CHALLENGES IN GROWTH OF

INDIAN STEEL INDUSTRY

SHRI AMITABH S MUDGALSR. VICE PRESIDENT ( MKTG & CORPORATE AFFAIRS)

MONNET ISPAT & ENERGY LTD.11th August 2010Hotel Le-Meridian

New Delhi

Global Steel Scenario Global Steel Production 2009 Emerging Economies Scaling Up

Indian Steel Sustained Steel Production over years Holistic Steel Prognosis

Growth Drivers Indicators Infrastructure Spending Mineral Resources- Catalyst to Steel Growth

Prospects For Indian Steel Industry Indian –An Attractive Destination For Steel Hub Production Route-Distribution Chart Brownfield & Greenfield Expansion Curve Sponge Iron In The Growth Of Indian Steel Industry MONNET-Doing Its Bits In DRI Production Growth

Key Challenges & Road Ahead Lands Minerals & Mining Environment Infrastructure Others

Conclusion

INDEX

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

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

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

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

GLOBAL STEEL

SCENARIO

GLOBAL STEEL PRODUCTION 2009

WORLD CRUDE STEEL PRODUCTION 2009

Europe, 194.73, 15.88%

C.I.S. (6), 97.36, 7.94%

North America, 82.25, 6.71%

Middle East, 16.59, 1.35%

Africa, 14.84, 1.21%

South America, 37.82, 3.08%

India, 56.61, 4.62%

Rest Asia, 151.88, 12.39%

Oceania, 6.01, 0.49%

China, 567.84, 46.32%

GLOBAL STEEL

GLOBAL STEEL

EMERGING ECONOMIES SCALING UP

Year Crude steel production (in Mn. Mt)

Quantity

Growth rate over last year (%)

2005-06 46.46 6.96

2006-07 50.81 9.38

2007-08 53.86 5.98

2008-09 58.44 8.50

2009-10* 64.88 11.02

Source: Joint Plant Committee (JPC); * =Provisional

SUSTAINED STEEL PRODUCTION OVER YEARS

INDIAN STEEL

YearProduction

for sale Import Export Consumption Net Availability Surplus

2004-05 43.5 2.3 4.7 36.4 41.1 4.7

2005-06 46.6 4.3 4.8 41.4 46.1 4.7

2006-07 52.5 4.9 5.2 46.8 52.2 5.4

2007-08 56.1 7 5.1 52.1 58 5.9

2008-09 57.2 5.8 4.4 52.4 58.6 6.2

2009-10 59.7 7.3 3.2 56.5 63.8 7.3Surplus Availability could have factored in on account of duplicate accounting of HR & CR Coil

Production in certain terms. ( All figures in Mn. Mt )

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

HOLISTIC STEEL PROGNOSIS

INDIAN STEEL

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

Present per capita consumption ( Year 2008) : India : 47 kg World :190 kg Developed Countries : 400 kg

In 2008-09, per capita steel consumption in urban areas was 145 Kg, rural areas-only 3 Kg.

70% of Indian population in rural areas- increased steel usage for rural housing, panchayat hall, rural bridges, water and storage tanks etc

The sectors like manufacturing,construction,consumer durables, capital goods, intermediate goods coupled with infrastructure spending to fuel growth in steel sector.

INDICATORS

GROWTH DRIVERS

INFRASTRUCTURE SPENDING

GROWTH DRIVERS

YearInfrastructure allocation

(Rs. Lakh crore)As % of Plan

Allocation

2001-02 0.34 33.9

2002-03 0.36 31.8

2003-04 0.54 44.9

2004-05 0.60 41.5

2005-06 0.70 48.6

2006-07 0.81 46.9

2007-08 0.86 41.9

2008-09 0.97 39.8

2009-10 1.55 47.7

2010-11 1.73 46.5

Allocations For Infra In The Union Budget

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

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

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

World’s

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

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

MINERAL RESOURCES- CATALYST TO STEEL GROWTH

GROWTH DRIVERS

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

The Iron and Steel Industry :

Around 2 % of the Gross Domestic Product (GDP) Around 6.2%- its weight in IIP. Around 3.64 %- its weight in WPI

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

The growth rate in steel consumption in India would be highest in the world surpassing China in 2011-12.

INDIA-AN ATTRACTIVE DESTINATION FOR STEEL HUB

PROSPECTS FOR INDIAN STEEL INDUSTRY

Methods Of Steel Production In India ( Source: IRADe and ICF)

Corex4%

BF-BoF41%

DRI-EAF (Gas Based)

11%

DRI-EAF (Coal Based)

19%

Sponge/Scrap IF/EAF

25%

Corex

BF-BoF

DRI-EAF (Gas Based)

DRI-EAF (Coal Based)

Sponge/Scrap IF/EAF

PRODUCTION ROUTE- DISTRIBUTION CHART

PROSPECTS FOR INDIAN STEEL INDUSTRY

Distribution Pattern is likely to be similar after completion of capacity expansion upto 124 Mn Mt.

Given the current status, the expected capacity by 2011-12 is likely to be in the region of 110 Mn. Tonne

BROWNFIELD & GREENFIELD EXPANSION CURVE

PROSPECTS FOR INDIAN STEEL INDUSTRY

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

Investor Existing Capacity Expansion Plant Total Capacity

    Brownfield Greenfield 2011-12

SAIL 12.84 12.00   24.84

RINL 2.90 3.40   6.30

Tata Steel 6.80 3.20 3.00 13.00

Essar 4.60 3.90 6.00 14.50

JSW Ltd 6.90 4.10   11.00

JSPL 2.40 4.80 3.25 10.45

Ispat 3.00 2.00   5.00

BSPL 1.20   2.80 4.00

Bhushan Steel Ltd 0.80   5.20 6.00

MIEL 0.60   1.50 3.00 2.10

Others & Secondary 22.40   4.47 26.87

  64.44 34..9 24.72 124.06

Largest producers of Sponge Iron-21 Million Tonne 1/3 of total steel is by DRI route. Limited reserves of coking coal, resulting in unpredictable prices. Sponge iron uses non-coking coal, and iron ore fines - palletized

form or directly Difficult availability and high cost of scrap. DRI is more consistent in composition low tramp elements and

environment friendly. Uniform size of sponge iron enhance productivity and support

usage of low grade scrap. Average IF furnaces uses 60 % sponge iron as metallics.

SPONGE IRON IN THE GROWTH OF STEEL INDUSTRY

PROSPECTS FOR INDIAN STEEL INDUSTRY

2nd Largest Coal based Sponge Iron ManufactureForward integration by setting up its integrated steel manufacturing

facility of 1.5 Mn Tonne at Raigarh.Upon completion ( March’11) , through BF/DRI-EAF route will add high- quality long and flat steel :

Plate : 6,00,000 tonne p.aHR Coil : 2,50,000 tonne p.aQST Rebars : 5,00,000 tonne p.aBlooms & Rounds : 1,50,000 tonne p.a

New capacity addition : 1.5 MT ( Orissa), : 1.5 MT ( Jhk)

MIEL- DOING ITS BIT IN DRI PRODUCTION GROWTH

PROSPECTS FOR INDIAN STEEL INDUSTRY

Limited and with multiple use.

Non-willingness of owners to sell.

Local issues- Social & Political.

Compensation packages - amicably with fair market price & employment.

Overlapping responsibilities between State and Central Govt.

KEY CHALLENGES & ROAD AHEAD

LAND

Resources available with some of the poorest states.

Mineral resources exploitation through Inclusive & Sustainable

Approach to improve overall well-being. Faster grant of prospecting lease-mining lease. Limited availability of Coking Coal Indian Coal with high ash has limitations in terms of

CO2 emissions. Development of processes using non coking coal /

natural gas. Increase usage of Iron Ore Fines-to reduce wastages Increase palletisation and beneficiation to augment

production and productivity.

KEY CHALLENGES & ROAD AHEAD

MINERALS & MINING

Selection of plant site-effect on neighborhood, ecology and communication facilities.

Space for water treatment & recycling, solid waste disposal.

Pollution control measures-Pollution can not be completely eliminated- only levels can be reduced.

Upto 15% cost of capital equipment is being incurred on pollution control devices.

Obtain clearances by State Govt. & other Govt. agencies (viz. pollution control board, forest deptts. etc) and Central Govt.

KEY CHALLENGES & ROAD AHEAD

ENVIRONMENT ISSUES

Augment capacity and efficiency of rail, ports, roads to match capacity development.

Steel plants to augment their infrastructure to ensure full utilization of assets of logistics providers.

Explore environment-friendly transportation alternatives ( Viz Waterways, Slurry through pipes etc).

Build infrastructure - to meet transport requirement for bulky equipment and finished goods.

Co-ordination between producers, logistic providers and government concerning policies and execution

KEY CHALLENGES & ROAD AHEAD

INFRASTRUCTURE

Adequate availability of power, water.

Low Level of R&D in steel in India.

India mostly in seismological zone-Additional costs, earthquake resistant structures.

Rising cost of inputs materials –may not be compensated by rise in steel prices.

As a consequence, lower growth in production / fresh capacity than demand growth may cause severe market distortions.

Rising inflation

Better governance, delivery system & effective implementation.

KEY CHALLENGES & ROAD AHEAD

OTHERS

Delays and costs involved in land acquisition, Raw Material linkages, Statutory clearances and shortfalls in development of infrastructure could adversely affect project viability.

This ,in turn, inhibit creation of additional capacities.

For the business to survive, The production process and systems have to be efficient. Only energy-efficient process can produce finished material to

tightly controlled specification at lowest cost . Imperative to address environment issues.

Steel Industry in India can survive- if it is globally competitive in terms of costs and quality, which can only happen if the challenges are suitably addressed.

CONCLUSION

Thank You