Macro and Micro Factors Affecting the Steel Industry

MACRO AND MICRO FACTORS AFFECTING THE STEEL INDUSTRY (TATA STEEL) The world GDP, as reported by International Monetary Fund, was on an upturn, growing by 5% in 2010 as compared to a negative growth of 0. 5% in 2009. While the growth in the advanced economies was 3. 0% in 2010,in contrast to -3. 4% in 2009, the emerging and developing economies grew by 7. 3% in 2010 when compared to the growth of 2. 7% in 2009. The growth in the developing and emerging economies slowed down during the end of 2010 as stimulus measures were slowly removed and policies were tightened in response to rising inflation and overheating concerns.

The overall growth in steel industry was 8. 1% during 2010-11 compared to 8. 0% in the last year. Services witnessed a decelerated growth of 9. 6% as compared to a growth of 10. 1% in 2009-10. Amongst the key macro-economic indicators, fiscal defcit was limited to 4. 8% of GDP in 2010-11 as compared to 6. 3% in 2009-10. Export and import grew positively by 29. 5% and 19. 0% in contrast to the negative growths experienced in the previous year. Clouds of high inflation and a temporary slowdown in the industrial growth are looming in the country as steps are being taken to mitigate such adversities .

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The gross steel deliveries (including the inter-group transfers) for the steel-producing entities were higher than the previous years with Tata Steel India, Tata Steel Europe, NatSteel Holdings and Tata Steel Thailand posting growth of 4%, 3%, 1% and 8% respectively. Company’s Indian operations recorded a growth of 4% in steel deliveries from 6. 17 million tonnes in the financial year 2009-10 to 6. 42 million tonnes in 2010-11. The turnover for the Group in 2010-11 at Rs. 118,753 crores, was 16% higher than 2009-10 (Rs. 102,393 crores). While the turnover in Tata Steel India witnessed a growth of 17% from Rs. 5,022 crores in the financial year 2009-10 to Rs. 29,396 crores in the financial year 2010-11, Tata Steel Europes turnover increased by 15% from Rs. 65,843 crores in the financial year 2009-10 to Rs. 75,991 crores in the financial year 2010-11. The Earnings before Interest, Taxes, Depreciation and Amortisation(EBITDA) of the Group increased signifcantly from Rs. 9,340 crores in the fiscal year 2009-10 to Rs. 17,103 crores in the financial year 2010-11 primarily driven by the increase in prices partly of set by the steep increase in input costs.

Tata Steel India recorded an EBITDA of Rs. 12,224 crores in the financial year 2010-11 growing by 25% as compared to Rs. 9,806 crores in 2009-10. Crude steel production at 6. 86 million tonnes in financial year 2010-11 was higher than the previous year (6. 56 million tonnes) by 4%, thus exceeding the nameplate production capacity in the second year on enhanced capacity. The sales volume during the financial year 2010-11 at 6. 42 million tonnes was 4% higher as compared to the previous year (6. 17 million tonnes) indicating therobust growth in steel demand.

Deliveries in Tata Steel Europe during FY 2010-11 (14. 9 million tonnes) increased by 3% over FY 2009-10 (14. 4million tonnes). Selling prices increased steadily through the year with the revenue per tonne increasing by around 17% over the previous year. Some of the major changes that has occurred in Tata steel during the period 2007-2010 which intern has affected the performance of the stock in the market are listed below:- 2007 -Tata Steel enters into Share Purchase Agreement with Rawmet Ferrous Industries. -Tata Steel completes ? 6. 2bn acquisition of Corus Group plc. Tata Steel signs MOU with Vietnam Steel Corporation for the proposed steel project in Ha Tinh province in Vietnam. -On August 03, 2007, the Tata Steel Ltd and Riversdale Mining Ltd. have entered into a Memorandum of Understanding, whereby the Company will become a strategic investor in Riversdale’s Mozambique Coal Project, by acquiring 35% stake in it for a sum of A$ 100 million. -Tata Steel Ltd has informed that Riversdale Mining Ltd and the Company have signed an agreement to establish a special purpose joint venture vehicle to develop a hard coking and thermal coal project at key coal exploration enements held by Riversdale in Mozambique. -Tata Steel Ltd and SODEMI sign a Joint Venture Agreement for Mount Nimba Iron Ore deposits in Ivory Coast, West Africa. -The company has issued rights in the ratio of 1:5 at a premium of Rs. 290/- Per Share. 2008 – Tata Steel has signed a contract with CMI FPE Ltd for supply of 6 High reversing cold mill to set up a 200,000 MT p. a. TMBP CRM#2 project in TCIL. Tinplate Company of India Limited (TCIL) in association with Tata Steel is set to double the production capacity of tinplate.

TCIL has recently started operations of a 200,000 MT p. a. second tinning line and Tata Steel will supply the input required for the tinning line through its CRM#2 project. -Tata Steel has concluded an alliance pact with the Al Bahja Group of Oman for the development of the Uyun limestone deposits at Salalah in the Sultanate of Oman. 2009 – Tata Steel, through its subsidiary, Tata Steel Global Minerals Holdings has entered into Joint Venture Agreement on 6th November 2009 with New Millennium Capital Corp. Tata Steel – Corus signs Share Purchase Agreement with Klesch for sale of aluminium smelters -Tata Steel – Corus signs MoU on Teesside sale with Marcegaglia and Dongkuk -Tata Steel enters into Joint Venture Agreement with New Millennium,Canada. The Company manufactures a diversified portfolio of steel products,with a product range that includes flat products and long products, as well as some non-steel products such as ferro alloys and minerals,tubes and bearings.

The Company, through its Indian operations, is a large manufacturer of ferro chrome and steel wires in India and a supplier of chrome ore internationally. The Company’s main markets include the Indian construction, automotive and general engineering industries. The Company’s main facilities have been historically concentrated around the Indian city of Jamshedpur (Jharkhand), where the Company operates a 6. 8 mtpa crude steel production plant and a variety of finishing plants close to the iron ore and coal reserves.

The Company proposes to increase the crude steel production of the Jamshedpur plant by 2. 9 mtpa to 9. 7 mtpa. The Company’s bearing division is located at Kharagpur (West Bengal), ferro manganese plant is located in Joda (Orissa), charge chrome plant is located in Bamnipal (Orissa), cold rolling complex is located in Tarapur (Maharashtra) and wire division is located at Tarapur (Maharashtra), Bangalore (Karnataka), and Indore (Madhya Pradesh). The Company also has iron ore and coal mines, collieries and quarries in the states of Jharkhand, Orissa and Karnataka.

In February 2005, the Company acquired the steel-related businesses of NatSteel Asia, with facilities located in Singapore, China, Malaysia, Vietnam, the Philippines, Thailand and Australia. In March 2006 the Company also acquired a 25. 0% interest in Millennium Steel, the largest steel producer in Thailand, and in April 2006 a further 42. 1% interest, for a total interest of 67. 1% in Millenium Steel, (now known as Tata Steel (Thailand) Public Company Limited). In April 2009, Hoogly Metcoke & Power Company Limited, which was earlier a subsidiary of the Company was merged with the Company.