Page | 4 INDUSTRY OVERVIEW Indian steel industry had witnessed a sharp decline in demand since the second half of 2008, a period that saw most steel companies facing difficulties such as low capacity utilizations, falling realizations and inventory related losses. But the demand started gathering pace post April 2009 and steel consumption grew by 8% in the first nine months of the fiscal ending March’10. India’s top steelmakers posted double-digit growth in sales, backed by robust demand from automobile, construction & infrastructure sectors. The rise in volume growth for the metal was also attributed to the low base effect as companies registered lesser production previous year due to low demand. Rise in demand has started reflecting in increase in metal prices. Most steel companies increased product prices by up to Rs 2,000/ton to Rs 33,000- 35,000/ton in the domestic market in January this year. Steel demand in India will continue to rise going forward especially because a lot of emphasis has been laid on infrastructure development in the budget wherein investments to the tune of Rs 1,73,000 crore are proposed to be made in 2010-11, which will increase demand for metals and commodities like steel and cement. Further, the direction of the steel prices is also expected to be indexed to the price trends of the raw materials which are expected to firm up in line with the global trends. Further the credit metrics of individual companies within the sector shall however, also be determined on their individual capital expenditure plans and its ensuing impact on the financial profile. Amidst the rising cost environment, integrated steel companies in India would benefit more due to captive raw material supply, presence in high end steel products, and the ability to pass thru the rising costs. Steel industry has a major role to play in the economic growth of India. With new global acquisitions by Indian steel giants, setting up of new state-of-the-art steel mills, modernization of existing plants, improving energy efficiency and backward integration into global raw material sources, India is now on the centre of the global steel map. Consumption of steel in the construction sector, industrial applications, and transport sector has been on the rise and special steel usage in engineering industries such as power generation, petrochemicals and fertilizer industry is also growing. India has retained its position as the 5th largest producer in 2010 and recorded a growth of 11.3 per cent as compared to 2009. India has also emerged as the largest sponge iron/direct reduced iron (DRI)
producing country in the world in 2010, a rank it has held on since 2002. Sponge iron production grew at a CAGR of 11 per cent to reach a level of 20.74 million tons (MT) in 2009-10 as compared to 14.83 MT in 2005-06. India is expected to become the second largest producer of steel in the world by 2015-16, on account of growing steel demand, rich resources base of iron ore, skilled manpower and vast experiencePage | 5 of steel making and the huge capacity expansion planned and being executed in the steel sector. With the expanding consumer market, Indian steel industry is likely to receive huge domestic and foreign investments. Nearly 222 memorandums of understandings (MoUs) for planned capacity of around 276 MT have been signed between the investors and various State Governments, mostly in Orissa, Jharkhand, Chhattisgarh and West Bengal. India has recorded a growth of over 8.6 per cent, producing 6.35 MT of steel in March 2011 as against 5.85 MT in the corresponding month in 2010, according to World Steel Association (WSA). Steel exports has increased by 17.3 per cent as it reached an estimated 2.46 MT, while steel imports were at an estimated 5.36 MT, a growth of 2.8 per cent in 2010. ECONOMIC ENVIRONMENT The global steel production and consumption in 2009 declined by 8% and 6.7%, respectively, inspite of rebound in the second half of calendar year2009. The impact of economic crisis in Advanced Countries continued to depress the steel demand. China and India showed resilience due to strong domestic demand cushioning the slow recovery in Advanced Economies. India, posted a growth of 8.1% and 4.2% in steel consumption and production, respectively in FY 2009-10. As the demand outpaced the production, the import of steel products grew by 23%. India is expected to continue to be the net importer of steel considering the strong demand from infrastructure, construction, real estate, Automobiles and white goods industry and tardy progress in creating new capacities The revised estimate for 2009-10, has projected a GDP growth of 7.4% compared to 6.7% for the previous year. The impact of bad monsoon is visible on performance of agriculture sector which has declined by 0.2%, however, strong growth of 9.3% for industry and 8.5% for services have led to the recovery of overall GDP. The index of industrial production has grown at 10.4% for April to March 2009- 10 compared to 2.8% in 2008-09. The growth of core infrastructure industries during this period was 5.5% against a growth of 3% in the previous year. Manufacturing sector with a growth of 10.8% and
mining at 10.6% have been the growth contributors for industry. On the demand side, capital goods and consumer durables have led the recovery at 19.2% and 26% respectively. Exports which registered a negative growth of 4.7% during 2009-10 started showing a recovery in the later part of the year while the imports declined by 8.2%. Inflation continues to be a worry with the point to point measure forPage | 6 March 2010 at 9.9%. There is however a degree of optimism regarding the performance of Indian economy. IMF has projected a growth of 9.4% for 2010 and 8.4% for 2011 World output growth for 2010 projected at 4.6%, signals a recovery compared to recessionary trend in 2009 when the global output shrank by 0.6%. The recovery is attributable to strong performance by the emerging economies, recovery in the developed world, restocking of inventories and rebound in global trade which had shrunk by 11.3% in 2009. During 2010 and 2011, the world trade volume of goods and services is expected to increase by more than 9% in 2010. While the emerging and developing economies are performing strongly, in the developed world recovery in US is better than Europe and Japan. The advanced economies as a group are expected to grow at 2.6% in 2010 and 2.4% in 2011 against a negative growth of 3.2% during 2009. Emerging and developing nations registered a growth of 2.5% during 2009 which is expected to increase to 6.8% and 6.4% respectively for 2010 & 2011. The challenges for growth are in terms of a pressing need in the advanced economies for medium term fiscal consolidation and a clear cut time frame to bring down gross debt to GDP ratio. With a fiscal deficit hovering at 9% of GDP for the advanced nations, based on current policies, the debt to GDP ratios of these economies are expected to exceed 100% of GDP by 2014. There is hence a need for withdrawal of Government stimulus for overall fiscal consolidation. The pace of the withdrawal however, has to be managed in a manner that it does not impair growth. The near term risk is in the form of sovereign liquidity and solvency in Greece which could potentially become a full blown contagious sovereign debt risk. For the emerging economies, public debt ratio ranges between 30- 40% of GDP and is likely to fall given the high GDP growth. The challenge to the emerging economies is mainly management of inflation. India registered a strong come-back in 2009-10 displaying its ability to withstand extreme external adversities, which destabilized major economies. India recorded a GDP growth of 7.2% in 2009-10 against 6.7% in 2008-09. This was largely due to the timely economic stimulus fueling investment and consumption. The key drivers to India’s economic growth during the year 2009-10 were: • Strong IIP Growth: 10.4% • Core Infrastructure Industry Growth: 5.5% • Automobile Production: 26%
Capitalizing on the high degree of domestic dependency, low credit leverage and debt exposure and the Government’s thrust on infrastructure creation are expected to accelerate the Indian economy in 2010- 11 and beyond. Preliminary guidance by the Central Government for the economic growth in 2010-11 is estimated at 8.2% and 9% in 2011-12.Page | 7 DEMAND ANALYSIS OF STEEL IN INDIA Consumption Share Of Finished Steel Sectorwise 5% 3% Construction 8% Others 11% Capital Goods Auto 12% 61% Packaging Consumer durable Source: Crisil
Consumption share of Finished steel Productwise steel- 3%Page | 8 11% BAR & ROD 35% HR COIL 19% CR COIL GP/GC HR SHEETS 32% SOURCE- JPC Domestic Finished Steel consumption registered a CAGR growth of 10.1 percent to stand at 58.8 ml ton mln during 2005~2010 Demand from key consumption sectors infrastructure, automobile and housing remained strong during the current decade Majority of the steel consumption sector wise in India is from Construction & Infrastructure (61 Construction percent) followed by Manufacturing (12 percent) and Automobile (8 percent) Product wise, Bar & Rod consist of 35 percent of c consumption followed by HR Coil – 32 percent, CR Coil – 19 percent and GP/GC Sheet – 11 percent Amid rapid urbanization and spending on Infrastructure the current per capita consumption of steel (44~46 kg) make India a hot bed for steel consumption in the near future with construction and transportation sector contributing the most INFRASTRUCTURE The basic facilities, services, and installations - of a country or community - such as transportation network, communications systems, water, power lines, Roads & Buildings and Other public institutions twork, is considered essential for enabling productivity of any economy and require huge initial investments During early 80’s infrastructure was defined primarily with respect to the nation’s public works and now the scope has widened and it depends heavily upon the context.
According to Dr. C. Rangarajan Commission, Infrastructure in India include, Railways (Tracks, Signalling systems, Stations etc) Roads & BridgesPage | 9 Airports, Runways and Other facilities Electricity (T&D) Telecommunications network Pipelines (water, energy and other) Port facilities Irrigation (Canal networks) A snap shot of transportation in India Transportation In India Length of Roads 33,20,410(Km.) Length of Rail Track 1,08,805(km.) Number of Ports +200 Major 11 Minor +190 Airports +92 International 12 Domestic +80 Source: IBEF Extensive road network that carry about 61 percent of the freight and 85 percent of the passenger traffic Urbanization and industrialization put greater strain on the Railways ushering PPP mode for investments Greater role of international trade and limited capacity let 100 percent FDI allowance to Port sector Rapid increase in both Passenger and Cargo traffic let the Airport Sector also open for PPP and FDI Opening up Telecom Sector for Private and FDI ushered for greater services and revenue generation Generation and Distribution is still held with public sector but it is opening up swiftly to private and FDI
However, when compared with developed/developing world, India stand far behind in creation/execution of infrastructure for the economy to notch higher growth. As a result of which, the current five year plan coupled with various other initiatives stress the need for speedy creation of worldPage | 10 class infrastructure with greater emphasis on PPP mode India- Investment into Infrastructure 140 120 100 80 ACTUAL OUTLAY(USD)bin 60 PROJECTED OUTLAY(USD)bin 40 20 0 2003-04 2005-06 2007-08 2009-10 2011-12 Source-Planning commission India- private sector contribution to infrastructure Private Sector Contribution to Infrastructure (as a % of GDP) 3.5 3 2.5 2 1.5 1 0.5 0 2003-04 2005-06 2007-08 2009-10 2011-12 Source:Planning commission
Total planned outlay for infrastructure for 11th FYP jumped by 138.9 percent to USD 514 bln fromUSD 218 bln during the 10th FYP However, hurdled by various policy issues in identifying, granting and allocating finances, thePage | 11 expenditure is expected to be lower than the projected/assumed outlay Increased participation from private sector, tax free infrastructure bond and FDI is expected to push the overall spending on infrastructure from current 7 percent of GDP to +8.5 percent of GDP by 2012 Despite all the above, India still need to spend more than USD 1 trillion on infrastructure by 2020 with increased emphasis on Roads, Power and Railways due to rapid urbanization Power generation and Distribution continue to draw lion’s share in planned investment followed by Roads & Telecom However, under the 11th FYP Sea Ports & Airways increased the share of investments with slight decline in the Road and Rail PPP mode of operations and increased allocation in the planned investments augur well for infrastructure growth As infrastructure inadequacies would constitute a significant constraint in realizing the potential growth of the economy an ambitious programme of infrastructure investment has been developed for the 11th FYP Some of the Flagship Programmes Under 11th FYP to create infrastructure RGGVY – Rajiv Gandhi Grameen Vidyutikaran Yojana – Electricity Distribution APDRP – Accelerated Power Development and Reforms programme – Power Generation JNNURM – Jawaharlal Nehru National Urban Renewal Mission – Urban Infrastructure AIBP – Accelerated Irrigation Benefit Programme – Irrigation and Canal Development NHDP – National Highways Development Programme – Roads NMDP – National maritime Development Programme – Ports MRTS – Mass Rapid Transport Systems – Urban Transport INDIAN STEEL DEMAND: AUTOMOBILE
INDIAN AUTOMOBILE SECTOR 5% 4%Page | 12 Two Wheelers 16% Passenger Vehicle Three Wheelers Commercial Vehicle 75% Investment into auto sector: India 14 12 10 8 FDI(USD)bln 6 DOMESTIC INVESTMENT INTO AUTO COMPONENT(USD) bln 4 2 0 2007-08 2008-09 2009-10 2010-11 Source: DIPP, ACMA Indian automobile industry ranks 2nd in global two-wheeler market, 3rd largest PV market in Asia and 4th largest global CV market Indian automobile market dominated by 2 wheeler (+75 percent), however PV’s register strong CAGR growth of 17.8 percent during 2002-10 Total automobile sector witnessed cumulative FDI worth USD 4.4 billion during 2000~2010 accounting for 4 per cent of the total FDI On the other end, automotive components industry too witnessed strong investment growth, USD 9.0 bln during 2009-10 as leading carmakers such as Honda, Volkswagen, Mercedes and Ford are shifting their manufacturing plants/ units to India In line with the young consumer’s growing disposable incomes, varied product and improvement in road infrastructure support the Indian automobile growth
Indian steel: final deemand- sector wise 2009-10 2012-13F CAGR Growth Automobile 6.5 10.3 16.7Page | 13 Construction 23.5 33.2 12.2 Household Appliances 2.4 3.3 11.4 Railway 7.1 9.1 8.8 Manufacturing 3.2 3.9 6.0 Other Manufacturing 3.9 4.6 5.3 Others 12.2 14.8 6.7 Sources: MoS ,W2W Res. In mln tones finished steel ) Automobile & auto components, Construction, Household Appliances (white goods) and Manufacturing to drive the domestic finished steel consumption during 2010-13 Assuming Indian GDP to register an average GDP growth of +8.32 percent during 2010-13, domestic finished steel consumption estimated to grow at a CAGR of +9 percent to reach +79 mln tons However, steady consumer at matured economies and any unforeseen spillover of risks can limit the above estimated growth The same is expected to register a higher CAGR growth of +9.2 percent to reach +82 mln tons if the external and internal economy remain robust and intensity of consumption increase with growth PRODUCTION & CONSUMPTION OF STEEL IN INDIA 2008-09 2009-10 2010-11E 2011-12F 2012-13F FINISHED STEEL PRODUCTION 57 60 66 73 86 IMPORTS 5.8 7.2 7.7 5.7 6.2
TOTAL SUPPLY 63 67 74 78 92 DOMESTIC FS CONSUMPTION 53 59 65 72 79 EXPORTS 4.0 3.2 4.0 4.7 5.5 TOTAL DEMAND 58 62 69 76 85 S&D BALANCE 5.1 4.1 4.6 1.8 7.0Page | 14 (Source: MoS , W2W Research in mln tons) ) Demand is estimated to remain robust & above production, resulting domestic S/D to remain balanced in the short run However as demand would outpace during Q4-10 CY to Q2-11 CY Indian S/D would turn tight, pushing up the prices As new capacities comes up with execution risk amid high dependency on key raw materials, the average steel prices are set to move steadily higher during 2010-12 Average domestic Mild Steel Ingots ( Mandi Gobindgarh) prices are likely to move higher by13.5~16.8 percent in FY 10 & 15~18 percent in FY 11
PERFORMANCE OF INDIAN STEELPage | 15 INDUSTRY STEEL AUTHORITY OF INDIA LIMITED The Steel Authority of India Limited (SAIL) is a company registered under the Indian Companies Act, 1956 and is an enterprise of the Government of India. It has five integrated steel plants at Bhilai (Chhattisgarh), Rourkela (Orissa), Durgapur (West Bengal), Bokaro (Jharkhand) and Burnpur (West Bengal). SAIL has three special and alloy steels plants viz. Alloy Steels Plant at Durgapur (West Bengal), Salem Steel Plant at Salem (Tamil Nadu) and Visveswaraya Iron and Steel Plant at Bhadravati (Karnataka). In addition to these, a Ferro Alloy producing plant at Chandrapur is owned by Maharashtra Elektrosmelt Limited which is a subsidiary of SAIL. SAIL has eleven units viz. Research and Development Centre for Iron and Steel (RDCIS), Centre for Engineering and Technology (CET) and Management Training Institute (MTI), all located at Ranchi, Central Coal Supply Organisation (CCSO) located at Dhanbad, and Raw Materials Division (RMD), Environment Management Division (EMD), Growth Division (GD) and SAIL Safety Organisation (SSO) all located at Kolkata. SAIL Ranked amongst the top ten public sector companies in India in terms of turnover, Steel Authority of India Limited (SAIL) is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. KEY INVESTMENT RATIONALE: Capacity Expansion will ensure volume growth: SAIL is all set to bank on the domestic consumption of steel primarily driven by the ongoing infrastructure development in the country with its ambitious expansion plans which will increase its crude steel capacity to 23.2mt from 14mt currently. Value-added Segment:
SAIL is banking on the robust demand witnessed for finished and premium steel segment by expanding its value added steelmaking capacity. The value added or premium segment commands 20-25% premium over semi-finished or crude steel.Page | 16 Strong demand led by domestic consumption: India’s finished steel demand is expected to grow at 12% CAGR over FY 10-13, led by strong demand from Automobiles, consumer durables and Engineering sector. India will remain a net steel importer over FY11-13, as demand is likely to outpace supply. Valuation: At the current price of 188, the stock is trading at just 11.96x and 10.84x times of our estimated FY11E & FY12E earnings. We thus recommend a ‘Accumulate’ with a Price target of Rs 214. PARTICULARS FY10 FY11E* FY12E* Net Sales (Rs cr) 40520.24 44572.26 47692.32 % Change in Sales - 10% 7.00% Expenditure (Rs cr) 30310.54 35212.09 37672.94 PBIDT(Rs cr) 11871.28 11648.97 12584.88 Profit After Tax (Rs cr) 6754.37 6492.90 7160.51 %Change in PAT - -4% 10% EPS (Rs) 16.35 15.72 17.34 PE Ratio 11.50 11.96 10.84 OPM% 22.33 21.00 21.00 NPM% 16.67 14.57 15.01 INVESTMENT ARGUMENT Venturing into premium segment: SAIL is currently selling both raw steel and semi finished, whereas the contribution from value-added segment is low. Going forward company plans to eliminate this segment completely and add different value added products, which commands premium over raw steel. It plans to introduce products like auto grade CR products, galvanized coils, sheets, plates, pipes to meet up to API 100 grade specification. It also plans the production of rails and wheels to meet the increasing demand requirements of the Indian railways, Universal beams/ Heavy beams in the size up to 1100mm to support increasing
infrastructure requirements. The value added or premium segment commands 20-25% premium over semi-finished or crude steel. Capacity expansion will ensure volume growth:Page | 17 Company has planned capex of over Rs 50000cr to increase its crude steel capacity to 23.2mt from 14mt currently. The company has also planned capex for technological up gradation/ modernization, value addition, production mix improvement. Technological up gradation/ modernization will reduce SAIL’s operating cost/ton by around 15-20% over the next three years. The massive capacity addition should help the company to strengthen its leadership position in Indian Steel Industry. SAIL is setting up a Finex plant at the existing Bokaro plant through a JV with Posco in ratio of 49:51, for which DPR is yet to be completed. The iron will be supplied through the FINEX process (0.5mt) and end product capacity is envisaged at ~1.5mt, of which 0.5mt is CRGO steel. The incremental 1mt steel will be supplied through the Bokaro plant as cold rolling mill ordered has a capacity of 1mt, whereas SMS-3 will have a capacity of 1.8mt. Captive mines to provide hedge against raw material price volatility: The raw material accounts for over 64% of the total expenditure. The company is in process to secure major raw material from its captive sources. SAIL is fully integrated with respect to iron ore, which is sufficient enough to back its expansion plans. Currently company uses captive mines for iron ore and it has been allotted Chhiria mines which have proven reserve of 2bt of iron ore. SAIL has started production of 10000 tpa coal at Tasra collieries, the expected capacity to produce is 4mt in the near future, which will reduce their raw material cost and improve operating margin. In addition to this the company has formed JV with Tata Steel to explore Coking Coal. The main advantage of having a captive mine is that it insulates the company from volatility in raw material prices and protects its margin. Domestic focus; SAIL’s entire steelmaking maneuvers are based in India. It is focused on the s domestic market and exports little. Ahead, it expects exports to comprise around 15% of the expanded volume. A favorable product mix (60% longs, 40% flats) could make it one of the best beneficiaries of India’s infrastructure growth story. The company is one of the key suppliers to the infrastructure sector, with around 60% of its sales going to this sector. Around 32% of its sales goes to the government sector.
The company is well positioned to be benefitted the infrastructure story of India. Large proportion of its product mix will find its application in arge construction and engineering.Page | 18 Strong balance sheet with good dividend track record: Company enjoys healthy balance sheet with a low debt-equity ratio in the debt range of 0.18 to 0.39 in last four years, which ensures that SAIL undertake capex without overstretching its balance sheet. Attractive Dividend Pay-out: SAIL has been rewarding its shareholder by offering regular dividend since lder 2005. The average dividend yield of the company stood at 2.73%. With huge cash on the book and being one of the most profitable maharathna in government entities, we believe the management of SAIL would continue to reward its shareholders with higher dividend pay-out. out. Key strategic alliance to further boost profitability: Company has signed MOU with Kobe Steel, Japan for exploring feasibility of ITmk3 technology for use of lean iron ore fines & non coking coal. Company is in 50-50 JV with NTPC for 250 MW power generation. Due to this JV, company’s power cost will reduce. There is a possibility of joint collaboration with Nippon Steel in the iron and steel area. Company has also proposed owing a port/joint ownership in a port venture in Orissa. This wnership will further reduce logistics cost for the company. Economies of Scale: SAIL has been enjoying the benefit of improved productivity per employee with its workforce came down by ~58% (annualized rate of 5.4%) during the past ten years from 208765 in FY2000 to 114160 at the end of FY10. The company’s employee’s remuneration as a % of net sales saw an improvement, its net employee cost stood at 13.37% for FY10, as against 19.82% in FY09 and 19.91% during FY08. The labour productivity has improved to 228tons of crude steel per labour employed during the H1 of FY11 against 214tons of crude steel produced per labour during FY08. KEY CONCERNS
Rise in input cost: The backward integration (Coal) of the SAIL would be completed by next 2- 3 years, any adverse moment in coking coal prices could have its bearing on earning visibility of the company.Page | 19 Fall in prices: Any negative movement in product prices can have its effect on the realization of the company, thereby affecting the profit earning capabilities of the company. TATA STEEL LIMITED TATA Steel has an integrated steel plant, with an annual crude steel making capacity of 6.8 million tonne, located at Jamshedpur, Jharkhand. The crude steel production of TATA Steel during the period April-December 2010-11 is 5.81 million tonne. As part of the Brownfield expansion project, TATA Steel has commissioned H Blast Furnace in May 2008, as part of 1.8 million tonne growth plan to reach capacity of 6.8 million tonne. TATA Steel is continuing with its programme of expansion of hot metal and steel making capacity by 3 million tonne to reach 10 million tonne. Crude steel capacity as on March 31, 2009 was 6.8 million tonne (Jamshedpur works). Tata Steel has also envisaged massive expansion of its capacities through various greenfield projects at Saraikela (Jharkhand), Kalinganagar (Orissa) and Bastar (Chhattisgarh). TATA Steel, the flagship company of Tata group, is among the top ten global steel companies with an annual crude steel capacity of over 28MTPA. It is now the world’s second-most geographically-diversified steel producer with operation in 26 countries and a commercial presence in over 50 countries. KEY INVESTMENT RATIONALE Highly Integration levels for TATA Steel to boost Earnings:
Tata Steel is in the process of developing a coking coal mine in Mozambique and an iron ore mine in Canada to enhance integration level of TSE. The project is expected to be commissioned by 1QFY12. We expect this backward integration project at Mozambique and Canada to boost Tata Steel’s earnings substantially.Page | 20 Brownfield expansion on track: Tata Steel’s 3mt brownfield expansion programme is on track and expected to be commissioned by 2HFY2012. Till September 2010, the company has incurred capex of Rs. 5732cr and plans to incur Rs. 2963cr in 2HFY2011. The product mix constitutes 2.5mt of HRC and 0.3mt of slabs. Escalation prospective from domestic operations: To raise RoE, the company has aggressively expanded domestic capacity even during the downturn witnessed in steel industry during 2008-09. It is on track to add 3mt by Jun ’11, taking domestic capacity to 10mt. Valuation At the current price of Rs. 660, the stock is trading at just 29.74x and 18.34x times of our estimated FY11E & FY12E earnings. We thus recommend an “Hold” with a target price of Rs. 708. PARTICULARS FY10 FY11E* FY12E* Net Sales (Rs cr) 102305.83 110490.30 120986.87 % Change in Sales - 7.80 9.50% Expenditure (Rs cr) 95330.77 98190.69 102118.32 PBIDT(Rs cr) 8017.03 14493.71 20006.00 Profit After Tax (Rs cr) -2120.84 1967.65 3226.82 EPS (Rs) 16.35 22.19 36.33 PE Ratio - 29.74 18.34 OPM% 8.00 8.00 13.00 NPM% - 2.00 3.00 TATA Steel merger with Corus: Corus joined the TATA Steel family in April 2007 in a transaction that created one of the world largest steelmakers, with a major presence in Europe as well as in Asia. Corus is Europe second largest steel producer. Corus supplies steel and related services to the construction, automotive, packaging,
mechanical, engineering, and other market worldwide. The combined enterprise has an aggregate crude steel capacity of more than 28mt and approximately 80000 employees across four continents. Robust performance:Page | 21 In FY 2009-10, the steel division of the Indian operations registered an increase of 20% in their saleable steel from 5.37mt to 6.44mt. The production from the larger furnaces were maximized with better productivity and lower coke consumption while increased vessel life in the steel melting area enhanced the production level. There were several best ever performances recorded by many units in the Steel Works of the Company: * The Ferro Alloys and Minerals division registered an increase of 22% in their saleable production (1302K tonnes during 2009-10 over 1064K tones in 2009-09) ** Chrome Alloys export and Manganese Alloys sales also scaled new peaks during 2009-10 ** Sales in the bearing division registered a growth of 23%, while its production increased by 8%. Expansion project: Tata Steel India is executing its plan to increase its crude steel capacity from 6.8mt per annum to 9.7mt per annum at its Jamshedpur Works by 2011-12. The company has entered into a Memorandum of Understanding with Nippon Steel Corporation (NSC), Japan for setting up a Continuous Annealing and Processing Line at Jamshedpur, India with 0.6mtpa capacity. TATA Steel Europe’s coking coal venture is significant: TATA Steel Europe plans to source coking coal from the Banga Project, joint venture between TATA steel and Riversdal, located in the Tele Province of Mozambique. TATA Steel expects to produce 5.3MT of coal by 2011. The Banga coal has reserves of 502mt and the company is planning to augment production from the Banga project to 20mtpa gradually. The total capex remaining for the Mozambique project Rs 700-800cr. Captive iron ore project: TATA Steel has planned to protect raw material supply for its European operation by taking a stake in New Millennium’s Direct Shipping Ore (DSO) projects. Tata Steel owns 27.4% share in New Millennium mining company. Project has probable mineral reserve of 64.1mt for the DSO project and the production is expected to commence in 2011. The company would have 100% off-take rights to the produce of the
mine of a specified quality. The iron ore from the project will be supplied to Tata steel group’s facilities located in Europe. This project will involve capex of CAD 350mn. It is expected that the European operations would secure 20-25% backward integration by the end of FY12.Page | 22 Value Creation Strategy: The element of its value creation strategy is selective growth in emerging markets where the group has a competitive advantage. The Group therefore continues of selectively invest for the future with an aim to strengthen its position in emerging markets like India and increase the level of raw material integration and energy self- sufficiency across the Group. The company has also increased its focus on finished or premium steel segment; its currently enjoys 40% of the autograde steel and is setting up a continuous annealing line in a joint venture with its long standing technical partner Nippon Steel of Japan. Steel demand expected to grow in near future: India’s finished steel demand is expected to grow at 12% CAGR over FY 10-13, led by strong growth from Automobiles, consumer durables and Engineering sector. India will remain a net steel importer over FY11-13, as demand likely to outpace supply. Emerging market like India, China, Thailand, Korea will likely to remain robust in future. ISSUES AND CONCERN Global price volatility: Global price of the steel is not constant. It is highly volatile and varies on the basis of the raw material cost. Steel prices also depend on the global economic scenario. Steel prices depend on the demand growth from Automobiles, Consumer Durable and Engineering sector. Another important concern regarding coal and iron ore is the rising price of coal and Iron ore in the past few years and the expectation is that the cost of acquisition of coal for the steel industry will continue to increase.
Supply bottlenecks to lift iron ore/coking coal prices: Steel industry has to face the supply side bottleneck of the raw material like iron ore and coal. Shortage of supply can push up the prices of raw material upside. Coal is one of the most significant aspects of Steel industry and limited availability of coal will always be a key concern and issue for Tata Steel.Page | 23 Another important concern regarding coal is the rising price of coal in the past few years and the expectation is that the cost of acquisition of coal for thermal power projects will continue to increase Cyclical Industries: Steel industry is cyclical in nature. It is highly affected by the world economic condition. At time of the economic downturn, the demand of the steel reduces significantly. Government regulation: Steel industry is the regulated industry and regulated by steel ministry. Steel companies have to take approval from the environmental and mining ministry to develop a plant and also affected by the EXIM policy. JSW STEEL LTD. JSW Steel is today an integrated steel manufacturer and is the largest private sector steel manufacturer in terms of installed capacity. In 1994, in order to achieve the vision of moving up the value chain and building a strong, resilient company, Jindal Vijayanagar Steel Ltd. (JVSL) was setup, with its plant located at Toranagallu in the Bellary-Hospet area of Karnataka, the heart of the high-grade iron ore belt and spread over 3,700 acres of land. It is just 340 kms from Bangalore, and is well connected with both the Goa and Chennai ports. JSW Steel is one of the lowest cost steel producers in the world. It has established a strong presence in the global value added steel segment with the acquisition of steel mill in US and a service center in UK. JSW Steel has also formed a joint venture for setting up a steel plant in Georgia. The Company has also tied up with JFE Steel Corp, Japan for manufacturing the high grade
automotive steel. JSW Steel has recently acquired a controlling stake in Ispat Industries Ltd. The Company has also acquired mining assets in Chile, USA and Mozambique. JSW Steel offers the entire gamut of steel products - Hot Rolled, Cold Rolled, Galvanized, Galvalume, Pre-painted Galvanised, Pre- painted Galvalume, TMT Rebars, Wire Rods & Special Steel Bars, Rounds & Blooms. JSW Steel hasPage | 24 manufacturing facilities at Toranagallu in Karnataka, Vasind & Tarapur in Maharashtra and Salem in Tamil Nadu. JSW Steel Limited (JSWSL) is the second largest private sector steel maker in India. The company provides for a broad range of products which include Hot Rolled Product, Cold Rolled Product, Galvanized Product and Pre-painted Galvanized Product. The company consists of the most modern, eco-friendly steel plants with the latest technologies for both upstream & downstream processes. KEY INVESTMENT RATIONALE: Leading Player in Steel Manufacturing: JSW Steel, the flagship company of the JSW Group, is the largest integrated private steel manufacturer in India in terms of installed capacity. It is the leading manufacturer of cold rolled, galvanized and colour coated steel with manufacturing facilities at Vasind & Tarapur in Maharashtra. JSW Steel is the largest manufacturer and exporter of galvanized steel in India with its products export to more than 100 countries. Strong growth expected in Steel Industry: The industry is expected to grow at a pace of 9.1% till FY15 considering the scenario that Indian Infrastructure and other Industries are going to absorb the supply and also considering international demand to increase mainly due to increase in prices in China. Expansion to facilitate growth: JSW steel has entered into a joint venture with UK’s Severfield and has launched a new plant which will have an annual capacity of 35,000 tonnes of fabricated steel. The company has also recently sought a new coking coal mine in Jharkhand for its new steel plant which would be set up in the same state and would have an annual capacity of 10mt.
Valuation: At the current price of Rs. 1165, the stock is trading at just 15.14x and 9.91x times of our estimated FY11E & FY12E earning. We thus recommend an “Accumulate” with a target price of Rs. 1293.Page | 25 PARTICULARS FY10 FY11E* FY12E* Net Sales (Rs cr) 18957.17 23127.75 29372.24. % Change in Sales - 22% 27% Expenditure (Rs cr) 14869 17988.76 22616.62 PBIDT(Rs cr) 4613.07 5138.987 6755.62 Profit After Tax (Rs cr) 6754.37 6492.90 7160.51 %Change in PAT - 22.9% 52.8% EPS (Rs) 59.04 76.94 117.53 PE Ratio 19.73 15.14 9.91 OPM% 24.3 22.2 23.00 NPM% 8.19 8.25 9.93 INVESTMENT ARGUMENT Industry growth prospects: The steel industry is slated to add 729,000 tonnes of fresh production capacity at a cost of Rs 240,000cr by March 2013. The largest contributor is expected to be Jindal Steel and Power. It has plans to commission 128,000 tonnes of manufacturing capacity by March 2013. JSW Steel will increase its capacity by 8,560,000 tonnes, SAIL by 7,260,000 tonnes, Tata Steel by 3,300,000 tonnes and Bhushan Steel and Essar Steel by 2,720,000 tonnes each. We expect the Indian Steel industry to grow 10-12% in coming 2-3 years. Additional capacity to improve growth prospects: The company has successfully commissioned the Phase I (3.5 Mtpa) of one of the largest new Hot Strip Mill at Vijaynagar. The mill has initiated commercial production on April 10, and it would enable the company to convert all slabs into value added HR Coils on its stabilization. On completion of Phase II, the capacity of mill will go up to 5Mtpa. The expansion project execution work is progressing in full swing to expand the crude steel capacity to 10Mtpa by 2020. JSW Steel plans to set up a 300MW power plant at
Vijaynagar. The procedure for which is expected to be commissioned in FY 2011. The company also expects initial production of 1mt in first year (2010-11) which can be ramped up to 3mt by 3rd year. The first year of production has already started in Oct 2010. Additional apex is expected to be Rs 500cr for ramping up. Thus JSW Steel is expected to generate huge revenues once the mining starts initialPage | 26 production. Reduction in Debt to improve overall growth: JSW Steel has tied-up with JFE Corporation of Japan and will be setting up an autosteel line at its Vijayanagar steel plant. After selling a portion of its equity to Japanese steel maker JFE, JSW’s balance sheet has improved significantly mainly because of the repayment of debt which has resulted in the reduction of debt of the company considerably. The company has repaid Rs 2600cr of debt in the September quarter, which reduced its debt-equity ratio to 0.8 from 1.6 in the previous quarter.Interest cost was down 13% in the quarter and is expected to remain lower as the company has repaid a significant amount of its high-cost debt. Value-added segment to improved Realization: The future growth of JSW will largely be fuelled by the current capacity expansion plans. Its 3.2mt expansion project at Vijaynagar is on the verge of completion, which will increase the company’s steel production capacity to 11MTPA by March 2011. JSW Steel’s board approved implementation of the West Bengal Project comprising 4.5mtpa Steel plant, 660MW power plant and development of coal and coking coal mines with a project cost of Rs16000cr. This project is planned to be . completed by FY14. This would result in company’s growth not only in steel production but also in power and coal mines. The company is slowly ramping up its value–added steel production in the H1 of FY11. The company sold 20% more of its flat-rolled steel and fla posted 52% jump in sales for its long rolled steel, both part of the finished steel category. Cost reduction through acquisition of coal mines: The company has recently acquired coking coal assets in USA in West Virginia along with Railway Load out and barge facility and has finalized the acquisition of the mine, where the likely resources is around 123mt. One of the mine is operational and others to be operational over 24 months. The total coking coal requirement of the company is estimated at 5mt per compan annum at current capacity. The proposed coking coal from US will give he integration to the extent of 20% in the first year and goes
further at enhanced capacity of 11mt to 35%. We expect with 20-25% interaction of coking coal would improved its 25% EBIDTA margins by 125-150bps, thereby resulting in improved earning 150bps, visibility in near future.Page | 27 JSW-Severfield have joined hands for India’s first fabricated steel Severfield plant Considering the huge potential in the infrastructure growth in India especially in the structural steel space JSW Steel and UK’s top steel Severfield have launched a new plant which will have investments of almost Rs 1000cr in two years. The annual capacity of the 50-50 JV is 50 expected to be 35,000mtpa. The JSW- Severfield project would be financed in the 2:1 debt-equity ratio and is expected to generate an equity annual revenue of around Rs 400cr. The target market will initially be commercial structures and simple highway bridges.bridges KEY CONCERNS Availability of Coal: Coal is one of the most significant aspect of Steel production and limited availability of coal will always be a key concern and issue for the company. Another important concern regarding coal is the rising price of coal in the past few years and the expectation is that the cost of acquisition of coal by steel manufacturers will continue to increase. New Mining Policy a Concern: Recently, it has been proposed in the draft Mines and Minerals (Development and Regulation) Bill, 2010 that the mining companies should share 26% of profits with local inhabitants and persons displaced by the mining activity. In the event of acceptance of this proposal by the government and implementation of the same, the company may witness a substantial negative impact on its financial position considering that the company is looking for mining fields in Jharkhand and has mines in Toranagallu (Bellary). Volatility in prices and global scenario:
Global factors such as world steel demand and pricing scenario plays a crucial role in Steel industry. The increasing price of iron ore is also having a negative effect on the pricing policy and profit margins of the company. Further the decline in China’s export, the largest exporter of steel is also affecting the price volatility in the industry.Page | 28 Production at US Subsidiary a major issue; US plate and pipe mill operated at 13% and 7%, respectively during the quarter with production at 37699 tonnes and 9495 tonnes, respectively. It reported revenue of around Rs 162Cr and EBITDA of Rs 4.05Cr. On a net level, it reported loss of Rs 58.5Cr. Management expects operations to remain under pressure, given the lack of orders and intense competition. JINDAL STEEL & POWER LTD. Jindal Steel & Power Limited is one of the fast growing major steel units in the country. Raigarh plant of JSPL has a present capacity of 1.37 MTPA sponge iron plant, 2.40 MTPA Steel Melting Shop (SMS), 1.0 MTPA Plant Mill, 2.30 sinter plant, 0.8 MTPA coke oven and a 330 MW captive power plant. Capacity addition plan at Raigarh Enhancement of the present steel capacity from 2.4 million tonne to 6.0 MT in a phased manner by 2011 will incorporate: 2.0 MT gas based Direct Reduced Iron (DRI) producing gas by coal gasification 4000 cubic meter blast furnace 3 MT steel melting shop with electric arc furnace route and thin slab caster. Hot strip mill (compact strip product technology. Cement plant to consume the blast furnace slag. 4X135 MW power plant increasing the capacity to 840 Mega Watt (MW). Jindal Steel and Power Ltd. has plans for expansion of its Raigarh plant to a capacity of 6.0 MTPA. It also has plans for two Greenfield projects in Orissa and Jharkhand with proposed capacity of 6.0 MTPA each, in the first phase.
JSPL expanding horizons: Jindal Steel & Power Limited is setting up a 10 MTPA Pellet Plant at Barbil, Orissa based on huge stocks of iron ore fines lying with various Iron Ore Mines in Orissa. The first module of 5 MTPA is undergoingPage | 29 trial runs since January, 2010. This project aims to conserve precious iron ore reserves of the country by converting unused fines into pellets for usage in DRI production.The Pellet Plant would be using producer gas derived from coal for its energy requirement to keep its production cost contained and free from fluctuations of petroleum based fuels. The Company has also commenced hot trials of its 0.6 MTPA Wire Rod Mill at Patratu, Jharkhand. Also the Company is setting up a 6 MTPA Steel Plant at Patratu. ISPAT INDUSTRIES LTD Ispat Industries Ltd. (IIL) has set up one of the largest integrated steel plants in the private sector in India at Dolvi in Raigad district, Maharashtra, with a capacity to manufacture 3 million tones per annum of Hot Rolled Steel Coils (HRC).The Dolvi complex also boasts of an ultra modern blast furnace (set up by a group company Ispat Metallics India Limited) capable of producing 2 million tones per annum of hot metal/pig iron, 2 million tonne capacity sinter plant (newly commissioned) and a DRI plant with a capacity of 1.6 MTPA. The integrated steel plant uses the Converter cum Electric Arc Furnace Route (CONARC process) for producing steel. In this project, IIL have uniquely combined the usage of hot metal and DRI (sponge iron) in the electric arc furnace for production of liquid steel for the first time in India. For casting and rolling of liquid steel, IIL has the state-of-the art technology called compact strip production (CSP) process, which has been installed for the first time in India and produces high quality and specifically very thin gauges of Hot Rolled Coil.
RESEARCH&DEVELOPMENT IN IRONPage | 30 AND STEEL COMPANIES : Steel Authority of India Ltd. (SAIL) Research & Development Centre for Iron & Steel (RDCIS) has undertaken 110 R&D projects in the current year 2010- 2011, out of which 71 projects are scheduled for completion by March 2011. These projects provide technological inputs to SAIL plants / units with thrust on cost reduction, value addition, quality improvement and development of new products.The Centre has filed 16 patents and 16 copyrights during April to November, 2010. As many as 58 technical papers were published and 63 papers were presented. In addition, RDCIS undertook contract research work and provided significant consultancy services and know-how to organisations outside SAIL, yielding external earning of ` 99.18 lakhs. R&D EFFORTS AND ACHIEVEMENTS Significant achievements of some of the completed projects, in different technology areas, are summarised below: (I) COST COMPETITIVENESS / QUALITY IMPROVEMENT Development of Magnetic Plate Sinter Mix Charging System at Sinter Plant (SP) #2 at DSP A novel system of the magnet based sinter mix charging has been designed and installed in SP#2 resulting in improvement of sinter strength, yield and also bed permeability. An increase in specific productivity of sinter machine from 1.24 to 1.38 t/m2/hr has been achieved. In addition, coke breeze consumption came down from 68 to 65 kg/t and reduction of -5mm fraction in sinter has also been observed.
Improvement in Deoxidation and Ladle Refining Practice for Reduction in Consumption of Deoxidisers at SMS-I at RSP To reduce the consumption of ferro-alloys, existing on-line purging system was modified and improved deoxidation practice was introduced. In all, 40 nos. of trials were carried out, which brought down thePage | 31 Al and Si- Mn consumption by 14% and 23% respectively for direct heats i.e. by-passing vacuum degassing units (Al: from 2.36 to 2.02 kg/t and Si-Mn: from 13.57 to 10.33 kg/t). The modified practice has now been implemented for regular production. Development of Auto Slow-down Function for Improvement in Productivity at Pickling Line-1, CRM at BSL A LASER-based measurement and auto slow-down control system has been introduced at Pickling Line- 1, Cold Rolling Mill, BSL. With introduction of new system the line speed of entry section has increased from 4.8 m/s to 6.2m/s and the idle time has also reduced. This has resulted in increasing in processing of coils from 4.47 to 5 coils/Hr. Performance Improvement of One Wagon Tippler and Auto-Operation of Pump House 55 at RMHP at BSL A Variable Frequency Drive (VFD) based control system comprising of drives, VFD grade motors, encoders etc.has been commissioned in Wagon Tippler of Raw Material Handling Plant. Continuous jerkless tippling operation with accurate zero positioning of the wagon tippling platform has been established with braking almost at 5% of nominal speed. This has resulted smooth tippler movement and no electrical and mechanical breakdown. (II) ENERGY CONSERVATION Introduction of Energy Efficient Ignition System in Machine # 2, SP-1 at DSP The existing ignition system was replaced resulting in remarkable reduction in the specific heat consumption to the tune of 46% and the production rate also increased from 95.6 to 96.9 t/hr. Additionally, CO2 emission has reduced by about 2,450 TPA. Improving Thermal Efficiency of Ladle Heating System of BF at BSL An efficient heating system has been developed to achieve ladle temperature of about 10000C in 10 hrs as against 600-6500C in 20 hrs with existing system. All three ladle heating stands have been modified
with high velocity burner, air nozzle and compressed air ejector. Ladle covers and ladle burners have been insulated with ceramic fibre to protect it from over-heating.Page | 32 Selection and Design of Combustion System for New In-House Built Normalizing Furnace of Plate Mill at BSP A new normalizing furnace was constructed by in-house expertise resulting in heat loss and increase in production of Normalised plates by about 25% i.e., from 18,000 t/month (average) to 23,000 t/month (average). In-house approach has led to a huge cost savings as the total cost is of the order of ` 32 crore as against the estimated valueof ` 90 crore. (III) NEW PRODUCTS RDCIS plays a lead role in the product development activities of SAIL. The criteria for selection of products for development are significant demand, ready market, good contribution margin and plant capability .RDCIS, in close association with the SAIL plants, developed the following products: Thin gauge high strength (YS: 350 MPa min.) HR coils (thickness: <2.4mm) at BSL Boiler quality plates (ASTM A 387 Gr.12 Cl.II) at BSP Corrosion resistant TMT rebars at ISP High Strength Fine Grained HR Coil (YS: 500 / 550 MPa min.) for PEBM & Automobile Sectors at BSL High Strength Steel (EN 10028 P 355N) for Propane Gas Cylindersand EN 10149 S460 MC for Tubes at BSL High Strength formable Quality Steel (Ti Strengthened / IS 10748 Gr. V with Nb) at RSP Si-Al killed SAIL Tower Gr. 6 CC Blooms at DSP Al Killed SAIL Tower Gr. 6 CC Blooms at DSP Special Quality Roll Threaded Bolts at ISP SAILMA / High Tensile (Fe 410) Structurals at ISP High Tensile Plates with Improved Z-Ductility (includes Boiler / Structural Quality at BSP Corrosion Resistant (Zn-Mg) Galvanized Sheets at RSP DMR 249 Gr. B (t : 30 mm and higher) at RSP Si-Al Killed SWR 14 / SWR 10 CC Blooms at DSP Al Killed SWR 14 / SWR 10 CC Blooms at DSP Significant achievement on few products is enumerated as follows:
Development of Special Steel Products (IS 10748 Gr. IV & V with Nb/ SAE 1541/ Ti Bearing High Strength Formable Quality) at RSP New grades of special steel products, developed by RSP in association with RDCIS and CMO depending on market opportunity for various end-applications are listed belowPage | 33 PRODUCTS APPLICATIONS IS 10748 Gr. V Electric Poles, Tubes and Pipes IS 5986 Fe 510 High Mast Lighting Poles, Wind Poles, Camera Poles etc. grade SAE 1541 grade High Strength Straps for Jute Industry and Fork for Two Wheelers MC 60 grade Circlips, Spring Washers, Band Saw Blades for Wood Cutting, Circular Saws, Cross Cut Saws etc. All the above difficult-to-cast grades have been developed successfully by optimizing the casting and hot rolling parameters. Customers requirement has been assessed and the grades have been developed considering the plants capability. In all, 4865 tonnes of all these developed grades were dispatched as against a target of 4000 tonnes, facilitating an extra revenue generation in terms of Quality Extra. Development of High Strength (YS 640 Mpa Min) Roof Bolt Quality TMT Bars at ISP With a view to enlarge market share of special steel for ISP and to capture the niche market by value addition of the existing products, two products viz. rock bolt TMT bar of Fe 600 grade, and HCR TMT rebar were developed and IS 1786-Fe 500 D grade TMT rebar was commercialised. About 2000t of rock bolt TMT bar of Fe 600 grade has been dispatched for different underground mines of Coal India Ltd. (CIL). This rebar can also be used for RCC building and tunnel construction. High strength corrosion resistant variety (HCR) TMT bar has also been successfully produced with Cu-Cr alloy having enhanced corrosion resistance index. About 200 t of this material has been produced and marketed. As regards, IS:1786 Fe 500D grade TMT bar, more than 60,000T has been produced and marketed. Development of Improved Quality Corrosion Resistant Galvanized Sheets at RSP In order to improve corrosion resistance of the conventional hot dip galvanized sheets, a new type of Zn- Mg coated galvanized sheet has been developed at Hot Dip Galvanizing Line (HDGL) of RSP. Zn-5%Mg
and Zn-10%Mg alloy additions were made in the zinc pot to attain desired Mg-level. It has been found that the coils galvanized in bath composition of 0.23% Mg, 0.18% Al & 0.18% Pb resulted in the best combination of properties in terms of corrosion rate: 3.96 mpy (~1/3rd w.r.t conventional GI sheets: ~12 mpy); formability of the composite (Ev: 6.8 mm for sheet thickness of 0.50 mm) at par with substratePage | 34 material; and coating adherence as per LFQ standard. Expenditure on R&D during Last Three Years (Rs. in crore) Year SAILs turnover R&D Expenditure Capital Revenue Total % of turnover 2008-09 48681 5.72 112.48 118.20 0.24 2009-10 43935 4.32 102.94 107.26 0.24 2010-11 21628 2.33 66.20 68.53 0.32 (Apr-Sept) TATA STEEL LTD. Highlights of Research & Development undertaken by the company are given below: A new thin organic coating (TOC) and a novel application process for continuous application on galvanised (GI) tubes has been developed with our Tubes Division, Jamshedpur. The objective was to further improve the corrosion resistance and sustainability. The plant implementation is currently being carried out jointly with Tubes Division. An eco-friendly copper-free coating on electrode wires for the CO2 gas metal arc welding process has been developed.The process has been successfully implemented in the plant and commercialisation of this product is actively being pursued.
An improved snout atmosphere using wet HNx injection system in the continuous galvanizing line has been developed. The design and installation of the wet HNx system has shown substantial improvement in the surface quality of our automotive skin panel material by reducing the surface defects.Page | 35 In an effort to reduce the Zn consumption during hot dip galvanising of tubes, a CFD study was developed to simulate the entire process using and heat transfer models in association with surface wave model. The recommendation on the process parameters from this study has been implemented in the galvanising plant in Tubes Division and has resulted into a reduction in Zn consumption. A novel "Self-healing" coating has been developed on CRCA steel sheet for automotive applications. In addition to its self-healing properties, the coating has also substantially improved the corrosion resistance. The lab scale development is completed and upscaling of this process to pilot scale level is being pursued with our pilot coating line. A new process has been developed and being demonstrated in a pilot plant for recovering pellet grade concentrates from the ultrafine fraction of iron ore slimes. The project has received the prestigious Tata Innovista promising innovation award in July 2010. A new coal pretreatment technology has been developed in the laboratory and up-scaled for pilot-scale demonstration for producing 8% ash clean coal from high ash Indian coals. A new binder has been identified for improving the coal cake stability for improving the throughput, energy consumption and quality of coke from stamp charged coke making process. Quick Tap Model has been implemented at Steelmaking Shop # 2 (LD2) for prediction of phosphorus. A team from R&D Jamshedpur & Europe, together with colleagues from G Blast Furnace and RMIMTG successfully conducted trajectory probe measurements at G BF. The results of measurement will help to know the exact location of the material trajectory in the stock level of the blast furnace. This will generate important data to tune the mathematical model for blast furnace burden distribution.
The new pellet chemistry for new 6 MTPA pellet plant is optimized for blast furnace applications at Jamshedpur. The optimization trials are being carried out using facilities at Tata Steel Europe R&D. Product validation trials were carried out for sponge chrome, a new product developed at R & D forPage | 36 production of ferrochrome, using Electric Arc Furnace facility at National Metallurgical Laboratory, Jamshedpur. The results have confirmed that use of sponge chrome in production of ferrochrome can reduce the specific power and increase the SAF productivity. A work is in progress to prepare and assess the opportunity of a 10,000 TPA technology demonstration plant at Ferrochrome Plant of Tata Steel at Bamnipal in Orissa. New chromite pellets were developed for ferrochrome production in submerged arc furnace. The pellets will reduce the specific energy consumption and thereby CO2 emission at Ferrochrome plant. .Further plant trials will be carried out. New hydrometallurgical process is developed for production of pure MnO2 using GCP sludge of FeMn plant. Expenditure on R&D expenditure during last two years: Year R&D investment (Rs. cr) % of expenditure 2008-09 39.22 0.16 2009-10 48.76 0.21 JINDAL STEEL & POWER LIMITED R&D carried out (project taken up/completed) & results / achievements In House Development of break out prediction system in collaboration with M/s Rockwell automation and IIT Kanpur at one fifth cost of imported technology: System started on full fledged basis, casting speed increased by 30%. Water modeling study of Near -net-shape caster for reducing tundish skull and improving steel cleanliness in collaboration with IIT: Completed. Implemented in one tundish. Tundish skull generation reduced by 2.5T/ sequence.
Study of CSR & CRI of Coke at different carbonization time to increase the no. of pushings per day with consistent coke quality. Study of CSR & CRI of Coke obtained.Page | 37 Measurement of residual stress of UIC-60 rails & IRS 52 rails. Comparison of steels produced through VD & RH Route with respect to cleanliness & gas content. Study for development of weathering resistant structural steel. Evaluation of coking coal from Mozambique & Zimbabwe. Study of factors affecting fractures toughness of Gr. 880 Rails. The effect of usage of South African Coal with Australian Coal in BF-II. Reduction of moisture to less than 5% in coke. BF grade. Year Total 2008-09 314 2009-10 329 2010-11 (Capital) 361 ISPAT INDUSTRIES LIMITED Existing fuels used in Hot Strip Mill (HSM) has been replaced by RLNG in the following areas :- Tunnel Furnace A and B were converted from Oil (LDO) fired Furnace to Dual fuel (RLNG/LDO) fired furnace. RLNG being used as fuel in 10 numbers Ladle Preheaters in Ladle Furnace area in place of LDO. RLNG being used in Tundish Preheater and SEN heating in place of Propane. RLNG being used in Co-jet firing system in SMS in place of Propane. RLNG/LDO/FO being used in Boiler in HSM in place of LDO/FO (Dual fuel system). Conversion of the same leads to better surface quality and homogenised microstructure.8 nos. impellers in pumps at HSM utility area has been replaced to reduce power consumption.
2. Blast Furnace : RLNG conversion projects have been implemented in the following areas of Blast Furnace :- RLNG is being used in Coal Injection plant as supporting fuel in place of Propane.Page | 38 RLNG is being used for heating of Cast House Runner in place of Propane. RLNG is being used along with BF Gas in BF Stoves in place of Propane as pilot fuel. RLNG and BF Gas are being used in 16 TPH Boiler as fuel in place of FO. 3. Sinter Plant : RLNG is being used in Ignition Furnace as main fuel in place of Propane for ignition. RLNG is being charged in the same network which was used for Propane. 4. Lime Calcination Plant: RLNG being used in LCP-1 in place of 80% LDO + 20% FO. Consumption of LDO/FO was 89.50 litres Per ton of lime production. On switching to RLNG, specific consumption of RLNG is found to be 80 SCM/ton of lime production. b. Cold Rolling Mill, Galvanising and Colour Coating Complex at Kalmeshwar CGL1 - Installation and commissioning of Digital DC drive for Bridle-1A and Heart Rolls and VFD for Jet Cooling Device to save power. Galvalume - Spence Blower installed to save power from 200 KW to 55 KW. CRS4 - DC motor blower power auto off automation done for power saving. ARP - PLC up-gradation done due to obsolete technology and V-30 Blower drive installed for energy saving. CTL3 - PLC panel assembling, erection, wiring, cabling and termination done in-house to replace old contactor logic. ECL - Up-gradation of PLC and drives due to obsolete technology to increase equipment reliability. Narrow Slitter - New digital ABB Drives commissioning done in-house and line speed increased from 20 MPM to 60 MPM. Mill Bay Transparent Roofing Sheets provided to avoid switching-on of Bay Light during day time/dim day light. Interlock provided for Auto Switching-Off of Pay-Off Reel Drive at 6 Hi Mill. 60 MT Crane not used while running one mill to reduce power consumption with respect to use of 25 MT Mill Bay Crane.
c. Proposals for Reduction of Energy Consumption Installation of variable frequency drive for 1700KW main fan at Sponge Iron Plant to reduce power consumption.Page | 39 nstallation of variable frequency drive for 700 KW ID fan of Coal Injection plant to reduce power consumption. Up-gradation of existing Vapor Absorption Machine and further utilization of chilled water in ACs to reduce power consumption. Natural gas injection at Blast Furnace to reduce coke consumption as well as cost reduction. Energy audit being conducted for entire Dolvi complex (HSM, BF, Sinter, LCP, SIP, Oxygen plants etc) to identify further potential areas of thermal and electrical energy conservation opportunities. Carbon foot print measurement study being conducted to further Carbon reduction opportunities and identification of CDM projects and develop carbon reduction strategy and set emission reduction targets. Installation of Magna drive/ coupling. Installation of solar panels in building roof tops The above steps initiated by the Company have enabled savings in energy consumption as well as savings in costs. The Company constantly undertakes energy saving measures at its plant locations. JSW STEEL LIMITED 1.Specific areas in which R & D activities were carried out by the Company: Research and Development activities were carried out in various technological areas, including Beneficiation of Iron-Ore, Pelletization and Sintering of Iron-Ore, Coke Making, Iron Making in Corex and Blast Furnace, Steel Making and Casting, Hot Rolling, Cold Rolling, and Waste utilization, with emphasis on improvement in quality, productivity, energy conservation, waste utilization, cost reduction, and environment protection. R & D was also carried out for development of value added products in the
form of 33 new slab grades and 23 new billet grades to meet specific requirements of customers, including API grades for line pipe steel Drawing and Deep Drawing SteelsPage | 40 Medium Carbon and High Tensile Steels Micro-alloyed structural grade steels Auto and Tube makers grade Billet grade steels 2. Benefits derived as a result of R & D efforts: Optimization of the coking time for varying quality of coal blends improved production at non-recovery coke ovens by 5%. Reduced the Coke Moisture in Coke Oven #3 from 8% to less than 5%. Optimization of Sintering Parameters reduced sinter return fines from 30% to < 20%. Improvement in Pellet Quality by improving pellet CCS > 220 kg/p BF-2 productivity increased from 2.1 to 2.4 t/m3/d, through optimization of burden distribution, material discharge rate, soft blowing philosophy and improvement in tapping practice. Reduction in Fuel Rate at BF-1 and BF-2 by 10 kg/thm. Minimizing Inclusions in Ladle Change over Slabs through water modelling to reduce emulsification during ladle changeover. Recycling of various SMS Slags in Cement and Pellet Making to estimate the maximum permissible limits of slag addition in cement and pellet making. Development of model to predict optimum Finishing and Coiling Temperatures for a typical HR Product by optimization of Thermal Regime in HSM. Study of thermal profile and wear pattern of rolls in HSM during rolling and improve the critical factors. Development of new process to produce DRI from green pellets, thereby reducing CO2 generation. Development of a novel technique for utilization of steel plant wastes to produce high quality DRI for steelmaking as a replacement of steel scrap. Development of Predictive Models: Hearth Wear Monitoring Model for COREX. Coal Pyrolysis and Power Generation Model for Non-Recovery Coke Ovens.
Voidage evaluation Model for BF. Top gas prediction Model for BF. Model to predict direct and indirect reduction along with minimum fuel rate. Model to predict the Hearth liquid level and Drainage rate.Page | 41 Model for predicting defective Segments in caster. Intellectual Capital of the Company in the form of following Patents and Copyrights a)Patent: Following Patent applications have been filed: Iron Enriched DRI and its Process of Manufacture using Iron rich wastes. DRI and its process of Manufacture from iron ore fines eliminating induration. Method for Steel manufacture, involving step of De-phosphorizing the Hot Metal. Method for Steel manufacture involving Hot Metal Pre-treatment for De-siliconizing of Hot Metal Connector/Bend Adapted for transporting materials including granular materials and System for using the same. b) Copyrights Hearth wear monitoring Model for Corex Coal Pyrolysis Kinetics & Power Generation Model for Non-recovery Coke Ovens. BF Top Gas Analysis Prediction Model Raft Prediction Model BF Slag Viscosity Prediction Model Mass Balance Model for Pelletization 3. Plan of action for FY 2010-11 To set up off-line simulation facilities such as beneficiation lab, agglomeration lab, physical model lab, product development lab and characterization facilities under R&D. Such facilities will enable optimization of the existing processes and development of new processes and products. Another thrust area would be utilization of solid wastes generated within the plant. A pilot scale briquetting facility is under commissioning for converting waste into wealth.
Page | 42 4. Expenditure on R & D for FY 2009-10 Particular Vijayanagar Salem Vasind/Tarapur Total Capital 7.10 _ 0.31 7.41 (4.53) (0.28) (0.50) (5.31) Recurring 3.53 1.94 0.77 6.24 (5.68) (0.88) (0.51) (7.07) Total 10.63 1.94 1.06 13.65 (10.81) (1.16) (1.01) (12.38)
CHALLENGES OF INDIAN STEELPage | 43 INDUSTRY Exports of Iron ore India is the 4th largest producer which produced 226 million tonnes of iron ore during 2009-10. In terms of reserves India has 8th largest reserve worldwide. However iron ore industry in India is small as compared to its global counterpart, although country has 4% of world reserves. Iron ore exports registered a 6% CAGR over the last five years which constitute 47% of iron ore produced in the country. Coal Dependency India prime and medium coking coal constitutes around 12% of the total reserves in the country. The country produced 33 Mn tonnes coking coal during 2008-09 which was just 7% of total coal produced in the country. The country is deficient in coking coal and largely depends on import. However some integrated players like Tata Steel and SAIL have 60% and 30% captive availability of coal. Coking coal imports into India are growing at a CAGR of around 10% from 2004-05 to 2008-09. Various Indian steel companies are scouting to acquire mining concessions for raw material security required for their existing units and for expansion plans. Logistics Inadequate infrastructure and logistics have significantly impacted the steel industry. Every ton of steel produced involves transportation of approximately 5 tonnes of materials. This implies that by 2020 around 1000 million tones of material is required to be transported. This requires a huge investment in key infrastructure including railways, ports and highways. Secondary steel units The large number of secondary steel units with swing capacity can create oversupply particularly in long products segment especially the TMT bar section as secondary steel segment cater to about 75% of the domestic demand for TMT bars. Regulatory issues in land for Greenfield projects
The delays in regulatory approvals for raw material linkages and hurdles in land acquisition for Greenfield units hampered the growth of the Indian Steel Sector. As a result, most of the capacity expansions in 2009-10 and those are expected to be commissioned over the next 24 months will be through the Brownfield route.Page | 44 Raw Material Prices The escalating raw material prices during 2009-10 caused immense pressure on cost of production of integrated steel producers as well as secondary steel producers. The steel producers are heavily dependent on coking coal import, and the price rise by Iron Ore and coking coal majors has impacted the margins of the Indian steel producers. The latest Long term Agreement Price for coking coal has escalated from US$ 129 to US$ 200 with shift to quarterly pricing and for iron ore the hike was from 90% to 100%.