Transcript INDIA'S IRON ORE IN THE CONTEXT OF CHINA'S STEEL INDUSTRY

Steel Industry: Globally and
In India : Times to Come
Dr. A.S.Firoz
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Issues In This Presentation
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Overview of the global steel market
Factors determining the future
Indian steel market growth prospects
Competitiveness.
Externalities and constraints
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Global Steel Market
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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
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Where is the Global Market
Heading?
Past trends are interesting
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Global Steel Production
Growth Rates (CAGR %)
1970-75
1975-80
1980-85
1985-90
1990-95
1995-00
2000-03
1.6
2.2
0.1
1.4
-0.5
2.4
4.4
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Global Steel Production Trend
Period
1975-85
Growth Rate
(%)
11.6
1985-95
4.6
1995-2003
28.3
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Why Global Demand Has
Risen
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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
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Why Global Prices have Risen?
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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
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Lethargic markets
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Will the Global Boom Continue?
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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
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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
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Are We in 1960s or 1970s?
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1960s
Huge uninterrupted
increase in steel
demand
Massive infrastructure
and industrial capacity
building in the
developed nations
Emergence of
developing industrial
nations
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1970s
Oil Crisis and Recession
Drop in Steel
consumption growth
Beginning of Cyclicality
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How do we see the world
then?
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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
11
years
Indian Steel Industry
(1993-94)
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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
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Indian Steel Industry
(1999-00)
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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
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Indian Steel Industry
(2003-04)
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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
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Growth Trends
(CAGR %)
Item
1993-99
(%)
1999-03
(%)
Production
10.8
5
Consumption
6.5
5.9
Exports
11.8
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Imports
12.9
(-)7
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Why Is Steel Consumption Low in
India?
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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
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High price of steel (?)
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Steel Price and Per Capita Income
Country
Average
Steel price
Per Capita
Ratio
Income (est)
USA
$700
$35,000
0.02
China
$500
$1200
0.42
India
Rs.25,000 Rs.21,000 1.19
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Big Mac Index
Country
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
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What Can Lead Steel Demand
Growth?
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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,
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What can lead to high economic growth?
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Administrative reforms and good
governance
Political stability
Social stability
Reduced protection to industry
Low inflation
Land law reforms
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Not to forget, the potential of
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Commercial and residential construction
in Semi Urban Areas
Road Projects
Engineering and capital goods sector
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Domestic Steel Demand Projection
(At 6% Rate of Growth )
(Mill.tonnes)
Year
Carbon
Steel
Stainless
Total
Steel, Alloy
2010-11
45
3.8
48.8
2020-21
90.4
7.6
98
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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
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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
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Projections of External Trade
(Million tonnes)
Year
Exports
Imports
2010-11
6
4
2020-21
10
5
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Crude Steel Production Forecast
(Million tonnes)
Year
Moderate
Growth
Strong Growth
2010-11
56
64
2020-21
124
177
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Strength of Indian Steel
Industry
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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
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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
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Constraints and Concerns
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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
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Facilitating Conditions
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Infrastructure spending up (
way to go !)
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although a long
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)
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Concluding Remark
India can do it in steel and even
much more than the best talked
about!
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THANK YOU
Views expressed and the estimates shown are personal
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