Steel Insights, February 2016

Contents 8 “India needs steel investors not steel imports” 16 Steel expansions may go haywire if government fails to protect us: Uppal 26 China steel output falls 2.3% in 2015 27 SAIL chief encourages employees in hard times 30 Iron ore exporters seek removal of duty 32 Coking coal offers ease in January 33 Domestic car sales start 2016 in first gear 34 Realty demand not likely to improve in FY17: Ind-Ra 36 Corporate snippets 38 JSW Steel posts net loss of `923.34 cr in Q3 40 JSPL plate mill back in production on Danieli revamping 41 Societe International selects Midrex, Primetals gear 42 Coal linkage auctions get Cabinet green signal 43 Major ports’ Apr-Dec iron ore handling down 38% 44 Railways’ Dec iron ore handling up 7.31% m-o-m 45 South Korean steel: Tough days ahead 51 Global crude steel output dips 0.08% in Dec m-o-m 52 Indian steel, raw material prices inch up from lows 54 Steel makers face pain even as prices steady 56 Price data 57 Ferro alloy data 58 Production data

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6 | COVER STORY

Measure for measure: How to deal with China?

24 | FEATURE

If dumping is not stopped, benefits of Indian steel consumption growth will be reaped by China.

India becomes 3rd largest steel producer in world India has surpassed United States to become the third largest steel producer after China and Japan.

25 | FEATURE

Govt sets MIP on steel products to curb dumping

28 | FEATURE

Govt has finally imposed a minimum import price ranging from $341 to $752 per ton on 173 steel products.

Metal recycling sector needs boost as steel consumption grows: MRAI Indian metal recycling industry needs a boost as steel consumption is set to grow.

39 | CORPORATE

Tata Steel posts `2127 cr loss in Q3 Company posted consolidated loss on lower steel price and weak demand.

Cover Story

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oday, the one overriding topic being discussed across the steel industry’s boardrooms is the unmitigated dumping by China and imports deluge from Japan and South Korea. The need of the hour? Government protection in the form of increased expenditure on infrastructure, reduction in the cost of doing business and bringing the full range of steel categories and products under the government’s protection schemes and, most importantly, implemention of a minimum import price (MIP). An initiative like the safeguard duty, while it is important as a shortterm measure, is not viable for the long run. The Indian steel industry is expected to rebound before the global market. However, if dumping is not stopped, the benefits of consumption growth in the Indian steel sector will be reaped by China. Rakesh Dubey & Tamajit Pain of Steel Insights spoke to two steel industry stalwarts to get a clearer picture on the current scenario.

T V Narendran, Managing Director (India and South East Asia), Tata Steel, says the domestic steel industry is experiencing sluggish demand because of the deluge of cheap imports and if steel players wants to participate in the Indian market to manufacture that additional 200 million tons of steel over the next 10-15 years then they should come and invest here and create jobs like the rest of the domestic players, competing with the latter on a level playing field. He adds that if free and easy market access is allowed, then there is no motivation for an outside player to come and build a steel plant here, which does not help India as a country. He cautions that the steel industry is capital-intensive and requires huge funds and large land parcels for building a plant compared to any other industry. He mentions that the steel industry not ask for a safeguard duty till last year. This was because players in India had no problem competing with China, Korea or Japan till 2014.

The reason the industry sought a safeguard duty last year was because steel prices had crashed and China had a problem, which prompted them to export. But why should Indian steel-makers suffer for the problems in China?

Ravi Uppal, Managing Director and Group CEO, Jindal Steel & Power Ltd (JSPL), feels the ‘potential for growth’ is something the Indian steel industry is never short of. Yet, living in the future is not going to help if the present crises are not dealt with. Talks of big- ticket investments in capacity expansion by domestic steel-makers may come to naught if the government fails to protect the sons of the soil against aggressive dumping by China and Korea.

The global recession in steel will continue for another 2-3 years. The most important measure the government must undertake is implementation of the MIP. Until that is done, no initiative is likely to take the steel industry anywhere and the benefits of consumption growth in the Indian steel sector will be reaped by China. Many steel-makers who invested heavily in expansion, anticipating demand growth, are now being unable to service their loans. Thus, until the situation improves the industry will not be able to invest in new units. Also, the high cost of rail freight and artificially high prices or iron ore have made Indian steel-makers globally uncompetitive.

Otherwise, the integrated steel plants are among the most efficient in the world, Uppal says.

Steel Insights, February 2016

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Cover Story

T

ata Steel is aiming to start commercial production at its 3-mtpa Kalinganagar project in Odisha from April 1, 2016 and end the current fiscal with a production volume of 10 mt. However, the domestic steel industry is experiencing sluggish demand because of the deluge of cheap imports from China, Japan and South Korea and if steel players wants to participate in the Indian market, they should come and invest here and create jobs like the rest of the domestic players, competing with the latter on a level playing field, T V Narendran, Managing Director (India and South East Asia), Tata Steel, tells Rakesh Dubey of Steel Insights. He adds that if free and easy market access is allowed, then there is no motivation for an outside player to come and build a steel plant here, which does not help India as a country. Excerpts from an interview:

What is the update on the Kalinganagar project?

Tata Steel Ltd is aiming to start commercial production at its 3-million tons per annum (mtpa) Kalinganagar project in Odisha from April 1, 2016.

Various facilities of the plant have already started operation and the trial run of the blast furnace and steel melting shop will be done in the current quarter (JanuaryMarch) after which commercial production will start from April 1.

Our coke oven and sinter plants are already in operation, while the hot strip mill is ready and we have already rolled some coil. The blast furnace and steel melting shop will go through trial runs in this quarter and the formal commissioning of the project will happen in April.

As with any steel plant, Kalinganagar also has various facilities which have already started operation. The steel plant is not one switch as there are multiple facilities.

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‘India needs steel investors, not steel importers’

Cover Story

Steel expansion may go haywire if government fails to protect us: Uppal

“P

otential for growth” is something Indian steel industry is never short of. Yet, living in the future is not going to help if the present crises are not dealt with. Talks about big ticket investments in capacity expansion by domestic steelmakers may come to a naught if the government fails to protect the sons of the soil against aggressive dumping by China and Korea, feels Ravi Uppal, managing director and group CEO, Jindal Steel and Power Ltd (JSPL). In a freewheeling interview with Tamajit Pain and Rakesh Dubey of Steel Insights, Uppal sets out immediate action points for the government, while noting that failure to save Indian steel would tantamount to the failure of the much touted ‘Make in India’ campaign.

The Indian steel industry seems to experience a double whammy. On one hand, it is reeling under cheap imports. On the other hand, as part of the global commodity crisis, it is witnessing prolonged slowdown and sliding prices. What is your reading of the market?

You are absolutely right in saying that there is a double whammy right now. Globally, we are witnessing a slowdown in steel consumption and excess supply in the market.

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China has a capacity of producing 1.2 billion tons per annum. A year ago, that country was consuming close to 800 million tons (mt), but the numbers have come down sharply by 150 mt to 650 mt. Yet, the Chinese industry was not willing to reduce its production level; so they continued to produce and are now dumping this excess 150 mt of steel in the international markets, including India.

Now, if you look at the domestic market, India’s total installed capacity is about 114

mt, whereas our production is only about 80 mt. That implies the exportable surplus of China is almost twice our production at the moment. So, if we open the floodgates for Chinese steel, they will soon be all over us.

The Chinese steel industry is heavily supported by government incentives and a very low interest rate, among others.

Naturally, their cost of production is much less (than ours) and their export price is such that we cannot think of competing against.

Let me give you one example. The

feature

Govt sets MIP on steel products to curb dumping Steel Insights Bureau

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he commerce ministry on February 5 fixed a minimum import price (MIP) for certain steel products to protect domestic manufacturers from cheap imports.

The MIP will be valid for the next six months.

MIP on ingots and billets has been fixed at US$ 362 per ton, for flat rolled and hot rolled steel at US$ 445-500 per ton and semi-finished steel at US$ 341-362 per ton.

Earlier, steel secretary Aruna Sundarajan said that domestic companies are passing through a critical phase due to the increased imports and it is imperative to provide them a level-playing field.

Industry sources suggest the commerce ministry plans to review the minimum import price bi-monthly and that the impact of fixing such a price would be visible only over 6 months.

China, Japan and Korea have been exporting cheap steel products in bulk.

Steel Minister Narendra Singh Tomar says the domestic industry was facing lot of trouble due to dumpinp and lot of jobs depended on it. So, safeguarding the industry was necessary.

The duties on various steel products range between $341 per tonne and $752 a tonne, the government said in a statement.

Rising imports, especially from China, have been a concern for India. Overseas steel purchases shot up by 22.8 percent in December 2015 over the previous month.

China produces nearly half the world’s 1.6 billion tons of steel, and exported more than 100 million tonnes of the alloy last year, more than four times the 2014 shipments from the European Union’s largest producer, Germany.

However, the user-industries also have been representing and arguing for their continuing access to low-cost imported steel to balance domestic supplies.

Engineering exporters’ apex body, EEPC India, had approached the commerce ministry, objecting to the restrictions on steel imports by way of fixing the MIP, stating that there was no justification for the government to help a handful of big steel-makers at the cost of many small and medium export firms which would be forced to pay much higher price for their raw material.

Earlier, Commerce and Industry Minister Nirmala Sitharaman said India would not rush to impose the minimum import price (MIP) for steel to rein in the growing inward shipments from China, South Korea, Japan and Russia among others, dashing domestic steel-makers’ hopes for early implementation of the trade action.

The steel ministry had been strongly pitching for imposition of the MIP for quite some time now following repeated representation of the domestic industry.

However, the commerce ministry, it was learnt, was not in favour of such a move that has the potential to inflate illegal trade and generation of black money.

The fact, however, remained that the domestic steel industry is bleeding due to the triple whammy of cheaper imports, subdued demand and lower price of the alloy. This has forced companies like SAIL, Tata Steel and JSW Steel to utilise their capacity at a much lower level. The average operating EBITDA margins of the steel firms have come down by

around 40 percent during the first half of the current fiscal compared to a year-ago period.

“The Indian steel industry’s capacity utilisation is falling continuously, replaced by predatorily priced imports. Several countries are taking expeditious remedial measures, leading to a diversion of the surplus steel also into India,” said JSW Steel’s Commercial Director Jayant Acharya.

The further drop in prices during the second half of the current fiscal is likely to result in further decline in the remaining quarters of the current fiscal. Faced with a staggering debt of over `3 lakh crore, domestic steel-makers, sought a comprehensive steel package from the government, including a one-year moratorium on payment of interest and principal amounts.

“Due to surging imports and loss of EBIDTA, working capital of the Indian companies has come down. Overall, the profitability of the whole Indian steel sector has taken a huge hit. This will eventually lead to crippling of operations and to a default in the industry’s obligations to banks,” said an Indian Steel Association (ISA) official.

Most of the steel producers are also running at 80 percent of their capacity.

The government has already imposed a 20 percent safeguard duty on steel imports until March 2016, and has raised the peak customs duty to 15 percent this financial year from 10 percent with little impact.

Steel Insights, February 2016

25

FEATURE

Metal recycling sector needs boost as steel consumption grows: MRAI Steel Insights Bureau

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he `750 billion metal recycling industry in India needs a boost as India’s steel consumption is set to rise with infrastructure projects in pipeline and automobile sector projected to revive, according to Sanjay Mehta, president, Metal Recycling Association of India (MRAI).

India’s indigenous metal scrap generation is very less to meet the scrap requirements

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of secondary metal producers. Hence, India is dependent of metal scrap imports and the country is importing around 6-7 million tons of ferrous metal scrap and nearly 1 million tons of non-ferrous metal scrap annually and majority of this goes in containers to various ICD destinations across India. Developed countries have specialized recycling zones to handle collection and process of metal scrap, while India’s scrap collection is not organized and remaining scattered.

“Every country is promoting use of recycled metals as it preserves natural resources and provides sustainable development to the economy, and has extremely low emissions compared to primary production. The metal recycling industry in India provides direct and indirect employment to more than 1.8 million people in India,” Mehta said while speaking at MRAI’s conference in Delhi.

Recycled materials supply 40 percent of the global raw material needs. Today, recycling is a $500 billion industry globally and out of that metal recycling alone accounts for around $200 billion.

On MRAI’s efforts, Ministry of Steel, has conducted a study on India’s ferrous and non-ferrous scrap collection, consumption and generation as till this time there was no official data available. As per the study report, India generates around 24 million tons of metal scrap annually.

According to Mehta, generally, secondary steel making units are of small and medium

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Tear along the dotted line

Tear along the dotted line