Raw materials outlook for India

- A Review
A D Baijal
VP (Raw Materials)
Tata Steel

IISI-OECD CONFERENCE
Date: 17th May, 2006

1
Presentation Outline

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

2
Global steel demand poised for robust growth

Crude Steel Production (Million Tonnes)

1,200

1,000
The Early The 1st The 1st The 2nd The 2nd
Years Plateau Surge Plateau Surge
800

600
CAGR 5
CAGR %
CAGR 1%
400 CAGR 7%
CAGR 2%
5%
Fall of
200 Great USSR
WW 2 Oil Crisis Asian
Depression
WW 1 Financial
Crisis
0
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

3
The Global Economic Forecast: Asia poised to be the
emerging power house of growth
Message

Unit of measure

• 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
* Footnote

• India, Malaysia and China will post the highest GDP growth rates (above 5%) over 2006-20
Source: Sources

4
• Ireland, the US and Spain are the rich countries expected to grow the most
Indian Economy

 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.

5
Steel Consumption Vs. GDP

Message Steel Consumption and GDPper Capita in2004

Steel consumption (kg/capita)

10000

Unit of measure
1000

S.Korea
China Taiwan
Japan
100

US
India
Other Africa
10
0 5000 10000 15000 20000 25000 30000 35000 40000
GDPper capita(US$000at PPPrates)

Bubble size represents the population

The growth in BRIC will double the steel demand by 2050

* Footnote
Source: Sources

6
Source: internal analysis
Growth in key sectors will drive the steel demand

Apparent Steel consumption

Message of countries

UAE – 1252
Unit of measure

> 150 MT, The

present gap

World Avg. – 170

India – 33

We feel the growth trigger has been fired…..…..

(Last 3 years GDP growth of + 7.5%)
* Footnote
Source: Sources

7
Production sites will move to regions with both RM
source and demand.

Excess
CIS Latin
America
Avail-ability of Iron Ore

Raw Material
basin

India Growth basin

USA /
Canada
Eastern
EU Europe
China

Other
Deficit Mature basin emerging
Japan Asian
countries

Low Forecasted Growth rate 2005-15 High

8
Indian Steel production likely to triple in next 15 years
National Steel Policy
Steel Production Projections
150
Crude Steel : mtpa

125 Planning
110
Commission
100 projections

75
70

50
50
34 36
29 31
25

0
2000-01 2001-02 2002-03 2003-04 2006-07 2011-12 2020

Year

To realize the above projections, it would be necessary to put in place the

right policies as well as alignment of the policies
Presentation Outline

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

10
Multifold increase in Raw Material Consumption

Message
200 190

180
Unit of measure
160

140

120
2004-05
100
2019-20 (F)
80 70

60 54
39
40
27 26
20 13 13

0
Iron Ore Coking coal Non coking coal Fluxes
* Footnote
Source: Sources

11
 Indian Iron Ore Reserves:
States Ore Fe Range
(%age)
Alumina
(%age)
Phos
Max
Five Zones
States Major Mines / Deposits
Message (%age)

A-Orissa, Haemat 62-64 2-4 0.04-0.1 A-Orissa, Chiria, Noamundi, Joda,

Jharkhand ite Jharkhand Kiriburu, Meghataburu,
Thakurani, Bolani, Gua,
Unit of measure
Malangtoli, Gandhamardan,
B- Haemat 64-66 1.0-4.0 0.04- Daitari
Chattisgarh, ite 0.15
MP, B-Chattisgarh, Bailadila, Dalli,Rajhara,
Maharashtra MP, Maharashtra Rowghat, Mahamaya, Aridongri,
Surajgarh
C-Karnataka Haemat 62-64 2.0-4.0 0.04-
ite 0.09

* * C-Karnataka Donimalai, Ramandurg,

Kumaraswamy, NEB Range,
D-Goa Haemat 60-63 2.0-4.0 0.04- Ettinahatti, Tumti, Belagal
ite 0.07 D-Goa N Goa, S Goa, Redi

E-Karnataka Kudremukh, Bababudan,

*
Kudachadri

*
E-Karnataka Magne 35-45 1.0 -

*
* Footnote
Source: Sources

12
 Iron Ore

Production Trend
Message
Indian Resources: 23 bt
350
10% AP
Unit of measure
300 s
er
250 Oth 6%

200
million tonnes

150 Karnata
14% Jharkhand ka
100 39%
a
50 Go

h
arg
3%

tis
0

at
Ch
Orissa
'9 9 - 0 0'0 0 - 0 1'0 1 - 0 2'0 2 - 0 3'0 3 - 0 4'0 4 - 0 52 0 2 0
10%
P r o d u c t i o nC o n s u m p t i o En x p o r t s 18%

* Footnote
Source: Sources

13
Natural iron ore resources can support lump: fines
ratio of 20:40 as against current adverse trend of 40:60
90.00
TheMessage
current steel production through BF/BOF:DRI:others is 60:33:7 77.9
80.00
Lumps
70.00 Fines 67.1
Concentrates

60.00
Unit of measure 55.1
Million Tons

53.0

50.00 47.4
45.2
41.2
39.6
40.00 34.6
33.6

30.00

20.00

10.00 6.0 6.4 6.5 6.1 7.1

0.00
2000-01 2001-02 2002-03 2003-04 2004-05

- 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 * Footnote
Source: Sources

- Increasing use of fines in agglomerates in bigger size blast furnaces can 14

increase its productivity and bring down cost/tss
Domestic DRI production : Trend and Forecast

40 Message
million tonnes

30 Growing
Unit of measure
@~7%

20

10

0
88 91 94 97 '00 '03 '04 '05 '06 '20

Capacity Production

Increasing DRI production may lead to faster depletion of high

* Footnote

quality lumpy ore reserves Source: Sources

15
Source: Tata Steel analysis
With expected CAGR of ~7% and exports at 50 mtpa,
India will become an importer of iron ore in next 40 years.
Message
Exports of iron ore =50 Mtpa
NATIONAL STEEL GROWTH
CAGR=3 CAGR=4 CAGR=5 CAGR=6 CAGR=7

1000 Unit of measure 15000.00

900
Reserves 10000.00
800

Mineable Reserves (Mt)

in MT
Iron Ore Production MTPA

700
5000.00
600

500 0.00
400 Iron Ore
Production
in MT
-5000.00
300

200
-10000.00
100

0 -15000.00
2004-05
2006-07
2008-09
2010-11
2012-13
2014-15
2016-17

2020-21
2022-23

2026-27
2028-29
2030-31

2036-37

2042-43
2018-19

2024-25

2032-33
2034-35

2038-39
2040-41

2044-45
2046-47
2048-49
2050-51
* Footnote
Source: Sources

Most of the iron ore reserves are in reserve forest and environment 16
sensitive areas making the actual availability of reserves much less
Imperative – Need for conservation and resource
enhancement
Message
Conservation ….for future
Challenges o Scientific Mining
- Selective Unit
mining o Agglomeration capacity
of measureof high grade

lumpy ores (DRI). o Use of pellets for DRI

o Beneficiation.
- Many low volume producers o Technology for using
- Mismatch in agglomeration Slimes
capacity and fines generation. o Restricting exports.

- Lower production (33%) routed Enhancement …

through beneficiation. o Detailed / Scientific
- Increasing exports. Exploration
* Footnote
Source: Sources

17
 Indian Coal Reserves
Billion tonnes
Proven: 35
Message Indicated: 30
Total : 65

Unit of measure

Proven: 7 Proven: 11
Indicated: 8 Indicated: 12
Total : 15 Total : 23

Proven: 14
Proven: 5 Indicated: 30
Indicated: 2 Total : 44
Total : 7
Proven: 9
Indicated: 25
Proven 90 Total : 34

Indicated 110 Proven: 8

* Footnote
Indicated: 6
Inferred 46
Source: Sources
Total : 14
Total 246 18
Domestic Coking Coal
Coal Reserves, BT Coking Coal Producers Washed Coal Ash
Semi-Coking Message
28 CIL 5.8 BCCL 18%
Prime Coking 6 Tata Steel 3.3 CCL 18%
Non Coking 212
Unit of measure Others 0.5 Tata Steel 13%
Total 246

3%

Coking
86% 14%
11%

Non-Coking Prime Coking Med Coking

The Indian Coal, both coking and non coking is characterized by

* Footnote
Source: Sources

high ash and low washability index. 19

Geological Survey of India : As of 1.1.2001
 Imports of Coking Coal to increase due to low
Indigenous availability
25
2 0.0 2 1.0 100
1 8.4 2 0.0 88
20
1 6.8
Coking Coal
1 5.1 80
15 62
MTPA

60

MTPA
10 8 .3 8 .2 8 .2 8 .1 8 .1 8 .1
40 28
5

20 10 13
0 8
2 0 0 1 - 0 2 2 0 0 2 -0 3 2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6 2 0 0 6 - 0 7
0
I n d ig e n o u s C o a lI m p o rte d C o a l 2005 2015 2025

Demand Domestic Supply

- 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

Source: 10th Plan report

Need to conserve the scarce coking coal resources
Unit of measure

Challenges Conservation of resources for

future use
- High ash o Beneficiating
- Poor washability o Improving washing
capacity / efficiency
- Over 40% coking coal used o Technology using
for thermal use. medium coking coal for
- 70% demand met through coke making
imports o Steel making technology
using non-coking coal
- Low domestic availability*
Enhancement of capacity
o Developing new sources
o Detailed exploration
* Footnote
Source: Source 21
 *Coal Strategy: Reducing coking coal requirements
Unit of measure
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
* Footnote
Source: Source 22
 Limestone
Limestone BF grade SMS grade
Reserves
World Abundant
India 160 bt 15 bt 7 bt
Current Requirement Requirement in 2020
BF grade 3.1 mt 9.5 mt
SMS grade 7 mt 22 mt

• 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… 23
 Chrome Ore
Figures in million tonnes
Cr Ore Reserves Production Ore Production Fe Cr
World 11068 18 6
India 115 3.2 0.6

• 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.

24
 Manganese
Figures in million tonnes

Mn Ore/Reserves Production Ore Production FeMn,

SiMn
World 5000 29 10.5
India 406 1.4 0.71

• 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
25
Source: Mineral Commodities Summary: 2002, IBM
Presentation Outline

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

26
Evolution of India’s Regulatory Environment
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 27

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 .

28
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
o Minimum production
levels for lease grant
o Scientific Mining and
Mineral Beneficiation
o Lease grant solely on the
basis of technical &
financial capability
o FDI & private sector
participation for
infrastructure
development
o Time bound
grant/renewal process
29
Challenges & Policies for meeting the growth demand
Policies reforms under consideration
o Creation of land bank / private
sector participation in afforestation
Challenges o Social / Environment cost to be seen
- Long drawn process in Long Term perspective
for land/forest/ o Transparent implementation of the
environmental laws
clearance o Technology / private participation
- Socio/political for detailed exploration
pressures o Large area prospecting license
o Linking iron ore resources to
- Limited iron ore /
integrated and other steel plants
coking coal reserves
o De-nationalization of coal mines
o De-reserving areas for private sector
for a level playing field 30
Presentation Outline

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

31
Rail Freight in India are high

R a ilw a y D is ta n c e & F re ig h t o f M a jo r P la y e rs
W e ig h te d A v e . Rly d is tan ce & co s ts (Ir o n Or e ) -2002

900 9

800 8

700 7

600 6

US $/Ton
500 5
Km's

400 4

300 3

200 2

100 1

0 0
A u s tralia Br az il S.A f ric a India

Tran s port Cos t 3.03 3.5 5.87 8.11

Rail Dis tanc e 315 650 847 477

Trans port C os t R ail Dis tanc e

32
Inland Transportation of Raw Material
T raffic in steel secto r (m t)
Railway Road
250
200
150
100
50
0
R aw M aterial F in ish ed S teel R aw M aterial F in ish ed S teel

2004 2020

Inland transportation:
– Infrastructure being beefed up for the incremental volumes

33
Source: Economic Survey, 2003-04.
Railways – The challenges

Challenges Initiatives …
• Expansion of facilities
• Tariff & Capacity
• Development of raw material
out of sync with a
high growth corridor for faster movement of
environment raw materials to ports and
• Operational consumption points
efficiencies. • Improving services
• Costlier longer hauls • Reinforcing existing tracks
• Lower bulk • Improvement in freight
movement per haul structure
• Participation of private sector
through SPV / own your wagon
34
Ports
120

2003-04
100
100 2019-20
85

80
70

60

40
26
18
20
6 6
2
0

Import Export RM Import Export finished steel

RM Finished steel

• 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 35
Port facilities comparison
250,00 0 25.00
Existing
Being
Proposed designed
Ports for higher
200,00 0 20.00 operation
al
efficiency
and
Ldg Rate & average parcel size (Mt)

capacity

Slg draft (Mtrs) & Tariff ($/Mt)

150,00 0 15.00

100,00 0 10.00

50,000 5.00

0 0.00
Dampier/A us Cape PDM/Brz Saldhana/SA V iz ag Paradip Haldia Dhamra Paradip 2 Haldia/T's pr
Lambert/A us

P orts
Total Tariff/M t P arc el s iz e Loading rate (ac t.ave.) G .Draft
36
Presentation Outline

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

37
 India – A Land Of Opportunities
India – A Land Of Opportunities
Rich Mineral Base

Fourth largest
Economy (PPP) - A
safe place
to do business Largest democracy
– political stability
& consensus on
reforms
Largest reservoir of
Second Largest
skilled/semi-skilled Emerging Market
manpower at low Liberal &
cost transparent
investment policies

Long-term sustainable
Competitive advantage High returns on
- High growth rate investment
economy

Developing Regulatory Reforms

Infrastructure
38
THANK YOU

39
NOT required

40
==> VALUE in USE.. or .. TOTAL COST

DELIVERED PRICE
CONVERSION COST
COST

TOTAL COST

QUALITY of RAW MATERIAL ==>

41
 Productivity of the Blast Furnace and Raw
Materials
Impact of
2.85
Productivity, t/m3/day

superior
RM quality
2.6

2.35

2.1

1.85

1.6
500 1000 1500 2000 2500 3000 3500 4000 4500

Inner volume, m3

42
 Blast furnaces Tata Steel
Typical size, m3
3800
4000

3500

2600
3000

2500
1800
1600 H BF
2000 Upgraded
G BF
1500 G BF
F BF
1000
1990 1995 2005 2010
43
 Growth in Tuyere Injection
F BF, kg/thm

130
120
110
100
90
80
70
60
50
Before PCI After PCI system FY'06 (Plan)
System Up Up grdation
grdation
44
 Growth of Tar injection

T a r inje ctio n, '000 tpa

80 65 67
60
41 45
40
22
20
0
0
1995 1997 1999 2001 2003 Ja n'05
ra te
45
 Reduction in Clean Coal Ash-West Bokaro

Raw Coal Ash: 35 %

20 19.6 19.6

18.1
17.6
18 17.0
18.0
16 16.5
16.2 16.0
15.2
14
14.2
12.0 13
12 Clean Coal Quantity LT
Clean Coal Ash %
Current rate
10
1993-94 2001-02 2002-03 2003-04 2004-05 2005-06 'Jan
46 06
Impact at Coke Plant………reduction in
coke ash
Coke Ash
20.0 Stamp Charged
19.5 19.5
19.0
18.9
18.5 WB coal ash
18.0 reduced to
WB coal ash
reduced to
17.8 14%; Jharia
17.5 Imported coal 17.4 coal ash
17%
reduced to
17.0 amount
16%
increased
16.5
WB coal ash 16.3 15.7
16.0 reduced to
16%
15.5
15.0
99-2000 2000-01 2001-02 2002-03 2003-04 2004-05
47
Reduction in Coke Alkali with coke ash

C o k e A lk a li ,
CP1
0 .4 5
0 .4 0
0 .3 5 Imported coal
amount WB coal ash
0 .3 0 increased reduced to
14%
0 .2 5
0 .2 0
0 .1 5
Jun-95

Jun-96

Jun-97

Jun-98

Jun-00

Jun-01

Jun-03

Jun-04
Jun-99

Jun-02

Jun-05
Dec-00

Dec-02

Dec-03
Dec-95

Dec-96

Dec-97

Dec-98

Dec-99

Dec-01

Dec-04
48
 Response to low ash coke: ‘G’ bf
Battery 5,6,7 : Coke Ash trend

18.00

17.50
Coke Ash, %

17.00

16.50

16.00

15.50

15.00

'G' BF Fuel Rate trend

Coke + Coal, kg/thm

620
610
600
590
580
570
560

'G' BF SLAGRate trend

Slag rate, kg/thm

290
285
280
275
270
265
260
255
250

49
 1

0.7
0.8
0.9
1.1
Coke Ash, %
13-12-02

15
16
17
18

15.5
16.5
17.5
20-12-02
27-12-02
03-01-03
10-01-03
17-01-03
24-01-03
31-01-03
07-02-03
14-02-03
21-02-03
28-02-03
07-03-03
14-03-03
21-03-03
28-03-03
04-04-03
G b f: H M Si, %

11-04-03
18-04-03
Battery 5,6,7 : Coke Ash trend

25-04-03
02-05-03
09-05-03
16-05-03
23-05-03
Response to low ash coke: ‘G’ bf

30-05-03
06-06-03
13-06-03
50
 Quality of Fine Ore supplied to Sinter Plants

2.75
2.56
2.45 2.41 2.42
2.50 2.39 2.38
Classification 2.25 2.23 2.21
2.25 started at 2.18
Joda 2.09
2.01
2.00
Jigging
at Noa
1.75

'03-04
'01-02

'02-03

'04-05

'05-06
2K-01
94-95

97-98
95-96

96-97

98-99

99-2K

Adjoining Mines in same deposit Al2O3% in Fines

operate from 2.5% to 3% Alumina if FO 51
 Impact at Sinter Plant….sinter alumina
Alumina in Sinter, %
Tata Steel, annual avearges
5.0 4.7

4.36
4.5 Improved washing,
classification
3.91
4.0 3.66
3.44 3.39
3.5 3.22
Blue dust, Dry Ckt
3.03
2.84
3.0 2.74 2.74 2.68 Increased volume
2.61 from
2.59 2.57better areas,
2.59 2.6
2.51 use
of reverts 2.43 2.44 Low alumina
2.5 2.28
fuels & fluxes

2.0

99-2k
85-86

88-89
89-90

00-01
84-85

86-87
87-88

90-91
91-92
92-93
93-94

94-95
95-96
96-97
97-98
98-99

01-02
02-03

03-04
52
Impact at Sinter Plant…..sinter alkali

Sinter Plant K2 O,% SP2

0.070

0.065

0.060
Use of
0.055 Gotan L/s

0.050

0.045
2000-01 2001-02 2002-03 2003-04 2004-05
Use of RPC

53
 Gross Productivity, t/m 2 /d

20.0
25.0
30.0
35.0
40.0
45.0
1990-91

1991-92

1992-93

SP2
1993-94

commissioned
1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01
S inte r P lant P roductiv ity

2001-02

2002-03

2003-04

2004-05
SP2 SP1
Impact on Sinter Productivity

54
Results at Blast Furnaces ………thru’ RM
improvement initiatives
Increasing HM Production

Actual HM(A-G),mtpa

4.44 4.45
4.50 4.34

4.04
3.89 3.93
4.00
3.63
3.44 3.51
3.50 3.24

2.92
3.00
G BF down
2.60
2.40 2.44 for up-
2.50
gradation

2.00
91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

01-02

02-03

03-04

04-05
55
 Decreasing Fuel rate
A BF down
for hearth
655 repair
639
Fuel rate
647 622
613 610 613
625 Coal 604 606 608 605 606
injection
587
Coal injection 579

583
+
Tar injection (from FY’97)
554 559 558
550 552
546 543 541
536
528
Coke rate

'03-04

'04-05
92-93

93-94

94-95

95-96

96-97

97-98

01-02

02-03
98-99

99-00

00-01

56
 Decreasing Slag rate
S lag R ate and slag MgO :'G' B F
9.8
375 9.9
365 9.2 9.2 9.1 9.6
9.0
355 9.3
345 8.3
9.0
335 8.7
Slag rate, kg/thm

8.4

Slag MgO, %
7.9
325 330 331 8.1
328
315 321 7.8
316 7.1 7.5
305 311 7.0
6.8
295 6.7 7.2
297 6.9
285 6.6
288
275 281 6.3
279 279
265 6.0
97-98

00-01

01-02

02-03

03-04

04-05
94-95

95-96

96-97

98-99

99-00

57
58
 Productivity of the Blast Furnace and Raw
Materials
Impact of
2.85
Productivity, t/m3/day

superior
RM quality
2.6

2.35

2.1

1.85

1.6
500 1000 1500 2000 2500 3000 3500 4000 4500

Inner volume, m3

59
60
61
62
 TARIFFS
Item CTC Dubai Sila Eastern, Gotan Katni
Thailand

FOB $/t 6.5 7.5

Freight, $/t 12 11
Price at Port 1160 1160 356 250
Rly Freight 370 370 1463 771

Chemical Analysis %
Si02 o.36 0.77 1.19 3.86
Al2o3 0.24 0.21 0.21 0.68
CaO 54.82 54.38 54.06 50.17
MgO 0.59 0.84 0.75 1.90

Total Alkali 0.155 0.144 0.140 0.238

63
64
65
 World Steel Production

1500 1410
1400
1300 3% growth rate
1200 1129
1100 1057
Million tonnes

1000 965
902
900 848 850
799 777 789
800 752 750
700
600
500
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2010

66
Iron Ore: India
MillionTons
350
Steel Production IronOre Consumption
300 IronOre Exports IronOre Production
250

200

150

100

50

0
-05 -06 -07 -08 -09 -10 -11 -12 -13 -14 -15 -16 -17 -18 -19 -20
0 04 0 05 0 06 0 07 0 08 0 09 0 10 0 11 0 12 0 13 0 14 0 15 0 16 0 17 0 18 0 19
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

5
0

Major Producers

Jharkhand
4
0
Chattisgarh
Karnataka

3
0

Others
2
0
Orissa

Goa

1
0

Source: Tata Steel

68
69
70
Seaborne Coking Coal Demand to rise

71
Seaborne Coking Coal Supply to increase mainly
from Australia

72
orld Iron Ore and Steel Prices

73
Source: Australian Commodities Vol 13, Mar’06
World Iron Ore and Coal Resources
World Iron Ore World Coal
Total Resource: 180 bt Total Resource: 1000 bt
12% 3%
20% 21% 13%
5%

10%

14%

19%
27% 17%
9%
5%
16% 5% 4%
Australia Brazil China Australia China India
India Kazakistan USSR Russia Ukraine South Africa
Ukraine Others USA Others

Source: National Mineral Inventory, IBM, 2003 74

Indian Economy poised to grow at a rate of ~ 8%

GDP Growth RATE OF INDIA

12 The GDP growth rate is about 6.1% in last 10 years.

Projected GDP growth in next 15 years ~ +8%
8.2 7.8 8
8 6.9
5.6
%

4.4 4.4
4

0
FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07E

India has strong economic fundamentals like low inflation, high growth, strong
financial sector, large forex reserves, high savings rate and young / knowledgeable
workforce.
(*) Source: Economic Survey and RBI
75
Indian iron ore Resources

Message
Iron ore resources (mt) Total reserves – 23
bt
10000 Magnetite grades
Unit of measure
are 30-35% Fe
8000
Reserve Forest
6000
Wild Life
4000
Remaining
2000 Reserves ?
0 M a g n e tite
Ha e m a tite

AP
a
sa

s
Go
a
d

er
h

ak
is

ar

h
ha
Or

at

Ot
g
tis
rk

rn
a

at

Ka
Jh

Ch

Most of the iron ore reserves are in reserve forest and environment
* Footnote
Source: Sources

sensitive areas making the actual availability of reserves much less76

Source: IBM estimates
 Global Chrome Ore Reserves

Finland India
Kazakhstan Other
1% 1%
7% 1%

Zimbabwe
19%
South Africa
71%

77
Source: Heinz Pariser
Issues & Policies for meeting the growth demand
Policies reforms under consideration
Issues o Improving labor laws
o Enforcing attractive R & R
- Large capital requirement initiatives
for a risk prone mineral
industry with long o Reduction in import duties on
gestation period mining equipment
o Accelerated depreciation /
- Lack of FDI inflow Amortization benefits for pre-
mining expenditure
Source: Ministry of Mines (figs do not include coal projects) o Security of tenure
FDI inflows in US $ Billion (1992-2002)
Country 1999 2000 2001 2002
India 4 4.5 4.2 4.4
China 40 41 47 53
Total approved FDI in mining Rs 4044 cr / $ 919 million 78
Actual Inflows Rs 343.6 cr / $ 78 million (only 8%)
 Freight Constitutes a significant portion of the raw
material cost

41%
Domestic 50%

Iron Ore

9%
Mining Govt Levies Rly Freight
7% 14%
11%
Imported
Coking 15% Domestic
Coal Coking Coal
71%
82%
FOB Ocean Freight Rly Freight Mining Govt Levies Rly Freight 79
NEGATIVE IMPACT OF FRAGMENTATION OF MINES

Industry/players • Higher cost of mining/processing

Message • Inability to undertake the following due
to huge investments involved
–Beneficiation of iron ore to maximize
Unit of measure utilization of reserves
–Reforestation of mined areas
• Inadequate availability of logistics
infrastructure and higher cost due to their
Negative inability to give traffic guarantee
impact of mine
fragmentation

Country/society
Government
• Under-exploitation of
• Opportunity loss of natural resource
• Inadequate reforestation
royalty
–Annually of areas after mining with
*
–Over the life ofSource:
Footnote
the Sources severe environmental
reserve impacts
80
Message

Unit of measure

* Footnote
Source: Sources

81
Message

Unit of measure

* Footnote
Source: Sources

82
Message

Unit of measure

* Footnote
Source: Sources

83
Message

Unit of measure

* Footnote
Source: Sources

84
Message

Unit of measure

* Footnote
Source: Sources

85
Message

Unit of measure

* Footnote
Source: Sources

86
Message

Unit of measure

* Footnote
Source: Sources

87
Projected Additional Steel Capacity
Company FY FY 06 FY 07 E FY 08 E FY 09 E FY 10 E FY 11 E FY 12 E Total Additional Capacity
05 A E

Tata Steel 4.2 0.8 2.4 7.7 6 16.9

Message
SAIL 10.8 1.0 1.0 0.8 0.8 1.0 1.0 1 6.6

Ispat 2.4 1.2 1.2

Essar Unit2.4
of measure 1.2 4 5.2

JVSL 2.5 1.3 1.3

JSPL 0.4 0.7 1.2 1.9

RINL 3.0 1.2 1.2 1.2 3.6

Bhushan 1.8 1.0 1.0

Posco 3 3 6 12.0

Mitsui 5 5.0

Vedanta 5 5.0

Murugappa 1.6 1.6 3.2

Others 3 2 5.0

EAF/IF, Others 13.4 1.0 1.4 2 1.5 5.9

* Footnote
Source: Sources
Total 40 3.8 2.9 6.8 6.2 25.9 17.5 14.2 73.8

88
Source: Industry data, Company data, Morgan Stanley estimates
 World Reserves of Major Minerals

Mineral fuels UoM World India % of World

Coal bt 1000 102 10

Bauxite bt 34 3.1 9

Manganese ore bt 5 0.4 8

Iron Ore bt 180 13 7

Zinc & Lead bt 3.4 0.2 7

Rare Earths mt 110 1.3 1

Chromite bt 11 0.1 1

89
Saleable Steel - Elements of Cost

Others
Fluxes 0.2%
12.3%

CONFIDENTIAL

Net
Others 60% Material
Cost 40% Coal
53.0%
Iron Ore
34.5%

Document
Saleable
Date
Steel

This report is solely for the use of client personnel. No part of it may be
circulated, quoted, or reproduced for distribution outside the client
organization without prior written approval from McKinsey & Company.
This material was used by McKinsey & Company during an oral

Raw Material is the major cost driver of saleable Steel

presentation; it is not a complete record of the discussion.
The demand supply for Ferro Chrome is expected to increase

Message
Demand Supply of Fe Cr: World ( Forecast)
8000 90
85 7846
80
7500 Unit of measure 7508
70 70 70
7000 144 65 6772 60
6875
711 50
6500 50
6025 6296 43 40
6000 40 30
5656 81 20
5500 180
10
5000 0
2003 2004 2005 2006 2007 2008 2009 2010 2011
Cum E ffective Capacity
* Footnote
Capac ity A dditions
Fe Cr Dem and
Source: Sources
Fe Cr P rices
91
Saleable Steel - Net Material Cost Rs./TSS
(Element, Rs./t, percentage)
Converted
Coke, 2% Middling, 2%

Coal, 39% Iron Ore, 8%

CONFIDENTIAL Limestone,
10%

Net Dolomite, 0%
Others 60% Material
Cost 40%
Pyrex, 1%

Document
Saleable Other RM, 0%
Date
Steel
Scrap Cons,
Pig 9%
Iron/Sponge
This report is solely for the use of client personnel. No part of it may be
circulated, quoted, or reproduced for distribution outside the client
organization without prior written approval fromIron, 29%
McKinsey & Company.
This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
Forecast : Steel Consumption in BRIC Economies

Message

Unit of measure

* Footnote

Growth in BRIC is enough to double the world consumption of steel by 2050.

Source: Sources

93
 BRIC Theory: Progressive shift of world power centers to
happen within next 3 decades.
• GDP of Brazil, Russia, India & China - expected to cross G-6 by 2036.
Message

• China - Expected to attain global # 1 status in 2041

• India - Expected to attain global # 3 status in 2032
Unit of measure
2041 : China takes
2032 : over the US
India takes CHINA
50000 over Japan
45000 US
40000
GDP (USD - Bn)

35000 INDIA
30000
25000 JAPAN
20000
15000 BRAZIL
10000
RUSSIA
5000
0
2000 2005* 2010
Footnote
2015 2020 2025 2030 2035 2040 2045 2050
Source: Sources

94

Source: Goldman Sachs Global Economy

New capacities are coming up for ferro chrome
The major New FeCr Capacities in pipeline till
Message 2007
Demand Supply of Fe Cr: World ( Historical)
Plant Country Capacity Year
(MT)

Unit of measure SA Chrome SA 120,000 2006

ASA Metals SA 65,000 2006
Xtrata “Lion” SA 330,000 2006-07

TVL SA 245,000 2006

Tisco , R.Bay SA 120,000 2006

Hernic SA 160,000 2005

Kaz Chrome Kaz 300,000 2005-06

Outokompu Finland 250,000 2007

Jindal India 160,000 2005-07

Chelyabinsk Russia 250,000 2005-07

* Footnote
Source: Sources
IMFA Group India 60,000 2006
Nav Bharat FA India 25,000 200695
Enhanced use of agglomerates in big blast furnaces

Message

Unit of measure

* Footnote
World over the steel companies are using agglomerates in excess of 80%.
Source: Sources

Increasing use of agglomerates increases BF productivity and reduction of 96

overall cost / tss .
Raw Material demand in India to increase by 13% to meet
the rise in steel demand
Sectoral Share % in 2004 - GDP Sectoral Share % in 2010 - GDP
Message
growth 6% growth 8%

Unit of measure 14
24.6 24.4
34
Agriculture Agriculture
Services Services
Industry Industry

52
51

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.
* Footnote

 13% growth in mining has to be driven by few lead minerals such as coal, iron
Source: Sources

ore, supported by other minerals. 97

 Robust growth in infrastructure, power, construction
and steel sectors will drive the Steel Demand
Investment in construction sector (Rs m)
Message

2500

Construction sector will

2000
Unit of measure grow at CAGR of 15%.
1500

1000

500

0
FY'03 FY'04 FY'05 FY'06 E FY'07 E FY'08 E FY'09 E FY'10 E
Source: SSKISept’05 issue

Incremental Steel demand for Expenditure on Infrastructure

Power Sector
1200
Consumption in '000

1000
Incremental

800
tons

600

400

200

0
* Footnote
'04 '06E '08E '10E
Source: Sources
'12E

In addition there will be investment for additional 25 mt capacity in steel itself98by

2010. Potential for steel - 25-30% of the investment cost.
 Message
20

18 Supply Logistics - Indian ore weakness

Unit of measure
16

14 Bleeding profitability

12

10
SSL & FOB costs - Directly
proportional
8

2
Mining costs are competetive
0
Marandoo Robe Carajas Sishen Bailadila Reference
* Footnote
Source: Sources
Mining SSL FOB price (fines) FOB cost

99