Shri_Sushim_Banerjee_SAIL

8/7/2019 Shri_Sushim_Banerjee_SAIL

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A S S O C H AM A S S O C H AM A S S O C H AM A S S O C H AM

3rd India Steel Summit

-Sustainability and Inclusive Growth

At Hotel Le Meridien New Delhi

On 08.07.2009

DYNAMICS OF STEEL MARKET

Sushim Banerjee

ED (Commercial)

SAIL

GLOBAL GDP PROJECTION

Country 2008 2009 2010

World 3.2 (1.9) (-) 1.3 (-2.9) 1.9 (2.0)

USA 1.1 (1.1) (-) 2.8 (-3.0) 0.0 (1.8)

Europe 0.9 (0.6) (-) 4.2 (-4.5) (-) 0.4 (0.5)

Japan (-) 0.6 (-0.7) (-) 6.2 (-6.8) 0.5 (1.0)

Russia 5.6 (5.6) (-) 6.0 (-7.5) 0.5 (2.5)

China 9.0 (9.0) 6.5 (6.5) 7.5 (7.5)

India 7.3 (7.3) 4.5 (5.9) 5.6 (8.1)

IMF/World Bank revised the latest global output forecasts

in April/June09

Advanced economies in deep recession in 2009, little recovery before 2010.

Emerging economies face weak 2009, slow recovery in 2010.

( ): World Bank forecast


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RELATIONSHIP AMONG GDP, CAPITAL FORMATION,

INDUSTRIAL PRODUCTION, MANUFACTURING ANDSTEEL DEMAND

Year Growth rate (%) Steel

Consumption

(Mill. T)GDP GFCF IIP IIP Mfg. Steel

Consumption

2006-07 9.7 14.5 11.6 12.5 13.0 44.3

2007-08 9.0 12.9 8.5 9.0 11.5 49.4

2008-09 6.7 8.9 2.6 2.5 (-) 1.2 48.8

Source: CSO,

JPC

PROJECTION OF STEEL DEMAND BASED ON MACRO-

ECONOMIC VARIABLES

Year Projected Growth rate (%) Steel

Consumption

(Mill. T)GDP GFCF IIP IIP Mfg. Steel

Consumption

2009-10 6.5-7.0 9.8-10.6 6.4-6.9 6-6.4 7.5-8.1 52.5-52.8

2011-12 7.0-8.0 10.6-12.1 6.9-7.8 6.4-7.3 8.1-9.2 61.5-62.8

2014-15 7.5-8.5 11.3-12.8 7.3-8.3 6.8-7.8 8.6-9.8 79.6-82.3

2016-17 9.0-9.5 13.6-14.3 8.8-9.3 8.2-8.6 10.4-10.9 98.7-99.6


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Projected Availability: 2011-12

Investor CurrentCapacity Expansion Plan

TotalCapacity

2011-12

Brownfield Greenfield

SAIL 13 12 0 25

RINL 3.3 3.5 0 6.8

Tata Steel 6.5 3.5 3 13

Essar 3.3 3.9 6 13.2

JSW Steel Ltd 7 6.9 0 13.9

Jindal Power & Steel Ltd. 2.5 3.0 1.45 6.95

Ispat Inds. Ltd. 3 2 0 5

Welspun 1.2 0.3 0 1.5

Bhusan Steel 1.2 1.8 0 3.0

Other & Secondary 20 2.44 13.27 35.71

TOTAL 61 39.34 23.72 124.06

AVAILABILITY PROJECTION:2011-12

In the post meltdown scenario, following assumptions may be made on

Availability Projections due to uncertainty on future market prospects:-

a) No Greenfield expansion till 2011-12

b) Delay in current expansions

Taken together, a total availability of approx. 75 million tonnes ofFinished Steel (@ 90% capacity utilisation) may be expected by 2011-12.

Thus a surplus scenario may emerge by 2011-12 unless

i) Demand grows at a rate faster than 9.1 percent projected between

2009-10 and 2011-12

or,

ii) Fresh capacity additions get further delayed.


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BROAD SECTORAL BREAK-UP OF STEEL DEMAND

Sectors % Share in totalsteel demand

(China)

% Share in totalsteel demand

(India)

Construction 63 63

Mechanical Machinery 18 10

Metal Products 7 12

Electrical Equipment 3 5

Automobile 4 6

Domestic Appliances 2 2

Other Transport 3 2

Total 100 100

Outlook of the major steel consuming segmentsOutlook of the major steel consuming segments

Product Segment Outlook % growth (estimated)in 2009-10 over 2008-

09

TMT / Structurals Infrastructure Buoyant 10

HR Coils / Sheets Pipe & Tubes, Auto,Engineering &

Fabrication

Domestic marketslowly picking up,

exports bleak

4.5

Plates Capital Goods &

Fabrication

Good Project orders,

demand for higherthickness less thansupply.

9

CRC/Sheets Auto , White Goods Demand pull due todestocking in specificsector, higher liquidityflow leading to moredisposable income.

7

Tin Plate Container Fighting against lowcost substitutes.

5

Pipes Oil & Gas, Watersupply & Sanitation

Very positive 11


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SHIFTING PATTERN OF STEEL DEMAND

PREFERENCE FOR A DURABLE, LIGHT AND AESTHETICALLY SOOTHINGCOMMODITY. STAINLESS STEEL PENETRATION IN SPECIFIC END USES.

CHALLENGE TO STEEL PRODUCERS TO SHIFT FROM A COMMODITY GRADE TO ANICHE GRADE IN EACH CATEGORY-PRODUCT DIFFERENTIATION/IMPROVEMENT.

IMPROVED PROPERTIES LIKE HIGHER YIELD, HIGHER STRENGTH, HIGHERCORROSIVE RESISTANCE EQUIVALENT TO IMPORTED GRADE.

EMERGING DEMAND FOR LOW COST HOUSING DESIGN IN RURAL AND URBANAREAS.

A CONTINUOUS EFFORT TO ADD VALUE AND OFFER CUSTOMISED PRODUCTSTHROUGH PROCESSING/SERVICE CENTRES TO ELIMINATE ALL SECONDARYPROCESSING COSTS AT CUSTOMERS END. INCREASING DEMAND FORFABRICATED STEEL STRUCTURE, READY-TO-USE STEEL, EARTHQUAKE ANDFIRE RESISTANT STEEL.

FROM CRM TO CVM TO PARTNERS IN PROGRESS-IT ENABLED CUSTOMER-CENTRIC PROCESSES- A PARADIGM SHIFT IN INDIAN STEEL MARKET

YEARWISE PROJECTED INVESTMENT DURING THE 11TH PLAN (BOTTOM-UP

ESTIMATES)

Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Total XI

Plan

% of Total

Electricity (Incl.NCE) 81,954 101,553 126,380 158,027 198,611 666,526 32

Roads & Bridges 51,822 54,789 59,200 68,370 79,971 314,152 15

Telecommunications 31,375 38,134 48,593 61,646 78,690 258,439 13

Railways (Incl.MRTS)

34,225 40,964 49,525 60,393 76,701 261,808 13

Irrigation (Incl.WD) 27,497 35,916 47,189 62,266 80,433 253,301 12

Water Supply and

Sanitation

19,298 22,781 27,323 33,266 41,063 143,730 7

Ports 12,409 14,822 17,374 19,980 23,410 87,995 4

Airports 5,208 5,520 5,904 6,646 7,690 30,968 2

Storage 3,777 4,098 4,446 4,824 5,234 22,378 1

Gas 2,708 3,003 3,332 3,700 4,111 16,855 1

Total Investment

(Rs. in crore)

270,273 321,580 389,266 479,118 595,914 2,056,151 100

As % of GDP 5.98 6.53 7.25 8.19 9.34* 7.6

Source: Planning Commission

* In Budget 2009-10, investment for infrastructure to attain 9 percent of GDP by 2014 only


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Growth of Manufacturing & Processing Industries

Category Steel Itemsused

% Growth in Production2006 07 2007-08 2008-09

Machinery & Equipments Strls/Plates 14.2 9.3 8.7

Transport Equipment Strls/Plates 15.0 2.8 2.2

Capital Goods HRC/Plates 18.2 16.6 7.0

Power & Dist. Transformer CRGO 4.6 2.7 (-) 1.9

Complete Tractors HRS/Strls 22.4 (-) 2.2 (-) 0.4

Refrigerators ( domestic) CRC/S 25.0 14.1 3.1

Bicycles CR/Rounds 27.4 6.8 (-) 2.4

Passenger Cars HR/CR 18.3 14.8 6.7

Two Wheelers CR/Rounds 14.7 (-) 5.2 4.6

Commercial Vehicles CRC/S/Plate 33.0 4.8 (-) 23.6

Drums & Barrels CRC 17.0 3.3 (-) 21.4

LPG Cylinders HRC 51.5 13.4 5.7

A few major segments under Manufacturing showing deceleration in prod. growth

due to lack of demand, excess capacity & poor export order.

Constraints of Manufacturing sector

Low economies of scale due to small domestic market fail to

attract FDI in a bigger volume inspite of superior quality.

Less developed infrastructure (Roads, Ports,Airports, Power).

Lack of Industrial Clusters to create operational advantages

like Replacement facilities, saving tooling costs, decreasing

automation, customised products etc.

Weak export orientation to combine superior tailor-made

quality with mass Production base to take care of excess

capacity situation.


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A FEW SUGGESTIONS ON SUSTAINING STEEL DEMAND

Projected Infrastructure investment to generate demand for approx. 125 million tonnes of

steel in 5 years. Assuming at least 50 percent of the projected investment, direct steel

demand generation of 12-13 million tonnes per annum (total and not incremental)

Review of Policy, Regulatory and Institutional bottlenecks for speedy implementation of

infrastructure projects (Budget proposal)

Growth pattern to be investment led.

Low Per capita steel consumption (46kg in India against 342kg in China) indicates

massive potential for steel consumption particularly in Rural and Semi-Urban areas. Bharat

Nirman (Budget allocation > Rs.45,000 crs. in 2009-10) to be implemented.

To make steel available in Rural and Semi-Urban locations through an effective supply chain

mechanism.

Housing shortages to be made up in 11th Plan to generate demand for 60 MT of steel in 5

years. Low cost Housing with cap in interest for loans upto Rs.20 lakhs to generate

additional steel demand. (Budget proposal : 1 lakh dwelling units for Central Para-militaryForce personnel)

Manufacturing sector must grow at substantially higher rate to sustain steel demand. Credit

To SMEs at lower interest rate would enhance capacity utilisation.(Budget proposal:

Refinancing by SIDBI to MSEs)

MANAGING RISKS TO KEEP PACE WITH DYNAMICS OF

STEEL DEMAND

Sharp drop in Private Consumption expenditure and Gross FixedCapital Formation to be reversed

Political stability to pursue inclusive growth.(Budget proposal: 12million jobs per Year & BPL to less than half by 2014)

Better quality of life (HDI) in semi-urban and rural areas- higherdemand for steel.

Long term Financing of PPP projects Massive cost and Timeoverruns in infrastructure projects.

Lessons of global slowdown:- - Cost effectiveness

- Quality upgradation

- High Strength Steel in new Application-Thrustfor innovation

- Internal Resources and capacity addition

- Trust and brand image

are to be ingrained as Corporate Culture.

Shorten supply chain- Direct link between raw material suppliers,producers and consumers.

Government funded projects (70 percent of the total) to give priorityto Buy Indian Steel on the lines of Buy American Steel.


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MANAGING RISKS TO KEEP PACE WITH DYNAMICS OF STEEL

DEMAND.contd.

Consolidation amongst Raw material sources: BHP Billiton Rio TINTO

: ANGLO XSTRATA

Threat of cheap imports-rise in import arrivals in Q109 against lastyears level in Plates and HR Coils. Appropriate measures by theGovernment (Safeguard or customs duty enhancement) needed.

Protectionism :-

Carbon emission norms in trading rules.

China VAT export rebates & export duties on raw materials to protectenvironment & natural resources (15% on Bauxite, 40% on Coke, 15% on

Silicon etc.)US & EU appeal to WTO as indirect subsidy to make raw materialscheaper for Chinese domestic industries.

Indian HRC- substantial AD duty in USA, EU even after Sunset Reviews.

Restrictive import licensing requirements & New technical regulationsfor conformity with Malaysian & Thailand Industrial Standards.


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BACK-UP SLIDES

GLOBAL APPARENT STEEL USE

Rank Country 2008 2009* % growth 2010* % growth

1 China 426 451 (+) 6.1% 473 4.7%

2 United States 97.5 62 (-) 37% 75 22%

3 Japan 76 54 (-) 29% 64 18%

4 South Korea 59 48 (-) 18% 55 14%

5 India 52.5 55 4.8% 57.5 4.7%

7 Russia 35 24 (-)32% 26 8.6%

6 Germany 41 26 (-) 37% 31 19%

8 Italy 34 24 (-) 29% 26 6%

9 Spain 20 15 (-) 25% 16 9.6%

10 Turkey 19 16 (-) 17% 18 16.4%

11 Brazil 24 19 (-) 22% 20 8.6%

12 World 1194 1040 (-) 13% 1131 8.8%

Note: 2009 and 2010 figures are as per draft estimates in June09

Source: WSA

(Million t)

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