuboto Pipes Ltd with itself in April

2013

JSW Steel

Established in 1994, JSW Steel Ltd manufactures iron and

steel products in India and abroad

Products – Hot-rolled coils, plates and sheets; cold-

rolled coils and sheets; galvanised sheets and coils;

pre-painted galvanised coils, sheets and galvanised sheets

• Achievements:

• 2011 – National Sustainability Award by the Indian

Institute of Metals

• 2009 – Gold Award in the Metal and Mining sector

• 2008 – National Energy Management

Award instituted by CII

Projected crude steel capacity in the 12th

Plan (million tonnes)

Source: Company website (www.jsw.in), Planning Commission, Aranca Research

11.1

13.2314.3 14.3 14.3

17.618.4


CAGR: 8.8%

Financial growth (USD million)Product group-wise sales (million tonnes)

Source: Company website (www.jsw.in)

0.3

4.7

1.10.4

5.9

1.5 1.71

0.3

6.9

Semis Rolled Flats

FY11 FY12

Rolled Longs

FY13

1,417 1,9372,631

3,162

4,053

5,228

7,221 7,137

178 269 360 96421 419 339 332


NPAT

FY12 FY13

Gross revenue

Notes: JV - Joint Venture, TMT - Thermo Mechanically Treated, MML - Mysore Minerals Limited, MTPA - Million Tonnes Per Annum

Production capacity

(1.25 MTPA)

1994 1995 1996 1997

1998 1999 2000 2002 2004 2006 2008 2010 2011 2012 2013

FY 14Saleable

steel sales to reach9.75

million tonnesSpecial steel bars

Galvanised

product

TMT Re-bars

Wire rods

Cold-rolled

Hot-rolledCapacity

addition 7.8 MT

Organic growth and integration

JV formed to explore, develop & mine iron ore with

MML

1994ISO

accreditations

1994

FY06USD1,417

million turnover

FY 13USD7.1billion

turnover

Note: Capex – Capital Expenditure

Automotive

• The automotives industry is forecasted to grow in size by USD122–159 billion by 2016

• With capacity the

increasing addition in automotive

industry, demand for steel from the sector is expected to be robust

Capital goods

• The capitalgoods sector accounts for11 per cent of steel consumption,andhas the increase

potential to in tonnageand market share

• Corporate India’s capex is expected to grow and generate greater demand for steel

Infrastructure

• The government aims to increaseinfrastructurespending from 8.4 per cent of GDP in FY11 to 10.7 per cent by FY17

• Due to such a hugeinvestment infrastructure

in the

demand for long steel products would increase in the years ahead

Airports

• More and more modern and private airports are expected to be set up

• Development of Tier- II city airports would sustain consumption growth

• Estimatedconsumption

steelin

airport building is likely to grow more than 20 per cent over next few years

Source: Planning Commission, Aranca Research

Railways

• The freight

dedicated railcorridor network(DRFC)

expansion would beenhanced in future

• Gaugeconversion,setting up of new linesand would demand

electrificationdrive steel

Oil and gas

• The liquid fuel transportation pipeline network is likely to grow from the present 16,800 km to 22,000 km in 2014

• This would lead to an increase in demand of steel tubes and pipes, providing a lucrative opportunity to the steel industry

Power

• The government aims to add 71,000–1,07,500 MW (MegaWatt) of capacity during the 12th Five- Year Plan

• Both generation and transmission capacities would be enhanced,thereby raising steel demand from the sector

Rural India

• Rural India,accounting for 70 percent of Indianpopulation has lowper capita steel

whichconsumptionprovides huge scope for growth

• Policies likeBharatNirman andRajivGandhi Awaaz Yojnaaredriving demand construction rural India

growingfor

steel in

Current state of Global Steel Industry

04/07/2023 04:32:50 PM Prepared by Gsdhir 47

2000=100

220

200

180

160

140

120

100

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Steed Demand vs Capacity (2000=100)

Apparent steel use, crude steel equivalent Capacity, crude steel

Steel Capacity Outgrows Demand Growth

During 2000~2012, global crude steel capacity ∆ 1,013 Mt to reach 2,063 Mt, whereas crude steel production ∆ 683 MT to 1,532 Mt

Chinese capacity ∆ 771Mt to 921 Mt, production ∆ 602 Mt to 731 Mt

After the global economic crisis, capacity expansion momentum slows, but the emerging economies continue to seek expansion

Return of Overcapacity

While world steel demand continues to grow, trends down

No easy solutions to overcapacity in sight

capacity utilization ratio

Jun-08 92.7%

60%

Dec-08 59.9%

50%

Apr-10 84.5%

Aug-10 74.2%

Apr-11 83.4%

Dec-12 71.5%

Sep-13 79.3%

70%

80%

90%

100%

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

World crude steel capacity utilisation

value chain profit pool split evolution

54 23 125 156 2308 15

Value chain profits has been shifting away from the steel industry Volatility and uncertainty in raw materials prices since departure

from the benchmarking pricing system

Raw Materials Side Adds to Adversity

81 78

61

35

2627

117

22

22 2832

135

1995

2000

Source: McKinsey & Company

2005 10 2011

2017

100%=Iron ore

Steel making (HRC)

Coking coal

1744

4642

Steel Industry Performances

Steel industry stocks vs Dow Jones Index 2005=100

Steel vs Raw materials prices Index 2005=100

1 219 1 2191 141

1 3001 403 1 430

1 475 1 523

7.0

0.0

-6.4

14.0

7.9

2.03.1 3.3

0

200

400

600

800

1 000

1 200

1 400

Mt

1 600

-10

-5

0

5

10

15

2007

*) 2014 as % of 2007

2008 2009 2010 2011

2012 2013 2014

%Mt y-o-y % growth

125.0*

Steel Demand Forecasts for 2013-14Apparent Steel Use, finished steel (SRO October 2013)

Demand Forecasts for selected countriesApparent Steel Use, finished steel (SRO October 2013)

2014 as %of 2007

Mt %

2012 2013 2014 12/11 13/12 14/13

World 1,430.3 1,475.1 1,523.2 2.0 3.1 3.3 125.0

United States 96.2 96.9 99.8 7.8 0.7 3.0 92.2

European Union (27) 140.2 134.9 137.8 -9.5 -3.8 2.1 69.1

Japan 63.9 64.0 63.0 -0.2 0.1 -1.6 77.6

China 660.1 699.7 720.7 2.9 6.0 3.0 172.2

India 71.6 74.0 78.2 2.6 3.4 5.6 151.8

Brazil 25.2 26.0 27.0 0.6 3.2 3.8 122.3

ASEAN (5) 54.8 57.3 60.4 12.8 4.6 5.4 149.7

MENA 63.2 64.3 69.0 2.2 1.7 7.3 127.2

Developed Economies 390.2 384.1 390.5 -1.7 -1.6 1.7 82.4

Emerging & Developing Economies excl China

380.0 391.4 412.1 4.2 3.0 5.3 126.0

World excl. China 770.2 775.4 802.6 1.1 0.7 3.5 100.3

Key Trends in Post-Crisis Period Steel Demand

Multi-speed recovery continues driven by emerging economies, but weakening growth in the emerging world

Eurozone stabilizes and finally positive growth expected in 2014

China moves into slower growth phase

Key emerging economies struggling with structural issues

Multi-Speed Recovery of Steel Demand

160

140

120

100

80

60

180

2007 2008 2009 2010 2011

2012 2013 2014

2007=100World China Developed Economies Em. & Dev. Economies excl. China

Emerging & Developing Economies

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Developed Economies

China

Regional Share in World Steel DemandApparent Steel Use, finished steel (SRO October 2013)

41.5% 58.5%16.4%

53.9%20.5% 46.1%

51.5%23.3% 48.5%

47.8%27.4% 52.2%

47.0%28.3% 53.0%

41.7%33.3% 58.3%

41.6%1133.1% 58.4%

38 9%

China Entering a New Phase of Development

After soft landing, renewed focus on rebalancing of the economy

Less steel intensive growth to come, implying steel demand growth will underperform GDP growth

Future focus will be on capacity closures, environmental

performance and upgrading

Growth trend of China’s steel use Steel intensity (ASU/GDP)

0

200

400

600

1 000

1 200

1 400

0 10 20 3040

GDP per capita, 2005 PPP$, thousands USD

50

S-Curve of different countries

Thailand

United States

China

Japan

Indonesia

South Korea

India

AS

U p

er

ca

pit

a,

AS

U,

crud

e st

eel e

quiv

alen

t pe

r ca

pita

, kg

Japan

United States

Economic Growth and Steel Demand

40 57

127

222

305279

488 506

220

Africa India Brazil MiddleEast

United EU (27) China States

Japan World

Per Capita Steel Use

finished steel, kg, 2012

How Far Will Chinese Steel Demand Grow?

China provincial steel use per capita (2011, kg/per, crude steel equiv )

China (2012) US (1973) Japan (1973)

Positive Negative

Further room for urbanization and Industrialization

Low level of development in the West

Condensed growth, high share of investment in GDP

Environmental regulations, resource constraints

Manufacturing relocation out of China

Speed and mode of development in the West

Contribution to Apparent Steel Demand Growth( ∆ Mt)

1 800

1 600

1 400

1 200

1 000

800

600

400

200

0

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

RoW

China

former USSRUS, EU, Japan

CAGR 1950-19755.0%

CAGR 1975-20001.1%

CAGR 2000-20076.6%

Evolution of Steel Demand (1950-2014, crude steel equiv)

MtCAGR 2007-2014

3.1%

End of the China Effect, Next Growth Engine?

World Developed China Other Emerging

1992-2000 142.6 84.1 51.1 7.4

2000-2007 480.3 74.2 297.8 108.4

2007-2014 320.2 -85.5 314.8 90.9

Developing World: Strong Fundamentals

Population (million)

2012

2020

Urbanisation (%)

20102020

GDP per capita, (PPP$)

20122020

Steel Use/ capita(Kg)

2012

Mexico

Turkey

Brazil

Thailand

China

Indonesia

India

Vietnam

116 126 77.8 80.5 14.4 17.3 173

75 81 70.5 78.6 14.1 17.9 382

198 210 84.3 86.8 11.0 13.8 127

70 72 33.7 38.0 9.4 12.9 234

1 354 1 388 49.2 61.0 9.0 15.3 488

245 263 49.9 57.2 4.7 6.7 51

1 258 1 387 30.9 34.8 3.7 5.7 57

90 96 30.4 36.9 3.4 5.1 122

Energy use reduction efforts in developed world already at theoretical

limit and limited progress in Break-Through technologies. Pressure on

costs and also negative impact on steel demand growth

However. steel has been successful in providing solutions to

the sustainability - lighter vehicles, renewable energy, etc …

Energy Intensity of steel production(N America+Japan +EU27)

Environmental Challenges

Energy intensity of iron and steel production (GJ/t of crude steel)

6 : 1

1.HH = households; CTS = commerce, trade, and service 2. Geothermal, biomass, hydro 3. CO2 expenditure for other materials not examined; values are rounded 4. Ratio relates exclusively to the emissionsSource: BCG analysis

Innovative use of steel saves six times as much CO2 as is caused by the production of the steel → LCA approach

Steel as Solution to Sustainable Future

Net CO2 reduction potential

Emissions in the steel production3

1.9

2.1

30

Mt

5 10

0

9.2

1.0

11.2

5.0

14.2

29.5

9 1011

Mt

01

1.0

0.9

8.4

0.7

0.1

0.03

0.4

<0.1

Case study

1.3 : 1

14 : 1

1.1 : 1

Efficient fossil fuel PPs

Wind power plantsOther renewables2

Efficient transformers

Efficient e-motors

Weight reduction cars

Weight reduction trucksCombined heat/power

Energy industry

Traffic

HH, ind.,CTS

1

Ratio between CO2

reduction/emission4

3 : 1

~ 400 : 1

32 : 1

9 : 1

~ 200 : 1

1

2

3

4

5

6

7

8

Long Term View on Steel Demand

Mt

3 000

Years1970

1975

1980

1985

1990

1995

2000

2005

2010

Mt

589

640

713

719

773

743

846

1 139

1 404

2012 1 5420

500

1 000

1 500

2 000

2 500

1870 1890 1910 1930 1950 1970 1990 2010 2030 2050

Long Term Evolution of World Steel Demand

*apparent steel use, crude steel equivalent

Global steel demand could reach 2.2~3.0 billion in 2050

Conclusion

Despite current difficulties, future scenarios for the steel industry have optimistic starting point: Urbanization and population growth will support industry growth for considerable time

Surplus capacity in the industry will be difficult to reduce quickly, but can be absorbed in long term

Steel industry will continue to provide the basis for sustainability of the modern society through innovation

But the industry is facing formidable challenges ahead Changing position in value chain through expanding product mix,

development of new applications becomes crucial for steel industry

Sustainable development and, in particular, Life Cycle Assessment focus provides interesting challenges to the steel industry

Prepared by Gsdhir04/07/2023 04:32:52 PM 65

Technological Developments in Iron and Steel Industry

Emerging Energy-efficiency and Carbon Dioxide Emissions-reduction technologies for the Iron and Steel Industry

Iron and steel manufacturing is among the most energy-intensive industries and accounts for the largest share, approximately 27 percent, of global carbon dioxide (CO2) emissions from the manufacturing sector. The ongoing increase in world steel demand means that this industry’s energy use and CO2 emissions continue to grow, so there is significant incentive to develop, commercialize and adopt emerging energy-efficiency and CO2 emissions-reduction technologies for steel production. Although studies from around the world have identified a wide range of energy-efficiency technologies applicable to the steel industry that have already been commercialized, information is limited and/or scattered regarding emerging or advanced energy efficiency and low-carbon technologies that are not yet commercialized. This report consolidates available information on 56 emerging iron and steel industry technologies, with the intent of providing a well-structured database of information on these technologies for engineers, researchers, investors, steel companies, policy makers, and other interested parties. For each technology included, we provide information on energy savings and environmental and other benefits, costs, and commercialization status; we also identify references for more information.

Category of steel:

Carbon Steels- contain trace amounts of alloying elements and account for 90% of total steel production

Low Carbon Steels/Mild Steels contain up to 0.3% carbonMedium Carbon Steels contain 0.3 – 0.6% carbonHigh Carbon Steels contain more than 0.6% carbon

Alloy Steels- contain alloying elements (e.g. manganese, silicon, nickel, titanium, copper, chromium and aluminum)

Stainless Steels- contain between 10-20% chromium

Tool Steels- contain tungsten, molybdenum, cobalt and vanadium in varying quantities

3

No. Report Section/Technology Name Commercialization status

3.1. Emerging Agglomeration Technologies

1 3.1.1. Use of Biomass in the Sintering Process Demonstration

3.2. Emerging Coke-making Technologies

2 3.2.1. Single-chamber-system Coking Reactors Demonstration

3 3.2.2. Battery Under-firing with Advance Diagnostics and Control Development

3.3. Emerging Technologies for Ironmaking Using Blast Furnace

4 3.3.1. Hot Oxygen Injection Pilot

5 3.3.2. Blast Furnace Optimization by Using Computational Fluid Dynamics Modeling Demonstration

6 3.3.3. Blast Furnace Optimization by Using X-ray Diffraction Analytical Technique Demonstration

7 3.3.4. Blast Furnace Heat Recuperation Demonstration

8 3.3.5. Plasma Blast Furnace Development

9 3.3.6. Blast Furnace Slag Heat Recovery Pilot/ Development

10 3.4.7. Charging Carbon Composite Agglomerates Demonstration

3.4. Alternative Ironmaking Technologies

11 3.4.1. COREX® Process Commercial with very low adoption rate

12 3.4.2. FINEX® Process Commercial with very low adoption rate

13 3.4.3. Tecnored Pilot

14 3.4.4. ITmk3 Ironmaking Process Demonstration

15 3.4.5. Paired Straight Hearth Furnace Development

16 3.4.6. Coal-Based HYL Process- A Syngas based DRI Plant Commercial with very low adoption rate

17 3.4.7. Coal-Based MIDREX Process Demonstration

18 3.4.8. Fine Ore Reduction in the Circulating Fluidized Bed (Circored® and Circofer®) Demonstration/Pilot

19 3.4.9. Cyclone Converter Furnace Pilot

20 3.4.10. Producing Iron by Electrolysis of Iron Ore (Molten Oxide Electrolysis) Research/Development

21 3.4.11. Suspension Hydrogen Reduction of Iron Oxide Concentrate Research/Development

22 3.4.12. Ironmaking using Biomass and Waste Oxides Research

3.5. Emerging Technologies for Steelmaking Shops

23 3.5.1. Sensible Heat Recovery from Electric Arc Furnace Off Gases Commercial with very low adoption rate/ Pilot

24 3.5.2. Electrochemical Removal of Zinc from Steel Scrap Demonstration

25 3.5.3. Continuous Horizontal Sidewall Scrap Charging Pilot

26 3.5.4. New Scrap-Based Steelmaking Process Predominantly Using Primary Energy Development

27 3.5.5. ECOARCTM Demonstration

28 3.5.6. Optimization of Basic Oxygen Furnace and Electric Arc Furnace Post Combustion Using Computational Fluid Dynamics Modeling Pilot

29 3.5.7. Improving the Energy Efficiency of Electric Arc Furnaces through Laser- Pilot

04/07/2023 04:32:52 PM

Prepared by Gsdhir

4

No. Report Section/Technology Name Commercialization status

based Optimization of Post Combustion

30 3.5.8. Model-based Steel Temperature Measurement for Electric Arc Furnaces Development

31 3.5.9. In-Situ Real-Time Measurement of Melt Constituents Development

32 3.9.10. Injection of plastic waste in Blast Furnaces Demonstration

33 3.9.11. Injection of Plastic Waste in the Electric Arc Furnace Pilot

34 3.9.12. Use of Waste Tires in EAF Commercial with very low adoption rate

35 3.6.4. Continuous Steelmaking for Electric Arc Furnace Research

3.6. Emerging Casting Technologies

36 3.6.1. Near-net-shape Casting/Strip Casting Commercial with very low adoption rate

37 3.6.2. Continuous Temperature Monitoring and Control in Continuous Casting Development

3.7. Emerging Rolling and Finishing Technologies

38 3.7.1. High-Temperature Membrane Module for Oxygen Enrichment of Combustion Air for Fuel-Fired Industrial Furnaces Pilot

39 3.7.2. Next-generation System for Scale-Free Steel Reheating Research

40 3.7.3. Thermochemical Recuperation for Steel Reheating Furnaces Research

41 3.7.4. Hot Strip Mill Model Commercial with very low adoption rate

42 3.7.5. Innovative Reheating Furnace Management Using a Continuous Burn-Out Measuring System Pilot

43 3.7.6. Oxygen-rich Furnace System for reduced CO2 and NOx emissions Development

44 3.6.2. HotEye® Steel Surface Inspection System Commercial with very low adoption rate/

Development

45 3.7.7. NOx Emission Reduction by Oscillating Combustion Pilot

3.8. Emerging Recycling and Waste Reduction Technologies

46 3.8.1. Recycling Basic Oxygen Furnace Slag Development

47 3.8.2. Rotary Hearth Furnace Dust Recycling System Demonstration

48 3.8.3. Recycling of Stainless Steel Dust by Injection into Electric Arc Furnace Pilot

49 3.8.4. Regeneration of Hydrochloric Acid Pickling Liquor Pilot

50 3.8.5. Recycling of Waste Oxides in Steelmaking Furnace Pilot

3.9. Carbon Capture and Storage Technologies for the Iron and Steel industry

51 3.9.1. Top-gas Recycling in Blast Furnaces with Carbon Capture and Storage Pilot

52 3.9.2. Advanced Direct Reduction with Carbon Capture and Storage (ULCORED) Development

53 3.9.3. HIsarna with Carbon Capture and Storage Pilot

54 3.9.4. Post-combustion Carbon Capture Using Chemical Absorption Technologies Development

55 3.9.5. Geological Sequestration of Carbon Dioxide Using Basic Oxygen Furnace and Electric Arc Furnace Slag Research

56 3.9.6. Integrating Steel Production with Mineral Sequestration Research

04/07/2023 04:32:52 PM

Prepared by Gsdhir

Prepared by Gsdhir04/07/2023 04:32:52 PM 69

THANK YOU