crisil research price forecast sample report

7/29/2019 CRISIL Research Price Forecast Sample Report

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1.

Disclaimer

CRISIL Research, a Division of CRISIL Limited has taken due care and caution in preparing this Report.

Information has been obtained by CRISIL from sources, which it considers reliable. However, CRISIL does not

guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or

omissions or for the results obtained from the use of such information. CRISIL is not liable for investment

decisions, which may be based on the views expressed in this Report. CRISIL especially states that it has no

financial liability whatsoever to the subscribers/ users/ transmitters/ distributors of this Report. CRISIL

Research operates independently of, and does not have access to information obtained by CRISILs Ratings

Division, which may, in its regular operations, obtain information of a confidential nature, which is not

available to CRISIL Research. No part of this Report may be published/reproduced in any form without

CRISILs prior written approval.


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Commodity Price View

CRISIL Research

September 2011


3/73

Methodology: Rubber .48

Price Forecast: Rubber .52

Natural Rubber .51

SBR & PBR .54

PP .60

ABS .63

Annexure .66

Re ional commodit consum tion attern

Table of contents

Price Forecast Summary .06

Methodology: Ferrous Metals .09

Price Forecast .10

Ferrous Metals

HR Steel .11

CR Steel .17

Sponge Iron .19

3.

Impact of currency on prices

Volatility in prices

Commodity duty structure

.

Pig Iron .22

Non Ferrous Metals

Aluminium .23

Copper .27

Zinc .31


4/73

CRISIL Research: Commodity Price Outlook

CRISIL Research has prepared Commodity Price Outlook for select

commodities on a quarterly (2011-2012) and annual (2013 to 2014) basis. This will

aid decision-making with respect to purchase of raw materials or in making

strategic decisions

The commodity price forecasts factor the following:

4.

o a an omes c eman -supp y scenar o

End-user analysis based on key consumption regions


5/73

Highlights of CRISILs Commodity Price Outlook

CRISIL Research expects commodity prices to be under pressure in the near

term due to the weakening economic situation globally, especially in many

advanced economies

While demand recovery is expected to be almost non-existent or flat in Europe

and US, China too is expected to post lower y-o-y growth

Prices are expected to moderate in Q4 2011 through 2012 due to expected

slowdown globally, before increasing in 2013

5.

Key monitorables:

Monetary policy by US Federal Reserve

Chinas continued tight monetary policy stance to tame inflation

Management of debt crisis in developed markets especially Euro member countries

Recovery of demand in developed nations

US dollar movement vis--vis other currency


6/73

Price Forecast Summary - Ferrous Metals

Steel

(per tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P

HR Global ($) 690 - 720 680 - 710 670 - 700 660 - 690 670 - 700 670 - 700 650 - 680

HR India (Rs) 37,500 - 39,500 38,000 - 40,000 37,400 - 39,300 36,800 - 38,700 37,300 - 39,200 37,300 - 39,200 36,100 - 37,900

CR steel (Rs) 42,000 - 44,100 42,400 - 44,600 41,800 - 44,000 41,300 - 43,400 41,700 - 43,900 41,800 - 43,900 40,600 - 42,700

TMT (Rs) 39,000 - 41,000 40,600 - 42,600 40,800 - 42,800 41,800 - 43,900 40,300 - 42,300 42,000 - 44,100 39,100 - 41,100

Steel Intermediates Quarterly


Quarterly Annual

Annual

6.

E: Estimated, P: Projected

US $ 1 = Rs 45 approximately

Note: We have assumed a constant currency rate throughout the forecast periodHR Global prices refer to fob, CIS

Source: CRISIL Research

g ron s , - , , - , , - , , - , , - , , - , , - ,

Sponge Iron (Rs) 20,500 - 21,500 19,500 - 20,500 20,000 - 21,100 21,000 - 22,100 20,000 - 21,000 20,600 - 21,600 19,600 - 20,600


7/73

Price Forecast Summary Non Ferrous Metals & Rubber

Non Ferrous Metals Quarterly

($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 PAluminium 2,350 - 2,450 2,350 - 2,450 2,400 - 2,500 2,430 - 2,520 2,450 - 2,550 2,500 - 2,600 2,550 - 2,650

Copper 9,100 - 9,500 9,000 - 9,400 8,900 - 9,300 8,800 - 9,200 8,600 - 9,000 8,300 - 8,700 7,800 - 8,200

Zinc 2,300 - 2,300 2,110 - 2,190 2,110 - 2,190 2,160 - 2,240 2,210 - 2,300 2,300 - 2,400 2,550 - 2,650

Annual

Rubber

($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P

SBR 4,400 - 4,600 4,040 - 4,240 3,880 - 4,070 3,680 - 3,870 3,350 - 3,520 3,450 - 3,630 3,420 - 3,590

PBR 4,500 - 4,700 4,050 - 4,260 3,890 - 4,090 3,810 - 4,010 3,470 - 3,650 3,370 - 3,540 3,300 - 3,470

NR 4,700 - 4,900 4,100 - 4,310 4,200 - 4,410 4,160 - 4,370 3,950 - 4,150 3,560 - 3,740 3,740 - 3,930

Quarterly Annual

7.

E: Estimated, P: Projected

SBR grade is SBR 1502

US $ 1 = Rs 45 approximately

Note: We have assumed a constant currency rate throughout the forecast period


ABS 2,500 - 2,600 2,270 - 2,390 2,250 - 2,370 2,280 - 2,390 2,210 - 2,320 2,190 - 2,310 2,080 - 2,180

PP 1,500 - 1,600 1,490 - 1,570 1,470 - 1,550 1,470 - 1,550 1,440 - 1,520 1,370 - 1,440 1,350 - 1,410

Domestic Price

NR (Rs / Kg) 200 - 210 180 - 190 180 - 190 200 - 210 190 - 200 170 - 180 180 - 190


8/73

Price Forecast Methodology - Metals

8.


9/73

Methodology: Metals Price Forecast

Commodity Prices

Supply Cost Structure

End Use segments of each of the

regions such as Construction

,Auto, Consumer

Demand as a function of

Investment and

Investment/GDP have also

Raw materials

CostsOther Costs

Processing

Costs

Demand

9.


These regions together account for a significant proportion of

the global commodity consumption (Refer Annexure I)

Durables, production of

machinery have been analysed

been analysed for arriving at

long term demand forecasts

United States

of America

IndiaEurope

Raw material price

forecast based on its

demand supply scenario

China


10/73

Price Forecast for Metals

10.


11/73

-

200

400

600

800

1,000

1,200

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10E

1Q11P

2Q11P

3Q11P

4Q11P

1Q12P

2Q12P

3Q12P

2013P

2014P

($/tonne) Steel price and key raw material cost

Iron & coal Cost Steel price

Steel prices to decline marginally with softening coking coal prices

Forecast

Raw material prices forecast (fob, Australia)

($/tonne) Iron ore Coking coal

3Q11 E 150-170 300-330

4Q11 P 160-180 270-300

1Q12 P 160-180 260-2902Q12 P 160-170 250-280

3Q12 P 160-170 260-290

2013 P 160-180 250-270

2014 P 160-170 240-270


HR Global ($) 690 - 720 680 - 710 670 - 700 660 - 690 670 - 700 670 - 700 650 - 680

11.

With coking coal supply estimated to return to normalcy (post Australian floods), we expect coking coal prices to

soften from Q4 2011 onwards resulting in lower q-o-q steel prices

Strong bargaining power of iron ore suppliers and tight demand-supply will result in firm iron ore prices through 2014

Going forward, we expect supply of coking coal to improve gradually (from new mine supply), thereby showing a

marginal decline in coking coal contract prices in 2013 and 2014

In addition, on the back of rising demand, capacity utilisation in global steel industry is expected

to improve from 2010 levels

Source: Metal Bulletin, Industry, CRISIL Research


12/73

Steel prices rose with recovery in demand, higher raw material prices

Steel demand recovery in 2010 (13 per

cent y-o-y growth) was aided by a low

base and strong rebound in growth of

end-use segments like automobiles,

capital goods etc.

Recovery in the end-user segments can

be attributed to the timely monetary

intervention by governments of majormillion tonnes

0200

400

600

800

1,000

1,200

1,400

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

(Rs/Tonne) Steel Prices

12.

economies.

Majority of the recovery in steel demand

emanates from emerging markets like

China and India.

Despite a strong growth in 2010, steel

consumption in developed countries has

not yet recovered to pre-crisis levels.Source: Industry, IISI, Metal Bulletin, CRISIL Research

0%

20%

40%

60%

80%

100%

0

500

1000

1500

2000

2005 2006 2007 2008 2009 2010

Stee : G o a Deman Supp y

Demand Capacity Demand/Capacity


13/73

Raw material prices increased with supply constraints and demand recovery

Coking coal prices rose in Q1 2011 mainly due

to continued supply constraints in Australia

Coking coal prices have softened from Q1 2011

levels but supply has not yet completely

normalised, thereby exerting upward pressure

on prices

Iron ore prices in H1 2011 increased on account

of a tight demand-supply situation

Steel prices increased in 2010 (~30 per cent y-

-

75

150

225

300

375

450

Q205

Q305

Q405

Q106

Q206

Q306

Q406

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

($/tonne) Raw Material Spot Prices

Iron Ore Coking Coal

13.

Source: Industry, CRISIL Research

o-y) and H1 2011 (15 per cent y-o-y) due todemand recovery and higher raw material prices

Going ahead, Iron prices are expected to remain

firm on account of tight demand- supply situation

and consolidation of suppliers

However, with the coking coal supply situation

easing, coking coal prices are expected to

soften from Q4 2011 onwards

Raw material prices (FoB, Australia)

($/tonne) 2005 2006 2007 2008 2009 2010 2011 Q2

Spot 54 70 122 152 85 153 183

Contract 39 47 51 92 61 108 149

Spot 82 91 92 269 153 221 340

Contract 125 111 92 293 129 191 330

Iron ore

Coking coal


14/73

Demand Outlook: Moderate growth of 5-6 per cent


Global steel demand is expected to grow at a modest 5-6 per cent during the next 3 years

0%

20%

40%

60%

80%

0

500

1000

1500

2000

2500

2009 2010 2011E 2012P 2013P 2014P

(million tonnes) Steel: Global Demand Supply

Demand Capacity Demand/Capacity

Steel demand-supply ratio

is expected to recover from

72 per cent in 2010 to 79 per

cent in 2014

14.

Economic uncertainty remains a specter in the industry particularly in the developed markets. The demand

from developed regions is expected to moderate in the long run as the various stimulus packages that fuelled

growth in 2010 has paved way for austerity measures

Steel demand from developing regions, especially China and India, is also expected to grow moderately during

2011 to 2014

Chinese steel demand is expected to moderate (6 7 per cent CAGR from 2011-2014) as the Chinese

government is currently undertaking measures to manage inflation

Indias steel demand is expected to grow by 8-9 per cent, driven by huge investments in infrastructure and

expected healthy growth in automobiles, oil and gas sectors


15/73

0

200

400

600

800

1000

1200

0

13,000

26,000

39,000

52,000

65,000

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11E

4Q11P

1Q12P

2Q12P

3Q12P

2013P

2014P

($/tonne)(Rs/tonne) HR Steel Prices

HR Domestic HR Steel landed HR CIS (RHS)

Domestic HR prices to soften with global steel prices

Domestic steel demand is expected to grow by

8-9 per cent during 2011 - 14

Healthy growth expected in construction (10-

11 per cent) and automobiles (13-15 per

cent)

Robust growth expected in oil and gas

pipelines (cumulative investments of around

Rs 5 trillion over next 5 years)

Forecast


HR India (Rs) 37,500 - 39,500 38,000 - 40,000 37,400 - 39,300 36,800 - 38,700 37,300 - 39,200 37,300 - 39,200 36,100 - 37,900

15.

With moderate growth in steel demand,demand-supply ratio is expected to remain

above 80 per cent (lower than pre-crisis levels

of ~90 per cent)

Domestic steel prices in Q4 2011 are expected

to be marginally higher on account of upward

pressure on domestic iron ore prices due to a

ban on illegal mining in Karnataka

Domestic steel prices are expected to moderate

from Q1 2012 onwards due to

Expected weakness in global prices


0%

20%

40%

60%

80%

100%

020

40

60

80

100

120

140

2010-11E 2011-12P 2012-13P 2013-14P 2014-15P

(million tonnes)

Steel: Domestic Demand-Supply

Demand Capacity Demand/Capacity (RHS)


16/73

Domestic HR prices increased in line with landed cost

Domestic steel prices have followed landed

cost of global steel prices

Domestic steel demand grew by a 13 per

cent CAGR during 2005-06 to 2010-11

Demand was driven by continuous

increase in infrastructure andconstruction related investments, strong

growth in capital goods and automobile

sales

0

300

600

900

1,200

1,500

0

14,000

28,000

42,000

56,000

70,000

84,000

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

($/tonne)(Rs/tonne) Domestic Steel Prices

Landed Domestic Global (RHS)

(million tonnes)Steel: Domestic Demand-Su l

16.

-

increased by 12-14 per cent supported by

an increase in global prices and healthy

domestic demand growth

Domestic demand in 2010-11 grew by

10 per cent (y-o-y) due to strong growth

witnessed in key end-user sectors like

infrastructure, pipes & tubes and

automobilesSource: Metal Bulletin, Industry, JPC, CRISIL Research

0%

20%

40%

60%

80%

100%

0

10

20

30

40

50

60

7080

90

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11E

Demand Capacity Demand/Capacity (RHS)


17/73

0

10,000

20,000

30,000

40,000

50,000

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11E

4Q11P

1Q12P

2Q12P

3Q12P

2013P

2014P

(Rs/tonne) Steel Prices

HR Domestic CR Domestic

CR steel prices to decline with HR prices and moderate auto demand

Automobile industry, a key end-user, to

grow moderately by 13-14 per cent over

the next 2-3 years

In 2010-11, Cars & UVs industry

witnessed a strong growth of over 30

per cent. However, going ahead we

expect the growth to moderate amid

Forecast


CR steel (Rs) 42,000 - 44,100 42,400 - 44,600 41,800 - 44,000 41,300 - 43,400 41,700 - 43,900 41,800 - 43,900 40,600 - 42,700

17.

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000('000 units) Automobile Production in India

concerns over rising cost of owning a

vehicle

While, sustained growth in economic

activity, rise in consumption and

healthy freight traffic is likely to

continue to drive the demand for

commercial vehicles

Moderate automobile demand growth

and lower HR steel prices will ensure a

fall in CR steel prices


Forecast


18/73

CR steel prices traced HR steel price movement

CR prices largely follow the pricetrend of HR steel, which is a key

cost component

The automobile industry, which

accounts for around 60 per cent ofCR consumption in the country,

has grown at a CAGR of 15-16 per

cent during 2005-06 to 2010-11

0

10,000

20,000

30,000

40,000

50,000

60,000

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

(Rs/Tonne)

Domestic Prices

HR CR

('000 units) Automobile Production in India

18.

thereby supporting prices of CR

steel in India


-

1,000

2,000

3,000

4,000

5,000

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Comm Vehicles Car & UV Tractor


19/73

0

100

200

300

400

0

5000

10000

15000

20000

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11E

4Q11P

1Q12P

2Q12P

3Q12P

2013P

2014P

(index)(Rs/tonne) Sponge iron prices

Sponge iron Iron ore prices (RHS)

Sponge iron prices to remain firm at current levels

Forecast


Sponge Iron (Rs) 20,500 - 21,500 19,500 - 20,500 20,000 - 21,100 21,000 - 22,100 20,000 - 21,000 20,600 - 21,600 19,600 - 20,600

19.

CRISIL Research expects sponge iron prices to remain firm over the next 2-3 years as

Sponge iron demand will grow at a slower pace than growth in long steel industry as large

integrated players are increasing production of long products through blast furnace route

Upward pressure on domestic iron ore prices on account of measures taken to curb illegal mining

of iron ore in near term

However, increased supply of scrap to limit the rise in sponge iron prices

Increased ferrous scrap supply in the global market is expected to exert downward

pressure on scrap prices in the medium term



20/73

Sponge iron prices followed landed cost of scrap


0

8,000

16,000

24,000

32,000

40,000

Jan-0

1

Jul-01

Jan-0

2

Jul-02

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

(Rs/tonne) Sponge iron prices in India

Sponge iron prices Landed cost of scrap

20.

Ferrous scrap is a substitute for sponge iron and hence, the landed cost of scrap acts as aceiling for domestic sponge iron prices

Domestically, sponge iron prices have moved in line with iron ore and scrap prices

As a raw material, scrap is preferred to sponge iron as the Fe content in scrap is higher

Due to constraints in availability of domestic scrap, secondary steel manufacturers import

scrap. In 2010-11, scrap imports have been around 3.5 million tonnes


21/73

Construction demand to drive TMT prices

Demand from construction sector, a key

end-user and sponge iron prices, a key

raw material, drive TMT prices

CRISIL Research expects TMT prices to

remain firm at current levels due to

healthy construction demand

Total construction investments

-

10,000

20,000

30,000

40,000

50,000

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

(Rs/Tonne) Sponge Iron and TMT Prices in India

Sponge TMT


TMT (Rs) 39,000 - 41,000 40,600 - 42,600 40,800 - 42,800 41,800 - 43,900 40,300 - 42,300 42,000 - 44,100 39,100 - 41,100

21.

0

10000

20000

30000

40000

50000

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11E

4Q11P

1Q12P

2Q12P

3Q12P

2013P

2014P

(Rs/tonne) Sponge Iron and TMT prices

Sponge iron TMT Domestic

(industrial and infrastructure) toincrease from Rs 10,172 billion

during 2006-07 to 2010-11 to Rs

18,209 billion during 2011-12 to

2015-16

Seasonality of construction demand

and its impact on TMT prices have been

factored in to our quarterly price

forecast


Forecast


22/73

Pig iron prices to fall with decreasing input costs in the near term

Pig iron prices have moved in line with

domestic iron ore and coke prices

Of the total demand for pig iron, the

castings segment accounts for around

70 per cent and the balance is

contributed by the steel making

segment

0

7,000

14,000

21,000

28,000

35,000

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

(Rs/tonne)Pig iron prices in India


Pig Iron (Rs) 28,300 - 29,800 27,800 - 29,200 27,400 - 28,800 28,300 - 29,700 28,600 - 30,100 28,800 - 30,300 27,300 - 28,700

22.

100

200

300

400

500

600

700

800

5,000

12,000

19,000

26,000

33,000

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11E

4Q11P

1Q12P

2Q12P

3Q12P

2013P

2014P

($/tonne)(Rs/tonne) Pig iron prices

Pig iron prices Iron & coal cost (RHS)

industries, the key end-users of

castings, are estimated to show

healthy growth over the next 2-3

years

Coke prices are estimated to declinein near term, however healthy demand

growth and upward pressure on

domestic iron ore prices will lead to

firm pig iron prices in the long term

Forecast



23/73

Price Forecast for Aluminum

23.


24/73

0

700

1400

2100

2800

3500

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11E

4Q11P

1Q12P

2Q12P

3Q12P

2013P

2014P

($/tonne) Aluminium prices

Aluminium prices to rise modestly with moderate demand growth

Forecast


Aluminium 2,350 - 2,450 2,350 - 2,450 2,400 - 2,500 2,430 - 2,520 2,450 - 2,550 2,500 - 2,600 2,550 - 2,650

0%

20%

40%

60%

80%

100%

120%

0

10

20

30

40

50

60

70

2009 2010 2011 P 2012 P 2013 P 2014 P

(million tonnes) Global demand supply of aluminium

Global demand Global capacity Demand/capacity (RHS)

24.

Chinese demand for aluminium is likely to grow by 8-9 per cent between 2011-2014; growth will be

slower than the previous 2 years as demand from key end-user sectors is expected to slow down, due to

tightening monetary policies

China, one of the high cost producers of aluminium at $2,150-2,200 per tonne, contributes nearly 40 per

cent of the global production and consequently sets a floor for aluminium prices

Additionally, rising raw material (alumina) prices will support higher aluminium prices during the next few

years

Source: Metal Bulletin, Industry, IAI, CRISIL Research


25/73

Global aluminium prices increase due to rising demand

In 2010, global consumption of aluminium

was primarily driven by China, where

demand is estimated to have grown by 19

per cent y-o-y

Robust growth in production of automobiles

and consumer durables in the countrymainly contributed to China's aluminium

demand, while the construction sector also

maintained a stable growth

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Jan-0

0

Sep-0

0

May-0

1

Jan-0

2

Sep-0

2

May-0

3

Jan-0

4

Sep-0

4

May-0

5

Jan-0

6

Sep-0

6

May-0

7

Jan-0

8

Sep-0

8

May-0

9

Jan-1

0

Sep-1

0

May-1

1

($/tonne)Aluminium prices

(million tonnes) Global demand supply of aluminium

25.

so, s ea y grow rom e o er ey

consuming regions driven by stimulus

packages aided the upward trend in

aluminium prices

Weak movement of US dollar vis-a-vis the

currencies of major exporting regions has

also contributed significantly to the rise in

aluminium prices in H1 2011

(Refer Annexure II)

Source: Industry, IAI, CRISIL Research

0%

20%

40%

60%

80%

100%

0

10

20

30

40

50

2005 2006 2007 2008 2009 2010Global demand Global production Operating rates (RHS)


26/73

0

1000

2000

3000

4000

0

25,000

50,000

75,000

100,000

125,000

150,000175,000

1Q

08

2Q

08

3Q

08

4Q

08

1Q

09

2Q

09

3Q

09

4Q

09

1Q

10

2Q

10

3Q

10

4Q

10

1Q

11

2Q

11

3Q1

1E

4Q1

1P

1Q1

2P

2Q1

2P

3Q1

2P

4Q1

2P

201

3P

201

4P

($/tonne)(Rs/tonne) Aluminium prices

Landed prices Domestic prices LME (RHS)

Domestic aluminium prices to increase with global prices

Domestic aluminium demand is expected

to grow by 8-9 per cent between 2011-12 to

2014-15

Steady growth is expected in power

(transmission and distribution) sector

and double digit growth in automobileand consumer durable sectors

India is amongst the lowest-cost

aluminium producers in the world, due to

Forecast

120%3,500

('000 tonnes) Domestic demand supply of aluminium

26.

an a un an supp y o aux e, cap ve

power sources and lower labour cost

compared to US and Europe

Hence to address the significant export

opportunity, major domestic aluminium

players are setting up huge capacities (~2

million tonnes till 2014-15)

Healthy operating rates will be maintained

as Indian aluminium producers are

estimated to export the surplus

Source: Company Reports, Industry, CRISIL Research

0%

20%

40%

60%

80%

100%

1,000

1,500

2,000

2,500

3,000

2010-11 E 2011-12 P 2012-13 P 2013-14 P 2014-15 P

Apparent consumption Average capacity Demand/Capacity (RHS)


27/73

Price Forecast for Copper

27.


28/73

0

100,000

200,000

300,000

400,000

500,000

600,000

0

2,000

4,000

6,000

8,000

10,000

12,000

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11E

4Q11P

1Q12P

2Q12P

3Q12P

2013P

2014P

(Rs/tonne)($/tonne) Copper international & landed prices

LME Price Landed Cost (RHS)

Copper prices to remain under pressure due to demand slowdown

Copper demand to be subdued in near

future

Demand growth in China is expected to be

moderate over the next year on account

of measures initiated by the Central Bank

In the light of sovereign debt crisis in

Europe and anticipated slowdown in US,

consumption demand is expected to be

flat

Forecast


Copper 9,100 - 9,500 9,000 - 9,400 8,900 - 9,300 8,800 - 9,200 8,600 - 9,000 8,300 - 8,700 7,800 - 8,200

28.

Refined copper capacity is expected to

increase by 3 per cent CAGR over the next

3 years, as per ICSG

Demand to capacity ratio is expected to

remain flat, which will exert a downward

pressure on prices in 2012 and 2013

However, declining ore grades in major

mines and continuing labour issues

plaguing the industry are expected to act

as a deterrent to the fall in pricesSource: LME, ICSG, CRISIL Research

0%

20%

40%

60%

80%

100%

0

5

10

15

20

25

30

2010 2011 E 2012 P 2013 P 2014 P

(mn tonnes) Global demand supply of Copper

Demand Capactiy Demand/capacity (RHS)


29/73

Prices touched pre-crisis levels due to consumption growth

The key end-users of Copper

include construction (architecture,

electrical), industrial machinery,

consumer durables, etc

Fiscal stimulus aided consumption

pick-up from key end-user regions

such as China, Europe and US in

2010 and Q1 2011

0

2,000

4,000

6,000

8,000

10,000

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

($/tonne) Copper Prices

(mn tonnes) Global demand supply of Copper

29.

These measures helped copper prices

to regain their pre-crisis levels

However, recent events in US and

Europe have impacted prices

significantly in August 2011

Currency movements has also

contributed to the change in copper

prices

(Refer Annexure II)

Source: ICSG, LME, CRISIL Research

0%

20%

40%

60%

80%

100%

15

17

19

21

23

25

2005 2006 2007 2008 2009 2010 E



30/73

Slowdown in demand from China in H1 2011

Chinese copper demand (~ 40 percent of total copper consumption)

has posted a y-o-y decline of 9 per

cent in Jan- May 2011

During the same period, Europe andUS y-o-y copper demand numbers

have been flat

Co er stocks in China which were

0

100

200

300

400

500

600

700(000 tonnes) Copper Demand -2011

China USA EU- 15

30.

declining through April June 2011have shown a partial rebound in July

ahead of the seasonal demand in Q4

2011

Source: ICSG, CRISIL Research

0

40

80

120

160

200000 tonnes Copper SHFE Stocks

SHFE stocks


31/73

Price Forecast for Zinc

31.


32/73

0

2040

60

80

100

120

140

0

1000

2000

3000

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11E

4Q11P

1Q12P

2Q12P

3Q12P

2013P

2014P

('000 Rs/tonne)($/tonne) Zinc Prices

Price ($/tonne) Landed Cost (RHS)

Zinc prices to remain sluggish in 2012 before firming 2013 onwards

Forecast


Zinc 2,300 - 2,300 2,110 - 2,190 2,110 - 2,190 2,160 - 2,240 2,210 - 2,300 2,300 - 2,400 2,550 - 2,650

32.

Dampening of demand in China and impending slowdown in USA and Europe expected to exert

pressure on zinc prices in the near future

Players have advanced capital expenditure plans in mine exploration as mine supply is expected to tighten in the

latter half of 2013 and 2014

Zinc concentrate market is expected to remain in surplus in 2011, the 5th straight year of

surplus, thereby putting a cap on prices

Prices expected to inch upwards only 2013 onwards as demand picks up and stocks continue

to fall

Source: LME, Industry, CRISIL Research


33/73

Prices flat on account of huge stocks and sluggish demand

The key end-use sectors of Zinc

include construction, transport and

industrial machinery

Refined zinc metal surplus

increased in H1 2011 as mine output

outpaced demand

Stocks increased by over 250,000

0

750

1,500

2,250

3,000

3,750

4,500

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

($/tonne) Zinc Prices

33.

Demand from China increased

marginally by 3.7 per cent y-o-y in

H1 2011 while that from US declined

by 5.4 per cent

Currency movements has also led

to the change in zinc prices

(Refer Annexure II)Source: ILZSG, CRISIL Research

0%

20%

40%

60%

80%

100%

7

8

9

10

11

12

13

14

2006 2007 2008 2009 2010 2011 E

(mn tonnes) G o a eman supp y o Zinc



34/73

Region-wise Demand Forecast for End-use Sectors

34.


35/73

China: Sectoral consumption pattern for commodities


20

29

54

36

12

18

26

7

2

6

26

6

12

26

20

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Copper

Aluminum

Steel

Construction Industrial Machinery Consumer Durables Auto Others

35.

China is the leading producer and consumer of commodities on account of its growing economy

and demand from major end-use industries and exports

The run-up in real estate prices and high inflation in H2 2010 forced the Government of China to

take steps to cool the economy

Accordingly, the Chinese central bank has been taking concrete steps by hiking interest rates

from Q4 2010 and authorizing banks to go slow on lending to douse high inflation.


36/73

China: Measures to cool economy are paying off

The measures adopted by the central bank have started having an impact and many end-use

sectors have now started to slow down

Growth in automobile production has moderated considerably in H1 2011. Auto sales showed a

mere 5 per cent y-o-y growth in H1 2011 vis--vis a robust growth of 45 per cent y-o-y in H1 2010

This was also attributed to a slowdown in major global economies of US and Europe, which are key

importers of vehicles from China

36.

,

in H1 2010 to 16 per cent in H1 2011

Industrial machinery too has shown a significant slowdown by clocking a growth of 22 per cent

(y-o-y) in H1 2011 vis--vis a robust 45 per cent in H1 2010

Chi C i hi d d i d d


37/73

0

100

200

300

400

500

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 PQ411 PQ112 PQ212 PQ312 P

(Index) China - End user segmental growth

Auto Construction FMCG Infrastructure Machinery

China: Construction, machinery and auto to drive demand

CRISIL Research ex ects the rowth momentum of end-use sectors to moderate in line with economic

Source: China NBS, CRISIL Research

Forecast

37.

prospects (as indicated by S&P and IMF)

China is expected to concentrate on domestic growth and wean itself away from exports to cushion any

negative impact of slowdown in key export markets

Growth in urbanisation, investments in infrastructure, construction to fuel demand

The urbanisation rate in China (at 45 per cent in 2010) is expected to increase significantly, thereby

attracting huge investment

Construction, a key consumer of commodities, is expected to grow albeit at a slower pace (as the Chinese

government tries to soft land the economy)

Automobile production is expected to remain strong due to robust domestic demand and

moderate export opportunities


38/73

China: Performance of end-use sectorsFixed Asset Investment in Infrastructure

Automobile roduction Consumer durable roduction

Fixed Asset Investment in Real Estate

14,89318,147

22,294

32,171

39,529

18,375

-

10,000

20,000

30,000

40,000

50,000

2006 2007 2008 2009 2010 H1 2011

(100 mn yuan)

21,446

28,543

35,215

43,065

57,557

31,709

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2006 2007 2008 2009 2010 H1 2011

(100 mn yuan)

38.

Source: NBS

13,872

17,176 17,29019,553

24,408

16,049

0

5,000

10,000

15,000

20,000

25,000

30,000

2006 2007 2008 2009 010 H1 2011

(10,000 units)

728

905972

1,380

1,827

953

0

400

800

1200

1600

2000

2006 2007 2008 2009 2010 H1 2011

(10,000 units)

Chi H lth d d t d t ti lb it t d t


39/73

China: Healthy demand expected to continue, albeit at a moderate pace

With a controlled slowdown induced by the government of China, CRISIL Research expects

commodity growth to remain moderate, in the near future, vis--vis the high historical growth rates.

This is in line with the expected economic performance of key end-use industries

China consumption outlook

(per cent) 2009 2010 E 2011 P 2012 P 2013 P 2014 PSteel 24.8% 5.1% 6.5% 6.8% 6.2% 6.3%

Aluminium 15.0% 19.0% 6.6% 8.8% 8.1% 8.1%

Copper 36.8% 4.3% 3.0% 4.0% 6.0% 6.0%

GDP growth 9.2% 10.3% 9.6% 9.5% 9.5% 9.5%

Source: CRISIL Research, IMF

39.

However, despite tightening of interest rates, China has reported a healthy GDP growth in H1 2011

(9.6 per cent y-o-y)

Going ahead, we expect China to move to a more accommodating economic policy, which keeps an

eye on growth

Consequently, domestic demand from commodities is expected to remain healthy

However, developments in US and Europe can impact Chinese exports and therefore commodity

demand from China

Europe: Sectoral consumption pattern


40/73

Europe: Sectoral consumption pattern


26

27

38

10

14

14

16

58 5

36

16

1

7

32

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Copper

Aluminum

Steel

Construction Machinery Packaging Electricity Auto Others

40.

Auto production in Europe decreased marginally y-o-y during the first half of 2011. However,

car registrations posted a decline of 2.1 per cent y-o-y in H1 2011, primarily due to lack of

sales in United Kingdom, Italy and Spain

However, construction output, declined by 1 per cent y-o-y in H12011

During H12011, index of capital goods production increased by 11 per cent y-o-y, primarily

due to the low base numbers of H12010

Europe: Commodity demand on the path of stable recovery


41/73

Europe: Commodity demand on the path of stable recovery

In line with the moderate performance of end-use industries and GDP growth as indicated

by S&P and IMF, CRISIL Research expects muted commodity growth during 2012-14

EU consumption outlook

(per cent) 2009 2010 2011 E 2012 P 2013 P 2014 PSteel -34.9% 21.2% 8.1% 4.0% 2.6% 2.3%

Aluminium -20.0% 3.4% 6.0% 3.5% 2.3% 2.1%

Copper -19.4% 8.2% 1.7% 2.0% 2.5% 2.5%

GDP growth -4.13% 1.76% 2.0% 1.7% 2.2% 2.2%


41.

However, anticipated slowdown in European heavyweight countries such as Germany

and the United Kingdom is a matter of apprehension

Continued concerns arising out of sovereign debt crises in some EU countries such as

Ireland, Greece etc. and the risk of it spreading to other member countries is a huge

overhang

Although the impact of the probable debt concerns on global commodity demand may not

be significant, it will have a bearing on the currency and overall sentiment thereby

affecting commodity prices

Europe: Demand growth to be muted


42/73

60

70

80

90

100

110

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311P

Q411P

Q112P

Q212P

Q312P

(Index) Europe- End user segmental growth

Construction Auto

Europe: Demand growth to be muted

Source: Eurostat, ACEA, CRISIL Research

Forecast

42.

uropean reg on s no on y expec e o con nue o w ness a near erm s ow own u a so ere

seems to be a global consensus of Europe veering towards a prolonged slowdown

Many countries in the region are undertaking measures to reduce government spending in order to

manage budget deficit, thereby impacting commodity demand

As per IMF, a GDP growth of 1.7- 2.2 per cent is expected during 2011-13

Although, key end-use industries in Europe showed moderate growth performance in H1 2011, the

current recovery is expected to be short lived

Sustained unemployment and slowdown in manufacturing sectors in the European region is

expected to remain a drag on consumption

Europe: Growth in key end-use industries


43/73

Europe: Growth in key end-use industries

(Index) Manufacturing

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 6M 2011

(Index) Capital Goods

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 6M 2011

(Index) Construction Output

1.5%

(in 000's) Auto production

43.

Source: Eurostat, ACEA, CRISIL Research

0

20

40

60

80

100

120

2005 2006 2007 2008 2009 2010 6M 2011-

5,000

10,000

15,000

20,000

25,000

2005 2006 2007 2008 2009 2010 6M 2011 E

US: Sectoral consumption pattern


44/73

US: Sectoral consumption pattern


50

14

31

8

6

23

31

11

37

25

31

26

7

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Copper

Aluminum

Steel

Construction Machinery Packaging Metal Products Auto Others

44.

e ey en -use n us r es n recovere s arp y n on e ac o s mu us pac ages an e ow

base of 2009

Despite a healthy growth in key end-users in the first half of 2011, the July numbers show a slowdown

reflecting the negative sentiments prevailing in the US economy

In H1 2011, motor vehicles production in North America grew by a meager 7 per cent vis-a-vis above 60 per cent

growth in 2010

Total output of construction units in the first half of 2011 showed a degrowth of around 20 per cent (y-o-y)

Machinery IIP index grew by around 14 per cent y-o-y during H1 2011

US: Growth in end-user segments to be moderate


45/73

0

20

40

60

80

100

120

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 P Q411 P Q112 P Q212 P Q312 P Q412 P

(Index)US End user segmental growth

Auto Construction US Machinery IIP

US: Growth in end-user segments to be moderate

Source: US Census, IMF, CRISIL Research

Forecast

45.

With the end of the current stimulus package by the government, growth in key end-users is

expected to be restrained

In line with the economic outlook (as indicated by S&P and IMF) we expect growth in the US

to be moderate

US: Performance of end-use sectors


46/73

US: Performance of end use sectors

1,5321,636 1,655

1,219

819

520 496

198

-

400

800

1,200

1,600

2,000

2004 2005 2006 2007 2008 2009 2010 H1 2011

(in 000 's) Construction Units

-26 %

3.9 %11,570

10,900 10,530

8,430

5,870

7,690

4,150

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2005 2006 2007 2008 2009 2010 H1 2011

(in 000's)Auto production

-8 %

46.

Source: US Census, CRISIL Research

92 96100 97

7681

91

0

20

40

60

80

100

2005 2006 2007 2008 2009 2010 H1 2011

Mac inery4 %

-9 %

US: Demand expected to recover


47/73

p

S&P recently lowered its long-term sovereign credit rating on the United States of

America to 'AA+' from 'AAA highlighting the need for US to contain its debt

US consumption outlook

(per cent) 2009 2010 2011 E 2012 P 2013 P 2014 P

Steel -34.9% 21.2% 8.1% 4.0% 2.6% 2.3%

Aluminium -20.0% 3.4% 6.0% 3.5% 2.3% 2.1%

Copper -18.3% 6.7% 2.0% 2.0% 1.0% 1.0%

GDP growth -2.6% 2.8% 2.0% 2.1% 2.7% 2.7%


47.

spending, deteriorating financial conditions and faltering business confidence haveprompted a moderate growth outlook in commodity demand in US

Key monitorable

Monetary policy adopted by the US Federal Reserve

Depreciation of the dollar will exert upward pressure on commodity prices


48/73

Price Forecast Methodology - Rubber

48.

Framework of analysis Natural Rubber


49/73

(I/O norm)

Production/

Imports of NR

OEM Exports

Replacement Stocks

Domestic Tyre

Demand

49.

NR Demand NR Supply

Demand Supply

Scenario

Domestic NR Price

Global NR Demand Global NR PriceGlobal NR

Supply

Framework of analysis Synthetic Rubber (SBR/PBR)


50/73

RM Price

Styrene

Butadiene

Utilisation level

SR Supply

SR Capacity

Impact of

Demand

Supply &

Crude oilprices

NR Demand

NR SR Ratio

SR Demand

50.

Global SR Price

Landed SR Price

Domestic SR Price

eman upp yost


51/73

Price Forecast for Rubber

51.

Rubber: Price Forecasts


52/73

Rubber


SBR 4,400 - 4,600 4,040 - 4,240 3,880 - 4,070 3,680 - 3,870 3,350 - 3,520 3,450 - 3,630 3,420 - 3,590

PBR 4,500 - 4,700 4,050 - 4,260 3,890 - 4,090 3,810 - 4,010 3,470 - 3,650 3,370 - 3,540 3,300 - 3,470

NR 4,700 - 4,900 4,100 - 4,310 4,200 - 4,410 4,160 - 4,370 3,950 - 4,150 3,560 - 3,740 3,740 - 3,930

ABS 2,500 - 2,600 2,270 - 2,390 2,250 - 2,370 2,280 - 2,390 2,210 - 2,320 2,190 - 2,310 2,080 - 2,180

PP 1,500 - 1,600 1,490 - 1,570 1,470 - 1,550 1,470 - 1,550 1,440 - 1,520 1,370 - 1,440 1,350 - 1,410

Domestic Price

NR (Rs / Kg) 200 - 210 180 - 190 180 - 190 200 - 210 190 - 200 170 - 180 180 - 190

Quarterly Annual

52.

P: Projected


Natural Rubber: Prices to decline due to poor demand


53/73

1.0

2.0

3.0

4.0

5.0

6.0

50

100

150

200

250

300

8 8 8 8 9 9 9 9 0 0 0 0 1 1 1

($/Kg)(Rs/Kg) NR Price Forecast

Forecast

Demand slowdown to exert downward

pressure on NR prices H2 2011 onwards.

Global consumption to increase merely by1-2 per cent during 2011 due to

anticipated slowdown in demand

Rubber


NR 4,700 - 4,900 4,100 - 4,310 4,200 - 4,410 4,160 - 4,370 3,950 - 4,150 3,560 - 3,740 3,740 - 3,930

NR (Rs / Kg) 200 - 210 180 - 190 180 - 190 200 - 210 190 - 200 170 - 180 180 - 190

Quarterly Annual

53.

1Q0

2Q0

3Q0

4Q0

1Q0

2Q0

3Q0

4Q0

1Q1

2Q1

3Q1

4Q1

1Q1

2Q1

3Q1

4Q1

1Q1

2Q1

3Q1

2012

2013

2014

Domestic Price Landed cost - With Duty International Price (RHS)

Source: Rubber Board, CRISIL Research

onwards (We are assuming there is nofurther major weather disruption in the

leading producer countries of Thailand,

Indonesia and Malaysia)

Supply expected to grow by 4-5 per

cent y-o-y

Consequently prices expected to decline

H2 2011 onwards

Global rubber production growth

(000 tonnes) 2010 2011 E 2012 P 2013 P 2014 P

Production 10,384 10,858 11,401 12,085 12,907

Grow th(Y-o-Y) 7.2% 4.6% 5.0% 6.0% 6.8%

Consumption 10,765 10,897 11,374 12,025 12,866

Grow th(Y-o-Y) 15.4% 1.2% 4.4% 5.7% 7.0%

NR prices declined on account of weak demand scenario


54/73

Review of NR prices

In 2010, NR prices increased significantly by

around 88 per cent on account of demand

supply mismatch

NR prices continued their upward trend in Q1

2011 reaching $5.7 per kg on the back of

favourable demand in key markets of US,(In 000 tonnes) Natural Rubber Global Demand - Supply

54.

E: Estimated

Source: CRISIL Research and IRSG

Europe and China

However, prices declined in Q2 2011, on

account of unfavourable demand situation

due to slowdown in economic growth across

key markets

18

0%

20%

40%

60%

80%

100%

120%

8,000

8,500

9,000

9,500

10,000

10,500

11,000

11,500

2005 2006 2007 2008 2009 2010 2011 E

Supply Demand Demand/Supply (RHS)

Domestic prices have increased in line with landed cost


55/73

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Jan08

Mar-08

May-0

8

Jul-08

Sep-0

8

Nov08

Jan09

Mar-09

May-0

9

Jul-09

Sep-0

9

Nov09

Jan10

Mar-10

May-1

0

Jul-10

Sep-1

0

Nov10

Jan11

Mar-11

May-1

1

Jul-11

(tonnes)(Rs/tonne) NR - Domestiv V/s Landed Cost

Import Domestic Price Landed Cost Landed Cost - Duty Free

55.

Historically, India imports a very small proportion of its natural rubber requirements due to high import

duty (at 20 per cent or Rs 20 which ever is lower)

Most of the imports are made by players who get import duty rebate against export of finished product

Landed cost of global NR prices act as a ceiling for domestic prices

Domestic prices, which have been increasing since July 2009 due to a strong auto demand, declined in

September 2010 owing to oversupply in the market

,

Global SR prices to fall in line with crude prices and lower demand($ / t ) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P


56/73

0

750

1,500

2,250

3,000

3,750

4,500

5,250

Q08

Q08

Q08

Q08

Q09

Q09

Q09

Q09

Q10

Q10

Q10

Q10

Q11

Q11

11E

11P

12P

12P

12P

12P

13P

14P

($/tonne) SBR & PBR pricesReview

SBR/PBR prices increased by ~ 80 per cent in

H1 2011 (y-o-y)

Increase in upstream butadiene and styrene

prices due to a surge in crude oil prices since

Sept Oct 10

Forecast


SBR 4,400 - 4,600 4,040 - 4,240 3,880 - 4,070 3,680 - 3,870 3,350 - 3,520 3,450 - 3,630 3,420 - 3,590

PBR 4,400 - 4,700 4,030 - 4,280 3,870 - 4,110 3,790 - 4,030 3,450 - 3,660 3,350 - 3,560 3,280 - 3,490

56.

2 3 2 3 2 3 23

4

1

2

3

20

20

20

PBR SBR grade 1502


Increase in NR prices due to supply

constraints

Outlook

Constrained supply of butadiene, on account of

lower yield, is expected to keep its price firm in

the short-to-medium term, leading to relatively

firm Synthetic Rubber (SR) prices

However, expected fall in crude oil prices from

H2 2011 onwards to put a cap on SR prices

Additionally, declining NR prices to also exert

downward pressure on SR prices

-

0.40

0.80

1.20

1.60

2.00

Jul-01

Mar-02

Nov-0

2

Jul-03

Mar-04

Nov-0

4

Jul-05

Mar-06

Nov-0

6

Jul-07

Mar-08

Nov-0

8

Jul-09

Mar-10

Nov-1

0

Jul-11

NR-SBR Price Ratio

Global SBR and PBR prices increased with demand


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0

750

1,500

2,250

3,000

3,750

4,500

1

Q07

2

Q07

3

Q07

4

Q07

1

Q08

2

Q08

3

Q08

4

Q08

1

Q09

2

Q09

3

Q09

4

Q09

1

Q10

2

Q10

3

Q10

($/tonne) SBR & PBR prices v/s butadiene price

Butadiene PBR SBR grade 15 02

0

750

1,500

2,250

3,000

3,750

0.0

40.0

80.0

120.0

160.0

($/tonne)($/bbl) Butadiene Vs Crude Oil prices

Crude oi l prices But adiene prices (RHS)

57.

SBR and PBR are manufactured from the same feedstock, Styrene and Butadiene, which are in

turn derived from crude oil

Hence their cost is always linked to the international prices of crude oil

Generally, domestic prices of SBR and PBR follow global prices of these commodity chemicals,

barring monthly aberrations

Supply constraint for Butadiene The main feedstock for SR


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Global manufacturing unit for

ethylene is rapidly shifting to

natural gas based crackers

This shift led to a lower yield of

butadiene (refer table)

This, coupled with plants shut

down in March and April 2011

created a shorta e in the su l


Eth lene Ca acit KT

Yield for producing Butadiene from various sources

Note: Others include Benzene, Toluene, MXC 4, Py Gas, Fuel Gas, and SCLight Fuel Oil

58.

of butadiene

As a result, prices surged and

are expected to remain firm till

Q3 2011. However going

forward, easing supply on

account of plant coming into

operation will exert downward

pressure on prices

Source: RIL India, CRISIL Research

Note: With the capacity that has become operational in the Middle East,

the feedstock mix for cracker has also changed in favour of gas.

USA 34,842 30% 32,706 23% -7%

EU 25,313 22% 26,087 18% -4%

Middle East 11,803 10% 25,290 18% 7%

Asia 33,504 29% 47,630 33% 4%

Others 10,412 9% 11,890 8% -1%

World 115,874 100% 143,603 100%

2005 2010 diff


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Price Forecast for PP and ABS

59.

Framework of analysis Polypropylene (PP)


60/73

60.

* Other Polymers like Poly Styrene (PS), Poly Carbonate (PC), ABS etc

PP: Prices to remain under pressure due to low demand($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P


61/73

100

400

700

1,000

1,300

1,600

1,900

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11E

4Q11P

1Q12P

2Q12P

3Q12P

2012P

2013P

2014P

($/tonne) Propylene & Naptha prices v/s PP price

PP Pro lene Na tha

Forecast

In 2011, PP prices are expected to

increase by 22 per cent y-o-y owing to

expected increase in upstream propylene

prices

The expected increase in propylene prices

is due to high crude prices and tight supply

situation of propylene


PP 1,500 - 1,600 1,490 - 1,570 1,470 - 1,550 1,470 - 1,550 1,440 - 1,520 1,370 - 1,440 1,350 - 1,410

61.


However, 2012 onwards, PP prices are

expected to fall on account of

Fall in its major feedstock propylene prices

Also higher capacity than demand will lead

to lower operating rates and thus exert

pressure on PP prices

Global demand for PP is likely to grow at

a CAGR of 4-5 per cent over 2010 to

2014. Capacity expansion is also

estimated to grow at a similar pace

50.0

60.0

70.0

80.0

90.0

100.0

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2005 2006 2007 2008 2009 2010E 2011P 2012P

(per cent)PP: Global capacity-demand and operating rates

Capacity Demand Operating rates

PP prices declined on account of weak demand scenario

$/tonne(Rs/tonne) Polypropylene Prices


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PP, the lightest thermoplastic is used mainly in

consumer goods, packaging, home products,

automotive parts, industrial products, textile

yarns, fibres and fabrics

In 2010, domestic demand for polypropylene

(PP) is estimated to have grown by 17-18 per

cent y-o-y to ~2.6 million tonnes

World consum tion of Pol ro lene: 2010

600

800

1,000

1,200

1,400

1,600

1,800

2,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

$/tonne(Rs/tonne) Polypropylene Prices

Do mestic Price Lan ded Cost C&F Far East Asia (In jection Moulding)

62. Source: CRISIL Research

raffia, injection moulding, BOPP (biaxially

oriented polypropylene) etc.

In 2010, global prices for PP increased by 23 per

cent y-o-y to average $1,300 per tonne from

$1,061 per tonne in 2009 on account of increase

in upstream propylene prices

China27%

WesternEurope

15%

UnitedStates12%

MiddleEast6%

Japan6%

India5%

Others29%

Framework of analysis Acrylonitrile Butadiene Styrene (ABS)


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63.

* Other Polymers- ABS competes with specialty and advanced thermoplastics, such as Polyamide (PA), Polybutylene terephthalate (PBT), PolyethyleneTerephthalate (PET), and Poly(p-phenylene oxide) (PPO).

Substitutes of ABS - Polystyrene (PS), Polypropylene (PP),

However, owing to ABS' superior properties for electronics segment, higher volatility in polystyrene prices and the narrowed gap between itsprices and that of ABS, ABS is preferred

ABS: Prices to decline in sync with crude oil prices($ / tonne) Q311 E Q411 P Q112 P Q212 P Q312 P 2013 P 2014 P


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Forecast

ABS 2,500 - 2,600 2,270 - 2,390 2,250 - 2,370 2,280 - 2,390 2,210 - 2,320 2,190 - 2,310 2,080 - 2,180

64.


Outlook

We expect ABS prices to decline Q4 2011 onwards on account of a fall in its chief feedstock acrylonitrile and styrene

with the expected drop in crude oil prices

Going forward margins are also expected to improve in line with the expected fall in upstream feedstock prices,

on account of the expected improvement in the demand scenario.

($/tonne)(Rs/tonne) ABS Prices

ABS prices increased due to firm raw material prices


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900

1,100

1,300

1,500

1,700

1,900

2,100

2,300

2,500

50,000

60,000

70,000

80,000

90,000

100,000

110,000

120,000

130,000

140,000

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Ex-factory (Natural) Landed Cost C&F Far East Asia (Injec t)

65.

Acrylonitrile Butadiene Styrene (ABS) is used in various home appliances, electronics and automobiles

The largest consumer for ABS is China accounting for nearly 60 per cent of global consumption

In 2010, ABS prices increased significantly by around 42 per cent to $1,980 per tonne.

This is on account of the continuous tight supply situation, coupled with a high increase in upstream styrene,

butadiene and ACN prices

However, ABS prices at present are under pressure due to a decline in upstream ACN prices coupled with

subdued buying trends

In YTD 2011, high crude prices and continual shortage of key feedstocks like butadiene and acrylonitrile (ACN)

has led to an increase in ABS prices


66/73

Annexure

66.

Annexure I: Regional commodity consumption pattern

Al i iSt l


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NorthAmerica

13%

Europe

18%

China

43%

Japan

4%

RoW

22%

Aluminium

Total 39.6 million

tonnes (2010)

North

America6%

Europe

11%

China

45%

Japan5%

RoW

33%

Steel

Total 1380 million

tonnes (2010)

67.


America

15%

Europe

22%

China

38%

Japan

5%

RoW

20%

Copper

Total 19.3 million

tonnes (2010)

North

America9%

Europe

15%

China

42%

Japan5%

RoW

30%

Zinc

Total 12.5 million

tonnes (2010)

Annexure II: Impact of currency on commodity prices

A B C D E


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Month Curency

Index

Aluminium

prices ($/tonne)

Currency adjusted

prices ($/tonne)

Actual Price

Index

Currency influence

index

B1 x A1 / A2 = B (base 100) = C (base 100)

Jan-09 75 1413 1413 100 100

Feb-09 80 1330 1319 94 93

Mar-09 79 1336 1336 95 95

Sep-10 65 2162 1637 153 116

Oct-10 63 2354 1678 167 119


68.

Methodology

As indicated above, Jan-2009 is considered as the

base period.

Currency index is the weighted average of the key

exporting countries of a particular commodity.

The actual prices (column B) are discounted for

currency fluctuation (in column C).

Both prices (column B&C) are converted on a base

of 100 in Jan-2009 (column D & E) and plotted.

178

128

0

50

100

150

200

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

(Index) Currency impact on Aluminium prices

Actual price Currency influence

Impact of currency on commodity prices

($/tonne) l


69/73

183

108

90

110

130

150

170

190

210

Ja

n-09

Ma

r-09

Ma

y-09

Ju

l-09

Sep-09

No

v-09

Ja

n-10

Ma

r-10

Ma

y-10

Ju

l-10

Sep-10

No

v-10

Ja

n-11

Ma

r-11

Ma

y-11

Ju

l-11

($/tonne) Currency impact on Steel prices

Actual Price Currency influence

125

299

90

130

170

210

250

290

330

Jan-0

9

Mar-0

9

May-0

9

Jul-0

9

Sep-0

9

Nov-0

9

Jan-1

0

Mar-1

0

May-1

0

Jul-1

0

Sep-1

0

Nov-1

0

Jan-1

1

Mar-1

1

May-1

1

Jul-1

1

($/tonne) Currency impact on Copper prices

Currency Influence Actual Price

69.

201

118

90

110

130

150

170

190210

230

Ja

n-09

Ma

r-09

Ma

y-09

Jul-09

Se

p-09

No

v-09

Ja

n-10

Ma

r-10

Ma

y-10

Jul-10

Se

p-10

No

v-10

Ja

n-11

Ma

r-11

Ma

y-11

Jul-11

($/tonne) Currency impact on Zinc prices

Actual Price Currency influence

314

9590.0

140.0

190.0

240.0

290.0

340.0390.0

440.0

Ja

n-09

Mar-09

May-09

J

ul-09

Se

p-09

No

v-09

Ja

n-10

Mar-10

May-10

J

ul-10

Se

p-10

No

v-10

Ja

n-11

Mar-11

May-11

J

ul-11

( /kg) Currency impact on NR prices

Actual Price Curr ency influence

Annexure III: Historical volatility in prices

Quarterly Volatility in Aluminium prices Quarterly Volatility in Copper prices


70/73

0%

5%

10%

15%

20%

25%

30%

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Q y y p

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Quarterly Volatility in Copper prices

30.0%

Quarterly Volatility in Zinc prices

45%

Quarterly Volatility in HR prices

70.

Source: LME,CRISIL Research

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

0%

5%

10%

15%

20%25%

30%

35%

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Historical volatility in prices

Quarterly Volatility in NR prices Quarterly Volatili ty in PP prices


71/73

0%

5%

10%

15%

20%

25%

30%

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Quarterly Volatility in NR prices

0%

5%

10%

15%

20%

25%

30%

35%

40%

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Quarterly Volatili ty in PP prices

Quarterly Volatil ity in ABS prices

71.


0%

5%

10%

15%

20%

25%

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

Q106

Q306

Q107

Q307

Q108

Q308

Q109

Q309

Q110

Q310

Q111

Annexure IV: Commodity Duty Structure

(per cent) Excise Duty Custom Duty


72/73

Commodity 2010-11 2011-12 2010-11 2011-12

HR Steel 10 10 5 5

CR Steel 10 10 5 5

Sponge iron 10 10 5 5

TMT Steel 10 10 5 5

Pig iron 10 10 5 5

Aluminium 10 10 5 5Copper 10 10 5 5

Zinc 10 10 5 5

NR * - - 20 20

72.

SBR (1502) 10 10 10 10

PP 10 10 5 5ABS 10 10 5 5

Note: Education cess is applicable at 3 percent

In case of NR, customs duty applicable is 20 per cent or Rs 20, w hichever is low er

During Jan-Mar 2011 customs duty w as reduced to 7.5 per cent

Source: Central Customs Tariff, Central Excise Tariff


73/73

73.

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