Steel Insights, April 2016

Contents 21 Pioneering 4 ‘R’s in Kalinganagar for allround development 22 Essar Steel eyes 85% capacity utilisation

by FY17 24 Tata Steel puts entire UK business up for sale 25 Odisha miners raise prices 30 MIP offers short-term relief to ferro alloys 32 Steel, finance ministries drafting steel package 33 Coking coal offers firm up in March 34 FDI in e-commerce to boost demand for office, logistics spaces 36 Car sales speed up in last-lap of FY15-16 37 Fitch downgrades Tata Steel, UK arm 38 Thermo Fisher unveils advanced benchtop OES 39 Steel companies raise prices by 13% postMIP 42 High-Speed bar mill by Danieli at JSW Vijayanagar Works achieves target 43 Hot rolling mill from Primetals produces first coil for Formosa Ha Tinh Steel Co. 44 Govt extends import taxes on steel till March 2018 49 Iranian Steel: Caught at the cross-roads?

53 Iron ore handling by major ports down 29.18% in Apr-Feb 54 Railways’ February iron ore handling down 10.70% m-o-m 55 Global crude steel output falls 6% in Feb m-o-m 56 International steel prices on offensive 57 Flat products firm in volatile steel markets 58 Price data

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6 | COVER STORY

“Auction of natural resources will reduce Indian steel’s competitive strength” Amitabh Mudgal is opposed to idea of auctioning natural resources.

18 | SPECAIL FEATURE

Tata Steel’s Kalinganagar plant to start by Sept Integrated commissioning of all units will take another six months.

27 | FEATURE

FIMI wants total abolition of iron ore export duty FIMI wants full abolition of duty to clear stockpile of iron ore in mine heads.

29 | FEATURE

MIP helps stabilise Mandi Gobindgarh steelmakers Imposition of MIP a breather for small steel mills

45 | INTERVIEW

‘Scrap availability down 45%’ The shortage is mainly in the obsolete grades, says Abhijeet Mahanta of EMR.

Cover Story

“Auction of natural resources will reduce Indian steel’s competitive strength”

T

he Indian steel industry is a relieved lot today.

The introduction of minimum import price (MIP) and safeguard duty has come as a rescue measure from the government. However, the government, while giving relief in one hand, is mulling to take it away in other, says Amitabh Mudgal, President (Marketing and Corporate Affairs), Monnet Ispat and Energy Ltd. In an exclusive interview with Rakesh Dubey, Mudgal strongly opposed the idea of auctioning natural resources, be it coal or iron ore, alleging such a policy would reduce further the competitive strength of Indian steel which is already burdened with huge logistics costs.

Excerpts:

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Cover Story How do you see the present scenario in the Indian steel sector?

To say in a few words, the markets are bad, demand is poor, funding is not happening.

The industry is looked upon as a bad boy.

This (perception) needs to change. The society at large needs to understand that this is an infra/core industry requiring huge capital and big gestation period, but then it provides substantial employment and helps in building the nation, improves quality of life, helps in bringing urbanisation and becomes the raw material supplier to a whole lot of downstream industries.

Recent supports from the Government in the form of minimum import price (MIP) and safeguard duty have come as the saviour.

Do you think the situation is going to improve in near future?

In near future, as I see it, improvement will come at its own pace. There will not be any dramatic change as such. The business models have to survive only on the strength of businesses, not on any policy driven windfall or cheap lending options. The businesses have to survive only on the merit of, say, making steel at a competitive cost, or generating power at a competitive cost, or controlling logistics costs supported by your own infrastructure around port/railways, etc. A big impetus in the form of infra spend will certainly rejuvenate demand.

One thing which comes out is that the Indian steel industry is not currently very competitive. If you say that we need to cut costs, doesn’t that mean we are not competitive enough yet?

So far as steel making per se is concerned, we are very competitive as we have cheap labour, abundant sources of raw material and good technologies. There is no dearth of those things. The equipment suppliers are very good, consultants are competent and metallurgists are skilled in their job. What is killing Indian steel is the high logistics cost.

Movement of four tons of material – three tons of raw materials coming to and one ton of steel going out from the plant – costs you a prohibitive amount of $40-50 per ton, which is way too high in comparison.

I am shipping my silico manganese from

a port like JNPT to Turkey for just $8-10 per ton, whereas we pay $40-50 per ton for transporting the material by rail. The cost of transporting the material by a truck from my Raipur plant to Mandi Govindgarh in Punjab, which is sort of a nerve centre, is about $45 per ton or `3,000 per ton.

Similarly, the cost of bringing in the same material from China or Australia is much lower. In fact, the difference is phenomenal.

The logistics cost can be contained if we set up pithead plants. We as a country tried this concept but this is not working out as the best solution for various reasons. In the power sector, for instance, the transmission lines are not coming up to support pit head generation. Secondly, the environmental pressure on that particular zone is a cause of concern. I think the time has come that we should now grow on shores. If the global markets or global commodities are going to be cheaper, what is the use of continuing to thrive only on pit head plants? The coastal power generation has to increase manifold.

We have a big coastal area running into 4,000-5,000 kilometres, but the number of power plants there is far too less. Of late, they have started coming up with a few and this trend should be encouraged.

In the steel sector also, a similar thing is happening. Earlier, the pit head based plants were thriving due to the cost advantage in raw material, but with the meltdown in commodity prices, coastal plants are getting cheap raw materials such as iron ore and coking coal at much better rates and they can export at much competitive rates as well. We also need to understand the cost of capital in India vis-à-vis our competing countries. This also puts us at disadvantage.

The cost further goes up in terms of time required to put up plants owing to delay in land acquisition, delay in various statutory clearances, etc. All this ultimately add to cost.

Talking about competitive rates for raw materials, what is your view on the auctioning of natural resources like coal and ore and the high bids made by the industry (in case of coal)? Now government is planning for linkage auction as well.

Will this be on track? How do you see the situation considering the fate of coal block auctions?

I have a very strong feeling about natural resources being auctioned. Natural resources are the inherent strength of any country.

I don’t think they should be brought into auction environment for the domestic industry.

As for coal block auctions, the whole idea of the government was to develop a transparent way of allocation. That was the whole intent of the Supreme Court judgement also. But in the process, we are making it a revenue generating thing for the government.

The initial rounds (of coal block auctions) have seen people paying `2,0003,000 per ton to take that coal. Those high bids were due to hangover effect of raw material security. It happened so because for 15-20 years we had something coming in from captive source and suddenly, one fine morning we found it is not available.

Also initially, there was no distinction among the steel/sponge, copper and aluminium industries that were eligible for participation in the auction for a particular block. So how could I possibly compete with aluminium and copper industry? Paying power of copper/aluminium is much higher.

That was reason why bids had gone so high.

Besides, only working mines were offered in the initial rounds. Now, after the segregation of industries, more reasonable bids have started coming at around `600-700 per ton.

Overall, the auction of natural resources has its own pitfalls in the sense that it takes the sheen away from the

I have a very strong feeling about natural resources being auctioned.

Natural resources are the inherent strength of any country. I don’t think they should be brought into auction environment for the domestic industry.

Steel Insights, April 2016

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SPECIAL feature

Tata Steel’s Kalinganagar plant to start by Sept Tamajit Pain

T

ata Steel is getting ready to commence “integrated, commercial production” of the first phase of the 3-million ton steel plant in Odisha by September and is keen to keep the project cost below the projected `25,000 crore.

“Integrated commissioning of all units for the first phase will take another six months. Project cost remains within the revised budget and even it could (be) lower,”

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said Rajiv Kumar, Tata Steel Vice- President, Operations (Odisha).

The company is gradually synchronising integrated steel plant components like blast furnace, coke oven, sinter plant, captive power units and hot rolling, among others in stages, he said.

The timeline and cost was revised in 2011 in the wake of delay in land acquisition, which pushed back the project by four years.

Kumar did not share the cost of the original project, the MoU of which was signed with the Odisha government a decade ago.

With the Kalinganagar first phase, capacity of the steel major is expected to go up to 13 mt in India.

Kumar indicated that demand and the market scenario could play a big role in construction of the second phase.

He said that the greenfield plant would produce 3 mtpa of steel in the first phase and later the capacity would be ramped up to 6 mtpa. No time-frame for scaling up the capacity has been announced.

“We need to have the market share intact as the Indian steel market grows.

Accordingly, we will plan that,” he said when asked about the time period for ramping up production to 6 mtpa.

The Kalinganagar plant will be spread over 3,470 acres, of which, about 900 acres are not under the company’s possession at present.

“Out of the total land required, we are in the process of getting 900 acres,” Kumar said.

FEATURE

Exports, power still remain the game changers

MIP offers short-term relief to ferro alloys Steel Insights Bureau

I

n the near-term, the recently imposed minimum import price (MIP) may provide a better environment for ferro alloy producers, with improved domestic demand from higher steel production, but this is unlikely to be sufficient to absorb the surplus ferro alloy supply available.

As such, exports will continue to provide an important outlet for domestic producers but, given the state of the global markets, we expect the oversupply will be further checked by ongoing plant closures.

Overall, weak market fundamentals globally, alongside unyielding power tariffs at home, have crippled the Indian manganese ferro alloy industry. At home, the steel

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sector has been performing poorly and ever shrinking margins amidst falling steel prices have made repayment of loans, taken out to support previous capacity expansions, difficult. For banks, this has caused a sharp rise in the number of non-performing assets (NPA) in the steel sector.

Given that ore and reductants are priced according to global market dynamics, the main area where Indian ferro alloy plants could, conceivably, improve their cost position is with respect to the power tariff, but this could only happen if preferential tariffs are offered to ferro alloy producers.

However, the availability of preferential tariffs seems an unlikely outcome, as the government is currently facing high NPAs in the steel sector and fiscal consolidation

targets will curb any subsidy-based measures.

As such, Indian producers will continue to face substantial challenges in export markets, not least from Malaysia, which is emerging as a new, low-cost hub for manganese ferro alloy production and where power is available cheaply.

History

The Indian ferro alloy industry kick started in the 1960’s with the advent of the 2nd Five-Year Plan, which targeted the fulfilment of domestic needs with 50 percent of the production expected to be allocated for exports. Due to the proximity of raw materials, production units were initially concentrated in Maharashtra, Odisha, Karnataka and Andhra Pradesh but, following liberalisation in the 1990s and incentivised by reasonable power tariffs, production spread to other parts of the country. As a result, a number of small- and medium-sized production units cropped up in the eastern parts of the country, mainly West Bengal, Chhattisgarh, Jharkhand and Meghalaya. The industry continued to grow at a fast pace into this decade and has marked its place in the global arena as a major export competitor to Ukraine.

Interview

‘Scrap availability down 45%’

T

he problem in the scrap market is that players in India are often unable to seize opportunities when global prices of the material are high. With scrap prices falling, scrap yards are not making money. Players could even be in a mood to terminate the contracts if they find these not remunerative enough. However, the shortage is mainly in the obsolete grades. Also, if the scrap market in India has to get organised, the government has to put certain rules in place, including that on end-of-life (ELV) vehicles, Abhijeet Mahanta, Head of India Ferrous Operations of EMR world’s leading scrap supplier, told Rakesh Dubey of Steel Insights in a free-wheeling interview.

Excerpts: How do you see the scrap market at present?

It is difficult to decipher the market when fluctuation is quite high. You know iron ore prices have risen to historical highs in one day in China. Iron ore of 62 percent Fe content has risen by $10 per ton in one day to $62-63 per ton. This is a record. Today billet prices from China are at $320. These had gone down to $250 and China had cancelled all the offers. Now those offers are in $320-325 range. It is difficult to say when the market starts going up so fast. Markets are behaving very erratically. We have not been offering scrap in the last 10 days.

Prices have gone up.

Is this phenomenon because of China, which has a lot of problems?

In China, actually, the government had declared that it would take some measures to boost economic activity, including for the steel industry. It had announced production cuts of a few 100 million tons. It is very difficult to say what happens in China. As soon as the announcements were made, players started buying iron ore (which was lying low), which boosted prices by $10 per ton.

What is the logic? If they are reducing production of steel, how come prices of iron ore are going up?

China was reducing production because sales were very low and it was mostly trying to export. The country said it would boost local infrastructure and so produce more steel. It would provide protection to steel by increasing offtake, starting government projects to increase consumption. But all these are on paper and the markets are behaving according to the sentiment.

Till January people were apprehensive. Now the steel market is seeing some positive trends. What do you feel about the market post-MIP? Yes. People were not very clear till January.

Suddenly, post the minimum import price (MIP) there is a positive sentiment. But the positive sentiment may not have led to big gains for the secondary steel makers.

However, the sentiment is positive and people are now not very afraid while buying scrap as they were till January. In the past 6-7 days, prices have shot up so much that it is not working out for them unless the endproduct moves up. Generally, there is some resistance when prices move up. Now the asking price for scrap is $220-222 per ton

(as on March 9). This is a big jump from the last 10 – 15 days but still it is nowhere near what others are paying.

What are overseas buyers paying?

What others are paying translates into around $230 per ton. I heard somebody quoted a price of $240 per ton for India.

Obviously, there were no takers. Secondly, there is extreme shortage of scrap in the world - it is seen in Europe and the UK too.

Why is there shortage of scrap in the entire world?

There is no scrap. Availability is down almost 40-45 percent. For example, EMR was processing around 14 million tons of scrap till 2014, but in fell to 10 mt in 2015 and in 2016 also it is likely to remain unchanged. Prices of scrap started falling from September 2015 onwards from a level of $200 per ton. It does not make any economic sense when we have to buy at $150 but sell at $140-160. The players will simply take a break. They will terminate the contracts too. If a contract is not remunerative enough then it does not make sense. The effect of the quick fall in scrap prices is seen 3-4 months later. Till that time we will have some stocks in the yards and keep on processing. However, slowly supply will come down. Unfortunately, we are not taking advantage of the situation.

When prices go up, we should be making a lot of money.

It is said that iron ore prices have also shot up because of a sudden shortage in China?

There is shortage from Australia also. I do not follow the iron ore market so cannot tell you. People were predicting that in March prices would be falling in the US. However, suddenly, the export market became very good. Turkey started buying and other markets started buying too. Korea bought a lot of scrap recently. When the export market became better, domestic mills started paying more. So in March, prices, instead of going down, went up. The scrap suppliers are holding on to whatever they have. The mills are now asking for more and increasing prices every day.

The shortage is mainly in obsolete grades as new production comes from automobiles. Obsolete scrap comes from

Steel Insights, April 2016

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Tear along the dotted line

Tear along the dotted line