Evolving Role of Scrap in India

Transcription

1 Evolving Role of Scrap in India MRAI January 27 th, 2017 Rahul Prithiani, Director - CRISIL Research

2 Key messages Muted steel demand growth at 2-4% in ; to rise to % in long term Share of scrap in steel making in India at 24% below global average of 34%; to rise to 28-30% in with rising availability and displacement of sponge iron 60K-65K/ T India s Aluminium demand growth to slow to 4-6% in post de-monetization; 20K-30K/ T increased intensity in auto, power and B&C to drive 9% growth over longer term Share of secondary aluminium rose sharply to 31% in overall demand on back of rising auto castings demand; to continue its growth momentum In long term, evolving role of scrap will potentially be a function of domestic scrap availability led by Government policies led by ELV. 2

3 Steel demand to recover in FY18 after being hit in FY17; export growth to support utilization levels Domestic demand rise to % CAGR through 2020 (MT) % 6.9% Note: E- Estimated; P- Projected Source: CRISIL Research, JPC share in demand % % 3.9% % % P 4-6% Steel Demand (mn T) Alloy Steel Y-o-Y Growth (RHS) 83.0 H , growth of 2.5% 36% Building & Construction Infrastructure 27% % 4-5% 7-8% 10-11% Urbanization, Housing for All, PMAY, Rural demand Steel Growth: 6-8% CAGR P % P Smart cities, freight corridors, metros, PMKGSY (irrigation), Bharatmala, Sagarmala, etc. share in demand 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% share in demand share in demand 10% Automotive Others 27% ~1% 8-10% 2-3% 5-7% 3

4 Scrap constitutes 24% of India s crude steel production vis-à-vis global average of 34% Global average ratio of steel scrap usage to crude steel production at 35% Rise / decline in share of scrap over past 4-5 years -3% -3% -3% +6% +5% +6% % MT % Source: World Recycling Report, JPC, CRISIL Research % Note: Indian numbers indicative for financial year and rest for calendar year % 24% 70% World China EU India USA Crude Steel Production Steel Scrap Steel scrap as a % of crude steel (RHS) 70% 60% 50% 40% 30% 20% 10% 0% Share of scrap in world s crude steel production has reduced marginally from 37% to 34% over past 5 years on account of number of BF-BOF capacities being added especially in China However, in India the share of scrap has increased from 18% to 24% over past 5 years on account of better cost economics over sponge iron

5 Improving scrap availability, favorable cost economics, and technological benefits to drive an increase in scrap usage Drivers Deterrents Increased global availability of high quality scrap Volatile scrap prices Proximity of key demand cluster to sources of scrap High level of fragmentation and unorganized nature of the industry Rising domestic scrap generation (esp. post V-VFM implementation) Preference towards EAF technology over obsolete IF (EAF is 40-45% in US & EU; no IF/DRI) Large BF/BOF players expanding in long steel Better cost economics vis-à-vis sponge iron Lower extent of scalability vis-àvis BF/BOF units Drivers Deterrents 5

6 Share of scrap in steel making to increase led by substitution with sponge iron MT Average ratio of steel scrap usage to crude steel production to reach 28-30% 35% Domestic scrap, Imported scrap & Sponge iron prices (Rs/ tonne) MT 35, % Source : CRISIL Research Estimates % % Crude Steel Production Scrap in steel making Share of scrap Scrap figure inclusive of 5-6MT of milling scrap/ home scrap. If milling scrap is not included in the estimates then share of scrap in steel making to increase from 16% in to 24% in % 25% 20% 15% 10% 5% 0% 25,000 15,000 5,000 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Coal-based sponge iron prices Landed cost of scrap Domestic Scrap Conversion yield Oct-14 Sponge iron % Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Scrap % Oct-16 Increasing availability of scrap in domestic and import markets coupled to drive increase in share of scrap in steel making going forward Financial stress, raw material availability and logistics challenges to hit competitiveness of sponge iron manufacturers 6

7 Secondary aluminium demand currently accounts for 31% of overall demand and has grown at ~11% over past 5 years Robust Growth in Secondary (recycled) Aluminium Consumption in India 5.0 CAGR 11% 9% 4.0 CAGR 6% 8% 1.6 Secondary K-65K/ T 1.0 (Recycled) Aluminium Primary Aluminium e p Share of Secondary 26% 31% 31% 32% Source: CRISIL Research Estimates, IBIS, Industry Over the next 5 years, we expect overall aluminium demand to rise at 8-9% CAGR largely driven by increase in asset demand especially in automotive sector and infrastructure (building and power) sector Secondary aluminium demand is projected to increase at a CAGR of 9-10%, primarily driven by an expected high growth in the automotive sector especially two-wheelers and cars 7

8 Key applications of primary and secondary (recycled) aluminium are largely distinct Primary Aluminium Consumption Mix Secondary (Recycled) Aluminium Consumption Mix Consumer Durables, 6% Packaging, 60K-65K/ 7% T Automotive, 9% Others, 6% Building & Construction, 17% 20K-30K/ T Electricity, 56% Consumer Durables, 3% Packaging, 4% Others, 20% Automotive, 59% Electricity, 1% Building & Construction, 13% While electricity constitutes 56% of the primary aluminium demand, its share in secondary aluminium consumption is negligible on account of conductivity losses and quality perception issues Automotive sector constitutes ~60% of secondary aluminium demand followed by building & construction sector which constitutes around 13% of the total demand 8

9 Demand from two wheelers, cars and UVs to support robust growth in secondary aluminium demand Two Wheelers Demand Growth Cars & UVs Demand Growth 25% 20% 15% 10% 5% 0% 4% 60K-65K/ T 1-3% 21% 8-10% Overall demand to rise at 8-10% CAGR through , but correct by (12)-(14)% post implementation of BS VI emission norms 20K-30K/ T 0% 0-1% 7% 4-6% Motorcycles Scooters Mopeds Overall FY 11 to FY 16 FY 16 to FY 21 14% 12% 10% 8% 6% 4% 2% 0% -2% 12-14% 12-14% 11-13% 8-10% 6% 2% 2% -1% Small Cars Sedans UVs + Vans Overall FY 11 to FY 16 FY 16 to FY 21 Improving rural connectivity coupled with improving vehicle ownership economics to help drive demand in the long term. However, Emission norm compliance is expected to drive up prices in the terminal year of our forecast period, thereby impacting demand Faster demand growth expected in the long term driven by better income prospects and subdued cost of ownership of Cars & UVs Exports to rise despite muted global demand, driven by initiatives to export more models and widen reach 9

10 Voluntary Vehicle Fleet Modernization

11 Voluntary vehicle fleet modernization policy to have a significant impact on domestic steel and aluminium scrap supply Event Timeline for Government Policy on ELV Delhi, June 15 Ban on diesel vehicles over 10 years old Delhi, Nov 14 Ban on all 15 years or older vehicles Bihar, Chhattisgarh June 16 -Diesel vehicles over 15 years old banned Kerala, May 16 Ban on diesel vehicles over 10 years old Voluntary Vehicle Fleet Modernization Policy August 16 Draft submitted Implementation of the voluntary vehicle fleet modernization (scrappage) policy is expected to potentially impact 28 million vehicle stock initially Source : CRISIL Research Impact on Steel Industry Implementation of the voluntary vehicle fleet modernization (scrappage) policy can potentially generate MT of steel scrap over the considered implementation period Impact on Aluminium Industry Implementation of the voluntary vehicle fleet modernization (scrappage) policy can potentially generate MT of aluminium scrap over the considered implementation period 11

12 CRISIL Research

13 About CRISIL Research CRISIL is a S&P Global company, the world s foremost provider of credit ratings. CRISIL Research is India's largest independent research house, providing comprehensive coverage to more than 1,200 Indian and global customers We have ongoing coverage on 86 industries Our clients include 95% of India's banking industry by asset base, 15 of the top 25 Indian companies by market capitalisation, and the entire Indian life insurance and mutual fund industry How do we add value Our opinions and insights help our clients take informed lending and investment decisions, thereby managing and mitigating risk Our customised research solutions support corporates in business planning, opportunity identification and benchmarking-related areas 13

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17 In case of any Clarifications or Business Enquiries please contact :- Rahul Prithiani Director Industry & Customized Research Mobile : rahul.prithiani@crisil.com Viraj Vora Regional Manager Metals Mobile : viraj.vora@crisil.com 17