Steel Insights, August 2021

CONTENTS 14 Imported scrap offers fall 15 India pig iron production up in July 16 June sponge iron production flat on year 17 India June crude steel production up 21.4% 18 Adani bags the biggest mines in coal block auction 23 Cabinet approves MoU with Russia on coking coal 24 Graphite electrode sector sees demand rising 26 Stressed plants acquired via IBC seeing faster turnaround 27 Seaborne coking coal offers rise in July 28 Motown gains momentum as sales move north 30 Iron-ore handled by major ports up 18% in Q1 31 Railways’ iron-ore handling up 57% in Q1 32 Global crude steel output down 4% sequentially 40 S&P sees Tata Steel EBITDA hitting `1 trillion by FY23 41 SAIL biggest beneficiary of high prices: analysts 43 AM/NS posts 450% quarterly EBITDA growth 45 JSPL Q1 profit rises 10 times 47 Jindal Stainless group goes for major capex plan 51 Corporate update 53 Government update 55 Import export data 59 Price trends 60 Ferro alloy data 61 Production data 63 Consumption data 64 Import data 65 Export data

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6 | COVER STORY

Good times for steel makers to continue Views of industry experts on current sector upcycle.

19 | FEATURE

PLI scheme to reduce import dependency Industry promises investment.

33 | EXPERT SPEAK

AM/NS develops special plates for NPCIL Indigenous steel grade to replace imports.

35 | INTERNATIONAL

ArcelorMittal sees 60% jump in quarterly EBITDA Profits reflect strong performance of AM/ NS India.

49 | CORPORATE

Godawari Power plans project under PLI scheme Eyes API grade and coated steel.

COVER STORY

Good times for steel makers to continue Sumit Maitra & Tamajit Pain

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as the steel upcycle hit a plateau?

Domestic demand was subdued during the first quarter of the current financial year with buoyant export markets providing some support to most of the primary steel makers.

Domestic finished steel consumption was lower compared to the previous quarter due to the second wave of the pandemic though growth was strong compared to the corresponding quarter of 2020 when the economy was on virtual standstill.

During the quarter, long steel prices were relatively subdued compared to flat steel prices, which were also boosted by a strong export markets.

Officials of Jindal Steel and Power, whose exports accounted for 34 percent in

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the first quarter, said the share of exports would have been higher in the absence of logistical challenges posed by unfavorable weather leading to congestion at ports.

July while imports rose 1.9 percent m-o-m to 4,10,000 tons during July. Exports during the period rose 10.5 percent m-o-m to 1.512 mt in July.

Crude steel production, consumption rise in July

Strong demand to support prices

India’s crude steel production was up 3.9 percent month-on-month (m-o-m) in July at 9.725 million tons (mt), according to initial provisional data from the steel ministry.

Hot metal production was up 5.8 percent in July at 6.588 mt, while finished steel production was up 2.8 percent m-o-m at 8.996 mt, the data showed.

Finished steel consumption moved up marginally by 0.65 percent to 8.245 mt in

Some of the fundamental factors supporting the prices so far still exist including the demand pull indicating that there could be some stream left in steel prices with likely revival in demand post monsoon.

In the first half of 2021, global steel makers witnessed high margins, improved demand and low inventories.

Things would be better in coming months, says global steel major ArcelorMittal.

COVER STORY “Looking forward, we see the demand outlook further improving into the second half and have therefore upgraded our steel consumption forecasts for the year,” Aditya Mittal, ArcelorMittal Chief Executive Officer, told investors after the announcement of the 2021 second quarter financial results.

Towards the end of the quarter, Arcelor Mittal’s India operations, AM/NS India saw encouraging signs of domestic demand revival, particularly from the automotive, white goods and infrastructure sectors.

As a result, crude steel production in Q2 remained stable at 1.8 mtpa, close to the levels achieved in Q1, the group explained.

The second quarter results not yet reflecting the full improvement in steel spreads due to order book and lags, ArcelorMittal told analysts that it expect positive momentum into the third quarter due to lags with seasonality expected to be less pronounced then normal.

ArcelorMittal has upgraded its global apparent steel consumption forecast for 2021 against 2020 to a range of 7.5-8.5 percent from previous growth estimate of 4.5-5.5 percent.

Jindal Steel and Power Ltd sees healthy steel demand driven by government stimulus with strong demand even causing shortage of finished steel driving prices higher while Chinese government’s policy to cap 2021 steel production below 2020 should keep a lid on supply.

Export rebates have been eliminated and additional tariffs on Chinese exports are likely to be imposed, the company told investors.

“Outlook for stainless steel demand remains robust on the back of faster vaccination drive, improvement in availability of liquidity, and overall economic recovery spurred by improved business sentiments and infrastructure stimulus by government,” Jindal Stainless Ltd said.

“Fortunately for the steel sector, the pandemic has not derailed demand much.

Last fiscal, after a washout in the first quarter, there was a ‘V’ shaped recovery that limited the decline in domestic demand to 6 percent for the year. This fiscal may see a robust 10-12 percent demand growth, led by the auto and infrastructure segments and higher exports. The medium-term prospects remain

“Looking forward, we see the demand outlook further improving into the second half and have therefore upgraded our steel consumption forecasts for the year.”

Aditya Mittal, CEO, ArcelorMittal strong, too, with estimated compound annual growth rate of 6-7 percent for fiscals 202225,” says Naveen Vaidyanathan, Associate Director, Crisil Ratings.

“Because of monsoon, the domestic demand is on the weaker side, but we are hopeful that given the monsoon goes away, the demand will revive back in India,”

Global crude steel production

Steel Insights, August 2021

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FEATURE

Specialty Steel PLI scheme to reduce import dependency

India’s average import value is $2,000-2,500/ ton due to import of high-grade steel whereas average export value for steel is $600800/ton due to export of basic grade steel.

Features of PLI scheme

♦ Total outlay will be `6,322 crore

Steel Insights Bureau

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he Union Cabinet on July 22 approved the Production Linked Incentive (PLI) Scheme for ‘Specialty Steel’ for a period of 5-year with financial outlay of `6,322 crore.

The PLI scheme aims to promote the manufacturing of ‘Specialty Steel’ within the country by attracting capital investment, generating employment and promoting technology up-gradation in the steel sector.

This would help in making the country Atmanirbhar in meeting the domestic demand for speciality steel, steel industry said.

India was the second largest producer of steel in the world in FY21 but out of the total 102 million tons (mt) of steel production, only 18 mt were value added or specialty steel.

India’s specialty steel production was about 85 percent of the domestic demand and the country was a net importer resulting in a forex outgo of `30,000 crores.

Out of 6.7 mt of finished steel imports in FY21, 4 mt import was of specialty steel alone. Alloy and stainless steel contribute disproportionately to the import bill by value

as imports were mainly of high-grade alloy steel along with specialty steel.

In terms of tonnage, India’s exports were higher however, in terms of value, imports exceeded exports.

India’s average import value is $2,0002,500/ton due to import of high-grade steel whereas average export value for steel is $600-800/ton due to export of basic grade steel.

Data shows that Indian steel industry is not competitive in production of highergrade alloy steel. Thus, there is a need to incentivize the industry to move up the value chain and operate at the higher end of the value chain. This will happen by increasing the production of specialty/ value added steel, says Care Ratings in an analysis of the PLI scheme.

What is speciality steel?

Specialty steel is value added steel wherein normal finished steel is worked upon by way of coating, plating, heat treatment, etc to convert it into high value-added steel which can be used in various strategic applications like Defence, Space, Power, apart from automobile sector, specialized capital goods etc.

♦ Detailed consultations with the industry and inter-ministerial consultations were held before finalising the products.

The five categories of specialty steel which have been chosen in the PLI Scheme: 1. Coated/Plated Steel Products 2. High Strength/Wear resistant Steel 3. Specialty Rails 4. Alloy Steel Products and Steel wires 5. Electrical Steel The identified products have high potential for domestic production, import substitution, exports and attracting significant investments, demand of stakeholders and niche applications, the steel ministry said.

Out of these product categories, it is expected that after completion of the Scheme, India will start manufacturing products like API grade pipes, Head Hardened Rails, electrical steel (needed in transformers and electrical appliances) which are currently manufactured in very limited quantity or not manufactured at all, the ministry said. ♦ Tenure of scheme - The duration of the scheme will be five years from 202324 to 2027-28. The first incentive will be payable from 2023-24 based on the commercial production of 2022-23.

Steel Insights, August 2021

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FEATURE

Graphite electrode sector sees demand rising Cost pressure looms large Steel Insights Bureau

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ith the normalisation of economic activity, country’s largest Graphite Electrode (GE) maker, Graphite India excepts strong demand for steel and electrodes both in domestic and international markets.

In addition, excepted fall in China’s steel exports during 2021 will lead to higher production of steel in the Electric Arc Furnace (EAF) steel producing nations, resulting in increased demand for electrodes, Graphite India Chairman K K Bangur said.

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However, rising needle coke input prices in line with electrode pricing may put some pressure, he told investors while announcing the quarterly results of the company.

Current industry scenario

Graphite India’s capacity utilisation during Q1 of FY22 grew to 75 percent as compared to 36 percent in Q1 FY21 driven by volumes as corresponding quarter of the last year was severely impacted due to first wave of the Covid-19 and related lockdowns.

Quarter on quarter growth is primarily driven by improved realisations which was partly offset by slightly lower electrode

volumes due to the onset of second wave of the pandemic in India, the company said.

The company saw recovery in its German operations and also in electrode demand in the European region.

In FY21 India Ratings estimates the average market price of GE to have been around $3,000/ton, half of $6,000/ton seen in the previous year.

The already-low prices were exacerbated by the Covid-19 pandemic with global steel consumption, excluding China, reducing by around 10 percent y-o-y in 2020. This contributed to a sharp fall in the spreads, which compressed to around $1,000/t in FY21 againts $1,400/ton in FY20.

Companies like Graphite India are further impacted by its high-cost Needle Coke (NC) inventory when prices were falling.

Owing to the sharp correction in prices of both GE and NC, and the long manufacturing process of four-to-five months, which entails HEG to carry higher inventory, the company took inventory loss.

INTERNATIONAL

ArcelorMittal sees 60% jump in quarterly EBITDA Steel Insights Bureau

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rcelorMittal has recorded its best quarter and strongest six-month financial performance since 2008 with operating profit or EBITDA of $5.1 billion for second quarter of 2021 as compared to $3.2 billion in the first quarter, reflecting the robust operating environment.

EBITDA per ton of $314 was at second highest level ever achieved, the company said.

Steel production was up 6.5 percent with strong performance in several geographies following sharply improved results across all steel segments reflecting the continued positive evolution of steel spreads.

“Demand continued to improve through the first half, which coupled with lean inventories supported significant increases in steel spreads. Given order book and contract lags, this improvement is not yet fully reflected in the results,” ArcelorMittal told investors.

The $8.3 billion EBITDA and $6.3 billion net income is strongest half yearly performance since 2008. The figures include $1 billion share of JV and associates income EBITDA improving ($bn)

Net debt declining ($bn)

reflecting strong performance at AM/NS India and AM/NS Calvert. The company again ended the period with the lowest net debt level at $5 billion.

About $2 billion free cash flow generated in first half of 2021 (of which $1.7 billion in Q2), despite $3.5 billion investment in working capital.

Progress on decarbonisation

ArcelorMittal has set out a new pathway to reduce its group wide carbon emissions intensity by 25 percent by 2030 (including a 35 percent reduction in Europe).

It anticipates that achieving the new plan will cost approximately $1 billion, gross before government support.

These accelerated targets include the world’s first full-scale zero carbon-emissions steel plant in Spain by 2025.

It recently announced plans to cut emissions in Spain and transform ArcelorMittal Sestao into the world’s first full-scale zero carbon emissions plant.

This development supports producing greater volumes of green steel by 2030 (a combination of physical zero carbon emissions steel, and XCarb branded products).

“We want to lead on sustainability within the steel industry, through leadership on employee safety and our goal of zero harm, through our leadership on diversity, and through our leadership of the global transition to low carbon steel making, including our technology and innovations and our efforts to inform and influence supportive policy,” the company said.

Its newly published carbon report highlights the strategy to

“$8.3 billion EBITDA and $6.3 billion net income is strongest H1 performance since 2008. It includes $1 billion share of JV and associates reflecting strong performance at AM/NS India and AM/ NS Calvert.” achieve a 25 percent reduction in group wide carbon emissions intensity by 2030 and net zero by 2050. Essentially there are 5 key levers: ♦ Steelmaking transformation: Switching from BF-BOF to DRI/EAF; utilising natural gas until green hydrogen is available ♦ Energy transformation: Shifting from high emitting fossil fuel-based energy to low and zero emission forms of energy ♦ Increased use of scrap ♦ Sourcing clean electricity: through the purchase of renewable energy certificates and direct purchase agreements ♦ Offsetting residual emissions Tie-up with Spanish government

ArcelorMittal in July signed a memorandum of understanding (MoU) with the Spanish Government that will see a €1 billion investment in decarbonisation technologies at ArcelorMittal Asturias’ plant in Gijón and that ArcelorMittal Sestao will become the world’s first full-scale zero carbon-emissions steel plant.

The investments will reduce CO2 emissions at ArcelorMittal’s Spanish operations by up to 4.8 million tons, which represents approximately 50 percent of emissions, within the next five years.

Steel Insights, August 2021

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CORPORATE

Jindal Stainless group goes for major capex plan Steel Insights Bureau

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indal Stainless group - consisting of Jindal Stainless Ltd (JSL) and Jindal Stainless Hisar Ltd (JSHL) - is going for consolidated capex of `2,600 crore, with estimated capex of `1,100 crore across FY22-23.

JSL is doubling melt capacity in next 18 months while JSHL is expanding its Specialty Products Division.

“The expansion will strengthen our ability to serve domestic and international customers across different market segments.

With the post pandemic recovery, rigorous internal efficiencies, ongoing merger, and slated expansion plans, JSL is geared to maximise the value for all its stakeholders,” Abhyuday Jindal, Managing Director, JSL and JSHL said of JSL’s expansion plan.

JSL expansion plan

JSL is doubling capacity at Jajpur from 1.1 mtpa to 2.1 mtpa of SMS and downstream and upstream facilities at a cost of `2,150 crore at one-third of greenfield capex cost.

The SMS is being expanded at a cost of `530 crore, while HRAP and CRAP capacity are being expanded to 1.25 mtpa and 0.75 mtpa at a cost of `125 crore.

The steelmaking facilities should be completed by H2FY23. Backward integration through ferrochrome augmentation is at an estimated capex of `315 crore with capacity increasing to 350 kilo ton per annum. The estimated completion is Q3FY24.

Balance capex is expected to be paid for a quality lab and other balancing activities.

The capacities should be ramped-up by FY25.

The three-pronged expansion plan constitutes expansion of melting capacity, and commensurate strengthening of backward and forward linkages:

♦ Melting capacity: Doubling of steel melting capacity from existing 1.10 million tons per annum (mtpa) to 2.10 mtpa at an estimated capex of `530 crore. Estimated completion deadline is Q3 of FY23. enhancement: ♦ Downstream Commissioning combo line for downstream expansion. 1.5 times expansion of Hot Rolled Annealed Pickled capacity and 1.7 times expansion of Cold Rolled Annealed Pickled capacity.

These capacities are to be enhanced from 0.8 mtpa and 0.45 mtpa to 1.25 mtpa and 0.75 mtpa respectively at an estimated capex of `1,250 crore. Estimated completion is by Q4FY23. ♦ Backward integration: 1.4 times expansion of Ferro chrome capacity – from 0.25 mtpa to 0.35 mtpa to scale up backward integration and cost efficiency at an estimated capex of `315 crore. Estimated completion time is Q3 of FY24.

Remaining capex will be expended on enhancing quality assurance for new generation grades in high-end segments, balancing of units, and other necessary improvement activities, the company said.

JSHL brownfield expansion

JSHL is going for brownfield expansion to leverage its position in specialty products, through enhancing its product mix and augmenting market reach.

The expansion of Specialty Products Division (SPD), with an estimated capex of `450 crore is planned to be rolled out in two phases. ♦ 3x expansion of Precision Strip capacity: This is planned to go from the current capacity of 22,000 tons per annum (TPA) to 60,000 tpa in two phases. It would strengthen the company’s presence in

segments such as auto, process industry, oil & petrochemicals, and also cater to niche segments like aerospace and electric vehicles. The estimated capex for the project is `250 crore and includes the earlier announced capex of `190 crore.

After the first phase of expansion by Q2 FY22, the total capacity would stand at 48,000 tpa. ♦ 1.7x expansion of blade steel capacity: This will go from the current capacity of 14,000 tpa to 24,000 tpa in two phases.

After the first phase of expansion by Q2 FY23, the total capacity would stand at 20,000 tpa. JSHL is among world’s leading razor blade steel producers with a majority market share, globally. The expansion will help further consolidate its position. Estimated capex for this project is `200 crore.

“The expansion will enable us to foray into new and upcoming high-end segments like EVs and Aerospace. This transformation, along with an intensified approach towards digital manufacturing, would accelerate JSHL’s growth,” Jindal said.

Merger impact

After obtaining necessary approvals from the stock exchanges and SEBI, JSL and JSHL have filed first motion application before the NCLT. The petition is expected to come up for hearing soon.

“The impending merger with Jindal Steel Hisar will place JSL as the second largest stainless steel player in the world (ex-China).

Besides, the product range will be broadened to more than 120 grades, imparting the company more operating flexibility and insulate it against cyclicality of the specific end-use sector,” Edelweiss Securities said in a report.

JSL Q1 EBITDA up 6.5 times

JSL has increased guidance of EBITDA/ton to `18,000-20,000 from `15,000-17,000/ton earlier.

“Going ahead, we believe our FY22 estimated EBITDA guidance of `24,50025,000 per ton against management’s

Steel Insights, August 2021

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CORPORATE

Godawari Power plans integrated steel plant under PLI scheme Steel Insights Bureau

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nion government’s ProductionLinked Incentive (PLI) scheme has already started showing encouraging response with Godawari Power and Ispat Ltd (GPIL) recently announcing that it has decided in principle to set up an integrated steel plant with a capacity of 1.5 to 2 million tons (mt) of flat products in Chhattisgarh under the scheme.

“The estimated capital outlay shall be around `3,000 `4,000 crores. The company has initiated the process for land acquisition, obtaining of Environmental clearances, etc. for setting up of the said project and the final cost of project shall be finalized in due course,” the company intimated the stock exchanges.

“We are focusing mainly on the two segments: one is API grade of steel, which is being used for transportation of the gas and oil. And second will be the coated steel, which is being used for the roofing and all that,” Managing Director B L Agrawal said.

“Further details on this project will be finalized as we go forward. And by the time we get the approval from MoEF and then the final allotment of land is done,” Dinesh Gandhi, director of GPIL told investors during a conference call.

GPIL completed its last major expansion in 2014 by setting up a 1.5 mt pellet plant.

And thereafter only bottlenecking exercises were done.

“I believe that we will be able to complete our capex with a much lower

“We are focusing mainly on the two segments: API grade of steel, which is being used for transportation of gas and oil and coated steel, which is being used for roofing and all that.”

B L Agrawal, Managing Director, GPIL cost as compared to our peers. Land has already been identified the environmental clearance documents are under preparation and techno-commercial discussion with the equipment supplier is already going on, not only with the European supplier, but also with the Chinese supplier. I hope that in the next three months, there will be clear

Strategy 2.0 – Transitioning to a fully integrated primary producer

Steel Insights, August 2021

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