1. Global and Indian Trends
in Metal Industry
October 31, 2012
CRISIL Limited

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2

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3

4. 2005-06: Beginning of the meltdown
140000 40
35
120000
30
100000
25
80000
20
(Rs. million)
(Per cent)
60000 15
40000 10
5
20000
0
0
2001-02 2002-03 2003-04 2004-05 9M 2004-05 9M 2005-06 -5
-20000
-10
-40000 -15
PAT OPM (RHS) NPM (RHS)
Note: Players considered are: Tata Steel, SAIL, Ispat, Essar Steel and JSW Steel
Source: CRIS INFAC
4

5. Decline in steel prices
35,000 650
33,000
600
31,000
29,000 550
(Rs per tonne)
($ per tonne)
27,000 500
25,000
23,000 450
21,000 400
19,000
350
17,000
15,000 300
De 0 5
De 0 4
Ju 5
Fe 0 6
06
Ju 4
Fe 0 5
M 06
M 05
Ap 5
Ap 6
Se 04
Ja 4
Au 05
Se 05
O 05
Au 04
O 04
Ja 5
M 04
Ju 4
M 05
Ju 5
M 06
Ju 6
No 4
No 5
-0
-0
0
-0
0
-0
-0
0
0
-0
-0
v-
v-
l-
n-
l-
n-
n-
n-
n-
b-
b-
g-
c-
g-
p-
c-
r-
r-
p-
r-
ar
ar
ay
ay
ay
ct
ct
Ap
Domestic prices International prices (RHS)
Note: International prices are CIS – Black Sea (FoB) prices
Source: Metal Bulletin and CRIS INFAC
 The average international price of hot-rolled coils (HRC) was $460 per tonne (FOB) during the first 9 months
of FY 2005-06, 16 per cent lower than the $549 per tonne (FOB) reported during the corresponding period of
2004-05.
 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.
5

6. Incremental supplies grew higher than incremental demand
1060 99.5
 While the apparent consumption,
rose by 4.09 per cent (addition of
99
1041
99 39.8 million tonnes) during 2005
1040
over 2004, supplies increased by
98.5 6.07 per cent (addition of 59.6
1020 1013 million tonnes)
(Million tonnes)
98  Reasons
(Per cent)
1000
 Slowdown of demand from the US and
97.5
982 the EU. The regions met most of their
980 974 consumption needs from their
97 97 inventories leading to reduced buying
960
 China becomes net exporter in 2005
96.5
from net importer in 2004. Over the
past 3 years (between 2003 and 2005),
940 96 China's consumption of finished steel
2004 2005
increased at a CAGR of 16.12 per
Finished Steel production
cent, while its production grew by a
Finished Steel Consumption
CAGR of 25.34 per cent over the same
Consumption/production ratio (RHS)
period.
Source: IISI
6

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 per
cent 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) to
align 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 Tata
Steel 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 (Rs
5,066.62 per tcm) leading to a heavy erosion in margins of gas-based steel makers such as Ispat and
Essar.
7

8. Volumes helped achieving stable revenues
40000 7.8
7.64 7.6
35000
4375 7.4
30000
7.2
3320 7
25000
('000 tonnes)
6.89 3162
(Per cent)
6.8
20000
6.6
15000 29970 6.4 6.4
24277
22477.5 6.2
10000
6
5000
5.8
0 5.6
2004-05 12M 2004-05 9M 2005-06 9M
Domestic Demand Exports YOY Growth ( RHS )
Note: The YoY growth is calculated based on results of corresponding period of previous year
Source: CRIS INFAC
8

9. Looking into the crystal ball
 Marginsof the domestic industry to
remain stable during 2006-07 as
compared to 2005-06
 Prices to increase marginally.
 However rise in Input costs to keep margins
stable.
9

10. Realization to increase marginally
 The International average prices of steel will
be 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 be
lower due to unfavorable demand-supply
Scenario
10

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