Dr Neil J. Bristow. 8 th WSD Steel Success Strategies European Steel Conference London, 30 th November H & W Worldwide Consulting

Transcription

1 Dr Neil J. Bristow 8 th WSD Steel Success Strategies European Steel Conference London, 30 th November 2010 neil.j.bristow@hwworldwideconsult.com H & W Worldwide Consulting

2 1. Brief comparison between China and India 2. 3 Questions i. Has China finished? ii. iii. Is India about to enter the fast lane? Will India be another China? 3. Summary and Implications

3 1. Brief comparison between China and India 2. 3 Questions i. Has China finished? NO ii. Is India about to enter the fast lane? YES iii. Will India be another China? YES and NO 3. Summary and Implications

4 1. Brief comparison between China and India 2. 3 Questions i. Has China finished? ii. iii. Is India about to enter the fast lane? Will India be another China? 3. Summary and Implications

5 Developing Asia led by China and India are set to drive the global economy cementing the 2 speed world...india could be the fastest growing major economy in 2011 Strong growth and beyond India too conservative? Currently 8.8% Good monsoon, will boost agriculture Emerging manufacturing accelerating e.g. Small cars Source: IMF

6 The famous NASA diagramme illustrating the effects of population and power consumption India does not look too bad and its dated too, under reports China s take off.

7 Comparison between the two worlds, raises the question as to what would happen if India reached US power and electricity consumption levels!

8 Population (Million ) Population is a major driver for increased power demand; India will surpass China by 2030 to be the most populous country sustain strong power growth over the next 2 3 decades Total Population trend to 2050 India China Source : UN Population Prospects, 2008 revision

9 The different shapes of the population pyramid between China and India will lead to a sustained longer growth in power demand for India due to its significantly younger population. The population pyramid China 2010 The population pyramid India 2010 Source : UN Population Prospects, 2008 revision

10 The shapes of the population pyramid will remain very different as China becomes an old country and India remains young with ~60% below 30 years of age. The population pyramid China 2030 The population pyramid India 2030 Source : UN Population Prospects, 2008 revision

11 India is entering a period of sustained higher GDP growth rates, this will have strong compounding effects leading to potentially prolonged periods 30 years of high growth. India s growth has been accelerating Average real GDP Growth Japan Taiwan Korea China India 1960 s s s s s s est. lower Growth trends sustain high rates for long periods China and India potentially sustain growth longer due to magnitude of their populations Source: UBS, Citibank, H&W Worldwide Consulting

12 1. Brief comparison between China and India 2. 3 Questions i. Has China finished? ii. iii. Is India about to enter the fast lane? Will India be another China? 3. Summary and Implications

13 F 2012F 2014F 2016F 2018F 2020F USDbn, real 2008 USDbn, real 2008 China economy surpassed Japan in Q and with continued growth will ultimately surpass the US. Government moves to develop a more balanced economy with stronger domestic consumption are progressing well; services will play a more important contribution to GDP growth Global top 5 economies China GDP breakdown Agriculture Services Industry France Germany China Japan US GDP per capita in China is still extremely low France: $45.6k, Germany: $44.1k, Japan: $38.5k, US: $47.5k, China: $3.3k Source: World Bank, McKinsey, Macquarie Research

14 Proportion of population in urban areas Urban proportion of population Continued urbanisation will see over 300M people move from the land to cities in the next 15 years many regions of China are building large mega cities, especially in the central areas and inland areas where ~60% of the population live. 90% Urbanisation - country comparison 60% Urbanisation by region 80% 50% 70% 60% 40% 50% 40% 30% 30% 20% 20% 10% 10% 0% USA S.Korea Japan France Germany China 0% NE China S China E China N China Central China NW China SW China Source: World Bank, NBS, Macquarie Research

15 steel consumption (kgs per capita) Steel consumption per capita vs. GDP from 100kg/cap to 450kg/cap China ( ) Korea ( ) GDP per capita (ppp, 1990$) Japan ( ) Germany ( ) Source: NBS, worldsteel, Macquarie Research, November 2010

16 million tonnes Steel demand is forecast to growth strongly to 2020 across a wide range of sectors, with automotive, machinery experiencing faster growth. Demand close to 1bt by Domestic steel demand - China Other Shipbuilding Autos Appliances Machinery Non-resi construction Infrastructure Residential Construction F 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F Source: NBS, CISA, Macquarie Research, November 2010

17 Cumulative tonnes per capita The total steel pool from previously produced and consumed steel is small in China as its strong growth is relatively recent. It will likely take about a further 10 years to see a sizeable scrap pool Source: Macquarie Research Cumulative per capita steel consumption to 2009 USA Germany France China Cumulative steel consumption measures the amount of steel in an economy On a cumulative per capita basis, China s steel consumption is only 10%-20% of that of developed countries. A large scrap pool is required for strong EAF based steelmaking India is not visible on this graph

18 1. Brief comparison between China and India 2. 3 Questions i. Has China finished? ii. iii. Is India about to enter the fast lane? Will India be another China? 3. Summary and Implications

19 Drivers of India s Economy High savings rate Availability of low cost, skilled labour Technology Favourable demographics Trade opening Secondary Low inflation keeps capital at home High inflation moves capital overseas, raising cost of capital, overseas borrowing

20 India is showing strong signs of following the conventional development route Trade Relationships Dependency Ratio Trends Export ratio to GDP continues to climb Exports from special economic zones are following Chinese model Signs India set for manufacturing and industrial take off in next 10 years Source: UBS Research

21 India is entering the takeoff zone. Higher urbanisation will assist steel and HCC growth. Growth Profile Growth India Japan India has not yet reached the takeoff point Point is around US$3.5k Emergence of industrial growth key factor in acceleration Urbanisation assists process Source: UBS

22 India is entering the takeoff zone. Higher urbanisation will assist steel and HCC growth. Urbanisation Urbanisation has been one of the key factors driving GDP growth India is more difficult to assess due to data unreliability Stronger links with the land Difficult to move urban slum dwellers - large urban poor Source: UBS

23 India is entering a period of sustained higher GDP growth rates, this will have strong compounding effects leading to potentially prolonged periods 30 years of high growth. India s growth has been accelerating Average real GDP Growth Japan Taiwan Korea China India 1960 s s s s s s est. lower Growth trends sustain high rates for long periods China and India potentially sustain growth longer due to magnitude of their populations Source: UBS, Citibank, H&W Worldwide Consulting

24 1. Brief comparison between China and India 2. 3 Questions i. Has China finished? ii. iii. Is India about to enter the fast lane? Will India be another China? 3. Summary and Implications

25 kg/person Important phase industrialisation and infrastructure build: history suggests >700kg/capita this would equate to >1bt for China and later India assuming population growth 900 Per capita consumption of steel in selected countries China India USA Japan France Germany China India Brazil Source: BHPBilliton presentation Goa 2010

26 Million tonnes Could this be India in 2020?? Services 55% Agriculture 25% Manufacturing 20% Services 65% Agriculture 17% Manufacturing 18% Services 45% Agriculture 25% Manufacturing 30% Indian Steel Growth Forecasts 10%pa 12%pa 15%pa 20%pa Source: Worldsteel Association, Indian Economics, H&W Worldwide Consulting Consider some sample growth rates Is 20% a fantasy? China exceeded this for a period. Is 10% or 12% too conservative if India s growth accelerates

27 million tonnes million tonnes China and India will dominant global steel and pig iron production driving the demand for Australian steelmaking raw materials 1100 Chinese steel and pig iron growth 180 Indian steel and pig iron growth Source:

28 Power Demand (GWh) Power demand (GWh) Changing the parameters leads to major growth in industrial use and residential demand, with the largest percentage change in commercial consumption base case Captive Demand Other Commercial Industrial losses Rail Agricultural Residential high case Captive Demand losses Other Rail Commercial Agricultural Industrial Residential Source : IEA, Macquarie, H&W Worldwide Consulting

29 Power Generated (GWh) Power generated (GWh) Coal is likely to remain the major fuel for power generation and is likely to gain market share in the high case at the expense of oil, diesel and hydro, reaching ~74% of generation. 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 Power production (base case) 0 RES Nuclear Gas Diesel Coal Hydro 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 Power production (high case) 0 RES Nuclear Gas Diesel Coal Hydro Source : IEA, Macquarie, H&W Worldwide Consulting

30 Similarities Large population High savings rate Emerging Middle Class Rising domestic consumption GDP growth rates heading to 10% Rising urbanisation Need to build up Differences Younger demographics Government bureaucracy GDP breakdown Democracy Speed of decision making Export dependency Infrastructure and lack of deep water ports Raw materials availability

31 1. Brief comparison between China and India 2. 3 Questions i. Has China finished? ii. iii. Is India about to enter the fast lane? Will India be another China? 3. Summary and Implications

32 The Global and Steel outlook is very positive The two speed world is here to stay: Asia will dominate the future economic, steel and raw materials outlook China will continue to drive steel production growth with associated impact on raw materials India is entering the fast lane driving global coal demand Demand for bulk commodities will remain strong the volume increase is huge and probably not recognised Australia will be a major beneficiary of this growth