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IORR: Industry Outlook Reference Report

Steel Industry in India - 2013

Published: 08.01.2013 速 Right Reserved | CORPOTRADE GLOBAL

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1.

Steel Industry in India - 2013 Index & Disclaimer About IORR

Index:

IORR: “Industry Outlook Reference Report” is an initiative

by Corpotrade Global Pvt. Ltd., India to increase knowledge and awareness about a particular industry among information seekers, professionals and executives of the industry. The report gives a quick overview and insight of the particular industry and is meant only for personal reference and increasing knowledge and awareness.

1. Steel Industry in India: Global Perspective - Indian steel industry vs. global steel industry - Contribution of India’s economy to global GDP - India & the leading steel producers in the world - India’s share in global steel consumption - Competitiveness of the Indian steel industry

3-4

2. Steel Production Scenario in India: The Way Forward - Indian steel industry: evolution and growth - Steel production trend in India - Leading steel producers in India - Technology wise steel production - Category wise steel production

5-7

3. India’s Steel Consumption Trend and the Growth Drivers - India’s steel consumption on high growth trajectory - Steel consumption trend in India - Category wise steel consumption - Prime growth drivers of steel demand in India

8-9

Note THIS REPORT IS PREPARED IN A CRISP & CONCISE FORMAT FOR QUICK REFERENCE

Page

4. India’s Steel Import Export Scenario and Future Prospects - Steel import trend and future scenario - Steel export trend and future scenario

10

5. Raw Material Supplies for Steel Industry: Is India Self Sufficient?

- Assessing raw material supply scenario for India - Raw material demand by steel industry - Initiatives that will improve & secure raw materials supply

11

Disclaimer This report is for personal reference only, to increase knowledge and awareness about the steel industry.

Information provided in this report are sourced from standard sources however Corpotrade Global does not guarantee exactness and accuracy of the information sourced. Corpotrade Global will not be responsible for any losses claimed in relation to contents or material of this report. A detailed research and expert assistance is advised for conclusions and decision making. ® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 Index Continued…

About IORR

Index:

IORR: “Industry Outlook Reference Report” is an initiative

by Corpotrade Global Pvt. Ltd., India to increase knowledge and awareness about a particular industry among information seekers, professionals and executives of the industry. The report gives a quick overview and insight of the particular industry and is meant only for personal reference and increasing knowledge and awareness.

6. Inadequate Infrastructure: A Major Concern for Steel Industry in India 12 - Infrastructure issues for steel industry in India - Infrastructure addition during twelfth five year plans (2012-17) - Actions to boost infrastructure support to steel industry

Page

7. Indian Steel Industry and Increasing Role of Technology - Technological exposure of Indian steel industry - Indian steel industry needs to adapt latest technologies

13

8. Prospective Analysis of Indian Steel Industry - Potential Growth Drivers of Indian Steel Industry - Strength, Weakness, Opportunity & Threat: SWOT Analysis

14

9. Executive Summary

15

10. Abbreviations and Bibliography

16

Note THIS REPORT IS PREPARED IN A CRISP & CONCISE FORMAT FOR QUICK REFERENCE

Disclaimer This report is for personal reference only, to increase knowledge and awareness about the steel industry.

Information provided in this report are sourced from standard sources however Corpotrade Global does not guarantee exactness and accuracy of the information sourced. Corpotrade Global will not be responsible for any losses claimed in relation to contents or material of this report. A detailed research and expert assistance is advised for conclusions and decision making. ® Right Reserved | CORPOTRADE GLOBAL

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3.

Steel Industry in India - 2013 1. Steel Industry in India: Global Perspective KEY FIGURES

INDIAN STEEL INDUSTRY VS. GLOBAL STEEL INDUSTRY

 Global crude steel production – 2011: 1527 MT

Global crude steel production reached 1527 MT in 2011 showing a 6.8 % growth over 2010. India has emerged as a leading player in global steel industry contributing to about 4.7 % of global crude steel production in 2011.

Large scale infrastructure expansion plans for twelfth five year plan (FYP: 2012-17) and raising per capita steel consumption in India promises unprecedented growth potential of Indian steel Industry during next 10 years.

 Global crude steel production growth during 2007-11: at CAGR of 3.2 %  India’s crude steel production -2011: 72.2 MT  India’s GDP growth: 2010-11= 8.4% 2011-12= 6.5% 2012-13= 5.9%(E)  India’s GDP: 2011 Nominal - $ 1.85 trillion PPP - $ 4.5 trillion  Approximate share of infrastructure(8% E) & manufacturing sector(16 % E) in India’s GDP (FY 12): one fourth

Exhibit 1: World crude steel production: 2007-11, country-wise contribution (%) to world crude steel production in 2011 World Crude Steel Production in MT (2007-11) 1800 1600 1400 1200 1000 800 600 400 200 0

1347

1341

1430

Share in % (2011)

RoW, 11.8 Brazil, 2.3 Ukraine, 2.3

1527

1236

South Korea, 4.5 Russia, 4.5

China, 45.5

India, 4.7 United States, 5.6 2007

2008

2009

2010

Japan, 7

2011

Source: World Steel Association

CONTRIBUTION OF INDIA’S ECONOMY TO GLOBAL GDP India ranked as the third largest contributor (5.65%) to global GDP in 2011 in terms of PPP ranking, only behind US and China. India’s economic growth has slacked during past three years due to worldwide economic slowdown however during next five years it’s GDP is expected to grow in 6-8 % range. The sectors with high growth potential like manufacturing and construction sectors which account for about one fourth(FY 12) of India’s GDP will be the key growth drivers for the Indian Steel Industry

Exhibit 2: GDP (trillion $) of leading global economies in terms of PPP- 2011

India’s is gradually evolving as global leader in steel production though it lags in per capita steel consumption

US 15.1

Global Rank

1

CHINA 11.3

2

INDIA 4.5

JAPAN 4.4

3

4

Source: International Monetary Fund, Economic Times ® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 1. Steel Industry in India: Global Perspective KEY FIGURES

INDIA & THE LEADING STEEL PRODUCERS IN THE WORLD

 Global crude steel consumption – 2011: 1373 MT

India is the largest producer of sponge iron and fourth largest producer of crude steel in the world. India registered a 5.7 % growth in crude steel production in 2011 against 2010. Japan was the only nation among top ten crude steel producers in the world posting negative growth of minus 1.8 % for crude steel production in 2011 against 2010. Indian steel industry which is not technologically as mature as steel industry of developed economies is implementing latest technology, adapting backward integration and improving efficiency in steel production to reduce cost, increase production and become competitive globally.

 Global crude steel consumption growth during 2007-11: at CAGR of 3.04 %  India’s crude steel consumption -2011: 67.8 MT  India’s global rank: Largest sponge iron producer.

4th Largest crude steel producer  Per capita steel consumption-2011: Global - 215 Kg India’s – 57 kg

Exhibit 3: Top ten crude steel producers in the world and their steel production in: 2010 and 2011 (MT) Country

China

Japan

United States

India

Russia

South Germany Ukraine Korea

2011

695.5

107.6

86.2

72.2

68.7

68.5

44.3

2010

638.7

109.6

80.5

68.3

66.9

58.9

43.8

Brazil

Turkey

35.3

35.2

34.1

33.4

32.9

29.1

Source: World Steel Association

INDIA’S SHARE IN GLOBAL STEEL CONSUMPTION India’s per capita steel consumption is only 57 kg against global average of 215 kg. This shows a broad scope for increase in per capita steel consumption in India and potential unprecedented expansion of steel industry in India. Global crude steel consumption for 2011 reached about 1373 MT

Exhibit 4: World crude steel consumption: 2007-11, country-wise contribution (%) to world crude steel consumption in 2011 Share in % (2011)

World Crude Steel Consumption in MT ( 2007-11) 1500

1218

1218

1140

1301

1373

1000

China, 45.1

Other Asian, 7.2 Others, 6.3 Japan, 7.1

500

Potential growth of steel consumption in India will polarise development of global steel sector towards India

Other Europe, 2.6

EU, 11.7

0

India, 4.9

2007

2008

2009

2010

2011

CIS, 7.4

NAFTA, 7.7

OTHERS Africa: 1% Middle East: 1.5% Central & South America: 3.3% Australia & New Zealand: 0.5%

Source: World Steel Association, Ministry of Steel- GoI

COMPETITIVENESS OF THE INDIAN STEEL INDUSTRY Abundance of raw materials, iron ore and cheap workforce makes Indian steel industry competitive. However dependence on imported coking coal, low production efficiency, inadequate infrastructure & technology and delays in regulatory clearances & approvals are major hindrance to growth of Indian steel industry. ® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 2. Steel Production Scenario in India: The Way Forward KEY FIGURES

INDIAN STEEL INDUSTRY: EVOLUTION AND GROWTH

 Modern steel production facility started in India in 1874

Steel making in India can be traced back to 400 BC. The foundation of modern steel industry in India was led down in 1874 by establishment of steel making facility of Bengal Iron Works (BIW) in Kulti (West Bengal). Beginning of large scale steel production started with establishment of Tata steel plant in 1907 in Jamshedpur, which started production in 1912. Later large steel plants in India were established in Bokaro, Durgapur, Bhilai, Burnpur and Bhadrawati. Except Tata Steel, steel production in India was confined to public sector companies under control of SAIL till 1990s. Post liberalisation(1991) large scale development in steel industry was witnessed due to participation of private players and huge influx of foreign investment in steel industry of India.

 Post liberalisation (1991) steel making was made open for private co.'s and steel price was also deregulated  Finished steel production in India: Year 1951: 1.1 MT 1991-92: 14.33 MT 2011-12:73.7 MT(P)  India’s crude steel production growth during 12th FYP 2012-17: estimated at 11.3 % (CAGR)  Estimated crude steel volume India reaches by FY 17: Prod.: 125.9 MT Capacity: 139.9 MT

STEEL PRODUCTION TREND IN INDIA Post independence steel production in India showed a considerable growth in capacity. Finished steel production increased from 1.1 MT in 1951 to 14.33 MT in 1991-92. Post liberalisation the growth trend continued however at a higher pace and finished steel production reached 73.7 MT(provisional) for 2011-12.

Exhibit 5: Historical trend of steel production in India: 1951 to 2012 Finished Steel Production in MT

80 60

CAGR: 8.53 % 40 20

CAGR: 5.16 %

0 FY 1951

FY 1992

FY 2012(P)

Source: Public Information Bureau-GoI, Ministry of Steel-GoI

During the period FY 07 to FY 12 crude steel production has attained growth at CAGR of about 7.7 %. While the average capacity utilisation remained near 89 percent of the total production capacity. During the twelfth five year plan crude steel production is estimated to grow at CAGR of about 11.3 % due to large scale capacity addition plans for steel production during this period.

Exhibit 6: India’s crude steel production trend & projection- FY 2007 to FY 2017

Capacity utilisation of the Indian steel industry on average remains high at 89%, however the sector suffers due to low efficiency

Crude Steel Production vs. Capacity (MT)

150

Actual 100 56.8

59.8

66.3

72.9

50

Estimates 78

81.9

95.4

105

115.6

127.2

139.9

Production 104

64.8

69.5

73.7

94.5

53.8

58.4

85.9

50.8

FY 07

FY 08

FY 09

FY 10

FY 11

FY 12

FY 13

FY 14

FY 15

114.5

125.9

Capacity

0 FY 16

FY 17

Source: Ministry of Steel-GoI: working group report 2012-17, Annual Report-2011: MoS-GoI ® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 2. Steel Production Scenario in India: The Way Forward KEY FIGURES

LEADING STEEL PRODUCERS IN INDIA

 SAIL is the largest steel producer in India with 13.76 MT crude steel production in FY 11

Steel making in India is concentrated along mineral rich belt of India, as vicinity to supply of raw materials like iron ore and coal provides considerable economic advantage. Most of the large scale steel making facilities are concentrated in state of Jharkhand, Orissa, West Bengal, Chhattisgarh and Karnataka. Steel production in India is leaded by SAIL, Tata Steel, JSW and others, while SAIL continues to be the largest steel producer in India.

 Top five steel producers contribute to almost half of crude steel production in India  Steel production through induction furnace and electric arc furnace route contributes to more than 50 % of steel production

 Steel production share- FY 2011: Crude Steel Private Sector: 75% Gov. Sector: 25% Finished Steel Private Sector: 80% Gov. Sector: 20%

Exhibit 7: Leading steel producers in India and their production share: FY 2007 to FY 2011 Crude Steel Production Share in MT (2007-11)

Share in % (2011)

Producer

FY 07

FY 08

FY 09

FY 10

FY 11(P)

SAIL

13.51

13.96

13.41

13.51

13.76

RINL

3.50

3.13

2.96

3.21

3.24

Tata Steel

5.17

5.01

5.65

6.56

6.86

JSW

2.64

3.15

3.22

5.26

5.85

ISPAT

2.76

2.83

2.20

2.69

2.38

ESSAR

3.01

3.56

3.34

3.47

3.37

-

-

1.46

1.96

2.27

Others-1

4.84

5.28

8.15

9.36

9.79

Others-2

15.39

16.93

18.05

19.82

22.07

Total

50.82

53.86

58.44

65.84

69.58

JSPL

20% 32% 5% 10% 14%

3% 3% 5%

8%

SAIL

RINL

Tata Steel

JSW

ISPAT

ESSAR

JSPL

Others-1

Others-2

Others-1: Includes production from EAF Units/ COREX-BOF Others-2: Includes production from induction furnace Source: Joint Plant Committee: MoS-GoI working group report 2012-17

Steel production in India which was primarily reserved for government companies till liberalisation now sees dominance of private companies in terms of production share. Share of private sector companies in crude steel production raised from 49 % in FY 01 to 75 % in FY 11. While the share of private sector companies in finished steel production increased from 68 % in FY 01 to 80 % in FY 11.

Exhibit 8: Share of private sector companies in steel production in India (%): FY 2011

Post deregulation of steel industry private sector is gaining dominance in terms of cumulative production share

Crude Steel Production (% Share)

Finished Steel Production (% Share) 20

25

75 Private Sector Companies

80 Government Sector Companies

Source: Joint Plant Committee ® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 2. Steel Production Scenario in India: The Way Forward KEY FIGURES

TECHNOLOGY WISE STEEL PRODUCTION

 Steel production growth during 11th FYP 2007-11: at CAGR of 5.8 %

Steel production in India attained a high growth at CAGR of about 5.8 % during the 11th FYP 2007-11 mostly contributed due to growth in steel making through electric furnaces route. While the old method of steel making through oxygen route still remains dominating and contributes to about 44 % of crude steel production in 2011.

 Sponge Iron figures for FY 12 (P): Prod.- 20.37 MT Capacity- 32 MT  India is the largest sponge iron producer in the world and contributes about one third of the global sponge iron production  Production of pig iron and sponge remained almost flat during last five years  Product-wise growth in steel production during 11th FYP 2007-11, in CAGR terms: Flat Prod.- 4.9 % Long Prod.- 5.8 % Alloy Prod.- 16 %

Exhibit 9: Technology-wise crude steel production share (%): FY 2011 vs. FY 2006 Process Route & % Share in Crude Steel Making Basic Oxygen Furnace (44%)

FY 11

Electric Arc Furnace (24%)

Decline in % share

Total 100 %

Increase in % share

Basic Oxygen Furnace (53%)

FY 06

Induction furnace (32%)

Electric Arc Furnace (18%)

Induction furnace (29%)

Total 100 %

Source: Joint Plant Committee

CATEGORY WISE STEEL PRODUCTION Most of the sponge iron produced in India, about 75 % (in FY 11) comes from coal based units. Production of sponge iron touched 20.37 MT(P) in FY 12 while the capacity reached about 32 MT. India which is a net exporter of Pig Iron produced 5.78 MT(P) of pig iron in FY 12.

Exhibit 10: Category-wise crude steel production share (MT): FY 2008 to FY 2012 Steel Category

FY 08

FY 09

FY 10

FY 11

FY 12(P)

Pig Iron

5.28

6.21

5.88

5.68

5.78

Sponge Iron

20.37

21.09

24.33

25.08

20.37

Total Finished Steel (alloy + non alloy)

56.08

57.16

60.62

68.62

73.42

Source: Joint Plant Committee: MoS

Exhibit 11: Product-wise crude steel production for sale (MT): FY 2007 to FY 2011

With increasing number of small steel producers steel production through electric furnaces route is growing substantially

80 60 40

4.22

2.76

3.02

3.53

25.45

26.99

27.18

30.16

24.73

26.32

26.98

26.95

31

FY 07

FY 08

FY 09

FY 10

FY 11 (P)

2.33

30.8

Total of Alloy Products Total of Flat Products Total of Long Products

20 0

Source: Joint Plant Committee: MoS-GoI: working group report 2012-17 ® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 3. India’s Steel Consumption Trend and the Growth Drivers KEY FIGURES

INDIA’S STEEL CONSUMPTION ON HIGH GROWTH TRAJECTORY

 Per capita steel consumption growth (CAGR in %) 2006-2011: World Avg.- 2.75 % For India- 6.71 %

Steel consumption in India has grown substantially since evolving of modern steel industry during nineteenth century. During the past two decade steel consumption has grown at a faster pace driven by liberalisation, decontrol of steel industry, growing population, infrastructure development and changing lifestyle of people. Per capita steel consumption in India (57kg: 2011) which is considerably low compared to global average (215 kg: 2011 ) is estimated to grow substantially during the next five years in proportionate with the growing economy.

 Steel consumption growth during 11th FYP (2007-11): at CAGR of 8.8 %  Increasing urbanisation and infrastructure growth to propel per capita steel consumption in India  Finished steel demand for India by FY 17: Scenario-1: 105 MT (Estimated) Scenario-2: 107 MT (Estimated)

Exhibit 12: Per capita steel consumption in India (kg): 2006 to 2011 India’s Per Capita Steel Consumption vs. World Average 250 200

198.4

187.5

205.5

196.4

214.7

181.9

150

India

100 50

World Average

41.2

45.8

45.1

50

55.4

57

2006

2007

2008

2009

2010

2011

0 Source: World Steel Association

STEEL CONSUMPTION TREND IN INDIA Steel consumption growth during 11th FYP (2007-11) has outpaced steel production growth. Steel consumption growth during this period was at CAGR of 8.8 % compared to production growth at CAGR of 5.8 %. We have estimated finished steel demand growth during 12th FYP (2012-17) in two scenarios. For scenario- 1 we assumed finished steel demand to grow at CAGR of 9 % while in more optimistic case of scenario-2 we assume demand growth at CAGR of 11 %, with respect to FY11 as base year.

Exhibit 13: Steel consumption trend in India (MT): FY 2007 to FY 2017 Finished Steel Consumption (Actual) 80

Steel consumption growth in India during 11th FYP has outpaced domestic steel production growth with a differential of 3% in CAGR

60

46.78

52.12

52.35

59.34

65.61

*Finished Steel Demand Growth (Estimates) 120.00 107.01

110.00

99.08

100.00

40

91.74 84.95

90.00 80.00

20

78.65 72.83

70.00

0 FY 07

FY 08 FY 09 FY 10 FY 11(P) Finished Steel Consumption

60.00

105.08 97.30

90.09 83.41

77.24 71.51

FY 12

FY 13

FY 14

FY 15

Scenario- 1

FY 16

FY 17

Scenario- 2

Source: WSA, Joint Plant Committee: MoS-GoI: working group report 2012-17, *Estimates ® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 3. India’s Steel Consumption Trend and the Growth Drivers KEY FIGURES

CATEGORY WISE STEEL CONSUMPTION

 Product-wise growth in steel consumption during 11th FYP 2007-11, in CAGR terms: Flat Prod.- 12.1 % Long Prod.- 5.9 % Alloy Prod.- 9 %

Steel consumption in India though maintained healthy growth during the 11th FYP (2007-11) but demand of steel in long product category remained sluggish. Slow paced infrastructure and industrial projects development due to worldwide recession was the major cause for sluggish demand of long product. While the demand of flat product posted high growth (12.1% CAGR) driven by robust domestic demand of consumer durables and utility items.

 India’s steel sector growth is primarily driven by domestic demand as export volume is low  Factors contributing to steel demand growth in India - Economic growth - Construction - Infrastructure dev.

- Population growth - Manufacturing

Exhibit 14: Product-wise consumption of finished steel (MT): FY 2007 to FY 2011 70

3.47

60 50

3.26

2.74

3.36

22.97

21.83

24.73

26.45

27.07

26.81

FY 07

FY 08

FY 09

FY 10

2.46

40 19.59

30

Total of Flat Products

20 10

Total of Alloy Products

30.99 29.27

Total of Long Products

31.16

0 FY 11 (P)

Source: Joint Plant Committee: MoS-GoI: working group report 2012-17

PRIME GROWTH DRIVERS OF STEEL DEMAND IN INDIA Steel demand has been proportionate with the GDP growth of the country.

Housing & real estate, construction & infrastructure and manufacturing segment are the prime consumers and drivers of steel demand in India.

Exhibit 15: Steel demand drivers and their potential effect on steel demand growth during next 5 year time frame High

Construction, infrastructure development and manufacturing activity forms the backbone of steel industry demand

Potential Demand Driver

Construction & Infrastructure

Major Factors for Steel Demand Growth

Housing & Real Estate



Economic growth



Industrial, construction & manufacturing growth



Growth in population



Rising middle class population and per capita steel consumption



Growth in rural steel consumption



Infrastructure Development

Manufacturing Sector Energy & other Sector Agriculture, Mining sector activity

Growth prospect of the segment

High

Source: Indicative model ® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 4. India’s Steel Import Export Scenario and Future Prospects KEY FIGURES

STEEL IMPORT TREND AND FUTURE SCENARIO

 India is net importer of steel

India has been a net importer of steel, primarily of high grade steel and special steel products. Deregulation and reduction in import duties on steel imports has favoured steel imports. Steel imports has increased during the past decade due to surge in domestic demand and reduction in price differential between imported steel and domestic steel. Import volumes have been fluctuating during the past five years and as per working group estimates steel imports during 12th FYP is estimated to be in 5-6 MT range.

 India primarily imports as well as exports value added and special steel products  Steel import in India touched 7.38 MT in FY 10  Working group on Steel estimates steel imports in range of 5-6 MT during 12th FYP  During 11th FYP steel import posted negative growth of about 9 %  Working group on Steel estimates steel exports to reach 7 MT during 12th FYP

Exhibit 16: Steel import in India : past trends and future estimates- 2007-08 to 2017 Finished Steel Import in MT Actual

8

Estimates

6 4

7.03

2

5.84

7.38

6.66

6.83

6

5.5

5.5

5

5

FY 14

FY 15

FY 16

FY 17

0 FY 08

FY 09

FY 10

FY 11 FY 12 (P) FY 13 Steel Import

Source: Joint Plant Committee - MoS, Working group report 2012-17- MoS

STEEL EXPORT TREND AND FUTURE SCENARIO Liberalisation and free trade policy helped growth of steel exports from India.

Most of the steel exports from India consists of value added steel products with higher margins. To remain competitive globally India needs to grow share of value added and sophisticated steel product in its export basket. Steel exports from India declined during 2008-11 period due to subdued demand of steel globally. Steel export is expected to regain momentum as the global economy revives . Steel exports is estimated to grow gradually from about 4 MT during FY 13 to 7 MT by FY 17.

Exhibit 17: Steel exports from India : past trends and future estimates- 2007-08 to 2017 Finished Steel Export from India in MT 8

India’s steel export will shift towards higher percentage of value added and high margin steel products in the export basket

6 Actual

Estimates

4 2

5.08

4.44

3.25

3.64

4.04

4

5

6

7

7

FY 16

FY 17

0 FY 08

FY 09

FY 10

FY 11 FY 12 (P) FY 13

FY 14

FY 15

Steel Export Source: Joint Plant Committee - MoS, Working group report 2012-17- MoS

® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 5. Raw Material Supplies for Steel Industry: Is India Self Sufficient?

KEY FIGURES

ASSESSING RAW MATERIAL SUPPLY SCENARIO FOR INDIA

 Iron ore production in FY 12 was 169.66 MT

Raw material accounts for about 30-50% of the total cost of steel production in India. Raw materials for steel making includes iron ore, coke, lime, ferro-alloys and refractories etc. India has a huge iron ore reserve of about 28.52 billion tons. About 60-70 % of the iron ore produced is consumed domestically and remaining (mostly fines) is exported. India lags in coking coal reserves and have only 5.3 billion tons of coking coal reserves. India meets more than 50 percent of coking coal demand through imports and imports will grow in parallel with increasing steel production capacity.

 India has 28.52 billion tons of iron ore reserves  Estimated iron ore consumption by iron and steel industry in FY 12 was 116.3 MT  Coking coal production in India for FY 12 is estimated at about 22 MT  Coking coal import in India for 2012 is estimated at about 36.8 MT

RAW MATERIAL DEMAND BY STEEL INDUSTRY About 2.5 to 3.5 ton of raw materials is required per ton of crude steel production in India. With increasing crude steel production capacities demand for main raw materials like iron ore and coking coal by steel industry will increase at faster pace.

Exhibit 18: Raw material demand (MT) by steel industry during 12th FYP: 2012-17 Estimated Demand

Iron Ore

Coking Coal

Others

Total

FY 12 FY 13 FY 14 FY 15 FY 16 FY 17

115.03 135.7 149.43 166.66 185.24 206.18

43.25 52.29 57.91 67.49 77.23 90.16

11.13 13.92 15.33 17.28 19.48 21.76

169.41 201.91 222.67 251.43 281.95 318.1

Others : PCI Coal, Manganese Ore, Chromite, Ferro Chrome, Ferro-Manganese, Silico-Manganese, Ferro-Silicon and Refractories

Source: Working group report 2012-17- MoS, Projections by working group on steel industry

INITIATIVES THAT WILL IMPROVE & SECURE RAW MATERIALS SUPPLY Indian steel industry requires reliable and economical raw material supplies to remain competitive on global platform. Being deficient in coking coal and rich in iron ore fines India needs to adapt steel making technologies which are suitable for low grade Indian coal and iron ore fines. India requires technology inputs and investments to increase sintering and pelletisation facility for making use of iron ore fines. Indian companies needs to acquire coking coal assets overseas to assure uninterrupted and economic supply of coking coal for its steel Industry.

Exhibit 19: Major initiatives to improve and secure raw material supplies to steel industry

India lags in coking coal reserves, acquiring coal assets overseas can assure reliable & economic supplies of coal in the future

Reformation Measures

Progressive Impact Small

Medium High

1. Limiting volatility in prices & assuring continuous supply through long term linkages 2. Assuring raw material supply security through overseas assets acquisitions 3. Consolidating steel industry and focus on backward integration 4. Adapting new technology to increase output and maximise efficiency 5. Allotting iron ore and coal mines for captive consumption by steel plants 6. Minimising duties & taxes on imports & increasing same for exports of raw material 7. Adding coal washing and iron ore sintering & pelletisation facility Source: Indicative model ® Right Reserved | CORPOTRADE GLOBAL

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Steel Industry in India - 2013 6. Inadequate Infrastructure: A Major Concern for Steel Industry in India KEY FIGURES

INFRASTRUCTURE ISSUES FOR STEEL INDUSTRY IN INDIA

 Estimated investment in infrastructure sector during 12th FYP(2012-17): $ 1 trillion

Steel industry is heavily dependent on raw material and bulk movement. For every tonne of steel produced about four tonnes of raw materials requires to be transported. Indian steel industry is facing difficulties and delays caused due to inadequate infrastructure for transportation and handling bulk materials. Most of the steel plant does not have proper connectivity through rail network to mines and ports. Bulk handling facility at majority of the ports, mines and steel plants are of low capacity causing delays in loading & unloading. In most cases road networks connecting steel plants to mines and ports are congested leading to delays in supply and delivery of raw material and other items.

 Estimated bulk transportation & handling capacity requirement of steel industry by 2017: more than 400 MT  Investment in infrastructure sector of India is estimated to remain in 9-10 % range during 12th FYP (2012-17)  Infrastructure requirement by steel industry is estimated to double in next five years.

Exhibit 20: Bulk movements and associated issues faced by steel industry in India

Inadequate - Handling facility - Road network - Rail network

STEEL PLANT

- Storage & Logistics

- Loading/unloading Facility

Lack of dedicated - Road network - Rail network

Congested - Road network - Rail network

MINES

MARKET

Inadequate

Inadequate

PORT

Source: Indicative model

INFRASTRUCTURE ADDITION IN INDIA DURING TWELFTH FIVE YEAR PLANS (2012-17) With increasing capacities of steel production in India more than 400 MT of bulk handling capacity and transportation infrastructure will be required by steel industry by 2017. Almost two fold rise in infrastructure demand by steel industry during next five years will require massive investment in road, rail and port infrastructure facility. An estimates investment (by public and private sector) of $ 1 trillion has been envisaged for infrastructure sector(including road, rail, port and other transportation infrastructure) during 12th FYP. Exhibit 21: Estimated Investment in Infrastructure during 12 th FYP: 2012-17 1200 8.3

9

9.5

9.9

10.3

Infrastructure development will drive steel demand as well as support infrastructural requirement by steel industry itself

619.4

712.7

12 8

800 528.3

10.7

809.5

918

1039.5

400

4 0

FY 12

FY 13

FY 14

FY 15

FY 16

Investment in INR,000 crore Investment as % of GDP

FY 17

Source: Planning Commission - committee on Infrastructure

ACTIONS TO BOOST INFRASTRUCTURE SUPPORT TO STEEL INDUSTRY - Rapid completion of “Dedicated Freight Corridor” by railways to address increasing freight traffic - Addition of large capacity siding and loading facility at ports, mines and steel plant - Developing road, rail and port infrastructure dedicated for steel industry

- Developing self, part of project linked transportation infrastructure by large project developers - Widening congested road and railways - Improving loading and transportation infrastructure by adapting latest technology and equipment - Introducing large capacity wagons for rail transport

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Steel Industry in India - 2013 7. Indian Steel Industry and Increasing Role of Technology KEY FIGURES

TECHNOLOGICAL EXPOSURE OF INDIAN STEEL INDUSTRY

 Expenditure on research & development by Indian steel Industry is estimated to be very low at an average 0.2% of the turnover

Indian steel industry is highly fragmented with large number of small to large scale producers. Use of steel making technologies varies among different steel making units. With overall low level of advanced technological exposure, Indian steel industry faces issues of quality, efficiency, hazards and process standards. The overall use of latest and modern technologies is inadequate in the entire steel industry value chain comprising of raw material mining and processing, transportation and steel making. This leaves a broad scope for process improvement through introduction of latest and efficient technology.

 Introducing latest technologies will improve Indian steel industry’s: - Efficiency - Product quality - Carbon footprint - Production cost - Competitiveness - Use of domestic raw material - Growth

Exhibit 22: Technological input status at various process stages of Indian steel industry STEEL MAKING PROCESS

RAW MATERIAL SUPPLY - Low mechanisation level & latest technology input: for mining and processing raw materials - Inadequate facility: for use of iron ore fines using pelletisation & sintering technology - Lack of coal processing & washing technology STEEL INDUSTRY : to make higher use of low grade Indian coal PROCESS CHAIN - Inadequate facility: for raw material loading and transportation - Lack of facility: for use of raw material rejects

- Most of steel making facilities use: old and less efficient steel making technology - Expenditure on research and development: is considerably low - Present steel making facility: not suitable for Indian iron ore fines and high ash coal - Relatively lower number of steel plants: with facility to make complex steel products - On average Indian steel industry lags: in process efficiency and hazard control

Source: Indicative descriptive model

INDIAN STEEL INDUSTRY NEEDS TO ADAPT LATEST TECHNOLOGIES With open trade policy for steel, Indian steel industry faces global competition, hence to remain competitive and profitable it has to adapt latest and efficient technologies. Using latest technologies can boost steel companies business with advantages of scale, quality, productivity, safety and higher margins. As overall exposure of Indian steel industry to latest technology remains low, so there is a huge potential for increase in production and process optimisation.

Also with development and use of technologies suitable for steel making using iron ore fines and low grade Indian coal, Indian steel Industry can have advantage of raw material security and sustainability.

Exhibit 23: Potential benefits of technological up-gradation in steel Industry

Use of latest technology by Indian steel industry remains low so there is huge potential for improvement through introducing latest technology

Improvement In Steel Production Efficiency Improving Cost Effectiveness & Profit Margins Improving Unit Yield and Product Quality Reduction In Environmental Impact and Hazards

Potential Benefits in the Value Chain Utilise Domestic Coal and Iron Ore Fines In Steel Making Addition In Production Capacity Reduction In Raw Material & Energy Wastage

Improving overall efficiency and competitiveness of Indian Steel Industry

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Steel Industry in India - 2013 8. Prospective Analysis of Indian Steel Industry KEY FIGURES

POTENTIAL GROWTH DRIVERS OF INDIAN STEEL INDUSTRY

 Planned projects for steel making is likely to increase steel production capacity of India to 150 MT by 2017

Indian steel industry is aiming for high growth during the next 5-7 years, supported by economic growth and positive change in consumption behaviuor of the large and growing population. The prime factors which will support growth of Indian steel Industry are demand driving factors, government policies and capacity addition plan for steel.

 Promising factors of Indian steel industry: - Potential for high growth - Cheap labour - Untapped market - Abundant raw material supply - Growing Economy

Exhibit 24: Factors propelling Indian steel industry’s growth Steel Demand Drivers

Government Policies

Capacity Addition in Steel Making

- Growing economy - Large population - Low per capita steel consumption - Manufacturing & construction activity - Untapped rural market - Industrial activity growth

- Funding developments - Stressing on R&D - Offering incentives - Policies favoring domestic industry & regulating dumping - Judicious Importexport taxes/duties - Faster approvals

- SAIL, Tata Steel, JSW, ISPAT, RINL, ISPAT etc. along with global multinationals like POSCO, Arcelor Mittal, Nippon Steel, Kobe Steel, Severstal and others have large scale expansion plans for steel making in India - Planned projects by Indian and global companies is likely to increase India’s steel producing capacity to 150 MT by 2017

Source: Indicative descriptive model

STRENGTH, WEAKNESS, OPPORTUNITY & THREATS: (SWOT) ANALYSIS Indian steel Industry is evolving itself to become global leader in terms of product quality and overall efficiency. It’s growth objective can be attained efficiently by addressing the present issues and challenges and building the growth strategies in cohesion with its strength.

Exhibit 25: Prospecting Indian Steel Industry via SWOT analysis     

There is a huge potential growth opportunity for Indian steel industry with untapped rural markets and growing economy

  

 

STRENGTH Low manpower cost  Abundance of raw materials  Policies for long term linkages for raw  material supply Option of getting project linked captive iron  ore, coal mines Large economy and population driving steel demand SWOT Analysis OPPORTUNITY Growing & untapped rural market  Infrastructure & manufacturing activity growth to drive steel demand  Per capita steel demand to grow, which at  present is one fourth of the global average Low present export volume: so potential for  growth in exports is considerable  Option for investment and stake acquisition

WEAKNESS Overall production efficiency is low Inadequate infrastructure support Lacking in coking coal reserve and most of iron ore reserves consists of iron ore fines Latest technological input and research and development activity is low

THREAT Delays in approvals and regulatory clearances Land acquisition and rehabilitation issues Competition from large number of small steel producers Threat from cheap import and dumping Issues of capital for projects and high interest on loans

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Steel Industry in India - 2013 9. Executive Summary AUTHOR: Post liberalisation in 1991 Indian steel Industry has attained a substantial growth on domestic as well as global platform. Growing in pace with the economy Indian steel industry has positioned itself as the largest sponge iron producer and the fourth largest crude steel producer in the world. Global crude steel production reached 1527 MT in 2011 in which India contributed a significant 4.7%.

TARUN MISHRA Director- Consulting & Research Corpotrade Global Pvt. Ltd., India For any queries or information regarding contents of this report or for any type of assistance I can be reached at following contacts: Phone: +91 11 6469 7575 Mail: tarun@cptgl.com business@cptgl.com Web: www.cptgl.com www.corpotradeglobal.com

Though effect of global economic recession post 2008 was witnessed by steel sector globally, but Indian steel industry showed resilience and growth due to robust domestic demand. The credit of Indian steel industry’s growth goes to policies of government and Indian public and private sector steel producers.

With present low per capita steel consumption at 57 kg in India against global average of 215 kg there lies a huge potential for steel demand growth in India.

Also the estimated massive $ 1 trillion investment in India’s infrastructure sector during 12th FYP will boost demand of steel. Significant steel demand will also arise from rural markets and proactive steel producers in India have started exploring untapped rural markets to get maximum share of this market.

Indian steel industry attained appreciable growth post liberalisation but it has suffered due to issues of efficiency, quality, safety and productivity. Future growth and sustainability of Indian steel industry lies in adapting latest technologies, improving efficiency and optimising process.

Thanks, Tarun Mishra & CorpotradeGlobal Team

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Steel Industry in India - 2013 10. Abbreviations and Bibliography ABBREVIATIONS Short Name

Full Name

CAGR

Compounded Annual Growth rate

CIS

Commonwealth of Independent states

E

Estimates

EU

European Union

FY

Financial Year (April to March)

FYP

Five Year Plan

GDP

Gross Domestic Product

GoI

Government of India

JPC

Joint Plant Committee

MT

Million ton

MoS

Ministry of Steel

P

Provisional

PPP

Purchasing Power Parity

WSA

World Steel Association

$

US Dollar

INR

Indian Rupee

Crore

10^7

BIBLIOGRAPHY World Steel Association, International Monetary Fund, Economic Times, Ministry of Steel - India, Public Information Bureau - India, Joint Plant Committee- India, Planning Commission - committee on Infrastructure, Annual report 2010-11- MoS, World Steel in Figures 2012-WSA, Press Information Bureau- GoI, moneycontrol.com, The Telegraph, The Economic Times, miningweekly.com, Wikipedia, mjunction and CorpotradeGlobal Research & Database.

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Steel Industry in India - 2013 About Corpotrade Global: Corpotrade Global Pvt. Ltd., India is a Management Consulting and Business Services Company located in New DelhiIndia.

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