Contents 18 India on LiuGong’s radar as export hub for excavators 20 KoPT in capacity augmentation mode 22 Imported scrap market sees low trade 23 Pig iron prices decline marginally 24 Sponge iron Feb production up y-o-y, down m-o-m 25 India’s crude steel production up y-o-y, down m-o-m 26 Subdued user demand may stifle steel rebound 28 The changing face of Indian steel: “Steel solutions” 29 India: a bright spot in world steel map 32 Motown ends FY19 with a smile 36 Steel mills to profit from weak forecast on iron ore prices 37 Govt sops boost housing sales 12% q-o-q in Q1 2019 42 Seaborne coking coal offers marginally ease in March 43 National Mineral Policy, 2019 gets Cabinet nod 44 Steel ministry organizes Vigilance Conclave 45 Global crude steel output marginally down in Feb m-o-m 46 Traffic handled by major ports up 2.79% in April-February 47 Indian Railways’ Feb iron ore handling up 5.33% y-o-y 48 RINL-VSP achieves record turnover in FY19 49 Corporate 50 Ferro alloy data 51 Price data 52 Production data 55 Consumption data 56 Import data 57 Export data
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6 | COVER STORY Construction ahead!
16 | COVER STORY
Traction in select infrastructure segments like roads, irrigation, urban infrastructure, airport, and railway to keep steel consumption buoyant
6-7% steel consumption growth should be sustainable in India: ICRA India’s steel consumption is growing at 7-8%, and one of the major drivers is pickup in construction activities
31 | Feature
Mills explore new product lines to reach retail consumer Steel companies are launching customised products like doors, windows, grills, furniture, structures etc
35 | Feature
Lease expiry next year may hit iron ore supplies Domestic mills’ iron ore supply may be hit if auctions of 33 mines are not held in time
40 | Feature
Seaborne coking coal prices may average $185/t in CY19 In CY2020, ICRA expects prices to dip further to $160-170/t, gravitating to the long period average of $170/ton
Cover Story
Construction ahead! Traction in select infrastructure segments to keep steel consumption buoyant Madhumita Mookerji
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Cover Story
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teel is one of the pillars of any modern economy and it would not be wrong to say that, literally, the pillars on which bridges, highways, flyovers, underpasses and other modern, mega structures stand, have steel as their skeletal configurations. Definitely, more than 50 percent of all steels go into buildings and infrastructure. But, even if that be the case, the segment’s per capita steel use is only 31 kg, compared to an average 111 kg for other emerging economies. Which, optimists say, is a good thing because it leaves the door ajar for increased steel usage in the future. And, with construction and infrastructure set to drive growth in India, and the government of the day pushing for more steel-intensive manufacturing industries and construction practices, the per capita steel consumption is expected to increase to 158 kg in 2031 from the current 62-plus kg and 175 kg in 2025, by when the country would potentially be looking at a 250 million tons (mt) of crude steel consumption opportunity. Further, there are other adverse factors that are likely to work in favour of India’s infrastructure development and, steel’s too. For one, the country’s per capita electricity consumption is among the lowest at less than 2,000 kWh. India’s per capita rail infrastructure is the lowest at 53 km per million population compared to 716 in the US, 610 in Russia, 476 in France and 74 in China. Large sections of the population still lives in non-metal/RCC roofed housing. India’s steel-to-cement ratio in construction is the lowest at 0.30 compared to 1.50 in the UK, 1.19 in the US, 1.10 in Germany and 1.07 in Japan. The government, on its part, is committed to growing both infrastructure and steel, which seem to share a symbiotic relationship. The National Steel Policy (NSP), 2017 says that, “Notwithstanding the current challenges, the Indian steel industry still has significant potential for growth, underscored by the fact that the per capita steel consumption in the country at 61 kg (including rural consumption at 10 kg) is much lower than the global average of 208 kg. Going forward, the accelerated spend in the infrastructure sector, expansion of railways network, development of the domestic shipbuilding industry, opening up of the Defence sector for private participation, anticipated growth in the automobile and
capital goods industry and construction in urban and rural areas, are expected to create significant demand for steel in the country.” The Policy further says that creation of steel demand in the country is one of the major task to be undertaken in this direction. To drive steel demand, the Ministry of Steel has identified construction and manufacturing sectors like rural development, urban infrastructure, roads and highways, Railways as the key focus areas. Consequently, one can safely be upbeat that there is ample scope for infrastructure development and that India’s domestic steel demand will likely remain robust too and anticipated numbers are a pointer in this direction. Demand for steel in the construction and infrastructure space (which includes highways/bridges/airports/ports/ urban infrastructure/prefab buildings/power/ real estate (residential and industrial), was 50.5 mt in financial year 2015-16 (FY16) and is slated to rise to 138 mt by FY31. Demand for engineering and fabrication – which includes capital goods/consumer durables/ electrical goods/tubes/wires/pressure vessels/ Defence equipment and components/general fabrications and general engineering – is likely to rise from 18 mt to 50 mt in the same period. Automotive demand is slated to increase from 8.2 mt to 28 mt, and “other transport” (rail lines, wagons coaches, shipbuilding, coastal waterways etc) from 2.4 mt to 8 mt within this period as well. It is estimated that, on average, a 1 percent increase in infrastructure investment leads to a 1.2 percent increase in GDP growth. And the estimated infrastructure capex planned over five years, from 2018-23 is $650 billion. The government has chalked out mega programmes for road construction
under Bharatmala, the port and shipping sector capacity augmentation through Sagarmala, there are significant railways reforms under way through the construction and augmentation of new and existing tracks, Housing for All by 2022 as well as schemes such as Pradhan Mantri Awas Yojna, Saansad Adarsh Gram Yojna etc. These mega schemes will provide a huge opportunity for use of steel-intensive structures and designs and usage of pre-fabricated and precast steel structures. Commercial and residential buildings and flyovers also provides immense opportunities. “Necessary efforts will be made in conjunction with the Ministry of Road, Transport & Highways to evaluate the replacement benefits of the existing bridges, pavements and crash barriers used in roads and highways and consider for projects in steel bridges, steel reinforced pavements and steel crash barriers respectively,” says NSP, 2017. New infrastructure segments are also emerging. These include schemes like the Nextgen Airport for Bharat (NABH Nirman) and a regional airport development and regional connectivity scheme called UDAN (Ude Desh ka Aam Naagrik). “There is an emphasis on solar and renewables and smart cities etc. The government initiated major reforms and project implementation has become swifter. Projects running behind declined by 25 percent in the last fiscal from 56 percent in 2013. Open and transparent bidding process has been introduced in various projects,” says an industry source. Make in steel
Thus, these above factors, along with the favourable demographics, are improving
Says Ritabrata Ghosh, Assistant Vice President, Associate Head, Corporate Sector Rating, ICRA, “Specific to the infrastructure sector, if you see the balance sheets of some of the big infrastructure companies handling large projects, there is some traction in the order book cycle. But this traction is coming from a few concentrated areas. These are mainly roads, and others like irrigation, urban infrastructure, airport, and railways. A special mention should go towards low-cost housing, metro rails and water supply and sewerage. Particularly, we see significant improvement in the roads sector”
Steel Insights, April 2019
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Cover Story
6-7% steel consumption growth should be sustainable in India: ICRA Two years back, the infrastructure and construction companies were highly over-leveraged, there were cost and time overruns, land issues etc. How has the scenario changed today?
Jayanta Roy Senior VP, Group Head Corporate Sector Rating, ICRA
Steel was doing rather badly a couple of years ago. But India’s steel consumption is growing at an impressive rate of 7-8 percent of late, and one of the major drivers has been a pick-up in construction activities
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Ritabrata Ghosh: Specific to the infrastructure sector, if you see the balance sheets of some of the big companies handling large projects, there is some traction in the order book cycle. But this traction is coming from a few concentrated areas. These are mainly roads, and others like irrigation, urban infrastructure, airport, and railways. A special mention should go towards low-cost housing, metro rails and water supply and sewerage. While not much traction has been seen in terms of projects in Smart Cities, water transportation infrastructure in 500 AMRUT cities will boost steel consumption. Thus, these areas would help to keep steel demand buoyant. Jayanta Roy: The overall leveraging has come down, especially in the roads sector, where some assets have been sold by sponsors and also some equity has been raised. Nevertheless, some companies continue to have stressed balance sheets. How has project awarding been in the last two years? Ghosh: In terms of road project execution, last year, the average rate has been around 28 km per day, which is quite an increase from the levels of around 12 km per day achieved in 2013-14.
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he infrastructure and construction sector is seeing traction in certain segments like roads, irrigation, urban infrastructure and railways and this is likely to fuel steel consumption, going forward. In fact, the steel sector is holding up in terms of demand growth, at 7.5-8 percent, which is quite good, Jayanta Roy, Senior Vice President, Group Head, Corporate Sector Rating, ICRA, and Ritabrata Ghosh, Assistant Vice President, Associate Head, Corporate Sector Ratings, ICRA, tell Madhumita Mookerji. Excerpts from a freewheeling interview:
Roy: It has picked up, but it is still short of the target of 40 km per day fixed by the government a few years back. If such be the case with regard to infrastructure, what are the implications for steel? Roy: Infrastructure and construction account for a majority of steel demand in India. Steel was doing rather badly a couple of years ago. But India’s steel consumption is growing at an impressive rate of 7-8 percent of late, and one of the major drivers has been a pick-up in construction activities. The country has become the second largest steel producer in the world with production of 106.5 million tons, overtaking Japan, with a growth rate of 4.9 percent year-on-year in 2018. The growth in steel production is supported by fast-growing steel demand. According to Worldsteel Association, it is likely that India will also pip the United States to become second in steel use by the end of 2019 as its steel demand is expected to clock 102.3 million tons, a growth of around 7.5 percent year-on-year.
FEATURE
Mills explore new product lines to reach retail consumer
Tamajit Pain
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odular furniture is not something one would relate to steel companies. But steel companies are successfully launching customised steel products like doors, windows, grills, furniture, structures, pipes, roofing and cladding solutions to reach the end user. Steel companies are directly reaching the consumer’s residence with utensils, kitchenwares, water tanks, steel floors, metal deck and deck panels. These are new steel companies of India who are constantly innovating to reach out to modern day consumers, according to industry sources. Steel companies are not only producing rebars meant to offer strength for the buildings but also providing the security to the building and day to day modular wall-towall wardrobes. This transformation from an institutional to a retail vertical is spinning revenues for the companies. The need for customised solutions came up during discussions with consumers, sources said. This is a new business vertical
for steel companies that are focused on trying to understand the expressed and latent needs of customers. Consumers pointed out that wooden doors are deemed to be unsafe and breakable. Moreover, theft was a major issue in Tier 2 and Tier 3 cities. Besides, there were issues associated with wood, like expansion/ contraction and termites. The quality of wood used to make the home solution products left a lot to be desired. Sensing an opportunity, steel companies introduced innovative home solution brands that had the finish and elegance of wood in spite of being made of steel, sources said. For a steelmaker, it is not easy to sell a retail product. To make up for that, they borrowed practices from the consumer durables industry. It formed a team of sales executives and another team of specialized people in installation was also set up. They also tapped its dealer network. Being a consumer facing product, a dedicated call centre team was deployed to answer any query/manage complaints of the consumers.
These products are sold through a 2-Tier retail network of distributors/business development partners and dealer outlets across the country. Some steel brands in Eastern India have endeavoured to bring the focus on the Quality of Steel with Steel Testing Orientation Centers for free testing of the TMT Bars. The initiative is directed on bringing the focus on the Quality of Steel toward building and construction industry. The stores shall not only offer, free home delivery but also act as a complete steel guide as well. In today’s marketing scenario, an exclusive retail concept has a great future. Selling steel is a secondary objective as primary focus is on educating consumers about the product, its testing and usage. The effort is more focused specifically in rural and semi urban areas. E-commerce is also set to herald a revolution in the retail space, it is also changing selling and buying patterns. Some steel manufacturers are thinking of direct delivery through the digital marketplace. The new concept of retail sales is gaining ground amid volatile movement in some end user segments like automobiles and real estate. The effort is to clear inventories and operate sustainably beyond cyclical factors and hedge against the likelihood of a downturn. Listening to the consumer at the last end not only offsets the cyclical factors but also helps deliver a complete product. NPA resolution is consolidating the industry in firm hands and production levels are set to increase. The focus is now on increasing consumption through new retail market development via re-orientation of product lines. This had led to evolution of a “Steel Solutions” market, a relatively new concept, is pursued by steel makers through innovation and re-orientation of product lines. This has resulted in new offerings like steel doors, windows, interiors, roofs and utensils, industry analysts say. Major steel players are also moving up the value chain by manufacturing specialized products in close association with their user industries to offset the weak demand in the commoditized steel markets to shore up margins, they say. India is seeing demand for more value added steel. Indian steel producers have got a lot of challenge in augmenting their capacities for high end market.
Steel Insights, April 2019
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FEATURE
Seaborne coking coal prices may average $185/t in CY19
The note says that except India, demand for seaborne coking coal is not expected to increase from other major steel-producing nations like China, Japan, South Korea and the European Union (EU) in CY2019. India’s demand for seaborne coking coal has been increasing at a rate of 5-6 million tons (mt) annually in the last two years, and consequently, the expected incremental seaborne supply of around 8 mt would exceed India’s demand by around 2-3 mt in CY2019. “If China’s seaborne coking coal imports decline in CY2019 over CY2018 due to improving domestic supplies, then the excess supply in the seaborne market could widen further. Coupled with the prospects of decelerating global growth in CY2019 which could result in somewhat weaker steel prices compared to the CY2018 highs, we do not expect the current apparent decoupling of coking coal and steel prices to persist over a longer timeframe,” says ICRA. Divergent trends
Steel Insights Bureau
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eaborne coking coal prices are expected to weaken from the prevailing elevated levels, averaging at around $185/ton in CY2019, as per the Ferrous Metal Update, April, 2019, published by ICRA (a Moody’s Investor Service company). In calendar year (CY ) 2020, ICRA expects prices to decline further to $160-170/ton, gravitating to the long period average of $170/ton. In CY2019 thus far, seaborne premium hard coking coal (f.o.b. Australia) averaged at $205/ton, remaining at similar levels as CY2018 ($207/ton), even though Chinese HRC spot offers weakened to $511/ton in CY2019, thus far from $565/ton in CY2018. In this context, ICRA also noted that even in CY2017, a year which saw the impact of Hurricane Debbie (when spot coking coal prices crossed $300/ton), and when average Chinese HRC export offers remained at levels similar to the current year’s, premium hard coking coal prices averaged at $186/
40 Steel Insights, April 2019
ton. Therefore, the rating agency expect seaborne coking coal prices to weaken from the prevailing elevated levels, averaging at around $185/ton in CY2019. “In CY2020, we expect prices to decline further to $160170/ton, gravitating to the long period average of $170/ton,” ICRA says. Given the limited domestic reserves, Indian mills are largely reliant on imports to meet their coking coal requirements. With coking coal being the single largest cost element for a blast furnace operator (accounting for 45-50 percent of the production cost), margins of steel companies have remained exposed to the significant volatility that has been witnessed in seaborne coking coal prices since the second half of CY2016. In the last few months, amidst increasing trade tensions and a slower pace of global economic growth, we have seen steel prices marching southwards. However, interestingly, coking coal prices have not followed suit, and remained at elevated levels, nibbling at the margins of steelmakers.
After a turbulent CY2015 and CY2016, the global steel industry moved on the road to recovery from CY2017, largely supported by the supply discipline measures enforced by the Chinese government, which saw the closure of 150 mt of vintage steel capacity and another 170 mt of illegal induction furnace capacity in China. After two backto-back years of elevated steel contributions (in CY2017 and CY2018), it has reverted to the long period median in YTD CY2019. In fact, ICRA observes that gross contributions (GC, calculated as Chinese HRC export offers less 1.7x 62% Fe seaborne iron ore price less 0.8x premium hard coking coal price) of Chinese steel mills started declining since June 2018, whereas the price of seaborne premium hard coking coal (HCC) steadily increased between August– December, 2018. “Though we saw some weakening in prices in January 2019, it has again started increasing during February–March, 2019 and at present hovers around $216/ton, 27 percent higher than the long period average of $170/ton. It can be noted that while steel contributions have retreated to the long-term sustainable levels in the current calendar year, seaborne coking coal prices remain at elevated levels, leading to healthy cash accruals for miners,” says the note.
58 Steel Insights, April 2019
Tear along the dotted line
Tear along the dotted line