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Transcript of Global and indian_trends_in_metal_industry_ashutosh_satsangi (1)
CRISIL Limited
Global and Indian Trends in Metal
IndustryApril 8, 2023
2
About CRISIL Research CRISIL Research is India’s largest independent research house
and is a 100 per cent subsidiary of CRISIL Ltd. CRISIL Research’s research offering includes
EcoView Periodic review of macroeconomic fundamentals in India
Industry Information Service Continuous research coverage on 45 industries in India across the
manufacturing and services sectors A service presently used by 90% of the banks operating in India – both Indian
and foreign CrisilViews
Public Information based credit reports on 150-200 leading Indian companies Syndicated research
Customised research that applies our unique understanding of cross sectoral and macro-micro linkages to specific client needs
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About CRISIL Research CRISIL Research’s offering in the metals sector includes
Industry Information Service Reports on steel, steel intermediates, aluminum and copper.
CrisilViews Tata Steel Steel Authority of India Limited Jindal South West Limited Hindalco Nalco Sterlite and many others
Syndicated research Global Aluminum company Large Indian Automobile company
4
2005-06: Beginning of the meltdown
-40000
-20000
0
20000
40000
60000
80000
100000
120000
140000
2001-02 2002-03 2003-04 2004-05 9M 2004-05 9M 2005-06
(Rs.
mil
lio
n)
-15
-10
-5
0
5
10
15
20
25
30
35
40
(Per
cen
t)
PAT OPM (RHS) NPM (RHS)
Note: Players considered are: Tata Steel, SAIL, Ispat, Essar Steel and JSW SteelSource: CRIS INFAC
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Decline in steel prices
The average international price of hot-rolled coils (HRC) was $460 per tonne (FOB) during the first 9 months of FY 2005-06, 16 per cent lower than the $549 per tonne (FOB) reported during the corresponding period of 2004-05.
Domestic HR prices mirrored the trend in global prices, averaging Rs 28,444 per tonne in April-December 2005, down from an average of Rs 28,778 per tonne in April-December 2004.
Note: International prices are CIS – Black Sea (FoB) pricesSource: Metal Bulletin and CRIS INFAC
15,000
17,000
19,000
21,000
23,000
25,000
27,000
29,000
31,000
33,000
35,000
Apr-0
4
May
-04
Jun-
04
Jul-0
4
Aug-0
4
Sep-0
4
Oct-04
Nov-04
Dec-04
Jan-
05
Feb-0
5
Mar
-05
Apr-0
5
May
-05
Jun-
05
Jul-0
5
Aug-0
5
Sep-0
5
Oct-05
Nov-05
Dec-05
Jan-
06
Feb-0
6
Mar
-06
Apr-0
6
May
-06
Jun-
06
(Rs
per
to
nn
e)
300
350
400
450
500
550
600
650
($ p
er t
on
ne)
Domestic prices International prices (RHS)
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Incremental supplies grew higher than incremental demand
982
1041
974
1013
99
97
940
960
980
1000
1020
1040
1060
2004 2005
(Mil
lio
n t
on
nes
)
96
96.5
97
97.5
98
98.5
99
99.5
(Per
cen
t)
Finished Steel production
Finished Steel Consumption
Consumption/production ratio (RHS)
While the apparent consumption, rose by 4.09 per cent (addition of 39.8 million tonnes) during 2005 over 2004, supplies increased by 6.07 per cent (addition of 59.6 million tonnes)
Reasons Slowdown of demand from the US and
the EU. The regions met most of their consumption needs from their inventories leading to reduced buying
China becomes net exporter in 2005 from net importer in 2004. Over the past 3 years (between 2003 and 2005), China's consumption of finished steel increased at a CAGR of 16.12 per cent, while its production grew by a CAGR of 25.34 per cent over the same period.
Source: IISI
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Higher raw material prices in 2005-06
Iron ore Average international spot iron ore prices increased in 2005 to about $80 per tonne, a rise of almost 70 per
cent from average of around $47 per tonne in 2004. Strong demand from China led to the increase. In April 2005, NMDC increased the domestic contracted price to Rs 1,450 per tonne (inclusive of freight) to
align it with international prices. In FY 2005-06, as per NMDC's annual results, it has sold iron ore at an average price of Rs 1,944 per tonne.
However, players with captive mines such as Tata Steel, SAIL and JSW (to some extent) are insulated from the price hikes.
Coke During the first 9 months of FY2005-06, coke prices averaged $199 CFR. The decline in prices can be
attributed to increased exports from China. Coking coal
The contracted price of coking coal during CY 2005 was $125 per tonne (FOB) as against $57 (FOB) in CY 2004 [source: Tata Steel Analyst Meet presentation]. Hence players, having captive coke ovens – like Tata Steel and SAIL –did not really benefit from the fall in coke prices.
Natural gas Natural gas prices in the domestic market have ruled at a substantial premium during April-December 2005
(Rs 8,022.72 per thousand cubic metres - tcm) over the corresponding period of the previous year (Rs 5,066.62 per tcm) leading to a heavy erosion in margins of gas-based steel makers such as Ispat and Essar.
8
Volumes helped achieving stable revenues
Note: The YoY growth is calculated based on results of corresponding period of previous yearSource: CRIS INFAC
29970
22477.5 24277
4375
31623320
6.89
6.4
7.64
0
5000
10000
15000
20000
25000
30000
35000
40000
2004-05 12M 2004-05 9M 2005-06 9M
('000
to
nn
es)
5.6
5.8
6
6.2
6.4
6.6
6.8
7
7.2
7.4
7.6
7.8
(Per
cen
t)
Domestic Demand Exports YOY Growth ( RHS )
9
Looking into the crystal ball
Margins of the domestic industry to remain stable during 2006-07 as compared to 2005-06
Prices to increase marginally. However rise in Input costs to keep margins
stable.
10
Realization to increase marginally
The International average prices of steel will be around $500 per tonne in CY 2006 as compared to $490 per tonnes in 2005
Global demand to remain healthy Capacity additions; mostly expected in China
Hence Global operating rates to remain stable
The Increase in the domestic prices will be lower due to unfavorable demand-supply Scenario
CRISIL Limited
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