Steel Insights, January 2020

Contents

6 | COVER STORY

13 Imported scrap market improves 14 Pig iron production up in November 15 November sponge iron production up 15.4% on year

“RINL expansion will hinge on consumption & demand,” P K Rath

16 November crude steel production down 2.8% y-o-y 24 FIMI demands abolition of iron ore export duty 29 December auto sales not promising enough

RINL bets on operational efficiency, foray into flat products in phase II

17 | FEATURE

32 Seaborne coking coal offers remain rangebound in December

Task force aims major infrastructure push

33 Ferro-alloy industry worried over mine lease expiry

Country needs to spend $1.4 trillion to achieve $5 trillion GDP by 2025

35 Steel mills ramp up iron ore procurement fearing supply disruptions

25 | FEATURE

37 Real estate slows in 2019, sops likely to help

Draft policy on greenfield investments in steel sector

38 Global crude steel output down 2.44% in November m-o-m 39 Traffic handled by major ports up marginally till November 37 Indian Railway’s iron ore handling up in November 42 Iron ore prices set to drop in 2021 as markets find balance 46 ArcelorMittal and Nippon Steel complete acquisition of Essar Steel 47 JSPL sees positive Sarda mine verdict from Supreme Court 48 Corporate Update 49 A critical study on Indian ferro-alloy industry 52 Government Update 54 Import export data 58 Price data

4 Steel Insights, January 2020

Additional capacities of 25-30 mtpa needed by 2025

41 | INTERNATIONAL

Integration issue crops up in British Steel takeover deal New owner Jingye of China wants to renegotiate legacy deals

51 | EXPERT SPEAK

2020 to infuse growth in real estate sector JLL’s chief economist Samantak Das explore prospects for the sector in 2020

Cover Story

RINL bets on operational efficiency, foray into flat products for growth in phase II

6 Steel Insights, January 2020

Cover Story

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ashtriya Ispat Nigam Limited (RINL), the corporate entity of Visakhapatnam Steel Plant (VSP) is a Navaratna Public Sector Entity under the Ministry of Steel. VSP, fondly called Vizag Steel, is the first shore based Integrated Steel Plant in the country and is known for its quality products. It is a market leader in Bars, Rods & Structurals market and it caters to the needs of diverse Infrastructure and Industrial sectors.

Shortly after taking over as Chairman and Managing Director of the plant, Pradosh Kumar Rath is spearheading the growth of the plant. PK Rath has over three decades of experience in steel-making, continuous casting process, and other areas, and played a key role in the 7.3 milliontons (mt) expansion project.

RINL has recently been allotted a coal block in Jharkhand. After consolidating its 7.3 mt per annum expansion, the plant is aiming at venturing into flat products by taking its production capacity to 11 mt. RINL has a grand blueprint to touch 20 mt steel capacity by 2032 in line with the National Steel Policy of the government. RINL aspires to be the most efficient steel maker having the largest single location shore based steel plant in the country During an interaction with Tamajit Pain of Steel Insights in his sprawling office at the plant premises in Vishakhapatnam, Rath shared his plans regarding raw material securitization, cost optimization through technology, expansion and product development at a time when steel is faced with the most challenging market scenario.

Firstly, congratulations for getting the coal block. That’s a new development that has happened. How do you look at it?

First of all, I would like to thank the Ministry of Steel and Ministry of Coal for allocating the block. Coal and Iron Ore are the two main raw materials used in steel making and RINL doesn’t have captive coal and iron ore blocks. Due to this, its raw material cost as a percentage of total cost is very high. The allocation of the coal block would lead to raw material securitization and also play a vital role in the cost economics.

Will you just elaborate on the allocation of new coal block in Jharkhand?

Rabodih coking coal mine is an open cast mine located in Jharkhand. The mining lease is spread around 450 hectares and the extractable reserves as per the geological survey report is around 50 million tons, which consists primarily coking coal and also some quantity of thermal coal. As the ash content is generally found to be higher in coals of Indian origin, we would like to set up a washery to bring down the ash content.

How much of coking coal is required currently?

At the present level of operations, we require

around 5 mt of coking coal. About 90 percent of this requirement is imported from Australia, Canada, USA, Indonesia and Mozambique. The rest 10 percent is sourced from Coal India. For 7.3 mt of production, we would be requiring around 6.5 mt of coking coal.

RINL is increasing the usage of PCI. So how much is the usage now?

Presently, we have increased PCI consumption in our blast Furnaces to around 120 kg/tHM. Intermittently, we have reached a peak of more than 150 kg/tHM. Coming to the other raw material that is iron ore, what is the total requirement now?

At the present level of production, we require around 9 mt to 10 mt of iron ore.

At the 7.3 mt stage, we require around 12 mt of iron ore. We have a MoU with NMDC for sourcing iron ore from its mine in Bailadilla for this capacity. However, to meet the exigencies we are also participating in auctions for sourcing Iron Ore from NMDC’s Donimalai Mines in Karnataka, Iron Ore from Odisha Mining Corporation (OMC) mines in Odisha.

Since NMDC is the major company which is supplying, going forward the disruption

Rabodih coking coal mine is an open cast mine located in Jharkhand. The mining lease is spread around 450 hectares and the extractable reserves as per the geological survey report is around 50 million tons, which consists primarily coking coal and also some quantity of thermal coal. As the ash content is generally found to be higher in coals of Indian origin, we would like to set up a washery to bring down the ash content.

Steel Insights, January 2020

7

FEATURE

Task Force aims major infrastructure push

Steel Insights Bureau

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o achieve the GDP of $5 trillion by 2024-25, India needs to spend about $1.4 trillion (`100 lakh crore) over these years on infrastructure, says the Report of the Task Force, Department of Economic Affairs Ministry of Finance.

In the past decade (FY2008-17), India invested about $1.1 trillion on infrastructure.

The challenge is to step-up annual infrastructure investment so that lack of infrastructure does not become a binding constraint on the growth of the Indian economy.

The Union Finance Minister Nirmala Sitharaman, while unveiling the contents of the National Infrastructure Pipeline briefly, indicated that the government will examine the recommendations of the Task Force and take action early.

Prime Minister in his Independence Day speech highlighted that `100 lakh crore would be invested on infrastructure over the next five years including social and economic infrastructure projects.

To achieve this objective, a Task Force was constituted to draw up the National Infrastructure Pipeline (NIP) for each of the years from FY 2019-20 to FY 2024-25 with the approval of the Finance Minister.

The Task Force is chaired by Secretary, DEA with CEO (NITI Aayog), Secretary (Expenditure), Secretary of the Administrative Ministries, and Additional Secretary (Investments), DEA as members and Joint Secretary (IPF), DEA as Member Secretary.

The first meeting of the Task Force was held in September 2019. Subsequently, several meetings were held with various Departments/Ministries engaged in infrastructure development, Corporates engaged in infrastructure development & construction, Banks/Financial Institutions, Private Equity funds, and Industry Associations, including CII, FICCI & ASSOCHAM, to seek information as well as suggestions on reforms required in infrastructure sectors.

This exercise is expected to be followed up by a periodical review process.

We expect India’s GDP to recover in the five years beginning fiscal 2021 (2020-21 to 2024-25) NIP will enable a forward outlook on infrastructure projects which will create jobs, improve ease of living, and provide equitable access to infrastructure for all, thereby making growth more inclusive. NIP includes economic and social infrastructure projects.

On the basis of the information compiled as on date, total project capital expenditure in infrastructure sectors in India during the fiscals 2020 to 2025 is projected at over `102 lakh crore.

During the fiscals 2020 to 2025, sectors such as energy (24 percent), roads (19 percent), urban (16 percent) and railways (13 percent) amount to around 70 percent of the projected capital expenditure in infrastructure in India.

Terms of reference

♦♦ To identify technically feasible and financially/economically viable infrastructure projects that can be initiated in fiscals 2020 to 2025 ♦♦ To estimate annual infrastructure investment/capital costs ♦♦ To guide the ministries in identifying appropriate sources of financing ♦♦ To suggest measures to monitor the projects so that cost and time overruns are minimized World in 2050: Some complexities

Complexities of infrastructure development need to be understood in order that the support frameworks are sensitive to these needs: ♦♦ Lack of infrastructure is the primary constraint on economic growth ♦♦ Lead times associated with infrastructure development mean that decisions taken now will shape the world of the future

Steel Insights, January 2020

17

FEATURE

Draft Policy on promotion of Greenfield investments in the steel sector

Ensuring long term supply at competitive market rate would encourage investment and help maximize value from iron ore, which is an important source of competitive advantage for the steel sector in India. ♦♦ Availability of encumbrance-free, possession ready land ♦♦ Long term availability of iron ore at competitive price ♦♦ Faster grant of statutory clearances (specifically forest clearances) ♦♦ Sufficient capacity in logistics and evacuation infrastructure v. Provision of incentives for mega investment Benefits from Greenfield steel plants

Steel Insights Bureau

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he steel industry in India is well established and has recorded a steady growth over the past 5 years. The demand for finished steel has consistently grown at 5.6 percent over the past 5 years reaching 99 million tons (mt) a year in 2018-19. In accordance with this, crude steel capacity in the country has also increased to 142 mtpa.

However, going forward, the domestic steel consumption would need to increase significantly to 160 mtpa by 2024-252 in line with India’s vision to become a $5-trillion economy.

Current planned capacity expansions of existing players is expected to add approximately 28-30 mtpa by 2024-25. To meet the increased demand, an additional capacity of 25-30 mtpa would be required.

In order to achieve such a substantial expansion in steel capacity, it would be imperative to enable set up of greenfield steel plants with investments to the tune of `1-1.5 lakh crore.

Given the long gestation period for these projects, in order to ensure actualization, it is important to support steel players in addressing five key challenges that they currently face in the set-up of Greenfield steel plants

Set-up of Greenfield steel plant (over 4 mtpa in capacity) has multiple benefits for the state. These large integrated steel plants typically lead to an investment in the range of `25,000-30,000 crore.

In addition to that, these plants also lead to other benefits: ♦♦ Contribution to GDP: Investment in the steel sector has a multiplier effect on the GDP due to the associated supply chain as well as consumption related industries.

Every ton of steel produced typically leads to an impact of approximately `25,000 on the GDP ♦♦ Increase in Employment: Large Greenfield steel plants contribute to employment both directly within the plant and indirectly in associated industries. Every job created in steel

Steel Insights, January 2020

25

INTERNATIONAL

Iron Ore prices set to drop in 2021 as markets find balance Steel Insights Bureau

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he iron ore price is expected to fall from $80 a ton Free on board (FOB) Australia in 2019 to average $60 a ton, as the seaborne market gradually returns to balance from a position of shortfall, Australia’s department of industry has predicted in its latest “Energy and Resources Quarterly”.

“Iron ore producers are experiencing strong markets. Iron ore prices remain elevated, despite a gradual recovery in production following the fallout from the Vale tailings dam collapse in Brazil. These prices have, however, squeezed margins downstream, with input costs rising sharply for steelmakers. This is compounding with a softening in steel demand, which has faced headwinds from slowing automotive production and persistent uncertainty around the direction of the global economy,” Russ Campbell Head of Analysis and Insights Division and Chief Economist Department

of Industry, Innovation and Science said in the report.

After reaching $120 a ton earlier in the year, the iron ore price has consolidated in $75-95 a ton range.

Bouts of restocking by Chinese steel mills have helped support the price as global supply steadily recovers from the impact of the fallout of a tailings dam collapse in Brazil in early 2019. The price is forecast to fall during 2020 as growth in Chinese steel output eases and iron ore supply recovers further, the report says.

Iron ore prices have reversed some of their early 2019 surge

Weaker global steel demand and low margins for most steelmakers have fed through to the global iron ore market, constraining demand in recent months.

Iron ore prices have dropped noticeably from their 2019 peak, as supply shortfalls have gradually closed. However, prices are not likely to retreat much further in the short

Outlook for global iron ore exports

Source: World Steel Association (2019); Department of Industry, Innovation and Science (2019)

42 Steel Insights, January 2020

Trade tensions could destabilise the global economy next year, and this possibility represents a general downside risk for prices term, as iron ore markets remain tight and iron ore stocks remain near five-year lows.

The FOB Australia iron ore price (62 percent iron content) – at which most Australian iron ore is sold – peaked in mid2019 following the fallout from the tailings dam collapse in Brazil, but subsequently corrected. In late 2019, iron ore prices have stabilised at around the same level as in late 2018.

The price premium for high quality iron ore rose sharply in late-2018, as highquality ore supply from Brazil was reduced.

Subsequently, markets have adjusted to use greater quantities of lower grade ore, with the price premium between grades easing recently.

Prices more dependent on Chinese demand

Around 70 percent of seaborne iron ore is imported by China, where steelmaking has remained strong (and demand for pig iron high) despite a slowing growth rate in September and October.

Since mid2019, a substantial drawdown in Chinese iron ore inventories has helped to support iron ore prices even as steel production has softened in Europe, North Asia and India.

China’s use of scrap steel appears to have eased back in recent months, following a period of growth which spanned several years. The turnaround in scrap steel use reflects falling iron ore prices (and low steel margins) which drove a shift back towards use of cheaper pig iron and lower grade ores.

The Chinese Government is continuing to fund infrastructure to process and collect scrap, but scrap usage is not yet widespread,

66 Steel Insights, January 2020

Tear along the dotted line

Tear along the dotted line