Dr Neil J. Bristow 8 th WSD Steel Success Strategies European Steel Conference London, 30 th November 2010 neil.j.bristow@hwworldwideconsult.com +61240286268 H & W Worldwide Consulting
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
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
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
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 2011...and beyond India too conservative? Currently 8.8% Good monsoon, will boost agriculture Emerging manufacturing accelerating e.g. Small cars Source: IMF
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.
Comparison between the two worlds, raises the question as to what would happen if India reached US power and electricity consumption levels!
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. 1800 1600 1400 Total Population trend to 2050 India 1200 1000 800 China 600 400 200 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source : UN Population Prospects, 2008 revision
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
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
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 10.1 10.0 5.0 4.0 1970 s 4.4 10.0 7.3 6.3 2.9 1980 s 4.6 8.0 8.7 9.4 5.6 1990 s 1.1 6.5 6.2 10.5 5.7 2000 s 0.6 2.7 3.8 9.8 7.3 2010 s est. lower 8.0 9.0 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
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
2000 2002 2004 2006 2008 2010F 2012F 2014F 2016F 2018F 2020F USDbn, real 2008 USDbn, real 2008 China economy surpassed Japan in Q1 2010 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. 16000 14000 12000 10000 Global top 5 economies 14400 12000 10000 8000 China GDP breakdown 2000-2020 Agriculture Services Industry 8000 6000 6000 4000 2850 3650 4325 4910 4000 2000 2000 0 0 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: $3.3k Source: World Bank, McKinsey, Macquarie Research
1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 Proportion of population in urban areas Urban proportion of population Continued urbanisation will see over 300M people move from the land to cities in the next 15 years many regions of China are building large mega cities, especially in the central areas and inland areas where ~60% of the population live. 90% Urbanisation - country comparison 60% Urbanisation by region 80% 50% 70% 60% 40% 50% 40% 30% 30% 20% 20% 10% 10% 0% USA S.Korea Japan France Germany China 0% NE China S China E China N China Central China NW China SW China Source: World Bank, NBS, Macquarie Research
steel consumption (kgs per capita) 550 500 Steel consumption per capita vs. GDP from 100kg/cap to 450kg/cap 450 400 350 300 250 200 150 100 50 2000 3000 4000 5000 6000 7000 8000 9000 10000 China (2000-2010) Korea (1976-1990) GDP per capita (ppp, 1990$) Japan (1956-1967) Germany (1948-1959) Source: NBS, worldsteel, Macquarie Research, November 2010
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 2020. Domestic steel demand - China 1200 1000 800 600 Other Shipbuilding Autos Appliances Machinery Non-resi construction Infrastructure Residential Construction 400 200 0 2007 2008 2009 2010F 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F Source: NBS, CISA, Macquarie Research, November 2010
1900 1908 1916 1924 1932 1940 1948 1956 1964 1972 1980 1988 1996 2004 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. 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Source: Macquarie Research Cumulative per capita steel consumption - 1900 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
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
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
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
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
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
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 10.1 10.0 5.0 4.0 1970 s 4.4 10.0 7.3 6.3 2.9 1980 s 4.6 8.0 8.7 9.4 5.6 1990 s 1.1 6.5 6.2 10.5 5.7 2000 s 0.6 2.7 3.8 9.8 7.3 2010 s est. lower 8.0 9.0 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
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
1900 1905 1910 1915 1920 1925 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 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 800 700 600 China 500 400 300 200 India 100 0 USA Japan France Germany China India Brazil Source: BHPBilliton presentation Goa 2010
Million tonnes Could this be India in 2020??. 1999-2000 2008-09 2020 Services 55% Agriculture 25% Manufacturing 20% Services 65% Agriculture 17% Manufacturing 18% Services 45% Agriculture 25% Manufacturing 30% 450 400 350 300 250 200 150 100 50 0 Indian Steel Growth Forecasts 10%pa 12%pa 15%pa 20%pa 2006 2008 2010 2012 2014 2016 2018 2020 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
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 1000 160 140 900 120 800 100 80 700 60 600 40 20 500 0 Source:
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. 4500000 4000000 3500000 base case Captive Demand Other Commercial Industrial losses Rail Agricultural Residential 4500000 4000000 3500000 high case Captive Demand losses Other Rail Commercial Agricultural Industrial Residential 3000000 3000000 2500000 2500000 2000000 2000000 1500000 1500000 1000000 1000000 500000 500000 0 2005 2010 2015 2020 2025 Source : IEA, Macquarie, H&W Worldwide Consulting 0 2005 2010 2015 2020 2025
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 1,000,000 500,000 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 1,000,000 500,000 Power production (high case) 0 RES Nuclear Gas Diesel Coal Hydro Source : IEA, Macquarie, H&W Worldwide Consulting
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
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
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