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1
Steel Industry: Globally and In India : Times to Come
Dr. A.S.Firoz
2
Issues In This Presentation
Overview of the global steel market Factors determining the future Indian steel market growth
prospects Competitiveness. Externalities and constraints
3
Global Steel Market Strong Demand Everywhere Construction, auto leading growth Huge increases in production Shortages still perceived Extraordinary increases in price of flat
products Metallics and raw materials in tight supply Steel production costs up Yet, profitability is at record high
4
Where is the Global Market Heading?
Past trends are interesting
5
Global Steel Production Growth Rates (CAGR %)
1970-75 1.61975-80 2.21980-85 0.11985-90 1.41990-95 -0.51995-00 2.42000-03 4.4
6
Global Steel Production Trend
Period Growth Rate(%)
1975-85 11.6
1985-95 4.6
1995-2003 28.3
7
Why Global Demand Has Risen Extraordinary growth in China Low global inflation has led to increased
savings and assets building Relocation of industrial production to
developing countries - reason for low inflation and global asset building
Infrastructure renewal in developed nations
New infrastructure in developing nations Increased steel intensive construction in
developing nations
8
Why Global Prices have Risen? Demand pull Supply constraints - not enough HR Coils
capacity Speculation amidst uncertainty Increase in raw materials and metallics
prices and huge price volatility Consolidation of the steel industry and
oligopolistic control of the individual domestic markets
High ocean freight costs Lethargic markets
9
Will the Global Boom Continue? Positives China will remain
strong Global industrial
relocation will gather momentum
Global capital will move to leading developing economies
Technology changes will favour steel in construction
Negatives Global inflation up Energy prices high Recession may hit
global economies Raw materials and
logistics will cost much more
High steel prices will lower its demand
10
Are We in 1960s or 1970s? 1960s Huge uninterrupted
increase in steel demand
Massive infrastructure and industrial capacity building in the developed nations
Emergence of developing industrial nations
1970s Oil Crisis and
Recession Drop in Steel
consumption growth Beginning of
Cyclicality
11
How do we see the world then? Chinese steel appetite will reduce but will still be
substantial With curb on new capacity, Chinese steel
production will slow down Flat products demand to remain strong and supply
constraints to continue for another two years Coking coal will remain in tight supply Raw materials costs, especially metallics, will keep
long products prices up Greater stability in the market with contract sales
taking larger share 5% growth in global steel demand expected for 3-5
years
12
Indian Steel Industry(1993-94) Production (Finished Steel) : 15.2 million
tonnes Consumption (Finished Steel) : 15.3
million tonnes Imports ( Semis + Finished ) : 1.09
million tonnes Exports ( Semis + Finished) :
1.56million tonnes
13
Indian Steel Industry(1999-00) Production (Finished Steel) : 29.7 million
tonnes Consumption (Finished Steel) : 23.8
million tonnes Imports ( Semis + Finished ) : 2.2
million tonnes Exports ( Semis + Finished) : 3 million
tonnes
14
Indian Steel Industry (2003-04) Production (Finished Steel) : 35.9 million
tonnes Consumption (Finished Steel) : 29.9
million tonnes Imports ( Semis + Finished ) : 1.61
million tonnes Exports ( Semis + Finished) : 5.9 million
tonnes
15
Growth Trends(CAGR %)
Item 1993-99(%)
1999-03(%)
Production 10.8 5
Consumption 6.5 5.9
Exports 11.8 19
Imports 12.9 (-)7
16
Why Is Steel Consumption Low in India? Low income economy Low savings rate Low industrial growth Rural character of the economy Unplanned urban growth Inadequate infrastructure development Low quality public assets High inflation rates in the past Late starter
High price of steel (?)
17
Steel Price and Per Capita Income
Country Average Steel price
Per Capita Income (est)
Ratio
USA $700 $35,000 0.02
China $500 $1200 0.42
India Rs.25,000 Rs.21,000 1.19
18
Big Mac IndexCountry HRC
Price/tonne Big Mac price/piece
Big Mac Index
USA $800 $2.5 320
China $550 $1.2 458
India Rs.30,000 Rs.59 508
19
What Can Lead Steel Demand Growth? High economic growth driven by industry Industrial capacity building Increased attention
to infrastructure : Ports, Railways, Power Generation, Airports
Urban Infrastructure Urban Commercial and Residential Construction Consolidation of urban land ownership Steel based construction Low inflation Increased asset building Automobiles and components industry growth,
also for world production
20
What can lead to high economic growth? Administrative reforms and good
governance Political stability Social stability Reduced protection to industry Low inflation Land law reforms
21
Not to forget, the potential of Commercial and residential
construction in Semi Urban Areas Road Projects Engineering and capital goods
sector
22
Domestic Steel Demand Projection
(At 6% Rate of Growth ) (Mill.tonnes)
Year Carbon Steel
Stainless Steel, Alloy
Total
2010-11 45 3.8 48.8
2020-21 90.4 7.6 98
23
Domestic Steel Demand Projection
(Good Growth Scenario ) (Mill.tonnes)
Year Carbon Steel
Stainless Steel,Alloy
Total
2010-11 49.4 4.1 53.5
2020-21 103.2 9.5 112.7
24
Domestic Steel Demand Projection
(Strong Growth Scenario ) (Mill.tonnes)
Year Carbon Steel
Stainless Steel,Alloy
Total
2010-11 56 4.5 60.5
2020-21 150.1 10.4 160.5
25
Projections of External Trade(Million tonnes)
Year Exports Imports
2010-11 6 4
2020-21 10 5
26
Crude Steel Production Forecast
(Million tonnes)
Year Moderate Growth
Strong Growth
2010-11 56 64
2020-21 124 177
27
Strength of Indian Steel Industry Abundant supply of iron ore Low cost but reasonably efficient labour
force Strong managerial capability and
improving labour productivity History in steelmaking and acquired
skill Reasonable availability of other raw
materials to back up Strongly globalised Industry and
emerging global competitiveness
28
Strength of Indian Steel Industry
•Modern new plants•Modernised old plants•Strong DRI production base•Regionally dispersed merchant rolling mills•High Degree of Entrepreneurship•Strong Banking Industry and Capital Market for Investment•Reasonable Confidence of Foreign Investors•Stable Currency and Economic Policy Regime•Strong Judiciary and English Language Spread•Democratic Political System
29
Constraints and Concerns
Coking coal : limited local supply Energy cost : to remain high Infrastructure :shortages everywhere Scrap : quality shortage Iron ore supply logistics : medium term
problems Steel industry’s image in the capital
market :selective support Iron ore ownership : too fragmented
30
Facilitating Conditions Infrastructure spending up ( although a
long way to go !)
Infrastructure efficiency up ( only moderately till now )
Private sector and captive mining ( slow pace of state governments )
High growth in production in states with sea ports ( Karnataka and Orissa)
31
Concluding Remark
India can do it in steel and even much more than the
best talked about!
32
THANK YOUViews expressed and the estimates shown are personal