Global and Indian Trends in Metal Industry Study NCFM

8/6/2019 Global and Indian Trends in Metal Industry Study NCFM

1/31

CRISIL Limited

Global and Indian Trends

in Metal IndustryMarch 27, 2011


2/31

2

About CRISIL Research CRISIL Research is Indias largest independent research house

and is a 100 per cent subsidiary of CRISIL Ltd. CRISIL Researchs research offering includes

EcoView Periodic review of macroeconomic fundamentals in India

Industry Information Service Continuous research coverage on 45 industries in India across the

manufacturing and services sectors A service presently used by 90% of the banks operating in India both Indian

and foreign CrisilViews

Public Information based credit reports on 150-200 leading Indian companies Syndicated research

Customised research that applies our unique understanding of cross sectoraland macro-micro linkages to specific client needs


3/31

3

About CRISIL Research CRISIL Researchs offering in the metals sector includes

Industry Information Service Reports on steel, steel intermediates, aluminum and copper.

CrisilViews Tata Steel Steel Authority of India Limited Jindal South West Limited Hindalco ITC

Sterlite and many others Syndicated research

Global Aluminum company Large Indian Automobile company


4/31

4

2005-06: Beginning ofthe meltdown

-40000

-20000

0

20000

40000

60000

80000

100000

120000

140000

2001-02 2002-03 2003-04 2004-05 9M 2004-05 9M 2005-06

(Rs.million

-15

-10

-5

0

5

10

15

20

25

30

35

40

(Percent)

PAT OPM (RHS) NPM (RHS)

Note: Playersconsideredare: Tata Steel, SAIL,Ispat, EssarSteeland JSW SteelSource:CRIS INFAC


5/31

5

Decline in steel prices

The average international price of hot-rolled coils (HRC) was $460 per tonne (F B) during the first 9 monthsofFY 2005-06, 16 per cent lower than the $549 per tonne (F B) reported during the corresponding period of2004-05.

Domestic HR prices mirrored the trend in global prices, averaging Rs 28,444 per tonne in April-December

2005, down from an average of Rs 28,778 per tonne in April-December 2004.

Note: International prices are CIS Black Sea (FoB) prices

Source: Metal Bulletin and CRIS INFAC

15,

17,

19,

1,

3,

5,

7,

9,

31,

33,

35,

A M J Jl A S O

tN J

5

Feb-

05

M-05

A-05

M

-05

J-05

Jl-05

A-05

Sep-05

Ot-05

N-05

Dec-05

J-06

Feb-

06

M-06

Apr-06

M

-06

J-06

(Rsp

r

onn

)

300

350

400

450

500

550

600

650

($p

r

o

nn

)

Domesticprices I ternational prices S


6/31

6

Incremental supplies grew higherthan incremental demand

982

1041

974

1013

99

97

940

960

980

1000

1020

1040

1060

2004 2005

(Milli

s)

96

96.

5

97

97.5

98

98.5

99

99.5

(Percent)

Finish d St r duction

Finish d St l onsum tion

Consum tion/productionr tio S

While the apparent consumption,rose by 4.09 per cent (addition of9.8 million tonnes) during 2005

over 2004, supplies increased by

6.07 per cent (addition of 59.6million tonnes) Reasons

Slowdown of demand from the US andthe EU. The regions met most of theirconsumption needs from their inventories leading to reduced buying

China becomes net exporter in 2005

from net importer in 2004. Over thepast 3 years (between 2003 and 2005),China's consumption of finished steelincreased at a CAGR of 16.12 per cent,while its production grew by a CAGR of25.34 per cent over the same period.


7/31

7

Higher raw material prices in 2005-06 Iron ore

Average international spot iron ore prices increased in 2005 to about $80 per tonne, a rise of almost 70 percent from average of around $47 per tonne in 2004. Strong demand from China led to the increase.

In April 2005, NMDC increased the domestic contracted price to Rs 1,450 per tonne (inclusive of freight) toalign it with international prices. In FY 2005-06, as per NMDC's annual results, it has sold iron ore at an

average price of Rs 1,944 per tonne. However, players with captive mines such as Tata Steel, SAIL and JSW (to some extent) are insulated

from the price hikes.

Coke During the first 9 months of FY2005-06, coke prices averaged $199 CFR. The decline in prices can be

attributed to increased exports from China.

Coking coal The contracted price of coking coal during CY 2005 was $125 per tonne (FOB) as against $57 (FOB) in CY

2004 [source: Tata Steel Analyst Meet presentation]. Hence players, having captive coke ovens like TataSteel and SAIL did not really benefit from the fall in coke prices.

Natural gas Natural gas prices in the domestic market have ruled at a substantial premium during April-December 2005

(Rs 8,022.72 per thousand cubic metres - tcm) over the corresponding period of the previous year (Rs5,066.62 per tcm) leading to a heavy erosion in margins of gas-based steel makers such as Ispat andEssar.


8/31

8

Volumes helped achieving stable revenues

Note: The YoY growth is calculated based on results of corresponding period of previous yearSource: CRIS INFAC

9970

22477.24277

4375

31623320

6. 9

6.4

7.64

0

5000

10000

15000

20000

25000

30000

3 000

40000

2004-0512M 2004-059M 2005-069M

('000tonn

s)

.6

5.

6

6.2

6.4

6.6

6.

7

7.2

7.4

7.6

7.

(P

r

nt)

Domestic Demand Exports YOY Growth R S


9/31

9

Look

ing into

the crys

tal

ball

Margins of the domestic industry toremain stable during 2006-07 as

compared to 2005-06 Prices to increase marginally.

However rise in Input costs to keep margins

stable.


10/31

10

Realization to increase marginally

The International average prices of steel willbe around $500 per tonne in CY 2006 as

compared to $490 per tonnes in 2005 Global demand to remain healthy

Capacity additions; mostly expected in China

Hence Global operating rates to remain stable

The Increase in the domestic prices will belower due to unfavorable demand-supplyScenario


11/31

11

Global Demand growth to remain stable

The demand for finished steel whichgrew by 4.1 per cent (addition of 9.8

million tonnes) in CY 2005 is likely togrow by 4.5 per cent (addition of 45million tonnes) in CY 2006

Chinese demand is expected to grow at a healthyrate of around 10 per cent in CY 2006.

Demand from US and European Union also to pickup.


12/31

12

Chinathe

key

toD

emand

CHINA: Going strong

Units 2004* 2005 Inc/(Dec)Per cent

2006 Inc/(Dec)Per cent

Investments in Fixed Assets Billion RMB 706 904 28 1161 28

Production of : -

Motor Vehicles 10,000 Sets 188 202 8 26 0

Civil Steel Boats and Ships 1,000 tons 260 208 19 4 8

Large and medium Tractors Sets 7,595 49,485 2 8 ,828 69

Washing machines 10,000 Sets 758 9 9 24 99 6

Refrigerators 10,000 Sets 810 949 17 1289 6

Chinas investments in Fixed Assets: Key elements

(Billion RMB) 2004* 2005 Inc/(Dec) Per cent 2006 Inc/(Dec) Per cent

Real Estate 198 255 27.8 0 18.8

Manufacturing 192 252 25.6 44 6.

Transportation, storage and post 71 92 28.4 119 29.6

Construction 9 6 - 9 10 7


13/31

13

Capacity a

dditio

ns mo

stly in China

During CY 2006, 54 Million tonnes of finished steel capacity is expectedglobally Chinese capacity to add 38 million tonnes of the global incremental capacity. The balance 16 million tonnes will be added by the rest of the world (RoW) excluding China

Demand (Million Tonnes) 2004 2005 2006

lobal 1084 1128 1179

China 02 5 88

RoW 782 776 791

Capacity (Million. Tonnes)

lobal 1227 1 26 1 86

China 40 425 466

RoW 887 901 920

Demand capacity ratio (Percent)

lobal 88 85 85

China 89 8 8

RoWSource: IISI & CRIS INFAC


14/31

14

Global operating rates to remain stable

Average global operating rates to remain stable at around 86 per cent.

Source: IISI & CRIS INFAC

Gl bal demand ca acity scenari

400

6

8

1,

1,

1,400

1,6

4 2005 2006

n

tonnes

83

84

85

86

87

88

89

Percent

emand Capacit emand capacit ratio R S


15/31

15

Domes

ticd

emand

-su

pply scenario

Demand to grow at a CA R of 8 per-cent during 2006-07.

Pipes & tubes and automobiles will continue to drivethe demand for flat products

Healthy growth in construction to drive long products

demand. Howeverdemand to capacity ratio will

remain low.


16/31

16

Passenger cars tokeep riding on favourable demographics

Passen

e

Cars

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

2004-05 2005-06E 2006-07F 2007-08F

Un

t

n

Co t

d

A4-A6

CAGR 15 %

Source : CRIS INFAC


17/31

17

Growing trendof personal utility vehicles to help demand

Utility Vehi

les

324066285408265956

0

50000

100000

150000

200000

250000

300000

350000

2005-06E 2006-07F 2007-08F

Units

Source : CRIS INFAC

10.3% CAGR


18/31

18

Commercial vehicle demandto grow at a healthy rate

Commercial ehicle

181751 196588207595

201113

51910

56800

61092 65541

170897161573140368114913

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

2004 05 2005 06 2006 07F 2007 08F

t!

H " V # " V $ u % & %

Source : CRIS INFAC


19/31

19

Pipes & tubes: Significant investments planned over the next 5 years

0

2000

4000

6000

8000

10000

12000

14000

2001-05 2006-10

PipelineKMs

Note: Pipes for only crude oil, LNG and Petroleum products hasbeen considered. Pipes for water supply, drainage and sewage

have not been considered

Source: CRIS INFAC

39%


20/31

20

Note: Pipes for only crude oil, LNG and Petroleum products has been considered. Pipes for water supply, drainage and sewage have not

been considered

Buoyant activity seen in pipes and tubes segment

Source : CRIS INFAC

2006 Km 2007 Km 2008 Km

DUPL 475

Jagoti-Indore-Pitham ' ur 190

Kelaras-Malanpur 85

Vijaypur-Kota 192

Thulendi-Phulpur 139

GSPL 767

HPCL - 'Pune-Pakni ('Mumbai-Pune pipeline extension) 343

HPCL - Mumbai-Rewari-Bahadurgarh 1048

BPCL 'Numaligarh-Siliguri1 675

BPCL Manglia-Piyala-BijwasanPipeline 774


21/31

21

Infra inves

tmen

tsto

d

rive co

nstru

ctio

n Real estate investments

Favourable demographics Rising affordability Low interest rates Favourable govt. policies (FDI) Growth in IT/ITES

Infrastructural investments To grow by 8 per cent Favourable govt. policies

Private participation Roads, irrigation and water supply, and power

Industrial investments To remain buoyant Oil and gas and metals (steel and aluminium)


22/31

22

Commercial construction: IT/ITES sector is the driver

Real estate construction: Investments over thenext 5 years

Sector Volume (mn Sq ft) USD billion

FY0 -FY05

FY06-FY10

Growth FY0 -FY05

FY06-FY10

Growth

Commercial ffice space-IT/ITES

61 252 1 % 1.6 7.21 442%

Source: CRIS INFAC


23/31

23

Mall construction set to grow

Rsbillion

Units 2003E 2004E 2005P 2010P

O

rganised retailindustryU

SD billion .66 6.12 7.79 24.7

Increase inrevenue

USD billion 2.26 1.54 16.8

Revenue per sq.

ft.

USD per sq ft 206.61 217.6 222.57 225.89

Additional spacerequired by 2010

Mn sq ft 75

Cost ofconstruction

USD per sq ft .88

Totalonstru tion

activity

USD billion 2.53

Mall construction: Investmentsoverthe next 5years

Source: CRIS INFAC


24/31

24

Expected Construction Investments in the next two years

29 % 3 %

19 %19 %

18 % 20 %

19 %12 %

1 % 14 %

0%10%

20%

30%

40%

0%

60%

70%

80%

90%

100%

FY0 -FY06 FY07-FY08

Roads Irri ation Ur an in ra Power Others

Rs 1516 bnRs 1310 bn

8 %

growth

Source: CRIS INFAC


25/31

25

Indu

strial Inves

tmen

ts

(Rs billion)

Aluminium Steel Automobile

Petrochemicals Textiles CementOthers Oil & gas

FY02-FY06(Rs 2111 bn) FY07-FY11 (Rs 6406 bn)

Source CRIS INFAC


26/31

26

Assumptions of growth rates

End-user sectors Growth rate (FY2006-07)(Per cent)

Auto 12.5

Pipes and tubes 12

Engineering, Industrial machinery & equipment 10

Construction 12

White goods 8

Cycles -8

Wire drawing units .5

Others 5-7


27/31

27

Demandto capacity ratioforflat products will only marginally improve

Source: CRIS INFAC

12

14 15

16

19 19

2223

64

74

69

71

0

5

10

15

20

25

2003-04 2004-05 2005-06 2006-07

(

illi

to

es

)

58

60

62

64

66

68

70

72

74

76

(

erce

t)

Dem nd C pac t Dem- Cap rat o R S


28/31

28

Opera

ting c

ostto

remainfirm

Average Operating Costs of theplayers to increase from $ 67 to$ 75 per tonne (an increase byaround $8 over the same periodprevious year). Contracted iron ore prices to increase

by around 19 per cent in CY06. Average coke prices have declined

significantly from the average levels of$395 per tonne in CY04 to levels of$180-200 per tonne in CY05. Priceswill remain stable in CY 2006. Priceswill also depend upon coking coalprices.

Coal and Natural gas will continue toremain in short supply.

$/tonne 2005 2006

Coking coal 125 115

Freight 25 25

Total cost 150 140

I/O norm 1. 1.

Material cost 195 182

Conversion cost 25 25

Total cost 220 207

Coke cost

Source: CRIS IN

FAC


29/31

29

Steel

tolling margins

CRISIL Research defines steel tolling marginsas the difference between the average

international steel prices per tonne and theoperatingcost of manufacturing steel


30/31

30

Marginsto

remain stab

le$/tonne I/O

(Times)2005 2006

$/tonne ofitself $/tonne ofsteel $/tonne ofitself $/tonne ofsteel

Iron ore 1.6 54 87 64 10Coke 0.6 201 121 187 112

Other operating cost 160 160

Total operating cost 67 75

Average steel prices 492 500

Tolling profit 125 125

Tolling margin 25.39 24.99

Source: CRIS INFAC


31/31

CRISIL Limited

Thank ou

Study NC M

Global and Indian Trends in Metal Industry Study NCFM

Documents

Transcript of Global and Indian Trends in Metal Industry Study NCFM