August 2009 Refractory Industry in India This material, prepared contains, general information only.

This material is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. The presenter shall not be responsible for any loss whatsoever sustained by any person who relies on the content of this material.1 2. Refractory Concept VALUE CHAIN Refractory is a class of materials which are produced from non-metallic minerals. They are the primary materials used in the internal lining of industrial furnaces and possess capability to withstand heat and pressure, and are used in steel, aluminum, glass, cement, petrochemicals, non-ferrous metals, thermal power plants and ceramic industries. These are produced in Special Shapes and are Custom made to suit the requirements of the various industries. Refractories are classified on the basis of their chemical composition, end use, and manufacturing method. They can be classified as acidic, basic, and neutral refractories. A small range of high melting point materials like magnesia, bauxite, fireclay, and silica are used to produce refractories.2 Source: IRMA, various database & News article 3. Global Refractories Market An Overview By 2009, refractories market of the world will reach $ 14.7 billion (Rs 705.6 billion) in value terms and 25.5 million metric tons in volume terms In volume terms, forecast to increase 3.5 % per year to 45.2 million metric tons in 2012. In value terms, global demand for refractories is projected to advance 4.5 % per annum to $28.5 billion (Rs 1,368 billion) in 2012 main driver of this growth is the rapid industrialization of Eastern Europe, Asia-Pacific, and Latin America Growth will be supported by the increasing use of better performing, more expensive refractories, which will bolster demand in value terms Iron and steel is expected to remain the leading market for refractories in 2012 with demand of 20.7 million metric tons. However, growth in this market will be restrained by slowing steel production and decreased refractory use per ton of steel produced In the short term, demand will be negatively impacted by the effects of the global economic downturn that began in 2008, although recovery is expected by 2012. Over the recent years the EU refractories market has seen considerable consolidation. To consolidate their position globally, the two largest groups in the industry have made some significant acquisitions. The Asia-Pacific region is the leading consumer of refractories, and will be the fastest- growing region in the world through 2012. While China will account for much of the regions gains, India will exhibit advances above the world average as well. Eastern Europe will present opportunities, as steel manufacture increases to keep pace with the regions industrialisation.3 Source: Freedonia industry study WORLD REFRACTORIES to 2012 4. Sources of Raw materials available India imports most of its raw materials from China, as India does not produce sufficient quantities of equivalent quality of brown fused alumina4 5. Refractory Industry in India An Overview The Refractory industry is fragmented with more Output Usage than 150 players, of which, 15 to 16 are major 3% 4% players while the remaining are small private 6% players Production capacity of refractories in India 12% currently around 2 million tons (mt) Production stood at 1.3 mt in 2007-08, against 1.08 mt in 2006-07, up around 17 percent. 75% The organised refractory industry had recorded a Steel Industry Cement Industry turnover of Rs 3,000 crore ($ 625 million) in Non-ferrous Industries Glass Industry 200708, against Rs 2,370 crore ($494 million) in Other Industries the last fiscal Growth in sales was driven by growing demand from sectors like steel, cement, aluminium, sponge iron and others. Currently the companies in this industry operating at around 60 - 80% capacity utilisation Exports during 2007-08 were Rs 452 crore ($ 94.2 million), up from Rs 314 crore ($65.4 million) in the previous fiscal India currently exports around 10 percent of its production 5 Source: IRMA, various database & News article 6. SWOT Analysis for Refractory Industry in India STRENGTHS WEAKNESSES Introduction of the concept Total Refractory India has to depened heavily on China for raw-material Management (TRM) to ensure quality and proper imports service, and also to decrease the cost Scarcity of raw-materials across the globe India is having superior engineering skill, high quality technology and equipment from Germany and Italy, Technological changes in Steel industry resulting in access to superior quality raw materials and all these lowering consumption of refractories per tonne of steel factors is resulting in superior quality refractory output The growth of Indian Steel industry is extremely crucial Increasing credibility of Indians in the global market, to analyze the future status of Indian Refractory where price realisation is relatively better industry OPPORTUNITIES THREATS Refractories still have many areas in various sectors to With the increasing price of crude oil and other enter in such as monolithics and special petroleum products, the price of coal is also increasing having a direct impact on the input cost Growing demand from other sectors like sponge iron and cement China dumping sub-standard

quality outputs in India at very low prices (Chinas export integrated pricing Indian products are sailing all across the globe, strategy) primarily to EU, Middle East, South Africa and Far East including Malaysia and Indonesia Payment delays by the Steel manufacturers Expansion of Steel industry in India Slowdown in Chinese refractories market6 Source: IRMA, various database & News article 7. Business Concerns & Future OutlookBusiness Concerns Industry dependent on raw material imports from China. Use of synthetic raw materials is driving prices higher In the event of continued high prices for crude oil and other petroleum products, hardening of the coal prices the prices of the inputs of refractory industry are increasing Raw material prices have moved up 80 to 85 % but prices of finished products have just appreciated 18 to 30 % resulting in erosion of bottom lines of the refractory companies Affected by slow down in the economy In industries like steel - trend towards lower refractories consumption per tonne of steel. Usage of new technology processes leads to reduction in refractories consumption The industry is going through an exciting and complex phase. On one hand, refractory makers are adding capacities with the hope that demand from the steel sector will rise at a fast pace. On the other hand, none of the major announced Greenfield steel projects are yet to get off the ground.Future Outlook While overall market for refractories may decline, a shift is foreseen towards usage of specialised refractories Post China Olympics, industry is hopeful that raw-material prices may see some relaxation Raw material imports to continue Demand from other sectors like sponge iron and cement, will rise Monolithics (powder) are projected to grow at an above-average pace than bricks and shapes Clay refractories are expected to outperform Non-clay refractories through 20127 Source: IRMA, various database & News article 8. Indian Refractories Challenges ahead China, with its cheap production cost Negotiation power of refractories makers is poor, who are squeezed between raw material suppliers and steel makers Raw material and fuel prices on fire CHALLENGES Unavailability of adequate qualified and competent AHEAD workforce Marketing and packaging tailor-made products for their clients Demand-Supply mismatch8 Source: IRMA, various database & News article 9. Indian Refractory Makers Way Forward Become Export oriented unit with higher end of the product chain / superior quality refractory output Price war with the Chinese Manufacturers in which case they would bleed severely as margins are already thin INDIAN REFRACTORY MANUFACTURERS Meet the domestic demand9 Source: IRMA, various database & News article 10. Consolidation in Refractories Industry Revenue Year Acquirer Target Stake (%) Deal size ($ Mn) Multiple IFGL Refractories Hofmann Ceramic 2008 Limited GmbH, Germany 96% Undisclosed 2006 RHI AG, Austria Clasil Refractories Ltd 51% Undisclosed IFGL Refractories Monocon International 2005 Limited Refractories Limited, UK 16.68 ACE Refractories (from 2005 Calderys, France ICICI VF) 99% 136.5 1.7 X 2004 Sarvesh Group VRW Refractories Undisclosed 2004 Sarvesh Refractories Raasi Refractories Undisclosed Saint Gobain Group 1996 France Grindwell Norton Ltd 51% Undisclosed10 Source: IRMA, various database & News article 11. Major Players in Refractories in India # Refractories are located primarily near steel plants Orissa, West Bengal, MP, Bihar and Tamil Nadu Orient Abrasives (Refractories div) Frontline Corp (Refractories div) Maithan Ceramic Burn Standard Co. Ace Calderys (UK) Vesuvius India (UK) Bharat Refractories Vishva Vishal Engineering OCL India Major Steel Players like Tata Refractories Posco, Arcelor Mittal, SAIL, IFGL Refractories Raasi Refractories Tata Steel, Essar Steel, Sterlite, Bhushan and Jindal are investing Government Owned Grindwell Norton (France) MNCs Carborundum Universal Shri Nataraj Ceramic11 12. Market Share of Refractories in India Market Share for Refractories in India (%) 6.6 16.6 23.3 7.3 5.6 5.5 2.8 19.1 2.0 7.8 0.9 1.4 1.3 Tata Refractories OCL India IFGL Orient Abrasives Maithan Ceramic Carborundum Universal Shri Nataraj Ceramic Raasi Refractories Vishva Vishal Govt. Owned MNCs Imports Others MNCs include Ace Calderys, Vesuvius India, Grindwell Norton, Morganite Crucible (India) Govt. owned refractories include Bharat Refractories and Burn Standard Company Others include more than 40 small and medium units12 Source: IRMA, various database & News article