100th Annual Report 2006-2007 - Tata Steel

Management Discussion and Analysis
India’s export grew by 23.9% to USD 124.6 billion, recording a
strong growth rate of 20% plus for the fifth consecutive year.
Imports grew by 29.4% to USD 181.4 billion, driven by increased
imports of oil by 30.8% and non-oil imports by 28.7%. This
resulted in an increase in India’s trade deficit to USD 56.7 billion
as compared to USD 39.8 billion in the previous year. India’s
fiscal position improved during the year and revenue deficit was
estimated at 2.0% of GDP as compared to 2.6% in the previous
year. The gross fiscal deficit constituted 3.7% of GDP as compared
to 4.1% in the previous year. Indian corporates raised external
commercial borrowings of around USD 25.3 billion, over 50%
higher than the amount raised during the previous year. India’s
foreign exchange reserves increased to USD 199.2 billion by
end March 2007. The exchange rate of the Rupee against the
US Dollar, which was Rs. 44.61 at end-March 2006 depreciated
to Rs. 46.95 by July 19, 2006 but appreciated thereafter to Rs.
43.53 by end-March 2007. Overall, during the year, the Rupee
appreciated by 2.3% against the US Dollar and 2.7% against the
Japanese Yen, but depreciated by 6.8% against the Euro and by
9.0% against the Pound Sterling.
Overall economic buoyancy, together with bullish domestic
equity capital markets, boosted investor sentiments attracting
robust capital inflows into the economy. FIIs were net investors
in the Indian equity market and invested around Rs. 25,000
crores during the year. Domestic Mutual Funds also invested
around Rs. 9,000 crores in the Indian equity market. The BSE
Sensex crossed the 14,000 mark for the first time on 3rd
January, 2007, reaching a peak of 14,652 on 8th February, 2007
before closing at 13,072 on 30th March, 2007, yielding a gain
of 1,792 points (i.e. 16%) as compared to 11,280 on 31st March,
2006. Foreign Direct Investment (FDI) for the fiscal year ended
31st March, 2007 is estimated at around Rs. 70,000 crores
(USD 15.9 billion), exceeding portfolio inflows, which were until
recently the preferred means of participating in India’s rapid
economic growth.
The Management’s discussions on the Steel Industry and the
Company’s performance are given below:
1. Steel Business Unit
A) Global Steel Industry Overview
Global crude steel output, which closely tracks demand, grew
by 8.9% to 1,244 million tonnes in 2006 as compared to 1,142
million tonnes in 2005 mainly driven by strong growth of
18% in China. In 2006, the top five steel producing countries
were China (422.7 million tonnes), Japan (116.2 million
tonnes), USA (98.6 million tonnes), Russia (70.8 million tonnes)
and South Korea (48.5 million tonnes). The finished steel
consumption grew by 8.5% at 1,113 million tonnes in 2006 as
compared to 1,026 million tonnes in 2005. China accounted for
33% of global steel consumption and 50% of global demand
growth. The Asian region especially China witnessed the most
remarkable growth over the past ten years. In 1996, China
produced 101 million tonnes of crude steel. By 2001, crude
steel production increased to 151 million tonnes, at a CAGR
90