Industry Overview

Manufacturing Process
Raw Material
Price Trends
Competitive Landscape
Challenges
COVID -19 Impact
Way Forward

1
India is the second largest producer and the third largest
consumer of steel in the world
• India is the second largest crude steel producer globally behind China
• India is the third largest consumer of finished steel in 2019 with 97.5 MT (P) consumption preceded by
China (843 MT) and USA (101 MT)
• Global steel prices are expected to decline in 2020 on back of moderate steel demand, global oversupply
situation and softening of coking coal prices; Demand from China is expected to grow by mere 1-3% in
2020 on account outbreak of coronavirus in China coupled with weak demand (assuming that the
outbreak is controlled by early April)
• Both iron ore and coking coal prices are also expected to soften in 2020 amid weak demand and impact of
Coronavirus outbreak on Q1 2020 prices.
Global Crude Steel Production
32%
(2018, % share)

2000 1,807
1,688 1,712
1,617 1,629 1,587
1600 1,500 1,515
581 MT
51%
1200 928 MT

800
87 MT
400
5%107 MT
6%
0 6%104 MT
2015 2016 2017 2018
Global Steel Production-Crude Steel World Apparent Consumption - Finished Steel
China Japan India USA Others 2
Source: CRISIL Research
 Domestic steel industry has witnessed a steady increase in
consumption supported by expansion in capacity and production

• Crude steel capacity has increased to 137.97 MT and production has increased to 106.57 MT in 2018-19 and
72.9 MT during Apr-Nov’19 (0.5% growth over last year same period)

• As per National Steel Policy 2017, crude steel production is targeted to reach 300 MT by 2030-31

• Production of total finished steel (alloy/stainless + non-alloy) stood at 131.57 MT during 2018-19 and 67.67
MT during Apr-Nov’19 (2.1% rise over last year same period)

• Finished steel demand stood at 95 MT in 2018-19 and 66.52 MT during Apr-Nov’19 (3.65% rise over last
year same period)

• As per NSP 2017, finished steel demand is expected to reach 230 MT by 2030-31 and per capital steel
consumption is targeted to reach 158 kg by 2030-31 (vis-a-vis 71 kg at present)

Crude Steel Capacity and Production (in MT) Domestic Steel Consumption (in MT)
160 81% 82% 120 9%
80% 138 138 8.0%
140 128 80% 7.5%
97.5 8%
122 100 90.7
120 110 77%
107 84 7%
102 103 78% 81.5
76%
98 74.1 77 5.8%
100 89 90 80 6%
82 75% 76%
80 74% 5%
74% 60 3.9%
60 4%
3.1%
40 72% 40 3%
20 70% 2%
20
- 68% 1%
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19P 0 0%
FY14 FY15 FY16 FY17 FY18 FY19P
Working capacity Crude steel production
% Utilisation Domestic steel consumption Y-o-y growth
P – Provisional figures 3
Source: Joint Plant Committee; Ministry of Steel Annual Report
 Import and export trends relate closely to the global
price trends of the steel products
Imports, Exports and Global price movement
* CY prices (in USD/tonne)
India was a net
569 importer of total
14 600
502 12 509 finished steel in 2018-
12 485
500 19;
10
10 9 375
329 8 8 400
8
Prices to moderate
7 7
6 6 6 300 due to demand
6 5 slowdown in China
4 200
4 and global
2 100 protectionist
measures
0 0
FY14 FY15 FY16 FY17 FY18 FY19P

Import Export HRC (FOB China)*

Finished Steel Production and Consumption

140 127 132
120
120 107
105 Over the 5 years
99 98
100 91
82 84 period, production
74 77
80 grew at a CAGR of
60 5.9% and apparent
steel use grew at 5.8%
40
20
0
FY14 FY15 FY16 FY17 FY18 FY19P

Gross production Apparent steel use 4

Source: Joint Plant Committee; Ministry of Steel Annual Report
Category-wise production and consumption of non-alloy
flat and non-flat products
Production & Consumption Long/Non-Flat Products in FY19P
Steel products are classified as
1,360 1,426 flat and long products: flat
('000 tonnes) products are typically used in
8,484 8,335 automobiles and consumer
durables industries and long
Bars & Rods products are used in construction
Structurals
Rly. Materials Within long products, Bars &
Rods comprises majority (~79%)
36,133 35,828 of the production and apparent
use; followed by 18% share of
Production = 45,977 Apparent consumption = 45,589
structurals

The major flat products are HR

Production & Consumption Flat Products in FY19P Coil, HR Sheet, CR Coil/Sheet,
2,969 which together accounted for 75%
5,590 3,870 5,601 production in FY19
9,386
Plates
For the flat products, apparent
8,874 HR Coils/ Skelp
consumption stood at ~58% of
HR sheets
14,637
total production in FY19 – this
CR coil/ sheets
14,942 was caused due to lower off-take
37,200 GP & GC sheets
5,873 in HR Coil category
Others*
Others category includes
2,411
2,412 electrical steel sheets, tin plates,
Production = 72,193 Apparent consumption = 41,572 tin free steel, tin mill black plate,
Source: CRISIL Research (TMBP), and pipes
Note: 1) Total production and apparent consumption exclude own consumption; 5
2) Apparent consumption calculated after stock adjustments and double counting
Industry-wise consumption

Industry-wise Consumption
FY-17E
• Building and construction segment, accounting
for the largest share in consumption, witnessed
Others a growth of about 4.5%-5.5% during FY-14 to
19%
Building FY-19
and • Other major contributors are infrastructure
Capital and Constructio
Consumer n segment and automotive sector and both the
Goods 35% sectors witnessed a growth of 7.5%-8.5% during
9% Infrastructu
Auto FY-14 to FY-19
re
Vehicles 27% • The growth of demand in near to medium term
10%
is expected slow down due to the outbreak of
Covid; however, once the situation stabilizes,
the growth shall improve to moderate level

Source: CRISIL Research 6

Growth Drivers

Increase in demand for steel supported by infrastructure, oil and gas and automotive industries

Policy support incl. National Steel Policy 2017, policy for providing preference to domestically
manufactured Iron & Steel products in Government procurement, efforts towards smoothening the
allocation of iron ore & coal reserves, imposition of import / safeguard duties

Investment by the domestic players in expanding and upgrading manufacturing facilities are
expected to reduce reliance on imports

Increased emphasis of domestic players on technological innovations

Ongoing consolidation presents an opportunity for international players to enter the Indian market;
this will provide benefits in terms of capital resources, technical know how and competition

7
Industry Overview
Manufacturing Process
Raw Material
Price Trends
Competitive Landscape
Challenges
COVID -19 Impact
Way Forward

8
Manufacturing Process

• Basic Oxygen Furnace is the most popular steel making process route contributing 50.08 million (47%) to total crude
steel production in 2018-19 (Prov.), followed by Induction Furnace at 28.77 million tonnes (27%) and Electric Arc
Furnace at 27.71 million tonnes (26%)

Source: Ministry of Steel Annual Report 9

Industry Overview
Manufacturing Process
Raw Material
Price Trends
Competitive Landscape
Challenges
COVID -19 Impact
Way Forward

10
Raw Materials – Coal
• India has proven Coking Coal reserves of 19.08 Billion Tonnes and Non Coking Coal reserves of 129.11
Billion Tonnes as on April 2018

• The all India production of coal during April-March 2018-19 was 730.35 MT (Prov.), of which Coal India
Limited (CIL) contributed 606.89 MT, roughly 83% of the total contribution

• With meager reserves and production of coking coal, there is high dependence on imports for steel
manufacturers ; India imported roughly 51.84 million tonnes of coking coal in 2018-19

• For non-coking coal, steel companies typically source coal requirements from the linkages provided by CIL
by way of auction or e-auction of coal by CIL for short term requirements (spot or forward auction)

• In order to ensure regular supplies to steel producers and to also ensure that the steel producers are not
exposed to the price volatility of raw material, the Ministry of Coal aims to begin the commercial coal
mining auctions

Coking coal prices After witnessing Non-coking coal prices After witnessing
increase in prices due
increase in prices due to to demand uptick in
292 ($ per tonne) supply-side disruptions, (Rs per tonne) sponge iron & cement
coking coal prices are sectors, the prices are
expected to remain low expected to decline
due to weak demand due to weak demand
207 1,950- 1,950-
192 189 2233
175-185
165-175 2,050 2,050
148 142 140-150 1673
1555
116 1289 1271
90 1213

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020P 2021P FY14 FY15 FY16 FY17 FY18 FY19 FY20P 11
FY21P
Source: CRISIL Research
Raw Materials – Iron Ore
• As per CRISIL Research, India has total crude iron ore reserve of 8,100 million tonnes with iron content of
5,200 million tonnes; India is estimated to have produced 207 million tonnes of iron ore in fiscal 2019, of
which 65-70% was by merchant miners and the balance by captive steelmakers

• The requirement of the domestic steel players is largely met by domestic production

• Odisha has the largest iron reserves in India, the other states being Karnataka, Chhattisgarh, Goa,
Jharkhand and West Bengal; Odisha is estimated to produce more than half of India’s iron ore production

• In Mar 2020, leases of over 30 iron ore mines, held by merchant miners, accounting for 50-55% of Odisha’s
and 10% of other states’ production, expired, which may result in 30% reduction in iron ore output

• The Govt. of Odisha has invited tender for 17 mineral blocks. Major players such as ArcelorMittal India
Pvt. Ltd., JSW Steel Ltd. etc. have emerged as the preferred bidders for these mineral blocks

• SAIL has been permitted free merchant sale of iron-ore from its captive mines subject to a maximum of
25% of production to tide over the supply disruptions following expiry of mining lease

Domestic iron-ore prices (Rs per tonne)

Global shortage in iron
ore production and any
4293 4189 4400 delay in
4018 4050
operationalization of
2934 expired iron ore mines
2684 2460 2391 2400 2600 expected to drive up the
2059 2012 1852 prices of iron ore,
1580 1368 partially offset by weak
demand

FY14 FY15 FY16 FY17 FY18 FY19 FY20P FY21P

Irone ore fines Iron ore lumps

12
Source: CRISIL Research
Industry Overview
Manufacturing Process
Raw Material
Price Trends
Competitive Landscape
Challenges
COVID -19 Impact
Way Forward

13
 Domestic steel prices are influenced by raw material prices,
demand–supply conditions & international price trends
HR Coil Price: Domestic v/s FOB China
Coking coal price Uptick in steel
Increase in coking
50 demand Demand slowdown
coal prices leading remained high
to rise in steel prices in China
45
Prices were at
40 multi-year low
levels in FY16
35

30

25

20
5 15 15 15 1 5 16 1 6 16 16 1 6 16 1 7 17 17 17 1 7 17 1 8 18 18 18 1 8 1 8 19 1 9 19 19 1 9 19 2 0 2 0
-1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
ar ay Jul Sep ov Jan ar ay Jul Sep ov Jan lar ay Jul Sep ov Jan ar ay Jul Sep ov Jan ar ay Jul Sep ov Jan ar
M M N M M N iv M N M M N M M N M

Domestic Avg FOB China

Source: CRISIL Research
Note: 1) Domestic Prices indicate selling prices (excluding GST)
2) Landed cost includes exchange rate: Rs 74.24 per cent USD (Mar 2020); Basic Customs Duty: 12.5%; Cess: 3% on Basic Customs Duty Freight: 15
USD per tonne; handling charges: 2% of the import price (IGST at 18% is not included in above landed cost calculation)

• In FY18, domestic steel prices increased further due to strong uptick in steel demand pick and
elevated coking coal prices
• In FY19, HRC prices were supported by elevated global prices and rupee depreciation. However the
prices began to moderate during FY20 on account of demand slowdown in China and global
protectionist measures
• During FY20, as the global price began dropping, the domestic price followed suit
14
Industry Overview
Manufacturing Process
Raw Material
Price Trends
Competitive Landscape
Challenges
COVID -19 Impact
Way Forward

15
Steel - Producers

• About 80% of domestically produced crude steel is produced by the Private Sector units and the
Public Sector units contribute the remaining 20%
• Private Sector units consist of both the large scale steel producers and the relatively
smaller/medium scale units that operate sponge iron plants, mini-blast furnace units, electric arc
furnaces, re-rolling mills and cold rolling mills
• Large private steel companies in India include JSW Steel, Tata Steel, Essar Steel (acquired by
Arcelor Mittal), Jindal Steel & Power Ltd. and Bhushan Steel (recently acquired by Tata Steel), etc.
• Large public sector companies include Steel Authority of India Limited, Rasthriya Ispat Nigam
Ltd., NMDC, etc.

Particulars FY14 FY15 FY16 FY17 FY18 FY19*

Public Sector units 16.78 17.21 17.92 18.46 19.75 21.50
Private Sector units 64.92 71.78 71.87 79.48 83.38 85.07
Total 81.69 88.98 89.79 97.94 103.13 106.57
% share of Public Sector 21% 19% 20% 19% 19% 20%
% share of Private Sector 79% 81% 80% 81% 81% 80%

16
Source: Joint Plant Committee, Ministry of Steel; * Provisional full-year figure
Leading Steel Cos: Capacity Utilisation & Revenue
Capacity Utilisation in FY19
(Cap/Prod in MTPA) Capacity utilizations of 3
Standalone figures
largest producers by capacity,
102% Industry average 30.0
93% utilisation ~77% i.e., SAIL, JSW Steel, and
100% 85% 25.0 Tata Steel stood above the
74%
80% 19.1 18.0 68%
20.0
industry average of 77% in
16.26 16.69 61%
60% FY19;
13.0 13.23 15.0
10.0
40% 8.6 10.0 JSW Steel and Tata Steel have
6.78 5.6
5.25 4.14 very high utilization and are
20% 5.0
very keen on capacity
0% 0.0 additions
SAIL JSW Steel Tata Steel Essar Steel JSPL Tata BSL

Capacity Production Cap Util %

Revenue from Operations

Standalone figures
(Rs in ‘000 Cr) Increase in the net sales
14%
13%
76.7 17% realisation lead to double-
67.7 70.6
67.0 digit growth in FY19;
59.0 60.5

45.5 49.0 46.2 58%

20%

25.7 27.7 JSPL recorded a high growth

17.5 20.3 17.420.913.9 due to 31% rise in production
following the ramp-up in
production at its Angul
SAIL JSW Steel Tata Steel Essar Steel* JSPL Tata BSL facility
FY19 growth
FY18 FY19 9MFY20
Note: * Essar steel was under CIRP process during FY19. As per its investor presentation (Feb 2020), Arcelor Mittal announced the
completion of the acquisition of the Essar Steel by the JV of Arcelor Mittal and Nippon Steel
17
Leading Steel Cos: Profitability
Operating Profit
(Rs in ‘000 Cr)
Standalone figures Operating profit rose during
26.1|29.1|24..3
(% operating margin in FY18|FY19|9M20) FY19 due to the rise in net
20.3|24|19 20.6 sales realisation;
18.4
15.8 Also the increase in finished
7.8|14.5|8.2 13.7
steel products prices was
9.7 22.7|21.7|20.8 higher than the increase in
12.7|18.2|11
10.1 6.0 the prices of principal raw
4.6 4.0 3.8
2.6 2.2
materials like iron ore and
coking coal

SAIL JSW Steel Tata Steel Essar Steel JSPL Tata BSL

FY18 FY19 9MFY20

Operating Profit per tonne in FY19

(Rs per tonne) Operating profitability on a
Standalone figures per tonne varied widely, and
16,191 has been seen to follow the
operating margin closely;
11,797 11,752 Tata Steel has the highest
9,379 metric of Rs. 16,191/tonne
among the group, followed
6,894
by ~Rs11,800 for JSPL and
JSW steel. SAIL recorded the
least among the group with
Operating profitability of
~Rs. 6,900/tonne
SAIL JSW Steel Tata Steel JSPL Tata BSL

18
 Leading Steel Cos: Leverage Profile
Debt levels & Debt/Equity Ratio* in FY19 Major steel producers have
Total debt
(in Rs. ‘000 Crore) Standalone figures Consolidated figures (x times) kept their standalone debt
150 1.4 1.4 level in check with debt
130 1.2 1.2 1.2 1.4
1.1 equity ratio close to 1.0x;
110 0.9 0.9 100.82 1.2
90 0.9
1.0
70 On a consolidated basis, JSW
45.17 0.8
50 41.94 0.4
29.70 45.51 48.13 Steel, Tata Steel, and JSPL
39.56 0.6
30 19.70 17.03 reported a higher debt equity
17.04 0.4
10 ratio than their the
0.2
-10 standalone metrics, however
0.0
the debt equity ratio, on
consolidated basis remained
lesser than 1.5x
Stnl Debt Stnl D/E Consol Debt Consol D/E
Source: Company Annual Report 2019

Coverage ratio
Coverage ratios in FY19 **
(x times) SAIL, JSW Steel and Tata
10.0 Standalone figures Consolidated figures (x times)
8.1 Steel reported healthy
8.0 interest coverage on the back
6.0 5.1 of improved profitability in
4.4 4.3
3.3 3.3 4.9 FY19 driven by stronger
4.0 4.4 4.7 4.3
2.2 2.1 4.1 realisations;
2.0 1.3 1.0 3.3 3.2
2.5
0.0 2.0 Debt to EBITDA for the
1.0 players on a consolidated
basis was high because of
SAIL JSW Steel Tata Steel JSPL Tata BSL high debt

Stnl Intt Coverage Stnl Debt/EBITDA Consol Intt Coverage Consol Debt/EBITDA

Note:* Debt Equity Ratio = Total Debt / Total Equity; where Total Debt = Non current borrowing + Current
borrowing + Current maturities of long term debt / finance lease obligation 19
** Intt coverage = EBITDA/Finance Cost; Debt/ EBITDA = Total Debt /EBITDA
Major Deals – IBC

Company admitted Claims by FCs Claims realised Recovery Capacity

Acquirer
in IBC ( Rs. Cr) by FCs ( Rs. Cr) (%) (mtpa)

Bhushan Steel Ltd 56,000 35,600 64 5.7 Tata Steel Ltd

Arcelor Mittal Nippon

Essar Steel Ltd 49,395 42,000 85 10.0
Steel Ltd.
JSW Steel Ltd.
Bhushan Power and
47,158 19,700 42 3.0 (Implementation under
Steel Ltd
process)
Electrosteel Steels
13,200 5320 40 1.5 Vedanta Ltd
Ltd
Monnet Ispat & JSW Steel Ltd.- Aion
11,000 2,457 22 1.5
Energy Ltd Investments consortium
Total 176,753 105,077 59% 21.7

 IBC process has so far yielded better recovery rates of ~59% of total debt amount for the above
mentioned cases in steel sector

20
Deals – Outside IBC
Company Deal Size Acquirer
Details of acquisition
Steel business
undertaking of UML
including captive power
plants, pursuant to a cash
Tata Sponge Iron Limited
Usha Martin Limited (UML) 4094* Cr consideration (after
adjustment for negative
working capital and debt
like items) payable to
UML of Rs. 4,094* Cr

*Subject to further hold backs of Rs.640 crore, pending transfer of some of the assets including mines and certain land parcels

 Major steel assets have been resolved resulting in loan recovery for the Lenders. The domestic steel
sector has turned out to be one of the major beneficiaries of the Insolvency and Bankruptcy Code
(IBC).
 Industry was going through stress in steel sector on account of industry downturn, weak
management and high debt levels. The recent transactions emanating from deals under the under
IBC/outside IBC have lead to consolidation of assets and control with strong promoters 21
Industry Overview
Manufacturing Process
Raw Material
Price Trends
Competitive Landscape
Challenges
COVID -19 Impact
Way Forward

22
Challenges – Steel Industry

• The cost of finance in India is high compared to the

cost of finance in countries such as China, Japan and
Korea. This adds about USD 30–35 to the final cost of
steel
High Cost of Manufacturing • Raw material (iron ore, non coking coal or coking
coal) are bulk minerals, and steel is also a bulk
Leading to Reduced
commodity. The mines and plants are located away
Competitiveness from the ports leading to high logistics cost for
transportation of goods by railway network. This
relative cost disadvantage for Indian steelmakers is
estimated at USD 25–30 per tonne of finished steel

• India has negligible reserves of coking coal and it

largely fulfills its coking coal requirements through
imports, exposing the companies to volatility in
coking coal supply as well as coking coal prices., thus
Raw Material Sourcing
impacting the profitability
• The government needs address mining issues to
ensure steady supply of raw material

23
Challenges – Steel Industry

• In August 2019 imports from countries like China,

Korea , Japan etc. accounted for 77 per cent of the
Cheap Imports from other overall imports (highest ever) against their share of 58
countries per cent in 2018-19
• Exports, particularly from China, have the potential to
disrupt global trade and international steel prices.

• Steel industry is strongly co-related to economic cycles

and is sensitive to trends of particular industries, viz.
automotive, construction, infrastructure and
Cyclical Nature of the consumer durables, which are the key consumers of
Industry steel products
• Any downturn in these industries may affect steel
industry.

• Following classification of many a steel companies as

non-performing assets, lenders have turned cautious
Cautious Stance by Lenders while extending loans in the steel industry
• The exposure of the banking system to Iron & Steel
industry is Rs 2.83 lakh Crore as on March 2020.

24
Challenges faced by Lenders

• Steel Industry, being capital intensive, requires long

ALM Mismatch term funds. Banks are exposed to potential ALM
challenges while lending to such projects

• Banks are exposed to high project risk in the scenario

Cancellation of of any cancellation of the allocated natural resource
considered during the evaluation of the Project
Resources viability while lending

• Other Project risks associated like, Land acquisition

issues, poor infrastructure, slow-paced environmental
Project Risks go-aheads, uncertainty over working & non-working
mines, inadequate capital investments

• Weak macroeconomic environment has resulted in

Weak Macroeconomic
muted demand for steel products from the end-user
Environment
industries

25
Government Initiatives to Address the Challenges
In the past, the government had imposed measures such anti-dumping duties, safeguard duties
and minimum import prices (MIP) on several steel products to protect the interest of local industry
from increase in imports

Mines and Minerals Development and Regulation (MMDR) Amendment Bill, 2015, was passed to
enable auction of Mines

In order to ensure regular supplies to steel producers and to also ensure that the steel producers are
not exposed to the price volatility of raw material, the Ministry of Coal aims to begin the commercial
coal mining auctions

In addition, in July 2019, three iron ore mines were auctioned by the Karnataka Government. Govt.
of Odisha also invited tender for 17 mineral blocks in Jan 202

SAIL has been permitted free merchant sale of iron-ore from its captive mines subject to a maximum
of 25% of production to tide over the supply disruptions following expiry of mining lease

26
Industry Overview
Manufacturing Process
Raw Material
Price Trends
Competitive Landscape
Challenges
COVID -19 Impact
Way Forward

27
Impact of Covid - 19 on Steel Sector

• Demand may reduce to negligible levels in key sectors

Impact on Demand like auto, and construction which account for 65 to 70%
of consumption.

• Capacity utilisation has reduced to 30%; may reduce

further if lockdown persists.
Impact on Capacity Utilisation
• Players with BF-BOF are more prone to risk because of
difficulties in restarting BF once it is shut down

• 80-85% of trucks are not moving affecting despatches,

end to end connectivity and supply of raw material and
Operational Challenges
consumables
• Availability of labour has been affected

• Steel players would find it difficult to service debt

Financial Challenges
obligations because of weaker than expected cash flows

• China has stockpiles of excess inventories and may

Increase in Imports from China
export to other countries at competitive prices.

28
Industry Overview
Manufacturing Process
Raw Material
Price Trends
Competitive Landscape
Challenges
COVID -19 Impact
Way Forward

29
Way Forward

• Government to take necessary actions to resolve

logistical challenges, manpower availability and
Address the Covid- 19 Impact
financial challenges by way of moratoriums on
payments

• Government to expedite mine allocations to protect the

Allocation of Mines
raw material supply side

• Duties may be imposed in case of excess supply of

Imposition of Import Duties
goods from FTA countries

• Measures such as easier land and labour laws,

Improving Business improving ease of doing business, creating adequate
Environment avenues to raise finance from domestic and
international sources at competitive rates

30