Steel Insights, December 2020

FROM THE CHIEF EDITOR Chief Editor Dr Mahul Brahma, Tel: +91 85840 08241, E-mail: mahul.brahma@mjunction.in Editor Tamajit Pain, Tel: +91 91633 48065, E-mail: tamajit.pain@mjunction.in Associate Editor Sumit Kumar Maitra, Tel +91 85840 08181, Email: Sumit.Maitra@mjunction.in Editorial Board Jayant Acharya, Director (Commercial & Marketing), JSW Steel Ltd K Ranganath, former CMD, KIOCL Rana Som, former CMD, NMDC Ltd S K Basak, former ED (Collieries Division), SAIL Sushim Banerjee, Director General, INSDAG Vikram Amin, former ED (Strategy and Business Development), Essar Steel Ltd Senior Correspondent Ritwik Sinha, Tel + 85840 08234, Email: ritwik.sinha@mjunction.in Balaka Ghosh Chatterjee, Tel + 85840 08190, Email: Balaka.Chatterjee@mjunction.in Analyst Sanjoy Bag, Tel +91 85840 08215, Email: sanjoy.bag@mjunction.in Business Lead Soumitra Bose, Tel: +91 92310 00232, Email: soumitra.bose@mjunction.in Advertising Soudipto Malakar, Tel: +91 91633 48243, Email: soudipto.malakar@mjunction.in Sumit Jalan, Tel: +91 83369 25981, Email: sumit.jalan@mjunction.in Subscription Niladri Kar, Tel: +91 83369 96510, Email: niladri.kar@mjunction.in Email: publication.vspl@mjunction.in Toll free number 1800 41 920 001, press 6 for publication.

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After being hit badly by the Covid-19 pandemic, Indian steel production has begun to gather steam since the third quarter of the current fiscal and industry insiders are of the opinion that steel sector had recovered from an almost 90 percent fall in demand when coronavirus broke out in late February-early March this year.

Steel companies were also affected as the supply of iron ore, the main raw material for steel, became tight in view of the closure of small mines during pandemic and late re-opening of auctioned mines. However, with rural parts of the country witnessing economic activities since June, things have started looking up for key sectors such as automobiles, one of the major consumers of steel. Construction activities have also added to the uptrend.

Unlocking of economy and festive season supported the industry.

Demand revival has been broad-based, beginning with rural economy and then spreading to passenger and commercial vehicles and now, the construction sector. With demand for automobiles rising as people were looking to use their own vehicles, offtake of steel by the sector was higher.

Currently, steel prices on a continuous upward cycle and pick-up in steel demand is seen sustaining and prices could rally further in the next three months.

The sudden sharp rise has come as a shock to user industries though with engineering sector expressing concern over rising input prices.

Experts feel that adding more production capacity could help the user industries from such huge price shocks.

According to analysts, Indian steel spreads have risen by about 25 percent in the third quarter and are at a three-year high. The improvement in domestic demand is expected to be high on improving sales mix, lower exports and higher value-added sales.

While iron ore prices remain high, the cost of coking coal - a key input in the blast furnaces that large steel players operate to manufacture crude steel - has come down in anticipation of a global glut in the medium term with the reported verbal ban on Australian coal imports by China.

This edition examines demand of coking coal, an important input material for the steel, for which the country is dependant mainly on imports.

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Steel Insights, December 2020

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CONTENTS

6 | COVER STORY

16 Imported scrap offers rise 17 India pig iron production up on month in October

Coking coal: Rethinking fuel strategy

18 October sponge iron production down 3% 20 October crude steel production up 3% on month 28 Steel makers’ margins at multi-year high 30 India opting out of RCEP credit positive for steel producers: report 31 Monitored steel imports back to prelockdown level 33 Motown sees a dull November sales 35 Seaborne coking coal offers fall in November

21 | FEATURE

Commercial coal mine auction: Dawn of a new era Auction of coal mines for commercial usage marked country’s transition to a liberalised coal sector.

36 Domestic iron ore prices firm on shortage

Biggest hurdles in decarbonisation may be faced by harder-to-abate industries like steel

38 Railways’ iron-ore handling down 4.5% in April-October

41 Global crude steel output up 3.54% in October 46 Acquisition of Modern Steels credit neutral for Arjas Steel 47 Corporate Update 49 Government Update 51 Import export data 55 Price trend 56 Ferro Alloy data 57 Production data 59 Consumption data 60 Import export summary

4 Steel Insights, December 2020

25 | FEATURE

Steel needs bold steps to address climate change challenge: KPMG

37 Traffic handled by major ports down 12% till October

39 Induction furnace route to grow in medium term

Price crash hasn’t discouraged steel makers to look for alternatives sources.

42 | INTERNATIONAL

US Steel fires Electric Arc Furnace to cut carbon costs Issues maiden green bond to finance project.

44 | CORPORATE

Coke sourcing key driver for Tata Metaliks merger Company gets 80 percent via captive unit and long-term supplies from Tata Steel

COVER STORY

Coking coal: Rethinking fuel strategy Tamajit Pain & Sumit Maitra

6 Steel Insights, December 2020

COVER STORY

T

he recent global geo-political dynamics as well as sharp revival in the steel sector demand post pandemic-induced lockdown have put focus on coking coal, a key input for the steel sector.

Coking coal prices are at a four-year low level mainly due to restrictions on Chinese steelmakers from buying Australian coking coal thereby causing a supply glut.

Imported coking coal prices have declined by as much as 35 percent during the year helping steel makers reap profits and analysts are of the view that benefits of lower coking coal prices is likely to continue during the third quarter as well.

But that hasn’t stopped domestic steel makers secure their supply sources in a better way.

Looking at alternatives to coking coal like gas-based processes for steel making, increasingly resorting to Pulverized Coal Injection process and also raising the injection rates thereby improving cost, CO2 emission and energy intensity are some of the options being explored while new-age technologies to convert non-coking coal to coke through rapid heating are also being considered.

India depends heavily on imports from a select number of countries such as Australia, US and Canada. Availability of quality grades, erratic price movements from domestic suppliers, etc. are the primary reasons for the high import bill. Taking note of this challenge and to reduce pricing and concentration risks, the Government of India is taking relevant measures to reduce imports, keep a tab on domestic prices and explore alternative overseas sources for coking coal.

Most of the major steel plants are returning to pre-Covid levels of capacity utilization with steel demand recovering to levels of 44.75 million tons (mt) in the AprilOctober period.

In November, finished steel consumption was at 8.623 mt, 11 percent more than November of 2019. On a month on month basis also, finished steel consumption in November registered a growth of 0.23 percent over October.

As the steel production and consumption levels increase, demand for both coking coal,

met coke and iron ore is set to increase in due course during the current and next fiscal.

Based on the “rule of thumb”, production of 1 mt of hot metal requires 0.85 mt of coking coal.

Therefore, the demand for coking coal would have been around 62 mt approximately in 2019-20.

Out of the total demand for coking coal, around 49.17 mt was imported in FY20.

In the April-October period of FY21, coking coal demand is estimated to be around 30-31 million tons, while imports during the period stood at 19 mt.

Current market dynamics

For steel makers, their key input prices – iron ore and coking coal – converged over the course of past one year. After falling continuously, coking coal prices moved up in September though but then easing off on Chinese import restrictions.

“Coking coal prices remains soft on import curbs by China amid political tensions with Australia but expected to gradually increase with potential weatherrelated supply disruptions in 4QFY21,” Tata Steel recently told investors.

Will India overtake China as largest importer of coking coal?

The big question is when India would overtake China as the largest importer of coking coal.

While China will remain dominant in terms of overall market share, India will become increasingly important in terms of seaborne demand.

In global terms, as China will continue to account for roughly two-thirds of global coking coal production and consumption over the coming years, trends in the country’s mining and steel sectors will continue to exert a dominant influence on seaborne prices.

One of the key market implications could be the mining majors potentially benefiting from India’s growing appetite for coking coal. Since the start of 2017, major Indian steelmakers have been seeking to secure long-term contracts with miners, ensuring reliable supply. This comes at a time when

Imported coking coal prices have declined by as much as 35 percent during the year helping steel makers reap profits and analysts are of the view that benefits of lower coking coal prices is likely to continue during the third quarter as well. large steelmakers are looking to boost efficiencies and lift capacity utilization rates after acquiring distressed steel assets that were operating well below capacity.

Indian steelmakers typically favor importing high fluidity and high vitrinite type coking coals. Fluidity is measured by the difference between melting and solidifying temperatures of coal. High fluidity gives higher “bendability” of coals and optimizes the coke input into a blast furnace. Vitrinite indicates the heat tolerance of each coal, reflecting better performance in the blast furnace when higher.

With the estimated ramp-up of India’s met coal demand to around 5-6 million tons per month through 2020-21, implied demand for the preferred likes of Premium Mid-Vol such as BHP-Mitsubishi Alliance’s (BMA) Goonyella, Peak Downs North and semi-hard coals like Kestrel, in eastern Australia’s Queensland, will grow in the foreseeable future.

Different sources of coal

India is dependent mainly on Australian coking coals, shipping in about 45 mt from that country out of 56 mt imported in total in FY20.

Steel Insights, December 2020

7

FEATURE

Commercial coal mine auction: Dawn of a new era

Sumit Maitra

T

he month of November turned historic with the execution of country’s maiden auction of coal mines for commercial usage that marked country’s transition to a liberalised coal sector that promises access to a fuel on demand at competitive prices without bureaucratic hassles and monopolistic attitude.

Moderate response

The auction, conducted under the shadow of the still raging pandemic and in an environment of economic hardship saw moderate success with 50 percent of the mines – 19 out of 38 – receiving financial bids.

Moreover, few very large mines like Chhendipada, Kurloi (A) North, Machhakata, Brahmanbil-Kardabahal, North Dhadu with average annual production of around 15mt received one or no bids and hence, were not eligible for being awarded.

The highest premium touched 66.75

percent with average premium at 29 percent.

The average success rate of the previous 10 tranches of coal auctions remained at about 30 percent as only 35 mines could be auctioned, out of 116 mines put on auction during the last 10 tranches.

Majority of 42 companies which participated in the auction, were from private sector with just two PSUs - NALCO and Andhra Pradesh Mineral Development Corporation Ltd –came from the public sector.

Out of these successfully auctioned 19 mines, 11 are opencast, 5 are underground mines and remaining 3 are a mix of underground and opencast mines located in 5 states - Madhya Pradesh, Chhattisgarh, Odisha, Jharkhand and Maharashtra having consolidated Peak Rated Capacityof 51 million tons a year.

More than half are “Nontraditional” player

With the removal of end-use criteria and significant net worth requirement, 65 percent

of bidders are “non-traditional” players, meaning these players have no experience of owning or managing or operating coal mines.

Thesebidders were from sectors like real estate, infrastructure, pharma as ‘end use’ criteria was removed from the bidding process.

That isn’t a bad thing though as many of the winners have either prior experience in minerals like iron ore or have significant business operations giving them the bandwidth to manage diversifications.

Aurobindo Realty & Infrastructure Pvt Ltd, which hasown the Takli Jena Bellora North,Takli Jena Bellora South in Maharashtra and UrmaPaharitola in Jharkhand in the auction, describes itself as a new breed of real estate developers having 14 million sqft of area under development.

Yazdani International Private Ltd of Odisha which has won the much talked about MarkiMangli II block, is an exporter of iron ore.

The group describes itself as an “export house, active in the commerce of metals

Steel Insights, December 2020

21

FEATURE

Steel needs bold steps to address climate change challenge: KPMG study Steel Insights Bureau

F

or over a century now, the world has been hurtling towards a catastrophe of human making. However, it is only in recent decades that we have come to estimate its effects. Covid-19 has further emphatically proven to us that global catastrophes are not just scenarios and can actually play out. This year industry discussions have additional significance as the world is seized with the imperative of decarbonisation.

The biggest hurdles in achieving meaningful decarbonisation may be faced by harder-to-abate industries such steel, cement, aviation and shipping, says consultancy major KPMG in a recent study.

The steel industry is responsible for close to 10 percent of global emissions, the highest among all the metals. Metallurgical coal is the primary driver of Carbon-di-Oxide emissions in virgin iron production.

Carbon capture

Carbon capture, utilisation and storage (CCUS) will be a crucial enabler for achieving Net Zero, the report said.

CCUS is a critical technology for decarbonising hard to abate sectors like steel and is one of the few technologies that can abate emissions from fossil fuel-based power generation, KPMG said in Decarbonising growth - Managing the transition” at its 11th annual energy conclave ‘ENRich 2020’.

The report highlights the importance for businesses to identify their strategies and portfolios of technologies to meet their respective Net Zero targets. It further discusses the imperatives of decarbonisation highlighting the requirement of a system

perspective that incorporates energy demand management, improves energy efficiency and increases the share of clean energy in the overall energy mix.

“Hydrogen is expected to play a key role as an energy vector in the on-going energy transition - Green hydrogen will help decarbonise hard to decarbonize energy consuming sectors such as transport and industries through sector coupling,” it said.

Globally, companies like thyssenkrupp are experimenting with using Hydrogen in steel making while developing countries Vietnam are planning pilot production projects and encourage the use of hydrogen in line with global trends.

“Net Zero pathways will require businesses to consider both demand side as well as supply side measures. In this journey, decarbonisation technologies such as renewable energy, demand electrification, CCUS, hydrogen, Biofuels may compete but will also complement with the right eco system enablers. Businesses will need to manage this interplay while considering the alignment of their investment horizons with the maturity curves of various technologies and may also need to hedge their bets across the technological spectrum. Government has to facilitate this journey through the right policy and fiscal measures,” Anvesha Thakker, global co-head, climate change and decarbonisation, KPMG Impact said.

Time running out

“Global environmental damage especially over the past century have taken us close to a point of no return. Perhaps we have a small action window to contain severe and irreversible damage across the board. But

The biggest hurdles in achieving meaningful decarbonisation may be faced by harder-to-abate industries such steel, cement, aviation and shipping. Steel industry is responsible for close to 10% of global emissions, the highest among all the metals. for this, governments and businesses have to set and act on specific and ambitious goals with set dates. Net zero is a key goal that many nations have explicitly committed to.

It helps set clear direction and pathways to the ultimate objective of preservation of the planet,” said Anish De, Partner and National Head – Energy Natural Resources & Chemicals at KPMG. Net zero is inevitable

The transition to a sustainable future, characterised by ‘net zero’ is inevitable and beginning to reverberate both upstream as well as downstream owing to globally integrated supply chains.

Large global corporations have started to urge their suppliers to reduce their carbon footprint as part of their own decarbonisation strategy, which is likely to result in a domino impact on smaller nations and companies.

Harder to abate sectors are also taking bolder steps to tackle the climate agenda.

With more private sector commitments are coming in, sectoral decarbonisation discussions are picking up.

Decarbonisation technologies are fast gaining ground. Sector specific measures on

Steel Insights, December 2020

25

INTERNATIONAL

US Steel fires Electric Arc Furnace to cut carbon costs Issues maiden green bond to finance project Steel Insights Bureau

U

nited States Steel Corp has set up a low-emission electric arc furnace at its Fairfield Works and has closed its maiden green bond issue to fund the project.

Founded in 1901, US Steel is an integrated steel producer with annual raw steelmaking capability of 22 million tons supplying to automotive, infrastructure, appliance, container, and energy industries.

The company’s ‘best of both’ integrated and mini-mill technology strategy is advancing a more secure, sustainable future with renewed emphasis on innovation and customer focus.

42 Steel Insights, December 2020

“The new EAF in collaboration with Big River Steel are proof points of our best of both strategy and ways we can provide value to our customers. The completion of our EAF delivers on our commitment to add sustainable steelmaking capability to our footprint, while driving significant cost reductions. For our customers, we will be more agile and nimble to deliver the steel they require to meet their specific needs.

When you combine the EAF, with our proprietary grades of premium connections, we are confident that U. S. Steel offers a unique value proposition to our customers,” David Boyd Burritt, President CEO and director of US Steel said.

US Steel in October 2019 picked up minority stake in Big River Steel, s scrap recycling and steel production company and formed a joint venture company.

Big River’s Osceola, Arkansas plant is world’s leading LEED-certified steel mill and claimed to be most technologically advanced flat-rolled mill in North America.

Big River positioned itself as one of the premier steel producers in North America in terms of profitability, product quality, employee productivity and environmental sustainability encouraging it to double production capacity from 1.65 million tons to 3.3 million tons of flat-rolled steel.

CORPORATE

Coke sourcing key driver for Tata Metaliks merger with Tata Steel Long Products

Steel Insights Bureau

T

ata Steel has announced the merger of country’s leading producers of high-quality Pig Iron (PI) and Ductile Iron Pipes (DIP) maker, Tata Metaliks into Tata Steel Long Products.

The merger, likely to be completed in 6 to 9 months, is based on Tata Steel’s vision to operate in 4 clusters - long products, downstream, mining and the utilities and infrastructure cluster.

Other major reason behind the move is cost savings as close to 60 percent of Tata Metalik's costs consists of coke which it needs to procure while Tata Steel Long Products has excess coke capacity.

While, as part of key cost optimisation initiatives in FY20, the company initiated coke plant expansion to reduce dependency on purchased coke, that project is yet to be commissioned though work is progressing.

The company has a ‘related party’ sourcing pact with TS Global Procurement Company Pte. Ltd for coal and coke but such transactions are done at arm’s length pricing.

To reduce dependency on coke, Tata Metaliks is also using technology, Pulverized Coal Injection (PCI) in Mini Blast Furnaces leading to replacing high cost coke by coal.

44 Steel Insights, December 2020

“Your company sourced almost 7580 percent of its coke requirements through a combination of its captive unit and long-term supplies from Tata Steel, thereby helping partially offset input cost volatilities,” Koushik Chatterjee Chairman of the company had said in annual report for FY20.

Tata Metaliks, state-of-the-art manufacturing plant near Kharagpur enjoys strategic locational advantage due to its proximity to iron ore mines in Odisha and Jharkhand, the Haldia port for import of coal and the PI and DIP markets of eastern India.

Optimising fuel, energy and resource efficiency

The manufacturing process is energy intensive and the company depends on different sources and forms of energy.

Primary sources include coke, coal, liquid fuel, LPG and grid power. Secondary energy sources are process waste heat and blast furnace gas.

“Over the last five years, though the energy intensity in the PI division has dropped nominally, the same has reduced significantly in the DIP division,” the company said in its annual report.

Tata Metaliks has stabilised and increased PCI in its mini blast furnaces to reduce coke consumption and enhance productivity.

Several initiatives were taken to reduce energy and fuel consumption in induction furnaces and annealing furnace, respectively.

These interventions have not only

“Tata Metaliks sourced almost 75-80 percent of its coke requirements through a combination of its captive unit and long-term supplies from Tata Steel, thereby helping partially offset input cost volatilities.”

Koushik Chatterjee, Chairman

62 Steel Insights, December 2020

Tear along the dotted line

Tear along the dotted line