Presentation: The Global Steel Context and India's Position ... - Hatch
Presentation: The Global Steel Context and India's Position ... - Hatch
Presentation: The Global Steel Context and India's Position ... - Hatch
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Metals 2004 Second Annual International<br />
Conference in Kolkata<br />
<strong>The</strong> <strong>Global</strong> <strong>Steel</strong> <strong>Context</strong> <strong>and</strong> India’s <strong>Position</strong><br />
4 th November 2004<br />
Rod Beddows, Director<br />
<strong>Hatch</strong> Associates - London<br />
<strong>Hatch</strong> Beddows
INTRODUCTION<br />
<strong>Hatch</strong> in Brief<br />
<strong>The</strong> world’s leading mining <strong>and</strong> metals consultancy<br />
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& &<br />
<strong>Steel</strong><br />
<strong>Steel</strong><br />
• Founded in 1955, employee owned<br />
• Group includes Acres, HB Advisers<br />
• Projects in 80 countries<br />
Infrastructure<br />
Infrastructure<br />
Mining Mining<br />
&<br />
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Mineral<br />
Mineral<br />
Processing<br />
Processing<br />
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• 80 offices including Mumbai & Chennai<br />
• JVs Mott MacDonald, Connell Wagner<br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
2
STEEL: HISTORIC DEVELOPMENT<br />
<strong>Global</strong> steel production grew at 6% per annum from 1950 to 1974, then slowed<br />
to 1% per annum from 1975-2000<br />
900<br />
800<br />
<strong>Global</strong> Crude <strong>Steel</strong> Production<br />
1% pa<br />
700<br />
Millions of Tonnes<br />
600<br />
500<br />
400<br />
300<br />
200<br />
6% pa<br />
• Crude steel production from 1975-2000<br />
grew at 1% p.a.<br />
• Finished steel consumption from 1975-2000<br />
grew at 2.3% p.a.<br />
• Low financial returns : 6% ROA average<br />
2000 – 2003<br />
+5% pa.<br />
Consumption<br />
Growth<br />
100<br />
0<br />
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000<br />
Year<br />
Source: IISI, <strong>Hatch</strong> Beddows analysis<br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
3
STEEL: HISTORIC DEVELOPMENT<br />
Economic conditions <strong>and</strong> responses<br />
Conditions<br />
Slow Dem<strong>and</strong> Growth<br />
“Overcapacity”<br />
Cost Price Squeeze<br />
Corporate Response<br />
Rationalization<br />
Restructuring<br />
National Consolidation<br />
State Interference<br />
Nationalization<br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
4
STEEL: FUTURE DEVELOPMENT<br />
Are we at a turning point in the steel industry?<br />
• Are the fundamentals of the steel industry changing?<br />
– Stronger growth in dem<strong>and</strong>?<br />
– Structural change in supply?<br />
– Consolidation in ownership?<br />
• Is the steel industry entering a new era marked by:<br />
– Improved growth prospects?<br />
– Higher, more stable returns?<br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
5
STEEL: CURRENT AND FUTURE CONTEXT<br />
As China <strong>and</strong> India industrialise the current <strong>and</strong> forecast requirement for steel<br />
is growing <strong>and</strong> likely to continue to grow at a faster rate than before<br />
A likely Scenario:<br />
<strong>Steel</strong> Requirement (M tonnes Finished <strong>Steel</strong>)<br />
2002<br />
% p.a.<br />
growth<br />
2007<br />
2015/20<br />
Key<br />
differences<br />
EU-15<br />
138<br />
1.0%<br />
145<br />
157<br />
Other Europe<br />
36<br />
6.0%<br />
48<br />
77<br />
Former USSR<br />
30<br />
5.0%<br />
38<br />
57<br />
NAFTA<br />
131<br />
2.0%<br />
145<br />
170<br />
Latin America<br />
28<br />
6.0%<br />
37<br />
59<br />
China<br />
211<br />
7.5%<br />
303<br />
542<br />
+330<br />
Japan<br />
72<br />
1.0%<br />
76<br />
82<br />
Other Asia<br />
130<br />
6.0%<br />
175<br />
278<br />
+148<br />
Australia / NZ<br />
7<br />
1.0%<br />
7<br />
8<br />
Africa<br />
16<br />
6.0%<br />
21<br />
34<br />
Middle East<br />
20<br />
6.0%<br />
26<br />
42<br />
Total<br />
819<br />
1,022<br />
1,504<br />
Source: <strong>Hatch</strong> Beddows analysis<br />
• Dem<strong>and</strong> side: Continued rapid growth in consumption<br />
• Supply side: Constraints in raw materials, transport capacity<br />
<strong>The</strong> Result: Better Returns, Improved Access to Capital = <strong>The</strong> Strong Get Stronger<br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
6
CONSOLIDATION: QUESTIONS FOR INDIA<br />
In fifteen years consolidation growth will result in the top 5 steel companies<br />
accounting for 40% of global crude steel production; over 100 Mtpa each<br />
Percentage Share (%)<br />
45<br />
40<br />
35<br />
30<br />
25<br />
20<br />
15<br />
10<br />
5<br />
0<br />
Forecast Share of Top Five Producers of Crude <strong>Steel</strong><br />
Based on Historic Trend of Industry Consolidation<br />
1995 2000 2005 2010 2015 2020<br />
Actual Forecast<br />
• Will an Indian steel company<br />
be one of the top five? [it<br />
already is]<br />
• Which companies will be in<br />
the top five?<br />
• Which Indian companies will<br />
become part of a top five<br />
company?<br />
Strong companies will attract<br />
capital to become stronger;<br />
weaker companies will be<br />
acquired<br />
Chart developed before Mittal <strong>Steel</strong><br />
Source: <strong>Hatch</strong> Beddows analysis<br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
7
NEW CHALLENGES BRING NEW DANGERS<br />
Solving new challenges with old ideas <strong>and</strong> attitudes brings bad results<br />
• Crimean War<br />
• Maginot Line<br />
• <strong>The</strong> danger of managerial obsolescence : the 15 year rule!<br />
Todays dangers for the steel industry:<br />
• Permanently high prices ….. Will lead to material substitution<br />
• Price volatility ….. Price risk hedging mechanisms are needed<br />
• Continuing obsession with overcapacity ….. We need well managed equilibrium capacity<br />
Long run returns will be driven - by competition – to an equilibrium position<br />
12 – 15% ROA?<br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
8
DEVELOPMENT BRINGS NEW HOPE<br />
• An industry no longer dominated by NA, EU <strong>and</strong> Japanese<br />
• Look at the composition of the IISI Exec Committee<br />
• Look at the emerging world players, Posco, Gerdau, Tisco, Techint, Boasteel, Severstal …..<br />
etc.<br />
• And the world’s largest steel company (in prospect) ….. Mittal <strong>Steel</strong><br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
9
WHAT DOES INDIA BRING TO THE INDUSTRY?<br />
Strengths<br />
• Costs<br />
• Raw Materials<br />
• Technical Depth<br />
• Geography<br />
• Infrastructure<br />
• Cost of Capital<br />
Weaknesses<br />
• External Perception<br />
• Fragmented <strong>and</strong> Complex Public<br />
Sector<br />
Opportunities<br />
• Growth in Dem<strong>and</strong><br />
Threats<br />
• Repeating the Past<br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
10
Thank You<br />
© <strong>Hatch</strong> Associates Limited, 2006<br />
11
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