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PRESENTATION ON GROWTH PERSPECTIVES OF INDIAN STEEL INDUSTRY BY Sushim Banerjee, Director General Institute for Steel Development & Growth, Kolkata Indian Steel Conference 23-24 March 2012, New Delhi World Growth pattern in 2005-2010 Real GDP growth (%) Country/ Region 2005 2006 2007 2008 2009 2010 2011 (P) 2012 (P) 2013 World 4.5 5.2 5.6 2.8 - 0.6 5.2 3.8 3.3 3.9 USA 3.1 2.7 1.9 0.0 (-) 2.6 3.0 1.8 1.8 2.2 Germany 0.8 3.4 2.7 1.0 (-) 4.7 3.6 3.0 0.3 1.5 Japan 1.9 2.0 2.3 (-) 1.2 (-) 5.2 4.4 (-) 0.9 1.7 1.6 Russia 6.4 8.2 8.5 5.2 (-) 7.9 4.0 4.1 3.3 3.5 Brazil 3.2 4.0 6.1 5.1 (-) 0.2 7.5 2.9 3.0 4.0 China 11.3 12.7 14.2 9.6 9.1 10.4 9.2 8.2 8.8 India 9.2 9.7 9.9 6.4 5.7 9.9 7.4 7.0 7.3 World Trade Volume 7.8 8.9 7.4 2.9 (-) 11.0 12.7 6.9 3.8 5.4 (Goods & Services) Source : IMF, World Economic Outlook Jan ‘12 WHY STEEL ? - Steel : green and recyclable - Steel : fast-track construction with least Public inconvenience and nuisance during construction and thus more Environment friendly - Steel Structures : neighbourhood creating dust - free environment - Wood largely replaced by steel preventing large scale deforestation friendly Steel : more freedom of expression Steel : more creativity and viability in design and opportunity to express functional requirements in structured way 3 WHY STEEL ? FLEXIBILITY - Steel : large column free clear spans, ideal for long spans upto 40 metre long - Steel structures : provide larger usable space (more carpet area) for multi-storeyed building and large spans for bridges and flyovers with uninterrupted traffic movement - Latest developments in Steel making meet up the challenges of corrosion with application of latest developed paints over bare structural steel - Latest development in painting technology like application of intumescent paints or vermiculite protect bare Steel structures directly from fire - Steel : sustain reversible loads due to inherent properties like ductility - Steel more cost effective than concrete as a framing solution 4 WORLD CRUDE STEEL PRODUCTION 1995 - 2011 1527 2500 1430 1346 2000 1341 1236 1247 1144 1072 1500 970 848 1000 752 750 799 777 850 904 788 500 0 95 101 109 115 124 127 151 182 220 281 95 96 97 98 99 00 01 02 03 04 China 349 428 490 500 568 05 06 07 08 09 Rest of the World 639 695 10 11 Shift in Production Base : 2000 - 2011 USA, 12.0 Brazil, 3.3 Japan, 12.5 2000 USA, 5.6 Brazil, 2.3 India, 3.2 South Korea, 5.1 EU-27, 11.0 2011 Japan, 7.0 India, 4.7 South Korea, 4.5 Ukrane, 2.3 Russia, 4.5 EU-27, 24.1 China, 15.0 ROW, 11.8 Ukrane, Russia, 3.8 7.0 China, 45.5 ROW, 14.0 Global Steel Capacity Utilization WORLD TRADE IN STEEL PRODUCTS (Million Tons finished Steel) YEAR EXPORTS PRODUCTION EXPORTS % 1980 140.6 578.7 24.3 1990 171.0 654.0 26.2 2000 307.1 782.5 39.2 2002 313.1 836.2 37.4 2004 366.2 992.5 36.9 2005 371.3 1062.2 35.0 2006 418.3 1158.6 36.1 2007 443.8 1251.4 35.5 2008 436.2 1234.6 35.3 2009 326.3 1147.0 28.4 2010 386.4 1316.4 29.4 Source: World Steel In Figures,2011 Apparent Consumption:2008-2011 (MT) Country 2008 2009 Y-O-Y% 2010 (P) Y-O-Y% 2011 (P) Y-O-Y% 2012 (P) Y-O-Y% China 447 551.4 23.4 587.6 6.7 623.3 6.1 649.4 4.2 USA 98.4 59.2 (-) 39.8 79.9 35.0 89.2 11.6 93.8 5.2 India 51.4 57.9 12.5 64.9 12.2 68.0 13.6 73.1 7.9 Japan 78.0 52.8 (-) 32.3 63.5 20.2 64.0 0.8 63.4 (-) 0.9 S. Korea 58.6 45.4 (-) 22.5 52.4 15.4 56.1 7.2 56.7 1.0 Russia 35.4 24.8 (-) 30.1 35.9 43.8 40.9 14.0 42.6 4.1 Germany 42.4 28.0 (-) 34.0 35.9 27.3 39.1 8.8 38.9 (-) 0.5 Italy 33.3 20.1 (-) 39.7 25.7 27.2 26.8 4.5 25.1 (-) 6.3 Brazil 24.0 18.6 (-)22.8 26.1 40.5 25.0 (-) 4.2 26.7 6.9 Turkey 21.5 18.0 (-) 16.0 23.6 30.7 26.9 14.1 29.0 6.9 Spain 18.0 11.9 (-) 34.0 13.1 13.0 13.2 (-) 1.0 12.8 7.8 World 1218 1140 (-) 6.4 1302 14.2 1378 5.8 1431 3.9 Source: WSA February 2012 GLOBAL PRICE MOVEMENT- FINISHED STEEL 1800 1600 1530 1400 1230 1200 925 1000 785 910 776 863 697 800 635 570 600 502 580 575 598 555 668 625 580 425 400 550 592 584 630 610 665675 610 590 420 365 463 435 470 675 681 525 603 552 710 623 545 493 491 446 200 0 Dec'0 6 M ar '0 7 Jun e'0 7 Sept '0 7 Dec'0 7 M ar '0 8 July'0 8 Sept '0 8 Dec'0 8 HRC Rebars Apr '0 9 Jun e'0 9 Sept '0 9 Sept 07-July 08 114% 177% Source: HRC: Russia Black Sea Export FOB($/T) Dec'0 9 M ar '10 July 08-Apr'09 -70% -70% Apr '10 M ay'10 Jun e'10 Apr'09-Feb'11 113% 42% July'10 Nov'10 Dec'10 Feb'11 - March'12 (-) 5.3% (-) 13% Source: Rebars: Turkey Export FOB($/T) Feb'11 M ar ch'12 GLOBAL PRICE MOVEMENT- RAW MATERIALS 800 700 743 585 600 525 500 493480 473 455 465 470 435 445 560 425 390 395 400 385 340 464 437 317418 433 440 465 300 275 405 395 245 376 358 358 367 203 185 200 323 315 176 182 152.5 312 165 172 193 148 158 189 285 172 187 266 1 32 257 1 25.5 1 03 100 91 91 91 76 77 63 0 Dec'06 M ar '07 June'07 Sept '07 Dec'07 M ar '08 Jul y'08 Dec'08 Series1 A pr '09 Jul y'09 Oct '09 Series2 Jan'10 A pr '10 M ay'10 June'10 Jul y'10 Nov'10 Dec'10 Feb'11 M ar ch'12 Series3 Sept 07-July 08 July 08-Apr'09 Apr'09-Feb'11 Feb'11 - March'12 11% -66% 206% (-) 23.3% 102% -65% 16% (-) 5.7% 148% -27% 71% 7.90% Source : SBB - India Iron Ore: China CFR; Coke: China; Export (FOB) Melting Scrap: East Asia Import HMS(80:20) CURRENT FEATURES IN GLOBAL STEEL MARKET Global Economy projected to grow by 3.3 percent in 2012 after clocking 3.8 percent in 2011. Subdued steel demand in EU, Japan and USA. Restriction on real estate and restructuring of small scale polluting steel units and recent strategy of moderating GDP growth rate by China leads to a suppressed growth in steel demand. Would Surplus steel in China cause concern to India? Marginal hike in Finished Long Steel prices following rise in scrap prices with less volatility in coal & iron ore prices – may dampen move for immediate price increase. STRUCTURE OF INDIAN ECONOMY (% SHARE IN GDP) Category 198081 200001 200607 2007-08 2008-09 2009-10 2010-11 (QE) 2011-12 (AE) Primary 38.1 23.9 18.1 18.0 17.2 14.6 14.5 13.9 Secondary 25.9 25.8 28.9 29.1 28.5 28.1 27.8 27.0 (Manufacturing) 13.8 15.3 16.1 16.1 15.6 15.9 15.8 15.4 (Construction) 6.6 5.8 8.2 8.4 8.6 7.9 7.9 7.7 Tertiary 36.0 50.3 53.0 52.9 54.3 57.3 57.7 59.1 Total 100 100 100 100 100 100 100 100 GDP Growth (%) 7.6 4.4 9.6 9.3 6.8 8.0 8.4 6.9 22.7 31.3 32.9 32.3 31.6 30.4 29.2 23.7 34.6 36.8 32.0 33.8 32.3 31.6 (e) Gross Fixed Capital Formation (% of GDP at Market Prices) Domestic Saving (% of GDP at Market Prices) 1. 2. 3. Data for 2006-07 onwards based on 2004-05 prices as per revised estimates. Stagnant share of Manufacturing and Secondary Sector in GDP Share of Industry in GDP: China (59), S. Korea( 44), Kazakhsthan (37) (Source : CSO, Economic Outlook : 2011-12) PERCENTAGE GROWTH IN MAJOR INDL. SEGMENTS Segments ---------------PERCENTAGE GROWTH DURING---------------- Weight 199495 199596 200506 200607 200708 200809 200910 201011 AprilJan’12 (Apr – Jan’11) ELECTRICITY 103.16 8.5 8.1 5.2 7.3 6.3 2.7 6.1 5.5 8.8 (5.3) MANUFAC TURING 755.27 9.8 13.6 10.3 15.0 18.4 2.5 4.8 9.0 4.4 (8.9) MINING 141.57 9.8 9.7 2.3 5.2 4.6 2.6 7.9 5.2 (-) 2.6 (6.3) CAPITAL GOODS 88.25 24.8 17.9 18.1 23.3 48.5 11.3 1.0 14.8 (-) 2.8 (17.0) CONSUME R DURABLES 84.60 10.2 36.1 16.2 25.3 33.1 11.1 17.0 14.2 3.9 (13.7) TOTAL INDUSTRY 1000.00 8.4 12.7 8.6 12.9 15.5 2.5 5.3 8.2 4.0 (8.3) Source: CSO, Series for 1994-95 & 1995-96 on 1993-94 = 100 base and all others on 2004-05 = 100 base Indian Steel Industry 4th largest producer of crude steel in the world Current capacity of crude steel : 78 mt slated to go upto 140 mt by 2016-17 and around 200 mt by 2020 Largest producer of sponge iron in the world (27.6 mt comprising of 43.5% share in world production) 3rd largest consumer of finished steel in the world Crude Steel Capacity estimated to rise by 11% by 2012 Weight of 6.68 in Infrastructure Index A Net Importer of Steel 17 70 Trend of Steel Consumption in India 65 65.610 59.340 60 CONSUMPTION IN MILLION TONNES 55 52.12552.351 50 46.783 45 41.433 40 36.377 35 33.119 30.677 28.523 26.500 25.100 23.546 22.634 21.29422.128 18.661 30 25 20 15 8.848 10 5.361 5 0 0.000 6.280 1.227 YEAR '51-52 '64-65 '74-75 '84-85 '94-95 '95-96 '96-97 '97-98 '98-99 '99-00 '00-01 '01-02 '02-03 *0304 Source: JPC *0405 *05- '06-07 '07-08 '08-09 '09-10 10-11 06 Steel Consumption in India grew @ 8.9 percent annually in last decade against 4% annual growth in Global Steel Consumption 18 Indian Steel:Demand Drivers Construction (Infrastructure) Projects Transport of Petroleum/ Water TLT Rail tracks Manufacturing Tube Making Wire drawing Fabrication Fastners Power plant equipment Agricultural implements Household appliances Auto Commercial Vehicle Passenger cars Two wheelers Auto Components Each of these segments has good potential to grow Infrastructure Building and Construction Construction Sector composed of : - Infrastructure : 54 percent - Industrial Expansion : 36 percent - Residential and Commercial : 10 percent Sectoral Break-up of Construction Sector : Building 76% Mineral Plant 18% Roads 63% Medium Industry 20% Bridges 65% Transmission 22% Domestic 75% Urban Infrastructure 66% Power 38% Maintenance 81% Railways 78% Assuming 80% fulfillment, the projected investment in infrastructure (at current prices) to generate on an av. steel demand for around 214 mt for next 5 years i.e. 43 mt per annum for infrastructure sector INFRASTRUCTURE DEFINED The tentative master list of infrastructure subsectors as on 01.03.2012 which may be reviewed subsequently are : Category Transport Energy Water Sanitation Communication Social & Commercial Infrastructure Infrastructure Sub-sectors Roads & Bridges, Ports, Inland Waterways, Airports, Railway Trucks & Bridges, Urban Public Transport Power Generation & Distribution, Oil & Gas Pipeline & LNG Storage Facility Solid Waste Management, Water Treatment & Pipelines Tele-communication Educational Institutions, Hospitals, 3-star or more Hotel, Industrial Park, SEZ Fertilizers, Cold Storage, etc. ENABLING INFRASTRUCTURE FOR MANUFACTURING GROWTH India ranks 54th among 57th countries in Infrastructure facilities against China (37), Brazil(32), Thailand(20). Energy (27% T&D losses, 14% peaking deficit) and Logistics costs impacted by quality of Infrastructure Cost of Power comparable, but erratic and unreliable power supply leading to frequent use of Generators and enhancing cost. Poor Roads increase Freight (only 20% of NHs are 4 lanes, 50% 2 lanes & 30% single lane) Average Port turnaround time is 84 hrs against Thailand (10 hrs), Sri Lanka(17 hrs) and poor port connectivity – inadequate berths and draft. Average Truck speed in India at 40 kmph against China(60) and USA(100) leading to higher logistic costs. Average time taken for Environment and Forest clearance is 1 to 3 years resulting in delay in 60% of power projects and 40% of Road projects. Projected Investment in Infrastructure (Revised) (at 2006-07 prices) XI Plan Rs. Crore Share (%) Electricity (incl. NCE) 6,66,525 32.42 Roads and Bridges 3,14,152 15.28 Telecommunication 2,58,439 12.57 Railways (incl. MRTS) 2,61,808 12.73 Irrigation (incl. Watershed) 2,53,301 12.32 Water Supply & Sanitation 1,43,730 6.99 Ports 87,995 4.28 Airports 30,968 1.51 Storage 22,378 1.09 Oil & Gas Pipelines 16,855 0.82 100 Sectors Total 2056151* Infrastructure Investment to reach 7.1% of GDP in 11th Plan from 5.15% of GDP in 10th Plan * Anticipated Investment in infrastructure in 11th Plan : Rs.1948069 Cr Investment in Infrastructure : Volume and Pattern * Projected investment in infrastructure in XII Plan : $ 1 trillion (Rs. 49,50,000 cr reaching around 9.7% of GDP) against China’s current infrastructure investment of 11% * Public investment predominantly in non-commercial sector like rural roads and Private investment in commercial sectors e.g. roads, ports, airports. Viability Gap Funding, setting up of IIFCL. * Private Investment to reach 50% of total investment in infrastructure in 12th Plan up from 37% in 11th Plan. 100% FDI for Ports, Roads and Aviation Infrastructure. * Private Capital in public projects via PPP route – Maximum in NHDP and also in State Roads, Airports and Ports * Transparent, investor – friendly standardized documents with specific guidelines / safeguards on user charges / interest (RFP for selection of Consultants & Financial Bids ,RFQ for pre-qualification of bidders). Share of Private Investment in 11th Plan 90 80 70 60 50 40 30 20 10 0 83 82 61 45 42 4 Electricity Telecom Source : Planning Commission Roads Railway Ports Airports Steel and Infrastructure Steel demand projected to reach 113 mt by 2016-17, the terminal year of 12th Plan. Demand realization contingent on Gross Fixed Capital Formation to reach 35-36 percent of GDP and investment in infrastructure to at least 9% of GDP. Manufacturing sector comprising of steel-intensive capital goods, consumer durables and construction sectors slated to enhance its share in GDP from current level of 16% to 25% by 2020 as per New Manufacturing Policy. Creation of industrial clusters for growth of manufacturing requires development of infrastructure. 26 Growth of Manufacturing and Processing Industries <-----------------------------------% Growth in Production ---------------------------------> Category Steel Items used 2006-07 2007-08 2008-09 2009-10 2010-11 April ’11 – Jan‘12 Machinery & Equipments Strls/Plates 14.2 9.3 8.8 21.0 29.4 (-) 3.0 Transport Equipment Strls/Plates 15.0 2.8 2.5 24.4 23.2 14.3 CRGO 4.6 2.7 (-) 1.9 16.5 13.4 21.4 HRS/Strls 22.4 (-) 2.2 (-) 0.4 26.3 23.9 22.7 CRC/S 25.0 14.1 3.1 25.8 9.8 (-) 12.2 CR/Rounds 27.4 6.8 (-) 2.4 13.6 8.8 4.5 HR/CR 18.3 14.8 6.7 26.0 28.4 2.3 CR/Rounds 14.7 (-) 5.2 4.6 24.2 24.7 15.4 CRC/S/Plates 33.0 4.8 (-) 23.6 36.0 32.8 24.1 Drums & Barrels CRC 17.0 3.3 (-) 21.4 42.7 (-) 2.5 2.9 LPG Cylinders HRC 51.5 13.4 5.7 55.0 13.9 (-) 8.7 Washing Machines CRC 11.3 11.5 8.1 26.4 (-) 0.8 (-) 4.3 Diesel Engines Sheets/Plates/Strl 35.3 11.6 18.8 5.3 11.2 6.8 Material Handling Equip. Plate/Sheets/Strls 115.5 (-) 17.2 (-) 3.5 22.9 (-) 8.4 9.2 Power & Dist. Transformer Complete Tractors Refrigerators (domestic) Bicycles Passenger Cars Two Wheelers Commercial Vehicles Source : MOC DOMESTIC STEEL SCENARIO OF FINISHED STEEL PRODUCTION IMPORTS EXPORTS APPARENT CONSUMPTION (Net of double counting) SOURCE: JPC Million Tonnes LONG FLAT TOTAL GROWTH/CPLY 2006-07 24.7 26.8 52.5 12.7% 2007-08 26.3 29.8 56.1 7% 2008-09 27.0 27.2 57.2 2% 2009-10 27.0 33.6 60.6 5.9% 2010-11 31.0 35.1 66.1 9.1% 2006-07 0.5 4.4 4.9 14% 2007-08 0.7 6.3 7.0 43% 2008-09 0.7 5.1 5.8 (-) 17.1% 2009-10 0.8 6.6 7.4 27.6% 2010-11 0.7 6.1 6.8 (-) 8.1% 2006-07 0.6 4.6 5.2 8.3% 2007-08 0.7 4.4 5.1 (-) 2% 2008-09 0.4 4.0 4.4 (-) 13.7% 2009-10 0.4 2.9 3.3 (-) 25% 2010-11 0.4 3.1 3.5 6.17 2006-07 26.1 30.7 46.8 13% 2007-08 28.0 24.1 52.1 11.1% 2008-09 27.1 25.3 52.4 0.6% 2009-10 29.0 30.3 59.3 13.2% 2010-11 33.5 32.1 65.6 6.2% Processwise Crude Steel Production (% Share) Process 2005-06 2010-11 BF – BOF 52 47 EAF 18 26 IF 30 27 Total 100 100 Around 1174 no. of IF units are working with a Working Capacity of 25.84 million tonnes Projections for 12th Plan (2012 – 13 to 2016-17) 2010 - 11 2016 – 17 (Projections) CAGR (%) 78 140 10.2 69.6 126 10.4 Finished Steel Production 66 115 9.7 Export 3.8 7 10.7 Import 7 5 (-) 5.5 65.6 113* 9.5 Crude Steel Capacity (MT) Crude Steel Production Finished Steel Consumption (*Based on a GDP elasticity of 1.14) Growth Prospects and Constraints Modern day EAFs using chemical heat of Hot Metal to get low power and electrode consumption. Oxygen injection, ladle furnace, slag practice, water cooled wall etc lead to high productivity. Can produce customized, high quality alloy / special steel to Automobile, Railways, Aerospace, etc. cater to Defence, Raw Marterial Scenario Melting Scrap from domestic sources dwindling Rising Price of imported melting scrap Good quality scrap availability is a concern Sponge iron / DRI emerged as a substitute (mostly coal based – non coking coal and iron ore fines in pellet form) Nearly 80:20 ratio as a charge mix Current trend of minimizing cost of power (60% of cost of production) is to set up captive power plants and sponge iron unit by IF producers. Gas availability being limited and earmarked for priority sectors like Power, Fertilizers, no capacity expansion for gasbased S I Unit. Constraining Factors in Steel Promotion Low awareness on benefits of steel in Construction. Limited knowledge on steel design w r t RCC Non availability in required sizes and shapes Unfavorable Codes and Standards Lack of appreciation for Life Cycle Cost Inadequate manpower fabrication facilities PFP & HPP Paints not in Codes. / trained STEEL INDIA’S GLOBAL JOURNEY Risk Elements Management of Economic policies : Investment led rather than consumption led. Set of Economic Reforms. Use of raw materials for value addition within the country. MM&DR and land acquisition policies must favour industry. Steel capacity enhancement to lead to Massive load on transport infrastructure. Need for National Integrated logistics policy STEEL INDIA’S GLOBAL JOURNEY Risk Elements Technology transfer on a large scale – - Iron making : FINEX, HISMELT, COREX, ITBK-3, CDI Steel making : Thin slab casting, Thin strip processing Rolling mills : Secondary Refining, CRGO Steel, API X- 100, Bake Hardened Steel, AHSS, TRIP Steel Critical segments to be Partners in Progress in Product Development ULCOS (Ultra low Co2) steel making : Breakthrough Technology & Hydrogen based steel making to reduce Co2 emission (POSCO) Implementation of New Manufacturing Policy To make Indian steel globally competitive and preferred source of supply by reducing the cost of Doing Business in India. (132 ranked out of total 183 countries) Quality awareness to be the inherent process of activities by both the consumers and suppliers STEEL INDIA’S GLOBAL JOURNEY Risk Elements Merger, Acquisition and Consolidation to take route in India Thrust on Retail Marketing – Make Steel available in Rural and Semi Urban Areas Active promotion of use of steel in actual construction – Steel Concrete Composite Construction and develop Steel Fabrication facilities through Skill-cumEntrepreneurs Development Programme in rural areas. Integrated approach by Govt, industry and all stakeholders to make Indian steel a top class global player in the next decade