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  1. 1. SUMMER TRAINING PROJECT REPORT ONEXPORT POTENTIAL OF STEEL REBAR AND BILLETS IN MENA REGION Undertaken at Submitted for the Partial fulfilment of the requirement towards the award of Degree of Master of International Business (MIB) Session 2010-2012 Submitted by: Soobian Ahmed 10-MIB-40 10-6537 Under the Supervision of Mr. Rohan Singh Junior Manager (Marketing-ITD) CENTRE FOR MANAGEMENT STUDIES JAMIA MILLIA ISLAMIA New Delhi-110025 1 Mena Market Analysis for Steel Billets and Rebars
  2. 2. DECLARATIONI, SOOBIAN AHMED, a bonafide student of MIB (Full Time) Programme at the Centrefor Management Studies, Jamia Millia Islamia, New Delhi, hereby declare that I haveundergone the Summer Training at STEEL AUTHORITY OF INDIA LTD,INTERNATIONAL TRADE DIVISION, India under the supervision of Mr. ROHAN SINGHon export potential of Steel Billets and Rebars .I also declare that the present project report is based on the above summer trainingand is my original work. The content of this project report has not been submitted toany other university or institute either in part or in full for the award of any degree,diploma or fellowship.Further, I assign the right to the university, subject to the permission from theorganization concerned, use the information and contents of this project to developcases, case lets, case leads, and papers for publication and/or for use in teaching. SOOBIAN AHMED 10-MIB-40 2 Mena Market Analysis for Steel Billets and Rebars
  3. 3. ACKNOWLEDGEMENTI am heartily thankful to my supervisor Mr .Rohan Singh, JM(Marketing-ITD), whose encouragement,guidance and support from the initial to the final level enabled me to develop an understanding ofthe project .It is his support and guidance due to which I remain able to come out with this projectreport.I owe the highest sense of appreciation for the talented, Cooperating and hardworking team of SAIL(ITD) especially Mrs. Shanta Rao, DGM (Marketing-ITD) numerous other officials for cooperatingduring the Internship and for providing me the most valuable comments and suggestions withoutwhich this report might not have been complete.I also wish to express my gratitude to the management of SAIL-INTERNATIONAL TRADE DIVISION,who rendered their help during the period of my project work.Last but not least I wish to avail myself of this opportunity, express a sense of gratitude and love tomy friends and my beloved parents, my brother for their immense support, strength, their faith inme and for everything. SOOBIAN AHMED 3 Mena Market Analysis for Steel Billets and Rebars
  4. 4. EXECUTIVE SUMMARYSteel Authority of India Limited (SAIL) is the leading steel-making company in India. It is afully integrated iron and steel maker, producing both basic and special steels for domesticconstruction, engineering, power, railway, automotive and defence industries and for salein export markets. SAIL is also among the five Maharatnas of the countrys Central PublicSector Enterprises.SAIL manufactures and sells a broad range of steel products, including hot and cold rolledsheets and coils, galvanised sheets, electrical sheets, structurals, railway’s products,plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel atfive integrated plants and three special steel plants, located principally in the eastern andcentral regions of India and situated close to domestic sources of raw materials, includingthe Companys iron ore, limestone and dolomite mines. The company has the distinctionof being India’s second largest producer of iron ore and of having the country’s secondlargest mines network. This gives SAIL a competitive edge in terms of captive availability ofiron ore, limestone, and dolomite which are inputs for steel making.SAILs wide range of long and flat steel products is much in demand in the domestic aswell as the international market. This vital responsibility is carried out by SAILs ownCentral Marketing Organisation (CMO) that transacts business through its network of 37Branch Sales Offices spread across the four regions, 25 Departmental Warehouses, 42Consignment Agents and 27 Customer Contact Offices. CMO’s domestic marketing effortis supplemented by its ever widening network of rural dealers who meet the demands ofthe smallest customers in the remotest corners of the country. With the total number ofdealers over 2000, SAILs wide marketing spread ensures availability of quality steel invirtually all the districts of the country.SAILs International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited unit ofCMO, undertakes exports of Mild Steel products and Pig Iron from SAIL’s five integratedsteel plants.The research has been carried out to Estimate the Export Potential of steel billets andRebars with focus on MENA (Middle East & North Africa) region. The scope of the studycovers the competition patterns of both the products globally as well as regionally. Thereport is based on the desk research methodology .The study covers the duty structure ofboth the products in prospective markets. The research study puts special emphasis onthe pricing pattern of billets from Turkey and CIS which are the major suppliers of theseproducts. The research is also done on three African states which, at the moment have nosuch big steel industry but the government policies and changing economic and political 4 Mena Market Analysis for Steel Billets and Rebars
  5. 5. environment makes it difficult to ignore such market.The Middle East and North Africa (MENA) region is considered currently a key growthmarkets for the steel industry at the consumption and production alike due to the fast-expanding construction & fabrication sector. It has witnessed major transformations overthe past years, as Arabian countries try to emerge from the shadows of the developed worldand become more industry oriented.The Middle East and North Africa (MENA) remains a source of high demand for steel, whichcontinues to outpace the rest of the world. Meanwhile, a persistent trend of recycling highgas and oil prices into construction and capital investments in the region continues to servefast-growing, increasingly wealth populations. These trends have been in place for nearly adecade now as a result supply is being developed to meet the higher levels of demand.Nonetheless, external suppliers remain important players as they fulfil over one-third ofdemand generated in the MENA region.Over the past couple of years, the steel industry worldwide has been experiencing stunninggrowth and the Middle East has flourished to become major players in the steel market. Thereal estate sector has been at the heart of the demand, as this sector witnessed tremendousactivity. Consequently, steel companies in the MENA region entered 2008 strongly, pushedby their momentum and massive profits achieved in the previous year. In 2007, Egypt andSaudi Arabia ranked 27th and 35th, respectively, among the world’s steel producingcountries and in 2010, Egypt and Saudi Arabia ranked 24th and 28 th respectively.There are 67 steel plants in the Arab region. The demand for steel is rising at five to six percent every year. It is predicted that half of the worlds steel production will be done in Arabcountries by 2012 and Arab countries succeed in keep up with worldwide development inthe steel industry. The MENA region is considered to be among the top five locations in theworld to establish a steel factory, due to a favourable demand ,congenial environment andrelatively cheap energy prices.The Egyptian steel industry represents one of the cornerstones of Egypt’s economic growthand development, due to its linkages to almost all other industries that stimulate economicexpansion. Steel is everywhere, in construction, housing, infrastructure, consumer goodsand automotive industry, all rely heavily on the steel industry and so, the importance anddevelopment of the steel sector is imperative for the progress of the Egyptian economy ingeneral. 5 Mena Market Analysis for Steel Billets and Rebars
  6. 6. Egypt is definitely playing a key role as a major producer of steel in the Middle East & NorthAfrica. In addition to the rapid growth in population (now more than 88 million and rising at2% per year) and in the economy, which gained 7% last year to achieve per capita GDP of$5400. Further to, in a ranking of 59 countries, "FDI Intelligence" ranks Egypt 2nd in Africawith regard to Foreign Direct Investment (FDI) in FY 2009/2010. This affected on thegrowing of the steel industry in Egypt.The recent political uprising in MENA region has certainly affected the business but there isa bigger opportunity for Exporters to MENA region as the governments of Kuwait, Kingdomof Saudi Arabia and Republic of Syria has announced the Billions of dollar packages ofdevelopments to suppress the dissent in protestors even by distributing cash subsidy andmoney to buy homes for them which will boost the demand for housing and infrastructuresectors once again in MENA region. Kingdom of Saudi Arabia has allotted US $ 6 billion forhousing projects for enabling people to buy home.Morocco was ranked 3rd, Sudan 15th and Ethiopia 10th by Grail Research among Africannations in Steel producing capabilities. The Sudanese iron and steel industrybegan contributing to meeting the growing domestic needs of the iron and steel productsrepresented in the reinforcing steel, wire rods and tubes and pipes. This industry has seenits start-up in concurrence with founding Giad industrial city established by the SudanMaster Technology Company. The annual production capacities are estimated by 60thousand tons of crude steel, 150 thousand tons of long products and 140 thousand tons ofpipes. Sudan Master Technologies Company completed the iron and steel complexconsisted of two mills, the first specialised in billets production with a capacity of 60thousand tons per year, which comprises one electric arc furnace, and one Ladle furnace toreceive the molten metal with the capacity of 25 tons charge. The second mill is specialisedin reinforcing steel production of a range of 8 – 25 mm diameters, angles of 25 to 50 mmsizes and 3-4 mm thickness, and flats with 16-60 mm sizes and 3-10 mm thickness. Theinvestment value in this mill is 38 million U.S dollars. It employs 130 workers, engineers andadministrative personnel. It extends over an area of 33 km 2.The production of crude steel of MENA region has risen by 13% in 2010-2011.This is alsodue to the upcoming football world cup in 2022 in Qatar and the proposed housing projectsby many Arab nations. 6 Mena Market Analysis for Steel Billets and Rebars
  7. 7. CONTENTSCertificateDeclaration by the TraineeAcknowledgementExecutive SummaryContentsCHAPTER 1 Page Number1.1 Export Potential: Brief introduction of Issues 81.2 Export product of Steel Authority of India Limited 111.3 Scope of Study 111.4 Objectives of Research Study 121.5 Research Methodology 12CHAPTER 22.1 World Steel Scenario 142.2 Indian Steel Scenario 222.3 A glance at Steel Authority of India Limited 292.4 Products of SAIL 302.5 Plants of SAIL 302.6 Main activities of SAIL 312.7 Ownership and Management 322.8 SAIL-International Trade Division (ITD) 342.9 SAIL’s corporate plan 352.10 SAIL FY 11 Report 39CHAPTER 3EXPORT POTENTIAL OF BILLETS WITH FOCUS ON MENA3.1 Market Introduction 42 7 Mena Market Analysis for Steel Billets and Rebars
  8. 8. 3.2 Major steel Companies in MENA 413.3 MENA steel scenario 443.4 Steel Billet: Product introduction 453.5 Steel Manufacturing process 463.6 World Steel Billet Scenario 493.7 Black Sea Billet pricing 563.8 Turkey Billet and Scrap price Comparison 573.9 Final Analysis of Turkey Market: The Competitor 583.10 Steel Billet Manufacturers 593.11 Results and discussion 61CHAPTER 4EXPORT POTENTIAL OF REBAR IN MENA REGION4.1 Export potential of Rebar in MENA 624.2 List of Certifying Agency for Rebar 644.3 World rebar production 674.4 World Rebar Pricing 694.5 China Rebar Production- The Competitor 704.6 Asia Rebar Trend 714.7 MENA region steel Rebar producing Companies 714.8 MENA Apparent Steel Consumption 76CHAPTER 55.1 INDIA –GCC FTA 805.2 Turkey A Key Competitor 815.3 Major Infrastructure project in MENA 835.4 World Steel Forecast 89Suggestion 91Bibliography 92 8 Mena Market Analysis for Steel Billets and Rebars
  9. 9. 1.1 EXPORT POTENTIAL: A BRIEF BACKGROUND OF ISSUESExport Potential involves studying, analysing the actual potential of a Product in anInternational Market. Export Potential involves doing a complete market research on aprospective market. It is through International Market Research that a Potential of aproduct is estimated and then implemented. The techniques or methods of estimating theexport potential are, by and large, the same/familiar for different markets but these mayhave to be varied depending upon the market characteristics, the time and money to bespent and the availability of data or information. Export potential is a highly technical andscientific activity, requiring good planning and methodology to find out the accurateinformation on the market.EXPORT POTENTIAL COVERS Estimating the Export Potential usually involves the following attributes: A. Exporting Country Trade Regulations. B. Market Access covering tariffs and Quotas, internal taxes, currency restrictions, health and political factors C. Market Size covering production, imports, exports, consumption, derived demand and market segmentation D. Factors affecting demand such as economic , climate, geography, social and cultural factors E. The most important and foremost is the level of Competition F. Product research covering such as packing for shipment and the product pack. G. Marketing Practices covering such as Transport logistics, Sales and Distribution, Pricing etcRESREARCH TECHNIQUES OF ESTIMATING EXPORT POTENTIALThe numbers of research techniques are used for appropriate information for exportmarketing. Different methodology is employed according to the objective and scope definedfor research.Basically there are two methods A. Desk Research or Secondary Research B. Field Research or Primary ResearchDESK RESEARCH/SECONDARY DATADesk or secondary research is the search for information from relevant data alreadyavailable. The data could take the form of information from censuses or information readilyavailable from industry and trade directories. 9 Mena Market Analysis for Steel Billets and Rebars
  10. 10. A. Desk Research uses secondary data from: B. Internal sources i.e. company itself C. External sources using libraries of industry and trade associations, chambers of commerce, export promotion organizations, international bodies such as International Trade Centre, Geneva, CBI, Holland etc D. Internet sites of various agencies/organizations such as ITPO,WTO,IMF,ITC etc E. Publications(books, magazines, journals, newspapers) F. Market study/survey reports G. Trade delegation reports H. Catalogues of MNC’s or leading world manufacturers I. Company profiles J. Market intelligence reportsFIELD RESEARCH OR PRIMARY RESEARCHField research is employed to collect primary data by: A. Observation method B. Survey methodField Research focuses on consumer or buyers motives (e.g. Why they will buy your productinstead of your competitors product), which forms the basis of the positioning strategy.The process of conducting field research in estimating the export potential includes1. visiting the researcher own country2. Visiting potential overseas markets which involves A. Planning of visits B. Seeking /making appointments with target companies/organizations C. Field research in exhibitions/trade fairs which involves “Right Timing” D. Questionnaire 10 Mena Market Analysis for Steel Billets and Rebars
  11. 11. 1.2 EXPORT POTENTIAL OF PRODUCTS OF STEEL AUTHORITY OF INDIALIMITED: A BRIEF BACKGROUNDSteel Authority of India Limited exports its Steel Products through its International TradeDivision. International Trade Division (ITD) of SAIL at New Delhi – an ISO 9001:2000accredited unit of CMO, undertakes exports of Mild Steel products and Pig Iron from SAIL’sfive integrated steel plants.SAIL from time to time conducts International Marketing research for estimating Exportpotential of its Steel Products. SAIL maintains a close liaison with various informationagencies, bodies, organizations for extracting a relevant PRODUCT-MARKET match.ITD is vigilant in meeting the demands of its global customers; ITD maintains a close liaisonwith customers and the production units to cater to the customized requirements of itscustomers both in terms of quality and sizes. ITD exports its product through Vizag,Vishakhapatnam, Haldia, Paradip ports.ITD exports steel products mentioned below via its joint venture service centre A. Rails, B. Structural’s, C. Merchant Products, D. Wire Rods, E. Re-bars, F. Plate Mill Plates, G. Hot Rolled Coils, H. Hot Rolled Plates / Sheets, I. Cold Rolled steels, J. Chequered Plates, K. Slabs, Billets and Pig Iron.1.3 OBJECTIVES OF RESEARCH STUDY1.3.1 TO STUDY THE EXPORT POTENTIAL OF BILLETS WITH FOCUS ON MENA REGION MARKET A. To Study the product line of SAIL B. To study the Billet production capacity of SAIL C. To study the BILLET Specifications around the world D. To study the Pricing pattern of BILLETS involving CIS, Turkey markets. E. To study the Global market players in BILLETS. F. To study the Import Prices of Billets in MENA Markets. G. To study the Market Access of Billets in MENA Markets I. To study the Free Trade Agreements of India and MENA Markets 11 Mena Market Analysis for Steel Billets and Rebars
  12. 12. 1.3.2 TO STUDY THE EXPORT POTENTIAL OF REBARS FROM SAIL A. To study the product offering of sail in terms of Rebar. B. To study the Rebars standards and specifications around the world. C. To study the Rebar production capacity of SAIL D. To study the global Rebar production. E. To study the market access for rebar. F. To study the Major Competitors in the Rebar segment. G. To recommend Steel Authority of India Limited on Export Potential of Rebar.1.4 SCOPE OF STUDYThe research study covers the Export Potential of BILLETS manufactured by SAIL. The studyalso looks into the Export potential of Rebars in MENA market and Export potential of Billetsin MENA market. The study looks into the competition patterns of both the productsglobally as well as regionally. The study also covers the duty structure of both the productsin prospective markets.The research study puts special emphasis on the pricing pattern of billets from Turkey andCIS which are the major suppliers of the product. The study also covers the product offeringof other market players for both the products.1.5 RESEARCH METHODOLOGYThe data for determining the Export Potential was based on secondary research and wasentirely a desk based research. The data was collected in combination of literature searchand analysis. Data from secondary sources such as research papers, internet and magazineswas collected. The raw data were tabulated, processed and analyzed using the appropriatestatistical techniques such as percentage averages, values and units presented in the formof Bar Chart in the light of clarity obtained in the course of the type of data encountered.DATA COLLECTIONThe present study has made the use of the following sources of secondary study:1. Iron and steel bulletins such as Metal Bulletin.2. Relevant books, Magazines, newspapers such as Hindu, Economic Times3. Relevant public records and statistics, historical documents and other sources of publicinformation related with iron and steel trade4. Relevant websites of international organizations such as WTO, IMF, ITC 12 Mena Market Analysis for Steel Billets and Rebars
  13. 13. 5. Information from within Steel Authority of India Limited6. Government websites such as Customs Australia, DGFT India, DGCI&SThe sources for unpublished data are many, for example relevant data may be availablewith scholars and research workers. However, these sources are not easy to access andneed a lot of persuasion and lot of time. The researcher has not used such resources giventhe limitation of time available. The researcher has made used secondary data informulation of research problem and identification of research objectives. Due care wastaken to assess such data for its suitability for the study, because many such secondary datawas found to be irrelevant to the research problem as also inadequate in the context of theproblem which researcher want to study. 13 Mena Market Analysis for Steel Billets and Rebars
  14. 14. WORLD STEEL INDUSTRY SCENARIO14 Mena Market Analysis for Steel Billets and Rebars
  15. 15. 2.1 WORLD STEEL INDUSTRY SCENARIOThe 2009 global downturn and the subsequent recovery have brought to light the increasingimportance of China and India to the world steel industry. In 2010, recovery in steel demand was farfrom consistent across the globe and steelmakers had to work hard to manage their working capitalas a result of fluctuating demand. However, while most of the global steel industry continued to feelpressure from the recessionary trends of 2009, steel demand and associated production in the BRICK(Brazil, Russia, India, China and Korea) regions continued to be a key driver in growth. Brazil andSouth Korea recovered strongly from the economic crisis and are expected to register higher steelproduction in the medium term.However, the real shining lights on the horizon as far as growth in crude steel production, and thenext frontier of growth, can be seen in both China and India. Both countries’ domestic steel demandnot only survived the economic slowdown, but they also grew at a significant rate. As aconsequence, China has become the virtual engine of the global steel industry, accounting for 45%of production in 2010, but India too has shown it is rapidly becoming an important part of theinternational steel market place. Indeed, it was recently confirmed as the fifth largest steel producerin the world, and there are strong predictions it will become the second largest steel producerglobally in coming years.In 2011, global steelmakers are hoping for a more stable rate of recovery in demand. This will bedependent on whether there is an increase in consumer spending and business investment, tocompensate for the potential lessening of government fiscal stimuli. Due to the sovereign debt crisisof many developed countries, there has been a marked shift from stimuli to austerity. In addition,the massive rise in oil prices inspired by political turmoil in the Middle East, coupled with the recentcatastrophic events in Japan, increases the risks of a slowdown in growth during 2011. Global tradeis estimated to grow by 5.7% in2011, which is a significant softening from 2010 when globalrestocking fuelled an 11.5 % increase. The future of both the developed and the developing worldwill be governed by different sets of factors. The emerging markets of China and India will continueto witness strong growth in their steel industries due to robust demand for construction and civilengineering, automotive and mechanical engineering .The growth of developed market show everwill be more dependent on supply-side response, innovative product offerings and substitutions. Thekey driving factor for the profitability of all steel players will ultimately depend on more tightlymanaged operating expenses and capital expenditure.Global Economy projected to grow by 4.4 percent in 2011 after clocking 5.0 percent in 2010.Subdued steel demand in EU, Japan and USA. Restriction on real estate and restructuring of smallscale polluting steel units accompanied by infrastructure build up of backward areas inside thecoastal belt in China maintain a moderate growth in demand in China. Rising trend in Finished Steelprices particularly in flat prices following rise in Coal and Iron Ore prices – more backed up by cost ofraw materials rather than by effective demand.Steel industry will witness big changes such as less imports, higher domestic production and greaterinvestment in raw material. In 2011, it is expected that imports would consist mainly of raw materialand nearly zero semis and finished construction steel. Construction steel is a big sector that gathersmany top domestic steel businesses. Demand forecasts of construction steel, steel pipe and 15 Mena Market Analysis for Steel Billets and Rebars
  16. 16. galvanized products are optimistic. However, development of pipe and galvanized sections will meetdifficulty because of constrained supply of raw material.World crude steel production in the first six months of 2011 was 757.8 mmt, 7.6% higher incomparison with the same period of 2010. All major steel-producing regions showed increasedproduction. China’s crude steel production for June 2011 was 59.9 mmt, an increase of 11.9%compared to June 2010.Elsewhere in Asia, Japan produced 8.9 mmt of crude steel in June 2011, down -5% compared to thesame month last year. India produced 6.0 mmt for June 2011, an increase of 7.3% over June 2010.South Korea’s crude steel production for June 2011 was 5.7mmt, 19% up compared to June 2010.In the EU, Germany’s crude steel production for June 2011 was 3.9 mmt, an increase of 0.2% on June2010. Italy produced 2.6 mmt, 15.2% higher than the same month in 2010. Spain’s crude steelproduction for June 2011 was 1.5 mmt, up 4.5% on June 2010. France produced 1.4 mmt of crudesteel in June 2011, a decrease of -6.1% compared to June 2010.Turkey produced 2.8 mmt of crude steel in June 2011, 12.3% higher than June 2010. The USproduced 7.2 mmt of crude steel in June 2011, an increase of 1.7% compared to June 2010. Braziliancrude steel production was 3.0 mmt, 3.9% higher than June 2010.The world crude steel capacity utilisation ratio of the 64 countries in June 2011 was 82.8%, 1.2percentage points higher than in May 2011. Compared to June 2010, the utilisation ratio in June2011 increased by 2.5 percentage points. 16 Mena Market Analysis for Steel Billets and Rebars
  17. 17. The World Steel Association forecasts an increase in the apparent use of steel finishedproducts during 2010 and 2011 by 10.7% and 5.3% respectively. World steel also expectsthe apparent steel use in 2010 to reach 1.241 billion tons compared to 1.121 billion tons for2009, and this shall rise to 1.306 billion tons in 2011.The report indicated that the MENA region will see a rise in steel apparent use in 2010 toreach 59 million tons, thus increasing by 8.9%, and to 62.5 million tons in 2011, i.e. anincrease by 5.9%. According to the report, it is predicted that Asia will stay on top in termsof steel demand with a share of 66.2% of the world steel demand in 2010 and 65.5% in2011. Meanwhile, some other regions will see improvement in apparent steel use during2011 after the huge drop of 2009. The report estimated the increment in NAFTA steelconsumption in 2010 to be at 23.5% after a 37.4% drop. In CIS, the rise is projected to reach11% compared to a 28.2% decline, and in EU27 there shall be a 13.7% rise as compared to a35.2% depression. Meanwhile, the crude steel production in Arab companies during Q12010 increased by 21.58% compared to the same period of 2009. Most of this increasecomes from countries like Egypt (11.2%), Qatar (87.5%), Saudi Arabia 41.8% and Morocco(25.2%). 17 Mena Market Analysis for Steel Billets and Rebars
  18. 18. World Steel Consumption 2010Demand by RegionRegion Steel Demand, mtEU (27) 139Other Europe 29CIS 45NAFTA 108Central & South America 44Middle East & Africa 74Asia & Oceania 833World 1272Demand by Product ShapeSteel shape Steel Demand, mtFlat products 585Long products 562Tube products 125World 1272Demand by Consuming End-Use Industry 18 Mena Market Analysis for Steel Billets and Rebars
  19. 19. Demand by QualitySteel quality Steel Demand, mtCarbon steel 1209Engineering steel 38Stainless steel 24Tool steel ~1World 1272Demand ForecastYear 2009 2010 2011 2012 2013World steel demand, mt 1125 1272 1359 1441 1491 19 Mena Market Analysis for Steel Billets and Rebars
  20. 20. Challenges and issues for the sector globally:In the face of fluctuating demand and increasing raw material costs, steelmakers need to factor thevolatility into their business models. In doing so, they have to consider the following issues:1. Scarcity of coking coal: Coking coal is a key raw material for the production of steel. There is asignificant supply-demand gap in the coking coal market and the shortage of this key material is areal concern, particularly as it is unlikely to improve any time soon. As a result steel players arelooking to secure coal assets via joint ventures or acquisition, and they are also investing in newtechnologies to reduce or eliminate coking coal from the steel-making process.2. Raw material price volatility: With a scarcity of supply comes the obvious increase in prices,which inturn creates a significant amount of margin squeeze for steel producers. In 2011, crude steelproduction costs are likely to increase due to forecast price increases for iron ore, coking coal andenergy. As a result, companies are looking to control raw materials via backward integrationstrategies; securing contracts through joint-venturing of associates and/or buying from a diversesupplier base.3. Increasing operational efficiency and cost effectiveness: To offset the margin squeeze,steelmakers have begun focusing on increasing operational efficiencies in order to reduce operatingcosts and improve the quality of output. Some operators are reducing operating costs by optimizingthe equipment that is being used, and adapting their maintenance strategies. Some companies arealso considering a shared services approach to capture the benefits of economies of scale forcommon activities. 20 Mena Market Analysis for Steel Billets and Rebars
  21. 21. Crude Steel Production (Million Tonnes) Rank Country/Region 2007 2008 2009 2010 — World 1,351.3 1326.5 1,219.7 1,413.6 1 Peoples Republic of China 494.9 500.3 573.6 626.7 — European Union 209.7 198.0 139.1 172.9 2 Japan 120.2 118.7 87.5 109.6 3 United States 98.1 91.4 58.2 80.6 4 Russia 72.4 68.5 60.0 67.0 5 India 53.5 57.8 62.8 66.8 6 South Korea 51.5 53.6 48.6 58.5 7 Germany 48.6 45.8 32.7 43.8 8 Ukraine 42.8 37.3 29.9 33.6 9 Brazil 33.8 33.7 26.5 32.8 10 Turkey 25.8 26.8 25.3 29.0 Top steel producing Companies in the worldRanking 2010 2009 2008 2007 Company Headquarters(2010)1 98.2 77.5 103.3 116.4 Arcelor Mittal Luxembourg2 52.9 40.2 33.3 31.1 Hebei Iron and Steel China3 37.0 31.3 35.4 28.6 Baosteel Group China4 36.5 30.3 27.7 20.2 Wuhan Iron and Steel China5 35.4 31.1 34.7 31.1 POSCO South Korea6 35.0 26.5 37.5 35.7 Nippon Steel Japan7 31.1 25.8 33.0 34.0 JFE Japan8 23.2 20.5 23.3 22.9 Jiangsu Shagang China9 23.2 26.4 21.8 - Shandong Iron and Steel Group China10 23.2 20.5 24.4 26.5 Tata Steel India21 13.6 13.5 13.7 13.9 Steel Authority of India Limited India 21 Mena Market Analysis for Steel Billets and Rebars
  22. 22. INDIAN STEEL INDUSTRY SCENARIO22 Mena Market Analysis for Steel Billets and Rebars
  23. 23. 2.2 INDIAN STEEL INDUSTRY SCENARIOThe year 2009 was not favourable for the steel industry as production dipped in response to weakdemand from end—user industries. However, amidst the turmoil in the global industry, China andIndia stood apart with positive growth at the time when the world was reeling under demandpressures. Even other BRIC countries — Brazil and Russia didn’t put up a good show with productiondown y-o-y.While people may disagree, downturn of a short duration, in any industry, is a necessary evil as itforces the incumbents to refocus on long term strategy. Cost leadership is among the mostimportant drivers of sustained growth and profitability, especially for a commodity industry such assteel. Further, cost management should not be taken as a one—time exercise to fight pressures onprofitability during the period of downturn. Raw material security and vertical integration are otherkey aspects for sustained growth. In terms of raw material security, China is well placed as comparedto India due to its consistent efforts to acquire stakes in iron ore and coking coal mines in countriessuch as Australia and Brazil. The year witnessed the emergence of China at the forefront of M&Aactivity. China was involved in almost every second transaction of the top 20 steel related M&Adeals in 2009, as it scouted for steel and raw material assets worldwide. The country was involved inonly 5 of the top 20 transactions in 2008. Indian companies though have taken some steps in thisdirection but they are not as aggressive as their Chinese counterparts.Steel demand in India is expected to remain strong. The key drivers of growth would be significantinvestments toward large scale public infrastructure development, including roads, ports, powerplants, airports, etc., as well as increasing levels of urbanization generating demand for housing,automobiles and white goods.The global economy is exhibiting strong signals of recovery and the Indian economy with a GDPforecast of over 7% suggests that the worst is behind us and we are seeing a revival all around.Indian steel consumption is growing and the country has maintained its spot as the fifth largestcrude steel producer in the world. In fact, Steel consumption in India jumped 7.7 percent in the ninemonths to December, boosted by the government’s plan to spend $8.95 billion this fiscal year tobuild road and phone networks, power plants and irrigation facilities. The National Steel Policy hasenvisaged steel production to reach 110 million tonnes by 2019-20. However, based on theassessment of the current ongoing projects, both in Greenfield and Brownfield, the Ministry of Steelhas projected that the steel capacity in the county is likely to be around 124 million tonnes by 2011-12. Further, based on the status of MoUs signed by the private producers with the various stategovernments; it is possible that India’s steel capacity could reach nearly 293 million tonnes by 2020placing India clearly as the 2nd largest steel producer after China.There is also an urgent need to ensure timely supply of essential raw materials particularly cokingcoal to produce the coke to fuel ‘The Great Indian Steel Dream’ for which an appropriate rawmaterial security plan has to be devised and implemented . It is also the time to review the role andimportance of China in global raw material and finished steel markets and look at the interplaybetween two great giants of the steel industry in the years ahead. This is therefore the right time tohave the best strategies in place and discuss the scope and opportunities for the Indian Steel 23 Mena Market Analysis for Steel Billets and Rebars
  24. 24. Industry with the leading industry players from the country and abroad, stalwarts of the sector andpolicy makers at Global Steel 2010, where this report is being released.Production, consumption and growth of steelThe National Steel Policy 2005 had projected consumption to grow at 7% based on a GDP growthrate of 7-7.5% and production of 110 million tonne by 2019-20. These estimates will be largelyexceeded and it has been assessed that, on a most likely scenario basis, the crude steel productioncapacity in the country by the year 2012-13 will be nearly 110 million tonne.The table below shows the trend in production for sale, import, export and consumption of totalfinished steel (alloy + non-alloy) in the country: Total finished steel (alloy + non-alloy) (000 tonne) Year Production for Import Export Consumption sale 2005-06 46566 4305 4801 41433 2006-07 52529 4927 5242 46783 2007-08 56075 7029 5077 52125 2008-09 57164 5841 4437 52351 2009-10 60892 7296 3235 57675 Apr-Dec 10-11* 47296 5359 2462 44275 Source: JPC; * =Provisional 24 Mena Market Analysis for Steel Billets and Rebars
  25. 25. Crude steel production has shown a sustained rise since 2004-05 along with capacity. Data on crudesteel production, capacity and capacity utilization are given in the table below: Year Crude steel Capacity Production Capacity (000 tonne) (000 tonne) Utilisation (%) 2005-06 51171 46460 91 2006-07 56843 50817 89 2007-08 59845 53857 91 2008-09 66343 58437 88 2009-10 72963 64875 89 Apr-Dec 2010-11* 56597** 50594 89Source: JPC; *=Provisional; ** 2.5 million tonne capacity added during April-December 201022Annual Report 2010-11The growth was driven by capacity expansion from 47.99 million tonne per annum (MTPA) in 2004-05 to 75.463 MTPA in 2010-11 (up to December 2010). Crude steel production grew at a CAGR of 8.4per cent during the five years, 2005-06 to 2009-10. Production for sale of total finished steel at 60.89million tonne during 2009-10 as against 46.566 million tonne in 2005-06. With growth in productionfor sale lagging behind consumption growth, India has turned into a net importer of finished steel in2007-08. Exports have also declined to ensure greater domestic availability.The above crude steel performance has been contributed largely by the strong trends in growth ofthe electric route of steel making, particularly the induction furnace route, which accounted for 31per cent of total crude steel production in the country during 2009-10 and has emerged as a keydriver of crude steel production.The process route-wise production of crude steel in the country during 2005-06, 2009-10 and April-December 2010-11 (provisional) are shown in the table below and indicate the emergence of theelectric route of production compared to the oxygen route:Crude steel production by Process Route Percentage share (%) 2005-06 2009-10 2010-11*Basic Oxygen Furnace (BOF) 52 45 47Electric Arc Furnace (EAF) 18 24 26Induction Furnace (IF) 30 31 27Total 100 100 100Source: JPC;*=ProvisionalIndia is also a leading producer of sponge iron with a host of coal based units, located in the mineral-rich states of the country. Over the years, the coal based route has emerged as a key contributor tooverall production; its share has increased from 69% in 2005-06 to 70% in 2009-10. Capacity insponge iron making has also increased over the years and currently stands at 32 million tonne. 25 Mena Market Analysis for Steel Billets and Rebars
  26. 26. Global ranking of Indian steelGlobal crude steel production reached 1414 million tonne in calendar year 2010, a growth of 15 percent over 2009. China was the largest crude steel producer in the world with production reaching626.56 million tonne, a growth of 9.2 per cent over 2009. India once again emerged as the 5thlargest producer in 2010 and recorded a growth of 11.3 per cent as compared to 2009. India alsoemerged as the largest sponge iron producing country in the world in 2010, a rank it has held onsince 2002. If proposed expansions plans are implemented as per schedule, India may become thesecond largest crude steel producer in the world by 2015-16. World crude steel production in 2010*Rank Country Production (million tonne)1 China 626.562 Japan 109.603 USA 80.594 Russia 67.005 India 66.806 South Korea 58.457 Germany 43.828 Ukraine 33.569 Brazil 32.8210 Turkey 29.00Source: World Steel Association; *=Provisional 26 Mena Market Analysis for Steel Billets and Rebars
  27. 27. Present growth scenario and future outlookIndia was the 5th largest producer of crude steel in the world in 2010, based on rankings released byWorld Steel Association. Domestic crude steel production grew at a compounded annual growth rateof 8.4 per cent during 2005-06 to 2009-10. This growth was driven by both capacity expansion (from47.99 million tonne in 2004-05 to 72.96 million tonne in 2009-10) and improved capacity utilisation.India, the worlds largest producer of direct reduced iron (DRI) or sponge iron, is also expected tomaintain its lead in the near future. Sponge iron production grew at a CAGR of 11 per cent to reach alevel of 20.74 million tonne in 2009-10 compared to 14.83 million tonne in 2005-06. India isexpected to become the second largest producer of steel in the world by 2015-16, provided allrequirements for fresh capacity creation are met.Indian steel industry has just come out of the slowdown that affected its performance during 2008-09. Domestically, 2010 ended on a relatively better and encouraging note, with CSO reporting anoverall improvement of economic situation through its GDP data, which showed a robust 8.9 percent growth during Apr-Sept 2010-11. IIP too had registered a strong 10.2 per cent growth duringApr-Sept. 2010-11, further bolstering the idea that the demand side is back on stable footing. Forsteel, this is of key importance and the growth rates registered for leading end-use segments likemanufacturing, consumer durables, construction, the stable growth of the service sector andagriculture sector spell good news. April-December 2010 provisional data released by JPC indicates a8 per cent rise in consumption of total finished steel. Globally also there are signs of improvement ineconomic conditions and firming up of demand and prices. 27 Mena Market Analysis for Steel Billets and Rebars
  28. 28. Trends in production, private/public sectorTraditionally, Indian steel industry has been classified into Main Producers (SAIL plants, Tata Steeland Vizag Steel/ RINL), Major Producers (plants with crude steel making capacity above 0.5 milliontonne - Essar Steel, JSW Steel, Jindal Steel & Power and Ispat Industries) and Other Producers. Thelatter comprises of numerous steel making plants producing crude steel/finished steel (longproduct/flat product)/ pig iron/ sponge iron and are spread across the different states of thecountry.The following table highlights the total as also the contribution of the private and public sector incrude steel production in the country: Indian Crude Steel production (in million tonne) 2005-06 2006-07 2007-08 2008-09 2009-10 * 2010-11* (April-Dec) Public Sector 16.964 17.003 17.091 16.372 16.714 12.579 Private Sector 29.496 33.814 36.766 42.065 48.161 38.015 Total Production 46.460 50.817 53.857 58.437 64.875 50.594 % share of 36.5 33.5 32 28 26 25 Public SectorSource: JPC; *=ProvisionalINDIAN STEEL COMPANIES AND CAPACITY (Million Ton) Company Existing Capacity Total capacity Total capacity capacity additions by expected by proposed by 2011-12 2011–12 2019 SAIL 12.5 7.7 20.2 23.1 RINL 2.9 3.4 6.3 16.3 TATA 6.8 3.0 9.8 22.8 ESSAR STEEL 4.6 5.4 10.0 16.0 JSW 6.6 3.2 9.8 29.8 JSPL 2.4 1.2 3.6 25.8 ISPAT 3 .9 4.2 4.2 POSCO 12.0 ARCELOR MITTAL 24.0 BHUSHAN POWER & STEEL 1.5 1.5 1.5 BHUSHAN STEEL 2.2 2.8 5.0 5.0 OTHERS & SECONDARY 21.9 9.1 31.0 31.0 28 Mena Market Analysis for Steel Billets and Rebars
  29. 29. BRIEF PROFILE OF SAIL29 Mena Market Analysis for Steel Billets and Rebars
  30. 30. 2.3 Steel Authority of India Limited - A MaharatnaSteel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fullyintegrated 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. SAILis also among the five Maharatnas of the countrys Central Public Sector Enterprises.SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets andcoils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods,stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and threespecial steel plants, located principally in the eastern and central regions of India and situated closeto domestic sources of raw materials, including the Companys iron ore, limestone and dolomitemines. The company has the distinction of being India’s second largest producer of iron ore and ofhaving the country’s second largest mines network. This gives SAIL a competitive edge in terms ofcaptive availability of iron ore, limestone, and dolomite which are inputs for steel making.SAILs wide range of long and flat steel products is much in demand in the domestic as well as theinternational market. This vital responsibility is carried out by SAILs own Central MarketingOrganisation (CMO) that transacts business through its network of 37 Branch Sales Offices spreadacross the four regions, 25 Departmental Warehouses, 42 Consignment Agents and 27 CustomerContact Offices. CMO’s domestic marketing effort is supplemented by its ever widening network ofrural dealers who meet the demands of the smallest customers in the remotest corners of thecountry. With the total number of dealers over 2000, SAILs wide marketing spread ensuresavailability of quality steel in virtually all the districts of the country.With technical and managerial expertise and know-how in steel making gained over four decades,SAILs Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide.SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchiwhich helps to produce quality steel and develop new technologies for the steel industry. Besides,SAIL has its own in-house Centre for Engineering and Technology (CET), Management TrainingInstitute (MTI) and Safety Organisation at Ranchi. Our captive mines are under the control of theRaw Materials Division in Kolkata. The Environment Management Division and Growth Division ofSAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISOCertified. SAIL traces its origin to the formative years of an emerging nation - India. Afterindependence the builders of modern India worked with a vision - to lay the infrastructure for rapidindustrialisation of the country. The steel sector was to propel the economic growth. Hindustan SteelPrivate Limited was set up on January 19, 1954.VISIONTo be a respected world Class Corporation and the leader in Indian steel business in quality,productivity, profitability and customer satisfaction. 30 Mena Market Analysis for Steel Billets and Rebars
  31. 31. CREDO  We build lasting relationships with customers based on trust and mutual benefit.  We uphold highest ethical standards in conduct of our business.  We create and nurture a culture that supports flexibility, learning and is proactive to change.  We chart a challenging career for employees with opportunities for advancement and rewards.  We value the opportunity and responsibility to make a meaningful difference in peoples lives. 2.4 PRODUCTS OF SAIL LONG PRODUCTS  FLAT PRODUCTS  RAILWAY PRODUCTS SEMIS OTHER PRODUCTS 1.Structurals  1. HR Coils, Sheets &  1. Rails  1.Blooms  Pig Iron 2.Crane Rails Skelp  2. Wheels, Axles & 2.Billets  3. Z-Section Centre Sill 2. Plates Wheel Sets  3.Slabs 4. Z-Type Sheet-piling  3. CR Coils & Sheets  Section  4. GP Sheets & Coils, GC 5. M S Arch Sheets: 6. Bars, Rods & Rebars: SAIL JYOTI SAIL TMT  Tin Plates 7. Wire Rods  Electrical Steel  5. PIPES  2.5 PLANTS OF SAIL  SAIL Integrated Steel Plants 1. Rourkela Steel Plant (RSP) in Orissa set up with German collaboration (The first integrated steel plant in the Public Sector in India, 1959) 2. Bhilai Steel Plant (BSP) in Chhattisgarh set up with Soviet collaboration (1959) 3. Durgapur Steel Plant (DSP) at Durgapur, West Bengal set up with British collaboration (1965) 4. Bokaro Steel Plant (BSL) in Jharkhand (1965) set up with Soviet collaboration (The Plant is hailed as the country’s first Swadeshi steel plant, built with maximum indigenous content in terms of equipment, material and know-how) 5. IISCO Steel Plant (ISP) at Burnpur, West Bengal 31 Mena Market Analysis for Steel Billets and Rebars
  32. 32.  Special Steel Plants 1. Steel Authority of India Limited (SAIL), Kanpur, Uttar Pradesh 2. Alloy Steels Plants (ASP), Durgapur, West Bengal 3. Salem Steel Plant (SSP), Tamil Nadu 4. Visvesvaraya Iron and Steel Limited (VISL), at Bhadravathi, Karnataka  Subsidiaries 1. Maharashtra Elektro-smelt Limited (MEL) in Maharashtra2.6 MAIN ACTIVITIESA. It produces both basic and special steels for domestic construction, engineering, power,railway, automotive and defence industries and for sale in export markets.B. SAIL manufactures and sells a broad range of steel products, including 1. hot and cold rolled sheets and coils, 2. galvanized sheets, electrical sheets, 3. structural’s, 4. railway products, 5. plates, 6. bars and 7. rods, 8. stainless steel and other alloy steelsC. SAIL produces iron and steel at five integrated plants and three special steel plants,located principally in the eastern and central regions of India and situated close to domesticsources of raw materials, including the Companys iron ore, limestone and dolomite mines.D. SAILs wide range of long and flat steel products is much in demand in the domestic aswell as the international market. This vital responsibility is carried out by SAILs own CentralMarketing Organisation (CMO) that transacts business thorough International tradeDivision.E. SAILs International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited unitof CMO, undertakes exports of Mild Steel products and Pig Iron from SAIL’s five integratedsteel plants.F. With technical and managerial expertise and know-how in steel making gained over fourdecades, SAILs Consultancy Division (SAILCON) at New Delhi offers services and consultancyto clients world-wide. 32 Mena Market Analysis for Steel Billets and Rebars
  33. 33. G. SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) atRanchi which helps to produce quality steel and develop new technologies for the steelindustry.2.7 OWNERSHIP AND MANAGEMENTSteel Authority of India Limited is a public sector Undertaking. The Government of India owns about86% of SAILs equity and retains voting control of the Company. However, SAIL, by virtue of its‘Maharatna’ status, enjoys significant operational and financial autonomy SHARE HOLDING PATTERN AS ON 31ST MARCH 2011 Equity Share No of Amount in % ofCategory holders Holders Rs./Cr EquityGOI 3544690285 1 3544.69 85.82Financial Institutions 211213818 33 211.21 5.11Banks 76138307 51 76.14 1.84Mutual Funds 24511749 102 24.51 0.59FIIs 175759727 282 175.76 4.26GDRs 614245 2 0.61 0.02Cos. (incl Soc & Tr) 21426619 3070 21.43 0.52Individuals (incl 76045795 338069 76.05 1.84employees) Total 4130400545 341610 4130.40 100.00 33 Mena Market Analysis for Steel Billets and Rebars
  34. 34. 2.8 INTERNATIONAL TRADE DIVISIONSInternational Trade Division (ITD) of SAIL at New Delhi – an ISO 9001:2000 accredited unit ofCMO, undertakes exports of Mild Steel products and Pig Iron from SAIL’s five integratedsteel plants. Ever ready to meet the exacting demands of its global customers, ITD maintainsa close liaison with customers and the production units to cater to the customizedrequirements of its customers both in terms of quality and sizes. Its major products are alsocovered by stringent certifications such as CE marking, TUV and ‘U’ mark required bysophisticated end uses in European markets.ITD has. The critical function of ensuring efficient shipment of export materials is performedby Transport & Shipping Division (T&S) Headquartered at Kolkata. T&S has branch offices atHaldia, Paradip and Vizag ports.ITD exports steel products mentioned below via its joint venture service centre L. Rails, M. Structural’s, N. Merchant Products, O. Wire Rods, P. Re-bars, Q. Plate Mill Plates, R. Hot Rolled Coils, S. Hot Rolled Plates / Sheets, T. Cold Rolled steels, U. Cold Rolled Non Oriented (CRNO) coils, V. Chequered Plates, W. Slabs, Billets and Pig Iron. Steel Authority of India Limited has successfully implemented its Export potential in thefollowing markets: A. Japan, B. P.R. of China, C. Korea, D. Taiwan, E. Vietnam, F. Philippines, G. Singapore, H. Malaysia, Nepal, Bangladesh I. Thailand, Sri Lanka J. Indonesia, K. Australia, L. Europe 34 Mena Market Analysis for Steel Billets and Rebars
  35. 35. 2.9 SAIL CORPORATE PLAN 2012SAIL’s newly announced Corporate Plan – 2012 sets out the blueprint for this growth plan.According to an official of the company, a major factor that prompted formulation ofCorporate Plan – 2012 was the continual improvement in operating efficiency achieved bythe company. “As pointed out by the Chairman in many forums, exceeding rated shopcapacity has become more of a norm rather than exception in the SAIL plants,” he says.Also, the culture of cost reduction and improvement in business processes has helped thecompany build up its internal resources which will contribute to achievement of the growthplan. For realistic accomplishment of targets set, the plan has been split into two stages –Stage 1 pertaining to the period up to 2006-07 and Stage – 2 up to 2011-12.The plan defines the following key strategic goals for SAIL:• To continue in the business of steel and steel-related activities• To enhance market share in growth segments• To improve profits by cost reduction and high value added products• To achieve excellence in quality across the value chain• To secure availability of key raw materials, and alleviate infrastructure bottlenecks whichmay constrain long-term growth• To build customer-centric processes, systems, structure and procedures A significantfeature of the plan is that it covers the 11th Five-year Plan period.PRODUCTIONCorporate Plan – 2012 envisages production of hot metal from the integrated steel plants ofSAIL reaching an aggregate level of about 20 MT per annum by 2011-12 against the currentlevel of 13 MT. This would be achieved through optimal utilization of assets coupled withmarginal capacity expansion. Plant-wise break-up of hot metal production would be asfollows: The envisaged growth in volumes is to be achieved by:• Realisation of full potential of existing assets• Do-bottlenecking• Linked facilities for value addition• Capacity enhancement in growth segments 35 Mena Market Analysis for Steel Billets and Rebars
  36. 36. Based on the above, crude steel production by SAIL is planned to reach a level of 18.7million tonnes per annum (MTPA) by 2012 from the current level of 11.83 MT, leading tosaleable steel production of 17.38 MTPA against the level of 10.73 MT achieved in 2003-04. In view of emerging market requirements, SAIL has also planned to raise its output offinished steel to 16.6 MTPA by 2011-12 from the current level of 8.6 MT, and reducegeneration of semi-finished steel from 20% of saleable steel to 5%. This will enable inclusionof more value-added products in the company’s product basket. Broadly, this would enable SAIL to achieve 30% market share in flat products and 23% inlongs by 2011-12.INVESTMENT SAIL has estimated that the measures to be taken to achieve the targeted levels ofgrowth and sustain higher levels of cost and quality competitiveness will require investmentin the region of Rs.25, 000 crore by 2011-12. The immediate priority schemes, to betaken/completed by 2006-07, have been estimated to be around Rs.4, 300 crore. The capital expenditure envisaged will be financed mainly through internal accruals, andwill be supplemented by market borrowing if the need arises. Care will be taken to ensurethat the company’s debt-equity ratio attains, and is maintained at, a level of 1:1. The planfor capital expenditure covers up gradation/modernization of some existing assets as well asinstallation of some new facilities. The areas broadly identified for investment pertain to:• Development of iron ore mines• Rebuilding Coke Oven Batteries as BSP, DSP and RSP• Revamping of iron & steel making facilities at BSP, DSP and BSL• Installation of one blast furnace at RSP• Installation of auxiliary fuel injection systems in all blast furnaces in a phased manner• Installation of new finished mills Among new finished mills planned to be set up are: BSP:Thin slab casting/inline Hot Strip Mill (1.1 MT), Bar & Rod Mill (1MT), Pipe Plant (0.2 MT)DSP: Bar & Rod Mill (1.4 MT), Structural Mill (0.4 MT) RSP: Plate Mill (0.7 MT), CRNO Mill(0.075 MT) BSL: Hot Strip Mill (2.5 MT), CRM Line (0.6 MT)RAW MATERIALSThe growth plan and achievement of quality/cost competitiveness of SAIL to a significantextent will hinge on the availability, quality and cost of key inputs like coal and iron ore. 36 Mena Market Analysis for Steel Billets and Rebars
  37. 37. SAIL has the largest iron ore mining operations in India. “To enable production of around 20MT of hot metal by 2012, substantial development of mines to increase the iron oreproduction to a level of around 33 MT, including 6-7 MT of lump ore, will have to be takenup”, sources said. To meet the requirement, SAIL has planned to adopt following strategies:• Development new blocks/mines• Increased production from existing mines to their potential• Improving the quality of iron ore by suitable beneficiation• Achieving operating efficiencies by economic scale of operationsIMPLEMENTATIONCorporate Plan – 2012 has considered the following major risk factors in achievement of thetargeted growth have been identified as –• Declining global steel demand and prices• Constraints in availability, and cost of critical raw material – like coking coal, iron ore, etc.• Infrastructure constraints, viz. ports, railways, etc.These factors will be reviewed proactively and timely interventions will be ensured. Steelbeing a universal intermediary, its demand is driven by economic growth and the expansiontrajectory of the industrial sector. The growth trajectory (reflected in terms of percentage ofGDP growth) is essentially a range based on macro-economic parameters, governmentpolicies and global economic trends. While drawing up Corporate Plan – 2012, conservativemarket growth projections have been considered. However, while the growth trends andmacro indicator present opportunities for the company’s higher growth potential; major riskfactors have also been taken into consideration like decline in global steel demand andprices, non-availability/cost of major input materials like coal, etc. Therefore, in any case,SAIL’s plans may have to be revised from time to time, depending on the market growth,competition, international situation, change in country’s policies, resources availability, etc.JOINT VENTURES AND MOUSAIL has promoted joint ventures in different areas ranging from power plants to e-commerce:A. NTPC SAIL Power Company Pvt. Ltd (NSPCL)A 50:50 joint venture between Steel Authority of India Ltd. (SAIL) and National Thermal PowerCorporation Ltd. (NTPC Ltd.); manages the captive power plants at Rourkela, Durgapur and Bhilai 37 Mena Market Analysis for Steel Billets and Rebars
  38. 38. with a combined capacity of 314 megawatts (MW). It has installed additional capacity byimplementation of 500 MW (2 x 250 MW Units) power plant at Bhilai. The commercial generation of1st Unit has commenced in April’2009 and the 2nd Unit in October 2009 B. Bokaro Power Supply Company Pvt. Limited (BPSCL)This 50:50 joint venture between SAIL and the Damodar Valley Corporation formed in January 2002is managing the 302-MW power generating station and 660 tonnes per hour steam generationfacilities at Bokaro Steel Plant. BPSCL has proposed to expand its capacity by installing 2x250 MWcoal based thermal unit at Bokaro. In addition, construction activities are underway for installationof 9th Boiler (300T/Hr) & 36 MW Back Pressure Turbo Generator (BPTG) project at Bokaro.C. Mjunction Services LimitedA 50:50 joint venture between SAIL and Tata Steel formed in 2001. This company promotes e-commerce activities in steel and related areas. Newly added services include e-Assets sales, Events &Conferences, Coal Sales & Logistics, Publications etc... D. SAIL-Bansal Service Centre Ltd.SAIL has formed a joint venture with BMW industries Ltd. on 40:60 basis to promote a service centreat Bokaro with the objective of adding value to steel.E. SAIL&MOIL Ferro Alloys (Pvt.) LimitedSAIL has incorporated a joint venture company with M/s Manganese Ore (India) Ltd on 50:50 basisto produce Ferro-manganese and silico-manganese required for production of steel: MOU A. POSCO to establish strategic alliance for cooperation in a wide range of business & commercial interest areas. Pursuant to this, another MoU has been signed for joint venture initiative in the area of (a) manufacture & commercialization of CRNO; & (b) Exploration of upstream & downstream opportunities in utilizing FINEX technology by both the companies. B. Rashtriya Ispat Nigam Ltd. (RINL) - To jointly explore and develop low silica Limestone mines in the Sultanate of Oman. . C. Shipping Corporation of India Ltd (SCI) – To set up a joint venture which will provide shipping-related services to SAIL for imported coking coal and also participate in worldwide dry bulk shipping trade. D. Government of Kerala (GOK) – To revive the existing facilities at Steel Complex Ltd in Calicut owned by the state government, and also set up, develop and manage a TMT rolling mill of 65000 MT capacity along with balancing facilities and auxiliaries. E. Larsen & Toubro Ltd (L&T) – To jointly set up, develop, manage and own captive/independent power plant(s) at suitable location/s to meet future power requirements of SAIL including opportunities to own captive thermal coal blocks to cater to the power plants’ requirements.. 38 Mena Market Analysis for Steel Billets and Rebars
  40. 40. EARNING PER SHARE (RS)PRODUCT MIX: PRODUCTION FIVE INTEGRATED STEEL PLANTS 40 Mena Market Analysis for Steel Billets and Rebars
  41. 41. CATEGORIES WISE SALES41 Mena Market Analysis for Steel Billets and Rebars
  42. 42. 3.EXPORT POTENTIAL OF BILLETS WITH FOCUS ON MENA3.1 MARKET INTRODUCTIONMENA (MIDDLE EAST AND NORTH AFRICA)The term MENA, for "Middle East and North Africa", is an acronym often used in academic andbusiness writing. The term generally covers an extensive region, extending from Morocco innorthwest Africa to Iran in southwest Asia. It generally includes all the Arab Middle East and NorthAfrica countries.Gulf Cooperation Council (GCC), officially Cooperation Council for the Arab States of the Gulf,organization (est. 1981) promoting stability and economic cooperation among Persian Gulf nations.Its members are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. In 1991the GCC countries joined with Egypt and Syria to create a regional peacekeeping force. An aid fundwas also established to promote development in Arab states; it was used to help liberate Kuwait in1991. In 2003 GCC members eliminated tariffs on trade between member nations and establishedcommon external tariffs. They have agreed to establish a broader economic union (including a singlemarket and currency; Oman and United Arab Emirates have opted out); a common market wasestablished in 2008. MAJOR STEEL COMPANIES IN THE MENA REGION1. EZDK - (EGYPT)EZDK (Al-Ezz Dekheila Steel Co.) is the largest steel company in Egypt and the Middle East. It lies inDekheila, West of Alexandria, the second biggest city of Egypt and its main port.2- Emirates Steel Industries (ESI)Emirates Steel Industries (ESI) is a wholly-owned government factory located in the Industrial City ofAbu Dhabi (ICAD). It uses rolling mill technology to produce rebar for the construction industry.Established in 2001, the mill currently operates at its full design capacity of 600,000 tonnes of rebarper year. It sells 100% of its products within the UAE.ESI has achieved Quality System Certificationfrom the UK Certification Authority and produces rebar conforming to BS4449/97 Grade 60 in sizesfrom 10m to 32mm, in lengths of 12m. The firm is on a major expansion push to increase its rollingcapacity and establish the factory as a fully integrated plant.3- Qatar Steel (QASCO)Qatar Steel was formed in 1974 as one of the first integrated steel plants in the Arabian Gulf.Commercial production began in 1978 and the company became wholly owned by Industries Qatarin 2003. Qatar Steel now has a 707,000m² facility located in Mesaieed Industrial City, which includesa continuous casting plant and rolling mills with the latest automated technology. An adjacent375,000m² plot is reserved for future developments. The firm also operates a UAE-based subsidiaryto meet the growing demand for high-quality steel wire-rod products within the GCC. It operatestwo primary facilities at its 60,000m² Jebel Ali Free Zone site: an upgraded wire rod mill with aninstalled annual capacity of 240,000 metric tonnes and a rebar mill. 42 Mena Market Analysis for Steel Billets and Rebars
  43. 43. 4- RAK SteelRAK Steel is a joint venture between Ras Al Khaimah Investment Authority and Middle East Tradersgroup. The second largest rebar manufacturing mill in the UAE, it has a design capacity of 500,000tonnes per year.RAK Steel rebar are made from pure steel billets, hot rolled in a highly automatic rolling mill andsubjected to an online thermo-mechanical treatment called Quenching and Self Tempering (QST).The mill produces: 8mm, 10mm, 12mm, 14mm, 16mm, 20mm, 25mm and 32mm diameter steeldeformed reinforcement bars (Rebars) to international British and American standards according toclient requirements. The firm is aiming to increase its capacity by 50% by the end of this year tocater to increased local demand.5- Sabic MetalsSabic is one of the largest and most profitable non-oil companies across the Middle East and one ofthe world’s five largest petrochemicals manufacturers. It is a leading steel producer in the MiddleEast, and the firm’s metals business has played a vital role in the construction, development andindustrialisation of the region. A number of flat and long steel products are manufactured at itsproduction facilities. Sabic is a public company with its headquarters in Riyadh. The Saudi Arabiangovernment owns 70% of its shares, while the remaining 30% are held by private investors acrossthe GCC.6- United Gulf SteelUnited Gulf Steel is one of the largest producers of medium section steel products in the GCC. It hasa 450,000 tonnes per annum capacity facility located at Jubail Industrial City, Saudi Arabia. An ISO9001:2000 certified companies; it manufactures medium section structural steel products. The firm’sproduct range includes a wide variety of structural steel such as IPE beams; UPE channels; equalangles; flat, square and round bars in various sizes.7- Zamil SteelZamil Steel Structural Steel Division is one of the largest steel fabricators in the GCC. The firmfabricates steel structures and plate works for a number of applications including high-rise buildings,with products including structural steel, pipe racks, ducting and equipment support structures. SaudiArabia-based Zamil has achieved ISO 9001:2000 certification for its quality systems, plus ISO 14001 &OHSAS 18001 certifications, which have resulted in the improvements of process efficiencies andworkforce safety. The Zamil Structural Steel Division is also certified by the American Society ofMechanical Engineers.8. HADEED SABIC (SAUDI ARABIA)9. LISCO (LIBYA)10. SONASID (MOROCCO)11. ARCELOR MITTAL ANNABA (ALGERIA) 43 Mena Market Analysis for Steel Billets and Rebars
  44. 44. 3.3 MENA STEEL SCENARIO44 Mena Market Analysis for Steel Billets and Rebars
  45. 45. Analysis: 1. MENA steel crude production has risen over the years due to increase in production capacity and setting up of new steel mills. 2. Although the steel production has risen but the domestic production is far below the domestic demand for the steel. 3. Steel mills export to MENA region shows that there is at least a demand of 40 million tons. 3.4 PRODUCT INFORMATION: STEEL BILLETRaw steel cannot be of use while in its pure form, thus it has to be cast into shape. The freshly madesteel, which is still in the form of a metal bar or rectangle, is called steel billet. Steel billets becamepopular in the early 1800s, just after the British colonization of the United States ended andAmerican entrepreneurs began to manufacture brass and bronze billet, which later became one ofthe fast-rising industries in the new country. Copper and iron were almost not to be found in theUnited States back then, as the British transported all American copper to Britain for further moldingand processing.Steel billets have distinct characteristics as compared with already furnished steel bars and products.Billets have a specific grain structure, which enables the metal to be processed more intricately.Steel billets are also known for their malleability and ductility, especially when exposed to varyingtemperatures during shaping and molding. Billets or ingots are not of practical use until they have been formed into more functional shapesand sizes. While they have already been put in the furnace, they still require a series of shaping andmolding procedures such as hot and cold working, milling and cutting before they are sold inhardware stores, or used for different applications. The unformed billets, however, can be used instriking currency such as coins and as reserves, similar to gold bars. Steel billets are considered freshand raw, and they must undergo a series of manufacturing processes before they can be used forvarious purposes. Billets are made by means of freezing molten liquid, and are later exposed toextremely low temperatures in order to allow the metal to take shape and solidify in chemicalstructure. The temperature manipulates the metals physical properties, and tones its strength anddurability. The subsequent processes provide the metals curved mold design so that it can fit the 45 Mena Market Analysis for Steel Billets and Rebars
  46. 46. allotted space provided by other machines, which complete the finishing proceduresSteel billets result from the second stage of the steel production process. They are hot-rolled orforged from an ingot or strand cast. Smaller and longer than a bloom, billets are usually a squarecross section less than 36 square inches. They are used for the manufacture of all long steelproducts such as bars, rods, pipes, tubes, wire and wire products.3.5 MANUFACTURING PROCESS1. Ladle2. Stopper3. Tundish4. Shroud5. Mold6. Roll support7. Turning zone8. Shroud9. Bath level10. Meniscus11. Withdrawal unit12. Slab 46 Mena Market Analysis for Steel Billets and Rebars
  47. 47. A. Liquid metal B. Solidified metal C. Slag D. Water-cooled copper plates E. Refractory materialMolten metal (known as hot metal in industry) is tapped into the ladle from furnaces. Afterundergoing any ladle treatments, such as alloying and degassing, and arriving at the correcttemperature, the ladle is transported to the top of the casting machine. Usually, the ladle sits in aslot on a rotating turret at the casting machine; one ladle is on cast (feeding the casting machine)while the other is made ready, and is switched to the casting position once the first ladle is empty.From the ladle, the hot metal is transferred via a refractory shroud (pipe) to a holding bath calleda tundish. The tundish allows a reservoir of metal to feed the casting machine while ladles areswitched, thus acting as a buffer of hot metal, as well as smoothing out flow, regulating metal feedto the molds and cleaning the metal.Metal is drained from the tundish through another shroud into the top of an open-basecopper mold. The depth of the mold can range from 0.5 to 2 metres (20 to 79 in), depending on thecasting speed and section size. The mold is water-cooled to solidify the hot metal directly in contactwith it; this is the primary cooling process. It also oscillates vertically (or in a near vertical curvedpath) to prevent the metal sticking to the mold walls. A lubricant can also be added to the metal inthe mold to prevent sticking, and to trap any slag particles—including oxide particles or scale—thatmay still be present in the metal and bring them to the top of the pool to form a floating layer ofslag. Often, the shroud is set so the hot metal exits it below the surface of the slag layer in the moldand is thus called a submerged entry nozzle (SEN). In some cases, shrouds may not be used betweentundish and mold; in this case, interchangeable metering nozzles in the base of the tundish direct 47 Mena Market Analysis for Steel Billets and Rebars
  48. 48. the metal into the moulds. Some continuous casting layouts feed several molds from the sametundish.In the mold, a thin shell of metal next to the mold walls solidifies before the middle section, nowcalled a strand, exits the base of the mold into a spray-chamber; the bulk of metal within the walls ofthe strand is still molten. The strand is immediately supported by closely spaced, water cooledrollers; these act to support the walls of the strand against the ferrostatic pressure(compare hydrostatic pressure) of the still-solidifying liquid within the strand. To increase the rate ofsolidification, the strand is also sprayed with large amounts of water as it passes through the spray-chamber; this is the secondary cooling process. Final solidification of the strand may take place afterthe strand has exited the spray-chamber.It is here that the design of continuous casting machines may vary. This describes a curved aproncasting machine; vertical configurations are also used. In a curved apron casting machine, the strandexits the mold vertically (or on a near vertical curved path) and as it travels through the spray-chamber, the rollers gradually curve the strand towards the horizontal. In a vertical casting machine,the strand stays vertical as it passes through the spray-chamber. Molds in a curved apron castingmachine can be straight or curved, depending on the basic design of the machine.In a true "Horizontal Casting Machine", the mold axis is horizontal and the flow of steel is horizontalfrom liquid to thin shell to solid (no bending). In this type of machine, either strand oscillation ormold oscillation is used to prevent sticking in the mold.After exiting the spray-chamber, the strand passes through straightening rolls (if cast on other than avertical machine) and withdrawal rolls. There may be a hot rolling stand after withdrawal, in order totake advantage of the metals hot condition to pre-shape the final strand. Finally, the strand is cutinto predetermined lengths by mechanical shears or by travelling oxyacetylene torches, is markedfor identification and either taken to a stockpile or the next forming process.In many cases the strand may continue through additional rollers and other mechanisms whichmight flatten roll or extrude the metal into its final shape. 48 Mena Market Analysis for Steel Billets and Rebars
  49. 49. 3.6 WORLD STEEL BILLET:SCENARIOThe CIS organization was founded on 8 December 1991 by the Republic of Belarus, the RussianFederation, and Ukraine, when the leaders of the three countries met in the BelovezhskayaPushcha Natural Reserve, about 50 km (30 miles) north of Brest in Belarus and signed a CreationAgreement on the dissolution of the Soviet Union and the creation of CIS as a successor entity tothe USSR. At the same time they announced that the new alliance would be open to all republics ofthe former Soviet Union, as well as other nations sharing the same goals. The CIS charter stated thatall the members were sovereign and independent nations and thereby effectively abolishedthe Soviet Union. On 21 December 1991, the leaders of eight additional Soviet Republics – Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova,Turkmenistan, Tajikistan, and Uzbekistan –signed the Alma-Ata Protocol and joined the CIS, thus bringing the number of participating countriesto 11. STEEL BILLET PRODUCTION (‘000 MT) 2006-07 2007-08 2008-09 2009-10 EU 9492 8209 6875 3922 C.I.S. 46895 46568 40353 25607 North America 591 3446 2969 1745 South America 2983 2894 2369 1139 Africa 221 221 187 60 Asia 30094 33270 35944 33353 Oceania 59 62 65 57 World 93381 94705 88794 65898 Steel Billet Production (‘000 MT) 50000 45000 40000 35000 30000 2006-07 25000 2007-08 20000 2008-09 15000 10000 2009-10 5000 0 EU C.I.S. North South Africa Asia Oceania America America (Source: Steel Statistical Year Book 2010) 49 Mena Market Analysis for Steel Billets and Rebars
  50. 50. Analysis: 1. Continent wise Asia has emerged the largest steel billet producer. 2. Region wise also Asia has overtaken CIS in billet production. 3. CIS was the largest steel billet producer in 2007,08 and 09 but Asia is now the largest billet producer with 33353 thousand MT followed by CIS with 25607 thousand MT. 4. Increase in the cost of manufacturing due to increased prices of coal and coking coke has resulted in fall in output of CIS Steel makers. 5. The demand has also fallen due to uprising in Middle East a major market for CIS producers. 50 Mena Market Analysis for Steel Billets and Rebars
  51. 51. WORLD STEEL BILLET PRODUCTION (‘000 MT) 2006-07 2007-08 2008-09 2009-10 World 93381 94705 88794 65898 WORLD STEEL BILLET PRODUCTION (‘000 MT) 100000 80000 60000 40000 20000 0 2006-07 2007-08 2008-09 2009-10 (Source: Steel Statistical Year Book 2010)Analysis: 1. The world steel billet production has shown a declining trend over past three year. 2. The recession of 2008-09 and then increase in the price of raw material has increased the prices of billets and at increased prices the demand is low and producing Long and Flat product has become more profitable for CIS producers (one of the major producers of steel billets). 3. CIS producers are cutting production due to low profit margin on billets. 4. Low construction in Middle East is also a reason for fall in demand for CIS billet, Middle East is the largest importer of CIS billet. Comparison of Asia and CIS in Steel Billets Production STEEL BILLET PRODUCTION (‘000 MT) 100000 80000 60000 C.I.S. 40000 Asia 20000 World 0 2006-07 2007-08 2008-09 2009-10 51 Mena Market Analysis for Steel Billets and Rebars
  52. 52. STEEL BILLET PRODUCTION (‘000 MT) 2006-07 2007-08 2008-09 2009-10 Asia 30094 33270 35944 33353 C.I.S. 46895 46568 40353 25607 World 93381 94705 88794 65898 CIS Share (in %) 50.219 49.17164 45.44564 38.85854 Asia Share (in %) 32.22711 35.13014 40.48021 50.61307Analysis: 1. From the graph it can be seen that the CIS billet production and world billet production has a positive correlation since CIS was the world largest billet producer. 2. From table it can be seen the share of CIS has been falling continuously and Share of Asia has been rising. 3. Asia share is rising due to increased production capacity of China and Indian steel mills and high domestic demand. EXPORTS OF BILLETS AND SEMIS (000 MT) EXPORTS OF BILLETS AND SEMIS (000 MT) 2006-07 2007-08 2008-09 2009-10 EU 13359 15684 15075 9060 C.I.S. 29289 28272 30367 26133 North America 2958 3897 4739 2478 South America 6384 5689 5943 4994 Africa 301 220 143 462 Middle East 22 27 56 48 Asia 15610 13844 9727 8466 Oceania 1 2 16 33 World 68401 67928 68719 54304 52 Mena Market Analysis for Steel Billets and Rebars
  53. 53. EXPORTS OF BILLETS AND SEMIS (000 MT) 70000 60000 50000 40000 2006-07 30000 2007-08 20000 2008-09 10000 2009-10 0Analysis: 1. World steel billet exports have fallen over previous year. 2. Although CIS exports have fallen but still CIS has lived up to the reputation of being the largest exporter of steel Billets. 3. In Asia Japan, China, Taiwan, Malaysia and South Korea have been the largest exporters. Major Billet Exporting Nations(000 MT) 18000 16000 14000 12000 Turkey 10000 Russia 8000 6000 Ukraine 4000 India 2000 0 2006-07 2007-08 2008-09 2009-10 (Source: Steel Statistical Year Book 2010)Analysis: 1. Russia followed by Ukraine has been the world largest Exporters and Turkey is the 5th largest exporter after Brazil and Japan. 2. Exports of all major Exporting nations have fallen in 2010. 53 Mena Market Analysis for Steel Billets and Rebars