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2 Contents Advantage India Market overview and trends Growth drivers Success stories: TATA Steel, JSW Steel Opportunities Useful information 2

3 Advantage India 2009 Market value: USD33 billion Robust demand Demand to be supported by growth in the domestic market Infrastructure, oil & gas, and automotives will drive the growth of the industry Competitive advantages India is the world s fourth largest producer of crude steel (up from eighth in 2003); the country is expected to become the second largest producer by 2015 Easy availability of low cost manpower and presence of abundant reserves make India competitive in the global setup Advantage India Increasing investments Intended steel capacity build-up in India is set to result in investments in the range of USD104.2 billion to USD208.3 billion by MoUs have been signed with various states for planned capacity of about MT Policy support 100 per cent FDI through the automatic route is allowed in the sector Large infrastructure projects in Public- Private Partnership (PPP) mode are being formed 2014E Market value: USD83 billion Notes: FDI Foreign Direct Investment, MT Million Tonnes MoUs Memorandum of Understanding, 2014E estimated figure for the year 2014; these estimates are from Data monitor ADVANTAGE INDIA 3

4 Contents Advantage India Market overview and trends Growth drivers Success stories: TATA Steel, JSW Steel Opportunities Useful information 4

5 Evolution of the Indian steel sector Production of steel started in India (TISCO was setup in 1907) IISC was set up in 1918 to compete with TISCO Mysore Iron and Steel Company was set up in 1923 According to the new Industrial Policy Statement (1948) new ventures were undertaken only by the central government Hindustan Steel Ltd and Bokaro Steel Ltd were setup in 1954 and 1964 respectively In early 1990 s, the public sector dominated the steel production Private players were in downstream production, mainly producing finished steel using crude steel products SAIL was created in 1973 as a holding company to oversee most of India's iron & steel production In 1989 SAIL acquired Vivesvata Iron and Steel Ltd In 1993, the government set plans in motion to partially privatise SAIL Foreign players started entering the Indian steel market No license requirement for capacity creation Export duty has been imposed on iron ore, thereby giving more impetus on catering to growing domestic demand Decontrol of domestic steel prices Notes: TISCO - Tata Iron and Steel Company IISC - Indian Iron & Steel Company SAIL Steel Authority of India Ltd MARKET OVERVIEW AND TRENDS 5

6 Structure of the steel sector Steel Form Composition End use Liquid steel Crude steel Finished steel Alloy Non-alloy steel Structural steel Ingots Flat Stainless Low carbon steel Construction steel Semis Non flat Silicon electrical Medium carbon steel Rail steel High speed High carbon steel Source: Report on Indian steel industry by Competition Commission of India, Aranca Research MARKET OVERVIEW AND TRENDS 6

7 Steel production in India has been growing at a fast pace Total crude steel production grew at a CAGR of 6.6 per cent over FY08-11 to 69.6 MT; production in the first nine months of FY12 is a little more than three-fourth of FY11 levels and is estimated to touch MT by FY17 Finished steel production stood at 66.0 MT in FY11, recording a CAGR of 4.2 per cent over the above-mentioned period; analysts expect production figures to shoot up in the next five years with the Ministry of Steel forecasting production levels at MT by FY17 Total crude steel production (million tonnes) Total finished steel production (million tonnes) FY08 FY09 FY10 FY11* FY12* (April - Dec) Public sector Private sector FY08 FY09 FY10 FY11* FY12* (April - Dec) Public sector Private sector Source: Ministry of Steel, Aranca Research; Notes: FY Indian Financial Year (April March); MT Million Tonnes, *Provisional; CAGR Compound Annual Growth Rate MARKET OVERVIEW AND TRENDS 7

8 Shares in production: SAIL and Tata lead the way SAIL is the leading player in the steel sector in India; it accounted for 18.7 per cent of crude steel production in the country in the first nine months of FY12 and had a 13.5 per cent share in finished steel production in that period TATA Steel, another household name in the country, leads private sector activity in the steel sector; during April December 2011, the firm accounted for 9.9 per cent of crude steel production and 7.8 per cent of finished steel production India crude steel market share by production FY12* (Apr-Dec) India finished steel market share by production FY12* (Apr-Dec) 9.9% 7.8% 67.1% 18.7% 4.3% TATA Steel SAIL RINL Other 74.7% 13.5% 4.0% TATA steel SAIL RINL Other Source: Ministry of Steel, Aranca Research; Notes: RINL Rashtriya Ispat Nigam Limited, *Provisional MARKET OVERVIEW AND TRENDS 8

9 Growth in market value of the Indian steel sector has also been strong In 2011, the total market value of the steel sector in India was estimated to be USD55.1 billion The sector has benefitted from rise in prices and production, especially since the beginning of the millennium Over , market value of the sector is estimated to have posted a strong CAGR of 19.3 per cent Market value of the Indian steel sector (USD billion) E Source: Datamonitor, Aranca Research Note: E- Estimates MARKET OVERVIEW AND TRENDS 9

10 Demand has outpaced supply over the last five years Total consumption of steel exceeded production and grew to 65.6 MT in FY12 as against 46.8 MT in FY07; this marked a CAGR of 7.0 per cent over that period 75 Consumption of steel (in million tonnes) In the most likely economic growth scenario (9 per cent GDP growth as envisaged by the Draft Approach Paper of the 12 th Five Year Plan), demand for steel is set to rise to MT by FY CAGR: 7.0% FY07 FY08 FY09 FY10 FY11 FY12 Source: Ministry of Steel, Indian Steel Markets Conference, Aranca Research Notes: FY Indian Financial Year (April March), MT Million Tonnes MARKET OVERVIEW AND TRENDS 10

11 A consequence of demand outpacing supply has been rising imports With demand growth for steel outpacing growth in domestic production over the last few years, import dependency has increased 8.0 Steel exports and imports (in MT) Imports have increased at a CAGR of 8.4 per cent over FY07-11 Total imports in the first nine months of FY12 stood at about 3.0 MT FY07 FY08 FY09 FY10 FY11 FY12* Imports Exports Source: Ministry of Steel, Aranca Research Notes: FY Indian Financial Year (April March) *Figures from April-December MARKET OVERVIEW AND TRENDS 11

12 Construction and infrastructure: Key consumers of steel in India Construction & infrastructure is the largest consumer of steel in India, accounting for 61 per cent of total consumption in 2010 This is not surprising given the heavy use of steel in this sector and soaring construction and infrastructure activity in the country over the past decade 8% Sector-wise steel consumption shares (2010) 3% 5% 12% Construction & Infrastructure Capital goods Autos Capital goods is the next largest consumer, with 11 per cent of total consumption 11% 61% Packaging Consumer durables Others Source: Crisil, Aranca Research MARKET OVERVIEW AND TRENDS 12

13 Key players in the industry Company Products Tata Steel Ltd Finished steel (non-alloy steel) SAIL Finished steel (non-alloy steel) J S W Steel Ltd Hot rolled coils, strips, sheets Jindal Steel & Power Ltd Iron and steel Ispat Industries Ltd Hot rolled coils, strips, sheets Welspun-Gujarat Stahl Rohren Ltd Tubes and pipes Bhushan Steel Ltd Cold rolled coils, strips, sheets MARKET OVERVIEW AND TRENDS 13

14 Notable trends in the Indian steel industry Growing investments SAIL has undertaken modernisation and expansion of its integrated steel plants in Bhilai, Bokaro, Rourkela, Durgapur, Burnpur and Salem It is in the process of expanding its crude steel production capacity to 21.4 MTPA Completed mega expansion of Rashtriya Ispat Nigam Limited (RINL) to more than double capacity of plant (from 2.9 MT to 6.3 MT) Strategic alliances International Coal Ventures Pvt Ltd, comprising of SAIL, RINL, CIL, NTPC, and NMDC, has been set up for acquisition of coal mines overseas The consortium of SAIL and National Fertilizer Limited (NFL) has been nominated for revival of Sindri Unit of Fertilizer Corporation of India Limited RINL, Vishakhapatnam Steel Plant and Power Grid Corporation of India Ltd (POWERGRID) signed an MoU to set up a joint venture company for manufacturing of Transmission Line Towers and Tower Parts including R&D of new high-end products Entry of international companies Attracted by the growth potential of the Indian steel industry, several global steel players have been planning to enter the market National Mineral Development Corporation (NMDC) has signed an MoU with Russia s third-largest steelmaker, Severstal for a greenfield steel plant in Karnataka Source: Ministry of Railways, Aranca Research Notes: MOUs Memorandum of Understanding, MT Million Tonnes MARKET OVERVIEW AND TRENDS 14

15 Key steel plants in India Steel integrated plants under SAIL (Bhilai, Rourkela, Bokaro, Durgapur and Burnpur) Biggest steel plant of Tata Steel in Jamshedpur Alloy and special steel plants under SAIL (Bhadrawati and Salem) RINL steel plant in Vishakhapatnam Source: Company websites, Aranca Research MARKET OVERVIEW AND TRENDS 15

16 Contents Advantage India Market overview and trends Growth drivers Success stories: TATA Steel, JSW Steel Opportunities Useful information 16

17 Strong demand and policy support driving investments Growing demand Policy support Increasing investments Growing demand in the construction industry Inviting 100 per cent FDI in steel sector Resulting in Rising investments from domestic and foreign players Growing demand in the automotives sector Government is encouraging R&D activities in the sector Increase in number of MoUs signed to boost investment in steel Reduced custom duty and other favourable measures Foreign investment of nearly USD40 billion committed in the steel sector Notes: FDI Foreign Direct Investment GROWTH DRIVERS 17

18 Construction & infrastructure and automotives driving steel growth Investment in infrastructure is expected to expand at a CAGR of 14.5 per cent over FY12-17 by the Planning Commission The Planning Commission expects total investment in infrastructure to be USD1 trillion in the 12 th Five-Year Plan (-17), as compared to USD428 billion in the 11 th Plan This increase in investment in infrastructure is set to raise steel demand by roughly 40 MTPA from FY13 to FY17 Projected values of investment in infrastructure (USD billion) FY12 FY13 FY14 FY15 FY16 FY17 Source: Planning Commission, Aranca Research Notes: MTPA Million Tonnes per annum GROWTH DRIVERS 18

19 Automotives leading sector in driving steel growth Automotives production expanded at a CAGR of 22.2 per cent over FY09-12 Commercial vehicles are the fastest growing segment with a CAGR of 29.8 per cent over the same period Total production of automobiles in India (million units) FY09 FY10 FY11 FY12 FY16E FY21E Passenger vehicles Commercial vehicles Three wheelers & two wheelers Source: SIAM, Aranca Research Notes: E estimate; FY Indian Financial Year (April March) GROWTH DRIVERS 19

20 Policy support aiding growth in the steel sector National Steel Policy R&D and innovation Increased export duty on iron ore In view of the changed dynamics of the sector both globally as well as domestically, Ministry of Steel has initiated the process of drafting the new National Steel Policy in place of the existing National Steel Policy in 2005 The government has set up a committee headed by the Steel Secretary for monitoring the progress on formulation of the new National Steel Policy. Four task forces have been constituted to study, analyse, consult and formulate draft policy documents on different aspects of the policy A new scheme named The scheme for the promotion of R&D in the iron and steel sector has been approved with budgetary provision of USD24.6 million to initiate and implement the provisions of the scheme as per the 11 th Five Year Plan A total amount of USD8.5 million has been spent under the scheme upto December 2011 Steel Innovation Council for promotion of innovative ideas in the steel sector has been set up by the Ministry of Steel The government hiked the export duty on iron ore to 30 per cent ad-valorem on all varieties of iron ore* (except pellets) Foreign direct investment 100 per cent FDI through the automatic route is allowed in the Indian steel sector Source: Ministry of Steel, Aranca Research Notes: *w.e.f. 30th December 2011 GROWTH DRIVERS 20

21 Major initiatives taken by the Ministry of Steel during the year Export duty on iron ore has been increased to 30 per cent ad-valorem on all varieties of iron ore (except pellets), in order to preserve iron ore resources for domestic use As per the Government decision, 51 per cent shareholding of Government of India in Eastern Investments Company Limited (EIL) under Bird Group of Companies was transferred to RINL New Research and Development policy for Steel Sector has been finalised/adopted for implementation New techno economic benchmarks have been evolved on international pattern for improvement in performance of steel PSUs and its implementation is being monitored closely The Joint Plant Committee (JPC) under the Ministry studied 300 districts, 1500 villages, 4500 manufactures and 8000 retailers spread over all the 35 states and union territories of the company to assess the steel demand in the rural areas and examine the potential of increasing the level of steel consumption. Steel Innovation Council for promotion of innovative ideas in the steel sector has been set up by the Ministry of Steel New National Steel Policy for the forthcoming years is under finalisation Source: Ministry of Steel, Aranca Research Notes: w.e.f with effect from 30 th December, 2011 GROWTH DRIVERS 21

22 Steel SEZs in India Developer Location Product Viraj Profiles Ltd Thane, Maharashtra Stainless steel engineering products SAIL Salem SEZ Pvt Ltd Salem, Tamil Nadu Steel Orissa Industrial Infrastructure Development Corporation Jajpur, Orissa Metallurgical-based engineering and ancillary/downstream industry Source: Formal approvals granted in the Board of Approvals after the SEZ rules coming into force, Special Economic Zones in India website, GROWTH DRIVERS 22

23 The sector witnessed rising investments in the last decade M&A scenario details Period : 1 January 2011 to 13 June Deal type No of deals Largest deal (USD million) Inbound - - Outbound Domestic Sector Cumulative FDI inflows Period: April 2000 to January Metallurgical industries USD5,5 billion Per cent of total FDI inflow 4.0 Source: Thompson ONE Banker, Fact Sheet On Foreign Direct Investment (FDI), Department of Industrial Policy and Promotion; JSW JFE Partnership Press Meet Presentation, Press releases; and Ministry of Steel, Government of India, Annual Report GROWTH DRIVERS 23

24 Planned capacity additions in different states State MoUs signed Capacity addition (MTPA) Orissa Jharkhand Chhattisgarh West Bengal Karnataka Andhra Pradesh Other states * Total Company SAIL NMDC Capacity addition plans Plans SAIL s crude steel capacity is being enhanced from 12.8 MTPA to 21.4 MTPA in the current phase as it has undertaken modernisation and expansion of its integrated steel plants at Bhilai, Bokaro, Rourkela, Durgapur, Burnpur and a special plant at Salem It is setting up a greenfield integrated steel plant of 3MTPA capacity in Nagarnar, Chhattisgarh at an estimated cost of about USD3.2 billion Source: Ministry of Steel, Annual report ; Note: MTPA Million Tonnes Per Annum, *Estimated figures GROWTH DRIVERS 24

25 Contents Advantage India Market overview and trends Growth drivers Success stories: TATA Steel, JSW Steel Opportunities Useful information 25

26 TATA Steel: A compelling growth story (1/3) TATA Steel Limited Established in 1907, by the visionary-founder JN Tata, Tata Steel is among the top ten global steel companies with an annual crude steel capacity of over 28 million tonnes per annum (MTPA) Caters to Automotive, Construction, Consumer goods, Engineering, Packaging, Energy & Power, Ship Building, Rail, and Defence and Security Milestones 2009 Tata Ryerson and HMPCL merge with Tata Steel in Integration of Tata Steel and Corus was accomplished at USD12 billion, making Tata Steel one among the top ten steel producers globally Projected crude steel capacity in the 12 th Plan (million tonnes) FY11 FY12 FY13 FY14 FY15 FY16 FY17 Source: Company website ( Planning Commission, Aranca Research SUCCESS STORIES: TATA STEEL, JSW STEEL 26

27 TATA Steel: A compelling growth story (2/3) Production and sales of steel division (million tonnes) FY08 FY09 FY10 FY11 FY12 Production Sales Financial growth (USD billion) FY07 FY08 FY09 FY10 FY11 FY12 NPAT Gross revenue Source: Company website ( Aranca Research Notes : NPAT Net Profit After Tax SUCCESS STORIES: TATA STEEL, JSW STEEL 27

28 TATA Steel: A compelling growth story (3/3) Developed Developed products products Technological upgradation Iron making and Iron making and castings castings Alloy steel Alloy steel Wheel, tyre and axle Wheel, plant tyre (railways) and axle plant (railways) Pig iron and steel ingots Blast furnace Organic growth in Steel Diversification (Coal injection unit) 1912 Production capacity (1.6 Lakh tonnes) Capacity expansion (3 MT) FY06 USD3,625 million turnover M&A (Tata-Corus) FY12 USD7,445 million turnover SUCCESS STORIES: TATA STEEL, JSW STEEL 28

29 JSW Steel: Surging ahead on cost competitiveness (1/3) JSW Steel Projected crude steel capacity in the 12 th Plan (million tonnes) Established in 1994, JSW Steel Ltd manufactures iron and steel products in India and abroad Products Hot rolled coils, plates, and sheets; cold rolled coils and sheets; galvanised sheets and coils; pre-painted galvanised coils, sheets, and galvanised corrugated sheets Achievements 2011 National Sustainability Award by Indian Institute of Metals 2009 Gold Award in Metal and Mining Sector 2008 National Energy Management Award instituted by CII FY11 FY12 FY13 FY14 FY15 FY16 FY17 Source: Company website ( Planning Commission, Aranca Research SUCCESS STORIES: TATA STEEL, JSW STEEL 29

30 JSW Steel: Surging ahead on cost competitiveness (2/3) Product group-wise sales (in million tonnes) Financial growth (in USD million) Semis Rolled Flats Rolled Longs Value Added Flat 8,000 6,000 4,000 2, ,053 3,162 2,631 1, FY07 FY08 FY09 FY10 FY11 FY12 FY10 FY11 Gross revenue NPAT Source: Company website ( SUCCESS STORIES: TATA STEEL, JSW STEEL 30

31 JSW Steel: Surging ahead on cost competitiveness (3/3) Hot rolled Capacity addition 7.8 MT Cold rolled Wire rods TMT rebars Galvanised product Special steel bars Organic Growth & Integration 1994 Production capacity (1.25 MTPA) JV formed to explore, develop & mine iron ore with MML 1994 ISO Accreditations FY06 USD1,417 million turnover FY 12 USD7,221 million turnover Notes: JV Joint Venture TMT Thermo Mechanically Treated MML Mysore Minerals Limited MTPA Million Tonnes Per Annum SUCCESS STORIES: TATA STEEL, JSW STEEL 31

32 Contents Advantage India Market overview and trends Growth drivers Success stories: TATA Steel, JSW Steel Opportunities Useful information 32

33 Opportunities (1/2) Automotive Capital goods Infrastructure Airports The size of the automotives industry is forecasted to grow between USD122 billion and USD159 billion by 2016 With increasing capacity addition by the automotives industry, demand for steel from the sector is expected to be robust Capital goods accounts for 11 per cent of steel consumption, and has the potential to increase in tonnage and market share Corporate India s capex is expected to grow and generate greater demand for steel The government aims to increase infrastructure spending from 8.4 per cent of GDP in FY11 to 10.7 per cent of GDP by FY17 Due to such a huge investment in infrastructure the demand for long products of steel will be increasing in years ahead More and more modern and private airports expected to be set up Development of Tier-II city airports will sustain consumption growth The estimated steel consumption in airport building is likely to grow more than 20 per cent over next few years Notes: Capex Capital Expenditure OPPORTUNITIES 33

34 Opportunities (2/2) Railways Oil and gas Power Dedicated Rail Freight Corridor (DRFC) network expansion will be enhanced in future Gauge conversion, setting up of new lines, and electrification will drive steel demand in the near future Pipeline network for liquid fuel transportation is likely to grow from the present 16,800 km to 22,000 km in 2014 This would lead to an increase in demand of steel tubes and pipes and hence provides a lucrative opportunity to the steel industry The government is aiming to add 71,000-1,07,500 MW of capacity during the 12 th Five Year Plan Both generation and transmission capacities will be enhanced, thereby raising steel demand from the sector Source: Planning Commission, Aranca research OPPORTUNITIES 34

35 Contents Advantage India Market overview and trends Growth drivers Success stories: TATA Steel, JSW Steel Opportunities Useful information 35

36 Industry associations Indian Stainless Steel Development Association L-22/4, DLF Phase-II Gurgaon, Haryana Phone: Fax: USEFUL INFORMATION 36

37 Glossary CAGR: Compound Annual Growth Rate FDI: Foreign Direct Investment FY: Indian Financial Year (April to March) So FY10 implies April 2009 to March 2010 JV: Joint Venture MoU: Memorandum of Understanding MT: Million tonnes MTPA: Million tonnes per annum NPAT: Net Profit After Tax SEZ: Special Economic Zone TMT: Thermo Mechanically Treated USD: US Dollar Conversion rate used: USD1= INR48 Wherever applicable, numbers have been rounded off to the nearest whole number USEFUL INFORMATION 37

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