Steel Insights, April 2021

CONTENTS 13 India imported scrap offers remain firm 14 India pig iron production up in February 15 February sponge iron output down 10.8% on month 16 February crude steel output down 10.7% on month 22 Iron ore prices to stay high in 2021: Aussie report 25 Packaging industry faces crisis as tinplate imports fall 26 India launches auctions for 2nd tranche of commercial coal mining 27 Fiscal ends on a high for auto sector 29 India iron ore output likely to be sufficient to meet demand 31 Tata group entities rejoin ISA 32 Seaborne coking coal offers fall in March 33 Traffic handled by major ports down 7% till February 34 Railways’ iron-ore handling up 2% in AprilFebruary 35 Global crude steel output down 7.8% in February 38 SAIL records its best-ever quarterly performance 40 RINL achieves `18,000 crore turnover in FY21 42 JSW Steel likely to spend `10,000 crore for capex in FY22 45 Corporate Update 47 Expert speak 49 Government Update 51 Import export data 55 Price trend 56 Ferro Alloy data 57 Production data 59 Consumption data

4 Steel Insights, April 2021

6 | COVER STORY

“NMDC will increase production by more than 50% in three to four years.”

Exclusive interview of Sumit Deb, CMD, NMDC.

10 | COVER STORY

NMDC posts 8% growth in iron ore production in FY21 To see ramp-up in volume over FY22-23.

17 | FEATURE

Domestic steel prices ruling at discount, upside seen: analysts China’s decision to cut export rebates is also a positive.

20 | FEATURE

Scrappage Policy to turn mandatory May boost demand for new vehicles.

36 | INTERNATIONAL

China output cut pledge to create supply shortages Plans to procure half of its iron ore from sources it controls.

COVER STORY

“NMDC will increase production by more than 50% in three to four years.”

I

ron ore mining showed a sharp growth on a yearly basis in FY21 on the back of robust demand from the steel sector due to the sharp recovery in domestic as well as global demand. And NMDC was well positioned to take advantage of it. Despite Donimalai mine remaining shut and heavy rains hampering mining activities in Chhattisgarh, the stateowned miner was able to post significant growth in operations in FY21. And with the resumption in mining at Donimalai, 10 mtpa of upcoming beneficiation facilities and with new reforms in mining rules, NMDC is set for brighter days ahead.

Sumit Deb, Chairman-cum-Managing Director of NMDC spoke to Ritwik Sinha of Steel Insights on various opportunities for capacity enhancement and efficiency improvements.

6 Steel Insights, April 2021

COVER STORY NMDC has decided to prioritise its operational capabilities and strategies for better performance. What exactly are the strategies that are in your mind?

We are committed to retain our position as the leading iron ore miner in the country.

We have set a target to increase the production capacity from 36 million tons a year in FY21 to 67 million tons a year by FY25 through expansion of the existing mines and acquisition of new green/brown field projects.

Odisha and Jharkhand are the target states for acquisition of new projects considering that the two states lie in the vicinity of a zone that contributes to more than 40 percent of the total crude steel capacity of the country. NMDC envisages to increase production from existing mines through technology, process improvement and infrastructure development.

We are already in the process of infrastructure development to achieve the target such as construction of additional screening and crucial plants to increase the processing capacity, installation of Rapid Wagon Loading System to increase loading capacity and construction of slurry pipeline and doubling of rail line between its project location to nearest port to increase the evacuation capacity.

NMDC has already commenced its journey in technology & process improvement and implemented solutions across exploration and resource estimation, mining operations and administration.

Some of key existing and upcoming initiatives include implementation of ERP, mine transport surveillance system, fleet management system, vision enhancement system, automatic sampler, conveyor belt monitoring system, etc. These technological interventions shall enable us to monitor the performance in real time and take better informed decisions.

Additionally, to cater to the demand of the customer during lean periods such as monsoon and during any obstructions

in evacuation, we are planning to develop intermediate stockpile to ensure uninterrupted supply of ore to the customers. We have already developed one Stockpile in Kumarmarenga near Jagdalpur and the other one is under construction.

We are confident that NMDC will increase the production by 15-20 percent in next financial year through performance improvement and by more than 50 percent in three to four years through use of technology, infrastructure development and expansion.

All the mining leases of iron ore mines in Chhattisgarh and Karnataka have been extended. Kindly share your production and growth plans for these mines.

Yes, we are grateful to the Governments of Chhattisgarh and Karnataka for extension of the leases in their respective states. I believe it is the goodwill we enjoy with both the Governments as well as the people of the project locations. We are also grateful to the Ministry of Steel as well as Ministry of Mines for their interventions in operationalisation of Donimalai Mine in Karnataka.

We have envisaged increasing the

production capacity of these mines by 86 percent from existing 36 mtpa to 67 mtpa in FY30. We have already commenced development of infrastructure and working on technology interventions required to achieve the target.

Any plans of diversifying into mining of any other mineral apart from iron ore and diamond?

Yes, we do have plans to expand horizontally into other minerals apart from iron ore and diamond, vertically into pellet as well as geographically into other countries. NMDC has prepared a report highlighting the minerals and geographies that it intends to target. To shortlist the minerals, apart from associated profitability and risks and future trends, criticality of the mineral for the nation is a key factor.

We have already been allocated two coal deposits in Jharkhand namely Tokisud and Rohne by the Government of India.

NMDC is in process to appoint MDO for Tokisud with a target to start the operation in next 5-6 months.

Internationally, NMDC owns 26 percent stake in ICVL, which operates a coking coal asset in Mozambique and

“We have set a target to increase the production capacity from 36 million tons a year in FY21 to 67 million tons a year by FY25 through expansion of the existing mines and acquisition of new green/brown field projects.”

Steel Insights, April 2021

7

FEATURE

Domestic steel prices ruling at discount, upside seen: analysts

Sumit Maitra and Tamajit Pain

T

here is enough steam left in the steel price rally and domestic prices are expected to rise further in coming

days.

Domestic producers in the first week of April increased Hot Rolled Coil prices by `3,000-4,000/tons to `58,000/t ($790/t).

However, prices are still at a huge discount of 12 percent to landed cost of imports which is $896/tons and at a discount of 4 percent to export parity price too (HRC, East Coast FoB price is $827/t).

Domestic steel prices are at 11-16 percent discount to imports from China and also several other countries, which are India’s free-trade partners.

According to Jayanta Roy, Senior Vice-

President & Group Head, corporate sector Ratings, ICRA, “Given the elevated Chinese export HRC price level of $768 per ton and a recent spurt in ocean freight rates, landed price of imported steel from China is 10 percent costlier compared to domestic HRC prices. As a result, even if the domestic steel consumption moderates in the coming months, we do not expect domestic steel prices to fall drastically from the current levels.”

Centrum Research factors in a fall of `6,000/ton in steel prices in FY22 from Q4FY21 average implying `9,000-10,000/ ton fall from current prices.

“Domestic steel prices can sustain till May even if global steel prices fall by 4-5 percent,” it said.

One of the factors behind recent hike in steel prices was that Indian Hot Rolled Coil

prices were trading at a discount of `9,000/ ton to imports from Korea, said an analyst.

Import prices from Vietnam were up $30/ton week-on-week in the early days of April.

Also, China’s decision to cut export rebates is also a positive for steel prices in India, said Credit Suisse in a report.

Robust domestic demand and higher regional steel prices have led to a 20 percent rise in domestic HRC prices over third quarter to a record high.

Since the opening up of the economy in June 2020, pent-up demand from enduser industries - in particular automotive, white goods manufacturing, construction and infrastructure - have boosted steel consumption, containing the steel consumption decline to only about 11 percent during fiscal 2021.

“A benign industry environment, supportive government policies in the form of large infrastructure investments and markedly better prospects in the automotive industry have supported steel prices,” Moody’s Investor Services said while upgrading rating for JSW Steel.

“Domestic flat steel prices have remained elevated due to the higher realisations in the export market which has caused steel mills to focus on exports, despite domestic demand remaining strong. Furthermore, the high prices in the international market make imports unviable,” India Ratings said.

Coking coal prices, however, are expected to go up ($150/ton CNF India) in the current year.

Exports

Though India has been a net steel exporter since August 2019, but amount is minimal except during April-January when domestic demand was hampered due to lockdown (net exports was 5.4 mt during April-January while it was 1.23 mt in FY20).

Spreads

Both HRC and rebar domestic spreads have improved in mid-March 2021 due to the increase in steel price and lower coking coal prices.

Steel Insights, April 2021

17

FEATURE

Scrappage Policy to turn mandatory

May boost demand for new vehicles

Steel Insights Bureau

T

he government has released the much awaited voluntary scrappage policy under which commercial vehicles beyond 15 years old and which fail to obtain a fitness certificate from automated fitness centres, will be de-registered and declared as end-of-life vehicles.

For private vehicles, the same rule will be applicable to vehicles over 20 years old.

Direct incentives under the policy include a scrap value for old vehicle (ranging between 4-6 percent ex-showroom price of a new vehicle), 5 percent discount on the purchase of a new vehicle against the scrapping certificate and registration fee waiver.

Additionally, there could be road tax rebates of up to 25 percent for passenger vehicles and up to 15 percent for commercial vehicles (as advised to state governments).

20 Steel Insights, April 2021

Voluntary scrappage policy is aimed at curbing pollution, replacing the existing fleet of less fuel efficient vehicles and increasing road safety.

"The government's intent to support old vehicle owners though lower taxes and a probable GST rate cut. Moreover, with mandatory fitness testing for heavy commercial vehicles starting April 2023, adhering to global standards, we feel that voluntary nature of policy will convert into a mandatory nature, providing the long term solution for the industry, environment and road safety," ICICI Securities said in a report.

The government's initiative of mandatory scrapping its owned vehicles (at state, Centre as well as PSU level) over 15 years old starting April 2022 also depicts its positive intent and will support industry growth in the interim period, the report said.

Impact on demand

"The policy is expected to catalyse demand for new vehicles and indirectly pave the way for promoting electric vehicles, the adoption of which is so far at the nascent stage," Brickwork Ratings said adding that moderate incentive structure for vehicle owners, as outlined in the policy, in itself, may not be effective in creating meaningful new demand.

"However, scrappage policy will provide stimulus to private vehicle owners to advance purchases due to the high cost of fitness testing, among others," Tanu Sharma, Director-Ratings at Brickwork Ratings, said.

“Additionally, in the long-run, the policy may also bring down the cost of automobile production by recycling scrap, and thereby aid job creation,” Sharma said.

On the other hand, the policy is expected to improve demand for medium and heavy commercial vehicles, which have seen considerable contraction over the last 2 years. Hence, recovery over the low base is expected, which will see acceleration post mandatory testing (commencing 2023).

The earliest benefits will be in the form of replacement of 15 years and above government vehicles from April 2022 onwards. The population of these is about 250,000, largely consisting of Passenger Vehicles.

"Assuming this demand comes in FY23, the incremental sales could be about 6-7 percent of the total industry sales in our view.

Major beneficiaries would be Maruti Suzuki, M&M, Tata Motors and more likely for the alternate fuel vehicles," a report by Centrum said.

Old vehicle scenario

India has 51 lakh light motor vehicles above 20 years old. Volume of medium & heavy commercial vehicles above 15 years old and without a valid fitness certificate is about 17 lakh units.

These old vehicles emit 10-12 times more carbon emissions, are highly fuel inefficient and unsafe to ply on Indian roads with outdated braking systems.

FEATURE

Packaging industry faces crisis as tinplate imports fall Further price rise expected Steel Insights

D

omestic metal container makers are facing tinplate availability crisis as foreign suppliers have stopped shipping tin plates to India due to imposition of Bureau of Indian Standards (BIS) certification requirement leading to shortage in the import-dependent domestic market, according to Metal Container Manufacturers’ Association (MCMA).

“There is a huge demand-supply gap of the major raw material i.e. tinplate/ tin free steel to the extent of 2.5 lakh tons per annum which is met through imports.

Although the local mills claim to have annual rated capacity of about 7 lakh tons, they have never been able to produce more than 4 to 4.5 lakh tons,” the association said in a release.

Following the supply shortages, in October-December, there is an increase of about 6 percent to 7 percent in the tin plate/ tin-free steel prices along with another 7 percent to 8 percent announced increase from January onwards, MCMA claimed.

The industry apprehends further increase in the prices of tinplate/ tin free steel which is almost equal to 60 percent cost of a tin container/closure and the industry fears a further increase April onwards.

“This exorbitant price increase in tinplate, consequently cans, may force our customers to move away from metal packaging to other alternate packaging options especially in food, beverage and paint industry,” the association said.

The BIS Notification mandates domestic and foreign suppliers of these products to adhere to Indian quality standards.

“Unless the government put its order on hold there would be a cascading effect with huge job losses and shortage of metal packaging to the food and pharma industry,” the body said.

It may hit a large number of micro, small and medium enterprises involved in making products using tinplate steel sheets of steel coated with a thin layer of tin that have specialized use in consumer products like cans, hairclips, pens.

MCMA demands that BIS notification needs to be reviewed as it will impact the overall metal packaging industry, which employs over a lakh people and generate revenue for the country.

Similar Notification imposing mandatory BIS standards has been brought earlier in the year 2008, 2015 and 2017 however, after considering representation from trade and industry and keeping in mind practical issues in implementation, the said notifications were withdrawn.

The local producers also filed applications with Directorate General of Trade Remedies (DGTR) for imposition of Anti-Dumping Duty on import of tinplate which was favorably considered by DGTR in June, 2020.

Following this, the DGTR recommended levying Anti-Dumping Duty ranging from `15,000 to `25,000 per tons for import of tinplate/ tin free steel etc. from select countries.

After representation of MCMA, the government decided to drop such recommendation for imposition of antidumping duty.

MCMA representing the interests of companies involved in the production of

“Global tinplate suppliers are not very much interested to get BIS certification.” MCMA metal containers, packaging and allied components.

“The QCO has been notified at a time when the entire industry is struggling hard to reset their business during Covid time. Also it is virtually impossible to force the international suppliers to go for BIS certifications as the procedure of BIS registration is highly cumbersome,” the association said.

For international suppliers of tin plates, India is a small market so they are not very much interested to get into lengthy bureaucratic and cost intensive BIS certification procedures. The industry which is mainly concentrated in MSME will not be able to survive the hefty price increase of tinplate, loss of business to other packaging material and increase in working capital requirements,” MCMA said.

Metal packaging caters to a wide range of foods, beverage, pharmaceuticals and nonfood products paints, pesticides & chemicals etc. Metal packaging has 10 percent share in overall packaging industry.

The industry is providing packaging material and packaging solutions in the form of tin container, component closures etc to food, beverages & other household Industry.

Considering Covid-19 situation with restriction on movements in and out of country including international travel, MCMA also recommended to defer this notification till March 2022.

As foreign tinplate producers will not be able to get the relevant BIS License during current difficult period, there is a uncertainty and no one is prepared to take a risk to travel internationally even if it is allowed in next few months, the association argued.

Steel Insights, April 2021

25

FEATURE

India iron ore output likely to be sufficient to meet demand

Total iron ore production from Odisha is likely to be in the region of 110 mt in 2020-21, a shortfall of around 31 percent.

Supreme Court has put an annual cap of 35 mt on iron ore production in the state.

Chhattisgarh/Jharkhand productions

Steel Insights

I

ndia’s iron ore production is likely to be in the region of around 200 million tons (mt) in 2020-21. In the previous fiscal of 2019-20 production was estimated at around 244 mt, according to industry experts.

Odisha supplies

Total iron ore production from Odisha is likely to be in the region of 110 mt in 202021, a shortfall of around 31 percent. Odisha’s production was estimated to be in the region of around 144 mt in 2019-20.

Delay in restarting of the auctioned mines in FY21 and excess production in the January and February period of FY20 from the mines, which were put up for auction, led to the variance in the production pattern.

Disruption in mining activity due to Covid-19 pandemic, slow restarting of the auctioned iron ore leases and the fact that these leases are yet to attain optimum production levels led to the fall in numbers from Odisha, said an industry source.

However, the supplies have improved from Odisha with production likely to be around 11-12 million tons towards the end of the last fiscal.

Meanwhile, some leading merchant miners have exhausted their annual Environmental Clearance limits which have put additional pressure on iron ore supplies from the state.

This could account for some dip in production in the current fiscal. However, operationalisation of most of auctioned leases by state PSU miner OMC is likely to cover up for any deficit thus caused.

Moreover, allocation of significant quantities from these mines at OMC auctions point to speedy dispatch of iron ore from these leases. Thus, Odisha’s share in total production is projected to stay over 50 percent in FY21.

Karnataka output

Karnataka is expected to record production of 35 mt in FY21.

The restart of NMDC’s Donimalai mine is expected to augment supplies. The

Chhattisgarh is expected to produce around 35-36 mt of iron ore in FY21. Production from Jharkhand is anticipated to touch 20 mt in FY21, industry insiders said.

New mines coming into operation and enhancement of production from the auctioned leases are likely to further contribute to recovering supplies.

Prices firm on short term supply

In the meantime, domestic iron ore prices were firm due to paucity of lumps and highgrade ore in the market. Some merchant miners have exhausted their annual EC limit in Odisha.

However, overall supplies have increased since operationalisation of auctioned leases in the state. In addition, healthy steel margins are supporting iron ore prices.

NMDC has hiked prices in the beginning of April 2021 in conjunction with merchant miners.

In the Odisha market lumps prices averaged `8,000-10,200 per ton for Fe 62/63 percent grade.

Fines prices have also increased and averaged around `6,200-6,900 per ton for Fe 62/63 percent grade.

Serajuddin mine has resumed iron ore fines offers from its Balda iron ore block.

The current offer price for Fe63 percent fines is heard at around `6200 per ton including Royalty, DMF & NMET.

Steel Insights, April 2021

29

CORPORATE

JSW Steel likely to spend `10,000 crore for capex in FY22 Steel Insights Bureau

J

SW is currently implementing its mega capex plan of `48,700 crore spread over FY18-22.

Of this, `23,900 crore has already been spent till FY20. During FY21, the management has guided a capex spend of `9,000 crore (including `800 crore towards mining capex). The balance unspent capex of `16,600 crore would be spent over FY22-23 Analysts have factored in a capex of `10,000 crore/`9,000 crore in FY22 and FY23.

JSW Steel’s on ongoing capex program is set to expand its upstream and downstream steel capacities.

Cash flows out of expected robust EBITDA in FY22 and FY23 would take care of JSW’s high planned capex and would also aid deleveraging, Motilal Oswal said in a report.

Completion of Dolvi expansion would help JSW achieve 16 percent volume CAGR Dolvi expansion facilities Capacity (mt)

Timeline

Blast furnace

4.50

1QFY22

Steel melting shop

5.00

1QFY22

Hot strip mill

5.00

1QFY22

Pellet plant

5.00

1QFY22

UPSTREAM

4x600 TPDs of LCPs AUXILIARY PROJECTS Coke oven

1.5

2HFY21

Power plant (WHRS)

175

2HFY21

Captive Power plant

60

2HFY21

Source: Company, MOFSL

42 Steel Insights, April 2021

over FY22-23 while merger of Bhushan Power & Steel (BPSL), expected by FY24, would further add volumes of 3 mt (13 percent of FY22 capacity).

New downstream capacities to be commissioned over the next 12 months would increase market share of value added steel (color coated, galvanized etc.).

Dolvi expansion to drive growth

JSW’s 5 million tons per annum upstream expansion at Dolvi is nearing completion and is expected to be integrated and stabilized in Q1 of FY22.

JSW recently told investors that it has commenced first production from its new Hot Strip Mill facility at Dolvi.

The 5 mtpa Dolvi expansion will add 2.1 mt and 4 mt to JSW’s volumes in FY22 amd FY23, factoring in 50 percent and 80 percent capacity utilisation.

This should help JSW achieve above industry volume growth of 22 percent and 11 percent in FY22 and FY23, implying 16 percent CAGR, Motilal Oswal said.

“Completion of Dolvi expansion would help JSW achieve 16 percent volume CAGR over FY22-23 while merger of Bhushan Power & Steel, expected by FY24, would further add volumes of 3 mt (13 percent of FY22 capacity).”

Motilal Oswal Post Dolvi expansion, JSW’s steelmaking capacity would increase to 23 mtpa.

“With a normalisation in steel demand, we expect JSW’s utilisation of existing capacity to improve to 90 percent in FY22.

This, coupled with additional volumes from Dolvi, would drive 22 percent and 11 percent volume growth in FY22 and FY23 to 18.1 mt and 20 mt, implying 16 percent CAGR over FY21-23.

Given a strong steel cycle, Motilal

JSTL's capacity post Dolvi expansion to become 23mt

62 Steel Insights, April 2021

Tear along the dotted line

Tear along the dotted line