Metals

MARKET & OPPORTUNITIES

 Metals
MARKET & OPPORTUNITIES

CONTENTS
Metals Sector in India 2
Aluminium 5
Copper 7
Zinc 9
India has Definitive Competitive Advantages
in Metals Industry 11
Critical Success Factors 16
Appendix 18

A report by KPMG for IBEF

 MARKET & OPPORTUNITIES

Metals Sector in India

The metal industry is a key sector in the Indian economy, steel. There are more than 3,500 different grades of steel, a
as it meets the requirements of a wide range of key majority of which have been developed in last two decades.
industries including engineering, electrical and electronics, Per capita steel consumption is regarded as an indicator of
infrastructure, automobile and automobile components, economic development of a nation. Steel demand gets
packaging etc. The metal industry comprises of two major derived primarily from infrastructure, automobile sector
segments: ferrous metals and non-ferrous metals. and durable goods.
Ferrous metals, primarily consist of iron and different
varieties of steel. Indian steel industry has shown strong Global crude steel production as well as consumption
performance in the recent past in terms of production, is growing at more than 8 per cent
capacity utilisation, exports and consumption, because of
rapid growth in the construction and automobile industries.
India, is now a major player among steel producers in Global Consumption of Finished Steel Products

the world.
2006 1,113.20
Non-ferrous metals, which include aluminium, copper,
zinc, lead, nickel and tin, are used to make alloys, castings, 2005 1,026.00

forgings, extrusions, wires, cables and pipes. They find 2004 974.30
application in a number of sectors such as, agriculture,
infrastructure facilities like power plants, automobiles, 2003 894.80

railways, telecommunications, building and construction, 2002 814.70

engineering and chemical plants. India is rich in bauxite
(aluminium ore) and has grades of zinc, lead and copper 0 200 400 600 800 1,000 1,200
million tonnes
reserves. Copper, lead and zinc are also imported as scrap Source: International Institute of Steel & Iron Website
or concentrates, to be processed by secondary/custom
smelters. Nickel and tin are also imported into India.
While the metal sector covers a large domain consisting
Total Crude Steel Production
of a wide variety of metals, this report focuses on four key
metals namely, iron (steel), aluminium, copper and zinc. 2006 1,224.07

2005 1,113.45

Iron and Steel 2004 1,038.59

2003 946.74
Steel, is an alloy of iron and carbon containing less than 2
per cent of carbon with smaller amounts of other elements, 2002 882.10
such as, manganese, silicon, phosphorus, sulphur and
0 200 400 600 800 1,000 1,200 1,400
oxygen. It is also the world’s most recycled material, with million tonnes
around 65 per cent of new steel coming from recycled Source: International Institute of Steel & Iron Website
 ME TALS 

The world crude steel production grew at 8.54 per cent Production of Finished Steel in India
compounded annually from 2002 to 2006, while, the
2006 44.54
world consumption rate grew at 8.14 per cent during the
same period. 2005 40.05
The top ten crude steel producing nations accounted for
2004 36.96
78 per cent of total crude steel production in 2006, of which
a bulk of the consumption as well as production originated 2003 33.67
from China, which constituted around 34 per cent of total
2002 31.63
crude steel production. India ranks seventh globally in
crude steel production, as shown in the chart below. 0 20 25 30 35 40 45
million tonnes
Top 10 Producers for Crude Steel in 2006 Source: Ministry of Steel – Annual Reports

China 423.15 Indian companies that are engaged in mining iron ore for
(34.57%)
the use of main and secondary producers include National
Japan 116.25 (9.5%)
Mineral Development Corporation (NMDC), Kudremukh
USA 98.54 (8.05%) Iron Ore Co (KIOCL), Essel Mining & Industries Ltd, and Sesa
Goa (Sesa). Apart from this, some of the integrated steel
Russia 70.76 (5.78%)
companies, such as, Steel Authority of India Limited (SAIL)
S. Korea 48.54 (3.97%) and Tata Iron and Steel Companies (TISCO), have their own
Germany 47.22 (3.86%) captive mines.

India 44.02 (3.60%)

Main Producers
Ukraine 40.80 (3.33%)
Main Producers can be classified depending upon the
Italy 31.55 (2.58%)
production process and the type of products manufactured
Brazil 30.91 (2.53%) by the producers.
0 100 200 300 400 500
• Based on production process: Producers use three types
million tonnes of processes for converting iron ore into steel: Coke Oven
(BF/BOF route), Electric Arc Furnace (EAF route) or Corex
Crude steel production in India has grown compounded Process.
annually at 8.9 per cent during the same period, with the • Based on the products: Products manufactured by the
production around 44 million tonnes in 2006. India has main producers are of two types - Long products and
strengthened its position with a jump from ninth to seventh Flat Products. Long products, include bars, structural
rank in the global steel production during this period. products, wire rods, angles and rounds. They are used
in construction and heavy engineering. Flat products,
Production of Pig Iron in India
include Hot Rolled Coils/sheets (HRC), Cold Rolled Coils/
sheets (CRC) and Galvanised sheets. These products are
2006 4.80 used for automotive sector and white goods, fabrication
work like car bodies, ducts, consumer durables and
2005 4.40
roofing. RINL, SAIL and Tata Steel are the major producers
2004 5.22 of long products. For flat products, the major producers
are SAIL, Tata Steel, Ispat Industries, Jindal group of
2003 5.29
companies, Uttam Steel and Bhushan Steel.
2002 4.07

2 2.5 3 3.5 4 4.5 5 5.5

million tonnes
Source: Ministry of Steel – Annual Reports
 MARKET & OPPORTUNITIES

Secondary producers
Exports and Imports of Steel

Secondary producers, consist of suppliers of processed 5.2

2006
inputs for steel making - the primary steel makers and 3.5

independent re-rollers. Secondary producers account for 2005

3.3
4.1
about 36 per cent of India’s steel production. Stand alone
producers, produce sponge iron and pig iron to be used 2004
1.7
2.5
by the main producers. India is the largest producer of coal
based sponge iron in the world and accounts for 15 per 2003
1.1
1.9
cent of global output. Jindal Steel & Power Ltd is the largest
producer of coal based sponge iron in India and second 1.1
2002
0.9
largest in the world, with a capacity of 650,000 TPA.
0.9
2001
1.0
Raw Material constitutes around 50 per cent of total
costs in Steel production 0 1 2 3 4 5 6
US$ billion
n Imports n Exports
Raw Material is the main component of costs involved in
Source: International Institute of Steel & Iron Website
the steel industry. A percentage break- up of costs of steel
industry revealed that raw materials formed the largest
Imports of Iron and Steel
chunk of costs (50 per cent), followed by interest payments
Russia 18%
(9.2 per cent) and power and fuel expenses (9 per cent).
Korea 12%
Though, India’s raw material and labour costs are lower as
UK 11%
compared to CIS countries, China, USA, Japan, South Korea,
USA 10%
however India’s financial expenses are higher.
Germany 9%
Indian Steel Industry - Cost Structure China 8%
Raw Material 50% Others 32%
Tax 9% Source: Indian Steel Idustry – Cygnus Report August 2007
Staff Cost 6%
Power & Fuel 6%
Exports of Iron and Steel
Depreciation 5%
USA 20%
Spare Parts 4%
China 18%
Interest 3%
UAE 9%
Purchases 1%
Belgium 8%
Freight Charges 1%
Indonesia 7%
Other Expenditure 15%
Italy 6%
Source: Indian Steel Idustry – Cygnus Report August 2007
Others 32%

Source: Indian Steel Idustry – Cygnus Report August 2007

Indian Steel Imports exceed Exports
total steel exports in 2006. The other key markets include
The total exports of steel from India were around US$ 3.5 UAE (8 per cent), Belgium and Indonesia. The major steel
billion as compared to imports worth around US$ 5.2 billion import destinations for India, include Russia, USA, UK and
in 2006, making it a net importer. India’s exports mainly Korea.
consist of carbon steel which accounts for 95 per cent of
total steel exports, the balance being pig iron.
The main consuming market for steel exported from
India is, USA and China, accounting for 38 per cent of the
 ME TALS 

Aluminium

Aluminum, is a light weight, silver-white, metallic element, 5.89 per cent during 2003-06. The market size for aluminum
that makes up approximately 7 per cent of the earth’s crust. globally is US$ 96.56 billion. Europe and North America, are
It weighs about one third as much as steel (7480- 8000 Kg/ the biggest players in the aluminum segment, with 35 per
cubic metre) or copper (8930 Kg/cubic metre). Aluminium is cent and 22 per cent of global market share respectively.
malleable, ductile, easily casted and has excellent corrosion
resistance and durability. It is mined in the form of bauxite
ore and exists primarily in combination with oxygen Indian Aluminium Industry
as alumina.
India has nearly 10 per cent of the world’s bauxite India’s share of global aluminum production is hovering
reserves and a growing aluminium sector that leverages around 3 per cent. The Indian aluminium industry is highly
this. Demand in the domestic market is expected to grow concentrated with only five primary plants in the country
by 8-10 per cent. By 2020, India is expected to have an from three business groups.
installed aluminium capacity of 1.7 to 2 million tones per
annum. Business Groups Players
The Aditya Birla Group Hindalco Industries Limited (Hindalco)
Indian Aluminium Company Limited
(Indal)
Global Aluminium production has grown
Sterlite Industries Bharat Aluminium Company Limited
at 7 per cent (Balco)
Madras Aluminium Company Limited
(Malco)
Per capita consumption of aluminum is closely related to
Public Sector Undertakings National Aluminium Company Limited
Gross Domestic Product (GDP) of a country. (Nalco)
The global aluminium production grew at a CAGR of
7.7 per cent, while the consumption increased at a CAGR of
Primary Aluminium Production
Global Aluminium Production & Consumption
2006 426.7 358.3 166.1
34.00
2006 2005 411.8 338.5 131.9
33.96

31.69 2004 389.2 298.2 129.8

2005
32.03
2003 318.0 244.7 126.5
2004 30.32
29.28 2002 307.1 231.6 99.4

20 22 24 26 28 30 32 34 36 0 100 200 300 400 500 600 700 800 900 1000
million tonnes ‘000 tonnes
n Aluminium Consumption n Aluminium Production n Hindalco n Nalco n Sterlite Group
Source: Aluminium Commodity Report, Infoline, August 2007 Source: Aluminium Castings, Aluminium Association of India, April 2007
 MARKET & OPPORTUNITIES

Installed Capacity of Indian Players Aluminium Cost Structure

Alumina 41%
NALCO 1,575
345 Energy Cost 28%
Other Raw Materials 12%
200
BALCO
345 Labour Cost 8%
Other Costs 11%
HINDALCO 1,160
455
Source: Aluminium Commodity Report, Infoline, August 2007

MALCO 85
38
Usage pattern for Aluminium is different
0 200 400 600 800 1,000 1,200 1,400 1,600
for India
‘000 tonnes
n Alumina n Aluminium
Source: Aluminium Commodity Report, Infoline, August 2007
Aluminium, is used in various sectors, such as, transportation,
packaging, building / construction and electricity. However,
The technology used by all Indian players is Bayer Hall the usage pattern differs significantly for Indian and rest of
Heroult. The energy inputs used are electricity, coal and the world, as shown figure 14 & 15.
furnace oil with all plants having their own captive power Globally, the automotive, packaging and the construction
units for cheap and uninterrupted power supply. sectors are the major end users of aluminium, while in India
Although, domestic aluminum production exceeds the the power sector consumes about 31 per cent.
domestic demand, India imports on an average 15-20
per cent of the total supply of aluminium. Imports are
necessary, due to the shortage of domestically produced Aluminium Consumption in India
ingots. India’s imports of aluminium and products, primarily Electrical 31%
comprise of unwrought items like ingots, billets, scrap, bars Automotive 18%
and rods. Imports of primary aluminum products account Building and Construction 13%
for less than 10 per cent of domestic consumption. India Packaging 11%
also exports aluminium products such as, scrap, powder Others 27%
and flakes, bar rods, foil, pellets, sheets, tubes and pipes.
Source: Aluminium Commodity Report, Infoline, August 2007

Energy Costs constitute a high 40 per cent Aluminium Consumption - Global

of total manufacturing costs in India Automotive 26%

Building and Construction 20%
Packaging 20%
Energy and alumina costs represent the largest components
Electrical 9%
for the global aluminium industry. Energy costs represent
Others 25%
around 30 per cent of the total smelting cost of aluminium
and around one-third of total alumina production costs. Source: Aluminium Commodity Report, Infoline, August 2007

During 2002-06, energy costs have increased drastically

due to increase in crude oil prices.
In India, the energy cost represents 40 per cent of
manufacturing cost for aluminium and 30 per cent for
finished rolled products. However, most Indian companies
have set internal targets to reduce specific energy
consumptions in next 5 - 8 years along with declaration
of formal energy policies as well. Each plant has an Energy
Management Cell and achievements in energy conservation
are highlighted in the Annual Reports.
 ME TALS 

Copper

Copper, is a key metal for industrial applications owing to Copper Production -2006
its high electrical conductivity, corrosion resistance, Asia 41%
ductility, malleability and rigidity. USA 33%
Europe 21%
Global copper production as well as Africa 3%
consumption has grown at about Oceania 2%
3 per cent CAGR
Source: Aluminium Commodity Report, Infoline, August 2007

Global Copper Industry

Usage Pattern for Copper differs region
17.0 to region
2006
17.3

2005
16.6 The specific applications of copper include power cables
16.5 and wires, jelly filled cables, building wires, air conditioning
2004
16.8 and refrigeration tubings. It is widely used in sectors,
15.8
such as, telecom, power, construction, transportation,
2003 15.6 handicrafts, engineering, consumer durable, defence and
15.2
highly dependent on the performance of them. Hence,
2002 15.2 the copper industry growth is also closely linked to the
15.3
country’s economic and industrial growth.
14 14.5 15 15.5 16 16.5 17 17.5
million tonnes
Copper Consumption - 2006
n Consumption n Production
Asia 48%
Global copper production has grown at 3.16 per cent Europe 31%
compounded annually over the period 2002 – 2006, from a USA 19%
level of 15.3 million tons to 17.33 million tonnes. During the Oceania 1%
same period consumption of copper grew at 2.88 per cent, Africa 1%
from 15.21 million tonnes to 17.04 million tonnes.
Asia and USA, are the biggest producers of copper
in the world, together accounting for over 70 per cent of
global production. Asia and Europe, are the key consuming Copper Consumption by Sector - Asia

markets, accounting for close to 80 per cent of global Electrical and electronic products 50%

consumption of Copper Transportation equipment 15%

Building / Construction 15%
Consumer and general products 11%
Industrial machinery and equipment 9%
 MARKET & OPPORTUNITIES

Copper Consumption by Sector - Europe Corporation Ltd. The Industry has three major players at
Building / Construction 39.5% present.
Electrical and electronic products 37.5% • Hindustan Copper Limited [HCL]
Industrial machinery and equipment 9.0% • Sterlite
Transportation equipment 7.5% • Hindalco
Consumer and general products 6.5%
Copper Industry Market Shares

Copper Consumption by Sector - USA

Building / Construction 43%
14%
Electrical and electronic products 25%
Transportation equipment 12%
Industrial machinery and equipment 11%
Consumer and general products 9% 44%

42%

Indian Copper Industry is highly

concentrated with three major players

The copper industry consists of two segments

• C
 ontinous Cast Copper Rod n Hindalco n Sterlite n HCL
• Copper Cathodes Source: The Indian Copper Industry, ICRA, October 2006

Continous cast copper rod segment has grown at 10 per

cent CAGR over the period 2002-2006 and constitutes Other players include around 1000 Small Scale Industries,
about 37 per cent of the aggregate market. Copper which are primarily involved in converting scrap into ingots.
Cathodes, have grown at 13.17 per cent over the same HCL, is the only primary producer, which mines and refines
period, and constitute 63 per cent of total copper production. copper. Hindalco and Sterlite, are secondary producers,
The aggregate production has grown cumulatively at 11.95 who process indigenous and/or import copper concentrate
per cent. to produce end products such as copper bars, rods and
Copper Production in India wires. The output from the three major producers accounts
for a share of approximately 80 per cent of the total copper
2006 688 consumption in the country. The balance is on account of
2005 539 imports and sales of smaller producers.
The capacity for production of primary copper in India
2004 524
has risen from a mere 47,500 tonnes per year in 1997 to
2003 469 947,500 tonnes in 2006-07, which has enabled India to
become a net exporter of refined copper.
2002 438
The Indian copper Industry has a moderate importance
0 100 200 300 400 500 600 700 in the Indian economy. While it has a number of applications
‘000 tonnes across several sectors, its turnover of around US$ 775.9 million.
Source: The Indian Copper Industry, ICRA, October 2006
Is just 0.2 per cent of GDP. About 40 per cent of the production
The Indian copper industry was opened for private is exported. The total employment in the sector is less
sector investments in 1992. Earlier, the industry was than 40,000.
dominated by Hindustan Copper Limited (HCL), a public
sector undertaking, which had taken over the copper ore
mines at Khetri and Kolihan, in Rajasthan and Rakha Copper
Complex in Bihar, from National Mineral Development
 ME TALS 

Zinc

Zinc, is the fourth most widely used metal globally, after Global Zinc Consumption
steel, aluminum and copper. Zinc was being produced from
2006 11.04
its oxide ores, before more abundant sulphides became
a major source of supply. In 1916, the electrolytic process 2005 10.61
replaced the pyrometallurgical process as the dominating
2004 10.67
production method.
Around 47 per cent of total zinc produced globally 2003 9.84
is used for galvanising. Galvanising, is the process of
8 8.5 9 9.5 10 10.5 11 11.5
coating iron or steel with a thin layer of zinc, by passing
million tonnes
steel through a molten bath of zinc at high temperatures. Source: Zinc Commodity Report, India Infoline, July 2007
The recycle life of galvanised steel can be up to 100 years,
compared with about 20 years for ungalvanised steel. The
most widely used alloy of zinc is brass, in which copper is Global Zinc consumption has been
alloyed with zinc along with smaller amounts of lead and growing faster than production
tin. Other alloys of zinc are used in certain types of machine
bearings, diecasting, stamping dies. Zinc is also widely The zinc production increased at a CAGR 2.73 per cent
used in building, fittings, electrical components medical during 2002-06, while the consumption increased at a
equipment, rubber goods, paint pigments and ceramics. CAGR of 3.77 per cent during the same period.
China, USA, Japan, Germany and Korea, are the largest
consumers of zinc in the world, with USA accounting for 10
per cent of total zinc consumption.

Global Zinc Production

India’s Zinc Industry is dominated
10.71
by two primary producers
2006
10.35

10.22 India’s zinc ore resources are estimated at 385 million

2005
10.13 tonnes. There are two primary producers of Zinc.
10.35 • Hindustan Zinc Limited (HZL), with a smelting capacity
2004
9.73 of 411,000 tonnes shared by three plants. The company
9.87 was recently transferred on a strategic sale to Sterlite
2003
9.52 Industries.
• Binani Industries, with smelting capacity of 38000 tonnes
8 8.5 9 9.5 10 10.5 11
million tonnes per annum
n Zinc Production n Mine Production
Source: Zinc Commodity Report, India Infoline, July 2007
10 MARKET & OPPORTUNITIES

Hindustan Zinc Limited, has entered into a number Zinc Consumption in India
of alliances to strengthen exploration activities of zinc,
2005-06 410
such as
• With Broken Hills Minerals, Australia, for exploration of 2004-05 375
base and precious minerals in Rajasthan
2003-04 340
• With Vigego, Vietnam and La-Source, France, for
exploration activities at Pac-Lang; 2002-03 300

• With Council of Scientific and Industrial Research (CSIR) 2001-02 283

for setting up a ‘nickel technology proving plant’ of 10
tonnes per day; Negotiating with another Australian 0 50 100 150 200 250 300 350 400 450
‘000 tonnes
company, Pasminco, for exploration in Ajmer district.
Source: India Stat
• The company has completed exploration for evaluation
of Gossan resource in parts of Jagpura. The working
permission for additional 10 sq km has been obtained for
further exploration. Indian Zinc Market Segmentation
Galvanising 70%

Binani Industries, has also undertaken diversification Dry Cells 10%

programme based on Imperial Smelting process from the Zinc Alloys 10%

UK. Binani, has plans to increase the existing capacity to Die casting 5%

100,000 tonnes per annum. Chemicals and others 5%

Since, zinc production is a power intensive process, the Source: India Stat

lower consumption of power, usage of cheap scrap, dross

or ash and low overheads offer the secondary players a
competitive edge, over the primary producers. As a result, Indian Zinc Products

a number of producers have emerged in the secondary

sector, such as, Ambuja Zinc, Mewat Zinc, Bharat Zinc, Indo 7%
Zinc, Sunrise Zinc and Rose Zinc.
37%
23%

Most of the Zinc consumption in India

is for galvanising

Zinc consumption in India is primarily for galvanising (70

per cent). Other usage segments include batteries (10 per 33%

Production of Zinc Concentrates in India

n Tubes n Sheets n Structurals n Wires

2006 883.36 Source: India Stat

2005 666.97

2004 529.87 cent), zinc alloys (10 per cent), die casting (5 per cent),
2003 487.98
chemicals and others (5 per cent).
In terms of products, zinc tubes and sheets comprise
2002 399.04 70 per cent of consumption, while structurals and wires
300 400 500 600 700 800 900 comprise the balance.
‘000 tonnes
Source: India Stat
 ME TALS 11

India has Definitive Competitive

Advantages in Metals Industry

India’s competitiveness in metal industry can be analysed Growing Market Demand

by using the framework depicted below.
Metals constitute a key input to other manufacturing
The key advantages can be categorised into: sectors such as, engineering, electrical and electronics,
• Growing market demand automobile and automobile components, packaging etc,
• Favorable factor conditions for production and infrastructure. The performance of the metal sector is
• Presence of related and supporting industries hence, a reflection of the overall economy. In this context,
• Government support for helping companies improve there are several positive indicators for growth in the
performance and stimulating industry environment metals industry such as, capacity creation and growth in
sectors like, infrastructure, power, mining, oil & gas, refinery,
automotive and consumer durables. For example:
• India’s overall economic growth is projected to sustain,
with annual projected growth of about 8 per cent. The
manufacturing sector, that currently constitutes about 15
per cent of GDP, is expected to grow faster and contribute
significantly to overall economic growth. This will have a
positive effect on metals demand.
• Key consuming segments such as Automotive and Auto

Threat of New Entrants

 Supportive policy regime
 Growing domestic market as well
as exports, across segments

Customer Power
Supplier Power Competitive Rivalry
User industries experiencing strong growth
 Rich reserves of minerals, ores Number of domestic players  Highly demanding customers
 Growing, skilled manpower base Highly competitive in secondary  Wide range of products, specifications
and downstream segments to meet different needs

Threat of Substitutes
 Plastics and other substitutes being tried
out in some user segments
 No viable substitute in a majority
of usage areas
n High n Medium n Low
12 MARKET & OPPORTUNITIES

Components, have been experiencing robust growth Per Capita Consumption of Crude Steel
in recent years, this has had a positive impact on the
UAE 1,314
metals sector. Automobile production has been growing
Chinese
at 16 per cent CAGR over the past 6 years, while Auto Taipei 1,044
Components has grown at 22 per cent. These segments
Japan 649
are expected to show strong growth in future, as well.
• Major infrastructure projects such as, the World Bank- Italy 569

funded Golden Quadrilateral Project, and the North- Germany 469

South and East-West corridors, linking major cities across
the country have also fuelled the industry’s growth, which USA 382

in turn, has positively impacted the Metals industry. World 189

Brazil 101
The user industries are also getting increasingly
demanding and sophisticated. This motivates firms in the India 38
Metals industry to constantly improve their competitiveness,
0 200 400 600 800 1,000 1,200 1,400
via innovative products through higher quality, thereby
kilograms
improving their global competitiveness Source: World Coal Institute Website

Per Capita Consumption of Copper

India’s per capita consumption of metals is
Japan 12.0
bound to increase with time
N. America 9.8

India has a low per capita consumption of metals as Oceania 8.8

compared to developed nations.
The per capita consumption of steel varies significantly Europe 8.5

across nations. India has a low per capita of 38 Kg compared Asia (Ex Japan,
2.5
India, China)
Per Capita Consumption of Aluminium
China 1.7

Japan 32.0 South

1.4
America
USA 31.9 Central
1.3
America
Germany 31.6 India 0.1

Canada 31.2
Africa 0.1

Italy 29.5
0 2 4 6 8 10 12 14
France 21.4 kilograms
Source: International Copper Study Group Website

Australia 21.2
to a global average per capita consumption of around
UK 15.0 189 Kg. The case is similar for other metals, as well.
China 6.5
The per capita consumption of zinc in India is a negligible
0.2 kg, while Asian countries such as Korea and Taiwan have
Brazil 4.1 a consumption level of 2 kg, and developed countries, such
India 1.1
as, the US, the UK, France, Japan and Germany, have per
capita consumption going up to 6.5 kg.
0 5 10 15 20 25 30 35 With rapid growth in sectors, such as, infrastructure,
kilograms automobiles and construction, it is expected that the per
Source: World Coal Institute Website capita consumption of the metals in India will go up.
 ME TALS 13

FavoUrable factor conditions the Indian Institute of Technology that facilitate advanced
for Production studies in the areas of metallurgy and materials science. They
not only provide a steady stream of qualified manpower to
India has rich reserves of minerals like bauxite, iron ore, the metals industry, but also promote fundamental research
copper, zinc etc. It provides major cost advantage to the and innovation.
domestic steel industry, with companies like Tisco, being
one of the lowest cost producers in the world. India has large Government regulations and support
resources of high grade bauxite deposits, - 3037 million
tonnes, and ranked fifth in the world bauxite reserves next The Government of India, has revised its foreign direct
to Australia, Guinea, Brazil and Jamaica. Bauxite reserves investment policy to attract foreign investments in the
in India account for 7.5 per cent of the world’s total world metal sector. Government initiatives to boost the end-user
deposits. segment (like Telecom, Power, Construction, Transportation,
The country has a growing workforce that is English- Engineering, Consumer Durable etc.), also have a significant
speaking and highly skilled and well developed designing positive impact on the demand for metals. Liberalised
and machining capabilities. India also has lower wages as overall policy regime, with specific incentives, provides a
compared to developed nations providing it an edge over very conducive environment for investments and exports
them. Abundance of quality manpower is increasingly in the sector.
proving to be a boom. These strengths provide competitive
advantage to India, in the engineering and manufacturing Some of the policy initiatives aimed at boosting investment
fields that in turn, impact the Metals sector. and growth in the metals sector are-
Conditions are also favorable for the sector’s growth, • Foreign equity holding is allowed upto 100 per cent on
from the point of view of capital investments. Indian players the automatic route for all non-fuel, non-atomic minerals
in the sector have been investing in capacity building, to except diamond and precious stones.
fuel their growth strategies. Companies that have embarked • Thirteen minerals, like iron ore, manganese ore,
on or completed significant expansion in recent years, chrome ore, sulphur, gold, diamond, copper, lead, zinc,
include Sterlite Industries (India) Ltd (expansion of Tuticorin molybdenum, tungsten, nickel and platinum group of
complex), Hindalco (brown field expansion in its Copper minerals, which were reserved exclusively for public sector
business, to double its capacity from 250,000 to 500,000 have been opened up for private sector investments.
tonnes per annum), The Tata Iron and Steel Company • Customs duty on primary and secondary metals reduced
(TISCO) and Ispat industries. from 15 per cent to 10 per cent.
Ample availability and potential growth in key factors • The Andhra Pradesh Cabinet, have decided on 1st August
of production provide the right stimulus for India’s Metals 2007, to allow integrated steel plants and ferro-alley units,
sector to grow and become globally competitive. that use blast furnace and direct reduction technology to
enjoy incentives, such as, tax holiday and reductions in
tariff of power and water for a limited period of time. The
Presence of Related and Supporting offer is further extended to greenfield steel plants.
Industries

Apart, from the favorable demand and factor conditions, Steel

the Indian metals industry is well supported by India’s
mining industry and educational and research institutions. • T he National Steel Policy (NSP) 2005, lays emphasis on
India is endowed with significant mineral resources improving productivity, efficiency, cost, quality and
and has a well developed Mining sector, to leverage these product mix for accelerating growth in the domestic
resources. Indigenous mining capability supports the production and consumption of steel. The Policy envisages
metals sector by making available raw materials at lower production level of steel to touch 100 million tonnes, by
costs and reducing dependence on imports. the end of 2020.
India also has several educational institutions, including • The import duties on various steel products have been
14 MARKET & OPPORTUNITIES

reduced from 15 per cent to the current 5 - 10 per cent. the world’s largest custom smelter at a single location. It
• C ustoms duty on alloy and stainless steel has been will catapult Hindalco into the league of the ‘Top-10 copper
reduced to 5 per cent. producers in the World’.
• The government has also proposed to reduce the duty
on seconds and defectives of steel, from 20 per cent to The Metals Industry is witnessing consolidation
10 per cent. Although, this will increase competition by
allowing cheaper imports to enter the domestic markets, As players in the Metals sector in India seek to expand
the positive side is that domestic prices can now track the capacities and grow rapidly, acquisition has emerged as
global prices more closely. a key strategy to achieve this objective. Acquisitions have
• D uty on nickel reduced from 5 per cent to 2 per cent, been used for backward integration along the value chain,
to help domestic stainless steel manufacturers, tackle as well as to grow in size and scale. As a result, the industry
increase in global raw material prices. is gradually consolidating. Examples of key acquisitions and
joint ventures in the sector include the following:

Copper Copper

• C
 opper and Copper products can be imported at zero • B
 oth the secondary producers Sterlite and Hindalco,
duty from Sri Lanka, under the Free Trade Agreement have acquired copper mines to reduce dependence on
(FTA) with that country. external sources and to ensure consistent supplies of
• D
 uties on copper and copper products have been good quality copper concentrate. Sterlite, acquired two
progressively reduced for example: customs duty has copper mines in Australia, through 100 per cent of the
been reduced from 35 per cent in 2001 to 10 per cent in equity of their holding company, Monte Cello Corporation,
2006. BV, Netherlands. Hindalco, has also acquired two copper
mines (Mount Gordon and Nifty) in Australia, in 2003.

Leveraging Economies of scale Iron & Steel

and Consolidations
• A cquisition of the Anglo-Dutch steelmaker Corus by Tata
Metal Players are focusing upon capacity additions Steel, which made it world’s fifth largest steelmaker and
added 19 MT of steel-making capacity.
Though capital intensive, there are good opportunities to • Essar Steel, partnered with two state-run Vietnamese
take advantage from economies of scale in metal industry. companies to build a US$ 0.527 billion plant in Vietnam.
Many players are increasing the capacity to meet the • Tata Steel, has started construction on its US$ 0.103 billion
increasing demand requirements. ferrochrome steel plant at Richards Bay in South Africa
For instance, Sterlite Industries (India) Ltd. (SIIL) is
expanding the Tuticorin complex, for an estimated total
cost of US$ 81.4 million. The expansion will increase Key Issues faced by Metal Industry
smelting capacity at Tuticorin, to 300,000 tonnes per
annum of copper anode. A captive power plant of 22.5 Despite the comparative advantages, Indian metal industry
MW is also being constructed, as part of the expansion. This is also undergoing certain issues that hinder the growth of
together with a further 10 MW generated from the smelter the sector.
waste heat boiler and the supply from the existing power • Lack of adoption of scientific mining methods, especially
plant, is expected to meet most of the complex’s power by small players, leads to inefficient extraction of ores
requirements and reduce power costs on a per unit basis. from commercial mines. There is a need for ore miners, as
Hindalco, is engaged in the brownfield expansion in well as the state governments to focus upon adopting the
Copper business to double its capacity from 250,000 TPA latest technology for ore mining.
to 500,000 TPA. On completion, Birla Copper will become
 ME TALS 15

• C
 hanges in market demand: The change in product mix
can lead to a dramatic rise or fall of a particular metal
demand. For instance, as the telecom sector is shifting
from fixed line to optical fibres and wireless mode of
communication, demand for copper from this segment is
expected to reduce.
• D
 isadvantages of Secondary Producers: In the copper
industry, the Indian players (except HCL) did not have
copper mines and had to import copper concentrate from
the International markets. Due to high dependence on
overseas markets for copper concentrate, the profitability
is strongly dependent on the international variation in
Treatment Charges and Refining Charges (defined as the
difference between the Copper Cathode prices and the
Copper Concentrate prices).

To have access to mines, Indian players are acquiring

copper mines at overseas locations (primarily Australia) and
sourcing a share of their copper concentrate requirements
from these mines.
• The other issues faced by metal players are low productivity,
high cost of debt, and inadequate infrastructure. However,
the government is taking corrective measures to improve
the situation, gradually.
The metal industry possesses strong opportunities in the
form of unexplored rural markets and increasing exports.
16 MARKET & OPPORTUNITIES

Critical Success Factors

State of the art refining technology In the aluminium industry, energy costs represent a major
would play a differentiating role component in the overall costs, energy management and
efficiency will play a critical role, in the overall profitability.
Due to the depletion of the metal ores and known sources, The same situation can be generalised for other metals,
the latest technology in refining ores will play a key role in as well.
ensuring the profitability of the players. As the input costs
have been rising globally, due to increase in crude oil prices, Selection of the right base locations is critical
to adopt the latest technology is becoming increasingly
crucial for Metals sector players. Technology can play a key Metals being a capital intensive industry, locations that
role in enabling productivity improvements and reducing offer robust access to raw materials supply, labour and
costs. However, high cost of technology is a key barrier. energy will offer competitive advantage. India’s Copper
reserves, are mainly concentrated in Bihar, Rajasthan and
Need for increased focus on Research and Madhya Pradesh, while, Bauxite reserves are mainly located
Development in Orissa, Chattisgarh, Belagaum in Karnataka and some
parts of U.P. such as, Renukoot.
Expenditure on Research and Development activities by Orissa, is endowed with abundant reserves of iron ore
Indian Metals sector players, has been much below global and is located strategically, near to the port of Paradep.
norms. To address this, the Indian government provides The state government of Orissa, has signed 45 Memoranda
monetary aid to some of the R&D projects, from the Steel of Understanding (MoUs) for setting up steel capacities
Development Fund. aggregating 60 million tonnes. The players setting up steel
The Indian government plans to launch a National Research capacities in Orissa include, international player POSCO
and Development Mission in steel industry, to encourage and big domestic players such as Tata Steel, Jindal Stainless,
research and development. It is also, looking to set up a US$ Jindal Steel & Power, Bhushan Steel, Uttam Galva, Visa Steel
16 million state-of art research and development facility. and Welspun.
The capital is likely to be funded by steel giants such as, Tata
Steel, SAIL, JSW and RINL.
Future Outlook
Cost and Operational Efficiency needs to be focused
upon at all stages The outlook for the Metals sector in India is bright. Sustained
growth is expected across all key segments, aided by several
The Metals industry is highly capital intensive, therefore factors such as, growing domestic demand, investment
overall cost efficiency in operations, plays a very critical in capacity addition, increasing supply deficit in other
role. Raw materials constitute around 50 per cent of total countries and favorable government regulations.
costs in the steel industry, therefore having an access to ore • Government’s initiatives such as power and infrastructure
mines will provide a competitive edge over players, who development, reduction in import duties and facilitation
need to procure the raw materials from external players. of FDI, along with overall economic growth will provide a
 ME TALS 17

boost for the Indian metal industry

•W ith economy projected to grow at 8 per cent in the
coming years, there is expected to be a surge in per capita
steel consumption. Steel capacity is expected to double
to 60 million tons by 2010
• G
 rowth in the steel sector will have an immediate positive
rub-off on the Zinc sector as 70 per cent of zinc production
is used for galvanising
• C
 urrent shortages in worldwide copper supplies are
expected to continue following production cuts by
leading producers in Mexico and Chile. This will further
shore up demand for Indian copper. For aluminium,
exports will be a major demand source

The attractive prospects in the Indian metals sector have

attracted multinationals like BHP Billiton and Rio Tinto to
enter India for prospecting. At the same time successful
Indian players are looking at acquiring mining rights abroad
for example, the AV Birla group has acquired mining rights
in two copper mines in Australia.
The metal sector in India, is clearly an attractive sector
for investment and offers significant growth potential, both
in the domestic as well as exports markets. Metal companies
must assess their core competency and realign their strategy
to cope with the internal and global competition.
18 MARKET & OPPORTUNITIES

Appendix

Profile of Domestic and Overseas players

Name of the Parent company Output Products/divisions/sectors Plants

company served
Hindustan Copper (HCL) Public Sector Enterprise Sales – US$ 108.6 The company’s major activities Khetri in Rajasthan, Jharkhand,
under the Ministry of million in 2004 include exploration, mining Malanjkhand in Madhya Pradesh,
Mines, Government of beneficiation, smelting, refining Taloja in Maharashtra
India and casting of finished copper.
Ispat Industries Jindal group Sales – US$ 860 produces sponge iron, galvanized Dolvi and Kalmeshwar
million in 2004 sheets and cold rolled coils, in
addition to hot rolled coils
SAIL Government of India has Sales – US$ 4,960 manufactures steels for domestic Bhilai, Bokaro, Durgapur, Rourkela,
86 per cent stake in the million in 2004 construction, engineering, power, Salem, Bhadravati
company and it is the railway, automotive and defence
world’s 13th largest steel industries and for exports.
producer
Tata Iron & Steel Co. Tata Group Sales – US$ 2,781 TISCO has diversified to Jharkhand, Karnataka, Orissa, West
(TISCO) million in 2004 manufacture, welded-steel tubes, Bengal, Maharashtra
cold-rolled strips, seamless tubes,
carbon and alloy steel bearing
rings, alloy steel ball bearing rings,
bearings, ferro manganese, ferro
chrome, metallurgical machinery,
etc.
Jindal Iron & Steel Jindal group Sales – US$ 507 Engaged in Hot Rolling, Cold Vasind and Tarapur in Maharashtra
Company Ltd (JISCO) JISCO is the market million in 2004. Rolling and Galvanizing business.
leader in galvanised steel
products
Essar Steel Promoted by the Bombay- Sales – US$ 853 Offers over 300 customised grades Hazira, Indonesia, Vishakhapatnam
based Essar group which million in 2005 of steel and is on the approved list
is into power, shipping, oil of companies for supplies to some
& gas, construction and of the world’s most renowned
telecom. automotive companies and Oil
and Gas Pipeline projects.
Hindalco Industries Ltd. a flagship company of the Turnover – Structured into two strategic Renukoot, Muri, Belgaum,
Aditya Birla Group US$ 2.12 billion businesses —aluminium and Hirakud, Alupuram, Belur, Taloja,
in 2005 copper— and is an industry leader Silvassa, Kalwa and Dahej
in both these segments
It is the largest integrated
aluminium manufacturer in the
country.
Bhushan Steel & Strips Bhushan group Operating profit Cold rolled steel coils, Galvanised Major plants are located at
Limited during the steel coils and sheets, Billets, Sahibabad (UP) and Khapoli
period between Stainless steel plates (Maharashtra).
April-Dec 2004
was US$ 63.5
million
 ME TALS 19

Hindustan Zinc Ltd. A part of Vedanta Net sales – Only integrated Zinc manufacturer Mines and smelters are spread
resources, a London listed US$ 400.7 million in India and owns captive Zinc across multi-locations – Rajpura
metals and mining major in 2004 mines that supply complete Dariba mine, Zawar mining
with aluminium, copper requirement of Zinc concentrate complex, Chanderiya smelter,
and zinc operations in UK, for its smelters. Debari smelter, Vizag smelter,
India and Australia Rampura Agucha mine.
Nalco a public sector enterprise Net sales – Asia’s largest integrated aluminium Captive power plant and
of the Government of US$ 705 million complex, encompassing bauxite aluminium smelter, Rolled
India in 2004 mining, alumina refining, products unit at Angul, alumina
aluminium smelting and casting, refinery at Damanjodi, Bauxite
power generation, rail and port mines at Panchpatmali
operations.
Sterlite Industries India Part of Vedanta Resources, Net sales- The Group’s principal activity is A Copper producer with its own
Ltd. a London listed metals US$ 1510.2 to manufacture and market cast captive mines in Australia, and
and mining major with million in 2004 copper rods, copper cathodes, Refineries and Smelter in India –
aluminium, copper and aluminium cold rolled products Silvassa refinery, Tuticorin smelter
zinc operations in UK, and conductors.
India and Australia
Rio Tinto Part of Rio Tinto Group. World’s largest Produces and/or refines Rio Tinto operates over 60 mines
Rio Tinto Group is the private mining aluminium/bauxite, borates, coal, and processing plants in 40
world’s No. 2 exporter of company with copper, diamonds, gold, iron ore, countries.
iron ore. assets of over molybdenum, salt, silica, silver, talc,
US$ 17.7 billion. tin, titanium dioxide, uranium, zinc The company is looking for
World leader in finding, and other industrial metals. developing iron ore mines in
mining and processing India.
the earth’s mineral
resources.
BHP Billiton World’s largest diversified In 2004, it had It has the industry leader or near The company has around 35,000
resources company. turnover of US$ industry leader positions in major employees working in more than
24.9 billion commodity businesses, including 100 operations in approximately
energy coal and metallurgical coal, 20 countries.
copper, nickel, iron ore, uranium, BHP Billiton in India is present
silver and titanium minerals, and for over 30 years and is a major
have substantial interests in oil, supplier to steel industry. It has
gas, liquefied natural gas and Memorandum of understanding
diamonds. with SAIL.

Address of the apex contact agency for the sector

Apex Contact Agency Address
Ministry of Steel Government of India, Udyog Bhawan, New Delhi - 110011
Phone – 91-11- 23793432
Website – www.steel.nic.in
Sponge Iron Manufacturers Association 1501, Hemkunt Tower, 98, Nehru Place, New Delhi-110 019
Phone - 26294492 /51619204.
Website - www.spongeironindia.org
All India Stainless Steel Industries Association 302, Arun Chambers, Madan Mohan Malavia Road, Mumbai 400 034
Phone - 91 22 4949764
Email - [email protected]
All India Induction Furnace Association 209, M G House, Community Centre, Wazirpur Industrial Area
New Delhi - 110 052
Phone – 91 11 27376194
Website - www.aiifa.org
Ministry of Mines Ministry of Mines, Government of India
A-wing, Shastri Bhavan, 3rd Floor, New Delhi - 110 001
Fax. +91-11-3386402 Telex : 31.66601
Website - http://mines.nic.in/
Exchange Rate Used

Year Exchange Rate

(INR/US$)
2000-01 45.75
2001-02 47.73
2002-03 48.42
2003-04 45.95
2004-05 44.87
2005-06 44.09
2006-07 45.11

Disclaimer

This publication has been prepared for the India Brand Equity
Foundation (“IBEF”).

All rights reserved. All copyright in this publication and related

works is owned by IBEF. The same may not be reproduced, wholly
or in part in any material form (including photocopying or storing it
in any medium by electronic means and whether or not transiently
or incidentally to some other use of this publication), modified or
in any manner communicated to any third party except with the
written approval of IBEF.

This publication is for information purposes only. While due care

has been taken during the compilation of this publication to ensure
that the information is accurate to the best of IBEF’s knowledge and
belief, the content is not to be construed in any manner whatsoever
as a substitute for professional advice.

IBEF neither recommends nor endorses any specified products or

services that may have been mentioned in this publication and
nor does it assume any liability or responsibility for the outcome
of decisions taken as a result of any reliance placed on this
publication.

IBEF shall, in no way, be liable for any direct or indirect damages

that may arise due to any act or omission on the part of the user
due to any reliance placed or guidance taken from any portion of
this publication.
India Brand Equity Foundation (IBEF) is a public-private partnership
between the Ministry of Commerce & Industry, Government of India
and the Confederation of Indian Industry. It aims to effectively present
the India business perspective and leverage business partnerships
in a globalising market-place.

India Brand Equity Foundation

c/o Confederation of Indian Industry
249-F Sector 18, Udyog Vihar Phase IV
Gurgaon 122015, Haryana, INDIA

Tel: +91 124 401 4087, 4060 - 67

Fax: +91 124 401 3873, 401 4057
Email: [email protected]
Web: www.ibef.org
Website in the Russian language: www.ibef.org/russia