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CRISIL Limited
Global and Indian Trendsin Metal Industry
8 February 2012
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About CRISIL Research CRISIL Research is Indias largest independent research house
and is a 100 per cent subsidiary of CRISIL Ltd. CRISIL Researchs research offering includes
EcoView Periodic review of macroeconomic fundamentals in India Industry Information Service
Continuous research coverage on 45 industries in India across themanufacturing and services sectors
A service presently used by 90% of the banks operating in India both Indianand foreign
CrisilViews Public Information based credit reports on 150-200 leading Indian companies
Syndicated research Customised research that applies our unique understanding of cross sectoral
and macro-micro linkages to specific client needs
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About CRISIL Research CRISIL Researchs offering in the metals sector includes
Industry Information Service Reports on steel, steel intermediates, aluminum and copper.
CrisilViews Tata Steel Steel Authority of India Limited Jindal South West Limited Hindalco Nalco Sterlite and many others
Syndicated research Global Aluminum company Large Indian Automobile company
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2005-06: Beginning of the meltdown
-40000
-20000
0
20000
40000
60000
80000
100000
120000
140000
2001-02 2002-03 2003-04 2004-05 9M 2004-05 9M 2005-06
(Rs.million)
-15
-10
-5
0
5
10
15
20
25
30
35
40
(Percent)
PAT OPM (RHS) NPM (RHS)
Note: Players considered are: Tata Steel, SAIL, Ispat, Essar Steel and JSW SteelSource: CRIS INFAC
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Decline in steel prices
The average international price of hot-rolled coils (HRC) was $460 per tonne (FOB) during the first 9 monthsof FY 2005-06, 16 per cent lower than the $549 per tonne (FOB) reported during the corresponding period of2004-05.
Domestic HR prices mirrored the trend in global prices, averaging Rs 28,444 per tonne in April-December
2005, down from an average of Rs 28,778 per tonne in April-December2004.
Note: International prices are CIS Black Sea (FoB) prices
Source: Metal Bulletin and CRIS INFAC
15,000
17,000
19,000
21,000
23,000
25,000
27,000
29,000
31,000
33,000
35,000
Apr-0
4
May-04
Jun-04
Jul-0
4
Aug-04
Sep-04
Oct-0
4
Nov-0
4
Dec-0
4
Jan-05
Feb-
05
Mar-0
5
Apr-0
5
May-05
Jun-05
Jul-0
5
Aug-05
Sep-05
Oct-0
5
Nov-0
5
Dec-0
5
Jan-06
Feb-
06
Mar-0
6
Apr-0
6
May-06
Jun-06
(Rspertonne)
300
350
400
450
500
550
600
650
($perto
nne)
Domestic prices International prices (RHS)
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Incremental supplies grew higher than incremental demand
982
1041
974
1013
99
97
940
960
980
1000
1020
1040
1060
2004 2005
(Million
tonnes)
96
96.5
97
97.5
98
98.5
99
99.5
(Percent)
Finished Steel production
Finished Steel Consumption
Consumption/production ratio (RHS)
While the apparent consumption,rose by 4.09 per cent (addition of39.8 million tonnes) during 2005over2004, supplies increased by
6.07 per cent (addition of 59.6million tonnes) Reasons
Slowdown of demand from the US andthe EU. The regions met most of theirconsumption needs from their inventories leading to reduced buying
China becomes net exporter in 2005
from net importer in 2004. Over thepast 3 years (between 2003 and 2005),China's consumption of finished steelincreased at a CAGR of 16.12 per cent, while its production grew by aCAGR of 25.34 per cent over the sameperiod.
Source: IISI
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Volumes helped achieving stable revenues
Note: The YoY growth is calculated based on results of corresponding period of previous yearSource: CRIS INFAC
29970
22477.524277
4375
31623320
6.89
6.4
7.64
0
5000
10000
15000
20000
25000
30000
35000
40000
2004-05 12M 2004-05 9M 2005-06 9M
('000tonnes)
5.6
5.8
6
6.2
6.4
6.6
6.8
7
7.2
7.4
7.6
7.8
(Percent)
Domestic Demand Exports YOY Growth ( RHS )
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Looking into the crystal ball
Margins of the domestic industry toremain stable during 2006-07 as
compared to 2005-06 Prices to increase marginally.
However rise in Input costs to keep margins
stable.
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Realization to increase marginally
The International average prices of steel willbe around $500 per tonne in CY 2006 as
compared to $490 per tonnes in 2005 Global demand to remain healthy
Capacity additions; mostly expected in China Hence Global operating rates to remain stable
The Increase in the domestic prices will belower due to unfavorable demand-supplyScenario
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China the key toD
emandCHINA: Going strong
Note:* The data for each year is cumulative figure for the period January to March of that year
Source: National Bureau of Statistics of China
Units 2004* 2005 Inc/(Dec)Per cent
2006 Inc/(Dec)Per cent
Investments in Fixed Assets Billion RMB 706 904 28 1161 28
Production of : -
Motor Vehicles 10,000 Sets 188 202 8 263 30
Civil Steel Boats and Ships 1,000 tons 260 208 19 334 8
Large and medium Tractors Sets 37,595 49,485 32 83,828 69
Washing machines 10,000 Sets 758 939 24 993 6
Refrigerators 10,000 Sets 810 949 17 1289 36
Chinas investments in Fixed Assets: Key elements
(Billion RMB) 2004* 2005 Inc/(Dec) Per cent 2006 Inc/(Dec) Per cent
Real Estate 198 255 27.8 303 18.8
Manufacturing 192 252 25.6 344 36.3
Transportation, storage and post 71 92 28.4 119 29.6
Construction 9 6 -39 10 73
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Global operating rates to remain stable
Average global operating rates to remain stable at around 86 per cent.
Source: IISI & CRIS INFAC
Global demand capacity scenario
0
200
400
600
800
1,000
1,200
1,400
1,600
2004 2005 2006
Mntonnes
83
84
85
86
87
88
89
Percent
Demand Capacity Demand capacit y ratio (RHS)
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Domestic demand-supply scenario
Demand to grow at a CAGR of 8 per-cent during 2006-07.
Pipes & tubes and automobiles will continue to drivethe demand for flat products
Healthy growth in construction to drive long products
demand. Howeverdemand to capacity ratio will
remain low.
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Passenger cars to keep riding on favourable demographics
Passenger Cars
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
2004-05 2005-06E 2006-07F 2007-08F
Units
Mini Compact Midsize A4-A6
CAGR 15 %
Source : CRIS INFAC
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Growing trend of personal utility vehicles to help demand
Utility Vehicles
324066285408265956
0
50000
100000
150000
200000
250000
300000
350000
2005-06E 2006-07F 2007-08F
Units
Source : CRIS INFAC
10.3% CAGR
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Commercial vehicle demand to grow at a healthy rate
Commercial Vehicles
181751 196588207595
201113
51910
56800
61092 65541
170897161573140368114913
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
2004-05 2005-06E 2006-07F 2007-08F
U
nits
HCV LCV Buses
Source : CRIS INFAC
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Note: Pipes for only crude oil, LNG and Petroleum products has been considered. Pipes for water supply, drainage and sewage have not
been considered
Buoyant activity seen in pipes and tubes segment
Source : CRIS INFAC
2006 Kms 2007 Kms 2008 KmsDUPL 475
Jagoti-Indore-Pithampur 190
Kelaras-Malanpur 85
Vijaypur-Kota 192
Thulendi-Phulpur 139
GSPL 767
HPCL - 'Pune-Pakni ('Mumbai-Pune pipeline extension) 343
HPCL - Mumbai-Rewari-Bahadurgarh 1048
BPCL 'Numaligarh-Siliguri1 675
BPCL Manglia-Piyala-Bijwasan Pipeline 774
Koyali-Dahej 112
Koyali-Ratlam 274
Jamnagar-Patiala pipeline 1580
Jamnagar-Kanpur pipeline 2540
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Commercial construction: IT/ITES sector is the driver
Real estate construction: Investments over thenext 5 years
Sector Volume (mn Sq ft) USD billion
FY03-FY05
FY06-FY10
Growth FY03-FY05
FY06-FY10
Growth
CommercialOffice space-IT/ITES
61 252 313% 1.63 7.21 442%
Source: CRIS INFAC
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Mall construction set to grow
Rs
billion
Units 2003E 2004E 2005P 2010P
Organised retailindustry USD billion 3.66 6.12
7.7924
.73
Increase inrevenue
USD billion 2.26 1.54 16.83
Revenue per sq.ft.
USD per sq ft 206.61 217.63 222.57 225.89
Additional spacerequired by
2010
Mn sq ft 75
Cost ofconstruction
USD per sq ft 33.88
Total
construction
activity
USD billion 2.53
Mall construction: Investments over the next 5 years
Source: CRIS INFAC
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Expected Construction Investments in the next two years
29 % 35 %
19 %19 %
18 %20 %
19 %12 %
15 % 14 %
0%10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
FY05-FY06 FY07-FY08
Roads Irrigation Urban infra Power Others
Rs 1516 bnRs 1310 bn
8 %
growth
Source: CRIS INFAC
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Industrial Investments(Rs billion)
7%
1%
2%
4%
12%
4%
13%
57%
Aluminium Steel AutomobileP
et rochemicals Text iles CementOthers Oil & gas
3%
0%
7%
6%
37% 26%
16%
3%
2%
FY02-FY06(Rs 2111 bn) FY07-FY11 (Rs 6406 bn)
Source CRIS INFAC
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Demand to capacity ratio for flat products will only marginally improve
Source: CRIS INFAC
12
14 15
16
19 19
2223
64
74
69
71
0
5
10
15
20
25
2003-04 2004-05 2005-06 2006-07
(Million
tonnes
)
58
60
62
64
66
68
70
72
74
76
(Percent)
Demand Capacity Dem - Cap ratio ( RHS )
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Margins to remain stable$/tonne I/O
(Times)2005 2006
$/tonne of itself $/tonne of steel $/tonne of itself $/tonne of steel
Iron ore 1.6 54 87 64 103
Coke 0.6 201 121 187 112
Other operating cost 160 160
Total operating cost 367 375
Average steel prices 492 500
Tolling profit 125 125
Tolling margin 25.39 24.99
Source: CRIS INFAC
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