X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Steel: How's supply looking? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Jun 5, 2008

    Steel: How's supply looking?

    In the last article, we saw the demand for steel in the domestic market. In this article, we will focus on the production/supply of steel in the country.

    Indian steel industry has come a long way from a negligible global presence to become the world's fifth largest steel producer currently. It produces 53 MT of steel, which accounts for 4% of global steel production. The steel production grew at a CAGR of 10 per cent from last five years. This growth was driven by both capacity expansion (40.4MT in 2002-03 to 56.8MT in 2006-07) and improved capacity utilization (86% in 2002-03 to 89% in 2006-07).

    The government plans to raise the capacity to 124MT by year 2011 and 200MT by year 2020, making India the second largest steel producer in the world.

    The capacity addition scenario
    A host of domestic steel companies are expanding their capacities through greenfield and brownfield projects. For instance, Tata steel is planning to raise its capacity to 35MT by year 2015. Similarly, SAIL is also raising its capacity from 12MT to 25MT by year 2012. International majors like Arcelor- Mittal have plans to setup two 12MT plants and Posco is also setting up 12MT in the country.

    The financial arithmetic
    Adding capacities of such magnitude will involve a lot of financial outlays and quite expectedly then, the Indian steel industry will receive huge domestic and foreign investments. Assuming that it requires around US $1 bn to setup 1MT plant, the industry will require around US $70 bn by 2011 and US $200 bn by 2020. Arcelor-Mittal has already declared a investment of $20bn for its Indian plants. Posco plans investment of around $12.5bn. Tata steel will invest up to $ 19bn for its three greenfield projects in the country.

    Company name Expected capacity
    additions (m tonnes)
    Project cost
    (Rs bn)
    Period of
    completion
    Tata Steel 1.8 45.5 Jun-08
    Tata Steel 2.9 91.6 Dec-10
    Tata Steel 6.0 156.6 Phase-I of 3MT to be
    completed by Dec-10
    Tata Steel 12.0 550 NA
    Tata Steel 5.0 120 NA
    SAIL 10.4 530 In phases by 2010
    Rastriya Ispat Nigam 3.1 86 2010
    Ispat Industries 2.0 20 Dec-08
    Ispat Industries 2.8 67.5 NA
    JSW Steel 3.0 53 Dec-08
    JSW Steel 3.2 70 2010
    Essar Steel 4.0 107.2 NA
    Essar Steel 3.9 105 NA
    Mittal Steel India Ltd 12.0 400 NA
    Mittal Steel India Ltd 12.0 400 NA
    Posco 12.0 510 NA
    JSW Bengal Steel 10.0 350 NA
    Total 106.1 3662.4  

    Source: CMIE

    Roadblocks along the way
    Almost 75 per cent of the steel projects will be commissioned through the greenfield route. These projects, which have the potential to add over 100MT of output, are facing inordinate delays due to issues related to land acquisitions, rehabilitation of displaced people and procurement of mining rights. For example, the Orissa project of Tata steel which was expected to start construction in march 2008 is facing issues related to resettlement and the company is also awaiting Orissa government's approval for iron ore mining leases. Even the other projects of the company in Jharkhand and Chattisgarh have made little progress in terms of land clearances. The mega projects of international steel giants like Posco and Arcelor- Mittal are also facing delays due to land acquisition and other issues.

    The prices of key raw materials required for the production of steel are also escalating. Iron ore and coaking coal prices have grown manifold since last two years. While, sixty per cent of iron ore production in the country is exported, leaving little scope for domestic steel industry to bargain, the industry is significantly dependent on import of coking coal for its requirement.

    Thus, as we saw, while the expansion plans in the country are indeed heartening, the sooner the roadblocks clear the better it is for the domestic economy as delays in commissioning are hurting the cause of industries that rely on steel for their growth.

     

     

    Equitymaster requests your view! Post a comment on "Steel: How's supply looking?". Click here!

      
     

    More Views on News

    Tata Steel: A Strong Quarter (Quarterly Results Update - Detailed)

    Aug 12, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    SAIL: Loss at EBITDA Level Due to Higher Raw Material Cost (Quarterly Results Update - Detailed)

    Jun 12, 2017

    The company registered a negative EBITDA of Rs 2.64 billion during the quarter. This is on the back of an increase in raw material prices.

    Tata Steel: Strong Quarterly Performance (Quarterly Results Update - Detailed)

    May 22, 2017

    Tata Steel reported a robust operating performance on the back of strong domestic and European operations.

    SAIL: Pressure Continues. Loss at Operating Levels... (Quarterly Results Update - Detailed)

    Feb 15, 2017

    SAIL has reported a 26.2% YoY increase in the topline while the bottomline reported a loss of Rs 7.94 billion.

    Tata Steel: Loss from Discontinued Business Mars Performance (Quarterly Results Update - Detailed)

    Sep 27, 2016

    Tata Steel has reported a 6.3% decline in the topline while the bottomline was in red in 1QFY17.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE METAL


    Aug 24, 2017 09:26 AM

    S&P BSE METAL 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS