1 Raw materials outlook for India - A Review A D Baijal VP (Raw Materials) Tata Steel IISI-OECD CONFERENCE Date: 17 th May, 2006.

1

Raw materials outlook for India

- A ReviewA D Baijal

VP (Raw Materials)

Tata Steel

IISI-OECD CONFERENCEDate: 17th May, 2006

2

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

Presentation OutlinePresentation Outline

3

Global steel demand poised for robust growthGlobal steel demand poised for robust growth

Crude Steel Production (Million Tonnes)

0

200

400

600

800

1,000

1,200

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

Great Depression

WW 2 Oil Crisis

Fall of USSR

CAGR 7 %

CAGR 1 %

The Early Years

The 1st Surge

The 2nd Plateau

The 2nd

Surge

Asian Financial

Crisis

The 1st Plateau

CAGR 2 %CAGR

5 %

WW 1

CAGR 5 %

4

The Global Economic Forecast: Asia poised to be the The Global Economic Forecast: Asia poised to be the emerging power house of growthemerging power house of growth

• In 2020, the US and China will still be the two largest economies in the world (in PPP)

• India leaves Japan behind and moves up to 3rd place

• India, Malaysia and China will post the highest GDP growth rates (above 5%) over 2006-20

• Ireland, the US and Spain are the rich countries expected to grow the most

5

GDP per capita to increase from USD 2500 and USD 5000 in 2020.

Poverty ratio dropped from 50% of population in 1950 to 26% in 2005.

Economic growth rate ~ 8% Population growth rate of 1.3 - 1.5% 33% population below 15 years and 5% above 65 years House hold savings rate go up from current 23% to 30% 100,000 MW new capacity (90% of present) in next 7 years. The Fiscal Responsibility and Budget Management Act Literacy standards increase from 18% in 1951 to 65% in

2002.

Indian EconomyIndian Economy

6

Steel Consumption Vs. GDPSteel Consumption Vs. GDP

Steel Consumption and GDP per Capita in 2004

10

100

1000

10000

0 5000 10000 15000 20000 25000 30000 35000 40000

GDP per capita (US$000 at PPP rates)

Ste

el c

on

su

mp

tio

n (

kg

/ca

pit

a)

ChinaS.Korea

Taiwan

US

Other AfricaIndia

Japan

Bubble size represents the population

The growth in BRIC will double the steel demand by 2050

Source: internal analysis

7

UAE – 1252

World Avg. – 170 India – 33

> 150 MT, The > 150 MT, The present gap present gap

Apparent Steel consumption of countries

Growth in key sectors will drive the steel demandGrowth in key sectors will drive the steel demand

We feel the growth trigger has been fired…..….. (Last 3 years GDP growth of + 7.5%)

8Low High

Deficit

Excess

Ava

il-ab

ility

of

Iron

Ore

Forecasted Growth rate 2005-15

CIS Latin America

USA / Canada

Eastern EuropeEU

Japan

India

China

Other emerging Asian countries

Raw Material basin

Growth basin

Mature basin

Production sites will move to regions with both RM Production sites will move to regions with both RM source and demand. source and demand.

National Steel PolicyProjectionsSteel Production

29 31 34 36

50

70

110

0

25

50

75

100

125

150

2000-01 2001-02 2002-03 2003-04 2006-07 2011-12 2020

Year

Cru

de

Ste

el :

mtp

a

Planning Commission projections

Indian Steel production likely to triple in next 15 yearsIndian Steel production likely to triple in next 15 years

To realize the above projections, it would be necessary to put in place the right policies as well as alignment of the policies

10

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

Presentation OutlinePresentation Outline

11

Multifold increase in Raw Material Consumption Multifold increase in Raw Material Consumption

54

27

13 13

190

70

26

39

0

20

40

60

80

100

120

140

160

180

200

Iron Ore Coking coal Non coking coal Fluxes

2004-05

2019-20 (F)

12

**

* **

Indian Iron Ore Reserves: Five Zones

States Major Mines / Deposits

A-Orissa, Jharkhand

Chiria, Noamundi, Joda, Kiriburu, Meghataburu, Thakurani, Bolani, Gua, Malangtoli, Gandhamardan, Daitari

B-Chattisgarh, MP, Maharashtra

Bailadila, Dalli,Rajhara, Rowghat, Mahamaya, Aridongri, Surajgarh

C-Karnataka Donimalai, Ramandurg, Kumaraswamy, NEB Range, Ettinahatti, Tumti, Belagal

D-Goa N Goa, S Goa, Redi

E-Karnataka Kudremukh, Bababudan, Kudachadri

States Ore Fe Range (%age)

Alumina (%age)

Phos Max (%ag

e)

A-Orissa, Jharkhand

Haematite

62-64 2-4 0.04-0.1

B-Chattisgarh, MP, Maharashtra

Haematite

64-66 1.0-4.0 0.04-0.15

C-Karnataka

Haematite

62-64 2.0-4.0 0.04-0.09

D-Goa Haematite

60-63 2.0-4.0 0.04-0.07

E-Karnataka

Magne

35-45 1.0 -

13

0

50

100

150

200

250

300

350

'99-00 '00-01 '01-02 '02-03 '03-04 '04-05 2020

mill

ion

tonn

es

Production Consumption Exports

Iron Ore

10%

3%

10%

6%

39%14%

18%

Production Trend Indian Resources: 23 bt

Karnataka

OrissaCha

ttisg

arh

Goa

Jharkhand

OthersAP

14

Natural iron ore resources can support lump: fines Natural iron ore resources can support lump: fines ratio of 20:40 as against current adverse trend of 40:60ratio of 20:40 as against current adverse trend of 40:60

33.6 34.6

39.6

47.4

55.1

41.2

45.2

53.0

67.1

77.9

6.0 6.4 6.5 6.1 7.1

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

2000-01 2001-02 2002-03 2003-04 2004-05

Million T

ons

Lumps

Fines

Concentrates

- Fines are mostly being exported

- DRI route uses 100% lumps, detrimental to mineral conservation

- Economies of scale not available with large number of small players to set up sintering / pelletization facilities

- Increasing use of fines in agglomerates in bigger size blast furnaces can increase its productivity and bring down cost/tss

The current steel production through BF/BOF:DRI:others is 60:33:7

15

Domestic DRI production : Trend and Forecast

Increasing DRI production may lead to faster depletion of high quality lumpy ore reserves

0

10

20

30

40

88 91 94 97 '00 '03 '04 '05 '06 '20

millio

n t

on

ne

s

Capacity Production

Growing @~7%

Source: Tata Steel analysis

16

NATIONAL STEEL GROWTH

0

100

200

300

400

500

600

700

800

900

1000

20

04

-05

20

06

-07

20

08

-09

20

10

-11

20

12

-13

20

14

-15

20

16

-17

20

18

-19

20

20

-21

20

22

-23

20

24

-25

20

26

-27

20

28

-29

20

30

-31

20

32

-33

20

34

-35

20

36

-37

20

38

-39

20

40

-41

20

42

-43

20

44

-45

20

46

-47

20

48

-49

20

50

-51

Iro

n O

re P

rod

uct

ion

MT

PA

-15000.00

-10000.00

-5000.00

0.00

5000.00

10000.00

15000.00

Min

eabl

e R

eser

ves

(Mt)

CAGR=3 CAGR=4 CAGR=5 CAGR=6 CAGR=7

Exports of iron ore =50 Mtpa

With expected CAGR of ~7% and exports at 50 mtpa, With expected CAGR of ~7% and exports at 50 mtpa, India will become an importer of iron ore in next 40 years.India will become an importer of iron ore in next 40 years.

Reserves in MT

Iron Ore Production

in MT

Most of the iron ore reserves are in reserve forest and environment sensitive areas making the actual availability of reserves much less

17

Imperative – Need for conservation and resource Imperative – Need for conservation and resource enhancementenhancement

Challenges

- Selective mining of high grade lumpy ores (DRI).

- Many low volume producers

- Mismatch in agglomeration capacity and fines generation.

- Lower production (33%) routed through beneficiation.

- Increasing exports.

Conservation ….for futureo Scientific Miningo Agglomeration capacityo Use of pellets for DRIo Beneficiation. o Technology for using

Slimeso Restricting exports.

Enhancement …o Detailed / Scientific

Exploration

18

Proven: 8Indicated: 6Total : 14

Proven: 5Indicated: 2

Total : 7

Proven: 9Indicated: 25

Total : 34

Proven: 14Indicated: 30

Total : 44

Proven: 11Indicated: 12

Total : 23

Proven: 35Indicated: 30

Total : 65

Proven: 7Indicated: 8Total : 15

Proven 90

Indicated 110

Inferred 46

Total 246

Billion tonnes

Indian Coal Reserves

19

Geological Survey of India : As of 1.1.2001

86%

3%

14%11%

Non-Coking Prime Coking Med Coking

Coking

Domestic Coking Coal Domestic Coking Coal

The Indian Coal, both coking and non coking is characterized by high ash and low washability index.

Coal Reserves, BT

Semi-Coking 28

Prime Coking 6

Non Coking 212

Total 246

Coking Coal Producers

CIL 5.8

Tata Steel 3.3

Others 0.5

Washed Coal Ash

BCCL 18%

CCL 18%

Tata Steel 13%

8.3 8.2 8.18.18.18.2

0

5

10

15

20

25

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

MTP

A

Indigenous Coal Imported Coal

Imports of Coking Coal to increase due to low Imports of Coking Coal to increase due to low Indigenous availability Indigenous availability

Source: 10th Plan report

28

62

88

8 10 13

0

20

40

60

80

100

2005 2015 2025

MT

PA

Demand Domestic Supply

- The additional demand for coking coal will be 70 mt by 2020 for 110 mt steel demand as per national steel policy

- For coking coal, dependence on imports to continue

Coking Coal

21

Need to conserve the scarce coking coal resourcesNeed to conserve the scarce coking coal resources

Challenges

- High ash

- Poor washability

- Over 40% coking coal used for thermal use.

- 70% demand met through imports

- Low domestic availability*

Conservation of resources for future use

o Beneficiating o Improving washing

capacity / efficiencyo Technology using

medium coking coal for coke making

o Steel making technology using non-coking coal

Enhancement of capacityo Developing new sourceso Detailed exploration

22

*Coal Strategy: Reducing coking coal requirements

Mining:- Beneficiation technology - Improving mining / washing process efficiency

Coke & Sinter Making- Quality Coke from semi coking indigenous coal.- Using low ash imported coal for blending

- Reducing Alumina level in iron ore for improving sinter & BF productivity and reducing coke requirement

Iron Making:- Pulverized Coal Injection using semi/non coking coal- Tar Injection- Using more pellets - Using sponge iron for feed

23

Limestone Limestone

• SMS Grade available in Rajasthan and Himalayan regions.

• While Environment and logistics constrains Himalyan

exploitation, high freight from Rajasthan is adverse.

• Stringent quality requirement further restricts availability

Therefore, Dependence on imports for steel grade limestone

to continue…

Limestone Reserves

BF grade SMS grade

World Abundant

India 160 bt 15 bt 7 bt

Current Requirement Requirement in 2020

BF grade 3.1 mt 9.5 mt

SMS grade 7 mt 22 mt

24

Chrome OreChrome Ore

• Ferro-Chrome industry in India is highly fragmented

• >98% Chrome ore reserves in Orissa.

• Chrome ore tons expected to ~ 10 mt by 2020.

• High conversion cost to Ferro Chrome due to high power cost

Globally competitive power tariffs to avoid shift to countries where power is cheaper.

Cr Ore Reserves Production Ore Production Fe Cr

World 11068 18 6

India 115 3.2 0.6

Figures in million tonnes

25

Manganese Manganese

• International market for Mn alloys have dipped in recent years

• Manganese ore tons expected to grow to 4.5 mt by 2020

• The usage of Mn alloys for steel making is limited by

– Low Mn content and high phos in Mn Ores

– High power cost for conversion

Therefore ….

• Need to explore and develop more high grade Mn resources

• Beneficiation to improve the lower grade coupled with sintering

Mn Ore/Reserves Production Ore Production FeMn, SiMn

World 5000 29 10.5

India 406 1.4 0.71

Figures in million tonnes

Source: Mineral Commodities Summary: 2002, IBM

26

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

Presentation OutlinePresentation Outline

27

1950 ~ 1991 – Tightly regulated industry

Iron ore reserved for Public Sector Companies

Growth subjected to “Industries (Development & Regulation)

Act 1951”

Pricing regulated by “JPC Price Mechanism”

Distribution subjected to controls such as “Freight

Equalization Scheme”

Foreign Investment discouraged

Foreign trade regulated by Canalization policy

An Industry insulated from Market forces

EvolutionEvolution of India’s Regulatory Environmentof India’s Regulatory Environment

28

Evolution of India’s Regulatory Environment…Evolution of India’s Regulatory Environment…

1991 onwards : Economic Liberalisation

Steel Sector opened to private participation

Included in list of “High Priority” industries

Up to 100% FDI allowed in prospecting & mining Iron ore

No separate approval for prospecting and mining necessary

Decanalisation of low grade Iron Ore (Fe<64%) trade.

Decanalisation of high grade Iron Ore (Fe>64%) - Export

License given for limited quantity and time .

29

Challenges & Policies for meeting growth demandChallenges & Policies for meeting growth demand

Challenges

- Fragmented capacities

- Unscientific operations

- Inadequate power & transport infrastructure

- Delay in grant / renewal of mineral leases

Policy Reforms under consideration

o Minimum production levels for lease grant

o Scientific Mining and Mineral Beneficiation

o Lease grant solely on the basis of technical & financial capability

o FDI & private sector participation for infrastructure development

o Time bound grant/renewal process

30

Challenges & Policies for meeting the growth demandChallenges & Policies for meeting the growth demand

Challenges

- Long drawn process for land/forest/ environmental clearance

- Socio/political pressures

- Limited iron ore / coking coal reserves

Policies reforms under considerationo Creation of land bank / private

sector participation in afforestationo Social / Environment cost to be seen

in Long Term perspectiveo Transparent implementation of the

lawso Technology / private participation

for detailed explorationo Large area prospecting licenseo Linking iron ore resources to

integrated and other steel plantso De-nationalization of coal mineso De-reserving areas for private sector

for a level playing field

31

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

Presentation OutlinePresentation Outline

32

Railway Distance & Freight of Major PlayersWeighted Ave. Rly distance & costs (Iron Ore) -2002

0

100

200

300

400

500

600

700

800

900

Km

's

US

$/To

n

0

1

2

3

4

5

6

7

8

9

Transport Cost Rail Distance

Transport Cost 3.03 3.5 5.87 8.11

Rail Distance 315 650 847 477

Australia Brazil S.Africa India

Rail Freight in India are highRail Freight in India are high

33

Inland Transportation of Raw MaterialInland Transportation of Raw Material

Inland transportation:

– Infrastructure being beefed up for the incremental volumes

Source: Economic Survey, 2003-04.

Traffic in steel sector (mt)

0

50

100

150

200

250

Raw Material Finished Steel Raw Material Finished Steel

2004 2020

Railway Road

34

Railways – The challengesRailways – The challenges

• Tariff & Capacity out of sync with a high growth environment

• Operational efficiencies.

• Costlier longer hauls

• Lower bulk movement per haul

• Expansion of facilities

• Development of raw material

corridor for faster movement of

raw materials to ports and

consumption points

• Improving services

• Reinforcing existing tracks

• Improvement in freight

structure

• Participation of private sector

through SPV / own your wagon

Challenges Initiatives …

35

PortsPorts

• The port facilities would also have to be expanded substantially.

• Improving productivity, turn around time, capacity to handle larger

vessels and other operational parameters of efficiency are critical.

• Private sector participation in ports increasing

• Feeder balance (mainly railways) is a key issue

18

70

26

85

100

6

26

0

20

40

60

80

100

120

ImportRM

Export RM ImportFinished steel

Export finished steel

2003-04

2019-20

36

Port facilities comparisonPort facilities comparison

0

50,000

100,000

150,000

200,000

250,000

Dampier/Aus CapeLambert/Aus

PDM/Brz Saldhana/SA Vizag Paradip Haldia Dhamra Paradip 2 Haldia/T'spr

Ports

Ldg

Rat

e &

ave

rage

par

cel s

ize

(Mt)

0.00

5.00

10.00

15.00

20.00

25.00

Slg

dra

ft (M

trs)

& T

ariff

($/M

t)

Total Tariff/Mt Parcel size Loading rate (act.ave.) G.Draft

Existing

Proposed Ports

Being designed for higher operation

al efficiency

and capacity

37

Steel Industry

- Global

- Indian

Raw materials for Steel

Policy / Legislation

Infrastructure

Conclusion

Presentation OutlinePresentation Outline

38

Second Largest Emerging Market

Largest democracy – political stability

& consensus on reforms

Liberal & transparent

investment policies

High returns on investment

Fourth largest Economy (PPP) - A

safe place to do business

Largest reservoir of skilled/semi-skilled manpower at low

cost

Long-term sustainableCompetitive advantage

- High growth rate economy

India – A Land Of OpportunitiesIndia – A Land Of OpportunitiesRich Mineral Base

Regulatory ReformsDeveloping Infrastructure

39

THANK YOU

40

NOT required

41

VALUE in USE .. or .. TOTAL COST

QUALITY of RAW MATERIAL ==>

CO

ST

==

>

DELIVERED PRICE

CONVERSION COST

TOTAL COST

42

Productivity of the Blast Furnace and Raw Materials

1.6

1.85

2.1

2.35

2.6

2.85

500 1000 1500 2000 2500 3000 3500 4000 4500

Inner volume, m3

Pro

du

ctiv

ity,

t/m

3/d

ay

Impact of superior

RM quality

43

Blast furnaces Tata SteelTypical size, m3

16001800

2600

3800

1000

1500

2000

2500

3000

3500

4000

1990 1995 2005 2010

Upgraded G BF

H BF

G BFF BF

44

Growth in Tuyere InjectionF BF, kg/thm

50

60

70

80

90

100

110

120

130

Before PCISystem Up

grdation

After PCI systemUp grdation

FY'06 (Plan)

45

Growth of Tar injection

Tar injection, '000 tpa

0

22

41 45

65 67

0

20

40

60

80

1995 1997 1999 2001 2003 Jan'05rate

46

Reduction in Clean Coal Ash-West Bokaro

12.0

17.618.1

19.6 19.6

18.0

16.516.0

15.2

14.213

16.2

17.0

10

12

14

16

18

20

1993-94 2001-02 2002-03 2003-04 2004-05 2005-06 'Jan 06

Clean Coal Quantity LTClean Coal Ash %Current rate

Raw Coal Ash: 35 %

47

Coke AshStamp Charged

19.518.9

17.817.4

16.3 15.7

15.0

15.5

16.0

16.5

17.0

17.5

18.0

18.5

19.0

19.5

20.0

99-2000 2000-01 2001-02 2002-03 2003-04 2004-05

Impact at Coke Plant………reduction in coke ash

WB coal ash reduced to

17%

WB coal ash reduced to

16%

WB coal ash reduced to 14%; Jharia

coal ash reduced to

16%

Imported coal amount

increased

48

Coke Alkali ,CP1

0.15

0.20

0.25

0.300.35

0.40

0.45

Jun-

95De

c-95

Jun-

96De

c-96

Jun-

97De

c-97

Jun-

98De

c-98

Jun-

99De

c-99

Jun-

00De

c-00

Jun-

01De

c-01

Jun-

02De

c-02

Jun-

03De

c-03

Jun-

04De

c-04

Jun-

05

Reduction in Coke Alkali with coke ash

Imported coal amount

increased

WB coal ash reduced to

14%

49

Response to low ash coke: ‘G’ bfBattery 5,6,7 : Coke Ash trend

15.00

15.50

16.00

16.50

17.00

17.50

18.00

Co

ke A

sh

, %

'G' BF Fuel Rate trend

560

570

580

590

600

610

620

Co

ke +

Co

al,

kg

/th

m

'G' BF SLAG Rate trend

250255260

265270275280

285290

Sla

g r

ate

, k

g/t

hm

50

Response to low ash coke: ‘G’ bf

Battery 5,6,7 : Coke Ash trend

15

15.5

16

16.5

17

17.5

18

Co

ke A

sh, %

G bf: HM Si, %

0.7

0.8

0.9

1

1.1

13-1

2-02

20-1

2-02

27-1

2-02

03-0

1-03

10-0

1-03

17-0

1-03

24-0

1-03

31-0

1-03

07-0

2-03

14-0

2-03

21-0

2-03

28-0

2-03

07-0

3-03

14-0

3-03

21-0

3-03

28-0

3-03

04-0

4-03

11-0

4-03

18-0

4-03

25-0

4-03

02-0

5-03

09-0

5-03

16-0

5-03

23-0

5-03

30-0

5-03

06-0

6-03

13-0

6-03

51

2.38

2.252.232.212.18

2.012.09

2.392.45

2.56

2.412.42

1.75

2.00

2.25

2.50

2.75

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-2

K

2K

-01

'01-0

2

'02-0

3

'03-0

4

'04-0

5

'05-0

6

Al2O3% in Fines

Quality of Fine Ore supplied to Sinter Plants

Adjoining Mines in same deposit operate from 2.5% to 3% Alumina if FO

Classification started at

Joda

Jigging at Noa

52

Impact at Sinter Plant….sinter alumina

Alumina in Sinter, %Tata Steel, annual avearges

4.7

4.36

3.91

3.66

3.44 3.393.22

3.03

2.842.74 2.74 2.68

2.61 2.59 2.57 2.59 2.62.51

2.43 2.442.28

2.0

2.5

3.0

3.5

4.0

4.5

5.0

84

-85

85

-86

86

-87

87

-88

88

-89

89

-90

90

-91

91

-92

92

-93

93

-94

94

-95

95

-96

96

-97

97

-98

98

-99

99

-2k

00

-01

01

-02

02

-03

03

-04

Blue dust, Dry Ckt

Improved washing, classification

Increased volume from better areas, use

of reverts Low alumina fuels & fluxes

53

Impact at Sinter Plant…..sinter alkali

Sinter Plant K2O,%

0.045

0.050

0.055

0.060

0.065

0.070

2000-01 2001-02 2002-03 2003-04 2004-05

SP2

Use of Gotan L/s

Use of RPC

54

Sinter Plant Productivity

20.0

25.0

30.0

35.0

40.0

45.0

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

Gro

ss P

rodu

ctiv

ity, t

/m2/d

SP2 SP1

Impact on Sinter Productivity

SP2 commissioned

55

Results at Blast Furnaces ………thru’ RM improvement initiatives

Actual HM(A-G),mtpa

2.40 2.442.60

2.92

3.24

3.44 3.513.63

3.89 3.934.04

4.44 4.454.34

2.00

2.50

3.00

3.50

4.00

4.50

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

00-0

1

01-0

2

02-0

3

03-0

4

04-0

5

G BF down for up-

gradation

Increasing HM Production

56

587

606

579

605608

655

606604613610613

622

639

552536

647

583

625

550546

554543 541

559 558

528

92

-93

93

-94

94

-95

95

-96

96

-97

97

-98

98

-99

99

-00

00

-01

01

-02

02

-03

'03

-04

'04

-05

Coal injection

+Tar injection (from FY’97)

Fuel rate

Coke rate

Coal injection

A BF down for hearth

repair

Decreasing Fuel rate

57

Slag Rate and slag MgO :'G' BF

328321

330 331

316311

297288

281 279 279

9.8

9.2 9.29.0 9.1

8.3

7.9

7.17.0

6.8 6.7

265275285295305315325335345355365375

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

00-0

1

01-0

2

02-0

3

03-0

4

04-0

5

Slag

rate

, kg/

thm

6.06.36.66.97.27.57.88.18.48.79.09.39.69.9

Slag

MgO

, %

Decreasing Slag rate

58

59

Productivity of the Blast Furnace and Raw Materials

1.6

1.85

2.1

2.35

2.6

2.85

500 1000 1500 2000 2500 3000 3500 4000 4500

Inner volume, m3

Pro

du

ctiv

ity,

t/m

3/d

ay

Impact of superior

RM quality

60

61

62

63

TARIFFS

Item CTC Dubai Sila Eastern, Thailand

Gotan Katni

FOB $/t 6.5 7.5

Freight, $/t 12 11

Price at Port 1160 1160 356 250

Rly Freight 370 370 1463 771

Si02 o.36 0.77 1.19 3.86

Al2o3 0.24 0.21 0.21 0.68

CaO 54.82 54.38 54.06 50.17

MgO 0.59 0.84 0.75 1.90

Total Alkali 0.155 0.144 0.140 0.238

Chemical Analysis %

64

65

66

World Steel Production

752 750799 777 789

848 850902

965

1057

1129

1410

500

600

700

800

900

1000

1100

1200

1300

1400

1500

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2010

Mill

ion

tonn

es

3% growth rate

0

50

100

150

200

250

300

350

Million Tons

Steel Production Iron Ore Consumption

Iron Ore Exports Iron Ore Production

Iron Ore: IndiaIron Ore: India

Source: Tata Steel

0

10

20

30

40

50

Karn

ata

ka

Ori

ssa

Ch

att

isg

arh

Goa

Jhark

han

d

Oth

ers

Major Producers

68

69

70

71

Seaborne Coking Coal Demand to rise

72

Seaborne Coking Coal Supply to increase mainly from Australia

73

World Iron Ore and Steel Prices

Source: Australian Commodities Vol 13, Mar’06

74

World Iron Ore and Coal Resources

19%

20%

14%

12%

5%

16%5%

9%

Australia Brazil China

India Kazakistan USSR

Ukraine Others

10%

17%27%

21%

3%13%

5% 4%

Australia China India

Russia Ukraine South Africa

USA Others

World Iron Ore Total Resource: 180 bt

World Coal Total Resource: 1000 bt

Source: National Mineral Inventory, IBM, 2003

75(*) Source: Economic Survey and RBI

India has strong economic fundamentals like low inflation, high growth, strong

financial sector, large forex reserves, high savings rate and young / knowledgeable

workforce.

GDP Growth RATE OF INDIA

4.45.6

4.4

8.26.9

7.8 8

0

4

8

12

FY'01 FY'02 FY'03 FY'04 FY'05 FY'06 FY'07E

%Indian Economy poised to grow at a rate of ~ 8% Indian Economy poised to grow at a rate of ~ 8%

The GDP growth rate is about 6.1% in last 10 years.

Projected GDP growth in next 15 years ~ +8%

76

0

2000

4000

6000

8000

10000

MagnetiteHaematite

Iron ore resources (mt)

Indian iron ore ResourcesIndian iron ore Resources

Most of the iron ore reserves are in reserve forest and environment sensitive areas making the actual availability of reserves much lessSource: IBM estimates

Total reserves – 23 bt

Magnetite grades are 30-35% Fe

Reserve Forest

Wild Life

Remaining Reserves ?

77

Global Chrome Ore Reserves

South Africa71%

Zimbabwe19%

Kazakhstan7%

Finland1%

India1% Other

1%

Source: Heinz Pariser

78

Issues & Policies for meeting the growth demandIssues & Policies for meeting the growth demand

Issues

- Large capital requirement for a risk prone mineral industry with long gestation period

- Lack of FDI inflow

Policies reforms under considerationo Improving labor lawso Enforcing attractive R & R

initiatives o Reduction in import duties on

mining equipmento Accelerated depreciation /

Amortization benefits for pre-mining expenditure

o Security of tenureFDI inflows in US $ Billion (1992-2002)

Country 1999 2000 2001 2002

India 4 4.5 4.2 4.4

China 40 41 47 53

Total approved FDI in mining Rs 4044 cr / $ 919 million

Actual Inflows Rs 343.6 cr / $ 78 million (only 8%)

Source: Ministry of Mines (figs do not include coal projects)

79

71%

15%

14%

Mining Govt Levies Rly Freight

41%50%

9%

Mining Govt Levies Rly Freight

82%

11%

7%

FOB Ocean Freight Rly Freight

Domestic Coking Coal

Domestic Iron Ore

Imported Coking Coal

Freight Constitutes a significant portion of the raw material cost

80

NEGATIVE IMPACT OF FRAGMENTATION OF MINES

Industry/players

Country/societyGovernment

Negative impact of mine fragmentation

• Opportunity loss of royalty –Annually–Over the life of the reserve

• Under-exploitation of natural resource

• Inadequate reforestation of areas after mining with severe environmental impacts

• Higher cost of mining/processing• Inability to undertake the following due

to huge investments involved–Beneficiation of iron ore to maximize utilization of reserves

–Reforestation of mined areas• Inadequate availability of logistics

infrastructure and higher cost due to their inability to give traffic guarantee

81

82

83

84

85

86

87

88

Projected Additional Steel Capacity

73.814.217.525.96.26.82.93.840Total

5.91.521.41.013.4EAF/IF, Others

5.023Others

3.21.61.6Murugappa

5.05Vedanta

5.05Mitsui

12.0633Posco

1.01.01.8Bhushan

3.61.21.21.23.0RINL

1.91.20.70.4JSPL

1.31.32.5JVSL

5.241.22.4Essar

0.8

2.4

FY 09 E

0.8

FY 08 E

1.2

1.0

FY 07 E

1.0

0.8

FY 06 E

1

6

FY 12 E

1.22.4Ispat

6.61.01.010.8SAIL

16.97.74.2Tata Steel

Total Additional Capacity FY 11 EFY 10 EFY05 A

Company

Source: Industry data, Company data, Morgan Stanley estimates

89

World Reserves of Major Minerals

Mineral fuels UoM World India % of World

Coal bt 1000 102 10

Bauxite bt 34 3.1 9

Manganese ore bt 5 0.4 8

Iron Ore bt 180 13 7

Zinc & Lead bt 3.4 0.2 7

Rare Earths mt 110 1.3 1

Chromite bt 11 0.1 1

Saleable Steel - Elements of Cost Saleable Steel - Elements of Cost

Net Material Cost 40%

Others 60%

Saleable Steel

Coal53.0%

Iron Ore34.5%

Fluxes12.3%

Others0.2%

Raw Material is the major cost driver of saleable Steel

91

6772

5656

18081

711144

6296

6875

7508

7846

6025

70 70

85

65

5043

40

5000

5500

6000

6500

7000

7500

8000

2003 2004 2005 2006 2007 2008 2009 2010 2011

0

10

20

30

40

50

60

70

80

90

Cum Effective Capacity Capacity AdditionsFe Cr Demand Fe Cr Prices

Demand Supply of Fe Cr: World ( Forecast)

The demand supply for Ferro Chrome is expected to increase The demand supply for Ferro Chrome is expected to increase

Saleable Steel - Net Material Cost Rs./TSSSaleable Steel - Net Material Cost Rs./TSS(Element, Rs./t, percentage)(Element, Rs./t, percentage)

Pig Iron/Sponge

Iron, 29%

Dolomite, 0%

Pyrex, 1%

Iron Ore, 8%

Other RM, 0%

Scrap Cons, 9%

Limestone, 10%

Middling, 2%

Converted Coke, 2%

Coal, 39%

Net Material Cost 40%

Others 60%

Saleable Steel

93

Forecast : Steel Consumption in BRIC EconomiesForecast : Steel Consumption in BRIC Economies

Growth in BRIC is enough to double the world consumption of steel by 2050.

94

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

GD

P (

US

D -

Bn

)

• GDP of Brazil, Russia, India & China - expected to cross G-6 by 2036.

• China - Expected to attain global # 1 status in 2041

• India - Expected to attain global # 3 status in 2032

CHINA

US

INDIA

JAPAN

RUSSIA

BRAZIL

2032 : India takes over Japan

2041 : China takes over the US

BRIC Theory: Progressive shift of world power centers to BRIC Theory: Progressive shift of world power centers to happen within next 3 decades. happen within next 3 decades.

Source: Goldman Sachs Global Economy

95

Demand Supply of Fe Cr: World ( Historical)

The major New FeCr Capacities in pipeline till 2007

Plant Country Capacity (MT)

Year

SA Chrome SA 120,000 2006

ASA Metals SA 65,000 2006

Xtrata “Lion” SA 330,000 2006-07

TVL SA 245,000 2006

Tisco , R.Bay

SA 120,000 2006

Hernic SA 160,000 2005

Kaz Chrome Kaz 300,000 2005-06

Outokompu Finland 250,000 2007

Jindal India 160,000 2005-07

Chelyabinsk Russia 250,000 2005-07

IMFA Group India 60,000 2006

Nav Bharat FA

India 25,000 2006

New capacities are coming up for ferro chromeNew capacities are coming up for ferro chrome

96

World over the steel companies are using agglomerates in excess of 80%. Increasing use of agglomerates increases BF productivity and reduction of overall cost / tss .

Enhanced use of agglomerates in big blast furnacesEnhanced use of agglomerates in big blast furnaces

97

Raw Material demand in India to increase by 13% to meet Raw Material demand in India to increase by 13% to meet the rise in steel demandthe rise in steel demand

Imperatives for 8% GDP Growth

Manufacturing must grow at 11%

This means a growth of 13% for Mining Industry if it has to contribute 5% to GDP by 2010 instead of 2.5% at present.

13% growth in mining has to be driven by few lead minerals such as coal, iron ore, supported by other minerals.

Sectoral Share % in 2004 - GDP growth 6%

24.4

51

24.6

AgricultureServicesIndustry

Sectoral Share % in 2010 - GDP growth 8%

14

52

34AgricultureServicesIndustry

98

Robust growth in infrastructure, power, construction Robust growth in infrastructure, power, construction and steel sectors will drive the Steel Demandand steel sectors will drive the Steel Demand

Expenditure on Infrastructure

0

200

400

600

800

1000

1200

Inc

rem

en

tal

Co

ns

um

pti

on

in '0

00

to

ns

'04 '06E '08E '10E '12E

In addition there will be investment for additional 25 mt capacity in steel itself by 2010. Potential for steel - 25-30% of the investment cost.

0

500

1000

1500

2000

2500

FY'03 FY'04 FY'05 FY'06 E FY'07 E FY'08 E FY'09 E FY'10 E

Investment in construction sector (Rs m)

Source: SSKISept’05 issue

Construction sector will grow at CAGR of 15%.

Incremental Steel demand for Power Sector

99

Supply Logistics - Indian ore weakness

0

2

4

6

8

10

12

14

16

18

20

Marandoo Robe Carajas Sishen Bailadila Reference

Mining SSL FOB price (fines) FOB cost

Mining costs are competetive

SSL & FOB costs - Directly proportional

Bleeding profitability