Crisil report on steel Industry 2012

alDistributionhtsreserved.
Industry outlook on Steel industry
Only–NotForExternabyCRISILLtd.AllrighForInternalUseOCopyright©2011
1

Key discussion points
Indian steel demand to be muted over the next 2 years
– End user demand for steel in India affected by the economic slowdown.
Global flat steel prices set to decline in 2012 & 2013
Gl b l i f i ki l t d li d t k d d d l
Only–NotForExternabyCRISILLtd.Allrigh
– Global prices of iron ore, coking coal to decline due to weak demand and over supply
– However, domestic price of flat and longs to remain firm
ForInternalUseOCopyright©2011
Profitability of players across the value chain to under pressure
– Demand-side concerns will be exacerbated by
• temporary shortage of both iron ore and non-coking coal in the domestic market
Need for pelletisation in the Indian context
2
Need for pelletisation in the Indian context

India steel demand to moderate in near term; pick up from 2013-14
St l ti tt 2011 12I di t l d d O tl k Steel consumption pattern: 2011-12India steel demand: Outlook
Automobile
11%
Capital
goods
6%
Others
33%Pipes &
Tubes
10%
44
66 70 74
95
Infrastructure
21%
Industrial
Construction
19%
44
2006-07 2011-12 2012-13E 2013-14P 2016-17P
Domestic demand for steel in the interim has been hit by;
– Lower demand from end-user sectors (namely construction automobiles and consumer
E: Estimated; P: Projected
Source: JPC, CRISIL Research
Source: CRISIL Research
– Lower demand from end-user sectors (namely construction, automobiles and consumer
durables)
Domestic steel demand expected to pick up from 2013-14 onwards
– Execution of infrastructure projects expected to gain traction
3
– Execution of infrastructure projects expected to gain traction
– Pickup in domestic and export demand expected in the automobiles sector

Demand assessment framework
Industrial
Infrastructure
Industrial
construction
Pipes & Tubes Automobiles Real estate OthersEnd-use
segments
Assessment of
steel product
intensity
- per capacity (e.g. 1 mtpa plant) e.g. steel, cement
- per unit e.g. auto, construction equipments, railway
(per km), real estate (per sqft)
- per Rs invested e.g. ports, airports, roads
Average tonnage of steel products
Plates HRC
Structural
GP/GC
TMT CRC
Investments made
Size of the end
Capacity additions
Supply / new
development during
Output / production
during the year
during the year
(e.g. airports, ports)
Size of the end-
use sectors
during the year
(e.g. steel, cement)
development during
the year
(e.g. real estate)
during the year
(e.g. automobile,
pipes and tubes)
Product level
steel demand Aggregation of steel product demand from various end-use sectors
N t
CRISIL Research’s estimate of steel
product demand and end-use pattern
Note:
Infrastructure includes roads & highways, power, ports,
airports, railways, water supply & irrigation, urban infra
Industrial construction includes – oil & gas, steel,
automobiles, petrochemicals, textiles, fertilisers, etc.

Flat steel demand to grow at 8-9% over FY 2013-17
• Investments in oil & gas, water
and irrigation
• Oil & gas pipeline to increase
Pipelines
Flat steel consumption pattern: 2011-12
g p p
from 53,677 km to ~72,000 km
Pipelines,
18.2
Oil & Gas,
4 9
Consumer
durables,
8.8
Others, 14.5
• Cars and UVs: 15-16% CAGR
• Commercial vehicles: 12-13%
CAGR
Automobiles
4.9
Automobiles,
18.8
Capital
goods, 6.1
Flat steel demand: 49-50 million
tonnes by 2016-17
• Oil & gas refining capacity ~250
million tonnes by 2015-16
Oil & gas tonnes by 2016-17
Flat steel share to be ~52% of total
consumption
• Investment growth of 8% (~ Rs 7.3
trillion)
Oil & gas
5

Within flats, CR coils demand to outpace others
11 5% CAGR 5 5% CAGR
Consumer
Packaging, 11
Others, 12
Capital goods,
Packaging, 6
Others, 9
~8.5% CAGR
~11.5% CAGR ~5.5% CAGR
Manufacturing
, 25
Consumer
Durables , 12
Residential
Industrial
Construction,
23
Capital goods,
10
Others, 22
Consumer
Capital goods,
10
Others, 20
~7.5% CAGR
CR il GP/GC
Automobiles,
37
Residential
Construction,
38
Pipes, 15
Automobiles,
13
Automobiles,
15
Oil & Gas, 11
Consumer
durables, 10
CR coils
(24%)
GP/GC
(14%)
Construction,
36
Pipes, 34
Indian Flat
steel market
HR Coils
(47%)
Plates
(14%)
6
(33.7 mn
tonnes)

Long steel demand poised to grow at 6-7% over FY 13-17
Over Rs 35 trillion to be spent on infrastructure Long steel consumption pattern: 2011-12
• 75-85 GW of capacity additions expected
• Investment growth of 14-15% (~Rs 11Power
Over Rs 35 trillion to be spent on infrastructure Long steel consumption pattern: 2011-12
Industrial
Railways, 2.0 Others, 17.6
trillion)
• Focus to improving road network, to drive
investments
Industrial
construction,
30.3
Capital
goods, 6.1
Automobiles,
4.4
Pipes, 1.6
investments
• Investment growth of 12-13% (~Rs 7.7
trillion)
Roads
O R 12 5 t illi t b t i d t i l
Infrastructure
, 38.1
Subdued investment climate to
translate to muted growth in the short-
medium term
• Oil & gas refining capacity ~250 million tonnes
by 2015-16Oil & gas
Over Rs 12.5 trillion to be spent on industrial
construction
medium term
Long steel demand: 44-45 million
tonnes by 2016-17
C ti f l t l 48% f
• Investment growth of 8% (~ Rs 7.3 trillion)
• ~Rs 1.1-1.2 trillion of investment to flow in
steel sector
Steel
Consumption of long steel: ~48% of
total
7
steel sector

Huge capacity additions over the next 5 years
Capacity additions (in mn tonnes)Capacity additions (in mn tonnes)
• Capacity
• Location
• Product type
Company
announcement
Company 2010‐11 2011‐12 2012‐13E 2013‐14P 2014‐15P 2015‐16P 2016‐17P
SAIL 13.6 13.6 17.2 21.2 21.2 21.2 21.2
TataSteel 6.8 6.8 9.7 9.7 9.7 12.7 12.7
JSWSteel 7 8 11 0 11 0 11 0 11 0 13 0 13 0
• Land acquisition
• Environmental
clearance
• Financial closure
Project
progress
JSWSteel 7.8 11.0 11.0 11.0 11.0 13.0 13.0
RINL 3.3 3.3 3.3 6.6 6.6 6.6 6.6
JSPL 3.0 3.0 3.0 4.6 4.6 4.6 4.6
BhushanSteel 2.2 2.2 2.2 4.7 4.7 4.7 4.7
MonnetIspat 0.3 0.3 1.5 1.5 1.5 1.5 1.5
• Policy framework
• Macro-economic
conditions
Other factors
MonnetIspat 0.3 0.3 1.5 1.5 1.5 1.5 1.5
NMDC ‐ ‐ ‐ ‐ ‐ ‐ 3.0
Essar 8.6 10.0 10.0 10.0 10.0 10.0 10.0
JSWIspat 3.3 3.3 3.3 3.3 3.3 3.3 3.3
BhushanPowerandSteel 2.3 2.3 2.3 2.3 2.3 2.3 2.3
Source: CRISIL Research Capacity additions over the next 5 years
Others 27.1 28.1 29.1 30.1 31.1 32.1 33.1
Total Capacity 78.3 83.9 92.6 105.0 106.0 112.0 116.0
30-35 mn tonnes of crude steel capacity to materialise vis-à-vis announcements of over 60
mn tonnes
– Many players focusing on setting up capacities in value added products
Majority of additions coming up in 2012-13 2013-14 & 2015-16Majority of additions coming up in 2012-13, 2013-14 & 2015-16

Domestic demand-to-capacity rates to moderate
India: Demand supply and demand to capacity rates
82
85
89 88
84 83 85
90
90.0
100.0
90
120
(per cent)(million tonnes)
India: Demand, supply and demand-to-capacity rates
9
6
3
6
0
4
9
6
4
0
6
0
6
3
5
5
01
04
82
78
83 85
60.0
70.0
80.0
30
60
90
4
5
6
6
7
7
7
8
9
6
6
7
7
8
9
9
1
1
50.0-
2008-09 2010-11 2012-13P 2014-15P 2016-17P
Finished steel demand Total finished steel capacity Finished steel demand / capacity
P: Projected
Finished steel capacity of 28-30 million tonnes expected over the next 5 years
– Incremental demand to be lower at 26-28 million tonnes
Source: WSA, CRISIL Research
– Large companies adding most of the capacities (SAIL, RINL, Tata Steel, Bhushan, JSPL)
Steel players will need to focus on exports, to maintain operating rates
– Large integrated players will be able to export as they are cost-competitive
– Small & mid-size players will operate at lower utilisation
9

Global demand outlook – Steel
1.20 x 1 01 x 1 12 x1 03 x
2006 2011 2012E4% CAGR
1.01 x
~1 % 2016P
1.12 x
3-4% CAGR2013P
1.03 x
1-2%
1,373 mt
1,392 mt
43
3
1,602 mt
1,430 mt
India
ROW
91
67
64
36
5
96
70
67
37
5
11
5
77
91
3
46
33
1
1,142 mt
10
72
71
38
5
7-9% CAGR
5-6%
3-5%
2 5%
EU (27)
US
Japan
624
15
3
91
14
6
96
725
16
1
18
8
12
0
79
6
14
8
1
3 5% CAGR~2.5%
China
624 638
725
378
654~2%
3.5% CAGR
Global steel demand: 2-4% CAGR over next 5 years
– Developing and emerging economies to drive demand
10

China and India account for bulk of global steel capex
1 993 t 2 201 t
1.1 x
O tl k Gl b l d d t it ti
327
421
84
116125
160
1,993 mt 2,201 mt~2% CAGR
~7% CAGR
Outlook: Global demand-to-capacity ratio
83
76
68
73 74
73 73 78
80
100
2 000
2,500
(per cent)(million tonnes)
841
884
459 458
158 161
327
~1% CAGR
16
00
20
11
76
97
37
22
83
04
04
23
93
43
15
01
68
20
40
60
80
500
1,000
1,500
2,000
841
2011 2016P
China EU NAFTA Japan+S.Korea+Taiwan India Row
1,31
1,30
1,22
1,41
1,47
1,49
1,53
1,72
1,58
1,70
1,80
1,92
1,99
2,04
2,11
2,20
-
20
-
500
2007 2008 2009 2010 2011 2012E 2013P 2016P
Crude steel demand Crude steel capacity Demand to Capacity (RHS)
205-215 million tonnes to be added globally
China India to acco nt for 36 % of the total addition (Asian dominance
P: Projected
E:Estimated, P: Projected
China, India to account for ~36 % of the total addition (Asian dominance
to increase to about 65%)
Global operating rates to not near pre-crisis levels (2007) even by 2016
11

Global input costs to moderate in 2012 &13
I i t l d
(Million tonnes) 2008E 2009E 2010E 2011E 2012E 2013P
Trade import demand 845 934 979 1,031 1,032 1,052
Trade exportable supply 820 932 1,011 1,029 1,073 1,162
Iron ore prices to cool down:
– new mining capacities; and
Iron ore trade flow
Company Country 2011 (mn tonnes) 2013 (mn tonnes)
Vale Brazil 358 445
p pp y , , , ,
Surplus/(deficit) (25) (3) 32 (2) 41 110
Contract price ($/tonne) 92 61 110 140-150 115-125 105-115
P : Projected, E : Estimated
Source: UNComtrade, CRISIL Research – moderation in global steel
Vale Brazil 358 445
BHP Billiton Australia 153 223
Rio Tinto Australia 262 298
Fortescue Australia 55 155
demand
(Million tonnes) 2008E 2009E 2010E 2011E 2012E 2013P
Contract price ($/t) 293 129 191 289 209 175-185
In 2012 and 2013: Prices to correct
as supply eases and demand
moderates
Coking coal trade flow
P : Projected, E : Estimated
12

Global HR steel prices to soften
Gl b l HR t l i tl kGlobal HR steel price outlook
8 9 695800
1,000
($ per tonne) Pre-crisis:
prices soared
on demand
Crisis: prices
crashed from peak,
with demand
slowdown
Post-crisis: prices
on rise with rise in
demand and input
cost
Steel prices to moderate on
account of weak demand and
lower input costs
115 102
233 168
187
275
200-210 180-190214 206
388
302
383
534
410-430
370-390
520
588
879
469
614
695
590
545-565
200
400
600
800
P: Projected
99 104 155 134 196 259 210-220 190-200
115 102
-
2006 2007 2008 2009 2010 2011 2012P 2013P
Total iron ore cost Total coking coal cost Total raw material cost HR Steel (CIS, FoB, Black Sea)
Domestic HR steel price outlook
j
Year Domestic prices (Rs/tonne)
Domestic long steel price outlook
Year Domestic prices (Rs/tonne)
2010-11 36,500
2011-12 42,769
2012-13P 43,000-44,500
2013-14P 42,000-43,500
2010-11 36,812
2011-12 39,575
2012-13E 39,000-40,500
2013-14P 37,500-39,000
13
Source: CRISIL Research Source: CRISIL Research

Domestic iron ore market in the middle of a clean-up drive
State wise production break up: 2011 12 (170mt) India: Iron ore production (in mn tonnes)
Jharkhand,
12%
Others, 2%
State-wise production break-up: 2011-12 (170mt) India: Iron ore production (in mn tonnes)
State 2009‐10 2010‐11 2011‐12 2012‐13 2013‐14
Odisha 79 76 68 50 55
Karnataka 44 38 14 12 18
Odisha, 40%
Chhattisgarh
, 18%
Goa 39 37 34 15 ‐
Chhattisgarh 26 29 31 33 35
Jharkhand 22 23 20 24 32
Others 9 5 3 4 4
Karnataka,
Goa, 20%
Total 219 208 170 138 144
Total excludingGoa 180 171 136 123 144
Domesticdemand 112 120 125 130 137
8%
Domesticdemand 112 120 125 130 137
Surplus/Defecit 68 51 11 ‐7 7
Source: Ministry of mines, CRISIL Research Source: Industry, CRISIL Research
Indian iron and steel companies to face an acute shortage of iron ore in
2012-13
– many facing closure, others experiencing low utlisation levels
14
Supply situation expected to be marginally better during 2013-14

Domestic iron ore prices to remain firm (1)
In $/tonne 2012E 2013P
CFR price at Indian port 120 110
Domestic iron ore lump price
Add: Lump Premium 10 10
Add: Port + Handling charges 4 4
134 124
In Rs/ tonne 2012-13E 2013-14P
In Rs/ tonne 2012-13E 2013-14P
Exchange rate (Rs/USD) 54 53
Iron ore import parity price 7,236 6,572
E:Estimated; P: Projected
S I d t CRISIL R h
Source: Industry, CRISIL Research
Prices of lumps in the domestic market set in line with import parity:
– Global iron ore spot prices taken as a proxy and– Global iron ore spot prices taken as a proxy and
– A premium of 10-15 $/tonne is usually considered while signing contracts
Lump ore prices in India to increase by 12% y-o-y in 2012-13
15
– and decline going forward on account of a dip in international prices

Domestic iron ore prices to remain firm (2)
In $/tonne 2012E 2013P
Iron ore fines prices in India: Various methodologies
Import parity price
Import price
Add: Port + Handling charges 4 4
124 114
In Rs/ tonne 2012-13E 2013-14P
Exchange rate (Rs/USD) 54 53
I i t it i 6 696 6 042
Export parity price
Domestic price
range
Outlook: Domestic iron ore fines prices
Export parity price - 1,000 2,000 3,000 4,000 5,000 6,000 7,000
Rs/tonneIn $/tonne 2012E 2013P
CFR price at Chinese port 120 110
Outlook: Domestic iron ore fines prices
1,600-1,800
2,300-2,500
2,400-2,600
2,200-2,400
2 000
2,500
3,000
(Rs/ tonne)
Less: Sea freight 15 15
FoB price at Indian port 105 95
Less: Port + Handling charges 5 5
Less: Export Duty(30 per cent) 32 29
68 61 1,600 1,800
-
500
1,000
1,500
2,000
In Rs/ tonne 2012-13E 2013-14P
Exchange rate (Rs/USD) at Rs 54 and Rs 53, respectively 3,672 3,233
Less: Domestic freight (export specific) 1,800 1,800
16
2010-11 2011-12 2012-13 P 2013-14P
Iron ore fines (62% Fe)

Domestic iron ore and coal prices to increase further in 2012-13
Iron ore contract prices DomesticIron ore contract prices - Domestic Thermal coal prices - Domestic
3,500-4,000
5,000
(Rs/ tonne)
4,700-4,900
6,400-6,600
7,200-7,400
6,500-6,700
5,000
6,000
7,000
8,000
(Rs/ tonne)
2,505
1,000
3,000
2010 11 2011 12 2012 13P 2013 14P
1,600-1,800
2,300-2,500 2,400-2,600 2,200-2400
-
1,000
2,000
3,000
4,000
2010-11 2011-12 2012-13 P 2013-14P
Note: Lumps are Sponge iron grade CLO (Calibrated Lump Ore), 65% Fe Source: Industry, CRISIL Research
2010-11 2011-12 2012-13P 2013-14P
E-auction non-coking coal (Rs/tonne)
Source:Industry, CRISIL Research
Iron ore fines (62% Fe) Iron ore lumps
Supply situation in the domestic iron ore market is expected to improve
marginally during 13-14
– Prices are expected to go down with the increase in supply
However, non-coking coal costs to remain firm
17

Small & mid-size players margins to remain under pressure
Ch i t d i t t t f ll d di l
2009-10 2012-13 E
Iron ore
Changing trends in cost structure of small and medium players
6 120
2013-14P
10 56011 600
Non-coking Coal
Iron ore
5,634
(19-20%)
6,120
(21-22%)
9,520
(22-23%)
10,560
(25-26%)
9,008
(21 22%)
11,600
(27-28%)
Power
Scrap
2,122
2,728
(9-10%)
3,023
(10-11%)
3,654
(8-9%)
4,840
(11-12%)
(22 23%)
3,640
(8-9%)
4,964
(11-12%)
(21-22%)
39,500-40,500
25 000 25 500
Excise duty
Other 5,500
(19-20%)
(7.5)
37,500-38,500
5,500
( 13-14%)
4,300
(10.5%)
5,500
( 12-13%)
4,500
(10.5%)
39,500 0,500
EBITDA/tonne
Rs 3,000-3,500
Operating margin
6-8%
25,000-25,500
EBITDA/tonne
Rs 3,500-4,000
Operating margin
12-13%
Operating cost
3 ,500 38,500
EBITDA/tonne
Rs 3,000-3,500
Operating margin
6-8%
18
42,000-43,00028,000-29,000Realisation 41,000-42,000

Long prices to remain firm in 2012-13
Trend in domestic flat and long steel prices*Trend in domestic flat and long steel prices
42,769
43,000-44,500
42,000-43,500
45,000
50,000
(Rs/tonne)
34 330
37,810
32,313
36,354
39,575 39,000-40,500
37,500-39,00031,790
36,544
31,833
36,500
30,000
35,000
40,000
34,330 32,313
25,000
,
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13E 2013-14P
HR Coil TMT
Traditionally, prices of long and flat steel products have moved in tandem
*Long prices are those of primary steel manufacturers; secondary players sell at a discount owing to differences in quality
– Trend has reversed in 2011-12: Higher domestic iron ore and non-coking coal prices
Domestic long steel prices to stay firm over next 2 years
19

Structure of steel industry in India
Steel Industry
Large Integrated Players
(Mainly produce flat steel)
Small and mid-sized Players
(Mainly produce long steel)
( y p ) (Mainly produce long steel)
With Mine
(WM)
Without Mine
(WoM)
Small Integrated
(SI)
Small Non-
Integrated (SNI)
Re-Rollers
(RR)
Captive
availability of iron
ore and coking
coal mines
Non availability of
captive iron ore,
coking coal mines
Have backward
integration with respect
to iron making
manufacture steel from
steel intermediates and
scrap
Buy semis and
converts into finished
long steel
BF – BOF
process
EAF/ IF
Processprocess Process
Hot metal/ pig iron/ scrap Hot metal/ Sponge iron/ scrap/ pig iron
20
Note: BF-BOF: Blast Furnace-Basic Oxygen Furnace; EAF: Electric Arc Furnace; IF: Induction Furnace

Large players to face margin pressure in 2012-13
L l O ti fit iLarge players: Operating profit margins
40.0
50.0
(per cent)
19‐20 20‐21 16‐18 15‐17
80
100
(as a % of sales)
EBITDA Margin
25.7
21.9
19.8
17.510.0
20.0
30.0
9 10
6 7
15 15
2 2
34 31
63 64
20
40
60
Raw material costs
Salaries and wages
Power and fuel
WM: SAIL, TATA Steel
WoM JSW Steel
0.0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
WM WoM
22 24
11 12
6 7
‐
2012‐13E 2013‐14P 2012‐13E 2013‐14P
Withmine Without mine
Other expenses
WM: SAIL, TATA Steel
W M JSW St l
Players with mine
WoM: JSW Steel
WoM: JSW Steel
– 2013-14: Marginal improvement in margins due to decline in coking coal costs
Players without mine
– 2013-14: Margins to continue to remain under pressure owing to supply constraints in the domestic raw
material market
21

Cost pressures to impact OPMs
S ll d id i d l O ti fit iSmall and mid sized players: Operating profit margins
16
20
25
(per cent)
14
6
10.2
6-8 6-8
3
5
1-3 1-3
3 4
3.7
1 2
5
10
15
1.5
3 4
1-2
1-2
0
Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12E Mar-13P Mar-14P
SI SNI RR
High input costs (iron ore and non-coking coal) to impact margins
– Iron ore mining ban in Karnataka and ban on illegal mining in Orissa and Goa to hit smaller players
– Current shortage of non-coking coal coupled with CIL’s price hike will put further pressure on
margins
22

Key messages
Domestic demand growth to remain muted; long-term growth intact
Domestic capacity to outpace demand through FY13-FY14;
– Operating rates to decline from 87% (2011-12) to 78% (2013-14)
Flat steel prices to decline but long steel prices to remain firm
Flat steel prices to decline, but long steel prices to remain firm
Domestic iron ore and non coking coal prices to remain firm due to
s ppl iss es
supply issues
Margin pressure to remain through FY13-FY14
23

Need for pelletization
I i th t b th G t t d t il bilit f i t thIncreasing thrust by the Government to ensure adequate availability of iron ore to the
domestic steel industry and promote export of value added products:
– Ad-volerum export duty on iron ore fines increased to 30% (Union Budget – 2012-13)
– No export duty on iron ore pellets
No export duty on iron ore pellets
– Import duty reduced (Union Budget – 2012-13) on the capex incurred for setting up pellet plants
• Imported parts account for 10-12% of total setup costs
With high-grade lumpy ores rapidly depleting, pelletizing is becoming paramount
With high grade lumpy ores rapidly depleting, pelletizing is becoming paramount
– Steep rise in the prices of raw materials for DRI & Pig Iron production
– Indian steel making capacity to reach ~110 mt by 2015-16, translating to huge demand for iron ore
Improved productivity and efficiency with superior reducibility behavior of pellets
Improved productivity and efficiency with superior reducibility behavior of pellets
compared to lump ore in
– Rotary kiln
• Use of pellets to translate to savings of Rs 2,900-3,500/ tonne
– Blast Furnace
• Use of pellets to translate to savings of Rs 2,300-2,800/ tonne
No losses in handling iron ore as pellets do not break during transport or handling
24

DRI- cost savings and capacity additions
Without pellet With pellet
Lump ore 17.1 17.2
20.0
(mn tonnes)
Pellet capacity additions by DRI players
p
Rs 6,550/t
Iron ore fines
2 300 2 400 *1 050
8.0
10.7
13.9
10.0
15.0
I/O norm
1 65
Iron ore
ll t
2,300-2,400 *1.050
Pulverised coal (33-35 kgs) 550-650
4.5
0.0
5.0
2010-11E 2011-12P 2012-13P 2013-14P 2014-15P 2015-16P
1.65 pellet
3,900-4,400
550-650Heavy oil (16/18 litres)
Electricity (55-60 kWh)
Other costs
200-250
250-300
1.5
DRI - Pellet
Cost
Rs 10,800/t
of DRI
Other costs 250-300
Lump ore
Rs 7,200-
8,000/t
of DRISavings of upto-> Rs 2,900-3,500/ tonne
25
of DRI Lump ore
6,500-6,600 0.2
of DRIg p , ,

BF- cost savings and capacity additions
Without pellet With pellet
Lump ore
p
Rs 5,300/t
Iron ore fines
2 300 2 400 *1 050
I/O norm
1 7
Iron ore
ll t
2,300-2,400 *1.050
Pulverised coal (33-35 kgs) 550-650
Savings due to
reduced coke
intake
1.7 pellet
3,900-4,400
550-650Heavy oil (16/18 liters)
Electricity (55-60 kWh)
Other costs
200-250
250-300
1.5
intake
Rs 800-900/t
Cost
Rs 9,000/t
of hot metal
Other costs 250-300
Lump ore
Rs 6,200-
6,700/t
of hotSavings of upto-> Rs 2,300-2,800/ tonne
26
of hot metal Lump ore
6,500-6,600 0.2
metal
g p , ,

Pellet vs Sinter
U f ll t dditi l R 500 700/ t f h t t l l ti tUse of pellets save an additional Rs 500-700/ tonne of hot metal relative to
sinter feed
Consequently, incremental capacity additions in pellet more than the capex
i i t i
in sintering
Pellet capacity additions by BF players Sinter capacity additions by BF players
41.7
49.7
50.0
60.0
(mn tonnes)
60 3 62 6
69.1
77.8
84.0 84.0
80.0
100.0
(mn tonnes)
17.5
27.7
33.7 33.7
10.0
20.0
30.0
40.0 60.3 62.6
20.0
40.0
60.0
0.0
2010-11E 2011-12P 2012-13P 2013-14P 2014-15P 2015-16P
BF - Pellet
Source: Industry, CRISIL Research Source: Industry, CRISIL Research
0.0
2010-11E 2011-12P 2012-13P 2013-14P 2014-15P 2015-16P
BF-Sinter
27

Summing up: Pelletization to cut ore costs by 10-20%
Iron production
DRI BF
DRI players primarily use iron ore lumps BF players primarily use iron ore a mix of
DRI players primarily use iron ore lumps
Current mix
Lump 90%
BF players primarily use iron ore a mix of
lumps and sinter
Current mix
Lump 43%
Pellet 10%
Use of pellets to translate to savings of
Sinter 47%
Pellet 10%
Use of pellets to translate to savings of Rs
2 300 2 800/ tonne of hot metalRs 2,900-3,500/ tonne of DRI
Future Mix (2015-16)
Lump 70%
2,300-2,800/ tonne of hot metal
Future Mix (2015-16)
Lump 32%
Sinter 36%
28
Lump 70%
Pellet 30%
Sinter 36%
Pellet 32%

Miners: Forward integrating into pellet manufacturing owing to the regulatory climate
EBITDA/ tonne
Moisture at 5% 3.7
4.4
7.8
2 years ago 1 year ago CurrentlyChanging landscape for exporters: iron ore fines
Rs 600- 1,000/
tonne
58.8
District mineral fund tax (equal to royalty)
Administration and selling expenses
Royalty
Export duty
5.0
30.0
3.7
3.0
37.5
16.0
-
5.0
3.7
2.0
Forest Development tax
Demurrage
Handling charges at port
Railway freight
T t t il t ti
32.8
5 0
21.3
-
20.0
7.0
3.7
Transport to railway station
Mining and processing cost 7.0
3.7
7.0
3.7
Assumptions: 1) Iron ore has an Fe content of 63%
2) Exchange rate : Rs 55/ USD
3) Iron ore fines price: Rs 120/ dry metric tonne
Currently, miners getting an EBITDA/ tonne of Rs 3,500-4,500 on pellets
– Robust demand and better realizations from the domestic market
N t d t ll t
29
– No export duty on pellets

~55 mt of pellet capacity to be added over the next 5 years
Steel players to add 46 million tonnes
47 6
58.8
66.9
60
70
80
(mn tonnes)
Steel players to add 46 million tonnes
Steel
players
22.0
35.7
44.4 47.6
10
20
30
40
50
Total pellet capacity
~85 mt by 2015-16
0
2010-11E 2011-12P 2012-13P 2013-14P 2014-15P 2015-16P
Steel - pellet additions
Miners to add 5 million tonnes
Miners9.1
11.1 11.1
8
10
12
(mn tonnes)
Miners to add 5 million tonnes
5.9 5.9 5.9
0
2
4
6
8
Standalone
pellet
plants
30
0
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16
Miners - pellet additions
plants
(6.4mt)

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Site-wise capacity additions
Site wise capacity additions (in mn tonnes)Site-wise capacity additions (in mn tonnes)
Company Site Nature Crude Steel capacity
IISCO Brownfield 2.2
Rourkela Brownfield 2.0
Bhil i B fi ld 2 1SAIL 7 2 t
Bhilai Brownfield 2.1
Durgapur Brownfield 0.3
Bokaro Brownfield 1.0
Jamshedpur Brownfield 2.9
Orissa Phase 1 Greenfield 3.0
SAIL
TATA
7.2 mt
5.9 mt
Orissa Phase 1 Greenfield 3.0
JSW Vijaynagar Brownfield 2.0
RINL Vizag Brownfield 3.3
JSPL Angul Phase 1 Greenfield 1.6
Bhushan Steel Angul Brownfield 2.5
Monnet Ispat Raipur Brownfield 1.2
NMDC Nagarnagar Greenfield 3.0

Delayed capacity additions adds up to ~28 mt
Delayed capacity additions (in mn tonnes)Delayed capacity additions (in mn tonnes)
Company Site Nature Crude Steel capacity
OrissaPhase 2 Brownfield 3.0
J d l G fi ld 5 0
Tata 8 mt
Jagdalpur Greenfield 5.0
Vijaynagar Brownfield 3.0
Salboni Phase 1 Greenfield 3.0
Jharkhand Phase 1 Greenfield 3 0
JSW 6 mt
Jharkhand Phase 1 Greenfield 3.0
Raigarh expansion Brownfield 2.0
SAIL Bokaro Brownfield 2.0
Posco Dhinkiya Greenfield 4
JSPL 5 mt
Posco Dhinkiya Greenfield 4
ArcelorMittal Torpa Greenfield 3

Iron ore supply in Karnataka
in mn tonnes 2010 11 2011 12 2012 13E 2013 14Pin mn tonnes 2010‐11 2011‐12 2012‐13E 2013‐14P
NMDC 7 7 7 7
Other miners 31 7 5 11
Total 38 14 12 18
They will be allowed to start
mining under the following
conditions:
• Validation of mining plan
Similar processes to be followed
as with Category ‘A’ mines. In
addition, they have to meet
conditions like depositing the
penalty for illegal mining, as
•CEC has recommended for both
penalty and cancellation of
14-15 mt in 10-11
• Validation of mining plan
• Acquisition of forest and
environmental clearances
• Reclamation and Rehabilitation
of the affected areas
p y g g,
decided by the court . leases for these mines
• Decision still pending
Category A
Category B
(72 mines)
Category C
12-13 mt in 10-11 10-12 mt in 10-11
166 mines
g y
(45 mines)
g y
(49 mines)
35
166 mines
surveyed

Iron ore supply in Orissa
– Operations without requisite clearances – forest, environment, pollution control board, operating mine beyond the deemed
lease period, overproduction beyond limits allowed by Mining Plan, irregularities in transport – missing dispatch certificates,
overloading of material, theft, etc.
Irregularities in iron ore mining in Orissa
Captive mining (~30 mt of 68mt)
As per the Government of Odisha circular dated
3rd Oct 2012
Merchant mining divided into two broad categories
First 30 years of lease period (28 mn)
– The mining lease to be renewed provided it is being used for
captive purpose by the lessee.
– The area to be renewed shall be limited to the captive
requirement of 30 years of the existing capacity of the lessee
Crossed the 30 year lease period (10 mn)
Allowed to do merchant sale
requirement of 30 years of the existing capacity of the lessee.
– The balance land shall be reserved for the Odisha Mining
Corporation.
As per the Government of Odisha circular dated
Not allowed to do merchant sale
in mn tonnes 2010 11 2011 12 2012 13E 2013 14P
p
5th Dec 2012
– 50% of the production of merchant miners, not put to captive
36
in mn tonnes 2010‐11 2011‐12 2012‐13E 2013‐14P
Total 76 68 50 55
use, to be sold to the standalone end users within the State.
– To be effective from the month of Dec 2012

Crisil report on steel Industry 2012

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