Download - Steel Industry Charu

8/7/2019 Steel Industry Charu

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Profitability Analysis INTEGRATED VS SMALL PLAYERS

The recent slowdown in steel demandresulted in significant decline in steelprices, and hence, the profitability ofsteel players eroded in the secondhalf of 2008-09.

While large integrated players (withcaptive availability of raw material)witnessed lower impact onprofitability, the fragmented longsteel industry witnessed significantimpact on its profitability.

Going forward, the profitability of thelong steel industry is expected to beunder significant pressure, withrelatively high raw material costs andsubdued steel prices affecting theiralready low margins.


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Demand Drivers

The key end user industries for steel are:

Automobiles

Construction and Infrastructure Oil and Gas

Power

Consumer Durables

The demand is driven and determined by the

growth and prospects of these industries


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Automobiles

Both Cars & UVs and Commercial Vehicles areexpected to post a double digit growth between2009 to 2014.


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Construction and Infrastructure

While infrastructure construction, irrigation, urbaninfrastructure and ports sectors will be primary growthdrivers in the near future, the large investments in

roads and power will also contribute to the growth indemand.

The housing construction segment also contributes to asignificant portion of long steel demand in India.

The housing industry is expected to grow by 3-4 percent during the next 5 years, driven by populationgrowth, urbanisation and nuclearisation of families.


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Oil and Gas

Steel demand from the oil and gas sectors is expected to besignificant, with huge networks of pipelines to be laid over the next5 years for oil and gas transportation.

To supply newly found gas and satiate the potential demand in thecountry, development of a country-wide gas grid is imperative.

In anticipation of such high volume build up, many pipeline playershave already identified potential demand centres (states) anddecided to lay trunk pipelines to cover those regions.

Given the thrust on developing cross country as well as regional gaspipeline grids, and considering the likely gas supply coming up in

the near future, major trunk pipelines to be developed over thenext 3-4 years.


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Power

Over the last 3-4 years, the power sector has witnessedsignificant growth in requirement and availability.

During the Tenth Plan (2002-03 to 2006-07), demand

increased at a CAGR of 6.2 per cent, and availability by5.9 per cent, thereby causing the deficit to widen at 3.5per cent CAGR.

However, in the first year of the Eleventh Plan,requirement increased at 6.4 per cent with availabilityrising at the same rate.

The addition of around 42,000 MW of power capacityis expected in India during the Eleventh Plan period.


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Consumer Durables

The consumer durables (household appliances) industry comprisescolour television (CTV), refrigerators, washing machines and roomair conditioners (RAC).

The industry is expected to witness sluggish growth in the shortterm, mainly due to the overall slowdown in the economy whichhas led to reduced spending by consumers.

In the first quarter of 2008-09, all product categories except CTVregistered slower growth as compared with the previous year.

However, with improvement in all these parameters, demand forconsumer durables is expected to revive over the long term.

The industry is expected to grow at 5-6 per cent over the next 5years.


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Cost Structure

Steel prices are influenced by

combination of factors.

Raw material is coal and iron

Prices of both iron ore and coking

coal are expected to be much lowerfor the period 2010 -2013 w.r.t the

peak of 2008.

Global steel prices will increase

gradually and reach $575 to $600

per ton in 2013.

Download - Steel Industry Charu

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