Friday, August 28, 2009

STEEL - MADE IN CHINA??

With every passing day I think when will the recession take back its curse. When will the potential candidates get employed without having to behave like beggers on street. Those who spent huge amount of money to enhance their skills and knowledge so as to beat the other competitors fighting for the same positions.

A small example of how the clubs of the business schools have been affected by Sub Prime( a sneak into the club discussions in our business school):

Be it the Finance Club (FinCoP) where we discuss the Sub prime crisis, Lehman Bros. case, Great depression,Balance Sheet Reviews of companies etc. etc., be it the Strategy club (StratForward) where we discuss which are the companies who were recession proof and what strategy they had applied to do the same. Be it directly related to the topic or not finally we derive the Sub prime effect on the topics.

Leaving apart these trivial issues lets focus on the impact of the same on Global Economy.

Just a small peak in one of the most hit sectors of the world:

Infrastructure Development have been falling in countries like US and UK since the economic bubble burst in the last year. This in return is affecting the steel industry in an adverse way. The steel manufacturers are thus forced to contract their supply in the current fiscal year. We can see reduced growth prospects for the steel manufacturers all over the world. This in turn is leading to fall in steel price.Steel manufacturers are recording losses in their first quarter results.

Lets see which nation looks most prone to face the hit. In order to have a clear picture of the same let us see the steel production scenario globally in the last fiscal.

The following figures are derived from Iron And Steel Statistics Bureau's monthly reports as published in the month August 2009.

The five main steel producing countries of the Far East showed varying production with both China and India showing an increase.
1. China's June steel production showed an increase of 6% to 49.4 million tonnes which contribute to 49.5% of the world's total steel production.
2. Crude steel production in Japan declined by a third in June with the year to date total down 40.7% to 36.7 million tonnes.
3. India has now become the third largest steel producing country in the world with June production up 5.7%, bringing the year to date total to 27.6 million tonnes, an increase of 1.3%.
4. South Korean steel production was down 14.4% in June, and by 17.3% in the year to date to 22.8 million tonnes.
5. Taiwanese production decreased by 29.5% in June and by 39% in the six months to 6.6 million tonnes.
Australian crude steel production dropped by 52% in the first six months to 1.9 million tonnes.


An overview on the past steel production dips:

The biggest fall in demand over one year for the steel industry since the end of the second World War was the 8.7 per cent drop in 1982, towards the end of a downturn in global industry. That was the third consecutive year in which steel industry output fell. There have been only three occasions since 1900 when output has declined for three years in a row. Similar slump periods for the industry were 1930-32, 1944-46 and 1990-92.

Production of crude steel for the countries reporting to the World Steel Association in June 2009 was estimated to be 99.8 million tonnes, a decrease of 16% over June 2008. China accounted for almost half of the global production of steel in 2009, the year to date total fell by 35%. All regions showed a drop in both June and the year to date totals except for that of Middle East.

On the other hand if we compare the steel production contraction we will see a decline in the contraction rate. The contraction rate were as follows:




China followed by India are seen to be the most sensitive in this sector at this point of time. This can be very well validated by the first news I came through in the newspaper on the morning of 28th August:

DEMAND SLUMP HITS TATA STEEL Q1 NET

The company recorded a consolidated loss of Rs. 2209 Crores in the first quarter of the fiscal. If you carefully see the balance sheet of the Company for the quarter ended June 2009 we will see Raw Material cost contributing 38% of the total expense of Tata Steel Ltd. alone and when we look at the consolidated Balance Sheet it is around 29% of the total expense. The consolidated figure gives us the raw material contribution to the business of both Tata Steel Ltd. and Corus. So if we try to arrive at the percetange that Raw material contributes to only Corus it will be around 20%. This means that the rotation of stock is very low due to fall in demand for the finished product in Tata Steel. Even though you say it might be the distance coverage expenses that is high in case of Tata Steel while procuring raw materials I would say it cant throw up such a high difference.


Mr. Laxmi Narayan Mittal is still optimistic about the growth in steel sector in the current fiscal.

Friday, August 21, 2009

Sub prime effect - is it over or still there??

Subprime PPT

http://www.scribd.com/doc/18995919/Subprime-PPT


UBS which was one of the front row investment banks who faced the credit crisis in the last year. It had written down $ 44.2bn following Citi Group and Merill Lynch which wrote off $55.1 bn and $51.8 bn respectively. It had regained its existence with the Swiss Govt. pumping in $ 5.16 bn. Today we saw GOvt. of Switzerland selling off its 9% stake in the bank making a profit of 1.2 billion franc from last year's rescue package. This shows the bank has had a strong footing again and this led to increase in stock price by 4.6% at 17.5 francs and closed at 16.74 francs.