Steel Industry: An overview
Global Overview
- In January-Oct 2019, the world crude steel production reached 1541.77 million tonnes (mt) and showed a growth of 3.2% over January-Oct 2018.
- China remained world’s largest crude steel producer in same period (829.21 mt) followed by India (93.31 mt), Japan (83.79 mt) and the USA (74.07 mt).
- World Steel Association has projected Indian steel demand to grow by 5% in 2019 while globally, steel demand has been projected to grow by 3.9% in 2019. Chinese steel use is projected to show 7.8% growth in 2019.
- Per capita finished steel consumption in 2018 was 224.5 kg for world and 590.1 kg for China (Source: World Steel Association). The same for India was 74.1 kg in 2018 (Source: JPC).
Top 10 Countries according to their Steel Making capacity (2019)
Country | Crude steel Capacity MT |
China | 1023.4 |
India | 128.1 |
Japan | 128.1 |
United States | 112.6 |
Korea | 87.9 |
Russia | 84.5 |
Germany | 51.9 |
Brazil | 50.7 |
Turkey | 48.9 |
Ukraine | 42.5 |
Top 10 Steel producing countries in the world (2019)
Country | Steel produced MT |
China | 928.3 |
India | 106.5 |
Japan | 104.3 |
United States | 86.7 |
Korea | 72.5 |
Russia | 71.7 |
Germany | 42.4 |
Turkey | 37.3 |
Brazil | 34.7 |
Iran | 25 |
Total World Production:
World crude steel production was 1,391.2 Mt in the first nine months of 2019, up by 3.9% compared to the same period in 2018. China’s crude steel production for September 2019 was 82.8 Mt, an increase of 2.2% compared to September 2018. India produced 9.0 Mt of crude steel in September 2019, up 1.6% on September 2018. Japan produced 8.0 Mt of crude steel in September 2019, down 4.5% on September 2018. South Korea’s crude steel production was 5.7 Mt in September 2019, a decrease of 2.7% on September 2018.The US produced 7.1 Mt of crude steel in September 2019, a decrease of 2.5% compared to September 2018.
Demand:
In 2018/19, the global steel consumption rose 4% to 1.792 billion tonnes. There was a stable growth in consumption in North America and emerging markets of Asia. The Chinese demand for steel was up 5.5% despite the economic slowdown.After two years of rising steel consumption, the slow economic growth, lending restrictions in China, trade disputes, and the slowdown in the automobile sector slowed down the demand for steel globally. The steel consumption was however forecast to grow at a slower rate in 2019.
Indian Scenario
Industry Analysis:
India was the world’s second-largest steel producer with production standing at 106.5 MT in 2018. The growth in the Indian steel sector has been driven by domestic availability of raw materials such as iron ore and cost-effective labour. Consequently, the steel sector has been a major contributor to India’s manufacturing output.
The Indian steel industry is very modern with state-of-the-art steel mills. It has always strived for continuous modernisation and up-gradation of older plants and higher energy efficiency levels.
The Indian steel industry has entered into a new development stage, post de-regulation, riding high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the 2nd largest producer of crude steel during 2018, from its 3rd largest status in 2017. The country is also the largest producer of Sponge Iron in the world and the 3rd largest finished steel consumer in the world after China & USA.
Demand:
ICRA, in their report on the steel sector said that the demand for steel in India could grow at the slowest pace in three years as an economic slowdown in the global industry’s bright spot deepens. Steel consumption in India is likely to increase by less than 6% this fiscal year. That would make it the slowest pace since a 3.1% increase in the year ended March 2017. However, the profitability of steelmakers may recover somewhat in the third quarter of 2019-20, with a sharp fall in prices of coking coal, key steel-making ingredient, in August 2019, and expectation of better demand from the construction sector during that quarter, it said.
“The domestic steel consumption growth is expected to decelerate to around 5 per cent-6 per cent in FY2020 as compared to 7.9 per cent in FY2019, on the back of an unprecedented slowdown in economic activity, as reflected by GDP (Gross Domestic Product) growth tapering down to 5 per cent in Q1 FY2020,” ICRA said in the report.
The decline in steel prices and seasonally weak demand are also likely to keep second quarter financial performance muted for the domestic steelmakers. Given the challenges prevailing at present, it is estimated that the industry’s operating margin may decline to around 18 per cent in 2019-20, compared with 23 per cent in the previous financial year, and demand worries will continue to keep steel prices under pressure, which are currently trading at a discount to imported offers.
In 2019-20, domestic iron ore prices are expected to remain range-bound and there is a possibility of an ore supply deficit in the next fiscal, if mine auctions are delayed. On the other hand, blast furnace players would benefit in H2 from a steep correction in coking coal prices in recent months.
India’s crude steel production grew 3.3% to 106.56 MnT in FY 2018-19, making it the world’s second largest steel producer, behind China. Steel exports fell 26.4% to 8.54 MnT as global demand weakened due to geopolitical uncertainties and additional tariffs on imports by the US. Finished and semifinished steel imports rose by 4.6% to reach 8.79 MnT. The domestic market saw rising imports from China, Japan and Korea.
Company Analysis:
There are 3 major players in the Indian Steel Industry and they are listed on the stock exchange. Here are some insights from the Indian players of the steel industry and their productions and capacities.
Tata Steel Ltd
Tata Steel | |||||||||
Year | FV | Equity Capital | Net Worth | Total Sales | PAT | BV | EPS | % change in Revenue | % change in Profit |
Rs | Rs Cr. | Rs Cr. | Rs Cr. | Rs Cr. | Rs | Rs | % | % | |
2020 H1 | 10 | 1145 | 72644 | 70961 | 4739 | 634.48 | 41.39 | (0.08) | (0.06) |
2019 H1 | 10 | 1145 | 66292 | 77105 | 5017 | 579.00 | 43.82 |
- World’s second-most geographically diversified steel producer
- Commercial presence in over 50 countries with employees across five continents
- Lowest cost producer of steel in Asia
- Second largest steel producer in Europe with a crude steel production capacity of over 12.1 MTPA
- Crude steel production of 26.4 million tonnes in Q2 FY19
- Tata Steel has manufacturing units at Jamshedpur, Jharkhand and Kalinganagar, Odisha with production capacities of 10 MnTPA and 3 MnTPA, respectively.
- During Financial Year 2018-19, Tata Steel acquired Bhushan Steel Limited. (Renamed as Tata Steel BSL Ltd)
- Tata Steel group acquired the steel business of Usha Martin Limited through one of its subsidiaries Tata Sponge &Iron Ltd. This move helps the Company to create a globally competitive long products business focussed on value-added and differentiated products while achieving cost competitiveness.
- During the year, the company commenced the Tata Steel Kalinganagar Phase II expansion project to augment the cumulative capacity of the Kalinganagar plant from 3 MnTPA to 8 MnTPA.
- T V Narendran is the CEO & MD of the Company.
The operations capacity of the company is as follows:
Operations | FY19 | FY18 | % Change |
Mn Tonnes | |||
Hot Metal | 14.24 | 13.86 | 3 |
Crude Steel | 13.23 | 12.48 | 6 |
Saleable Steel | 12.98 | 12.24 | 6 |
Sales | 12.69 | 12.15 | 4 |
Production & Sales of Tata steel Bhusan Steel Ltd is as follows:
Operations | FY19 |
Crude Steel | 3.58 |
Saleable Steel | 3.5 |
Sales | 3.57 |
JSW Steel Ltd
JSW Steel | |||||||||
Year | FV | Equity Capital | Net Worth | Total Sales | PAT | BV | EPS | % change in Revenue | % change in Profit |
Rs | Rs Cr. | Rs Cr. | Rs Cr. | Rs Cr. | Rs | Rs | % | % | |
2020 H1 | 1.00 | 240 | 33369 | 33565 | 4356 | 139.04 | 18.15 | (0.14) | (0.03) |
2019 H1 | 1.00 | 240 | 26512 | 39048 | 4471 | 110.47 | 18.63 |
- India’s largest steel exporter
- Production capacity of 18 MTPA
- Crude steel production of 4.17 million tonnes in Q4 FY19, achieving 16.69 MT in fiscal year 2018-19.
- During the year, JSW Steel Coated has installed and commissioned a Tin Plate Mill of 0.25 MTPA and related facilities at itsTarapur Work to cater to the increasing demand for the tin plate. The total project cost incurred is Rs 575 crores.
- Mr Sajjan Jindal is the Chairman & MD of the company.
Steel Authority of India Ltd
SAIL | |||||||||
Year | FV | Equity Capital | Net Worth | Total Sales | PAT | BV | EPS | % change in Revenue | % change in Profit |
Rs | Rs Cr. | Rs Cr. | Rs Cr. | Rs Cr. | Rs | Rs | % | % | |
2020 H1 | 10 | 4131 | 39232 | 29280 | (183) | 94.98 | (0.44) | (0.11) | (1.16) |
2019 H1 | 10 | 4131 | 36851 | 32842 | 1162 | 89.22 | 2.81 |
- Largest steel producer in India
- Five integrated steel plants
- Crude steel production 3.930 MT in Q1 FY20
- Anil K Choudhary is the Chairman of the company.
Production Breakup for SAIL
(Unit : ‘000T)
Peer Comparisons :
Particulars | Tata Steel Ltd | JSW Steel Ltd | SAIL |
Face Value (Rs) | 10 | 1 | 10 |
CMP (Rs) | 430 | 260 | 40 |
52 Week H/L (Rs) | 560.35/320.3 | 313.4/201.9 | 60.1/29.5 |
Market Cap (Rs Crs) | 48918 | 62666 | 16851 |
Promoter Holding % | 33.12 | 42.4 | 75 |
Equity Cap (Rs Crs) | 1144.94 | 301 | 4130.53 |
Networth (Rs Crs) | 66650 | 34795 | 39646 |
Debt (Rs Crs) | 91146 | 35989 | 41434 |
Sales (Rs Crs) | 159060 | 84961 | 67468 |
PAT (Rs Crs) | 9098 | 7524 | 2349 |
EBITDA (Rs Crs) | 29770 | 18952 | 10283 |
EBITDA Margin | 19% | 22% | 15% |
EPS (Rs) | 79.5 | 25.0 | 5.7 |
BV (Rs) | 582 | 116 | 96 |
P/E | 5.4 | 10.4 | 7.0 |
P/BV | 0.7 | 2.2 | 0.4 |
ROE % | 14 | 22 | 6 |
Debt/ Equity times | 1.4 | 1.0 | 1.0 |
Current Scenario:
The US-China trade war, slow global economy and a prolonged subdued demand took away the shine of steel in recent times but brokerages and experts are now seeing a spark of revival in the sector.
In a report on December 6, Edelweiss Securities said that the US-China trade war had not reduced the steel trade in Asia. Besides, China’s production rate had likely reached it’s peak and the construction demand in the first half of the calendar year 2020 could even surpass the estimates. Also, low raw material prices are helping maintain the margins in China. All these factors augur well for steel manufacturers, as a stable market balance in China is critical for them.
Despite unenthusiastic auto sector growth in CY20, the property construction to drive consumption is expected to grow. The iron-ore prices have stayed robust in 2019 mainly because of the disruptions at Vale, the world’s largest ore miner.
Furthermore, a higher profit margin of steel mills amid pollution concerns has led to the widening of discount between higher grade and lower grade ore. Unless winter cuts are undermined in China, iron ore and coking coal prices are likely to trend lower, resulting in higher margins for steel players.
In India, while prices are off the lows, but demand is still subdued. Imports are also likely to be constrained by protectionist measures. However, exports are imperative given the surplus production, particularly for flat producers. Owing to the weak domestic demand environment and surplus production, Indian players are increasingly tapping exports markets. In the last three months, India exported steel to the extent of 1mt per month, whereas imports gradually halved to 460kt. Subdued demand in the Indian market in the light of weak macroeconomic environment remains a concern for steel. A revival in major consumers such as auto and realty sectors is also important for the revival of the metal manufacturers. Hope of a demand revival is supporting.
Conclusion:
Construction industry is the largest consumer, accounting to approximately 50% of the world’s steel consumption. Following it is the transport, machinery and metal products industry. The wide range of continuing infrastructure projects is likely to support growth in steel demand in India in 2020. This is because the government has allocated, Rs. 4,50,000 Cr. for the infrastructure development of the country which was allocated in the interim budget FY2019/20.
References:
- https://steel.gov.in/overview-steel-sector
- https://www.worldsteel.org/en/dam/jcr:96d7a585-e6b2-4d63-b943-4cd9ab621a91/World%2520Steel%2520in%2520Figures%25202019.pdf
- https://www.worldsteel.org/en/dam/jcr:7aa2a95d-448d-4c56-b62b-b2457f067cd9/SSY19%2520concise%2520version.pdf
- https://www2.deloitte.com/content/dam/Deloitte/ru/Documents/research-center/metals-1h-2019-en.pdf
- https://www.oecd.org/industry/ind/steel-market-developments-Q2-2019.pdf
- https://en.wikipedia.org/wiki/List_of_countries_by_steel_production
- https://economictimes.indiatimes.com/industry/indl-goods/svs/steel/india-replaces-japan-as-second-top-steel-producer-worldsteel/articleshow/67721395.cms?from=mdr
- https://economictimes.indiatimes.com/markets/commodities/news/steel-demand-to-improve-in-h2-but-weak-h1-expected-crisil/articleshow/71293317.cms?from=mdr
- https://www.oecd.org/industry/ind/steel.htm
- https://stats.oecd.org/Index.aspx?datasetcode=STI_STEEL_MAKINGCAPACITY#
- https://economictimes.indiatimes.com/markets/stocks/news/steel-demand-set-for-slowest-growth-in-3-years/articleshow/70846292.cms?from=mdr
- https://www.ibef.org/download/steel-jan-2019.pdf
- https://www.moneycontrol.com/news/business/markets/signs-of-recovery-and-hope-are-steel-manufacturers-finally-ready-to-shine-4714771.html
- https://www.thehindubusinessline.com/economy/indias-steel-consumption-growth-likely-to-slow-to-6-per-cent-icra/article29450791.ece
- https://www.spglobal.com/platts/en/market-insights/latest-news/metals/110119-iron-ore-prices-to-be-quite-a-bit-lower-next-year-steel-to-moderate-citi