Sunteți pe pagina 1din 4

Corporates 

Metals & Mining 
India 
India Steel Outlook 2010
Special Report  Stable but Cautious; Driving Home the India Advantage 

Ratings  Summary 
National Long‐Term Fitch Ratings takes a stable outlook on the Indian steel industry in 2010, in the
National Sector Rating/Outlook/ wake of a continuing improvement in steel demand and recovery in prices from the
Coverage Short‐Term Rating lows of Q408 and Q109 — and with a resulting improvement in overall liquidity.
Adhunik Alloys and BB+(ind)/Stable/F4(ind)
Power Limited
Adhunik Corporation BB(ind)/Stable/F4(ind) The agency expects demand to exceed that of 2009, but uncertainty remains
Ltd regarding the rate of growth — which in turn would be driven by the timing of the
Adhunik Metaliks A‐(ind)/Negative/
Limited F2+(ind)
withdrawal of the fiscal stimulus and to what extent private demand picks up. The
Ambica Steels BB+(ind)/Stable/F4(ind) timing of the withdrawal of fiscal benefits, in particular, would remain critical.
Limited With inflationary pressures likely to perculate through from food to the general
Asian Colour Coated BBB‐(ind)/Stable/
Ispat Limited F3(ind) economy, government policies on tackling inflation through reduction in import
Bhushan Power & A‐(ind)/Stable/F2+(ind) duties could also have a potential impact on the fortunes of the industry during
Steel Limited
Bhushan Steel A(ind)/Stable/F1(ind) 2010.
Limited
Brahmani River BB+(ind)/Negative Fitch notes that though steel prices in India during Q409 were higher than
Pellets Limited
Gontermann‐Peipers BBB+(ind)/Stable/
international prices — driven to a large extent by the improving demand scenario in
(India) Limited F2+(ind) the region and the existence of import duties — the agency feels that the trend will
ISMT Ltd A(ind)/Negative/F1(ind) correct itself over 2010, and for domestic prices to largely mirror international
Mahindra Ugine BBB+(ind)/Negative/
Steel Company Ltd F2(ind) prices, notwithstanding the difference on account of import duties.
Rashtriya Ispat AA(ind)/Stable/F1+(ind)
Nigam Limited Consequently, while Fitch expects demand to improve in 2010, profitability could
Rungta Mines Ltd. AA(ind)/Stable/F1+(ind)
(RML) come under pressure — which in turn could be accentuated by the increase in prices
Rungta Sons Pvt Ltd AA‐(ind)/Stable/ of raw materials. Liquidity, however, should remain comfortable — with better
F1+(ind)
Steel Authority of AAA(ind)/Stable/
working capital management and greater access to debt and equity markets. Fitch
India Limited F1+(ind) expects capex plans to be reactivated, which had been put on hold during 2009,
Tata Steel Limited AA(ind)/Negative/ though regulatory delays may continue to delay the actual spending on the ground.
F1+(ind)
Usha Martin Limited A+(ind)/Stable On balance, Fitch expects the outlook on corporate ratings to remain largely stable.
Uttam Galva Steels A‐(ind)/Stable/
Ltd. (UGSL) F1(ind) Fitch also believes that, with the kind of capacity expansion projects in the pipeline,
Vikash Metal and BBB‐(ind)/Stable/
Power Limited F3(ind)  there is the potential risk of long‐term over‐capacity — which could put prices
under pressure. However, the agency notes that delays on account of regulatory
Analysts  approval for land and mine allocations — and the potential to export from a low
cost base — could act as potential mitigants. 
Vibhash Awasthi
+91 22 4000 1700
vibhash.awasthi@fitchratings.com The Worldwide Steel Sector – the Worst is Behind us, but 
Ashish Upadhyay
so may be the Best 
+91 11 4165 7230 This is an extract from Fitch’s “Worldwide Steel Outlook” published in December
ashish.upadhyay@fitchratings.com
2009.
Rohit Sadaka
+91 33 40065885 “Fitch Ratings expects demand for steel to recover from low levels at a modest pace
rohit.ssdaka@fitchratings.com 
over the next 12−18 months, but not to reach peak levels in the medium term. Pricing
should be constrained by excess capacity, but raw material cost increases are expected
Related Research to be passed through. Excess or below‐cost production should be limited.
· Worldwide Steel Outlook (December 2009)
Regional differences in steel market dynamics have re‐emerged, and will be a
major influence on steel producers’ profitability and cash flow generation.
Worldwide steel trade has fallen by more than production, as a result of sharply
lower demand in importing nations, coupled with low capacity utilisation and short
lead times at domestic steel mills. Producers relying on exports will be exposed to
price competition approaching marginal cost; intensifying trade barriers; and
currency fluctuations. 

www.fitchratings.com  20 January 2010 
Corporates
Steel producer earnings were severely affected over the past year, but most
companies rated by Fitch improved their liquidity through cost reductions, working
capital management, dividend reductions, spending reductions, capital raisings,
and/or credit facility amendments. These measures should serve well over this
period of slow recovery, and financial leverage should decline over the year.
Ratings remain under pressure given the severity of the downturn and limited
visibility on the recovery.
Fitch continues to monitor recovery in each market, and assesses each Issuer
Default Rating (IDR) and Rating Outlook based on the issuer’s ability to return to its
average credit profile given its operations, strategy, competitive position, capital
structure, and liquidity.
Global steel production peaked in May 2008, whereas real global demand likely
peaked in 2007. For the world excluding China, Fitch does not expect demand to
reach peak levels again until 2013 at the earliest — given the declines expected in
construction for developing nations, and the slow recovery in other manufacturing
sectors (eg autos).
Iron ore also continued to display price volatility during 2009. With China fixing up
long‐term contracts for iron ore during H209, this benefited Indian exporters. In
China, landed spot prices of iron ores imported from India have been increasing
since October to over USD100 per tonne. Fitch believes that the 2010 benchmark
iron ore price settlement will be in the range of 15%−20% higher than the current
benchmark of USD54/metric tonne (mt) free on board (FOB) contract price settled
by Vale, or the USD62/mt FOB contract price settled by Rio Tinto in 2009.
Fitch expects benchmark hard‐coking coal contracts to be settled about 30%−50%
higher for JFY2010 than JFY2009, reflecting currency movements as well as tight
supply. The wide range allows for more swing production, including that from China.
Fitch believes steel prices will approximate the marginal cost of production, while
capacity utilisation is below 75%. Given expectations of increased iron ore and
metallurgical coal prices, Fitch believes US hot‐rolled sheet will trade at an average
USD600/mt in 2010.” 

India in the Global Context 
Despite facing severe demand pressure during Q408 and Q109, the domestic steel
industry has recovered faster than its global peers. Furthermore, manufacturers
exposed to domestic markets fared relatively better than those which were export‐
focused. Once the impact of high‐cost inventory was absorbed in Q109, most Indian
steel manufacturers were able to improve their margins in subsequent quarters —
on account of improving demand.
Fitch also notes that while many steel majors postponed or delayed their expansion
plans in 2009, these plans could be re‐initiated in 2010 — though most of the spend
may actually occur beyond end‐2010. This could potentially put pressure on
leverage post‐2010.
India Steel Production Consumption and Demand – Set to Grow
CY2009ª India’s per capita consumption of steel at approximately 45kg remains considerably
CY2008 below the global average of 200kg. This provides a huge potential for an increase in
CY2007 demand in the country, as steel demand has a strong correlation with the GDP
CY2006
growth rate. With India’s GDP growth rate expected to be higher in 2010,
CY2005
CY2004
consumption of steel is likely to grow to 60 million tonnes from 56 million tonnes in
2009. During 2009, exports contributed another 3.75 million tonnes.
0 15 30 45 60
(MTPA) The present gap between existing demand and supply does create an opportunity
ª Estimated for price increases, but this remains capped by the global nature of the product and
Source: IISI
oversupply in the global markets.

India Steel Outlook 2010


January 2010  2 
Corporates
Interest Cover Existing and Estimated Capacities – Risk of Long‐Term Over‐Capacity
Combined revenue ‐ Top 7 players Fitch believes that India’s steel industry may be headed for over‐capacity in the
(x)
medium‐ to long–term, which could bring prices under pressure. With existing
9 capacity at approximately 66 million tonnes, the increase in demand could
potentially push up prices. However, while there have been a number of
6
investments announced in the nature of greenfield and brownfield projects, some
3 of the greenfield capacities may get delayed on account of regulatory and policy
0 constraints; while the brownfield projects (of approximately 33 million tonnes) are
CYQ308 CYQ408 CYQ109 CYQ209 CYQ309 more likely to materialise by 2011‐2012 — which could potentially lead to excess
Source: Industry supply. In the event that some of the large greenfield investments do come through,
the risks could only increase. However, mitigating factors could include the low‐
cost base of the producers, which may help them to export a substantial proportion
Revenue Trends
of production.
Combined revenue ‐ Top 7 players
producers
Production – Set to Grow With Demand
(INRm) India’s steel production, which grew at a compound annual growth rate (CAGR) of
36,000
11% during 2004‐2008, remained largely muted during 2009, reflecting the global
27,000
18,000
scenario. The effects of the economic slowdown were clearly visible in production
9,000 data during 2009. As per the International Iron & Steel Institute (IISI), India’s crude
0 steel production grew by around 1.26% to 51.19 million tonnes in the 11‐month
CYQ308

CYQ408

CYQ109

CYQ209

CYQ309

period ended November 2009 versus the same period in 2008. However, crude steel
production in India started recovering from March 2009, and since then monthly
Source: Industry crude steel production has consistently been over 4.6 million tonnes (up to
November 2009).

Steel Capacities in India ‐ 2009


Existing capacity Brownfield 2011‐12 Greenfield 2011‐12
(MTPA)
30
25
20
15
10
5
0
SAIL RINL TATA Essar Steel JSW Steel JSPL Ispat Bhushan Bhushan Other +
Steel India Industries Power & Steel Ltd. secondary
Steel steel

Source: Ministry of Steel, India

Profitability
Fitch believes that profitability could adjust to a certain extent, but should still
remain relatively comfortable. During the Q209 and Q309, most of the steel majors
have reported a qoq increase in operating EBIDTA margins. Prices of the major raw
material prices, iron ore and coke, reached new highs during Q308; and with
demand estimated to have been strong during that period, steel manufacturers
piled up inventories at a high cost. With raw material prices dipping significantly
during Q408, steel manufacturers had to face a scenario of a high‐cost inventory
Op. EBIDTA Margins Trends build‐up — which resulted in inventory losses spanning Q408 and Q109. However,
Combined revenue ‐ Top 7 players with steel prices firming up from Q209, and with the impact of the high‐cost
(%) inventory being relatively lighter, steel manufacturers started enjoying better
40 profitability which continued through to Q309. With commodity prices firming up in
30 this same period, there is a possibility that steel manufacturers may not be able to
20 maintain the qoq trend increase in profitability.
10
0 Regulatory Changes
CYQ308 CYQ408 CYQ109 CYQ209 CYQ309 The Government of India has used indirect means to control steel prices in India
Source: Industry through duty structure and import‐export regulations.

India Steel Outlook 2010


January 2010  3 
Corporates
The government prevented steel prices from rising in line with international prices
during April‐May 2008, by removing import duties on steel and threatening
companies with a complete ban on exports. During that period, the government
also increased export duties to 15% for various products — to ensure higher
availability in the domestic market.
However, since April 2009, government has taken various initiatives to protect the
domestic industry: by removing export duties on various products, increasing import
duties to check imports of cheap steel, and bringing hot‐rolled coils imports under
licence. This helped domestic companies to maintain higher utilisation levels, and
also to maintain a premium over global steel prices.
After seeing a 10%‐15% jump in steel prices during 2009, the government (during
January 2010) has allowed unrestricted imports of hot‐rolled steel, mainly used by
auto and consumer durables industries, which were planning price hike to offset
rising raw material costs. The government has also increased export duties on iron
ore (lumps as well as fines), to increase its supply in the domestic market — which
will help in lowering the input cost for steel manufacturers.
Another key event for the industry would be when the government starts
withdrawing its stimulus packages, and how quickly private demand could
compensate for this. This will be a true test for demand situation. On the other
hand, the government will also have to take several steps to stop cheap imports —
which can be a concern for the secondary steel manufacturers.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ
THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND
THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT
WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM
THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST,
AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO
AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.
Copyright © 2010 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1‐800‐753‐4824,
(212) 908‐0500. Fax: (212) 480‐4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights
reserved. All of the information contained herein is based on information obtained from issuers, other obligors, underwriters, and other
sources which Fitch believes to be reliable. Fitch does not audit or verify the truth or accuracy of any such information. As a result, the
information in this report is provided "as is" without any representation or warranty of any kind. A Fitch rating is an opinion as to the
creditworthiness of a security. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically
mentioned. Fitch is not engaged in the offer or sale of any security. A report providing a Fitch rating is neither a prospectus nor a
substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the
securities. Ratings may be changed, suspended, or withdrawn at anytime for any reason in the sole discretion of Fitch. Fitch does not
provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on
the adequacy of market price, the suitability of any security for a particular investor, or the tax‐exempt nature or taxability of payments
made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating
securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch
will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single
annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment,
publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with
any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of Great Britain, or
the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research
may be available to electronic subscribers up to three days earlier than to print subscribers.

India Steel Outlook 2010


January 2010  4 

S-ar putea să vă placă și