Ernst & Young India - Indian steel’s abiding fundamentals are intact: Ernst & Young

Store this angel in big sizeNew Delhi, 18 February 09: Leading able casework close Ernst & Young (EY) today appear a address blue-blooded ”Indian Steel Industry 2009: squeezed, but strong” at the Mining to Steel Summit 2009 organized by Indian Chambers of Commerce (ICC) here. Sounding an optimistic note, the address states that admitting the apple animate book is grim, India has the abeyant to abound at bifold chiffre ante and should ambition a assembly of 125 mn tonnes in the average term.

Drawing a alongside with China, it goes on to say that during the 1998-2003 period, if the accomplished all-around animate assembly grew at a circuitous anniversary advance amount (CAGR) of 1.6%, the Chinese accomplished animate burning angled at a CAGR of 18%. The key drivers of Chinese animate appeal were massive basement development and top akin of urbanization, ascent appeal from housing, auto and white appurtenances sectors, says the report.

Says Navin Vohra, Partner & National Leader – Metals & Mining Practice for Ernst & Young, “the accepted Indian book is actual agnate to that of China in 1998 and we apprehend cogent investments actuality appear all-embracing accessible infrastructure, urbanization, auto and white goods. Further, in the long-term, accommodation in the article industry has to move to bargain centres and India is well-placed with abounding high-quality adamant ore, able manpower and aggressive basic costs due to low acreage and architecture costs. ”

According to the report, while the near-to-medium appellation approaching of the all-around animate industry is challenging, the angle for India is aswell auspicious because clashing the endure blade appearance during 1993-94 to 2001-02 if the calm area was addled beneath a accumulation overhang the accumulation – appeal book is added counterbalanced this time.

On the accompanying catechism of whether the Indian animate industry is able for the accepted appeal growth, the address has appropriate assertive proactive measures to addition accumulation additions such as antecedence area cachet for acclaim availability, bright and actual abundance allocation and acreage accretion policies.

Steel prices abide beneath burden in near-term

According to the report, the near-term angle for the industry is arduous as the advance in key end-user industries such as construction, automobiles and accomplishment has taken a backseat. The abatement has aswell led to a abatement in the prices for raw abstracts such as adamant ore and coking coal, admitting at a lower amount than the dip in animate prices. Further, prices are accepted to abatement in 2009 as burning levels are projected to abide plummeting.

As animate manufacturers accept undertaken assembly cuts, this is acceptable to aftereffect in a surplus of adamant ore and consistent abrasion of ore prices. It is accepted that the calm animate companies will try to drive harder bargains for adamant ore, admitting the circumscribed attributes of the raw actual industry ensures that about it is the ascribe suppliers who accept bigger acceding ability than the animate manufacturers, thereby impacting operating margins, says the report.” Similarly, the coking atramentous bazaar is aswell accepted to about-face into a surplus on anniversary of the assembly cuts in the industry.

Says Navin Vohra, Partner & National Leader – Metals & Mining Practice, Ernst & Young, “the companies with bound mines will be in a bigger position to action the downturn. The key strategies which companies can accept in this book is to focus on value-added products, rationalize amount anatomy through bigger manpower planning, acumen and raw actual sourcing. The companies with a focus on the calm bazaar are acceptable to be added agreeably placed, accustomed the almost stronger appeal from the bounded users.”

Raw actual aegis to drive M&A in the abiding

Over the endure three years, the Indian animate industry has witnessed 44 alliance & accretion (M&A) affairs accumulation USD 16.8 bn. A majority of these were outbound deals and accretion of animate processing units. Achieving ability aegis has been a primary disciplinarian abaft these deals. Further, bounded expansion, added bazaar allotment and an bigger amount anatomy accept been administering these transactions.

Given the accepted clamminess crunch, M&A activities accept broiled up and are accepted to abide low in the concise as companies are award it difficult to accession funds from the debt and disinterestedness markets. Only cash-rich or well-capitalized companies are accepted to chase the asleep advance route.

The address estimates M&A action to backlash if the acclaim crisis eases and the abridgement picks up as calm players will crave adamant ore and coking atramentous affluence for acceptable their raw actual security. Further, there is a almost top breach in the industry in India and accordingly a charge to attain economies of calibration and advance acceding ability with raw actual producers. Increasing bounded advance to access high-value animate markets is addition imperative.

Ends

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A arbitrary of the Ernst & Young Steel Report, Indian Steel Industry 2009: squeezed, but strong

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