Conference Paper on Steel Structures

April 2012 www.deloitte.com/in

Contents

Steel Structures in India: An Overview Delivery Models for Steel Structures: Onsite vs. Workshop Fabrication Key Application Segments for Steel Structures: An Indian Perspective Building Segment: The Next Big Thing Key Drivers: Providing Impetus to Steel Structures Demand in India The Future: A Directional View of the Steel Structures Market Conclusion

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Conference Paper on Steel Structures

Steel Structures In India: An Overview

The per capita consumption for steel structures in India is currently between ~6-7 Kgs, growing at a CAGR of over 10% since the past five years. This market has witnessed a higher growth as compared to both the Indian steel GDP as well as the Indian construction GDP, driven by large investments in industry and

infrastructure, the two key end use segments for steel structures in India. The types of steel sections used in India for both structural steel and pre-engineered buildings (PEB) are mentioned in Exhibit 1 below

Exhibit 1: Steel structures Typical sections, characteristics and key application areas Type of Steel Sections Light Typical PEB Range Medium Rarely Prevalent Typical Structural Steel Range Cross-over from PEB to Structural Steel PEB Structural Steel Heavy Extra Heavy

Characteristics

Relatively simple and standard designs/ sections Type of sections used Only plate fabricated sections Business Model followed Mainly workshop fabrication Erection outsourced to certified erectors who assemble ready modules on site Speed of delivery at lowest cost is critical

Typically customized designs, which may be more complex in nature Type of sections used Mix of hot rolled, profiles and plate fabrication sections Business Model followed Combination of on-site (predominant) and workshop Erection Generally in-house capabilities required to fabricate/ erect sections on site

Key Application Areas

Factory buildings of small/ medium scale industries like FMCG, agro industry, food & beverages, pharmaceuticals, textile, etc. Infrastructure facilities like warehouses, airports, metro stations, etc. Light/ medium buildings like retail outlets, automobile showrooms, etc.

Heavy industries like steel, cement, oil & gas, etc. Infrastructure facilities like power plant, aircraft hangers, railway bridges, etc. Buildings like high-rises, large shopping malls, etc.

Note: Type of sections indicated above are based on section weights

In India, structural steel fabricators predominantly follow on-site fabrication model, while globally all steel structures are fabricated in workshop.
Value Chain of Steel Structures in India The fabrication model followed in India for structural steel differs from the model followed in a developed country. Typically in a developed country, all steel structures including structural steel and PEB are fabricated in the workshop. While in India, structural steel has traditionally been fabricated on-site, mainly due to lack of infrastructure for transporting heavy sections from an off-site workshop to project site, sufficient space on-site to set-up fabrication workshop and availability of inexpensive skilled labour at the project site. Pre-engineered Buildings, however, are fabricated in the workshop even in India. Fabricators of steel structures mainly undertake fabrication and erection jobs. The typical activities/ value chain for a steel structures fabricator is mentioned in Exhibit 2 below

Exhibit 2: Typical Value Chain for steel structures in India

Steel Supply

Fabrication

Erection

Demand for steel is primarily met by the domestic suppliers Primary steel producers cater to demand for larger hot rolled sections and steel plates (for Plate Fabricated Sections) Unorganised sector (Re-Rolling Mills) cater to supply of smaller and medium sized sections in the regional markets The demand for extra heavy rolled sections (>700 mm) is primarily met through imports

Structural steel fabricators and PEB players fabricate sections/ modules using steel plates PEB follows workshop fabrication model, while structural steel pre-dominantly follows on-site fabrication model Other intermediaries involved in the value chain are technical consultant, structural steel detailer, EPC contractor and erection contractor

In case of PEBs, certified builders erect the various modules of the building on-site as supplied by the PEB player A large portion of fabrication in case of structural steel happens on site, hence it is imperative for a structural steel fabricator to have in-house erection facilities as fabrication happens in conjunction with erection Hot rolled sections are typically erected directly on site

Conference Paper on Steel Structures

Delivery Models for Steel Structures: Onsite vs. Workshop Fabrication

The steel structures industry broadly follows two models of delivery namely the Onsite and the Workshop Models as discussed below. Onsite Fabrication Model Brief Overview Typically used for industrial and infrastructure projects Technical consultant creates the basic designs which are then detailed by a structural steel detailer The steel (hot rolled sections and plates) is supplied on-site either by turnkey contractor or by the client, and seldom by steel fabricator The structural steel fabrication and erection (F&E) contractor is responsible for equipments and skilled labor Workshop Fabrication Model Mostly applicable for PEBs and building segment (prominently for high rise buildings) Certified builders (in case of PEB) or a fabrication and erection (F&E) contractor (for buildings) are responsible for project management & delivery Design is done in-house or could be provided by the project developer/ structural consultant to the fabricator Steel (HRS and/ or plates) is procured by the PEB players/ F&E contractor Bulk of fabrication activity is carried out in the workshop of the PEB player/ F&E contractor (with in-house skilled labor) and the fabricated sections are transported on-site Geographical limitations due to logistics/ transportation constraints can cater to clients within a narrow geography of ~500 km radius Since fabrication activity is offsite, no such restriction High-rise building construction may throw challenges in terms of managing erection activities (sometimes for complex sections) within space constraints Need to maintain a pool of skilled workforce in-house for fabrication and erection (in case of buildings) which increases costs The contract may also include a clause of quality inspection at the workshop by client supervisor if felt necessary Additional costs of delivery (~2-3%) from workshop to site, increases the overall costs of execution Cost of project increases due to additional excise duty on the fabricated components delivered from workshops (typically excise duty adds ~2-4% more to the overall cost of the project)

Value Propositions of Delivery Models Market Coverage Site Fabrication Model can enable a contractor to take on projects across the country model per se has no geographic limitations Cannot be employed in Building construction sites due to space constraints at site. No such limitations for industrial/ infrastructure projects Flexibility to employ labor from a contractor as required Many times, site fabrication clause is stipulated by the Turnkey Contractor for ease of monitoring and control Since fabrication is onsite, there are no additional delivery costs involved Comparatively advantageous as contract is treated as works contract, attracting only service tax

Site Limitations

Labor Contractual Specifications Delivery Costs Tax Implications

Future Trends

In advanced economies, workshop model is prevalent and preferred unless sections are complex in nature and hence, are forced to fabricate on site. In the Indian context, the delivery models are in evolution stage and in industrial segment, there are early indicators of change towards workshop fabrication especially for power segment

Workshop delivery model is prevalent in PEB and Buildings segment, and there are early indicators of change in preference in industrial segment especially for power.

Conference Paper on Steel Structures

Key Application Segments for Steel Structures: An Indian Perspective

Key End Application Segments Although industry and infrastructure segments have shown favorable trends in usage of structural steel, the building segment (especially residential) is still in a nascent stage in terms of acceptance of structural steel as a favorable building material. The industry segment has the largest share of demand for steel structures in India, followed by the infrastructure segment. Within the industrial segment, steel and cement industries account for a large share of demand of structural steel, while factory buildings dominates the demand for PEB. Within the infrastructure segment, the demand for structural steel is mainly driven by power sector, while logistics/ warehousing applications drive demand for PEB in India. Other segments, mainly transport industry (construction of wagons/ coaches, ships, trucks/ trailers, etc.), OEM and plant equipment fabrications, and other areas like railings, scaffoldings, etc. account for a small share of demand for steel structures Exhibit 3: Application of Steel structures in end-use segments

15-20%

<5% 50-60% 20-25%

Industry Infrastructure

Buildings Other sectors

Source: Deloitte Research

Industry segment remains the key demand driver for steel structures in India.

Preference for steel vis--vis cement For each application within these segments, there is a varying preference for steel vis--vis cement, which is shown below

Application Area Steel, Aluminium, Cement, Fertilizers, Oil and Gas, Petrochem, etc.

Preference

Comments Within the Industry segment, steel sector is the key application area for structural steel. Structural steel is mainly used in construction of plant superstructures. PEB constructions are preferred in the case of factory buildings/ warehouses. Concrete finds limited preference as a construction material within this segment. Power sector (power plants and transmission towers) is one of the key demand drivers within infrastructure segment since steel is the default material of construction. Structural steel is the default material for construction of telecom towers Preference for steel has gradually increased in this segment, due to innovative designs being adopted. Concrete is the default material for bridges/ flyovers. Structural steel is preferred in the case of railway bridges, especially in earthquake sensitive regions and projects which require quick turn-around. Concrete remains the default construction material within this segment primarily due to the prevailing mindset and inhibition to change. Structural steel has limited preference in the case of select high-rise building projects. Structural steel has steadily been gaining preference with the advent of new designs for shopping malls. Steel is the default material for most of these other applications.

Industry

Factory buildings/ Warehouses

Power plants/ Transmission towers

Telecom towers Airports/ Metro rail

Infrastructure

Bridges/ Flyovers

Residential/ Commercial buildings

Buildings Shopping malls

Other Areas

Transport industry, OEM & plant equipment, Railings, Scaffoldings, etc.

Concrete

Structural Steel

Conference Paper on Steel Structures

Building Segment: The Next Big Thing

The building segment in India is presently dominated by concrete. The building segment has been slow to adopt the global construction practices, even in the metropolitan cities. The limited availability of certain structural sections have also been responsible for the limited penetration of structural steel in the building segment. Exhibit 4 compares demand for structural steel from building segments for UK, USA and India indicating the low contribution of structural steel from buildings segment in India. Exhibit 5 provides a relationship between the degree of maturity of an economy and its impact on use of structural steel in building segment within that economy. It is seen that as a countrys economy matures, the demand for structural steel shifts from non-building segment to building segment. Structural steel usage in building segment in India is presently driven by exception rather than practice. Penetration of structural steel in overall buildings segment is currently at <2%. However, this trend has seen a change over the past 2-3 years as developers are realizing the advantages of using structural steel in building segment. As seen below in Exhibit 6, the benefits of using structural steel in building segment out-weighs the challenges over the next 10 years.
USA
Source: Deloitte Research

Exhibit 4: Demand from building segment

65-70% 35-40%

Low contribution from building segment

<5%

UK

India

Exhibit 5: Maturity of economy & its impact on key demand segments

Building Segment drives demand for Structural Steel Developed Countries

Building Segment

Non-Building Segment

Non-Building Segment drives demand for Structural Steel Developing Countries

Building Segment Non-Building Segment

Non-Building Segment

Source: Deloitte Research

Building Segment

Exhibit 6: Benefits and challenges of using structural steel in building segment

Faster construction Overcomes space constraints at project site Large clear spans High load bearing strength with low weight Causes lower pollution compared to concrete Re-usability of steel at end of life cycle Better aesthetic appeal

Challenges

Benefits

Technical capability of Architects/ Structural Consultants to design steel buildings Availability of requisite sections Cost effectiveness Change in mindset

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Structural Steel demand in building segment is expected to evolve in the future.

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Key Drivers: Providing Impetus to Steel Structures Demand in India

The industry and infrastructure segments are currently the two main segments contributing to the overall demand of steel structures in India. At present the penetration of structural steel in building segment is small, primarily due to preference towards the use of concrete. However, this is expected to change in the future, over medium to long term timeframe. Structural Steel Structural Steel is the default material used for construction of plant superstructure within the industry segment. Steel industry is a key demand driver within the industrial segment. Oil & gas, petrochem, cement, fertilizers, etc. are amongst the other industries responsible to drive demand within this segment. Structural steel remains the default material within the power sector driven by huge investments and capacity additions in new power plants and transmission towers. Increased government spending in the infrastructure segment, estimated to the tune of ~$1 Tn. over next 5 years is expected to result in huge demand in various sectors, especially airports, sea ports, railway stations, railway bridges and metro rail. Private sector investments in telecom towers and shipyards are some of the other drivers for structural steel demand within the infrastructure segment. PEB The demand for PEB in India is expected to be driven by the logistics and retail sectors, which require large PEB structures as warehouses and retail space. In addition, penetration of PEB in factory buildings is increasing, as the manufacturing sector, mainly small scale industries, is recognizing the advantages of using PEB over conventional concrete buildings. Buildings A Shift in Mindset Concrete remains as the default construction material in the buildings segment. Structural steel is being selectively used in construction of high-rise buildings with ~3-4 projects using steel/ composite structures coming up annually in India mainly in the metropolitan cities constrained by limited land mass availability. Fabricators and developers are now recognizing the advantages of using structural steel over RCC, which has resulted in a slow but gradual shift of preference towards structural steel within buildings segment. There is a recent trend of using metal buildings as an option for affordable housing. These are typically small metal buildings, complete with civil foundations, electrical, plumbing and drainage solutions. Exhibit 7: Key Factors Driving Growth

Increased Government Investments

Structural Robustness

Aesthetic Look

Reduced Delivery Time

Design Flexibility

Shift in Mindset

Environmentally Friendly Models Achieved

Evolution of Domestic Fabrication Capabilities

Re-usability of Construction Material

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The Future: A Directional View of the Steel Structures Market

The growth of steel structures and PEB demand in India is expected to be driven by robust economic growth and a gradual change in mindset.
The per capita consumption for structural steel and PEB in India is currently hovering at around 6.2 Kgs. However, after considering following key parameters, the overall per capita consumption of structural steel and PEB for India over the next 10 years has a potential to look even more attractive with the overall indicative potential reaching ~17-22 Kgs per capita.
Indicative Estimate Parameters Indicative Consumption (Kgs per Capita) Description

Market Size

Current Market Size (2011-12) Growth based on current Economy Robust Economic Growth Incremental

SS: ~5.5 PEB: ~0.7 At current levels of economic growth, there is potentialto increase per capita consumptionby ~6.5-9.6 Kgs over next 10 years . Taking into account the strong growth shown by the Indian economy, there is potential to increase per capita consumption by ~5.2-6.4 Kgs over next 10 years . E volution in building designs coupled with possible shift of preference towards structural steel, there is potential of increasing the per capita consumptionby ~0.15-0.25 Kgs over the next 10 years . With signicant investment in the infrastructure segment and application of latest designs, there is potential of increasing overall per capita consumptionof structural steel and PEB by ~0.05-0.10 Kgs over the next 10 years .

SS: ~4.9-7.1 PEB: ~1.7-2.5

Economic Factors

SS: ~3.6-4.3 PEB: ~1.6-2.1

Buildings Segment Change in Mindset Bridges/ Flyovers/ Metro Rail Projects Overall Indicative Potential being generated over next 10 years Chart not to scale
Source: Deloitte Research

SS: ~ 0.15-0.25

SS + PEB: ~0.05-0.10

SS: ~14.6-17.2 PEB: ~4.2-5.6

Structural Steel (SS)

Pre-engineered Buildings (PEB)

Overlap between SS & PEB

Conference Paper on Steel Structures

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Conclusion

Against a backdrop of an uncertain global environment, the Indian economy faced multiple macroeconomic challenges in fiscal year 2011-12, due to which it registered a lower growth of ~6.9% in FY 2011-12. However, demand for steel structures in India maintained its high growth path driven by increased emphasis on infrastructure development by Government of India and demand from the industrial segment. While concluding this conference paper, based on current trends it is important to note the following: Strong internal demand and emphasis on developing infrastructure can be expected to remain the foundation on which the Indian growth story would be built in the future Industry and infrastructure segments can be expected to remain the key demand drivers for steel structures in India over the next 5 years steel and power would drive demand for structural steel, while factory

buildings, retail buildings and warehouses would drive demand for PEB in India Usage of structural steel in building segment is currently driven by exception rather than practice. In future, share of building segment is expected to increase in the overall demand for steel structures as developers are recognizing the benefits of using structural steel in buildings Presently, the Indian structural steel industry mainly employs the on-site model of fabrication for industry and infrastructure segments. Workshop delivery model is prevalent in PEB and buildings segment. There are early indicators of change in preference in the industrial segment especially for power from on-site to workshop model Overall, there is good potential for steel structures in India owing to robust economic growth, increased government spending on infrastructure and change in mindset with regards to use of structural steel in building and other infrastructure segments

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Notes

Conference Paper on Steel Structures

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Contacts

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