CHALLENGES IN GROWTH

OF
INDIAN STEEL INDUSTRY

SHRI AMITABH S MUDGAL

SR. VICE PRESIDENT ( MKTG & CORPORATE AFFAIRS)
MONNET ISPAT & ENERGY LTD.
11th August 2010
Hotel Le-Meridian
New Delhi
 INDEX
 Global Steel
 Scenario
 Global Steel Production 2009
 Emerging Economies Scaling Up
 Indian Steel
 Sustained Steel Production over years
 Holistic Steel Prognosis
 Growth Drivers
 Indicators
 Infrastructure Spending
 Mineral Resources- Catalyst to Steel Growth
 Prospects For Indian Steel Industry
 Indian –An Attractive Destination For Steel Hub
 Production Route-Distribution Chart
 Brownfield & Greenfield Expansion Curve
 Sponge Iron In The Growth Of Indian Steel Industry
 MONNET-Doing Its Bits In DRI Production Growth
 Key Challenges & Road Ahead
 Lands
 Minerals & Mining
 Environment
 Infrastructure
 Others
 Conclusion
 GLOBAL STEEL

SCENARIO

 Global steel moved from sunset to sunrise industry between 2001-2007 with sustained 8% demand growth.

 Global crude steel production : 2009-1220 Mn. Mt ; 2008-1326 Mn. Mt- decline of 8 %

 China- the largest crude steel producer in the world - production 567.8 Mn. Mt, a growth of 13.5 % over 2008.

 The global recession and sever meltdown in the late 2007 -shifting the fortunes of global steel from the advanced to
emerging markets.
 GLOBAL STEEL

GLOBAL STEEL PRODUCTION 2009

WORLD CRUDE STEEL PRODUCTION 2009

Europe, 194.73,
Oceania, 6.01, 0.49%
15.88%
Rest Asia, 151.88,
12.39%

C.I.S. (6), 97.36,

7.94%

India, 56.61, 4.62%

North America, 82.25,

6.71%

South America,
37.82, 3.08%

Africa, 14.84, 1.21%

China, 567.84,
46.32%
Middle East, 16.59,
1.35%
 GLOBAL STEEL

EMERGING ECONOMIES SCALING UP

 INDIAN STEEL

SUSTAINED STEEL PRODUCTION OVER YEARS

Year Crude steel production (in Mn. Mt)

Quantity Growth rate over last year (%)
2005-06 46.46 6.96
2006-07 50.81 9.38
2007-08 53.86 5.98
2008-09 58.44 8.50
2009-10* 64.88 11.02
Source: Joint Plant Committee (JPC); * =Provisional
 INDIAN STEEL

HOLISTIC STEEL PROGNOSIS

Production
Year for sale Import Export Consumption Net Availability Surplus

2004-05 43.5 2.3 4.7 36.4 41.1 4.7

2005-06 46.6 4.3 4.8 41.4 46.1 4.7
2006-07 52.5 4.9 5.2 46.8 52.2 5.4
2007-08 56.1 7 5.1 52.1 58 5.9
2008-09 57.2 5.8 4.4 52.4 58.6 6.2
2009-10 59.7 7.3 3.2 56.5 63.8 7.3
Surplus Availability could have factored in on account of duplicate accounting of HR & CR Coil
Production in certain terms. ( All figures in Mn. Mt )

Difference between global and domestic price evens out over a quarter in free market scenario.
Low priced stock requirement and non-prime material are also imported and then segregated and sold
as prime materials and this further exert pressure on price.
Owning to excess availabilities and increase in raw material price, the margins of steel producers are
increasingly under pressure for over one year.
 GROWTH DRIVERS

INDICATORS
 Current Domestic steel consumption was at 56.5 Mn. Mt increased by
7.8 per cent, which is likely to maintain its growth momentum.

 Present per capita consumption ( Year 2008) :

 India : 47 kg
 World :190 kg
 Developed Countries : 400 kg

 In 2008-09, per capita steel consumption in urban areas was 145 Kg,
rural areas-only 3 Kg.
 70% of Indian population in rural areas- increased steel usage for
rural housing, panchayat hall, rural bridges, water and storage tanks
etc
 The sectors like manufacturing,construction,consumer durables,
capital goods, intermediate goods coupled with infrastructure
spending to fuel growth in steel sector.
 GROWTH DRIVERS

INFRASTRUCTURE SPENDING

Infrastructure allocation As % of Plan

Year
(Rs. Lakh crore) Allocation

2001-02 0.34 33.9

2002-03 0.36 31.8
2003-04 0.54 44.9
2004-05 0.60 41.5
2005-06 0.70 48.6
2006-07 0.81 46.9
2007-08 0.86 41.9
2008-09 0.97 39.8
2009-10 1.55 47.7
2010-11 1.73 46.5

Allocations For Infra In The Union Budget

 GROWTH DRIVERS

MINERAL RESOURCES- CATALYST TO STEEL GROWTH

 India is largely sufficient in raw materials for Iron and Steel Industry

 25 billion tonnes of iron ore reserves - the fifth largest reserve base in the
world

 253 billion tonnes, (96 billion tonnes proven reserves) Coal- 4th largest
proven coal reserves in the world

World’s
 2nd largest Mn reserves (240 million tonnes).
 3rd largest Cr reserves (57 million tonnes).
 4th largest bauxite reserves (2.4 billion tonnes).

 India is relatively under-explored in terms of mineral prospecting.

PROSPECTS FOR INDIAN STEEL INDUSTRY

INDIA-AN ATTRACTIVE DESTINATION FOR STEEL HUB

 India -currently the 5th largest producer of crude steel in the world and is
expected to become the 2nd largest producer of crude steel in the world by
2015-16.

 The Iron and Steel Industry :

 Around 2 % of the Gross Domestic Product (GDP)

 Around 6.2%- its weight in IIP.
 Around 3.64 %- its weight in WPI

 GDP growth pegged at 8.5 % in the current year and higher in the subsequent
year.

 The growth rate in steel consumption in India would be highest in the world
surpassing China in 2011-12.
PROSPECTS FOR INDIAN STEEL INDUSTRY

PRODUCTION ROUTE- DISTRIBUTION CHART

Methods Of Steel Production In India

( Source: IRADe and ICF)

Sponge/Scrap Corex
Corex
IF/EAF BF-BoF
4%
25%
DRI-EAF (Gas Based)
BF-BoF
41% DRI-EAF (Coal Based)
Sponge/Scrap IF/EAF
DRI-EAF (Coal
Based) DRI-EAF (Gas
19% Based)
11%

Distribution Pattern is likely to be similar after completion of capacity expansion upto 124 Mn Mt.
PROSPECTS FOR INDIAN STEEL INDUSTRY

BROWNFIELD & GREENFIELD EXPANSION CURVE

CRUDE STEEL CAPACITY - Envisaged for 2011-12 ( In Mn. Mt)

Investor Existing Capacity Expansion Plant Total Capacity

    Brownfield Greenfield 2011-12

SAIL 12.84 12.00   24.84
RINL 2.90 3.40   6.30
Tata Steel 6.80 3.20 3.00 13.00
Essar 4.60 3.90 6.00 14.50
JSW Ltd 6.90 4.10   11.00

JSPL 2.40 4.80 3.25 10.45

Ispat 3.00 2.00   5.00
BSPL 1.20   2.80 4.00
Bhushan Steel Ltd 0.80   5.20 6.00
MIEL 0.60   1.50 3.00 2.10
Others & Secondary 22.40   4.47 26.87
  64.44 34..9 24.72 124.06

Given the current status, the expected capacity by 2011-12 is likely

to be in the region of 110 Mn. Tonne
PROSPECTS FOR INDIAN STEEL INDUSTRY

SPONGE IRON IN THE GROWTH OF STEEL INDUSTRY

 Largest producers of Sponge Iron-21 Million Tonne

 1/3 of total steel is by DRI route.
 Limited reserves of coking coal, resulting in unpredictable prices.
 Sponge iron uses non-coking coal, and iron ore fines - palletized form or
directly
 Difficult availability and high cost of scrap.
 DRI is more consistent in composition low tramp elements and
environment friendly.
 Uniform size of sponge iron enhance productivity and support usage of
low grade scrap.
 Average IF furnaces uses 60 % sponge iron as metallics.
PROSPECTS FOR INDIAN STEEL INDUSTRY

MIEL- DOING ITS BIT IN DRI PRODUCTION GROWTH

2nd Largest Coal based Sponge Iron Manufacture

Forward integration by setting up its integrated steel manufacturing
facility of 1.5 Mn Tonne at Raigarh.
Upon completion ( March’11) , through BF/DRI-EAF route will add high-
quality long and flat steel :

Plate : 6,00,000 tonne p.a

HR Coil : 2,50,000 tonne p.a
QST Rebars : 5,00,000 tonne p.a
Blooms & Rounds : 1,50,000 tonne p.a

New capacity addition : 1.5 MT ( Orissa),

: 1.5 MT ( Jhk)
KEY CHALLENGES & ROAD AHEAD

LAND

 Limited and with multiple use.

 Non-willingness of owners to sell.

 Local issues- Social & Political.

 Compensation packages - amicably with fair market price &

employment.

 Overlapping responsibilities between State and Central Govt.

KEY CHALLENGES & ROAD AHEAD

MINERALS & MINING

 Resources available with some of the poorest states.

 Mineral resources exploitation through Inclusive &
Sustainable
 Approach to improve overall well-being.
 Faster grant of prospecting lease-mining lease.
 Limited availability of Coking Coal
 Indian Coal with high ash has limitations in terms of CO2
emissions.
 Development of processes using non coking coal / natural
gas.
 Increase usage of Iron Ore Fines-to reduce wastages
 Increase palletisation and beneficiation to augment
production and productivity.
 KEY CHALLENGES & ROAD AHEAD

ENVIRONMENT ISSUES

 Selection of plant site-effect on neighborhood, ecology and

communication facilities.

 Space for water treatment & recycling, solid waste disposal.

 Pollution control measures-Pollution can not be completely

eliminated- only levels can be reduced.

 Upto 15% cost of capital equipment is being incurred on

pollution control devices.

 Obtain clearances by State Govt. & other Govt. agencies (viz.

pollution control board, forest deptts. etc) and Central Govt.
KEY CHALLENGES & ROAD AHEAD

INFRASTRUCTURE

 Augment capacity and efficiency of rail, ports, roads to match

capacity development.

 Steel plants to augment their infrastructure to ensure full

utilization of assets of logistics providers.

 Explore environment-friendly transportation alternatives

( Viz Waterways, Slurry through pipes etc).

 Build infrastructure - to meet transport requirement for bulky

equipment and finished goods.

 Co-ordination between producers, logistic providers and

government concerning policies and execution
 KEY CHALLENGES & ROAD AHEAD

OTHERS

 Adequate availability of power, water.

 Low Level of R&D in steel in India.
 India mostly in seismological zone-Additional costs,
earthquake resistant structures.
 Rising cost of inputs materials –may not be compensated by
rise in steel prices.

 As a consequence, lower growth in production / fresh capacity

than demand growth may cause severe market distortions.
 Rising inflation
 Better governance, delivery system & effective
implementation.
 CONCLUSION

 Delays and costs involved in land acquisition, Raw Material linkages,

Statutory clearances and shortfalls in development of infrastructure
could adversely affect project viability.

 This ,in turn, inhibit creation of additional capacities.

 For the business to survive,

 The production process and systems have to be efficient.
 Only energy-efficient process can produce finished material to tightly
controlled specification at lowest cost .
 Imperative to address environment issues.

 Steel Industry in India can survive- if it is globally competitive in terms

of costs and quality, which can only happen if the challenges are
suitably addressed.
Thank You