Abstract
Indian metals industries are performing strongly and are set for double-digit growth rates from 2010 as
capacity expands and demand soars, according to BMI's latest India Metals Report.
The government's fiscal stimulus has had a positive and immediate impact on Indian industry. In June,
India's industrial output grew at the fastest pace for 16 months, with growth at 7.8% representing the six
consecutive month of growth. Industrial growth has helped to boost steel consumption, which rose 5.8%
y-o-y to 17.31mn tonnes in the April-July period. In turn, production grew 3.8% y-o-y to 18.8mn tonnes.
Imports and exports fell 3% and 41.3% to 1.99mn tonnes and 925,000 tonnes, respectively.
BMI forecasts year-end finished steel consumption of 62.2mn tonnes, an increase of 6.0% y-o-y, with H2
set for stronger rates of growth and a recovery in longs as construction picks up in Q4. The industry is
becoming ever more focused on the domestic market, with 4.8mn tpa of new capacity due to come online
in FY2009/10. For the 2009 calendar year, BMI is forecasting a 1.9% rise in steel output to 56.1mn
tonnes, due in large part to the 12.4% drop in output in Q1. Exports will fall by around 32% to 5.2mn
tonnes in 2009 as a result of the global downturn, but this will be offset by the rise in consumption. In
FY08/09, flat product imports fell 20% to 4.32mn tonnes, due to a 23% fall in hot rolled coil to 2.2mn
tonnes and a 33% fall in plates to 947,390 tonnes. However, imports of hot rolled sheet surged 341% to
51,680 tonnes, imports of cold rolled sheet and coil rose 214% to 612,980 tonnes and imports of tinplate
grew 9% to 52,160 tonnes. Electrical steel imports fell 6% to 185,500 tonnes. India also imported 506,380
tonnes of longs, down 4.3%. China was the largest steel exporter to India, followed by South Korea and
Japan.
In the aluminium sector, there remains a significant danger of medium-term over-capacity due to projects
pursued by the three major players, Hindalco, Vedanta Resources and Nalco. Nevertheless, aluminium
producers are currently still able to report a profit margin, despite prices plunging. Indian aluminium
producers can produce aluminium at a cost of US$1,000-1,200 due to the country's plentiful bauxite
resources, which is half the cost of Chinese production.
BMI is highly optimistic about India's long-term potential, which rests on the country's abundant high
quality iron ore and bauxite, high level of skills and relatively low capital costs owing to low land and
construction costs. However, greater rationalisation, cuts in logistics and raw materials costs and
increasing value-added products will be key strategies for overcoming the downturn. In the long-term,
further consolidation is expected with M&A activity and greater vertical integration between mining and
the production of finished products leading to economies of scale. This will be essential in making India a
producer for the global market, which will support growth after the economic crisis.
Following BMI's revision in forecasts, we believe that output in the 2011 calendar year will reach
78.3mn tonnes, and by 2013 it should reached around 107mn tonnes, fuelled by new capacity additions.
This would represent a rise in output of 94% over the five-year period and make India more self-sufficient
in crude steel, leading to a stagnation in imports at around 7.2-7.3mn tonnes. At the same time, hot-rolling
capacity is set to rise 74% to 97.9mn tonnes. Strong growth in output should ensure that Indian steel
exports exceed 10mn tonnes in 2013, continuing to represent around 10% of output.
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