global and indian trends in metal industry ashutosh satsangi (1)

8/3/2019 Global and Indian Trends in Metal Industry Ashutosh Satsangi (1)

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CRISIL Limited

Global and Indian Trendsin Metal Industry

8 February 2012


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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 themanufacturing and services sectors

A service presently used by 90% of the banks operating in India both Indianand foreign

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

Syndicated research Customised research that applies our unique understanding of cross sectoral

and macro-micro linkages to specific client needs


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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 Nalco Sterlite and many others

Syndicated research Global Aluminum company Large Indian Automobile company


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2005-06: Beginning of the 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: Players considered are: Tata Steel, SAIL, Ispat, Essar Steel and JSW SteelSource: CRIS INFAC


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Decline in steel prices

The average international price of hot-rolled coils (HRC) was $460 per tonne (FOB) during the first 9 monthsof FY 2005-06, 16 per cent lower than the $549 per tonne (FOB) 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-December2004.

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

Source: Metal Bulletin and CRIS INFAC

15,000

17,000

19,000

21,000

23,000

25,000

27,000

29,000

31,000

33,000

35,000

Apr-0

4

May-04

Jun-04

Jul-0

4

Aug-04

Sep-04

Oct-0

4

Nov-0

4

Dec-0

4

Jan-05

Feb-

05

Mar-0

5

Apr-0

5

May-05

Jun-05

Jul-0

5

Aug-05

Sep-05

Oct-0

5

Nov-0

5

Dec-0

5

Jan-06

Feb-

06

Mar-0

6

Apr-0

6

May-06

Jun-06

(Rspertonne)

300

350

400

450

500

550

600

650

($perto

nne)

Domestic prices International prices (RHS)


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Incremental supplies grew higher than incremental demand

982

1041

974

1013

99

97

940

960

980

1000

1020

1040

1060

2004 2005

(Million

tonnes)

96

96.5

97

97.5

98

98.5

99

99.5

(Percent)

Finished Steel production

Finished Steel Consumption

Consumption/production ratio (RHS)

While the apparent consumption,rose by 4.09 per cent (addition of39.8 million tonnes) during 2005over2004, 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 aCAGR of 25.34 per cent over the sameperiod.

Source: IISI


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Volumes helped achieving stable revenues

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

29970

22477.524277

4375

31623320

6.89

6.4

7.64

0

5000

10000

15000

20000

25000

30000

35000

40000

2004-05 12M 2004-05 9M 2005-06 9M

('000tonnes)

5.6

5.8

6

6.2

6.4

6.6

6.8

7

7.2

7.4

7.6

7.8

(Percent)

Domestic Demand Exports YOY Growth ( RHS )


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Looking into the crystal 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.


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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


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China the key toD

emandCHINA: Going strong

Note:* The data for each year is cumulative figure for the period January to March of that year

Source: National Bureau of Statistics of China

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 8 263 30

Civil Steel Boats and Ships 1,000 tons 260 208 19 334 8

Large and medium Tractors Sets 37,595 49,485 32 83,828 69

Washing machines 10,000 Sets 758 939 24 993 6

Refrigerators 10,000 Sets 810 949 17 1289 36

Chinas investments in Fixed Assets: Key elements

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

Real Estate 198 255 27.8 303 18.8

Manufacturing 192 252 25.6 344 36.3

Transportation, storage and post 71 92 28.4 119 29.6

Construction 9 6 -39 10 73


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Global operating rates to remain stable

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

Source: IISI & CRIS INFAC

Global demand capacity scenario

0

200

400

600

800

1,000

1,200

1,400

1,600

2004 2005 2006

Mntonnes

83

84

85

86

87

88

89

Percent

Demand Capacity Demand capacit y ratio (RHS)


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Domestic demand-supply scenario

Demand to grow at a CAGR 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.


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Passenger cars to keep riding on favourable demographics

Passenger Cars

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

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

Units

Mini Compact Midsize A4-A6

CAGR 15 %

Source : CRIS INFAC


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Growing trend of personal utility vehicles to help demand

Utility Vehicles

324066285408265956

0

50000

100000

150000

200000

250000

300000

350000

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

Units

Source : CRIS INFAC

10.3% CAGR


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Commercial vehicle demand to grow at a healthy rate

Commercial Vehicles

181751 196588207595

201113

51910

56800

61092 65541

170897161573140368114913

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

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

U

nits

HCV LCV Buses

Source : CRIS INFAC


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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 Kms 2007 Kms 2008 KmsDUPL 475

Jagoti-Indore-Pithampur 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-Bijwasan Pipeline 774

Koyali-Dahej 112

Koyali-Ratlam 274

Jamnagar-Patiala pipeline 1580

Jamnagar-Kanpur pipeline 2540


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Commercial construction: IT/ITES sector is the driver

Real estate construction: Investments over thenext 5 years

Sector Volume (mn Sq ft) USD billion

FY03-FY05

FY06-FY10

Growth FY03-FY05

FY06-FY10

Growth

CommercialOffice space-IT/ITES

61 252 313% 1.63 7.21 442%

Source: CRIS INFAC


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Mall construction set to grow

Rs

billion

Units 2003E 2004E 2005P 2010P

Organised retailindustry USD billion 3.66 6.12

7.7924

.73

Increase inrevenue

USD billion 2.26 1.54 16.83

Revenue per sq.ft.

USD per sq ft 206.61 217.63 222.57 225.89

Additional spacerequired by

2010

Mn sq ft 75

Cost ofconstruction

USD per sq ft 33.88

Total

construction

activity

USD billion 2.53

Mall construction: Investments over the next 5 years

Source: CRIS INFAC


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Expected Construction Investments in the next two years

29 % 35 %

19 %19 %

18 %20 %

19 %12 %

15 % 14 %

0%10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY05-FY06 FY07-FY08

Roads Irrigation Urban infra Power Others

Rs 1516 bnRs 1310 bn

8 %

growth

Source: CRIS INFAC


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Industrial Investments(Rs billion)

7%

1%

2%

4%

12%

4%

13%

57%

Aluminium Steel AutomobileP

et rochemicals Text iles CementOthers Oil & gas

3%

0%

7%

6%

37% 26%

16%

3%

2%

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

Source CRIS INFAC


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Demand to capacity ratio for flat 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

(Million

tonnes

)

58

60

62

64

66

68

70

72

74

76

(Percent)

Demand Capacity Dem - Cap ratio ( RHS )


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Margins to remain stable$/tonne I/O

(Times)2005 2006

$/tonne of itself $/tonne of steel $/tonne of itself $/tonne of steel

Iron ore 1.6 54 87 64 103

Coke 0.6 201 121 187 112

Other operating cost 160 160

Total operating cost 367 375

Average steel prices 492 500

Tolling profit 125 125

Tolling margin 25.39 24.99

Source: CRIS INFAC


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global and indian trends in metal industry ashutosh satsangi (1)

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