1. 1 Steel Industry: Globally and In India : Times to Come Dr. A.S.Firoz

2. 2 Issues In This Presentation Overview of the global steel market Factors determining the future Indian steel market growth prospects Competitiveness. Externalities and constraints

3. 3 Global Steel Market Strong Demand Everywhere Construction, auto leading growth Huge increases in production Shortages still perceived Extraordinary increases in price of flat products Metallics and raw materials in tight supply Steel production costs up Yet, profitability is at record high

4. 4 Where is the Global Market Heading? Past trends are interesting

5. 5 Global Steel Production Growth Rates (CAGR %)

6. 6 Global Steel Production Trend

7. 7 Why Global Demand Has Risen Extraordinary growth in China Low global inflation has led to increased savings and assets building Relocation of industrial production to developing countries - reason for low inflation and global asset building Infrastructure renewal in developed nations New infrastructure in developing nations Increased steel intensive construction in developing nations

8. 8 Why Global Prices have Risen? Demand pull Supply constraints - not enough HR Coils capacity Speculation amidst uncertainty Increase in raw materials and metallics prices and huge price volatility Consolidation of the steel industry and oligopolistic control of the individual domestic markets High ocean freight costs Lethargic markets

9. 9 Will the Global Boom Continue? Positives China will remain strong Global industrial relocation will gather momentum Global capital will move to leading developing economies Technology changes will favour steel in construction Negatives Global inflation up Energy prices high Recession may hit global economies Raw materials and logistics will cost much more High steel prices will lower its demand

10. 10 Are We in 1960s or 1970s? 1960s Huge uninterrupted increase in steel demand Massive infrastructure and industrial capacity building in the developed nations Emergence of developing industrial nations 1970s Oil Crisis and Recession Drop in Steel consumption growth Beginning of Cyclicality

11. 11 How do we see the world then? Chinese steel appetite will reduce but will still be substantial With curb on new capacity, Chinese steel production will slow down Flat products demand to remain strong and supply constraints to continue for another two years Coking coal will remain in tight supply Raw materials costs, especially metallics, will keep long products prices up Greater stability in the market with contract sales taking larger share 5% growth in global steel demand expected for 3-5 years

12. 12 Indian Steel Industry (1993-94) Production (Finished Steel) : 15.2 million tonnes Consumption (Finished Steel) : 15.3 million tonnes Imports ( Semis + Finished ) : 1.09 million tonnes Exports ( Semis + Finished) : 1.56million tonnes

13. 13 Indian Steel Industry (1999-00) Production (Finished Steel) : 29.7 million tonnes Consumption (Finished Steel) : 23.8 million tonnes Imports ( Semis + Finished ) : 2.2 million tonnes Exports ( Semis + Finished) : 3 million tonnes

14. 14 Indian Steel Industry (2003-04) Production (Finished Steel) : 35.9 million tonnes Consumption (Finished Steel) : 29.9 million tonnes Imports ( Semis + Finished ) : 1.61 million tonnes Exports ( Semis + Finished) : 5.9 million tonnes

15. 15 Growth Trends (CAGR %)

16. 16 Why Is Steel Consumption Low in India? Low income economy Low savings rate Low industrial growth Rural character of the economy Unplanned urban growth Inadequate infrastructure development Low quality public assets High inflation rates in the past Late starter High price of steel (?)

17. 17 Steel Price and Per Capita Income

18. 18 Big Mac Index

19. 19 What Can Lead Steel Demand Growth? High economic growth driven by industry Industrial capacity building Increased attention to infrastructure : Ports, Railways, Power Generation, Airports Urban Infrastructure Urban Commercial and Residential Construction Consolidation of urban land ownership Steel based construction Low inflation Increased asset building Automobiles and components industry growth, also for world production

20. 20 What can lead to high economic growth? Administrative reforms and good governance Political stability Social stability Reduced protection to industry Low inflation Land law reforms

21. 21 Not to forget, the potential of Commercial and residential construction in Semi Urban Areas Road Projects Engineering and capital goods sector

22. 22 Domestic Steel Demand Projection (At 6% Rate of Growth ) (Mill.tonnes)

23. 23 Domestic Steel Demand Projection (Good Growth Scenario ) (Mill.tonnes)

24. 24 Domestic Steel Demand Projection (Strong Growth Scenario ) (Mill.tonnes)

25. 25 Projections of External Trade (Million tonnes)

26. 26 Crude Steel Production Forecast (Million tonnes)

27. 27 Strength of Indian Steel Industry Abundant supply of iron ore Low cost but reasonably efficient labour force Strong managerial capability and improving labour productivity History in steelmaking and acquired skill Reasonable availability of other raw materials to back up Strongly globalised Industry and emerging global competitiveness

28. 28 Strength of Indian Steel Industry Modern new plants Modernised old plants Strong DRI production base Regionally dispersed merchant rolling mills High Degree of Entrepreneurship Strong Banking Industry and Capital Market for Investment Reasonable Confidence of Foreign Investors Stable Currency and Economic Policy Regime Strong Judiciary and English Language Spread Democratic Political System

29. 29 Constraints and Concerns Coking coal : limited local supply Energy cost : to remain high Infrastructure :shortages everywhere Scrap : quality shortage Iron ore supply logistics : medium term problems Steel industrys image in the capital market :selective support Iron ore ownership : too fragmented

30. 30 Facilitating Conditions Infrastructure spending up ( although a long way to go !) Infrastructure efficiency up ( only moderately till now ) Private sector and captive mining ( slow pace of state governments ) High growth in production in states with sea ports ( Karnataka and Orissa)

31. 31 Concluding Remark India can do it in steel and even much more than the best talked about!

32. 32 THANK YOU Views expressed and the estimates shown are personal