1. 1 Raw materials outlook for India - A Review A D Baijal VP (Raw Materials) Tata Steel IISI-OECD CONFERENCE Date: 17 th May, 2006

2. 2 Steel Industry - Global - Indian Raw materials for Steel Policy / Legislation Infrastructure Conclusion Presentation Outline

3. 3 Global steel demand poised for robust growth Great Depression WW 2Oil Crisis Fall of USSR CAGR 7 % CAGR 1 % The Early Years The 1 st Surge The 2 nd Plateau The 2 nd Surge Asian Financial Crisis The 1 st Plateau CAGR 2 % CAGR 5 % WW 1 CAGR 5 %

4. 4 The Global Economic Forecast: Asia poised to be the emerging power house of growth In 2020, the US and China will still be the two largest economies in the world (in PPP) India leaves Japan behind and moves up to 3rd place India, Malaysia and China will post the highest GDP growth rates (above 5%) over 2006-20 Ireland, the US and Spain are the rich countries expected to grow the most

5. 5  GDP per capita to increase from USD 2500 and USD 5000 in 2020.  Poverty ratio dropped from 50% of population in 1950 to 26% in 2005.  Economic growth rate ~ 8%  Population growth rate of 1.3 - 1.5%  33% population below 15 years and 5% above 65 years  House hold savings rate go up from current 23% to 30%  100,000 MW new capacity (90% of present) in next 7 years.  The Fiscal Responsibility and Budget Management Act  Literacy standards increase from 18% in 1951 to 65% in 2002. Indian Economy

6. 6 Steel Consumption Vs. GDP China S.Korea Taiwan US Other Africa India Japan Bubble size represents the population The growth in BRIC will double the steel demand by 2050 Source: internal analysis

7. 7 UAE – 1252 World Avg. – 170 India – 33 > 150 MT, The present gap Apparent Steel consumption of countries Growth in key sectors will drive the steel demand We feel the growth trigger has been fired…..….. ( Last 3 years GDP growth of + 7.5%)

8. 8 Low High Deficit Excess Avail-ability of Iron Ore Forecasted Growth rate 2005-15 CIS Latin America USA / Canada Eastern Europe EU Japan India China Other emerging Asian countries Raw Material basin Growth basin Mature basin Production sites will move to regions with both RM source and demand.

9. National Steel Policy Projections Crude Steel : mtpa Planning Commission projections Indian Steel production likely to triple in next 15 years To realize the above projections, it would be necessary to put in place the right policies as well as alignment of the policies

10. 10 Steel Industry - Global - Indian Raw materials for Steel Policy / Legislation Infrastructure Conclusion Presentation Outline

11. 11 Multifold increase in Raw Material Consumption

12. 12 * * * * * Indian Iron Ore Reserves: Five Zones StatesMajor Mines / Deposits A-Orissa, Jharkhand Chiria, Noamundi, Joda, Kiriburu, Meghataburu, Thakurani, Bolani, Gua, Malangtoli, Gandhamardan, Daitari B-Chattisgarh, MP, Maharashtra Bailadila, Dalli,Rajhara, Rowghat, Mahamaya, Aridongri, Surajgarh C-KarnatakaDonimalai, Ramandurg, Kumaraswamy, NEB Range, Ettinahatti, Tumti, Belagal D-GoaN Goa, S Goa, Redi E-KarnatakaKudremukh, Bababudan, Kudachadri StatesOreFe Range (%age) Alumina (%age) Phos Max (%ag e) A-Orissa, Jharkhan d Haem atite 62-642-40.04- 0.1 B- Chattisga rh, MP, Maharash tra Haem atite 64-661.0-4.00.04- 0.15 C- Karnataka Haem atite 62-642.0-4.00.04- 0.09 D-GoaHaem atite 60-632.0-4.00.04- 0.07 E- Karnataka Magn e 35-451.0-

13. 13 Iron Ore Production TrendIndian Resources: 23 bt Karnataka Orissa Chattisgarh Goa Jharkhand Others AP

14. 14 Natural iron ore resources can support lump: fines ratio of 20:40 as against current adverse trend of 40:60 - Fines are mostly being exported - DRI route uses 100% lumps, detrimental to mineral conservation - Economies of scale not available with large number of small players to set up sintering / pelletization facilities -Increasing use of fines in agglomerates in bigger size blast furnaces can increase its productivity and bring down cost/tss The current steel production through BF/BOF:DRI:others is 60:33:7

15. 15 Domestic DRI production : Trend and Forecast Increasing DRI production may lead to faster depletion of high quality lumpy ore reserves Growing @~7% Source: Tata Steel analysis

16. 16 NATIONAL STEEL GROWTH 0 100 200 300 400 500 600 700 800 900 1000 2004-052006-072008-092010-112012-132014-152016-172018-192020-212022-232024-252026-272028-292030-312032-332034-352036-372038-392040-412042-432044-452046-472048-492050-51 Iron Ore Production MTPA -15000.00 -10000.00 -5000.00 0.00 5000.00 10000.00 15000.00 Mineable Reserves (Mt) CAGR=3CAGR=4CAGR=5CAGR=6CAGR=7 Exports of iron ore =50 Mtpa With expected CAGR of ~7% and exports at 50 mtpa, India will become an importer of iron ore in next 40 years. Reserves in MT Iron Ore Production in MT Most of the iron ore reserves are in reserve forest and environment sensitive areas making the actual availability of reserves much less

17. 17 Imperative – Need for conservation and resource enhancement Challenges -Selective mining of high grade lumpy ores (DRI). -Many low volume producers -Mismatch in agglomeration capacity and fines generation. -Lower production (33%) routed through beneficiation. -Increasing exports. Conservation ….for future oScientific Mining oAgglomeration capacity oUse of pellets for DRI oBeneficiation. oTechnology for using Slimes oRestricting exports. Enhancement … oDetailed / Scientific Exploration

18. 18 Proven: 8 Indicated: 6 Total : 14 Proven: 5 Indicated: 2 Total : 7 Proven: 9 Indicated: 25 Total : 34 Proven: 14 Indicated: 30 Total : 44 Proven: 11 Indicated: 12 Total : 23 Proven: 35 Indicated: 30 Total : 65 Proven: 7 Indicated: 8 Total : 15 Proven90 Indicated110 Inferred46 Total246 Billion tonnes Indian Coal Reserves

19. 19 Geological Survey of India : As of 1.1.2001 Coking Domestic Coking Coal The Indian Coal, both coking and non coking is characterized by high ash and low washability index. Coal Reserves, BT Semi-Coking28 Prime Coking6 Non Coking212 Total246 Coking Coal Producers CIL5.8 Tata Steel3.3 Others0.5 Washed Coal Ash BCCL18% CCL18% Tata Steel13%

20. Imports of Coking Coal to increase due to low Indigenous availability Source: 10 th Plan report -The additional demand for coking coal will be 70 mt by 2020 for 110 mt steel demand as per national steel policy -For coking coal, dependence on imports to continue Coking Coal

21. 21 Need to conserve the scarce coking coal resources Challenges -High ash -Poor washability -Over 40% coking coal used for thermal use. -70% demand met through imports -Low domestic availability* Conservation of resources for future use oBeneficiating oImproving washing capacity / efficiency oTechnology using medium coking coal for coke making oSteel making technology using non-coking coal Enhancement of capacity oDeveloping new sources oDetailed exploration

22. 22 *Coal Strategy: Reducing coking coal requirements Mining: -Beneficiation technology -Improving mining / washing process efficiency Coke & Sinter Making -Quality Coke from semi coking indigenous coal. -Using low ash imported coal for blending -Reducing Alumina level in iron ore for improving sinter & BF productivity and reducing coke requirement Iron Making: -Pulverized Coal Injection using semi/non coking coal -Tar Injection -Using more pellets -Using sponge iron for feed

23. 23 Limestone SMS Grade available in Rajasthan and Himalayan regions. While Environment and logistics constrains Himalyan exploitation, high freight from Rajasthan is adverse. Stringent quality requirement further restricts availability Therefore, Dependence on imports for steel grade limestone to continue… Limestone Reserves BF gradeSMS grade WorldAbundant India160 bt15 bt7 bt Current RequirementRequirement in 2020 BF grade3.1 mt9.5 mt SMS grade7 mt22 mt

24. 24 Chrome Ore Ferro-Chrome industry in India is highly fragmented >98% Chrome ore reserves in Orissa. Chrome ore tons expected to ~ 10 mt by 2020. High conversion cost to Ferro Chrome due to high power cost Globally competitive power tariffs to avoid shift to countries where power is cheaper. Cr Ore ReservesProduction OreProduction Fe Cr World 11068186 India1153.20.6 Figures in million tonnes

25. 25Manganese International market for Mn alloys have dipped in recent years Manganese ore tons expected to grow to 4.5 mt by 2020 The usage of Mn alloys for steel making is limited by –Low Mn content and high phos in Mn Ores –High power cost for conversion Therefore …. Need to explore and develop more high grade Mn resources Beneficiation to improve the lower grade coupled with sintering Mn Ore/ReservesProduction OreProduction FeMn, SiMn World50002910.5 India4061.40.71 Figures in million tonnes Source: Mineral Commodities Summary: 2002, IBM

26. 26 Steel Industry - Global - Indian Raw materials for Steel Policy / Legislation Infrastructure Conclusion Presentation Outline

27. 27 1950 ~ 1991 – Tightly regulated industry  Iron ore reserved for Public Sector Companies  Growth subjected to “Industries (Development & Regulation) Act 1951”  Pricing regulated by “JPC Price Mechanism”  Distribution subjected to controls such as “Freight Equalization Scheme”  Foreign Investment discouraged  Foreign trade regulated by Canalization policy An Industry insulated from Market forces Evolutionof India’s Regulatory Environment Evolution of India’s Regulatory Environment

28. 28 Evolution of India’s Regulatory Environment… 1991 onwards : Economic Liberalisation  Steel Sector opened to private participation  Included in list of “High Priority” industries  Up to 100% FDI allowed in prospecting & mining Iron ore  No separate approval for prospecting and mining necessary  Decanalisation of low grade Iron Ore (Fe<64%) trade.  Decanalisation of high grade Iron Ore (Fe>64%) - Export License given for limited quantity and time.

29. 29 Challenges & Policies for meeting growth demand Challenges -Fragmented capacities -Unscientific operations -Inadequate power & transport infrastructure -Delay in grant / renewal of mineral leases Policy Reforms under consideration oMinimum production levels for lease grant oScientific Mining and Mineral Beneficiation oLease grant solely on the basis of technical & financial capability oFDI & private sector participation for infrastructure development oTime bound grant/renewal process

30. 30 Challenges & Policies for meeting the growth demand Challenges -Long drawn process for land/forest/ environmental clearance -Socio/political pressures -Limited iron ore / coking coal reserves Policies reforms under consideration oCreation of land bank / private sector participation in afforestation oSocial / Environment cost to be seen in Long Term perspective oTransparent implementation of the laws oTechnology / private participation for detailed exploration oLarge area prospecting license oLinking iron ore resources to integrated and other steel plants oDe-nationalization of coal mines oDe-reserving areas for private sector for a level playing field

31. 31 Steel Industry - Global - Indian Raw materials for Steel Policy / Legislation Infrastructure Conclusion Presentation Outline

32. 32 Rail Freight in India are high

33. 33 Inland Transportation of Raw Material Inland transportation: –Infrastructure being beefed up for the incremental volumes Source: Economic Survey, 2003-04. Railway Road

34. 34 Railways – The challenges Tariff & Capacity out of sync with a high growth environment Operational efficiencies. Costlier longer hauls Lower bulk movement per haul Expansion of facilities Development of raw material corridor for faster movement of raw materials to ports and consumption points Improving services Reinforcing existing tracks Improvement in freight structure Participation of private sector through SPV / own your wagon Challenges Initiatives …

35. 35 Ports The port facilities would also have to be expanded substantially. Improving productivity, turn around time, capacity to handle larger vessels and other operational parameters of efficiency are critical. Private sector participation in ports increasing Feeder balance (mainly railways) is a key issue

36. 36 Port facilities comparison Being designed for higher operationa l efficiency and capacity

37. 37 Steel Industry - Global - Indian Raw materials for Steel Policy / Legislation Infrastructure Conclusion Presentation Outline

38. 38 Second Largest Emerging Market Largest democracy – political stability & consensus on reforms Liberal & transparent investment policies High returns on investment Fourth largest Economy (PPP) - A safe place to do business Largest reservoir of skilled/semi-skilled manpower at low cost Long-term sustainable Competitive advantage - High growth rate economy India – A Land Of Opportunities Rich Mineral Base Regulatory Reforms Developing Infrastructure

39. 39 THANK YOU

40. 40 NOT required

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43. 43 Blast furnaces Tata Steel Typical size, m 3 Upgraded G BF H BF G BF F BF

44. 44 Growth in Tuyere Injection F BF, kg/thm

45. 45 Growth of Tar injection

46. 46 Reduction in Clean Coal Ash-West Bokaro Raw Coal Ash: 35 %

47. 47 Impact at Coke Plant………reduction in coke ash WB coal ash reduced to 17% WB coal ash reduced to 16% WB coal ash reduced to 14%; Jharia coal ash reduced to 16% Imported coal amount increased

48. 48 Reduction in Coke Alkali with coke ash Imported coal amount increased WB coal ash reduced to 14%

49. 49 Response to low ash coke: ‘G’ bf

50. 50 Response to low ash coke: ‘G’ bf

51. 51 Quality of Fine Ore supplied to Sinter Plants Adjoining Mines in same deposit operate from 2.5% to 3% Alumina if FO Classification started at Joda Jigging at Noa

52. 52 Impact at Sinter Plant….sinter alumina Blue dust, Dry Ckt Improved washing, classification Increased volume from better areas, use of reverts Low alumina fuels & fluxes

53. 53 Impact at Sinter Plant…..sinter alkali Use of Gotan L/s Use of RPC

54. 54 Impact on Sinter Productivity SP2 commissioned

55. 55 Results at Blast Furnaces ………thru’ RM improvement initiatives G BF down for up- gradation Increasing HM Production

56. 56 Coal injection + Tar injection (from FY’97) Fuel rate Coke rate Coal injection A BF down for hearth repair Decreasing Fuel rate

57. 57 Decreasing Slag rate

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63. 63 TARIFFS ItemCTC DubaiSila Eastern, Thailand GotanKatni FOB $/t6.57.5 Freight, $/t1211 Price at Port1160 356250 Rly Freight370 1463771 Si02o.360.771.193.86 Al2o30.240.21 0.68 CaO54.8254.3854.0650.17 MgO0.590.840.751.90 Total Alkali0.1550.1440.1400.238 Chemical Analysis %

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66. 66 World Steel Production Million tonnes 3% growth rate

67. Iron Ore: India Source: Tata Steel Karnataka Orissa Chattisgarh Goa Jharkhand Others Major Producers

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71. 71 Seaborne Coking Coal Demand to rise

72. 72 Seaborne Coking Coal Supply to increase mainly from Australia

73. 73 World Iron Ore and Steel Prices Source: Australian Commodities Vol 13, Mar ’ 06

74. 74 World Iron Ore and Coal Resources World Iron Ore Total Resource: 180 bt World Coal Total Resource: 1000 bt Source: National Mineral Inventory, IBM, 2003

75. 75 (*) Source: Economic Survey and RBI India has strong economic fundamentals like low inflation, high growth, strong financial sector, large forex reserves, high savings rate and young / knowledgeable workforce. Indian Economy poised to grow at a rate of ~ 8% The GDP growth rate is about 6.1% in last 10 years. Projected GDP growth in next 15 years ~ +8%

76. 76 Iron ore resources (mt) Indian iron ore Resources Most of the iron ore reserves are in reserve forest and environment sensitive areas making the actual availability of reserves much less Source: IBM estimates Total reserves – 23 bt Magnetite grades are 30-35% Fe Reserve Forest Wild Life Remaining Reserves ?

77. 77 Global Chrome Ore Reserves Source: Heinz Pariser

78. 78 Issues & Policies for meeting the growth demand Issues - Large capital requirement for a risk prone mineral industry with long gestation period -Lack of FDI inflow Policies reforms under consideration oImproving labor laws oEnforcing attractive R & R initiatives oReduction in import duties on mining equipment oAccelerated depreciation / Amortization benefits for pre- mining expenditure oSecurity of tenure FDI inflows in US $ Billion (1992-2002) Country1999200020012002 India44.54.24.4 China40414753 Total approved FDI in mining Rs 4044 cr / $ 919 million Actual Inflows Rs 343.6 cr / $ 78 million (only 8%) Source: Ministry of Mines (figs do not include coal projects)

79. 79 Domestic Coking Coal Domestic Iron Ore Imported Coking Coal Freight Constitutes a significant portion of the raw material cost

80. 80 NEGATIVE IMPACT OF FRAGMENTATION OF MINES Industry/players Country/society Government Negative impact of mine fragmentation Opportunity loss of royalty –Annually –Over the life of the reserve Under-exploitation of natural resource Inadequate reforestation of areas after mining with severe environmental impacts Higher cost of mining/processing Inability to undertake the following due to huge investments involved –Beneficiation of iron ore to maximize utilization of reserves –Reforestation of mined areas Inadequate availability of logistics infrastructure and higher cost due to their inability to give traffic guarantee

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88. 88 Projected Additional Steel Capacity 73.814.217.525.96.26.82.93.840Total 5.91.521.41.013.4EAF/IF, Others 5.023Others 3.21.6 Murugappa 5.05Vedanta 5.05Mitsui 12.0633Posco 1.0 1.8Bhushan 3.61.2 3.0RINL 1.91.20.70.4JSPL 1.3 2.5JVSL 5.241.22.4Essar 0.8 2.4 FY 09 E 0.8 FY 08 E 1.2 1.0 FY 07 E 1.0 0.8 FY 06 E 1 6 FY 12 E 1.22.4Ispat 6.61.0 10.8SAIL 16.97.74.2Tata Steel Total Additional CapacityFY 11 EFY 10 EFY 05 A Company Source: Industry data, Company data, Morgan Stanley estimates

89. 89 World Reserves of Major Minerals Mineral fuelsUoMWorldIndia% of World Coalbt100010210 Bauxitebt343.19 Manganese orebt50.48 Iron Orebt180137 Zinc & Leadbt3.40.27 Rare Earthsmt1101.31 Chromitebt110.11

90. Saleable Steel - Elements of Cost Net Material Cost 40% Others 60% Saleable Steel Raw Material is the major cost driver of saleable Steel

91. 91 Demand Supply of Fe Cr: World ( Forecast) The demand supply for Ferro Chrome is expected to increase

92. Saleable Steel - Net Material Cost Rs./TSS (Element, Rs./t, percentage) Net Material Cost 40% Others 60% Saleable Steel

93. 93 Forecast : Steel Consumption in BRIC Economies Growth in BRIC is enough to double the world consumption of steel by 2050.

94. 94 GDP of Brazil, Russia, India & China - expected to cross G-6 by 2036. China - Expected to attain global # 1 status in 2041 India - Expected to attain global # 3 status in 2032 CHINA US INDIA JAPAN RUSSIA BRAZIL 2032 : India takes over Japan 2041 : China takes over the US BRIC Theory: Progressive shift of world power centers to happen within next 3 decades. Source: Goldman Sachs Global Economy

95. 95 Demand Supply of Fe Cr: World ( Historical) The major New FeCr Capacities in pipeline till 2007 PlantCountryCapacity (MT) Year SA ChromeSA120,0002006 ASA MetalsSA65,0002006 Xtrata “Lion”SA330,0002006-07 TVLSA245,0002006 Tisco, R.Bay SA120,0002006 HernicSA160,0002005 Kaz ChromeKaz300,0002005-06 OutokompuFinland250,0002007 JindalIndia160,0002005-07 ChelyabinskRussia250,0002005-07 IMFA GroupIndia60,0002006 Nav Bharat FA India25,0002006 New capacities are coming up for ferro chrome

96. 96 World over the steel companies are using agglomerates in excess of 80%. Increasing use of agglomerates increases BF productivity and reduction of overall cost / tss. Enhanced use of agglomerates in big blast furnaces

97. 97 Raw Material demand in India to increase by 13% to meet the rise in steel demand Imperatives for 8% GDP Growth  Manufacturing must grow at 11%  This means a growth of 13% for Mining Industry if it has to contribute 5% to GDP by 2010 instead of 2.5% at present.  13% growth in mining has to be driven by few lead minerals such as coal, iron ore, supported by other minerals.

98. 98 Robust growth in infrastructure, power, construction and steel sectors will drive the Steel Demand Expenditure on Infrastructure In addition there will be investment for additional 25 mt capacity in steel itself by 2010. Potential for steel - 25-30% of the investment cost. Source: SSKISept’05 issue Construction sector will grow at CAGR of 15%. Incremental Steel demand for Power Sector

99. 99 Supply Logistics - Indian ore weakness 0 2 4 6 8 10 12 14 16 18 20 MarandooRobeCarajasSishenBailadilaReference MiningSSL FOB price (fines) FOB cost Mining costs are competetive SSL & FOB costs - Directly proportional Bleeding profitability