Steel Products Annual Review January 2009

Published by: CRISIL Ltd.

Published: Jan. 30, 2009 - 124 Pages

Table of Contents

Sections

Industry profitability to remain under pressure

Executive summary

1.0 Profitability and prices

2.0 Global demand-supply

Global steel industry to witness high operating rates

3.0 China steel demand

Construction and machinery sector to drive Chinese steel consumption

4.0 Domestic demand supply

5.0 Key raw materials

Global iron ore prices to remain firm at least up to 2011

6.0 Key success factors

Introduction

Figures

1.0 Profitability and prices

01 Operating margins of key players

02 HRC Domestic Prices

2.0 Global demand-supply

01 Base case - Operating rates of global steel industry will continue to remain firm

02 Alternate scenario - China grows at 8 per cent during 2007-12 period and rest of the world grows at historical CAGR of 2.8 per cent

03 Final scenario attaching 60 per cent probability to base case and

40 per cent probability to scenario 1

3.0 China steel demand

01 Share of end user sectors in Chinese steel consumption

02 China steel demand

03 Strong growth in Chinese construction segment

04 Share of manufacturing sector in fixed assets investments rising

05 Chinese auto industry production

4.0 Domestic demand supply

01 Domestic flats demand capacity scenario

02 Domestic automobile production

03 Domestic longs demand capacity scenario

04 Bars and rods pie

05 Structurals

06 Construction sector investments expected to double

5.0 Key raw materials

01 Contract iron ore prices are on upswing since 2004

02 Trend in coke prices (China)

03 US (FOB) Heavy melting scrap prices

Tables

1.0 Profitability and prices

01 Pricing power is with the steel industry

02 Trend in domestic finished steel consumption

2.0 Global demand-supply

01 Global demand supply equilibrium - In summary

02 China will continue to drive global demand at healthy pace

4.0 Domestic demand supply

01 Growth drivers for domestic flat steel consumption

02 Major additions to pipeline infrastructure

03 Expected growth pattern for domestic long products consumption

04 Domestic capacity expansions proposed

Sections

1.0 Trends in technology

Iron making stage: Corex route

Steel production stage: Electroxy process

Slab casting stage: Thin-slab casting process

Rolling technology

2.0 Pre-liberalisation scenario

Steel industry in the pre-liberalisation period

3.0 Much awaited arrival of liberalisation in 1991

4.0 Review of the steel industry for 2002- 2006

World steel demand on rise

Strong GDP growth in India revived the steel industry

5.0 Steel Scenario in 2007-08

Emerging economies driving the world steel industry

6.0 Player profiles

SAIL

Tata Steel

Essar Steel

Ispat Industries

JSW Steel Ltd

Rashtriya Ispat Nigam Ltd

Jindal Steel & Power Ltd

Bhushan Steel and Strips Ltd

Uttam Galva Steel Ltd

Charts

1.0 Trends in technology

01 Steel making - BF-BOF process

02 Steel making - EAF process

03 Steel making - Corex-BOF process

04 HR - Production process

05 CR - Production process

06 GP/GC - Production process

Figures

3.0 Much awaited arrival of liberalisation in 1991

01 Investments post-1991 lead to difficult times during 1995-96 to 2001-02

02 Significant overcapacity in flat products

03 Decline in HR international prices

04 Imports aided by duty cuts

05 Recurring losses erode net worth

4.0 Review of the steel industry for 2002- 2006

01 World steel demand

02 Average international HR prices

03 Surplus / deficit in China

04 Growing domestic consumption

05 India's finished steel exports

06 Historical price movement of HR prices

07 Flats consumption - Share of all end-use sectors (2006-07)

08 Growth in automobile production (2001-02 to 2006-07)

09 Bars and rods consumption - Share of end use segments (2006-07)

10 Domestic trend in HR prices

11 Reinforcement bars - Domestic prices

12 Debt-equity ratio improves

13 Profitability trends

14 Increase in coke prices

15 Movement in the iron ore prices

5.0 Steel Scenario in 2007-08

01 Global operating rates improved in 2007

02 Finished steel - Global apparent use 2007

03 Baltic dry index

04 HR Coils - Domestic prices and landed cost

05 HRC international prices (CIS Black Sea)

06 Coke prices trend

07 Iron ore international prices on an upswing since 2004

Tables

2.0 Pre-liberalisation scenario

01 Employee productivity in 1990-91

3.0 Much awaited arrival of liberalisation in 1991

01 Share of public and private sector

02 Industry structure

4.0 Review of the steel industry for 2002- 2006

01 Increasing demand especially in China

02 Infrastructure investments fuel demand for long steel

5.0 Steel Scenario in 2007-08

01 Domestic demand

02 Apparent consumption

03 Duty structure at a glance (2008-09)

04 Trends in domestic finished steel consumption

05 Industry aggregates

06 Players with mines

07 Players without mines

6.0 Player profiles

01 SAIL - Equity holding details of September 2008

02 SAIL - Production

03 SAIL - Plant-wise information on capacity and key products manufactured

04 SAIL - Key financial indicators

05 Tata Steel Ltd - Shareholding pattern as of September 2008

06 Tata Steel Ltd - Production

07 Tata Steel Ltd - Plant-wise information on capacity and key products manufactured

08 Tata Steel Ltd - Key financial indicators

09 Essar Steel - Production

10 Essar Steel - Plant-wise information on capacity and key products manufactured

11 Essar Steel - Key financial indicators

12 Ispat Industries Ltd - Shareholding pattern as of September 2008

13 Ispat Industries Ltd - Production

14 Ispat Industries Ltd - Plant-wise information on capacity and key products manufactured

15 Ispat Industries Ltd - Key financial indicators

Tables

6.0 Player profiles

16 JSW Steel Ltd - Shareholding pattern as of September 2008

17 JSW Steel Ltd -Production

18 JSW Steel Ltd - Plant-wise information on capacity and key products manufactured

19 JSW Steel Ltd - Key financial indicators

20 Rashtriya Ispat Nigam Ltd - Plant-wise information on capacity and key products manufactured

21 Rashtriya Ispat Nigam Ltd -Key financial indicators

22 JSPL Ltd - Shareholding pattern as of September 2008

23 JSPL Ltd - Production

24 JSPL Ltd - Plant-wise information on capacity and key products manufactured

25 JSPL Ltd - Key financial indicators

26 Bhushan Steel and Strips Ltd - Shareholding pattern as of September 2008

27 Bhushan Steel and Strips Ltd - Plant-wise information on capacity and key products manufactured

28 Bhushan Steel and Strips Ltd - Key financial indicators

29 Uttam Galva Steel Ltd - Shareholding pattern as of September, 2008

30 Uttam Galva Steel Ltd - Plant-wise information on capacity and key products manufactured

31 Uttam Galva Steel Ltd - Key financial indicators

Sections

1.0 Demand

2.0 Supply

3.0 Prices

4.0 Trade and tariffs

5.0 Financial performance

6.0 Global steel industry

Charts

1.0 Demand

01 Flat products

02 CR flats

03 Coated products

04 Long products

Figures

3.0 Prices

01 HR coils - Domestic and landed cost

02 HR coils - International prices

03 CR coil - Domestic and landed costs

04 CR coils - International prices

05 GP / GC coils - Domestic and landed costs

06 GP / GC Coils - International prices

07 Wire rods - International prices

08 Steel billets - International prices

09 Merchant bars - International prices

10 Reinforcement bars - Domestic prices

Tables

1.0 Demand

01 HR flats - Typical consumption pattern

02 CR sheets / coils - Typical consumption pattern

03 GP/GC sheets - Typical consumption pattern

04 Finished steel products - Demand

05 Flat products - Demand

Tables

1.0 Demand

06 Long products - Demand

07 Steel products - Apparent consumption (2002-03)

08 Steel products - Apparent consumption (2003-04)

09 Steel products - Apparent consumption (2004-05)

10 Steel products - Apparent consumption (2005-06)

11 Steel products - Apparent consumption (2006-07)

12 Steel products - Apparent consumption (2007-08 E)

2.0 Supply

01 Share of public sector and private sector

02 Finished steel products - Production

03 Flat products - Production

04 HR flats - Producer-wise capacity

05 HR flats - Producer-wise production (Includes captive consumption)

06 HR coils - Producer-wise capacity

07 HR coils - Producer-wise production

08 CR flats - Producer-wise capacity

09 CR flats - Producer-wise production (Includes captive consumption)

10 GP/GC sheets - Producer-wise capacity

11 GP/GC sheets - Producer-wise production

12 Long products - Production

13 Bars and rods - Production

14 Structurals - Production

15 Railway materials - Production

4.0 Trade and tariffs

01 Finished steel products - Exports

02 Flat products - Exports

03 Long products - Exports

04 Finished steel products - Imports

05 Flat products - Imports

06 Long products - Imports

07 Steel products - Customs duty

08 Steel products - Excise duty

5.0 Financial performance

01 Industry - Cumulative financials

02 Steel - Producers' financials (2007-08)

Tables

6.0 Global steel industry

01 Finished steel - Apparent worldwide consumption

02 Crude steel - World production

03 World steel - Top 10 producers

04 Steel - International trade flows 2007

05 Steel - Major exporters (2006)

06 Steel - Major importers (2006)

07 Steel - Net exporters (2006)

08 Steel - Net importers (2006)

09 Steel - Largest companies in the world (2007, 2008)

Abstract

The domestic steel industry (especially the non-integrated players) is likely to face pressure on margins in 2008-09 due to increasing input costs on one hand and the curtailed pricing flexibility on account of government actions on the other. The raw material price rise will also start getting reflected fully only from the second quarter of 2008-09. However, in 2009-10 and beyond, if the domestic market pricing is devoid of influence from the government, profitability of the domestic steel industry is expected to remain healthy. The extent of profitability will also be a function of share of exports in the product portfolio of players.According to CRISIL Research, global steel prices will remain firm in the foreseeable future at around $ 750-850 per tonne level. The tight demand-supply equilibrium will give pricing power to the industry, which in turn is likely to able to pass on most of the increase in input costs to the buyers. The prices in the global steel industry will be moving in such a fashion so as to ensure the current levels of operating margins at around 18-20 per cent are maintained for global steel players. Our calls on steel prices are based on the expected firmness in the medium term in contract iron ore prices (currently $132 per tonne FOB Brazil to Europe), coking coal (currently around $300 per tonne FOB Australia) and coke (around $500 per tonne FOB China) prices.

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