Rising input prices keep Indian steelmakers happy: Deloitte Report

Indian and Chinese metals and mining companies are building value added industries, altering global supply and demand dynamics. According to a recent study from Deloitte titled - Forging a new path – Opportunities for Latin American metals and mining companies to consider in the Asia-Pacific region, India is fortunate to have large deposits of high quality iron ore, meaning that many steel companies in India benefit from self-sufficiency. As a result, while rising raw material prices are a concern for steelmakers in most other countries, the higher prices work to the advantage of Indian steelmakers.

Commenting on the survey report, Kumar Kandaswami, Leader Manufacturing, Deloitte in India said, “A factor in changing supply and demand dynamics is the reality that some economies – notably India and China – seem to be attempting to develop value-added industries and are promoting vertical integration among mining companies. India, for example, has shown reluctance to export its rich ore, preferring to see it converted to finished products by Indian companies.”

Consumption of steel in India rose 8% in the year ended March 2010 (as compared to the same period the previous year), because of improved demand from the automotive, infrastructure, consumer goods and housing sectors. Industry observers suggest that markets for steel in India is likely to offer good prospects in the long term for manufacturers.

The report further goes on to suggest that Foreign companies are watching India with great interest, but the risk of establishing large greenfield projects is considerable. Land acquisition, statutory clearances, and securing long-term domestic raw material supply agreements all present challenges to international participation in the Indian market.

The outlook for the metals and mining industry looks positive. Global finished-steel demand is expected to grow robustly from 2009 to 2011, exceeding 10 percent. Over the last year, the spot price of iron ore has nearly doubled, while coking coal prices have also risen significantly.

As the price for ore remains high and improvements in the overall economy boost demand for steel products, M&A activity is starting to show signs of recovery. The rationale for M&A activity remains strongest among steel and ore companies in the emerging markets, driven by the need among smaller ore companies to consolidate, and the pressure on steel producers to mitigate raw material risks.

“Emerging economies are likely to be the most motivated to engage in new deals, and are more likely to consider M&A activity as an avenue for growth,” said Dan Schweller, DTTL Global Manufacturing M&A leader.

To access Forging a new path: Opportunities for Latin American metals and mining companies to consider in the Asia-Pacific region, please visit: www.deloitte.com/manufacturing.