Professional Documents
Culture Documents
October 2012 Steel Note Teaser
October 2012 Steel Note Teaser
October 2012 Steel Note Teaser
Corporate Ratings
October 2012
Table of contents
Executive Summary ................................................................................................................................................................................................................................. 3
Indias Finished Steel Production and Consumption Trends ..................................................................................................................................................................... 5
Demand Side Scenario ............................................................................................................................................................................................................................. 6
Supply Side Scenario ................................................................................................................................................................................................................................ 8
Steel Production Routes ........................................................................................................................................................................................................................ 10
Capacity Addition Trends ....................................................................................................................................................................................................................... 11
Steel Price Movements .......................................................................................................................................................................................................................... 12
Raw Material Scenario ........................................................................................................................................................................................................................... 15
Margin Outlook for Indian Steel Players ................................................................................................................................................................................................ 23
Company Section
JSW Steel Limited (JSW) .................................................................................................................................................................................................................................... 27
Steel Authority of India Limited (SAIL) .............................................................................................................................................................................................................. 30
NMDC Limited (NMDC) ..................................................................................................................................................................................................................................... 33
Monnet Ispat & Energy Limited (MIEL) ............................................................................................................................................................................................................ 36
Jayaswal Neco Industries Limited (JNIL) ........................................................................................................................................................................................................... 39
Kalyani Steels Limited (KSL) .............................................................................................................................................................................................................................. 42
Jindal Steel & Power Limited (JSPL) .................................................................................................................................................................................................................. 45
Tata Steel Limited (TSL) .................................................................................................................................................................................................................................... 48
Tata Sponge Iron Limited (TSIL) ........................................................................................................................................................................................................................ 51
Bhushan Steel Limited (BSL) ............................................................................................................................................................................................................................. 54
Indian Metals & Ferro Alloys Limited (IMFA).................................................................................................................................................................................................... 57
ICRA LIMITED
Page 2
Executive Summary
Surging imports amidst slowing domestic demand: After registering growth rates of 13.3% and 9.9% in FY 10 and FY 11, Indian steel consumption grew at only
5.5% during FY 12 on the back of a slowdown in demand from its key consuming industries namely construction, capital goods and automobiles. Regulatory
issues, moderation in industrial activity and hardening of interest rates have adversely impacted the growth in these sectors respectively. While apparent steel
consumption growth has improved somewhat in the current financial year in contrast to other major macroeconomic indicators remaining weak, most of it has
been fuelled by surging imports, which grew by 41.2% YoY in first quarter, keeping domestic production growth at low levels. Growth in steel imports was driven
largely by the fact that the landed cost of imported steel was still cheaper than domestic steel despite increased import duty on hot rolled coils and continuing
rupee depreciation. This also indicates rising steel inventory levels in the current year. Although ICRA believes that the long term demand outlook for the
domestic steel industry is positive, favourable policy initiatives to kick-start investments and a moderation in interest rates would remain critical for the growth in
the steel demand going frward.
Large capacity additions are likely to create a supply overhang: Indian finished steel production grew by a moderate 6.6% in FY12, after having grown at 8.8% in
FY11. Supply side issues like low availability of iron ore, besides weakness in demand conditions, led to this moderation, which resulted in the domestic industry
witnessing a capacity utilization of around 79%. However, a glut of steel capacity is expected in the country in the next 2-3 years, given the large capacity addition
plans of most of the steel majors in the country. With the prospect of a sharp upturn in demand growth remaining weak, at least in the near to medium term,
such excess supply is likely to weigh down on the steel prices going forward.
Non-integrated players significantly affected by the lack of domestic availability of key raw materials: Despite international iron ore prices declining during
most of FY12 and the first half of FY13, domestic iron ore prices saw a sharp rise due to the lack of availability. Low production in Karnataka and Orissa led to a
significant cut in domestic iron ore production, which declined by around 17% in FY12 over FY11, which in turn affected the operations of many non-integrated
steel players, especially those dependent on the iron ore being mined in Karnataka. The situation not only hampered the capacity utilization of various steel
players, but also led to significant rise in the cost of iron ore in the domestic market, as supply for lump ore was limited, which further forced some steelmakers to
import ore. However, blast furnace operators benefited from falling coking coal prices, although a significant part of the upside was curtailed by a depreciating
Indian currency. On the other hand, despite India being one of the largest thermal coal producers in the world, only 4% of the total domestic production finds its
way into the sponge iron industry and, hence, a number of such players have to resort to imports or market purchases, both of which are costlier propositions.
Financial performance of domestic steel players likely to suffer in the near term: International steel prices are on a downward journey in the current year,
reflecting the weakness in major steel consuming regions, viz. China, the USA and the Euro-zone. Consequently, a surge in cheaper imports into India in the
current financial year have put significant pressure on domestic steel prices, which are expected to remain under check in the near term. Besides this, both limited
ICRA LIMITED
Page 3
ICRA LIMITED
Page 4
CORPORATE OFFICE
Building No. 8, 2nd Floor,
Tower A, DLF Cyber City, Phase II,
Gurgaon 122002
Ph: +91-124-4545300, 4545800
Fax; +91-124-4545350
REGISTERED OFFICE
th
1105, Kailash Building, 11 Floor,
26, Kasturba Gandhi Marg,
New Delhi 110 001
Tel: +91-11-23357940-50
Fax: +91-11-23357014
CHENNAI
Mr. Jayanta Chatterjee
Mobile: 9845022459
Mr. D. Vinod
Mobile: 9940648006
5th Floor, Karumuttu Centre,
498 Anna Salai, Nandanam,
Chennai-600035.
Tel: +91-44-45964300,
24340043/9659/8080
Fax:91-44-24343663
E-mail: jayantac@icraindia.com
d.vinod@icraindia.com
HYDERABAD
Mr. M.S.K. Aditya
Mobile: 9963253777
301, CONCOURSE, 3rd Floor,
No. 7-1-58, Ameerpet,
Hyderabad 500 016.
Tel: +91-40-23735061, 23737251
Fax: +91-40- 2373 5152
E-mail: adityamsk@icraindia.com
MUMBAI
Mr. L. Shivakumar
Mobile: 9821086490
3rd Floor, Electric Mansion,
Appasaheb Marathe Marg, Prabhadevi,
Mumbai - 400 025
Ph : +91-22-30470000,
24331046/53/62/74/86/87
Fax : +91-22-2433 1390
E-mail: shivakumar@icraindia.com
KOLKATA
Mr. Jayanta Roy
Mobile: 9903394664
A-10 & 11, 3rd Floor, FMC Fortuna,
234/ 3A, A.J.C. Bose Road,
Kolkata-700020.
Tel: +91-33-22876617/ 8839,
22800008, 22831411
Fax: +91-33-2287 0728
E-mail: jayanta@icraindia.com
PUNE
Mr. L. Shivakumar
Mobile: 9821086490
5A, 5th Floor, Symphony,
S. No. 210, CTS 3202,
Range Hills Road, Shivajinagar,
Pune-411 020
Tel : +91- 20- 25561194,
25560195/196,
Fax : +91- 20- 2553 9231
E-mail: shivakumar@icraindia.com
GURGAON
Mr. Vivek Mathur
Mobile: 9871221122
Building No. 8, 2nd Floor,
Tower A, DLF Cyber City, Phase II,
Gurgaon 122002
Ph: +91-124-4545300, 4545800
Fax; +91-124-4545350
E-mail: vivek@icraindia.com
AHMEDABAD
Mr. Animesh Bhabhalia
Mobile: 9824029432
907 & 908 Sakar -II, Ellisbridge,
Ahmedabad- 380006
Tel: +91-79-26585049/2008/5494,
Fax:+91-79- 2648 4924
E-mail: animesh@icraindia.com
BANGALORE
Mr. Jayanta Chatterjee
Mobile: 9845022459
'The Millenia', Tower B,
Unit No. 1004, 10th Floor,
Level 2, 12-14, 1 & 2, Murphy Road,
Bangalore - 560 008
Tel: +91-80-43326400,
Fax: +91-80-43326409
E-mail: jayantac@icraindia.com
ICRA LIMITED
Page 5
ICRA Limited
An Associate of Moody's Investors Service
CORPORATE OFFICE
Building No. 8, 2nd Floor, Tower A; DLF Cyber City, Phase II; Gurgaon 122 002
Tel: +91 124 4545300; Fax: +91 124 4545350
Email: info@icraindia.com, Website: www.icra.in
REGISTERED OFFICE
1105, Kailash Building, 11th Floor; 26 Kasturba Gandhi Marg; New Delhi 110001
Tel: +91 11 23357940-50; Fax: +91 11 23357014
Branches: Mumbai: Tel.: + (91 22) 24331046/53/62/74/86/87, Fax: + (91 22) 2433 1390 Chennai: Tel + (91 44) 2434 0043/9659/8080, 2433 0724/ 3293/3294, Fax + (91 44) 2434 3663
Kolkata: Tel + (91 33) 2287 8839 /2287 6617/ 2283 1411/ 2280 0008, Fax + (91 33) 2287 0728 Bangalore: Tel + (91 80) 2559 7401/4049 Fax + (91 80) 559 4065 Ahmedabad: Tel + (91 79)
2658 4924/5049/2008, Fax + (91 79) 2658 4924 Hyderabad: Tel +(91 40) 2373 5061/7251, Fax + (91 40) 2373 5152 Pune: Tel + (91 20) 2552 0194/95/96, Fax + (91 20) 553 9231
Copyright, 2012 ICRA Limited. All Rights Reserved.
All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such
information is provided 'as is' without any warranty of any kind, and ICRA in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such
information. All information contained herein must be construed solely as statements of opinion, and ICRA shall not be liable for any losses incurred by users from any use of this publication or its contents.
ICRA LIMITED
Page 6