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1、MORGA N STA NLEY RESEA RCHGLO BALMorganStanleyAsia(Singapore) Pte.+MorganStanleyJapan SecuritiesCo.,Ltd.+MorganStanleyIndia CompanyPrivateLimited+CharlesC.SpencerCharles.S+656834 6825HarunobuGorohVipulPrasadMarch31,2010Global SteelIdentifying Competitive EdgeOOOMorganStanleyBank+DmitriyKolomytsyn,CF
2、AMorganStanley&Co.Incorporated EvanL Kurtz,CFA CarlosDeAlba MarkLiinamaaFrom Integration andProduction DifferentiationMorganStanley&Co.International plcEphremRaviCarstenRiekFinalRankingInvestmentconclusion:Webelievecompetitive advantageinthecomingyearwillcomefroma combinationofintegrationoflow-costr
3、awmaterialsplus productdifferentiation.Thisreportidentifiestheglobal winnersfromacrossourcoverage,whichoffer competitiveadvantageatreasonablevalue.Our analysis highlightsfivelargecapliquidnameswhichfit thiscriteriaandwhichshouldbeonthelistforglobal investors:1)TataSteel;2)Severstal,3)NipponSteel,4)J
4、FEHoldingsand5)Evraz.Ouranalysisisbasedonthefollowingreasoning Accesstolow-costrawmaterialssuchasironoreor cokingcoalisforecasttodriveasustainablecompetitive advantageinthesectorforthenextseveralyearsfroma morestablelow-coststructurebeingmaintained. RussiansteelproducerssuchasEvraz,Mecheland Severst
5、alappearuniquelyadvantagedwithintegration benefitsinmanycasestobothironoreandcokingcoal, followedcloselybytheirIndianpeers.Howeverthese stocksappeardisadvantagedinproductdifferentiation.Productdifferentiation,ontheotherhand,suchas veryhigh-value-addedsteel,likeautosheet,intotheTata MMK Severstal Nip
6、pon JFEUSSteel Evraz SAIL JSW POSCO SimecArcelorMittal ChinaSteel BaoSteel Ternium Maanshan0%20%40%60%80%100%manufacturingsectoralsodrivesasustainable competitiveadvantagebymaintainingapriceadvantage overplayerswithproductexposuretothehighly competitivelower-endsegments,suchasconstruction steel.Weno
7、tethatcompaniessuchasUSplayers(US SteelandAKSteel),ThyssenKrupp,Usiminas, JapaneseplayersKobe,NipponandJFEHoldings,all scorehighonthiscount.Finally,weidentifyattractive valuations,by screeningourglobalcoveragebysixmeasureson2011eforecaststoidentifywhereweseepositiveearningssurpriseandattractivevalua
8、tionsrelativeto theirmarketbenchmarks whereIndian,Russianand Japaneseplayersstandout.Source:MorganStanleyResearchMorganStanleydoesandseekstodobusinesswith companiescoveredinMorganStanleyResearch.As aresult,investorsshouldbeawarethatthefirmmay haveaconflictofinterestthatcouldaffectthe objectivityofMo
9、rganStanleyResearch.Investors shouldconsiderMorganStanleyResearchasonlya singlefactorinmakingtheirinvestmentdecision.For analyst certificationand other important disclosures, refer to the Disclosure Section, located at the end of thisreport.+=Analystsemployedby non-U.S.affiliatesarenotregisteredwith
10、FINRA,maynot be associatedpersonsofthememberandmaynotbesubjecttoNASD/NYSErestrictionson communicationswithasubjectcompany, publicappearancesandtrading securitiesheldby a researchanalystaccount.M O R G A N S T A N L E Y R E S E A R C HMarch 31, 2010Global Steel5Investment CaseWehighlightTataSteel,Sev
11、erstal,NipponSteel,JFE HoldingsandEvrazas ourtoppicksbasedontheir attractivevaluations,coupledwithcompetitive advantagefrombothraw materialsintegrationand productdifferentiation.Tata Steel (OW;PT:INR805; Market cap:US$11bn)Tata Steels relativelyhigh selfsufficiency(30% for iron ore and 20% for cokin
12、g coal) on aconsolidated basis, together with 41% HVA product mix and cheap valuation (at 40% discounttoitspeerson2011ePE),renderitanattractivepick. We believe thata valuation of 5.7x2011e EV/EBITDA (YE March) does not fullyreflect the advantage from Tatas backwardintegration(100%integrationinironor
13、eand55%in coking coal forIndian operationswhich contribute about 70% ofTatas consolidated EBITDA), and that thiscould reverse with a jump in the earnings of its Indian operations. EBITDA for its Indian operations is forecast to increase by55% and21% in F11 and F12, respectively, driven bygrowth and
14、margin expansion. (This represents 71% and68%, respectively, of consolidated EBITDA). It isworth highlighting here that Tata Steel Indiawill likely see its capacityincrease by45% to 10mtpa by3QCY11.We also expectmore evidence of an operational improvement in Corus as its cost reductiongainsresultina
15、sustainableboosttoitsmarginsand mitigate the stigma of being amongst the most inefficient steelmakersinEurope.Severstal (OW;PT: US$17.00; Market cap:US$14.0bn) Severstals Russian assets are 100% self sufficient in both ironoreandcokingcoal, whichputsthecompanyinthelower end of the global cost curvewithcash costs per tonne of slab of $227 in 2009 (current cashcost of about $290/tonne) vs globalaverageof$396.Thecompanyissignificantlyexposed to flat steel production (69%)and has a highshare of high
