CRISIL India Steel Industry Note - Jan'20

Steel Products
Steel demand to rise by 2-3% growth in fiscal 2020; spreads to be under pressure
28-NOV-2019
After two years of robust growth, steel demand growth to moderate to 2-3% in 2020. With China slowing down, pricing and thereby
profitability is expected to be under pressure in the next fiscal. Consolidation in the industry to change the supply landscape with
large players gaining further market share.
Domestic steel demand to moderate to 2-3% in fiscal 2020 led by muted demand from automobile and
construction segment
After printing stellar growth of 8-9% during past two fiscals, demand momentum is expected to fizzle out in current fiscal to a mere
2-3% led by lower economic growth and weak performance across end-use segments. Steel demand saw growth of 3.9% on-year
(YTD Oct 2019) with 5.5% demand growth in non-alloy steel and contraction of (14%) in alloy steel sales.
Demand to inch up to 4-5% in FY21 as economy recovers and shall scale up further to 6% through fiscal 2024 on account of pick-
up in affordable housing and steel intensive infrastructure investments.
Global steel demand to grow at 1-3% through 2023; demand from China to slow down while demand from
emerging economies to improve
China's steel production grew by 9% on-year in Jan-Aug 2019 despite moderating steel demand. This coupled with global trade
tensions led to high inventory levels of steel in China. Demand from China is expected to grow by 4-5% on-year on account
government driven infrastructure spending in 2019. Also, other major economies is expected to witness a modest growth resulting
in overall global demand to rise at 2-4% on-year. In 2018, global steel demand grew at 4.9% supported by robust growth from
China at 7.9% on year followed by US, Japan and EU at 2.5%, 1.6% and 4.3% on-year respectively.
Going ahead, by 2023, global steel demand is expected to grow at 1-3% CAGR on the back of stronger 2-4% growth from world
excluding China. However, overcapacity situation continues to be a concern for the industry. China’s role in this to be instrumental
with its capacity cut target as well as the execution of One Belt One Road project.
Utilization to remain stable through fiscal 2024
Fiscal 2019 saw healthy utilization rate of 84% versus 80% in fiscal 2018 despite 3 million tonnes capacity addition led by robust
8.8% growth in steel demand. In fiscal 2020, moderate demand growth amidst weak capacity additions shall keep utilizations
afloat.. However, 6.7 MTPA, 3 MTPA and 1 MTPA capacity commissioning by JSW Steel, NMDC and Electrosteel respectively will
pull down the utilization rates to 78-80% in fiscal 2021.
During the next five years, we expect a net capacity addition of 24-26 MT vis-à-vis a 35 MT capacity addition during past five
years. Therefore, the utilization is expected to increase to 85-87% over through fiscal 2024. Stressed assets worth 22 MT under
NCLT is likely to push the industry’s operating rates further upwards along with consolidation in the industry with share of large
ISPs to rise to ~60% by FY24 led by brownfield capex and acquistions.
This content is for the sole use of Utkarsh Goel working for Indian Institute of Management Bangalore
Prices to decline in fiscal 2020 and 2021 led by weak global prices and moderation in domestic steel
demand
Despite rise in global iron ore prices, global HRC prices declined by 14% on-year in Jan-Aug 2019 on account of moderating steel
demand, laxity in production cuts by China leading to oversupply and global trade tensions. Following global cues, domestic HRC
prices declined by 10% on-year in first half of fiscal 2020 amid moderating steel demand. Long steel prices, on the contrary, rose
by 1% on-year in the same period. Going ahead, we expect prices to move upwards with marginal pick up in domestic demand
coupled with stricter production curbs in China.
We expect the global HRC prices to decline in 2019 on account of demand growth moderation in developed countries and China
(responsible for nearly 50% of global steel consumption). Global iron ore prices spiked ~39% during Jan-Sep 2019 due to the
tailings dam collapse in Brazil along with Cyclone Veronica hitting the Pilbara coast and high demand from China steel
production. However, price increase would be offset by moderation in coking coal prices.
Therefore, with moderating domestic demand growth and weak global HRC prices, we expect domestic prices to decline by 6-8%
in fiscal 2020. Going ahead in fiscal 2021, continuation of similar trends shall keep prices under pressure, however, the fall shall be
limited given weak spreads.
In fiscal 2019, domestic flat steel (HRC) prices and long steel prices (TMT) rose significantly by 13.7% and 11% respectively led
by elevated global prices, rupee depreciation and healthy domestic demand.
Moderation in demand growth and weak realisations to weigh on sector's profitability
The first half of fiscal 2020 saw contraction in EBITDA spreads by 590 bps for large steel players on account of 10% decline in
realisations for the same period. H2 performance would be relatively better on improving realzations and weakening coking coal
prices hereon..
Consequently, we expect the margins for large players to reduce by 300-400 bps in fiscal 2020. In fiscal21 while integrated players
will benefit from recovering volume growth despite muted realization, however, non-integrated players would be impacted by
higher domestic iron ore prices on account of high bid premiums in upcoming auctions
Global steel demand to moderate at 2-4% on-year in 2019 as against 4.9% on-year in 2018
15-OCT-2019
In 2019, global demand is expected to grow at a rate of 2-4% on-year. Going forward, demand is expected to moderate as China's
steel demand is anticipated to reduce to (2)-0% in the subsequent years
China continues to post healthy growth; slowdown inevitable
In 2019, world steel demand is expected to moderate to 2-4% led by China which shall post 4-5% growth in current
year
Over the medium term (2018-2023), we expect global steel demand to grow at 1-3%. Domestic consumption in China is expected
to grow in the range of (2)-0%, whereas the world, excluding China, is set to grow at 2-4% CAGR.
Global crude steel production rose by about 4.4% on-year to touch 1240 million tonnes in Jan-Aug 2019. Growth can be attributed
to increase in production by China and India at 9.1% and 4.4% on-year respectively. Production growth of world excluding China
declined by 0.5% on-year during same period on account of moderating global demand and global protectionist measures.
World steel demand witnessed a 4.9% on-year growth in 2018 primarily driven by strong growth in the key steel producing
countries. India posted a healthy demand growth at 8.3% on-year, followed by China at 7.9%, EU and US at 4.3% and 2.5% on-
year respectively. However, steel demand from other nations grew marginally in 2018.
According to the International Monetary Fund’s (IMF) April 2019 GDP outlook, EU and US economies to moderate with decline in
GDP growth to 1.6% from 2.2% and 2.3% from 2.9% respectively. GDP of China, the world’s largest consumer of steel is also
expected to decline by 30 bps to 6.3% in 2019. However, a marginal 20 bps uptick is expected for India and Japan to 7.3% and
1% respectively.
Outlook on global steel demand
E: Estimated; P: Projected
Source: World Steel Association, CRISIL Research
Following are some of the downside risks to our demand forecast:

Chinese real estate market and corporate debt problem
Global protectionism and escalating trade tensions
High (household) debt and volatile capital flows in many emerging economies
Geopolitical tensions
Region-wise break-up of steel consumption (2018)
Source: World Steel Association (WSA)
Steel consumption across primary steel consuming regions
Notes:
1. Real estate YTD2019 growth has been taken for a period of 6 months i.e. from January to June 2019
2. Auto YTD2019 growth has been taken for a period of 8 months i.e. from January to August 2019 for China and EU whereas the same has
been taken for a period of 6 months i.e. January to June 2019 for US
3. Construction YTD2019 growth has been taken for a period of 8 months i.e. from January to August 2019 for China and Eu whereas the same
has been taken for a period of 6 months i.e. January to June 2019 for US
4. Capital Goods YTD2019 growth has been taken for a period of 5 months i.e. from Jan to May 2019
Source: WSA, NBS China, Eurostat, ACEA, Ward’s, US Census Bureau, ISM US, CRISIL Research
China steel demand growth to moderate in 2019; economic stimulus by the Chinese government to drive
growth
China's steel demand rose 7.9% in 2018. Demand shift of closed IF units to mainstream steel players, stimulus programmes (fiscal
stimulus, credit expansion, and lowering interest rates) by the Chinese government, modest growth in real estate market
supported growth in steel consumption. Construction investment grew by 5.9% on-year.
The country’s steel demand is expected to grow 4-6% in 2019 on the back of healthy steel demand from the construction
segment. Growth in steel demand from the auto and capital goods segment is expected to moderate. We believe that Chinese
government will use stimulus measures to contain the potential slowdown of the Chinese economy in the face of a deteriorating
economic environment, keeping steel demand in 2019 elevated. China has initiated the following measures in this direction:
1. Raising the value added tax (VAT) exemption limit from 30,000 yuan to 1,00,000 yuan in monthly sales which will be valid till 2021
2. Lowering the VAT rate for manufacturers from 16% to 13%. While also reducing the VAT rate for transportation and construction sectors from
10% to 9%
3. Slashing bank’s reserve requirement ratio (RRR) five times over the past year till March 2019 to increase liquidity in the system
4. Asking banks to roll over $1.7 trillion worth loans to the local governments
5. Relaxing the non-performing loan (NPL) tolerance capped at 2% to 3% for loans made to companies with credit lines from banks under 10
million yuan for boosting investment in small private companies which make up 80% of jobs in urban areas
Over the next five years, we believe demand from China will further moderate to (2)-0% as its economy moves towards being
more consumption driven.
Moderate demand growth expected for US steel industry
US had passed a tax reform bill in 2018 which reduced taxes for corporations and business owners while restoring and expanding
some tax benefits to individuals as well. The recent tax reforms positively impacted investments and kept the steel demand
elevated at 2.5% in 2018. US steel demand growth is expected to moderate to 1-2% in 2019 with the waning effect of fiscal
stimulus and monetary policy normalization.
Steel demand is expected to grow at a CAGR of 1-2% over the medium term, driven by the government's thrust on the
construction and energy sector.
Demand to stagnate in Europe
In 2018, EU steel demand grew 4.3% driven by the construction segment. We expect the growth in 2019 to moderate to 1-2% on
account of decline in steel demand from capital goods and automobile segments. Construction segment to drive steel consumption
over the medium term.
Going ahead, we expect steel industry in EU to grow at a moderate pace with waning momentum in key steel sectors, primarily
automobile and capital goods. However, supportive economic dynamics to keep EU steel industry at sustainable growth rate of
0-2% through 2023.
Japan to witness stagnant steel demand growth
Japan accounts for 4% of global steel consumption. In 2018, steel demand grew 1.6% supported by a favourable investment
environment and continued construction activities as well as a boost in consumer. In 2019 and 2020, steel demand is expected to
grow ~1% due to a moderation of construction activities and decelerating exports despite the support provided by public projects.
Over the medium term, steel demand is expected to grow by 0-1%. Factors like appreciation of yen, excess global capacity, and
slowdown in emerging economies to continue outweigh the government’s economic stimulus package to support steel demand.
Steel demand growth of major world economies over last five years
Methodology to forecast global steel demand
Domestic steel demand to moderate to 2-3% in fiscal 2020
28-NOV-2019
After two stellar years, domestic steel demand growth to moderate to 2-3% on-year in fiscal 2020 led by weak demand from
automobile and construction segments. In the medium term, we foresee demand to rise by 6-7% led by infrastructure investments
and construction activities
Indian steel demand to moderate in FY20 on account of muted demand from

automobile and construction segment
Domestic steel industry posed a moderate growth of 3.9% on-year in Apr-Oct 2019 with non-alloy steel demand growth of 5.5%.
On the contrary, alloy steel saw a decline in consumption by ~14% during the same period on account of declining automobile
production.
We foresee demand to rise by 2-3% through FY20, a moderation over past two years. Growth slowdown in automobile, and weak
demand from construction activity on two high base years (FY18 and FY19) shall weigh on demand growth.
Further in FY21 we expect demand to pick up to 4-5% as economy recovers, however, the same shall still be lower than LPA. In
long term we foresee demand to post a healthy 6-7% growth led by:
1. Affordable housing
2. Rising infrastructure investments especially in steel intensive segments of roads, railways, metros, etc.
Domestic steel demand rose by a healthy 8.8% during fiscal 2019 primarily led by rise in construction activity and modest growth
in consumption sectors. Low base of H1 (GST implementation during last year) also cushioned growth to a certain extent.
Year-wise steel demand growth trend
P: Projected
Note: The consumption numbers are in line with revision made by Joint Plant Committee (JPC)
Source: Joint Plant Committee (JPC) and CRISIL Research
Construction to continue to dominate steel end-use mix

Steel demand end-use mix
E: Estimated P: Projected
Source: CRISIL Research
Steel demand from building and construction (B&C) accounts for 30-35% of the total steel demand. While in near term B&C
demand shall be weak with affordable housing being the only saviour, however, in medium term housing market shall witness
some soft revival led by rural housing, affordable housing, and commercialization of tier III/V cities. On the other hand, realty
markets are expected to be continue to stay weak. Growth in the industrial segment is also expected to remain muted.
Government targeted 10-12 million urban and 29.5 million rural houses in 7 years under Pradhan Mantri Awas Yojana (PMAY).
Despite significant year-on increase in the houses sanctioned to 2.72 times and 4.2 times higher number of houses grounded for
construction in fiscal 2019, the overall progress has been 30-35% in urban housing. In rural housing, 80% of target houses (initial
phase target of 10 million rural houses) have been completed as of Mar 2019.
Progress in Urban Housing (Cumulative from 2014)
Progress in Rural Housing
For the next five years, steel demand from building and construction segment is expected to grow at a CAGR of 4.5-5.5% driven
by:
Government’s focus towards execution of affordable housing
Robust rural housing demand on the backdrop of govt. continued focus on rural development, three consecutive good
monsoons, higher minimum support prices (MSP)
Urban housing demand is also expected to improve owing to increased commercialization of tier III and IV cities led by better
infrastructure connectivity.
Rising steel intensity
However, realty markets are expected to remain stagnant especially in near term given high inventory levels across major cities
Infrastructure segment to witness the highest run-up
Infrastructure segment is currently the second largest segment in terms of steel consumption comprising of 25-30% share in
overall steel demand end use mix.
Roads and highways: Bharatmala project is expected to supersede the National Highways Development Project (NHDP) and
envisages the construction of 65,000 km of highways under the following categories: national corridor (North-South, East-West
and Golden Quadrilateral), economic corridor, inter-corridor roads, and feeder roads. As per the scheme, Phase I of BMP will
include the construction of 24,800 km, along with 10,000 km of the remaining road works of NHDP. As per the ministry, BMP,
along with the schemes currently undertaken, could require a total outlay of Rs 6.9 trillion.
As of March 2019, road projects having an aggregate length of 7000 kms, including the NHDP scheme, have been awarded and
are under various stages of implementation. In terms of execution, 3400 km of road projects were completed in fiscal 2019 which
is 12% higher over last year.
In fiscal 2020, the execution is expected to remain flattish on account of low awarding in fiscal 2019.
Railways: The government has proposed an investment of Rs 8.5 trillion in the Railways from fiscal 2016-2020 (out of which Rs
1.60 trillion is planned for fiscal 2020, 15% higher than the preceding year, resulting in construction spends in railways to increase
healthily in next five years with network de-congestion and expansion, station development, track renewal, high speed rail, etc.
Additionally, construction spends on metros will increase 1.9 times to ~Rs 1.2 trillion over the next five years.
Buoyant steel demand growth is expected in fiscal 2020 from the segment driven by a healthy growth in steel consumption from
roads, railways, irrigation, and metros segment. Construction spending on roads and highways is expected to double over the next
five years with rise in awarding of new road projects. We also expect construction expenditure in railway projects to grow 2.3x
during over the next five years. This will lead to rise in the infrastructure segment’s share in the aggregate share of steel demand
over the next five years.
Infrastructure spending to increase over next five years
Indian automobile industry to face slowdown amidst weak consumer sentiments
In fiscal 2019, automobile production growth was driven by an on year 23% growth in commercial vehicles along with two-
wheelers segment at 6%. In FY20 we expect automobile production to decline by 10-15% on account of weak demand
Cars and UV production is expected to decline by ~12% in FY20 due to following weak demand sentiments. Further demand
growth shall also rise only modestly by 3% through FY24. The decline can be attributed to muted consumer sentiment on
account of factors like price hikes, uncertainty around GST cut, regulatory changes around electric cars, and some influence
of shared cab services.
Commercial vehicle (CV) production is projected to experience decline of 21% in fiscal 2020. The growth shall inch up to
4-5% over the medium term led by shift towards higher tonnage vehicles and commissioning of dedicated freight corridor for
railways
Production growth rate through fiscal 2024
P: Projected

Key signposts/drivers for demand
Note: 1. Intensity of steel consumed for a single lane track is 340 tonnes
per km, excluding other auxiliary usage in the project
2. Investment in steel incurred in the Sagarmala project is around 2% of the total project cost
Alloy steel demand to decline in fiscal 2020 led by declining automobile segment; flat steel to moderate
higher thanlong steel
Alloy & Non-alloy steel growth Flat and long steel growth
In first half of fiscal 2020, alloy steel consumption declined by ~15% on-year on account of declining automobile demand. Non-
alloy steel demand grew by 6.8% in the same period. Moreover, long steel consumption grew by 9.5% on-year in period Apr-Aug
2019 while flat steel grew by mere 2.6% in the same period.
In fiscal 2019, non-alloy steel segment grew by 5.8% on-year; while alloy steel segment registered a robust growth of 25.1% on-
year driven by rising applications in railway and automotive sectors. Steel demand from long segment grew by 10.4% led by
healthy demand from rising construction activity while flat steel demand growth was 4.2% on account of moderating demand
growth from the automobile segment.
Flat & Long Split (FY19) Alloy & Non-Alloy Split (FY19)
Note: Steel demand numbers are in million tonnes (MT)
CRISIL Research expects demand for flat segment to rise at 4-5% CAGR in medium term. Flat steel demand is expected to be
driven by consumer durables, capital goods, and infrastructure (especially pipes segment led by higher investment on water
supply & sanitation and irrigation). Long steel demand in India is expected to grow at 6.5-7.5% CAGR led by rise in infrastructure
expenditure and railway investments.
Product level split of steel demand through fiscal 2023
Source: Joint Plant Committee (JPC), CRISIL Research

Demand forecast methodology
Exports to increase in fiscal 2020 on account of muted domestic demand
28-NOV-2019
Imports rose by 4.7% on-year in fiscal 2019 while exports declined 34%. CRISIL Research expects imports to increase marginally
while exports to be opportunity based. RCEP developments remain a key monitorable.
India to become a net exporter of steel in fiscal 2020
In H1 of fiscal 2020, exports rose by 22% on-year while imports rose by mere 0.4% due to weak domestic demand.
In fiscal 2020, we expect India to become a net exporter with imports to be largely range bound at 7-8 million tonnes (MT) while
exports to range between 8-9 MT. Subdued domestic demand coupled with low imports in auto and capital goods segments will
drive marginally higher exports over imports.
India’s export volume and exposure to Asian countries increased marginally led by robust construction activity in the region. Italy,
Nepal, Vietnam, UAE and Belgium form 57% of India's export share in fiscal 2019. RCEP developments remain a key monitorable
for the sector.
After two consecutive years of being a net exporter, India became a net importer of finished steel in FY19 on account of global
steel tariffs, rising imports and healthy domestic demand. EU and US steel tariff had a direct as well as indirect bearing on India,
leading to a 34% drop in export volumes and 4.7% increase in imports during fiscal 2019. Imports from Indonesia and South Korea
increased by 54% and 20% respectively, while imports from China fell by 25% during fiscal 2019.
Global steel trade declined by 3.5% in 2018 due to curtailed Chinese exports. Exports from China & Japan declined by 8% and 4%
respectively. India’s share in global exports decline to 4.2% as against 5.9% in the previous year.
India's share in world steel trade declined in 2018
Source: World Steel Association (WSA)
Domestic prices trend down in H1FY20 following global cues
D omestic prices and landed cost trend downward
Exchange rate used for landed cost calculation of $489 is USD 1= INR 70
Source: Industry, CRISIL Research

Long steel exports fell sharply in fiscal 2019
After shining in FY17 and FY18, steel exports tanked in FY19 led by sharp fall in long steel exports which dropped ~65% to 1.1 MT
in fiscal 2019. Further flat steel exports also fell sharply by 21% during the same period. Healthy demand growth in domestic
markets which aids better realization was the key focus area for domestic manufacturers.
Rising share of long steel in exports
Source: Joint plant Committee (JPC)
Product-wise share of flat steel exports in overall steel exports
Source: Joint Plant Committee (JPC) and CRISIL Research
Steep import tariffs by US & EU exert downward pressure on India’s exports
US imposed 25% tariffs on steel products and quota based tariffs by European Union (EU) continue to have a direct and indirect
bearing on exports. Capacity additions along with restarting of sick units in the United States will further put pressure on exports to
Europe and Americas.
The Middle East markets are mostly catered to by the Chinese players, which supply steel in bulk quantities to projects run by
China based corporations or funded by Chinese banks. 30-40 MT of crude steel capacities are expected to be added by 2020 in
the Middle East region, which will further add pressure to exports.
Asia and Oceania region witnessed 6.6% increase in steel demand growth in 2018. India’s export volume to the region saw a
marginal uptick despite intense global competition. Robust growth emanating from the construction activity in the region to drive
steel demand, thereby creating favourable export opportunities for India.
In lieu of the above we expect steel exports to be range bound (6-7 MT) in fiscal 2020. Also, with JSW Steel recently acquiring
companies in US and EU, we believe that they shall now regionally focus on these markets. JSW steel constituted more than one-
fourth of India’s steel exports in fiscal 2019.
Exports to increase while imports to remain rangebound in FY20
Going ahead, imports are likely to be market driven, dependent on price differential between landed costs and domestic steel
prices. Additionally, bilateral trade agreements with countries such as South Korea, Indonesia and Japan along with the skill/scale
gap for production of auto grade and electrical steels will continue to keep our dependence on imports elevated. Exports to be
more market driven, largely catering to the emerging markets.
Thereby, we expect India to be a net exporter of finished steel on account of weak domestic demand and better prospects globally.
Year-wise India's steel trade
Source: Joint Plant Committtee (JPC) and CRISIL Research
Lower capacity additions amidst moderate demand growth shall aid utilization levels
15-OCT-2019
Utilization levels to be 85-87% by FY24 amidst restrained capacity additions of about 24-26 MT in next f5 fiscals versus 35 MT
addition in last 5 years. Consolidation expected with resolution of NCLT cases, increasing domination of large players in the
industry
Capacity utilisation to rise in the medium term
India to add 24-26 million tonnes of crude steel capacity primarily through brownfield route
~4 MT steel capacity was added in fiscal 2019 through completion of three major expansions where in Steel Authority of India
Limited (SAIL) enhanced its steelmaking capacity by 2.8 MT to 21.4 MT in Q4 FY19. Going forward, we expect about 24-26 million
tonnes of capacity additions primarily through brownfield route. Among large players, planned expansions include Tata Steel’s
Jamshedpur, Kalinganagar and Dhenkanal expansion by 1 MTPA, 5 MTPA and 2.7 MTPA respectively as well as JSW Steel’s
Dolvi plant expansion of 5.7 MTPA along with Vijayanagar plant expansion of 6 MTPA capacity by FY2024.
The NMDC greenfield project at Nagarnar, Chhattisgarh has been facing delays on account of issue like pending statutory
clearances, controversy on right use of water pipeline, skilled manpower availability and delay in a package due to non-completion
of other linked activities. It is expected to come on-stream by in fiscal 2021.
Vedanta is also expected to add 1 million tonnes of steel capacity at Electrosteel Steels by fiscal 2021. A number of global
steelmakers have been working with PSUs and domestic private players to set up joint ventures. Additionally, land parcels have
been allocated to JSW for setting up a 12 MTPA steel plant. However, the projects are in the planning stage and haven’t achieved
significant progress.
Cumulative player-wise crude steel capacity in India
P: projected
Note: 1. SAIL completed the 21.4 MTPA crude steel capacity expansion in Q4 fiscal 2019. Greenfield expansion to be through a sec
2. Tata Steel is expected to complete the remaining 1 MTPA of Jamshedpur capacity expansion in FY20, while 5 MTPA Kalinganagar
3. JSW Steel to complete 1 MTPA Vijaynagar capacity expansion along with 5.7 MTPA Dolvi expansion by FY21. Another 5 MTPA capac
4. Electrosteel is expected to expand its current 1.5 MTPA capacity to 2.5 MTPA by fiscal 2021. 5.
Monnet Ispat’s crude steel capacity has been excluded while considering the gross capacity for JSW Steel in the above table, as
Source: Joint Plant Committee, CRISIL Research

Methodology for estimating capacity additions
Utilization levels expected to improve through fiscal 2024
Utilisation levels revived to 76% in fiscal 2017 with government intervention post reaching a trough in fiscal 2016 led by significant
surge in imports. The momentum continued in fiscal 2018 and fiscal 2019, where the utilisation levels steered upward to 84% led
by 8.8% demand growth despite 9 MT capacity additions.
Limited capacity addition in FY20 shall aid stable utilization of 83-84% in fiscal 2020 despite moderation in demand. Further with
demand growth outpacing supply growth over next five years, utilization levels shall continue to be elevated.
Capacity utilisation level for Indian steel market
P: Projected
Source: Joint Plant Committee (JPC), CRISIL Research
Global steel capacity declined by 1.3% and 0.3% in 2017 and 2018 respectively; global steel capacities to increase
by ~52 MT through 2020
Global steel capacity declined by 0.3% to ~2240 million tonnes per annum (MTPA) in 2018 which can be majorly attributed to the
capacity cuts in China. China leads in production capacity at 1023 MTPA, followed by Japan, US, India and Russia.
According to the recent report, Organisation for Economic Co-operation and Development (OECD) has estimated 52 MTPA of
gross capacities to commission during 2018-2020. Middle East is expected to witness a major capacity addition of 31.5 MT
followed by Asia and Africa at 19 MT and ~6 MT respectively. The Commonwealth of Independent States, Latin America, United
States (US) and Canada have combined capacity increases underway of 4.3 MT. Further capacity cuts in China will moderate the
net global capacity additions.
Suppressed utilisation rate due to prevalent global oversupply situation, resulted in limited capacity addition over the last few
years. In 2017, despite strong estimation for global steel demand growth at 6-8% on-year; demand-to-capacity ratio stood weak at
0.7 in 2017. Capacity were majorly added in emerging economies especially in Asia, US, and India while China was on the path of
stringent steel capacity cuts since 2016. The capacity cuts in China are targeted through the closure of more polluting induction
and blast furnaces.
Global capacity outlook
Source: World Steel Association (WSA), OECD, CRISIL Research
China- capacity and utilisation rates
Source: WSA, OECD
China’s capacity reduction programme ahead of schedule
China has set a 150 MT capacity reduction target till 2020 along with bringing down its crude steel output within one billion tonnes.
It also aims to achieve a capacity utilisation of around 80% with 60% industry concentration of top ten steel enterprises. Despite
stringent capacity reduction measures, the effective capacity cuts remain key monitorable as new Electric Arc Furnace (EAF)
capacities of 20-30 million tonnes is estimated to commission.
The country has eliminated 65 MT blast furnace capacity in 2016 followed by 50 MT cut in capacity in 2017. Even in 2018, China
achieved cut of 25-30 MT which bring the total reduction over the three years to 140-145 MT. It further plans to achieve cuts of 20
MT in 2019 thereby being way ahead of its target. Also, China closed around 140 MT of non-operational Induction Furnace (IF)
capacities in 2017. However, these capacities were unaccounted for and were not included in the 1.1 billion tonne of crude steel
capacity. During early 2019, the Chinese government has pledged to further reduce installed crude steel capacities by 28 MT.
Going ahead, supply tightening in China is expected to further increase due to implementation of Blue-Sky Three-Year Action
Plan. The plan reiterates focus on pollution control with more cities included in the restriction list, implying higher winter cuts in
steel production.
China measures to curtail capacity
We expect steel demand growth from China to moderate to (2)-0% CAGR over the next five years. On the supply front, despite
Chinese government’s target to shutdown capacities, we expect the overcapacity to prevail. However, global steel demand
growth at 1-3% CAGR through 2023 to narrow demand-capacity gap to 500-525 MT from 561 MT in 2018. Capacity additions to
be limited except for several anticipated in emerging economies such as India and Middle East. US is also expected to introduce
few capacities with restricted imports after steep import tariffs imposed.
Global utilization rates to rise
Over the next five years, global steel demand is expected to grow at 1-3% CAGR coupled with moderate capacity additions to
support utilisation rates.
Global utilisation levels were on a downturn till 2016 as major economies recorded marginal decline or de-growth in crude steel
outputs. However, the utilisation rates changed course in 2017 led by healthy production volume growth primarily by China, India
and US at 5.7%, 6.2% and 4% on-year. On the other hand, Japan’s production declined marginally by 0.3% on-year. In 2018,
production volume growth for China, India and US was 6.6%, 4.9% and 6.1% respectively with total world production of 1808
million tonnes (4.5% y-o-y growth).
In wake of plummeting capacity in China, limited global capacity additions are expected. Further, healthy production estimates on
back of modest demand growth of 2-4% in 2019 to push utilisation levels further 82-84%. There could be potential upside in
capacity additions by emerging economies in Asia, Commonwealth of Independent States (CIS), etc.
Global steel industry utilization rates
P: projected
Source: CRISIL Research and WSA
Profitability to be under pressure in FY20

28-NOV-2019
In fiscal 2020, moderating demand growth prospects in China shall weigh on global steel prices and domestic realizations, thereby
impacting profitability
Profitability to be under pressure in fiscal 2020

The first half of fiscal 2020 saw a contraction in EBITDA spreads for large players by 590 bps on account of 10% on-year decline
in realisations for the same period.
Moderating demand growth prospects in China shall weigh on global steel prices coupled with global oversupply shall weigh
on domestic realizations which shall correct by 6-8% in FY20. While coking coal prices are expected to fall, moderating demand
and declining realisations is likely to impact margins by 300-400 bps in fiscal 2020 for large players.
With continued moderation in steel prices in fiscal 2021, profitability for non-integrated players is likely to be impacted again on
account of high bid premiums in upcoming iron ore auctions. Margins for large players is expected to be rangebound at 0-100 bps
in fiscal 2021 over fiscal 2020 on account of declining coking coal prices despite muted realisations.
Review: Swift recovery in domestic hot rolled coil (HRC) prices along with the government support, drove the operating margin of
large domestic steelmakers to 17.7%, an increase of 630 basis points (bps) in fiscal 2017. On the contrary, operating margin
expansion for small and mid-size (long steel) manufacturers was restricted to a mere 200 bps during the same period due to
limited recovery in long steel prices.
In fiscal 2018, the operating margin of large players further expanded by 140 bps to 19.1% on the back of higher input prices and
firm steel demand. For small and mid-size players, operating margin grew by 380 bps, on the back of higher realizations, along
with better export volumes in long steel segment.
Operating margins for large players rose by 360 bps year-on during fiscal 2019 as healthy global spreads coupled with currency
depreciation and robust volume growth augured well for large player’s profitability. On the other hand, small and mid-size players
reported around 200 bps decline in operating margins during the same period.
Summary - prices and profitability
Note: 1. Large players include JSW, Tata Steel (including Tata BSL from FY19), SAIL and JSPL.
2. Small and mid-size players include a sample of 15 companies (majorly long producers) E: Estimated; P: Projected

Large player operating margins (%)
Note: The set includes the financials of SAIL, Tata Steel (including Tata BSL from FY19), JSW Steel Ltd and JSPL
In fiscal 2019, operating margin of large players expanded by 360 bps on-year due to healthy volume growth and rise in
realization. Sales volume growth for players such as JSW steel and SAIL stood at 1% and 9% on-year respectively while Tata
steel posted strong 34% on-year volume growth supporting profitability (inclusive of Tata BSL from FY19). Realizations increased
on the back of a 14% rise in domestic flat steel prices.
Player-wise FY 2019 performance
Source: Company results
Small and mid-size player (long steel) margins to be under pressure in FY20
Profitability of small and mid-size players (largely operating in the long steel segment) improved by 380 bps in fiscal 2018, on the
back of healthy realizations coupled with exports growth. Secondary domestic long steel prices increased by 25% on-year coupled
with 270% on-year growth in long steel exports. In fiscal 2019, operating margins of these players declined by 200 bps. Going
ahead with long steel prices correcting in line with global prices in FY20 and no major correction in domestic iron ore prices, we
expect profits to be under pressure for these players.
Operating margins of small and mid-size players (%)
Note: Raw material prices estimated basis blending of sponge iron, scrap, and pig iron prices.
Financial stress a remains a cause of concern, particularly for small and mid-size players
The huge debt incurred by large steel manufacturers to finance their capital expenditure over the past few years has led to a
deterioration in their credit profiles. The improvement in their net margins in fiscal 2019 was restricted by high interest outflows and
a rise in depreciation costs due to capacity expansions. Consequently, the debt-servicing ability of large players will continue to
remain under pressure in the near term considering the elevated debt levels in the industry.
Debt-servicing indicators of larger steel players
¿¿¿¿¿¿¿Note: The set of larger players include SAIL, Tata Steel (Tata BSL from FY19), JSPL (standalone) and JSW Steel
Source: Company annual reports and CRISIL Research

Resolution of NCLT cases to resolve industry’s debt issue to a greater extent; Lenders to bear heavy haircuts
The outstanding debt exposure of banks to the steel industry stands at Rs.2.82 lakh crore as of March 2019, as reported by the
Reserve Bank of India (RBI). Due to mounting debt and the significant exposure of banks to the sector, lenders reported five major
steel manufacturers, namely Bhushan Steel Limited (BSL), Essar Steel Limited, Monnet Ispat and Energy Limited (MIEL),
Electrosteel Steel Limited, and Bhushan Steel and Power Limited (BSPL) to the National Company Law Tribunal (NCLT) under the
bankruptcy code in round one. These five companies, in total, account for 45% of the sector's outstanding debt. A further six
companies have been reported in round two.
A total of 16 stressed assets in the steel sector including few from NCLT 1 list have completed resolution process as on March
2019. The 16 steel assets had Rs 0.9 lakh crore of stressed debt, and the haircut post resolution was 47%. Further, if we consider
two steel assets from the National Company Law Tribunal-I (NCLT-I) list that are inching towards resolution / closure, the total
liability resolved in the steel sector will double to Rs 1.9 lakh crore. Here, as much as Rs 1.1 lakh crore would be recovered, which
translates into a haircut of 42%.
Status of steel sector debt resolved/ inching towards resolution under IBC
Note: Essar Steel and Bhushan Power & Steel (BPSL) are inching resolution under NCLT-I. Highest last bid has been considered fo
Source: Insolvency and Bankruptcy Board of India, Industry, CRISIL Research

List of companies under rounds 1 and 2
Prices increased during the month of January 2020 due to improved demand sentiments
31-JAN-2020
Going forward, flat and long steel prices are expected to increase following global cues and some recovery in domestic demand
Domestic steel price movement
Hot Rolled (HR) coils
Domestic prices and landed cost- HR coils
International prices- HR coils
Domestic HR prices to increase in February 2020
During the month of January, FOB Black Sea prices increased by 9.3% on m-o-m basis, while FOB China prices increased by
5.1% on m-o-m basis. Winter production cuts in China coupled with slight pick up in demand led to increase in steel prices.
Domestic prices increased ~5% on m-o-m basis in January 2020 folowing global cues. CRISIL Research expects prices to
increase further in Feb 2020 as several large players have already increased their offers for February by Rs 500-1000 per tonne.
Cold-rolled (CR) coils

State of the market
Domestic and landed cost- CR coils
International prices- CR coils
CR domestic steel price to follow the trend of HR price
International indexed CR coil price increased by 8.4% m-o-m in January 2020 while domestic CR prices increased during the
month by 7.2% on account of pick up in demand. CR prices are expected to increase further in Feb 2020 following the trend of HR
prices.
Galvanised products
State of the market
Domestic prices- galvanized products
Galvanised steel prices to rise in February 2020
International galvanized prices improved by about 1.7% m-o-m in Jan 2020. On domestic front, galvanized steel prices increased
by 6% m-o-m.
The prices are expected to rise moderately in Feb 2020, in line with HR and CR prices.
Long products
State of the market
Domestic prices- Long products
Note: Prices are ex-factory prices
Long steel prices to rise further
During January 2020, long product prices increased owing to better global market sentiments led by rising China steel prices and
improved construction activities. Going ahead, we expect prices to rise further due to improved demand sentiments.
Stainless steel products
State of the market
Stainless steel prices declined in January 2020
In Jan 2020, global stainless HRC prices increased by 1.3% while CRC prices increased by 0.8% m-o-m while domestic stainless
steel prices declined by 4% due to subdued demand.
Going ahead, we expect stainless steel prices to remain rangebound with downward bias as demand is not expected to pick up
soon.
World crude steel overview
Global steel production increased by 4% on-year and 2.9% on m-o-m basis
Global crude steel production rose by about 3.5% on-year to touch 1849 million tonnes in CY2019.
In the month of December, production in US declined by 0.3%, while, Japan witnessed a decline of 8% on-year. With respect to
regions, Asia registered an increase of 7.3% on-year driven by China (11.6% on-year). On the other hand, EU registered a decline
of 11.6% on-year. On monthly basis, production increased across all regions.
Results preview: Q3 fiscal 2020
13-DEC-2019
The third quarter is expected to continue seeing a squeeze on the industry's profit margin on-year, owing to weak realisation.
However, the situation shows some improvement on-quarter.
Results outlook (October-December 2019)

Key financial indicators
E: Estimated
Notes: (i) Aggregates include results of 24 companies
(ii) EBITDA margin (*) reflects change in basis points (bps)

Consolidated revenue of the sample set is expected to decline ~18% on-year in the third quarter of fiscal 2020 owing to fall in realisation and
moderating demand growth
Domestic steel prices are expected to decline 10-12% in the third quarter following global cues, despite pick up in steel prices post
October 2019
EBITDA (earnings before interest, tax, depreciation, and amortisation) margin is expected to be under pressure on-year, led by slump in
domestic realisations. However, falling coking coal prices coupled with stable domestic iron ore prices would provide some respite to the
players
EBITDA margin is expected to decline 350 bps on-year in the third quarter. Sequentially, however, margin is expected to improve
100-140 bps on-quarter, owing to falling coking coal prices
Domestic steel product price trend
E: Estimated

Raw material price trend
Note: Iron ore price indicates 62% to below 65% Fe grade fines. Coking coal price (Australia FOB) indicates spot price.
Source: Indian Bureau of Mines, CRISIL Research

EBITDA margin to contract (on-year)
E: Estimated
Source: Company reports, CRISIL Research

Key industry parameters
E: Estimated
Results review: Second quarter of fiscal 2020

06-DEC-2019
The steel industry's margins declined on low realisations and high costs; however, profits improved due to corporate tax reforms
by the government.
Results review (July-September 2019)

Key financial indicators
Notes: (i) Aggregates include 24 companies, which account for ~67% of domestic industry
(ii) EBITDA and net profit margin (*) reflect change in bps
Aggregate revenue declined 15% on-year owing to contracting realisation and moderating consumption on account of weak demand from the
automobiles and construction segments.
Steel exports rose 59% on-year, whereas imports rose by 9% on-year as steel players shifted to the export market on account of
subdued domestic demand
Domestic flat steel prices averaged Rs 38,150 per tonne, 15% lower on-year, while international prices also declined by 15% on-year to
$490 per tonne. However, long steel prices increased marginally by 1% to Rs 38,193 per tonne (thereby driving relatively better results
for long steel players)
Revenue of large manufacturers such as Tata Steel, JSW Steel and Steel Authority of India, which accounted for 85% of the set, d eclined
17% on-year.
Average realisation of JSW Steel and Tata Steel declined 21% and 15% on-year, respectively. While sales volume for JSW Steel
declined by 9% on-year, Tata Steel saw a 3% decline in sales in the second quarter of fiscal 2020
Realisation of Steel Authority of India also decreased 8% on-year, which, coupled with a 9% decline in sales volume, led to a 16% on-
year decline in revenue for the second quarter of fiscal 2020
Jindal Steel and Power Ltd saw a 5% on-year top line de-growth in the second quarter of fiscal 2020
EBITDA margin shrunk 618 basis points (bps) due to declining realisation.
While domestic iron ore prices were range-bound, a 14% on-year decline in coking coal prices in the second quarter offered some relief
Net profit of steel companies rose 98% on-year, which saw the net margin increase by 520 bps on-year on account of a corporate tax
cut by the government
EBITDA per tonne for Tata Steel, JSW Steel and SAIL declined by 39%, 37% and 38% on-year , respectively, due to declining
realisations, moderating demand and rise in raw material prices
Company-wise financials

Impact of GST rate
19-MAY-2017
GST rate to bring no change to Steel Products; however, reduction in coal tax to benefit steelmakers
Neutral GST impact on Steel Products
Impact of NSP 2017

04-MAY-2017
National Steel Policy a long term gain for domestic steelmakers
Background:
The Union Cabinet approved the National Steel Policy (NSP), 2017 on May 3rd. The new NSP is in step with the government’s
long term vision to give thrust to the steel sector. It seeks to enhance domestic steel consumption, ensure high quality steel
production, and create a technologically advanced and globally competitive steel industry.
Key Elements of NSP:
Source: Draft NSP, Ministry of Steel
Vision on demand, supply and trade in the NSP
Increase consumption of steel across major segments of infrastructure, automobiles, and housing, resulting in a potential rise
in per capita steel consumption to 160 kg by 2030 from ~60 kg at present.
Achieve 300 MT of steel-making capacity by 2030 through additional investments of Rs 10 lakh crore by 2030-31.
Domestically produce steel for high-end applications - electrical steel (CRGO), special steel and alloys for power equipment,
aerospace, defence, and nuclear applications
Reduce reliance on imports to nil and export ~24 MT of steel by 2030
Vision on raw materials access and development of cost effective advanced

technology
Ensure availability of raw materials such as iron ore, coking coal and non-coking coal, natural gas, etc., at competitive rates
through policy measures, asset acquisitons, etc.
Raise availability of washed coking coal to reduce import dependence on it to 65% by 2030-31 (from 85% at present)
Focus on pelletisation, through investment in slurry pipelines and conveyors
Emphasis on increasing share of Blast Furnace (BF) route to 68% by 2030 (as per draft steel policy)
Adoption of energy efficient technologies in the micro, small and medium enterprise steel sector, to improve overall
productivity and reduce energy intensity
Historical trend and NSP vision of Indian steel industry
Source: Draft NSP, Joint Plant Committee (JPC)
Our perspective
Demand
The government envisages domestic steel consumption to grow 7% through 2030. In the last decade (2006-07 to 2016-17),
domestic steel consumption grew at a steady pace of 6%. After a stellar performance of 9% between 2006-07 and 2010-11,
demand growth slowed down significantly from 2011-12 onwards, and averaged 3.4% in the past five years, mirroring the
slowdown in gross fixed capital formation and other consuming sectors. (Steel demand to GDPmultiplier averaged 0.5x during the
past five years, as against 1.2x in the past two decades).
Over the next five years, CRISIL Research expects steel demand to register 6-6.5% growth driven by various government led
initiatives in affordable housing and infrastructure sector, coupled with robust growth in automotive and capital goods segments. A
similar trajectory of growth in expected to continue even in long run, subject to continuation of government’s initiatives. Also, the
policy is expected to encourage in-house production of flat and alloy steel products, reducing their share in overall imports.
Capacity
The government’s vision of adding 182 MT of new capacities over the next 14 years seems unlikely, given that only 60 MT of
capacity was added in the past decade. Further, stagnant demand in past five years has impacted utilisation, and also aggravated
the debt position of the steel sector. Several global steel majors such as POSCO and Arcelor Mittal have scrapped various
greenfield steel projects, owing to land acquisition and raw material linkage issues.
CRISIL Research expects 24-26 MT of steel capacities to be added over the next five years, leading to aggregate steel
capacity to rise to 140-145 MT by 2021-22. Beyond this, the trajectory of demand growth, continued government support, and
pricing environment in backdrop of global over-capacity led by China would be key determinants of pace of capacity addition.
Trade
The government envisages India’s steel exports to rise to 24 MT by 2030-31 (from 4.1 MT in 2015-16 and 8.2 MT in 2016-17).
Even in its NSP 2005, it had envisioned exports to touch 26 MT by 2019-20. However, low cost competitiveness in global markets,
and over-capacity in China, led exports to stagnate at ~5 MT over the past decade or so. In 2016-17, there was a recovery, as
numerous trade barriers on Chinese steelmakers and muted domestic demand saw exports rise 102% to touch 8.2MT. However,
in the long term, with markets getting more concentrated, and looming risk associated with over-capacity in China, we expect
exports to stay range bound between 8-10 MT.
The NSP has envisioned nil imports by 2030. After a surge in 2015-16, government safeguards capped imports in 2016-17 at 7.4
MT. Reduction in imports will be a function of development and partnerships for advanced technology to manufacture value added
steel, as well as global trade agreements (relevance of FTA signed with key countries).
Raw materials access and technology development
Rising share of large players and emphasis on high quality/grade steel has resulted in a jump in the share of BF from 41% to 48%
in the past decade. Over the next five years, we expect its share to rise further to 53%, with large players adding capacities
through the BF route. Even in the long term, we expect BF to continue its dominance. However, rising availability of scrap on the
back of vehicle scrappage policy, development of domestic scrap collection market and shredding facilities, and rising coking coal
price could limit expansions through BF route.
India is expected to continue largely relying on coking coal imports, and government efforts to reduce coking coal
dependence to 65% looks farfetched as this would entail a fourfold increase in domestic met coal output from current levels of 14
MT (last five year production declined at 3 per cent CAGR). Further even after employing modern coal washing technology , the
ash content is expected to reduce to about ~15-20%, which still renders the coal unsuitable for steel making without significant
blending of high grade imported coal. Moreover, yield rates (raw to washed coal) of washeries is only 20-25%, which will also
restrict the domestic supply.
Breather on profitability front expected with continued government support

12-AUG-2016
The government on Aug, 2016 extended minimum import price on 66 steel products and has also levied an anti-dumping on Aug 9
on HR coils and plates. Anti-dumping duty on CR coils is also expected soon. With this we expect prices in the domestic market to
rise. However, given the demand-supply imbalance in the market we expect prices uptick to be marginal. Consequently, operating
margins are expected to improve with higher realisations and lower raw material cost.
Government's continued efforts to safeguard domestic steel industry
< 1>
Background
The levy of minimum import price (MIP) for two additional months on the pruned list of 66 products on August 4, 2016. Further to cover the other products, the
government on August 9, 2016 levied an anti-dumping duty on HR coils and plates in the range of $474-557 per tonne on six countries such as China, Russia,
Japan, Korea, Brazil and Indonesia for a period of six months. It is also expected to levy an anti-dumping duty on CR coils soon. With this
the government continues to safeguard and shield the domestic steel industry which has been bleeding on account of lower realizations and higher imports since
second half of 2014-15. In the wake of expected levy of anti-dumping duty, the government has hence discontinued the safeguard duty on flat rolled and hot-
rolled coils which it had imposed in March 2016.
In the recent past the government has undertaken several initiatives / acts to protect the debt laden industry. Though the government had hiked the custom duty
on imports (of flat and long steel products) twice, by 2.5% each, in June and August 2015, and had also imposed a 20% provisional safeguard duty on hot rolled
(HR) coil imports in September 2015, to protect the domestic industry, the steps were inadequate for the domestic manufacturers. Consequently, on 6th
February 2016, the government levied an MIP on 173 iron and steel products including semi-finished products and flat and long steel products for a period of six
months.
<>
These initiative aided the domestic industry with prices inching up, however, the uptick was limited on account of demand-supply imbalance (low off-take
especially in recent 1-2 months emanating from weak demand as well as seasonality induced impact). With MIP??????s time period expiring out, the
government recently announced continuation of MIP on a pruned list of 66 products (from the earlier 173 products) for additional period of two months. The items
primarily include semis, value-added flat and long products, etc. However, HR, CR, and plates are excluded from the purview of MIP with a proposed /
recommended anti-dumping duty expected on the products. MIP is applicable on imports from 6 countries namely Japan, Russia, Korea, China, and Brazil.
With the aforementioned efforts, the government has effectively covered the entire gamut of the earlier 173 iron and steel products.
Imports expected to decline with government support

Over the last two years, imports have risen sharply in both carbon steel and alloy steel segments, especially from countries like China, Korea, Japan and Russia.
In the past, India's import basket largely
comprised of value-added cold-rolled (CR) steel, plates and electrical steel which are not manufactured domestically owing to lack of technology. But, over the
past two years, imports of commodity grade have also surged on account of massive overcapacity in the key export countries.
While MIP was implemented in Feb 2016, however, on account of prevailing quarterly contracts the imports continued their upward trend through Q4 2015-16.
Also as per our interactions with industry sources, very few new contracts were signed in the last quarter, signs of which are visible in Q1 2016-17 import data.
Imports were down by 28% on-year in Q1 2016-17, thereby aiding the domestic industry and supporting pricing pressure. We expect this trend to continue, as
the various measures announced by the government will ensure that the landed cost of imports continue to trade at a premium to the domestic prices, thus
discouraging imports during the year. Consequently, we expect imports to decline by about 34% y-o-y to about 7.5-7.7 million tonnes.
Overall steel imports to decline with government support
< ddress>
P: Projected
Domestic prices to witness a momentary spike, however, to stabilize soon after

Despite provisional safeguard duty the domestic flat and long prices were under pressure on account of falling global prices which touched lows of USD 250 /
tonne for HR in December. However, the imposition of MIP in February 2016 provided a much-needed breather to the industry and encouraged domestic
manufacturers to increase their prices gradually with prices increasing by Rs. 4,000-5,000 / tonne for flat products and Rs. 2,000-2,500 for long products during
December 2015 and May 2016. However, in recent two months the prices exhibited a downward trend following weak demand offtake and heavy monsoon and
seasonal weakness.
Domestic price movement
< ddress>
Despite the discontinuation of MIP on HR coils, we do not expect HR coil prices to fall further in August 2016 owing to:
Levy of provisional anti-dumping duty on six countries. The anti-dumping duty is expected to act as a floor prices below which imports will be restricted
from the six countries mentioned.
Difference in landed cost and domestic prices- HR coils and TMT bars
< ddress>
Note: The international price and exchange rate reflect average for the month of July 2016
*Expectations based on discussions with industry participants
**The prices are reflective of average CIS- Fob Black Sea prices for the month of July.
The government has levied provisional anti-dumping duty on HR coils and plates in the range of $474-557 per ton on six countries (China, Japan, Korea, Brazil,
Indonesia and Russia) for a period of six months. Anti-dumping on CR coils is also expected to be levied soon. However, in the wake of this the government has
discontinued the safeguard duty that it had levied on HR coils in March 2016. With MIP on long products and anti-dumping duty on the flat products, we expect a
momentary spike in prices for a short term. Despite the continued high differential between landed costs and domestic prices, players will not be able to sustain
a further upward price trajectory given demand-supply imbalance (while demand is expected to pick pace in 2016-17 at a moderate pace, however, continued
over-supply will limit the uptick). Commissioning of new capacities over the last two-three years has heightened the competition in the domestic market.
Consequently, we expect flat product prices to rise by about 5-8% in 2016-17, while that of long products are expected to remain range-bound with an upward
bias.
Price expectations in 2016-17
< ddress>
Operating margin to improve, credit profile to remain stressed for most companies
We expect operating profitability of steel manufacturers to consequently improve in 2016-17 on account of expected increase in realisations coupled with lower
raw material cost. While we expect EBITDA margin of larger players to improve by 500-600 bps y-o-y in the next fiscal, small and mid-sized players are expected
to witness only a 200-300 bps rise in margin as they will continue to face pricing pressure and will have to pass on the benefit of fall in raw material prices as
well.
Despite this, we believe the debt-servicing ability of the industry will remain stressed given the elevated debt levels in the industry. Several steel manufacturers
have huge debt on account of large capital expenditure over the past few years which has resulted in deterioration in their credit profile. High cost of financing,
margin pressure in the last fiscal further pressurised the financial health of the companies and has further increased the interest burden for these players.
Consequently, though we expect operating margins of the large players to improve in the near term, the debt-servicing ability of players will continue to remain
pressure and stressed in the near term given the elevated debt levels in the industry.
Profitability of large players to improve
< ddress>
P: projected
Properties of steel highly dependent on alloying elements and production process

18-JUN-2019
Steel is an alloy containing a high proportion of iron with some carbon. Other alloying elements may also be present in varying
proportions. Steel properties are dependent on the proportion of alloying elements and also on the heat treatment the metal is
subjected to. Steel is characterised by high strength, low weight, durability, flexibility and corrosive resistance. It is widely used in
construction, automobile and consumer durables industries.
Steel - most widely used metal globally
Steel is the most common metal alloy in the world. In its simplest form, it consists of iron and carbon with carbon varying between
0.02% to 1.7% by weight. Carbon is the most cost-effective material to make an alloy with iron, but other alloys can also be used
along with carbon to give steel certain properties. The flexibility to adjust its composition and customise its properties makes steel
a versatile material. Thus, steel serves a variety of purposes from manufacturing paper-clips and razor blades to bridges, beams
and columns for skyscrapers.
Steel forms the backbone of all industries, and is one of the basic ingredients for a country's growth and development.
Traditionally, the steel industry's fortunes have been linked to the economic cycle of a country. Steel is also the most commonly
traded commodity across the globe.
Properties of steel
Steel applications
Steel is the most widely used and most widely recycled metal on earth. Steel, in its various forms and alloys, offers different
properties which help to meet a wide range of applications. Manufacturers also use it extensively for various purposes because
of its strength and low cost of production. Its usage ranges from industry applications to everyday tools and materials. It is used in
power transmission towers, natural gas pipelines, machine tools, military weapons, etc.
Applications of steel
Primary steel products: Flats and longs

18-JUN-2019
Steel can be classified as carbon steel and alloy steel. Steel products are classified as flat and long products. Within flats, steel
products can be further converted into HR coils, CR coils and GP/GC; they are generally used in automobiles and consumer
durables industries. Long products are converted into bars and rods, structurals, and rails, and are mainly used in construction.
The most widely-used alloy steel is stainless steel.
Carbon steel - commonly produced variant of steel
Based on its composition, steel is classified into plain carbon steel and alloy steel.
Carbon steel
Carbon steel is also known as non-alloy steel. It is composed of iron and carbon and is the most commonly produced variant of
steel (90% of global steel output). It contains carbon in varying proportions (up to 1.7%) along with manganese (up to 0.9%) and
silicon (up to 0.3%). A change in the composition of carbon affects the properties of carbon steel. Mild steel is the most widely-
used variety of steel. These steels, by definition, do not contain any alloying element in specified proportions.
Categories of carbon steel
GP: Galvanised plains; GC: Galvanised corrogated; TMBP: Tin mill black plates; El: Elec. sheets
Alloy steel
Steel that is produced with one or more elements in a specified proportions to impart specific physical, mechanical, metallurgical
and electrical properties is known as alloy steel. Common elements used to make alloys include manganese, silicon, nickel, lead,
copper, chromium, tungsten, molybdenum, niobium and vanadium. Alloy steel comes in different grades, which have varying
proportions of carbon and other elements. These elements determine the property of steel. Different types of alloy steel have
different applications. For instance, hard abrasion-resistant steel is used to make industrial tools, heat-resistant steel is used in
high-temperature applications, and fatigue-resistant steel is meant for mechanical applications. Although this category consists of
high-value steel alloys, volumes are very low in the segment compared with those of carbon-steel products.
Properties added to steel by alloying elements
The most widely used alloy steel is stainless steel. It is a corrosion-resistant metal and has chromium and nickel as major alloying
elements.
(a) Stainless steel: It essentially contains chromium (normally more than 10.5% with/without nickel or other alloying elements). As
the name implies, stainless steel resists staining/corrosion and maintains strength at high temperatures. It is used widely in
utensils, architecture and in industrial applications, namely, automotive and food processing products, as well as in medical and
health equipment.
Commonly used grades of stainless steel (SS) are:
(b) Silicon-electrical steel: It usually contains 0.6-6.0% silicon and exhibits certain magnetic properties that makes it suitable for
use in transformers, power generators, and electric motors. It is normally supplied in two categories:
Sourcing: CRISIL Research
c) High speed steel: Alloy steel containing tungsten, vanadium, chromium, cobalt and other metals. Depending upon the
composition, it is classified as cobalt grade and non-cobalt grade. It is used for manufacturing cutting tools.
Types of steel products
Products obtained on hot rolling/forging of semi-finished steel (blooms/billets/slabs) from both carbon and alloy steel can
be broadly classified as long products and flat products.
a) Flat products (flat rolled products)
Flat products are produced from slabs/thin slabs in rolling mills using flat rolls. Flat products comprise hot rolled (HR), cold rolled
(CR) strips and coated products. Hot rolled flat products are produced by re-rolling of slabs/thin slabs at high temperatures (above
1,000 degree C) in plate mills or in hot strip mills. CR strips are produced by cold rolling of HR strips in cold rolling mills (normally
at room temperature). CR strips/sheets are characterised by lower thickness, better/bright finish, closer dimensional tolerance and
specific mechanical/metallurgical properties. The different types of flat products are:
Coated flat products: These are CR products coated with metals or organic chemicals:
Coated flat products
b) Long products
Finished steel products are normally produced by hot rolling/forging of bloom/billets/pencil ingots into useable shape/sizes. These
are normally supplied in straight length/cut length except wire rods, which are supplied in irregularly wound coils. The different
types of long products are:
Long products
Steel industry – Pre- and post liberalisation (Evolution through 2014)
18-JUN-2019
From 1991-92 to 2001-02, domestic steel demand and profitability declined. However, from 2002-03 to 2007-08, demand rose at a
healthy pace and rising steel prices gradually improved the profitability of domestic steel players. In 2008-09, however, steel
demand fell owing to the global financial crisis, affecting the profitability of steel players. Since raw material prices had increased
during the year due to a supply crunch, the margins of players had shrunk.
Humble beginnings: Pre-liberalisation scenario
The Indian steel industry is over 143 years old. The first steel plant was set up by the Iron Work Company at Kulti in West Bengal
in 1870. However, large-scale production commenced only in 1907 when the Tata Iron and Steel Company (currently Tata Steel)
set up its steel plant at Jamshedpur, Jharkhand. This plant commenced production of iron in 1911 and steel in 1913.
Economic self-reliance, balanced regional development led to regulation of steel and user
industries
Post Independence, the development of core industries like steel was seen as a means to achieve economic self-reliance. This led
to the introduction of the freight equalisation scheme to facilitate balanced regional development. The scheme ensured uniform
landed price for major input materials for user industries in different parts of India by fixing the ex-factory prices of goods and
controlling railway freight.
Excessive regulations lowered domestic productivity vis-a-vis global standards
Public sector units provided employment opportunities for skilled labour and were committed to social development. As user
industries (construction, automobile, etc.) were highly regulated, market forces could not encourage competition. Over the years,
these units added extensive manpower to their establishments. Moreover, their productivity was lower vis-a-vis international
standards as they used obsolete technology and lacked customer orientation. According to industry sources, during this time,
labour productivity of domestic players approximated 66% of global standards.
Employee productivity in 1990-91
Source: Statistics for Iron & Steel Industry in India
Dawn of liberalisation in 1991
In 1991, the steel industry, like many other industries, was de-licensed and private players were encouraged to manufacture steel.
Liberalisation improved competition and encouraged private participation
The important policy measures undertaken during this period for the growth and development of the Indian iron and steel industry
were as follows:
In the new industrial policy announced in July 1991, iron and steel industry among others, was removed from the list of industries reserved for
the public sector and also exempted from the provisions of compulsory licensing under the Industries (Development and Regulation) Act, 1951.
The industry was included in the list of 'high priority' industries for automatic approval of foreign equity investment up to 51%. The limit, since
then, has been increased to 100%.
Pricing and distribution of steel was de-regulated from January 1992. However, it was ensured that requirements of certain essential sectors
were met.
Import duty for the iron and steel industry was lowered. Exports were also freely allowed. Import duty on capital goods was reduced from 55%
to 25%. Duties on raw materials used in steel production were reduced. These measures brought down capital costs and production costs of
steel plants.
Withdrawal of the freight equalisation scheme in January 1992 and levy on account of Steel Development Fund from April 1994, provided
greater flexibility to large producers to respond to market forces.
These changes sowed the seeds of competition among players, and the focus shifted towards reducing production and
transportation costs. Huge investments were made in the industry.
Since 1997-98, Indian producers have managed to significantly lower their operating costs, mainly through improvements in their
material and energy consumption ratios. Moreover, some producers, such as Tata Iron and Steel Company (currently Tata Steel),
Essar Steel and Jindal Vijayanagar Steel Ltd (currently JSW Steel) became more cost-competent than their international
peers. Bunching up of large capacities coupled with weak demand caused oversupply between 1995-96 and 2001-02.
Post liberalisation, steel demand was expected to surge and thus, additional manufacturing capacities were set up for flat and long
products. However, as steel projects have long gestation periods, the commissioning of some projects was delayed. Furthermore,
most projects were commissioned between 1995-96 and 2001-02, when demand growth for steel products was on the decline.
Demand for steel moved up at 3.7% CAGR between 1995-96 and 2000-01 than 10.2% CAGR between 1991-92 and 1994-95,
chiefly due to slowdown in industrial growth and adverse impact of the Asian Crisis in 1997-98. Many new capacities became
uneconomical; many firms were forced to shut down, leading to job losses.
High investments post 1991 and declining demand growth led to difficult times during 1995-96 to 2001-02
Oversupply had stronger impact on flats than longs
The long products segment is characterised by small and fragmented capacities, with players varying production in line with
demand. Therefore, as demand fell between 1995-96 and 2001-02, producers adjusted their production in line with demand.
However, in the flat products segment, players were unable to adjust production levels due to higher scale of operations,
causing oversupply in the flat products category.
Wide demand-supply gap in flat products
Prices remained volatile caused by rising supply and falling demand
During 1998-99 to 2000-01, international prices of hot rolled (HR) steel were volatile and fluctuated between $200-320 per tonne.
In 2001-02, average HR prices were around $165 per tonne. However, as long products are not frequently traded,
their international price linkages are not as strong as that of flat products.
Decline in HR international prices
Average international HR prices declined to $176 per tonne in 1998-99 from $220 per tonne in 1997-98. Prices revived marginally
in 1999-2000 and 2000-01 by $12 per tonne and $6 per tonne, respectively. In 2001-02, prices declined to $168 per tonne from
$194 per tonne in 2000-01.
Between 1995-96 and 2001-02, domestic prices of steel products also remained subdued because of oversupply, with the
downtrend in international prices pressursing domestic prices.
Customs duty cut on steel products threatened domestic steel industry
The customs duty on steel products was lowered to 27-32% in 1996-97 from 50-85% in 1993-94. Although floor prices were
introduced to control the inflow of lower priced imports, imports under the advance licensing scheme continued, as these were
exempt from floor prices. As a result, between 1995-96 and 2001-02, imports accounted for around 9% of total domestic steel
consumption, despite the domestic oversupply.
Imports aided by duty cuts
Oversupply, high capital costs impacted revenues
Low growth in domestic demand compelled producers to resort to exports to maintain high operating rates. However, owing to
subdued demand in international markets, average operating rates remained low during this period, adversely impacting new
players, whose capital costs were high.
Between 1998-99 and 2001-02, nine large steel producers incurred cumulative losses of nearly Rs 96 billion, with Tisco and
Bhushan Steel being the only exceptions. Although most producers profited at the operating level, high interest and depreciation
costs led them to post net losses. For most producers, total costs exceeded domestic realisations, resulting in continuous losses
from 1997-98 to 2001-02.
Recurring losses erode net worth
Note: Companies considered to arrive at the above conclusions include: SAIL, TISCO, JVSL, Essar, Ispat industries, JISCO and Bh
Review of steel industry (2001-02 to 2012-13)
Demand
Exports - Chief cause of industry revival in 2002-03
Between 1995-96 and 2001-02, exports increased mostly because of the surplus situation in the domestic market, rather than the
ability of Indian producers to supply at a lower cost [with the exception of a few players such as Tata Iron and Steel Ltd, currently
Tata Steel]. Hence, export volumes were a function of both domestic supply and international prices. Besides this, the government
encouraged steel exports via incentives such as Duty Entitlement Pass Book (DEPB) benefits, Export Promotion Capital Goods
(EPCG) scheme and an advance licensing scheme. These schemes made exports viable to some extent for players who would
not have otherwise been able to compete in the global market.
Exports drove growth in volumes
Source: JPC, CRISIL Research
Total steel exports surged by around 37% y-o-y in 2002-03. Exports grew at 24% CAGR between 2001-02 and 2003-04,
helping the industry to revive and further expand in 2003-04. This tremendous growth was driven by:
Higher demand from China and Russia: The US imposed restrictions on imports to protect its domestic steel industry, which negatively
impacted the industry's growth. However, the negative impact was nullified by increased demand from China, following the awarding of the
2008 Olympics to Beijing in July 2001. Demand from China's automobile and white goods sector also revved up steel demand.
Consolidation in the European and Japanese steel industries: Consolidation in the European and Japanese steel industries also eased
pressure on prices by increasing the bargaining power of producers and facilitating capacity rationalisation.
Inventory build-up in major consuming regions: Anticipation of a price increase and imposition of import restrictions like quotas by the
European Union and China prompted these two geographies to stock steel, leading to higher imports.
Exports augmenting after a sharp downturn in 2009-10
In 2009-10, exports fell 27.7% y-o-y to 3,078 thousand tonnes on account of global economic slowdown and fall in overseas
demand. In 2010-11, exports increased by about 4.5% y-o-y because of higher overseas demand. The upward trend continued in
2012-13 following a surge in demand from the US and the UAE. In 2012-13, exports grew 13.2% to 4,756 thousand tonnes from
4,203 thousand tonnes in 2011-12.
In 2013-14, India exported 5.1 million tonnes of steel products, marking a growth of 7.6%, largely owing to the benefits received by
exporters due to sharp depreciation of the Indian rupee against the US dollar.
In 2014-15, steel exports declined by around 6.2 per cent in 2014-15 to reach 4.8 million tonnes, mainly owing to slowdown in
global steel demand and stiff competition in the global market. Other competitive manufacturers such China, Russia, Japan and
Korea etc. are aggressively exporting material at cheaper prices making it difficult for Indian players to export. Massive
overcapacity and sluggish demand is forcing steel makers in these countries to sell material at lower prices.
Robust growth in end-user segments drove demand from 2007-08 to 2012-13
Domestic consumption grew at a healthy 6.9% CAGR over 2007-08 (49.4 million tonnes) to 2012-13 (68.9 million tonnes),
supported by an increase in infrastructure and industrial construction investments and growth in capital goods and automobile
sales. However, following the economic slowdown, domestic demand for steel grew at a muted 4.5% y-o-y in 2012-13.
Domestic steel consumption
Domestic steel demand slowed down in 2014-15

Domestic steel demand inched up by 0.6% in 2013-14 to 69.3 million tonnes, mainly owing to the slowing economy, marking one
of the lowest growth rates in the past five years. In 2014-15, domestic steel demand grew by mere 0.5% due to lack of traction in
the contruction and infrastructure industry. In 2015-16, it is estimated to grow at 3.7% y-o-y to about 71 million tonnes, largely due
to revival in sectors such as infrastructure, construction, automobiles and consumer durables.
Note: For data post 2014/15, please refer to Our View section
Prices
Trend in prices v/s demand
HR prices declined in 2005 because of higher global supply
International HR prices increased consistently from around $180 per tonne in December 2001 to peak at $590 per tonne in
November 2004. This continuous price rise was backed by strong growth in steel demand from almost all major steel consumers.
However, the global surplus of 2005 caused HR prices to decline to a low of $416 per tonne in December 2005. According to the
International Iron and Steel Institute (IISI), apparent consumption of global finished steel grew at 7.1% CAGR, from 771.0 million
tonnes in 2001 to 1,013.4 million tonnes in 2005. China was the single largest contributor to this growth, recording a CAGR of
19.7%, followed by India at 7.6% CAGR.
Improving operating rates, input cost pressures strengthen international prices in 2006-07,
2007-08
Though the worldwide surplus situation continued In 2006-07, global operating rates improved over the previous year owing to a
slight increase in demand, partly justifying the recovery in international steel prices. Additionally, between 2005 and 2006, global
finished steel consumption increased by 10%, whereas production rose only by 9%. Consequently, operating rates improved and
prices of finished steel firmed up in the international market.
Input cost pressures along with tight demand-supply pushed up HR prices. Coke prices rose to an average of $316 per tonne in
2007-08 from around $190 per tonne in 2006-07, as higher demand for steel enhanced demand for coke. Iron ore supplies
remained tight in 2007-08 on account of supply constraints arising from port congestion in the two largest iron-producing countries,
namely Australia and Brazil. The short supply sharply lifted iron ore prices. Moreover, supply addition was constrained by
bottlenecks in the supply of capital goods required for mining activities. Additionally, firm global demand also accounted for higher
growth.
Thus, HR prices soared to $530 per tonne in December 2006 and $1,000 per tonne by April 2008. Apart from the increase in input
costs, the surge was also powered by rising demand from infrastructure investments, industrial investments and automobile
production.
Global recession exerts pressure on prices in 2008-09
In 2008-09, the steel industry was hit hard by the global economic crisis, which resulted in a fall in demand for steel from end-user
segments. Resultantly, after hitting a high of $1,180 per tonne in September 2008, international steel prices declined to a low of
$359 tonne in April 2009.
Along the same lines, in 2009-10, domestic prices slid by 14% on account of a significant fall in demand.
Global steel prices rose in 2010-11 with recovery in demand and higher raw material prices
Global steel prices increased in 2010-11 after a fall in 2009-10 owing to rise in demand and raw material prices. Domestic steel
prices, which follow the landed cost of imports, stepped up to Rs 36,854 per tonne during April-March 2010-11 from Rs 32,792 per
tonne in 2009-10. Raw material prices rose mainly as miners migrated from the traditional annual pricing model to a quarterly
pricing model for iron ore and coking coal contracts from April 2010.
HRC prices - Domestic and international
Source: Metal Bulletin, Industry
Domestic steel prices continued to rise in 2011-12 and 2012-13
In 2011-12, domestic prices continued to rise due to the marginal increase in raw material costs. Prices rose by 7% y-o-y to Rs
39,575 per tonne during 2011-12 from Rs 36,854 per tonne in 2010-11.
In 2012-13, average international price declined to $582 per tonne from $ 670 per tonne in 2011-12 as raw material prices waned
and demand for steel remained weak in the global market. However, domestic HRC prices remained relatively flat in 2012-13. A
weak rupee, a hike in the countervailing duty (to 12% from 10%) and an increase in the customs duty on flat steel (to 7.5% from
5%) have kept the landed cost of HRC imports high. Consequently, domestic steel prices remained firm in 2012-13.
Domestic steel prices increased marginally in 2013-14 and 2014-15.
In 2013-14, domestic HRC prices rose by 3% to Rs 41,358 per tonne from Rs 39,967 in 2012-13 in line with the landed cost. A
sharp depreciation of the rupee in 2013-14 (rupee averaged at 60.5 per dollar during the year as compared to 55 per dollar in
2012-13) kept the landed cost of HRC imports high.
In 2014-15, the average prices for HRC are estimated to decline by 3% to Rs 40,188 per tonne compared to 2012-13. Domestic
HRC prices slid largely due to falling international prices, weak demand and pressure from cheaper imports.
Raw material scenario
Rising iron ore and firm coking coal prices boosted steel prices
Steel raw material prices skyrocketed in 2003, as robust increase in Chinese consumption of steel created a scarcity. Fuelled by
voracious demand from China, prices of key inputs such as iron ore and scrap rose further. Iron ore and coking coal prices started
to fluctuate post the introduction of quarterly contracts in 2011, giving miners an option to change prices every three months.
Iron ore
Availability of iron ore decreased in 2010 as the government closed down several mines, especially in Karnataka due to rampant
illegal mining. The situation worsened in August 2011 when the Supreme Court ordered a complete ban on mining in Karnataka
and closure of certain mines in Odisha. Subsequently, domestic iron ore prices jumped to around Rs 7,291 per tonne in 2010-11
and remained flat in 2011-12. In September 2012, iron ore mining was completely banned in Goa to check illegal mining. In
2012-13, domestic iron ore prices increased further by 6% y-o-y, despite a fall in international iron ore prices, as a weak rupee
drove up the landed cost.
Post a complete ban on mines in Karnataka, the government partially lifted its ban (giving operational clearances to category A
and B mines) in April 2013 to improve iron ore supply in the domestic market. However, the iron ore supply situation worsened
further with the temporary closure of mines in Odisha and Jharkhand ordered by the Supreme Court in 2014. The court had
ordered closure of mines operating on second or subsequent renewals.
In March 2015, the government passed the Mines and Minerals Development and Regulation Act (MMDR Act) to improve
domestic iron ore supply. Thereafter, many mines were auctioned and licences given to players. Mines shut in Odisha and
Jharkhand are soon expected to resume operations. Those shut in Goa received clearances in April 2015 and have started
operations, after obtaining necessary clearances. Production in Karnataka (from Category A and B mines) is also expected to
ramp up gradually.
As production picked up, iron ore prices plummeted in 2015-16 and are expected to fall further in 2016-17. Iron ore lump and fines
declined by about Rs 2,400 per tonne and Rs 1,500 per tonne, respectively, in 2015-16. The government also plans to auction
about 22 mines in 2015-16.
While Karnataka is likely to auction 15 mines, Odisha and Maharashtra are likely to auction 6 and 1 mine, respectively. This offers
non-captive iron and steel players a chance to win mines, achieve backward integration and reduce their dependence on procuring
ore externally.
Coking coal
Global demand for coking coal increased at 4.3% CAGR to 854 million tonnes in 2011 from 691 million tonnes in 2006, largely led
by China - the country's consumption increased at 7.7% CAGR to 522 million tonnes from 359 million tonnes over this period. On
the other hand, demand for coking coal from Europe declined, as the economic slowdown affected demand for steel. Average
coking coal price rose to a historic high of $289 per tonne in 2011 as floods in Queensland severely impacted mining operations in
Australia. With the affected mines resuming operations and gradually achieving their peak capacities, prices of coking coal started
to ease from July 2011. Even as the supply-side disruptions abated, demand for coking coal dipped in 2012, since slowing GDP
growth of major importing countries crimped demand for steel. The contract prices of coking coal declined to $192 per tonne in
2012-13 from $288 per tonne in 2011-12. However, as India imports its coking coal requirements and pays for the same in US
dollars, the depreciation of the rupee partly negated the benefits of the steep fall in coking coal prices.
In 2013-14, coking coal prices declined sharply to $126 per tonne, largely due to adequate supply and slowing GDP growth of
many importing countries that reduced steel demand growth. In 2014-15, coking coal prices fell and ranged at about $110-120 per
tonne mainly owing to weak demand from the global steel industry, especially from China.
Coking coal prices continued to fall in 2015-16 also. Coking coal prices fell to $93 per tonne in 2015-16 mainly on account of weak
demand from global steel industry, especially from China and oversupply of coking coal in international market.
Iron ore price and coking coal prices aligned
Source: Industry, Metal Bulletin
Note: For data post 2016, please refer to Our View section
Key Risk Factors

30-SEP-2019
Debt resolution and the global overcapacity situation are the key fundamental issues concerning the Indian steel industry.
Additionally, in the short term, volatility in raw material prices impacts the margins of industry players.
Government measures and overcapacity are key risk factors

Risk factors for the steel industry
Withdrawal of government safeguard measures

The government has made it mandatory for traders to register themselves with Steel Import Monitoring System (SIMS) to import
215 iron and steel products, according to a notification issued in September 2019. The import policy these 215 items has been
revised from ‘free’ to ‘free subject to compulsory registration under SIMS'. These items include certain flat-rolled products; some
stranded wire, ropes, cables; certain items of springs and leaves for springs of iron and steel; tubes, pipes and hollow profiles;
diesel-electric locomotives; and some parts of railways.
The decline in international steel prices in 2015, especially in China, led to a surge in imports in the domestic market given that the
landed cost was trading at a discount to domestic steel product prices. The government undertook various regulatory measures
during 2015-16 and 2016-17 to curb imports. However, the measures were inadequate as international prices declined further and
imports continued.
Thus, in an attempt to shield the debt-laden steel industry, the government in May 2017 imposed a definitive anti-dumping for five
years on hot-rolled (HR) coils and plates from China, Indonesia, Russia, Brazil, Korea, and Japan. It also raised the minimum floor
price to $489 per tonne from $474 per tonne previously; and lowered the same for cold-rolled (CR) steel to $561 per tonne from
$594 per tonne. CRISIL Research expects the government to continue supporting the industry given the global overcapacity
situation.
These protectionist measures helped to prevent cheap overseas purchases that were undercutting local mills and squeezing
margins. Hence, the government’s continuing support to safeguard domestic markets from the import threat is critical for the steel
industry.
Timelines of various safeguard measures by the government
Global overcapacity
Over the past decade or so, the demand-capacity gap has increased exponentially to 500-600 million tonnes (MT) in 2018 from
300-350 MT in 2005. This is largely owing to China which now holds about 200 MT of excess capacity with additional 250-350 MT
of mothballed capacities. With the global economic slowdown and weak demand, governments in several economies are
implementing policies to curb excess capacity. In recent years, Chinese steelmakers shuttered outdated blast furnaces in a quest
to cut excess capacity and to help the environment. The Chinese government plans to cut 150 MT of capacity till 2020, especially
the less efficient and more polluting units. China has already eliminated 115 MT blast furnace capacity from the planned target.
Also, China closed around 140 MT of non-operational Induction Furnace (IF) capacities in 2017, which were unaccounted for and
not included in the 1.1 billion tonne of crude steel capacity. However, they also built new blast furnaces with reduced
capacities. Nearly 70% of the new furnaces will be operational between 2019 and 2020. The effective capacity cuts remain key
monitorable as China has granted approvals for the installation of new Electric Arc Furnace (EAF) capacities.
Fluctuations in input prices

Coking coal prices have rallied from $80-90 per tonne in the first half of 2016 to more than $300 per tonne in the fourth quarter of
2016 on the back of supply disruptions. These elevated prices were seen yet again in April 2017 on account of cyclone Debbie
and January 2018 due to supply disruptions caused by severe floods in Queensland. Thereafter, prices subsided from $240 per
tonne to $184 per tonne in May and then climbed to $227 in December 2018. Moreover, an increase of $100 per tonne in coking
coal prices results in the cost of production rising by Rs 6,500-7,000/T (for blast furnace players). However, prices have declined
by 3% for period Jan-Aug 2019 as compared to same period in 2018 and is expected to decline further due to expected constant
supply and moderation in its demand.
On the contrary, global iron ore prices have surged by 39% to $96 per tonne in Jan-Aug 2019 as compared to same period in 2018
with average price of $120 per tonne in July 2019. Domestic iron ore miners have been facing tough times over past three to four
years owing to various restrictions, driving up the iron ore prices. However, after the imposition of Mines and Minerals
Development and Regulation Act (MMDR Act) in March 2015, production has improved. Also, as the leases are expiring in 2020,
merchant miners have started ramping up production. But the uncertainty regarding timely auctions, high bid premiums seen in
recent auctions coupled with rising global iron ore prices can lead to an increase in domestic iron ore prices for fiscal 2019 and
2020.
Progress in execution of government-led programmes
In Union budget 2018-19, the government increased its outlay for steel-intensive sectors such as railways and road transport and
highways by ~15% and ~13% respectively over the previous fiscal. The higher allocation will boost infrastructure demand.
Infrastructure projects will likely provide the bulk of construction opportunity over the next five years, comprising 90% of
construction spend. The dedicated freight corridor in railways; and metros, water supply and sanitation projects in urban
infrastructure will be the key areas.
The government's affordable housing initiative, with a target to build 20 million urban and 29.5 million rural housing units by 2022,
is expected to provide impetus to the sector. Government schemes such as smart cities will provide a slow and gradual impetus to
the sector. However, execution of these government infrastructure projects will be a key monitorable to drive growth.
Resolution plan for debt-laden steel industry
With many domestic steel companies saddled with unsustainable debt levels, and cash flows from operations woefully inadequate
to service loans, debt restructuring is essential to turn around these companies. The sector's outstanding credit stood at Rs 2.9
lakh crore as on July 20, 2018 as reported by the Reserve Bank of India. As much as 60-70% is contributed by the industry's top
seven players. Multiple corporate debt restructuring cases have been filed before the National Company Law Tribunal. Out of the 5
steel companies referred to the NCLT under the bankruptcy code in the first list, 3 cases have been resolved with proceedings of
Essar Steel and BPSL underway. Out of the total debt claim of Rs 1.84 lakh crore, an estimated bid of Rs 1.05 lakh crore can be
expected with lenders taking a haircut of about 43%. However, given the timeline for resolving the matter is not fixed and, thus,
preventing a deterioration in the economic value of these stressed assets may be difficult, these cases remain a key monitorable.
Iron ore, coking coal, fluxes key raw materials used in steel production
21-JUN-2019
Raw materials used for steel production are iron ore, coking coal and fluxes (limestone/dolomite). Iron ore can be used in three
forms - lumps, fines and agglomerated fines. Agglomeration of fines is done by sintering or pelletising. Coke, the other key raw
material used, can be directly purchased from the market or manufactured from coking coal.
Steel production involves several processing stages, including iron-making, primary and secondary steel-making, casting, and hot
rolling. These are followed by fabrication processes such as cold rolling, forming, forging, joining, machining, coating and/or heat
treatment.
Steel is produced either from iron ore and coal or by recycling steel scrap; the former is most frequently used. The raw materials
required for this process are iron ore, coke/coal, limestone, dolomite and other fluxes (materials that help in the chemical process).
Iron ore
Iron ore is mineral in the form of rock found in the earth's crust. Metallic iron (Fe) can be extracted from iron ore when heated using
a reducing agent such as coke. Iron ore is rich in iron oxides; magnetite (72.4% Fe) and hematite (69.9% Fe) are the main forms
of iron ore. Others are goethite (62.9% Fe) and limonite or siderite (48.2% Fe).
Mining, reserves and production
The sixth-largest country in iron ore reserves, India has total crude iron ore reserve of 8,100 million metric tonnes with iron content
of 5,200 million metric tonnes. Odisha has the largest iron reserves in India, the other states being Karnataka, Chhattisgarh, Goa,
Jharkhand and West Bengal. India produced 201 million tonnes of iron ore as of 2017-18. 79 million tonnes of iron ore was
produced in upto August 2018 for fiscal 2019.
Source: Indian Bureau of Mines, USGS
The iron ore mines are discovered through exploration; once the location, quality and quantity of the ore body along with its value
is decided, extraction starts. Based on their excavation method, mining techniques can be classified into two main types: surface
mining and underground mining. The mining techniques are decided on the basis of proximity of iron ore to the
surface. Underground mining is used if the ores are deep inside the earth and surface/opencast mining if they are near the
surface.
Surface mining is widely used globally, being the cheapest technique to extract ore. This technique is known as open-
pit/opencast/strip mining. Opencast mining is open from the top, as the name implies. In such mines, the whole portion of land is
dug from the top until the iron ore is seen. The soil overburden is removed from the surface and then iron ore is extracted through
blasting. The ratio of overburden excavated to the amount of iron removed is called the overburden ratio; the productivity of the
mine is inversely proportional to this ratio.
Underground mining: In this type of mining, iron ore is found deep inside the earth. Depth can vary from a few metres to more
than 1,000 metres. Here, a small portion of land is excavated until the iron ore is found. Such mines have to be explored deep
inside the earth, which is difficult. This also affects productivity vis-a -vis opencast production.
Underground mining invloves two main methods of extracting coal:
Room-and-pillar (board-and-pillar)
Longwall mining
Room-and-pillar mining involves cutting a network of rooms or panels into coal seams and leaving behind pillars of coal to
support the roof of the mine. In this method, rooms are cut into the coal-bed leaving a series of pillars to support the mine roof and
control the flow of air.
Longwall mining is a highly efficient underground mining process in which a panel or block of coal, generally 700 feet wide and
often over a mile long, is extracted using an auger-like machine. The working area is protected by a movable hydraulic roof
support system. After mining the coal, the supports are removed and the roof is allowed to collapse.
Bedding and blending
Iron ore is extracted, crushed and subsequently transported to beneficiation/ pellet/ sinter plants. The iron ores that arrive at the
plant from different mines are not uniform in size and quality. The lots have to be bedded ( crushed and brought to uniform sizes)
and blended with other raw materials .
Blending and bedding process
Iron ore with more than 62% Fe content are known as natural or direct shipping ore as these can directly be used to produce iron
and steel. However, often iron ore is low-grade and in the form of small pieces or fines which cannot be directly introduced in a
blast furnace as they block the passage for ascending gas inside the furnace. Hence, small pieces or fines are agglomerated into
large lumpy pieces via the sintering or pelletising process.
Sinter
Sintering is a process through which iron ore fines and small pieces are converted into useful lumpy pieces for feeding to the blast
furnace. Sintering reduces waste and provides a more efficient raw material for iron-making. Sinter typically contains 55-60% iron.
It improves blast furnace operations and productivity, and reduces coke consumption. Presently, more than 70% of the hot metal
in the world (50% in India) is produced through sinter plants.
Sintering of iron ore
Pellets
Palletising is a process of converting very fine iron ore into pellets. Pellets are generally produced in the form of globules (closely-
bound material) from very fine iron ore. The iron fines are mixed and heated with fluxing agents such as limestone or dolomite
and binding agents such as bentonite or organic binders. Pellets are mostly used to produce sponge iron in gas-based plants.
However, these are also used in blast furnaces in some countries instead of sized (lumps) iron ore.
Coal mining, reserves and production
Coal is a combustible mineral formed from organic matter (mostly plants) that existed 300 million years ago. Coal is classified
into different types, based on its heating value, ash-melting temperature, sulphur and other impurities, mechanical strength and
other chemical and physical properties.
Coal is also mined using similar mining techniques as iron ore.
India has 319,020 million tonnes of coal reserves as of April 1, 2018 spread over 27 major coal fields, which mainly lie in the
eastern and central part of the country. Of the total reserves, 148,787 million is proven reserves and out of it only 13% is coking
coal reserves which are primarily used for manufacturing steel. During 2017-18, India produced 678 million tonnes of coal.
Type-wise, category-wise coal resources in India as on April 1, 2018
Source: Ministry of Coal, CRISIL Research
Coal bedding and blending
Coal is required to make coke which is a primary reducing agent in the blast furnace. As with iron ore, coal from different locations
is stocked separately and is blended and crushed prior to use. Coke is made from coking coal - when it is heated in the absence of
air, it melts, then goes into plastic state, and subsequently swells and resolidifies to form a mass called coke. Coking coal is
converted into coke in coke ovens, which are silica refractory-lined ovens/chambers. Coal gas is a by-product of the coke-making
process in the coke oven. Coal gas is recycled and used as fuel in the steel mill. Other by-products such as tar, benzole and
sulphur can also be recovered for further refinement and use.
Iron and steel making process

14-JUN-2019
There are three popular processes to produce crude steel from raw materials - blast furnace (BF)/ basic oxygen furnace (BOF),
electric arc furnace (EAF), and Corex-BOF. In BF/BOF, iron ore and coking coal are fed into a BF to produce hot metal. The BOF
converts the hot metal into crude steel. Steel scrap, pig iron or sponge iron is used as raw material in an EAF. The raw material is
melted using heat generated with the aid of an electric arc. Corex technology is emerging as an alternative method at the iron
producing stage.
Steel-making technologies
The blast furnace (BF) / basic oxygen furnace (BOF) route is a widely used process to produce steel. The electric arc furnace
(EAF) route has also emerged as a popular alternative. Corex is another popular technology for steel-making. Continuous casting
has replaced ingot casting and is considered as an essential requirement for a modern steel making facility.
Over the years, due to unavailability of high quality iron ore and coking coal, a key input material in BF route, has led to increased
share of EAF/IF route. However, the share of BF-BOF route has gradually been increasing owing to obtainability of good quality
input material, coupled with emphasis on new innovative technology which can utilize low grade iron ore and coal.
Source: National Steel Policy 2017
As per National Steel Policy BF/BOF will be the key route for steel production by 2030. It is expected that the share of BF/BOF will
rise to 63% by fiscal 31 from 43% in fiscal 2017 as per NSP. The Indian Steel Industry will focus on technology and models which
will enhance the BF route of production in terms of energy, raw materials, process and operations.
BF/BOF method
In the BF/BOF method, iron ore is supplied as lumps or in the form of sinter/ pellets, whereas coking coal is converted into coke
before charging in the BF.
Blast furnace
BF is a process of making iron by converting iron oxide into liquid iron. The other primary input for this process is carbon (in the
form of coke), which also comprises a major portion of the cost of the hot metal production.
Iron-making stage
BF is a vessel used to smelt iron ore and extract iron, which is subsequently refined to make steel. The process involves charging
coke, iron ore, sinter and limestone at the top of the furnace while injecting a hot air blast through nozzles (tuyeres) at its base.
This heats the furnace to close to 1,5000C. Meanwhile, the carbon in the coke and oxygen in the air blast react to form carbon
monoxide (CO), which reduces the iron ore (Fe2O3) to iron (Fe) through the chemical reaction: Fe2O3 + 3CO 2Fe + 3CO2
The iron collects in the hearth (bottom) of the furnace, where it is periodically tapped off into a ladle. This pig iron (hot metal)
contains 90-95% iron and 4-5% carbon (C).
At this temperature, the limestone (CaCO3) will also decompose to form CaO, which combines with impurities in the iron and forms
a slag that floats on its surface. This is skimmed off the top of the iron during tapping. The gases formed during these reactions are
released from the top of the furnace, where they are collected for cleaning and recycling.
The BF process is continuous, with raw materials being charged and hot metal being tapped throughout the life of the furnace,
which may be over 10 years (this is known as a campaign). If the furnace were allowed to cool, its lining of refractory bricks would
get damaged as a result of the contraction. Eventually, the refractory brick linings get worn off. At that stage, the process is
stopped and the furnace is relined with new bricks. The hot metal flows into torpedo ladles. These are specially constructed
railway containers that transport iron, still in liquid form, to the steel furnace.
Desulfurisation
The next process prior to final steel-making is desulfurisation, which may take place either in the torpedo ladle or after the metal is
transferred to another ladle in the primary steel-making plant. Here, the hot metal is injected with a mixture of calcium carbide and
magnesium granules, which react with the hot metal to form a sulfur-rich slag. This can then be scraped off the top of the hot metal
before the latter is charged to the BOF. The iron produced by the BF has a carbon content of 4.0-4.5% as well as several other
impurities, thereby making it relatively brittle. Steel-making refines iron, amongst other things, by reducing its carbon content to
make it a stronger and highly manipulable product.
Steel-making: BF/BOF process
Basic oxygen furnace
The processes carried out in the BOF are:
Steel-making stage
The basic oxygen process is the most common process for producing steel. The BOF (LD convertor) is a pear-shaped vessel lined
with refractory bricks on the inside. The vessel lining consists of tar bonded dolomite/magnesia carbon bricks or other refractories.
The vessel can be rotated in a 360o angle on its axis. Oxygen is blown into the vessel with the help of a water-cooled lance.
The 'heat' begins with the addition of scrap into the slightly tilted convertor. Hot metal is then added after straightening the
convertor, and oxygen is blown in through the lance. The necessary fluxes are added during the blowing stage. Flux addition is
done automatically and precisely through bunkers situated above the converters. A sample is taken after blowing for 16-18
minutes and temperature is measured using a thermocouple. The steel is tapped by tilting the convertor to the tapping side and
alloying elements are added via chutes. As the metal is being tapped, the convertor is tilted to the charging side in order to remove
the floating slag.
Reaction
During the blowing operation, oxygen oxidises iron into iron oxide and carbon into carbon monoxide. The iron oxide immediately
transfers the oxygen into the tramp elements. The centre of the reaction has temperatures of around 2,000-2,500oC. The
development of carbon monoxide during the refining process promotes agitation within the molten bath. The reaction of the tramp
elements with the oxygen and the iron oxide developed in the centre of reaction leads to the formation of a reactive slag. As the
blowing continues, there is a continuous decrease of carbon, phosphorus, manganese and silicon within the melt. Phosphorus is
removed by inducing early slag formation by adding powder lime with oxygen. The refining process is completed when the desired
carbon content is attained.
Following are some of the other blowing processes:
Oxygen bottom blowing process
In this process, pure oxygen is blown into the bath from below through a cooled nozzle. It results in a lower tap-to-tap time and
greater output due to a more intensive mixture.
Combined blowing process
The combined blowing process consists of oxygen blowing from the top and oxygen blowing from the bottom or inert gas (nitrogen
or argon) bottom stirring. The advantages of this process over the oxygen bottom blowing process include acceleration of blowing
cycle by 25%, higher yield, less slag, improved convertor lining life, increased accuracy in achieving specific composition and
reduced splashing. The steel produced in the BOF is sent to continuous casting or for ingot teeming.
The electric arc furnace
The EAF is a furnace in which heat is generated with the aid of an electric arc produced by graphite electrodes. The main
components of the electric arc furnace are the furnace shell with tapping device and work opening, the removable roof with the
electrodes, and a tilting device. The furnace shell is circular with a refractory lining. The work opening and the tapping device are
arranged opposite each other for tapping purposes; the complete furnace is tilted to an angle of about 420 and the furnace is
charged with its roof removed. When scrap is added, a charging bucket travels over the furnace, the bottom opens and the scrap
is charged into the furnace within a few minutes. During the process, a control system advances the slow burning electrodes. High
voltage is transformed into low voltage and high amperage. The most important parameter for the efficiency of an EAF is the
specific apparent power of the transformer in terms of 1 tonne of charge. Values range from 300-750 kVA/t (kilo-volt-ampere per
tonne), which can even go up to 1,000 kVA/t.
Steel-making: EAF process
The EAF process generally follows the following pattern:
Charging
Melting
Oxidising
Deoxidising or refining
Besides scrap or sponge iron, the charge also includes the ores, fluxes (lime, fluorspar), reducing agents (carbon) and alloying
elements in the form of ferro alloys. These can be added through the work opening before or during oxidising.
The process begins with the ignition of the electric arc. After melting, further scrap can be added. An additional injection of oxygen
or some other fuel-gas mixture can accelerate the melting phase. The maximum transferable electric power and the heat stability
of the refractory lining determine the time needed for melting. The most up-to-date furnaces with high specific apparent power
(UHP furnaces) achieve melting periods of about 40-60 minutes and tap-to-tap times of about 1.5 hours.
During the refining stage, iron oxides included in the slag react with the carbon of the bath. This gives rise to gaseous carbon
monoxide, which causes the heat to boil, and rinses impurities such as phosphorus, hydrogen, nitrogen and non-metallic
compounds from the heat. These impurities either escape as gases or are included in the slag. Sulphur cannot be eliminated
completely.
The advantages of steel-making in the EAF are:
All possible grades of steel can be melted

Low capital outlay
The melting process can be programmed and automated
Good efficiency
However, it has certain shortcomings. The quality of steel manufactured depends largely upon the quality of the scrap used. Major
developments in steel-making have taken place in the EAF-based steel-making process. Innovations such as direct current (DC)
arc technology, scrap preheating, post combustion, and oxygen and carbon injection have led to tremendous increase in
productivity and decrease in electric consumption
Induction furnace
The various types of induction furnaces used for steel-making are of medium and high frequency. Mild steel, stainless steel and
low and high alloy steel can be made from these furnaces. The raw materials used are steel melting scrap and direct reduced iron.
Alloying elements are added as per requirement.
Process
An induction furnace is an electrical furnace in which the heat is generated through electromagnetic induction in an electrically
conductive medium (usually a metal). The furnace comprises a water-cooled copper coil, which, when energised with an alternate
current (AC) power source, develops an electromagnetic field around it. Any metal charge kept inside the coil (usually called
furnace coil) will be subjected to an electromagnetic induction, which causes huge amount of heat to be generated in the charge
depending upon its resistance.
The major advantage of induction furnace is that it offers a clean, energy-efficient and well-controlled melting process. Moreover,
as it does not involve the use of a fuel, pollution hazards are minimal. Induction furnaces are widely used among small steel
manufacturers ranging from small foundries using a 50 kg or lower capacity furnace to billet producing steel melting shops using
30 tonne or higher capacity furnace.
Steel making: Induction furnace process
Corex-BOF process
This process uses non-coking coal instead of metallurgical coal (which is largely imported). Thus, it does not require the setting up
of coke ovens. The Corex route also generates surplus heat, which could be used to generate electricity to be sold to the grid or
consumed for the production of direct reduced iron.
In India, Jindal Vijaynagar Steel Ltd (now JSW Steel) had set up a project based on the Corex route in Karnataka. The first phase
of the project of 0.8 million tonnes per annum (mtpa) capacity was commissioned in 1999-2000. The second phase of an
additional 0.8 mtpa was commissioned in 2000-01. The Ruia group-led Essar Steel commissioned two modules of 0.8 mtpa each
in 2011 based on the Corex furnace route of steel making at Hazira.
The main disadvantage of the process is that it is very sensitive to the quality of the raw material, especially coal, which
necessarily should have less than 20-25% volatile matter content. JSW Steel reportedly uses coke equivalent to 15% in this
process to control volatile matters. Additionally, the process generates a large quantity of off-gas, which should be used
economically as it can be used in captive power generation.
Steel-making: Corex-BOF process
New technologies
Finex process
This is an innovative, next generation iron making technology developed by Siemens VAI and POSCO. Molten iron is produced
directly by using iron ore fines and non-coking coal rather than processing through sintering and coke making. Advantages of
Finex include elimination of preliminary processing of raw materials, no blending of ore and coal, 10-15 per cent reduction in
production costs through cheaper raw materials, reduction of facility cost and the process being eco-friendly due to far less
emission of SOx, NOx and dust. POSCO has already commissioned a 1.5 mt plant at Pohang Works, and plans to use it in India
as well, at its 12 mtpa plant at Orrisa.
Steel making: Finex process
HIsmeIt technology
This is a new iron-making process developed by Rio Tinto Group. The core of the HIsmelt technology is the smelt reduction
vessel (SRV), basically a water cooled vessel which replaces the function of a BF.
Iron ore fines are injected deep into the bath where they are reduced instantly on contact with carbon. This reaction produces iron
(Fe) and carbon monoxide (CO). Coal is also injected into the bath, where it is absorbed in the metal to replenish the carbon used
in the reduction reaction. Reaction gas (CO) and coal gasification products are generated from deep within the bath and form a
fountain of mostly slag and some metal.
Hot air at around 1,2000C, which is enriched with oxygen to 35%, efficiently combusts the gases generated within the bath,
releasing large amounts of energy. Combustion energy is carried back to the bath via a fountain of slag and metal. The primary
product from the HIsmelt process is hot metal. Liquid iron is tapped continuously through an opening and is free of slag.
Secondary products from the SRV are slag and offgas. Slag is formed from the impurities in the iron ore (gangue) and coal (ash),
which are fluxed using lime and dolomite. Slag from the HIsmelt process can be utilised as a raw material in a variety of
applications in the construction and agricultural industries. Offgas from the process still has energy value and is cleaned, cooled
and used as a fuel and for power generation. A big positive about this process is that it produces high quality hot metal that is
consistent, has low phosphorus, is clean and has practically no silicon content. This leads to less wastage, thus offering significant
steel-making cost benefits. This technology has been used in the Kwinana HIsmelt plant in China (capacity of 0.8 mpta).
Steel making: HIsmelt process
Steel production stage: Electroxy process
The electroxy process is emerging as an important cost-saving alternative to the power-intensive EAF route. Therefore, this
process is increasingly being adopted by producers to reduce power consumption.
The electroxy process uses a combination of the BF and EAF routes. In an EAF, the input metallics, sponge iron and/or scrap are
melted to produce hot metal. In this process, apart from sponge iron/scrap, hot metal from the BF is also used as a metallic input.
In India, Ispat Industries Ltd has adopted the electroxy process, setting up a BF at its plant at Dolvi, Maharashtra. While the
furnace will supply hot metal to the EAF, sponge iron will be sourced from its captive unit.
Slab casting stage: Thin-slab casting process
The thin-slab casting process is gaining increasing acceptance worldwide. This process lowers energy costs to nearly half of that
incurred in thick-slab casting and also reduces material wastage.
In the conventional slab casting process, thick slabs (200-250 mm thick) are cast from hot metal and are repeatedly rolled to
obtain the required thinner gauges.
In the thin-slab casting process, slabs are cast at 50 mm thickness, and need fewer rolling stages to achieve the required
thickness. HR strips from thin-cast slabs can have thickness levels equivalent to those of CR steel.
This process was pioneered by Nucor, an American HR flats producer; the company is one of the least-cost producers of HR coils
in the world. In India, Ispat Industries has adopted the thin-slab casting technology. Other Indian producers are unlikely to adopt
this process as they have already incurred capital expenditure on thick-slab casters.
Products manufacturing process
Finished steel flat products (HR) are produced from slabs in rolling mills using several flat rolls. The HR is subsequently rolled
further into CR and galvanised plain (GP) products.
Steel-rolling – HR and CR processes

14-JUN-2019
Crude steel obtained from the steel-making stage is passed through a continuous caster or ingot caster. In the continuous steel
casting process, liquid steel is directly cast into semi-finished products, which eliminates the need for primary rolling of ingots. The
semi-finished steel is fed to re-rolling mills to get finished steel products - longs and flats. Flat products are further re-rolled to get
HR coils, CR coils and GP/GC coils.
HR production process
Hot rolled (HR) flat products are produced by re-rolling slabs/thin slabs at high temperatures (above 1,000 degree C) in plate mills
or in hot strip mills. HR strips are cut into HR sheets or thin plates.
HR - Production process
CR production process
Cold rolled (CR) strips are produced by cold rolling of HR strips in cold rolling mills (normally at room temperature). CR strips are
cut into CR sheets. CR strips/sheets are less thick compared to HR strips/sheets, have better/brighter finish, and specific
mechanical/metallurgical properties. It is used in automobiles (cars, scooters and motorcycles), white goods, consumer durables
or for producing coated sheet products. CR sheets/strips are supplied rolled [cold rolled full hard (CRFH)] in closed annealed [cold
rolled close annealed (CRCA)] condition - heated and cooled in a controlled atmosphere - or in closed annealed and skin
passed/temper passed condition, depending on the requirement of the end-user.
CR - Production process
GP/GC sheets production process
Galvanising is the process of coating CR sheets/strips with zinc. Galvanised plain (GP) sheets are normally produced by hot dip
galvanising of CR sheets/strips in a liquid zinc bath. Galvanised corrugated (GC) sheets are obtained by corrugating GP sheets in
a corrugating machine. GP sheets are also produced by electroplating zinc on CR sheets/strips. This process is known as electro-
galvanising. Galvanised sheets are mainly used in roofing, panelling, automobile bodies and trunks/boxes.
GP/GC - Production process
Working capital
15-NOV-2019
Working capacity cycle has deteriorated over the last three years, whereas debtor’s and creditor's days in the steel sector
typically are in the range of 15-20 and 140-160 days, respectively.
Working capital cycle
Note: Financials are representative for a set of 4 large companies i.e Tata Steel, JSW Steel, JSPL and SAIL. Tata Steel includes
Tata BSL from FY19
Efficient working capital management is the most crucial factor in maintaining liquidity, solvency and profitability of business
organisations. Operational flexibility is achieved through adequate working capital. A working capital deficit implies that current
liabilities exceed current assets. Owing to the financial stress present in the industry and abnormal inventory loss, working capital
days have deteriorated over the years.
Debtors improved to 17 days in fiscal 2019 reflecting improvement in cash flows.
Inventory days have reduced over fiscal 2016, with efforts of large players to optimize working capital in a bid to reduce costs in a
difficult operating environment. Raw material is the biggest inventory component, constituting ~40%. Steelmakers typically
maintain 2.5-3 months of raw material (coking coal) inventory. The second biggest component is semi-finished goods, constituting
35-40%, comprising pellets, billets, sponge iron, etc.
Working capital requirements usually reduce during monsoons, which is the lean season for the industry as players reduce the
absolute finished goods inventory. Working capital requirements increase during quarter and year ends as players push sales and
allow increased credit period in order to achieve targets.
Stainless steel - Annual

03-DEC-2013
Stainless steel - Annual
Large non-integrated - Annual

01-DEC-2013
Large non-integrated - Annual
Stainless steel - Quarterly

07-DEC-2013
Stainless steel - Quarterly
Small non-integrated - Quarterly

07-DEC-2013
Small non-integrated - Quarterly
Large non-integrated - Quarterly

23-NOV-2013
Large non-integrated - Quarterly
Large integrated without mines - Quarterly

31-OCT-2013
Large integrated without mines - Quarterly
Re-roller (TMT bars) - Annual

24-AUG-2013
Re-roller (TMT bars) - Annual
Small and Medium integrated - Quarterly

07-DEC-2013
Small and Medium integrated - Quarterly
Large integrated with mines - Quarterly

29-NOV-2013
Large integrated with mines - Quarterly
Small non-integrated - Annual

23-NOV-2013
Small non-integrated - Annual
Large integrated with mines - Annual

11-SEP-2013
Large integrated with mines - Annual
Re-roller (TMT bars) - Quarterly

05-OCT-2013
Re-roller (TMT bars) - Quarterly
Steel Alloys - Quarterly

24-AUG-2013
Steel Alloys - Quarterly
Small and Medium integrated - Annual

28-NOV-2013
Small and Medium integrated - Annual
Large integrated without mines - Annual

11-SEP-2013
Large integrated without mines - Annual
Steel Authority of India (SAIL)

15-OCT-2019
SAIL with annual capacity of 21.4 million tonnes is one of the largest domestic steel producers with fully integrated steel plants
Company overview/background
Steel Authority of India Limited (SAIL) is one of the largest domestic steel producer and has fully integrated iron and steel plants to produce basic and
special steels. The government holds a 75% equity stake in SAIL; nevertheless, the company enjoys significant operational and financial autonomy,
owing to its "Maharatna" status, awarded in May 2010. The company is headquartered at New Delhi.
SAIL operates and owns five integrated steel plants at Bhilai, Rourkela, Durgapur, Bokaro and Burnpur (Asansol) and 3 special steel plants at Salem,
Durgapur and Bhadravathi. It also owns a Ferro Alloy plant at Chandrapur.
Content
Key/recent developments
Capital expenditure plans

Operational Performance
In 2018-19, the company incurred a capex of Rs 4,303 crore under the on-going modernization and expansion programme (MEP)
Various technological installments and developments under the MEP that took place during fiscal 2019 are -
Completion of Steel Melting Shop (SMS), roll grinder for Hot Rolling Mill and Cold Rolling Mill Complex at Salem Steel
Plant
Installation of sinter machines, blast furnace (2.7Mtpa), 3 150 T BOF Converters, wire rod mill (0.55 Mtpa), bar mill (0.90
Mtpa) and universal section mill (0.85 Mtpa) in IISCO steel plant. The developments enabled new stream to produce 2.7
Mtpa of Hot Metal & 2.5 Mtpa of crude steel
Up-gradation of blast furnace, stoves and CDI in BF along with installation of new CRM complex (1.2 Mtpa) at Bokaro
facility
Commissioning of new coke oven battery (0.88 MTPA), sinter machine (3.7 MTPA), blast furnace (2.8 MTPA), bar and
rod mill (0.9 MTPA) along with other downstream capacities at Bhilai Steel Plant
New coke oven battery, sinter plant, blast furnace and BOF converter, wide plate mill were installed at Rourkela Steel
Plant
The capacity of existing mines at Kiriburu, Meghahatuburu, Bolani & Gua are being ramped up to meet the requirement of iron ore for
post ongoing phase of expansion. Expansion at Kiriburu has already been completed whereas Meghathaburu is being ramped up to
meet the requirement of the ongoing expansion plan. At Bolani, processing plant has been upgraded to 7.5 mtpa and is under
stabilization. At Gua, Stage II FC is awaited from MoEF required for expansion
New Pellet Plants - 4 MTPA capacity at Gua, 1 MTPA at Dalli and 2 MTPA at Rourkela Steel Plant have been planned for utilization of
accumulated iron ore fines and generated fines
New mechanized iron ore mines are being developed at Rowghat, Chiria and Taldih
Tasra captive coal mine is being developed to produce 4 MTPA of ROM coal (1.8 MTPA washed coal)
A Special Purpose Vehicle, namely, ‘Chhattisgarh Mega Steel Limited’ has been formed for setting-up an Ultra Mega Steel Plant
(UMSP) in Bastar area of Chhattisgarh.
SAIL RITES Bengal Wagon Industry Pvt. Ltd. – A Joint Venture Company has been formed with M/s RITES for setting up Wagon
Manufacturing Factory at Kulti, West Bengal
JV with NTPC for operating and managing CPPs of Bhilai, Durgapur and Rourkela
JV with Tata Steel to promote e-commerce activities in steel and related areas
M/s S&T Mining Company Pvt. Ltd. formed with Tata Steel for developing coking coal mines in India
M/s SAIL & MOIL Ferro Alloys (Pvt.) Ltd. formed with MOIL for production of Ferro-alloys at Bhilai.
Details of new initiatives

The company plans to invest INR 4000 crore towards capital expenditure in fiscal 2019-2020
Installation of convertor - 3, LF -3, Argon Rinsing Station-3 in SMS -3 at Bhilai Steel Plant likely to be completed in fiscal 2020
Captive power generation capacity is being augmented by capacity addition of 290 MW through NSPCL (a joint venture between
NTPC and SAIL). Orders for supply and installation of 1 x 250 MW at RSP and 2 x 20 MW at DSP were placed during the year. These
plants are expected to commence commercial operations during fiscal 2020
Equity infusion done/plan

Regulatory developments
Crude steel performance
Source: Company Reports

Finished steel performance
Per tonne analysis
Portfolio mix
Operational parameters
JSW Steel Ltd
14-OCT-2019
JSW continues to be the leading steel player in India. The company is on track to achieve 24.7 MTPA capacity by 2021
JSW Steel Limited is one of India’s largest steel manufacturers and exporters. It is 42.3%-owned subsidiary of JSW Group. The company is headquartered at Mumbai.
The company has recently acquired Monnet Ispat and Energy, a 1.8 MTPA Chhatisgarh based steel plant. It has also gone for global expansion by acquiring Acero Junction,
a US based steel plant and Aferpi in Italy. In addition, JSW Steel is also in the process of acquiring NCLT stressed asset, Bhushan Power & Steel (BPSL). The company also
owns mining assets in Chile, US and Mozambique.
Content
JSW Steel commissioned pipe conveyor for iron ore at Vijayanagar to reduce logistics cost along with 0.25 MTPA tin plate facility at Tarapur
It also completed acquisition of Monnet Ispat & Energy Limited in consortium with AION Capital Partners Limited. The consortium has paid Rs. 2,457 crore to
the secured financial creditors of Monnet Ispat and Energy as set out in the resolution plan approved by the National Company Law Tribunal. Monnet Ispat
has also secured a loan of ¿125 crore from JSW Steel for its working capital requirements. Production from BF is expected to restart and ramp up during Q3
FY20.
The company has completed the acquisition of Acero (US) and Aferpi (Italy). The acquisitions will add nearly 4mt of steel making/rolling capacity with
potential for further expansion
The company is also in process of acquiring Bhushan Power & Steel (BPSL), another stressed asset in IBC proceedings
JSW Steel has commenced operations of four iron ore mines out of 6 existing iron ore mine in Karnataka. In addition, JSW Steel also secured 3 more captive
iron ore mines in recent Karnataka auctions (2019)
JSW Steel aims to increase its crude steel capacity from 18 MTPA to 24.7 MTPA by fiscal 2021 with total capex of Rs 44,440 crores
The company is undergoing steelmaking capacity expansion from 5 MTPA to 10 MTPA at Dolvi Works which is expected to commission by fiscal 2021.
However, Dolvi’s 0.7 MTPA expansion is currently on hold
JSW Steel is also expected to commission an additional 1 MTPA capacity at Vijaynagar
In addition, 8 MTPA pellet plant at Vijaynagar is expected to commission by March 2020 as part of cost savings project
A capex of Rs. 1,375 crore is planned for increasing DRI capacity expansion in Salav from 0.9 MTPA to 1.6 MTPA
JSW Steel has cut its capital expenditure plans in the US by 60% to $400 milllion for fiscal 2020 due to weak demand and a slowing economy. Last year, the
company had plans to invest $500 million each in two of its steel plants at Baytown in Texas and Ohio to enhance capacity and improve operational
efficiency.
Operational Performance JSW Steel’s crude and finished steel performance
Source: Company reports

Per tonne analysis (on standalone basis

Portfolio mix
Tata Steel Limited

14-OCT-2019
Tata Steel increases focus on domestic operations, targets 30 MTPA crude steel capacity by 2025
Tata Steel Limited is an Indian multinational steel-making company. It is 32.04% owned subsidiary of Tata Group. The company is headquartered at Mumbai. Currently, the
company has operations in 26 countries, with manufacturing facilities in Australia, China India, the Netherlands, Singapore, Thailand and the United Kingdom.
Content
Domestic business
Facing headwinds amid a slowdown in the economy, Tata Steel has revised its planned capex for fiscal 2020 to Rs 8,000 crorefrom Rs 12,000 crore (consolidated
spend)
Tata Steel completed acquisition of Usha Martin Ltd (UML)’s steel business in April 2019 expanding attractive long portfolio through Tata Steel Sponge Iron. It also
put in place long term financing at Tata Sponge Iron with a rights issue of Rs.1,485 crores and long term debt of Rs 2,650 crores
Successfully completed acquisition of Bhushan Steel Limited (BSL) in May 2018 at a total consideration of 35,200 crore, for settlement of the existing financial debt of
BSL. Tata Steel BSL also completed acquisition of Bhushan Energy for cost-effective purposes
The company reduced its consolidated gross debt by Rs.17,864 crore in H2 FY19; targeting another $1 billion reduction in FY20
Overseas business
In August 2019, Tata Steel had terminated the definitive agreement signed with China’s HBIS Group Co to partially divest its equity stake in Tata Steel (Thailand)
Public Company and NatSteel Holdings Pte for $327 million
In June 2018, Tata Steel and Thyssenkrupp AG signed definitive agreements to form a 50:50 joint venture in Europe. According to the agreements between the two
sides, Tata Steel Europe was to offload close to €2.2 billion of debt on its balance sheet to the combined entity. The JV would have created Europe’s second-largest
steel maker after ArcelorMittal by merging the two companies’ operations in Germany, the Netherlands and the UK. However, the deal was abandoned following
objections from the antitrust authorities of the European Commission.
Tata Steel Europe has announced plans to close operations at its subsidiary Orb Electrical Steels in Newport, South Wales, and at the Wolverhampton Engineering
Steels Service Centre in the UK due to continued losses from the business
Tata Steel is all set to expand its India operations (crude steel capacity) to 27.3 million tonne in fiscal 2023 from the current 18.6 million tonne capacity
(includes Tata Steel BSL)Tata Steel received environmental clearance to expand its Jamshedpur plant to 11 MTPA from 9.7 MTPA
Tata Steel is expected to complete the remaining 1 MTPA of Jamshedpur capacity expansion in FY20, while 5 MTPA Kalinganagar and 2.7 MTPA Dhenkanal
capacities (Bhushan) are expected to be commissioned by FY23
The company commenced the expansion operation of its Kalinganagar facility (Phase II expansion project) to augment the cumulative capacity of the
Kalinganagar plant from 3 MnTPA to 8 MnTPA. The project involves a capital expenditure of 23,500 crore.

Operational Performance Crude steel performance (domestic operations)
Finished steel performance
Note: Consolidated number for FY19 does not include NatSteel Singapore and Tata Steel Thailand as it has been classified as “Asset held for sale”
Per tonne analysis
Note: Tata Steel BSL is included in analysis for FY 19

Portfolio mix
Jindal Steel and Power Limited

14-OCT-2019
JSPL to focus on reducing its overall debt to Rs 30,000 crore with an EBITDA of more than Rs 10,000 crore prior to any major
capital expenditure
Jindal Steel and Power Limited (JSPL) is an Indian steel and energy company based in New Delhi. The company is mainly into two business
divisions- power and steel. JSPL has a vertically integrated business model with a healthy presence in mild steel and finished steel products, such as
rails and structural. The international locations where JSPL operates through its subsidiaries and step-down subsidiaries include Oman, South Africa,
Mozambique and Botswana.
Revenue mix (FY 2018-19)
Note: *Includes aviation, machinery division and real estate
Content
Domestic business:
JSPL has successfully commissioned 3 MTPA Basic Oxygen Furnace (BOF) at Angul, Odisha along with all other major iron and steel
making installations and is in midst of ramping them up
The company has forayed into defence with securing the first order of Grade DMR 249A to Indian Navy
Operationalization of additional 143 MW Medium-term PPA with Kerala along with extension of 200 MW Long-term PPA with Tamil
Nadu
Completed the installation of a 225 MT/hour Reheating Furnace at a project cost of 130 crore. The furnace, which uses 100% BF gas
through regenerative technology, has reduced cost of fuel by 1,000/T and also brought down fuel emissions in the form of NOx , CO
and CO2 , while improving yield by 1.5% approximately
The installation of mechanised feeding system of PCI (project cost 3.6 crore) has led to operational cost reduction of 0.33 crore per
annum. The new system feeds additional 400 TPD coal for injection in BFs. Increase in PCI consumption and decrease in coke
consumption has resulted in additional saving of 1.3 crore per annum
The company aims to bring its overall debt to Rs 30,000 crore with an EBITDA of more than Rs 10,000 crore
Overseas business:
The company completed the augmentation of its two million tonnes (MT) steel plant in Oman to 2.4 MT in the third quarter of fiscal
2019

No major capex is currently in the pipeline. The company aims to bring its overall debt to Rs 30,000 crore with an EBITDA of more than Rs 10,000
crore prior to more capacity additions.
Steel plant locations and capacities (as of Q1 FY20)
Note: In addition to the above plants, JSPL has a 9 MTPA pellet plant in Barbil, Odisha and 3400 MW independent power plants in Tamnar, Chhattisgarh

Mines locations and mining capacities (as of Q1 FY 20)

Operational Performance JSPL’s Crude steel performance
Note: *Operating capacity

JSPL’s pellet performance
Portfolio mix
New Projects
22-AUG-2019
The capex or investment costs required for setting up a greenfield steel plant through BF-BoF is Rs. 55,000 -65,000 per tonne,
whereas for a EAF unit it is much lower at Rs. 25,000 - 35,000 per tonne
New projects
The capex or investment costs required for setting up a steel plant depends on whether the plant is a new (greenfield) or
expansion of an existing unit (brownfield). Additionally, technology also plays a pivotal role.
Note:
1. The capex/investment costs includes costs incurred till setting up hot strip mill
2. The minimum economic size of plant through BF route considered is 3 MTPA and EAF route is 1 MTPA
For downstream in the flat segment, to set up a cold-rolling mill and galvanising line along with pickling line, hot-rolled skin pass
line would require an investment of approximately Rs 20,000 – 25,000 per tonne.
The break-up of Greenfield project cost is typically in the following proportions:
Note: Others include design and engineering work, contingency fund, etc.
Plant and machinery cost – This is the largest component of the project cost and includes all types of technological, mechanical,
process, electrical, instrumentation, automation, handling, testing, transport, and workshop equipment. This cost also includes
technological structures, furnaces, hot-strip mill, cold-rolled mill, galvanizing line, and all other types of equipment needed for
making the plant complete. Additionally, the design cost of the equipment, its procurement cost, erection and commissioning cost
of the plant and equipment are a part of it. The equipment is largely imported from overseas (Germany and China).
Structural costs – These include civil works and building and structural works. Civil works in a steel project include the boundary
wall, foundations for buildings and equipment, roads and rail tracks, flyovers and culverts, plant drainage system, and civil
buildings, slurry pipelines due to a shift towards pelletisation. Additionally, the cost of fabrication and erection of building structures
is included in this cost.
Capex costs and gestation period: The capex costs in setting up a blast furnace (BF)-based steel plant is expensive at Rs
55,000 – 65,000 per tonne with a gestation period of 4-5 years, compared with electric arc furnace (EAF) route, which costs
comparatively lower and has a gestation period of 1-2 years
Delays in setting up a greenfield steel plant occur due to:
Difficulties in land acquisition: Raw material costs at 55-60% being a significant part of overall costs, the plant should not be very far from
the iron ore mines for economic operations. Acquisition of land in proximity to mine is a challenging task, particularly, where the land is fertile.
Similarly, acquisition of land from government can become a tedious process many a time. In certain cases, greenfield plants have received
opposition from the local community, impacting the progress of work. Usually, these problems are not found in brownfield plants.
De-allocation of blocks: Post de-allocation of blocks, steel plants have suffered a major setback in operations, due to coal-linkage issues for
captive power plants, especially with EAF players incurring higher power and fuel costs and resulting in lower operating margins in 2015-16
and 2016-17.
Major capacity addition of around 37 million tonne in the past five years, coupled with muted demand growth at 3% during the
period, has pushed capacity utilisation to the lowest level at 74% in 2015-16. However, it slightly improved to 76% in 2016-17 and
further to 80% in 2017-18, due to a significant pick-up in exports and domestic demand growth. In FY19, utilization increased to
84% despite 4 million tonne capacity addition due to higher steel demand. Major players such SAIL, Tata Steel, JSW Steel were
operating at more than 87% utilisation rate, whereas Electric Arc Furnance (EAF) / Induction Furnance (IF) operated at 70-75%,
dragging down the industry's utilisation.
Prices and realisations

22-AUG-2019
Post implementation of the Goods and Services Tax, the tax structure for steel products remains unchanged.
Prices and realisations
Cost structure for hot-rolled coils (HRC)
Note: Ex-plant factory cost is of HRC (14 G grade) mentioned above indicative of Q1 FY20 prices based on interactions with indu
*indicates average realisations of large players in Q1 FY20
Post the implementation of the Goods and Services Tax (GST), the tax structure for steel products remains unchanged. Earlier,
the taxation structure was similar at 18% (excise 12.5%, VAT/CST – 4/2% and other taxes). However, on the raw materials front,
the domestic coal tax rate post GST is lower at 5% as against 11.85%. We expect this will benefit electric arc furnace players
using thermal coal. There is no major benefit to players operating through the blast furnace route as they largely import coking
coal. The coal cess of Rs 400 per tonne continues to be imposed in addition to the GST.
The industry is categorised under various product segments. Prices for valued-added products such as galvanised plain/
galvanised corrugated and stainless steel are higher due to raw materials such as silicon, zinc, and other expensive alloys. While
typical margins for hot and cold-rolled coils are 10-15%, margins for value-added coated products are higher at ~25%.
Operating costs
13-SEP-2019
Iron ore and coal are the key raw materials required for manufacturing steel, constituting 50-70% of operating income, followed by
power and fuel cost.
Operating costs
Input norms for steel manufacturing through the BF route
Key raw materials required in steelmaking include iron ore, coal, limestone and recycled steel. The two main steel production
routes and their related inputs are:
The integrated steelmaking route, based on the blast furnace (BF) and basic oxygen furnace (BOF), which use raw materials including iron
ore, coal, limestone and recycled steel. On average, this route uses 1,400 kg of iron ore, 800 kg of coal, 300 kg of limestone, and 120 kg of
recycled steel to produce 1,000 kg of crude steel.
An electric arc furnace (EAF) primarily uses recycled steel and direct reduced iron (DRI) or hot metal and electricity. On average, an EAF uses
1,800 kg of iron ore and 1,400 kg of thermal coal, and 64 kg of limestone to produce 1,000 kg of crude steel. Steelmakers manufacturing crude
steel through EAFs typically use a mix of 45% sponge iron (DRI), 40-45% scrap and 13-14% hot metal pig iron.
Energy costs
Before de-allocation, a number of players enjoyed the low power and fuel cost at Rs.3.5-4.5 per unit. However, after de-allocation,
the loss of coal linkages for their captive power plants resulted a rise in costs. Also, EAF players and re-rolling mills, which do not
have captive power plants, incur costs of Rs.5-7 per unit.
The power requirement of steel plants varies as per the heat-treatment process, however for a BF-BoF manufacturer, one tonne of
crude steel typically uses 550-600 kwh/tonne of power, while manufacturing hot-rolled coils requires 95-105 kwh/tonne, a
galvanized coil/sheet consumes 195-205 kwh/tonne, and rolled long products require 125-135 kwh/tonne.
Power & fuel costs
Note: Operating costs for fiscal 2019

The power and fuel costs is relatively higher for SAIL, whereas Tata steel has the lowest cost per tonne. Further, the total power
requirement of the company is 10,653 Million Units (MU), of which 65% was consumed from captive power plants at Rs. 10-15 per
unit, the balance by purchasing power from grid utilities and open source at Rs. 4-6 per unit. JSW steel sources power at cheaper
rates from JSW Energy, thereby incurring comparitively lower power costs. For Tata Steel, the power cost is lowest owing to gas
based captive plants, which generate power using the by-product gases generated in the plant operations.
Employee costs

The employee costs for SAIL continues to weigh down on margins of the company. Factors like employment of additional
workforce, change in salary structures and its consequential impact on the retirement provisions impact the employee cost.
Other Costs

Other costs of Tata Steel is comparatively higher than SAIL and JSW Steel. The higher costs is due to large expenditure by Tata
Steel as a part of its marketing initiatives, higher maintenance costs and royalty payments on captive mineral mines.
Disclaimer
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based on the information in the public domain, but its adequacy or accuracy or completeness is not guaranteed. CRISIL Research operates independently of, and does not
have access to information obtained by CRISIL's Ratings Division, which may in its regular course of operations obtain information that is confidential in nature. The views of
CRISIL Research expressed herein cannot be compared with the rating assigned or outlook developed on the companies in the same Industry by the Ratings Division or
any other Division or subsidiary of CRISIL Limited. CRISIL Research is not responsible for any errors or omissions in the analysis/inferences/views or for the results
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Steel Products

Utilization to remain stable through fiscal 2024

Moderation in demand growth and weak realisations to weigh on sector's profitability

China continues to post healthy growth; slowdown inevitable

Outlook on global steel demand

Following are some of the downside risks to our demand forecast:

Region-wise break-up of steel consumption (2018)

Source: World Steel Association (WSA)

Moderate demand growth expected for US steel industry

Demand to stagnate in Europe

Japan to witness stagnant steel demand growth

Methodology to forecast global steel demand

Indian steel demand to moderate in FY20 on account of muted demand from

Construction to continue to dominate steel end-use mix

Source: CRISIL Research

Progress in Urban Housing (Cumulative from 2014)

Government’s focus towards execution of affordable housing

Rising steel intensity

Infrastructure segment to witness the highest run-up

Infrastructure spending to increase over next five years

Source: CRISIL Research

Indian automobile industry to face slowdown amidst weak consumer sentiments

Production growth rate through fiscal 2024

Source: CRISIL Research

Note: Steel demand numbers are in million tonnes (MT)

Product level split of steel demand through fiscal 2023

Source: Joint Plant Committee (JPC), CRISIL Research

India to become a net exporter of steel in fiscal 2020

India's share in world steel trade declined in 2018

Domestic prices trend down in H1FY20 following global cues

D omestic prices and landed cost trend downward

Source: Industry, CRISIL Research

Rising share of long steel in exports

Product-wise share of flat steel exports in overall steel exports

Source: Joint Plant Committee (JPC) and CRISIL Research

Steep import tariffs by US & EU exert downward pressure on India’s exports

Exports to increase while imports to remain rangebound in FY20

Year-wise India's steel trade

Source: Joint Plant Committtee (JPC) and CRISIL Research

Capacity utilisation to rise in the medium term

Cumulative player-wise crude steel capacity in India

Source: Joint Plant Committee, CRISIL Research

Utilization levels expected to improve through fiscal 2024

Capacity utilisation level for Indian steel market

Global capacity outlook

Source: World Steel Association (WSA), OECD, CRISIL Research

China- capacity and utilisation rates

China’s capacity reduction programme ahead of schedule

China measures to curtail capacity

Global utilization rates to rise

Global steel industry utilization rates

Source: CRISIL Research and WSA

Profitability to be under pressure in FY20

Profitability to be under pressure in fiscal 2020

Summary - prices and profitability

Source: CRISIL Research

Player-wise FY 2019 performance

Source: Company results

Operating margins of small and mid-size players (%)

Source: CRISIL Research

Debt-servicing indicators of larger steel players

Source: Company annual reports and CRISIL Research

Source: Insolvency and Bankruptcy Board of India, Industry, CRISIL Research

Source: CRISIL Research

CRISIL India Steel Industry Note - Jan'20

CRISIL India Steel Industry Note - Jan'20