Steel In The Veins
Steel is undoubtedly the one metal that has helped build most modern societies — and nations. And, as a nation of 1.3 billion people steps on the threshold of a new era, DhanBank PRU examines the nature of the beast that is the Indian steel industry.
Page No 1. 2. Why Steel? First Glance A) Demand Driver B) Pricing Trends C) Raw Material 3. Industry Structure A) B) C) D) E) 4. Major Players SAIL Tata Steel JSW Comparison 3 4 5 5 5 6 6 6 7 7 7 9 9 9 10 10 11 11 11 12 13
Global Scenario A) Chinese Economy B) Cheap Imports
Growth Potential A) Govt Measures and Budget 2010
Roadblocks A) Rising Raw Material Prices B) Financing Capacity Expansion
SWOT Analysis Annexure
apid progress in recent times has put India’s already poor and ageing infrastructure under pressure. The Indian government has sharply increased investment in infrastructure with several ambitious projects in the pipeline.
Looking to achieve a 9-10% GDP growth rate, the government plans to increase spending on infrastructure to 10% of the GDP from the current 4.8%. The finance ministry has provided Rs 1,73,552 crore for infrastructure development in FY11, which constitutes over 46% of the total planned allocation. All sectors falling under infrastructure are going to use steel intensively. The Indian economy shifted to the 8-9% growth rate trajectory in the 2004-09 period, causing a sharp pick-up in steel consumption, which registered a compounded annual growth rate (CAGR) of 13.7% during that time. The National Steel Policy 2005 was announced by the government to cater to the diversified steel demand and to achieve global cost competitiveness, quality and efficiency in production. The focus is to take indigenous production to 110 million tonnes by 2019-20, with a CAGR of 7.3% per annum. Currently, India’s steel production capacity falls short of demand and the gap has to be filled with imports.
Making sense of the metal
The Indian steel industry had made marginal additions to its capacities in the decade up to 2003-04. The new greenfield projects and massive expansions announced by leading producers may take the country’s production capacity to the proposed level by 2019-20. However, China’s economic slowdown (global demand is mostly determined by China’s appetite for the metal) and turbulence due to the European sovereign crisis has engendered a bleak economic outlook. Therefore, it won’t be surprising if the global demand-supply equilibrium earlier estimated by the World Steel Association slips into an over-supply situation by 2011. This premonition has already caused some easing of global prices. In the past 3-4 weeks, global steel prices have weakened to the extent of $80-100 per tonne. Domestic prices have softened as well recently. Unlike global markets, India doesn’t have any demand-related problems in the medium to long term. However, in the coming months, demand from the construction sector, which slows down during monsoon, is likely to put further pressure on domestic prices. In short, the Indian steel industry stands at an interesting intersection of cross-roads — while robust domestic demand should ensure complete off-take of domestic production, the global influences acting on steel prices might keep local prices (and, hence, margins of domestic players) depressed in the short term. Against this backdrop, let’s take a look at the current scenario in the industry, the challenges it faces and the future outlook.
he Indian steel industry witnessed a period of strong growth in the period of 2003-07, with production and consumption increasing at CAGR of 13% and 11% respectively. But after the global financial crisis and liquidity crunch, domestic production and consumption remained flat in 2009. However, demand has picked up recently, stimulated by a huge thrust in infrastructure development and robust growth in automobiles....