market sentiment swings back to iron ore, page-4

India to use 16% more steel a year

Tuesday, July 10, 2007 at 0000 hours IST




JUL 9: India’s steel consumption will grow 16% annually until 2012, or twice as fast as in the past five years, fueled by demand for construction projects worth $1 trillion, Credit Suisse Group says.
The construction industry, growing 60% a year, will keep steel mills running at near full capacity, said analysts Neelkanth Mishra and Anubhav Aggarwal in a report dated on Monday.





India’s government plans to spend $350 billion in the next five years to build roads, ports and power projects, the report said. Demand can reach 100 million tonne even if two-thirds of that amount is spent, benefiting producers including Tata Steel Ltd and JSW Steel Ltd, the report said. The country consumed 44 million tonne of metal in the year ended March 31.

“Even at a marginal completion rate, steel demand would be an order of magnitude higher than that seen in the past,” said the analysts.

Global steel prices will rise in 2008 and 2009 because of a shortage of iron ore from expansion in steelmaking capacities, the brokerage said. Five straight years of increases, fueled by Chinese demand, have tripled global iron-ore prices. Rates for 2007 rose 9.5% after rising a record 19 % last year.

Iron-ore prices may rise 25% in 2008, Credit Suisse said in a report last month.

“Credit Suisse’s global mining team expects ore prices to keep rising till 2009,” the brokerage said in the note.

Tata Steel and JSW Steel may benefit the most from higher prices, the brokerage said. Tata is the “most operationally leveraged” after buying Corus Group Plc in January to become the world’s sixth-biggest steelmaker.

The combined company’s operating profit can jump as much as 42% for a 5% increase in prices, all else remaining the same, Credit Suisse said.

“This makes Tata Steel a strong play on our expectations of a continued steel up-cycle,” the analysts said.