Annual Report for 2011-2012 - Vizag Steel

RASHTRIYA ISPAT NIGAM LIMITED
The following chart sets out the long steel consumption pattern in India during the 2010-11 period:
While there is currently a strong demand for steel,
according to the WSA, India's per capita consumption
of finished steel is still relatively low at 56.3 kg as
compared to China at 445.2 kg, Japan at 538.6 kg,
the United States at 291.6 kg and a world average at
220.8 kg in 2010. Consequently, the Indian steel
industry still has room to grow substantially, and the
Indian steel sector has been targeted as a key sector
for support by Government of India, which has
encouraged further growth with its increased approval
rate of green field projects. Furthermore, according to
Earnest & Young 2010, an additional US$1 trillion of
investment is expected to be made in the construction
(Source: CRISIL Research, Steel, Dec. 2011)
and infrastructure sectors during the 2012-17 period.
Most infrastructure projects consume large amounts of long steel products, and hence there should be
a corresponding increase in long steel demand.
The following chart sets the demand outlook for steel products in India for the periods
indicated:
Indian steel producers have a number of
competitive advantages, the most important of
which is an abundant supply of iron ore resources
and surplus iron ore production, predominantly in
the east of India. India is the world's fourth-largest
iron ore producer, with sufficient iron ore reserves
to meet expected demand. Of particular interest
is Orissa State, which contains 25% of India's iron
ore reserves and 20% of India's coal reserves,
according to Corporate Catalyst India. Thus, even
though iron ore prices have been steadily
increasing towards the end of 2011, domestic
Indian steel companies, with their access to excess
iron ore, have not faced similar increases in raw material prices as those companies outside of India.
Another advantage India has is its unexplored rural market, which has been fairly unexposed to the varied
uses of steel. Steps are being taken by companies to penetrate this market, including our Company's
setting up of its district level dealership and rural dealership schemes.
1.3.3. Indian Steel Prices
Similar to global steel prices, steel prices in India are volatile and fluctuate in response to changes in
global supply and demand, raw material costs and general economic conditions. The Indian steel industry
is linked to global steel prices which fluctuate as aforesaid in response to a combination of factors,
including the availability and cost of raw materials, global production capacity, the existence of and changes
in, steel imports, exchange rates, transportation and labour costs and protective trade measures.
42