Business Study

1. Industry trends: Indian and Global perspectives, recent happenings

2011-12 was a year of significant changes because of volatility in the global economy. The Euro-Zone crisis deteriorated the sovereign credit ratings leading to sluggish growth in many industrialized countries including USA. Political unrest in Africa and the resulting increment in crude oil prices had dampened the growth euphoria. Despites these challenges commodity prices averaged higher than during FY 2010-2011. Demand for commodities will be met by global economic growth in emerging markets like China, which are expected to remain relatively robust.

Following are some important areas that can be improved upon:

* Marketing and sales is an underutilized area in this industry that can improve 3 to 8 percent of EBIT margin and build a platform for growth.

* Operational changes with technical improvements are need of the hour and backbone of a transformation program, however it should include much broader questions related to product development, purchasing and supply management, and service operations. Organizational changes are needed to make the transformation happen and are as important as technical problem-solving approaches.

* This industry faces various challenges such as strong demand growth, high volatility, ongoing consolidation, shifting of profit pools across the value chain, the changing needs of customers, and differences in regional development. This pressure also includes the changing environmental needs, such as CO2 abatement, which is becoming increasingly important. There need to be various

(Source: http://www.mckinsey.com/Client_Service/Metals_and_Mining)

Following are some positives of the industry:

* Copper prices showed a rising trend since 2010 benefitting copper producers globally. Although copper demand was down 10% y-o-y in 2009, global copper demand is seen to be growing again.

* Chinese demand for copper was still robust and imports of the metal were rebounding, which was supported by steady construction and infrastructure activity in the country. The improvement in copper prices would be supported by limited supply and increased demand from China.

* With copper prices at near all-time highs, outlook for copper prices is still strong. Not denying volatility in prices that are bound to remain long term. However manufacturers might now resort to aluminum as a substitute. Market conditions are expected to be positive for copper in the next couple of years due to higher consumption of the metal in the developing nations. Companies that have a high leverage to copper prices will benefit immensely from the potential demand for the metal in the developing markets.

Industry trends:

* The price of copper has continuously improved on the London Metal Exchange (LME) since 2001.

* With the global economic growth copper demand is bound to rise. China's strong demand for copper for infrastructure development, automobile manufacturing and electronic appliance exports is partly responsible for supporting high copper price levels. China has historically been unable to meet its copper consumption requirements with domestic production and the resulting need for imports is expected to continue.

* India and Russia are also expected to show such industrial production growth which would lead to rise in copper demand.

(Source: http://www.coromining.com/s/copperfacts.asp?ReportID=195367)

The following are the current (2012) top 10 risks in the mining and metal industry:

1. Resource nationalism

2. Skills shortage

3. Infrastructure access

4. Cost inflation

5. Capital project execution

6. Social license to operate

7. Price and currency volatility

8. Capital management and access

9. Sharing the benefits

10. Fraud and corruption

While the demand outlook remains strong, the price peaks have passed and so there is a much greater imperative for mining and metals companies to remain nimble and sure-footed in how they manage these fast-changing risks.

(Source: http://www.ey.com/GL/en/Industries/Mining---Metals/Business-risks-facing-mining-and-metals-2012---2013)

2. PEST Analysis: Political, economic, social and technical aspects related to the industry

Political Factors

* Difficulty in obtaining clearances and leases from the state governments. The list of clearances needed for mining industry are-

1. Department of Mines

2. Indian Bureau of Mines

3. Goa State Pollution Control Board

4. Geological Survey of India

5. Ministry of environmental and forests

6. Central Board of Excise and Customs

7. Department of Heavy Industry

8. Ministry of labour

* The contribution of iron ore to inflation

* Government's approach of giving priority to the domestic players.

Economic Factors

* The fluctuations in the exchange rates impact the performance of the mining Industry

* No restriction on foreign equity holdings in mining sector companies registered in India.

* China being the highest buyer or metals (ferrous and non ferroous), it is the key driver of the global metal and mining industry. Its economic scenario impacts the entire industry.

* Change in the scale.

Social Factors

* Major risk to societal sustainability as the problem created by mining is mining-induced displacement and resettlement (MIDR)

* The suspension of more than 50 iron ore mines in Orissa over the past few months has hit supplies for export.

* The