4 May 2012

Update

Steel

Indian steel consumption grew 6.8% in FY12; Net

importer of flats despite overcapacity; NMDC is

attractive

JPC released steel consumption and production data for FY12. Key

highlights

:



The apparent steel consumption grew 6.8% YoY to 70.9m tons.

Alloy steel

consumption grew stronger by 29.1% to 4.5m tons, while non-alloy steel

grew only 5.5% to 66.4m tons. Flat products were up 3.8% YoY to 36m tons,

while long products were up 5.8% YoY to 34. Apparent consumption of:



Plates up 4% YoY to 4.8m tons.



HR coils up 3.9% YoY to 15.4m tons and HR sheet’s up 1.6% YoY to

576kt



CR sheet up 5.9% YoY to 8.1m tons.



GP/GC up 4.9% YoY to 4.9m tons.

Saleable steel production grew 7% YoY to 73.4m tons:

Main producers’

(SAIL, TATA, RINL) combined output declined 3%. RINL and SAIL

disappointed with production decline, while Tata Steel’s output increased

5.8%. Other major producers’ (JSW, Ispat, Essar and JSPL) output grew

5.2%. All other producers’ output grew 15.6%.

Imports

and exports grew 2.4% and 11.1% YoY

to 6.8m tons and 4m tons

respectively. India is still a net steel importer of 2.8m tons. The growth in

imports was largely driven by 70% jump in alloy steel imports. Non-alloy

steel imports actually declined 7% YoY to 5.4m tons. Exports were driven by

13.7% growth in non-alloy steel.

Despite having over capacity in flat product segment, India was net

importer of flat products because shortage of iron ore for producers in west

and south of country prevented production growth.

Indian steel producers are increasingly facing challenges in sourcing iron

ore

due to declining iron ore production. Declining exports are not

sufficient to offset the rising demand. We expect margins of non-integrated

producers like JSW Steel (JSTL IN, Mkt Cap USD3b, CMP 680, Sell), JSW Ispat

to shrink further. The pricing power of iron ore mines is growing every day.

Indian iron ore prices are no more driven by export parity or international

prices. We like NMDC (NMDC IN, Mkt Cap USD13.3b, CMP 175, EV/EBTIDA

4.6xFY13 and 3.7xFY14).









1

Steel

Indian saleable production and consumption

Steel imports and

exports

:

:

Iron ore supply is getting tighter as steel production grows

4 May 2012

2

Steel

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4 May 2012

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