MONNET ISPAT & ENERGY LTD. CHALLENGES IN GROWTH OF INDIAN STEEL INDUSTRY SHRI AMITABH S MUDGAL SR. VICE PRESIDENT ( MKTG & CORPORATE AFFAIRS) MONNET ISPAT & ENERGY LTD. 11th August 2010 Hotel Le-Meridian New Delhi

INDEX Global Steel Scenario Global Steel Production 2009 Emerging Economies Scaling Up Indian Steel Sustained Steel Production over years Holistic Steel Prognosis Growth Drivers Indicators Infrastructure Spending Mineral Resources- Catalyst to Steel Growth Prospects For Indian Steel Industry Indian –An Attractive Destination For Steel Hub Production Route-Distribution Chart Brownfield & Greenfield Expansion Curve Sponge Iron In The Growth Of Indian Steel Industry MONNET-Doing Its Bits In DRI Production Growth Key Challenges & Road Ahead Lands Minerals & Mining Environment Infrastructure Others Conclusion

GLOBAL STEEL SCENARIO Global steel moved from sunset to sunrise industry between 2001-2007 with sustained 8% demand growth. Global crude steel production : 2009-1220 Mn. Mt ; 2008-1326 Mn. Mt- decline of 8 % China- the largest crude steel producer in the world - production 567.8 Mn. Mt, a growth of 13.5 % over 2008. The global recession and sever meltdown in the late 2007 -shifting the fortunes of global steel from the advanced to emerging markets.

GLOBAL STEEL GLOBAL STEEL PRODUCTION 2009

GLOBAL STEEL EMERGING ECONOMIES SCALING UP

Crude steel production (in Mn. Mt) Growth rate over last year (%) INDIAN STEEL SUSTAINED STEEL PRODUCTION OVER YEARS Year Crude steel production (in Mn. Mt) Quantity Growth rate over last year (%) 2005-06 46.46 6.96 2006-07 50.81 9.38 2007-08 53.86 5.98 2008-09 58.44 8.50 2009-10* 64.88 11.02 Source: Joint Plant Committee (JPC); * =Provisional

INDIAN STEEL HOLISTIC STEEL PROGNOSIS 2004-05 43.5 2.3 4.7 36.4 41.1 Year Production for sale Import Export Consumption Net Availability Surplus 2004-05 43.5 2.3 4.7 36.4 41.1 2005-06 46.6 4.3 4.8 41.4 46.1 2006-07 52.5 4.9 5.2 46.8 52.2 5.4 2007-08 56.1 7 5.1 52.1 58 5.9 2008-09 57.2 5.8 4.4 52.4 58.6 6.2 2009-10 59.7 7.3 3.2 56.5 63.8 Surplus Availability could have factored in on account of duplicate accounting of HR & CR Coil Production in certain terms. ( All figures in Mn. Mt ) Difference between global and domestic price evens out over a quarter in free market scenario. Low priced stock requirement and non-prime material are also imported and then segregated and sold as prime materials and this further exert pressure on price. Owning to excess availabilities and increase in raw material price, the margins of steel producers are increasingly under pressure for over one year.

GROWTH DRIVERS INDICATORS Current Domestic steel consumption was at 56.5 Mn. Mt increased by 7.8 per cent, which is likely to maintain its growth momentum. Present per capita consumption ( Year 2008) : India : 47 kg World :190 kg Developed Countries : 400 kg In 2008-09, per capita steel consumption in urban areas was 145 Kg, rural areas-only 3 Kg. 70% of Indian population in rural areas- increased steel usage for rural housing, panchayat hall, rural bridges, water and storage tanks etc The sectors like manufacturing,construction,consumer durables, capital goods, intermediate goods coupled with infrastructure spending to fuel growth in steel sector.

Infrastructure allocation (Rs. Lakh crore) GROWTH DRIVERS INFRASTRUCTURE SPENDING Year Infrastructure allocation (Rs. Lakh crore) As % of Plan Allocation 2001-02 0.34 33.9 2002-03 0.36 31.8 2003-04 0.54 44.9 2004-05 0.60 41.5 2005-06 0.70 48.6 2006-07 0.81 46.9 2007-08 0.86 41.9 2008-09 0.97 39.8 2009-10 1.55 47.7 2010-11 1.73 46.5 Allocations For Infra In The Union Budget

GROWTH DRIVERS MINERAL RESOURCES- CATALYST TO STEEL GROWTH World’s India is largely sufficient in raw materials for Iron and Steel Industry 25 billion tonnes of iron ore reserves - the fifth largest reserve base in the world 253 billion tonnes, (96 billion tonnes proven reserves) Coal- 4th largest proven coal reserves in the world World’s 2nd largest Mn reserves (240 million tonnes). 3rd largest Cr reserves (57 million tonnes). 4th largest bauxite reserves (2.4 billion tonnes). India is relatively under-explored in terms of mineral prospecting.

PROSPECTS FOR INDIAN STEEL INDUSTRY INDIA-AN ATTRACTIVE DESTINATION FOR STEEL HUB India -currently the 5th largest producer of crude steel in the world and is expected to become the 2nd largest producer of crude steel in the world by 2015-16. The Iron and Steel Industry : Around 2 % of the Gross Domestic Product (GDP) Around 6.2%- its weight in IIP. Around 3.64 %- its weight in WPI GDP growth pegged at 8.5 % in the current year and higher in the subsequent year. The growth rate in steel consumption in India would be highest in the world surpassing China in 2011-12.

PROSPECTS FOR INDIAN STEEL INDUSTRY PRODUCTION ROUTE- DISTRIBUTION CHART Distribution Pattern is likely to be similar after completion of capacity expansion upto 124 Mn Mt.

PROSPECTS FOR INDIAN STEEL INDUSTRY BROWNFIELD & GREENFIELD EXPANSION CURVE CRUDE STEEL CAPACITY - Envisaged for 2011-12 ( In Mn. Mt) Investor Existing Capacity Expansion Plant Total Capacity   Brownfield Greenfield 2011-12 SAIL 12.84 12.00 24.84 RINL 2.90 3.40 6.30 Tata Steel 6.80 3.20 3.00 13.00 Essar 4.60 3.90 6.00 14.50 JSW Ltd 6.90 4.10 11.00 JSPL 2.40 4.80 3.25 10.45 Ispat 2.00 5.00 BSPL 1.20 2.80 4.00 Bhushan Steel Ltd 0.80 5.20 MIEL 0.60   1.50 2.10 Others & Secondary 22.40 4.47 26.87 64.44 34..9 24.72 124.06 Given the current status, the expected capacity by 2011-12 is likely to be in the region of 110 Mn. Tonne

PROSPECTS FOR INDIAN STEEL INDUSTRY SPONGE IRON IN THE GROWTH OF STEEL INDUSTRY Largest producers of Sponge Iron-21 Million Tonne 1/3 of total steel is by DRI route. Limited reserves of coking coal, resulting in unpredictable prices. Sponge iron uses non-coking coal, and iron ore fines - palletized form or directly Difficult availability and high cost of scrap. DRI is more consistent in composition low tramp elements and environment friendly. Uniform size of sponge iron enhance productivity and support usage of low grade scrap. Average IF furnaces uses 60 % sponge iron as metallics.

PROSPECTS FOR INDIAN STEEL INDUSTRY MIEL- DOING ITS BIT IN DRI PRODUCTION GROWTH 2nd Largest Coal based Sponge Iron Manufacture Forward integration by setting up its integrated steel manufacturing facility of 1.5 Mn Tonne at Raigarh. Upon completion ( March’11) , through BF/DRI-EAF route will add high- quality long and flat steel : Plate : 6,00,000 tonne p.a HR Coil : 2,50,000 tonne p.a QST Rebars : 5,00,000 tonne p.a Blooms & Rounds : 1,50,000 tonne p.a New capacity addition : 1.5 MT ( Orissa), : 1.5 MT ( Jhk)

KEY CHALLENGES & ROAD AHEAD LAND Limited and with multiple use. Non-willingness of owners to sell. Local issues- Social & Political. Compensation packages - amicably with fair market price & employment. Overlapping responsibilities between State and Central Govt.

KEY CHALLENGES & ROAD AHEAD MINERALS & MINING Resources available with some of the poorest states. Mineral resources exploitation through Inclusive & Sustainable Approach to improve overall well-being. Faster grant of prospecting lease-mining lease. Limited availability of Coking Coal Indian Coal with high ash has limitations in terms of CO2 emissions. Development of processes using non coking coal / natural gas. Increase usage of Iron Ore Fines-to reduce wastages Increase palletisation and beneficiation to augment production and productivity.

KEY CHALLENGES & ROAD AHEAD ENVIRONMENT ISSUES Selection of plant site-effect on neighborhood, ecology and communication facilities. Space for water treatment & recycling, solid waste disposal. Pollution control measures-Pollution can not be completely eliminated- only levels can be reduced. Upto 15% cost of capital equipment is being incurred on pollution control devices. Obtain clearances by State Govt. & other Govt. agencies (viz. pollution control board, forest deptts. etc) and Central Govt.

KEY CHALLENGES & ROAD AHEAD INFRASTRUCTURE Augment capacity and efficiency of rail, ports, roads to match capacity development. Steel plants to augment their infrastructure to ensure full utilization of assets of logistics providers. Explore environment-friendly transportation alternatives ( Viz Waterways, Slurry through pipes etc). Build infrastructure - to meet transport requirement for bulky equipment and finished goods. Co-ordination between producers, logistic providers and government concerning policies and execution

KEY CHALLENGES & ROAD AHEAD OTHERS Adequate availability of power, water. Low Level of R&D in steel in India. India mostly in seismological zone-Additional costs, earthquake resistant structures. Rising cost of inputs materials –may not be compensated by rise in steel prices. As a consequence, lower growth in production / fresh capacity than demand growth may cause severe market distortions. Rising inflation Better governance, delivery system & effective implementation.

CONCLUSION Delays and costs involved in land acquisition, Raw Material linkages, Statutory clearances and shortfalls in development of infrastructure could adversely affect project viability. This ,in turn, inhibit creation of additional capacities. For the business to survive, The production process and systems have to be efficient. Only energy-efficient process can produce finished material to tightly controlled specification at lowest cost . Imperative to address environment issues. Steel Industry in India can survive- if it is globally competitive in terms of costs and quality, which can only happen if the challenges are suitably addressed.

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