Steel Insights, July 2016

Contents 23 RBI eases stressed assets restructuring guidelines 24 ‘India’s coking coal consumption to rise with steel output’ 25 ‘Govt should nationalise steel industry’ 26 Commercial real estate: Bright spot in dull market 28 Sesa expects to make all mines operational soon 29 Manganese demand may rise with steel output growth 30 Coking coal offers witness mixed trend in June 31 Monsoon pours cold water on June car sales 32 Corporate snippets 36 A river runs through it 37 ‘FuelSave’ a cost effective solution from Jai Ambey Indochem 38 SteelMin may extend MIP beyond August 40 Iron ore handling by major ports sharply up in April-May 41 Global crude steel output up 3% in May m-o-m 42 Steel market volatile in India, abroad 45 Coke price rally to sustain for 3-6 months 49 ‘DFC will be freight logistics gamechanger’ 53 KoPT putting major thrust on Ro-Ro service 56 Price data 57 Ferro alloy data 58 Production data 59 Annexure 60 Production data

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6 | COVER STORY

Riding the Indian auto steel opportunity Total auto steel demand set to rise as Indian automotive sector gains momentum.

20 | COVER STORY

‘Auto makers’ expectations on corrosion guarantee increasing’ Auto steel constitute 20 percent of Tata Steel’s total flat sales and is strategic in India.

21 | COVER STORY

Automotive flat steel may grow at 12% CAGR over 10 years Essar is pioneer in introducing high-strength products in automotive and allied industries.

43 | INTERNATIONAL

Chabahar deal to benefit Kandla Port most Mere 550 nautical miles distance between Chabahar & Kandla would be beneficial.

47 | INTERVIEW

‘In a downturn, steel plants should bring down cost of ownership’ In sluggish market, steel mills should focus on lubricants to bring down cost: Shell.

Cover Story

Riding the Indian auto steel opportunity Tamajit Pain & Madhumita Mookerji

T

he Indian automotive sector is set to gain speed and with momentum will come unprecedented opportunities for the Indian steel industry, the country’s growth engine.

The Indian automotive industry, the world’s sixth largest in terms of both volume and value, is expected to grow around 4-fold

by FY26 with approximately a 10 percent compound annual growth rate (CAGR)

6 Steel Insights, July 2016

expected in vehicle sales volumes. Passenger vehicle sales alone are set to nearly triple by 2020.

Considering that the automobile industry consumes around 15 percent of the country’s total steel demand and steel makes up more than 50 percent of the total weight of an average vehicle, it represents an enormous opportunity for the Indian steel industry.

The total auto steel demand in FY16 in India is estimated to be around 5.5-6 million tons, according to industry sources.

Flat products, such as hot rolled, cold rolled and coated steel sheets, account for about 80 percent of steel products consumed by the auto-makers.

The benefits of serving this sector are manifold and not just restricted to high sales numbers for the steel companies. One, this is

Cover Story a highly steel-intensive sector and two, offers a steel company the chance to offer a wide variety of steel products.

Apart from providing the regular steel products to this sector, there remain vast opportunities in the area of new material development.

Steel companies can provide a variety of materials with added benefits like higher strength, better corrosion resistance and improved formability.

The weight-reduction need of the automobile market is expected to give rise to the increasing use of high-grade steel, characterised by its strength and light weight.

Also, the fact that these products are high-value add, can enable companies to command higher prices.

The original equipment manufacturers (OEMs) are still importing their specific requirement of high strength steels, but which can be produced in India.

Catering to the automotive sector provides premium positioning to the steel supplier and enables the latter to successfully leverage its brand outside automotive too.

Also, being a supplier to the automotive industry is a testament to its technical and infrastructural capabilities.

The services provided by the steel companies to the automotive sector also hold a lot of future potential. The steel industry is expected to move to a high degree of customisation for its auto customers.

Services provided by steel companies will graduate from the present processing services which have now become the norm in the industry, to steel companies working in collaboration with their auto customers in developing a new product.

Challenges

However, the road to success in the automotive market is not without its inherent bumps.

Catering to the automotive sector requires steel companies to make consistent efforts and investments in their business. It is very important to possess excellent research and development (R&D) capabilities to successfully serve customers.

It is imperative that the industry comes up with better quality products and especially ones with high strength and low weight.

In this sense, the steel companies’

products have to be top class in order to capitalise on the market opportunities. Steel players will also need to have fast turnover time in terms of technology so that they can quickly adapt to the changing market dynamics by recognising new opportunities not only in the areas of products but in services also.

One needs to have a good service centre infrastructure to ensure services such as processing, just-in-time (JIT) delivery and inventory management.

Lastly, the companies have to be frugal with their resources in order to compensate for the high costs associated with research and development, and capital expenditure.

“Automotive original equipment manufacturers (OEMs) are facing the twin challenges of building a safer car with lighter weight to improve fuel economy and meet emission norms. Their expectation from the steel industry is to develop high-tensile steels with high formability to meet these challenges. We are also witnessing a rising trend of higher usage of coated steels in new launches, as consumers’ expectations on corrosion guarantee is increasing,” V Ravichandran, Chief of Marketing & Sales (Automotive & Special Products), Tata Steel, told Steel Insights.

3Fs

The companies who can master the 3Fs of auto customers, namely fantastic, faster and frugal, will undoubtedly be the future leaders in the auto market.

As per estimates, the automobile sector consumes about 10 percent of the country’s steel output. Demand for auto in India, which is mainly linked to the GDP growth, is set to increase with rising income levels.

The low per capita penetration of 16 cars per thousand people, offers phenomenal potential for growth.

Some car-makers import high-tensile automotive steel from Japan and Korea for production of critical components.

Though no official numbers are available on the import of automotive steel, industry estimates suggest at least 20 percent of steel used by passenger vehicle manufacturers come in from Japan and Korea.

More than 70 percent of the cost of an auto component is raw material, largely steel, according to the Automotive Component Manufacturers’ Association.

Huge growth potential

Goutam Chakraborty, research analyst at Emkay Global, says there has been some slowdown in the automobile sector in India.

After an impressive growth of 9 percent in FY15, it has come down to 3 percent in FY16.

This definitely has impacted the automotive steel industry as well. However, the base has been growing and, thus, broadly, automotive steel demand has been stable. Imposition of the minimum import price has been helpful in this regard.

The automotive steel market is more organised, unlike those markets for construction grade steel.

Also, most of the auto grade finished steel products come under the value- added portfolio. Normally, customisation is done as per requirement.

This helps in better realisations and thus higher margins. Also, most of the sales happen on contract basis providing better visibility to both the steel plants and the consumers, he said.

“In recent times, capacity addition by the big players is more tilted towards long products except for Tata Steel. Longer term strategy of all the big companies, catering to the automotive space would be to add value-added products to their portfolio and capture the potential in the automotive steel market. With global auto giants setting up their manufacturing units in India, demand for automotive steel will go up. Also, if we believe in India’s growth story, Make-inIndia initiative and a robust growth ahead, the automotive steel market does seem to have a great potential that cannot be ignored by the steel producers in India,” Chakraborty said.

When it comes to automotive steel, the scenario in India and the world is not so different. As per industry trends and available data, the automobile sector contributes 12-15 percent of the total steel usage, both in India and worldwide. The growth potential is huge with new technological innovations that help in maintaining emission norms. As far as China is concerned, the quality of steel has always been a concern in this space. Thus, in terms of high value-added automotive steel products, China may not be a threat, he added.

Flat steel products

Flat steel products consist of sheets and plates. They are rolled from slabs, which

Steel Insights, July 2016

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Cover Story

Automotive flat steel may grow at 12% CAGR over 10 years

A

t Essar Steel India, one of India’s leading integrated steel producers with an annual production capability of 10 mtpa and supported by a 20 mtpa pellet facility, automotive steel constitutes 10 percent of its total volume. The company is a globally approved supplier for major auto-makers and has designed new-generation crash-resistant, high-strength cold rolled, and dentresistant steels apart from high-strength hot rolled steel for long members. Stringent environmental and safety standards have compelled automotive manufacturers to reduce the weight of their vehicles. Advanced high strength steel is, therefore, being developed which requires basic changes in the steel manufacturing process. But, all steel manufacturers have been able to implement these process changes to meet the requirements of the automotive steel segment, Vikram Amin, Executive Director, Strategy & Business Development, Essar Steel India, tells Steel Insights. Excerpts from an interview:

What is the overall market for automotive steel in India in volume and value terms?

Is this figure rising considering the current market scenario?

The volume of the flat steel market in India is approximately 33 million tons (mt). Of this, automotive constitutes approximately 20 percent of total requirements from all product categories, be it HR, CRCA, GI or plates. Flat steel volumes in the auto sector are expected to grow at a rate of 12% CAGR over the next 10 years.

What are the key trends in automotive steel manufacturing?

Steel remains the material of choice because of its inherent strength, formability, joinability, recyclability and cost. The key drivers of development of automotive grade steel are environment/safety, cost reduction and comfort.

Stringent environmental norms and safety standards have compelled automotive

manufacturers to reduce the weight of their vehicles. Advanced high strength steel is, therefore, being developed. Developing high strength steel requires basic changes in the steel manufacturing process. All steel manufacturers have been able to implement these process changes to meet the requirements of the automotive steel segment.

What are the key concerns/challenges in manufacturing automotive steel since auto makers are stressing on lightness of their vehicles?

New emission norms for end-use products mean new product development. The ongoing research, in steel industries especially, to meet environmental standards will bring in lot of technological changes in the next few years. There is a growing demand for lighter and stronger products.

The steel industry is therefore gearing up to meet the stringent requirements of the automotive industry.

We see challenges arising from global climate change. The steel industry needs to limit carbon dioxide emissions and we need lighter vehicles to so that tailpipe emissions are minimised. Therefore, alternative materials, like plastics and aluminium, will challenge the steel industry. However, if one were to do a lifecycle analysis, steel has lower emissions than aluminium.

It is very important for steel industries to have R&D capabilities to successfully serve their auto customers. It is imperative that the industry comes up with better quality products, especially products that have high strength and also weigh less. Collaborative development with major steel industries in the field of product innovation is the key to countering some of the challenges.

Where does automotive steel find application in auto manufacturing (other than, of course, the vehicle’s body)?

Automotive steel constitutes 65-70 percent

Steel Insights, July 2016

21

INTERNATIONAL

Chabahar deal to benefit Kandla Port most Project would allow India to gain foothold in Iran and access to Afghanistan, Russia and Europe, circumventing Pakistan

Kingshuk Banerjee

P

rime Minister Narendra Modi, during his recent visit to Iran had signed the contract for developing of phase-1 of the Chabahar Port at an investment of $500 million.

The proposed project has huge potential as India will invest billions of dollars in setting up industries – ranging from an aluminium smelter to urea plants – in Iran’s Chabahar free trade zone. The inking of the commercial contract to build and run this strategic Middle Eastern port will help India gain a foothold in Iran and win access to Afghanistan, Russia and Europe, thus circumventing Pakistan.

India Ports Global Pvt Ltd (IPGPL), a joint venture of the Jawaharlal Nehru Port Trust and the Kandla Port Trust, will invest $85 million in developing 2 container berths

with a length of 640 metres and 3 multi cargo berths.

IPGPL has signed a contract with Arya Bandar Company of Iran for developing 2 terminals and 5 multi-cargo berth in phase 1. An agreement with EXIM Bank has also been signed that will provide a $150-million line of credit for development of the Chabahar port.

The port project will be the first overseas venture for an Indian state-owned port.

The Jawaharlal Nehru Port, India’s biggest container port, holds a 60 percent stake in Indian Ports Global while Kandla Port holds the remaining 40 percent.

As per Nitin Gadkari, the Union Road Transport, Highways and Shipping Minister, this agreement would enable quick movement of goods from India first to Iran and then onwards to Afghanistan and Russia through a new rail and road link.

Echoing the minister’s statement, Ravi M Parmar, Chairman of Kandla Port, said, “We cannot estimate the new trade route effect right now as setting up of a free trade zone at Chabahar Port depends on Iran too.

All we can say is that merely 550 nautical mile distance between Chabahar and Kandla would be greatly beneficial for this port as it’s the closest port of call for Iran. So, whenever the trade volume would move northward, Kandla would surely get its lion’s share.”

The port of Chabahar is located on the Makran coast of the Sistan and Baluchistan provinces, next to the Gulf of Oman and at the mouth of the Strait of Hormuz.

It is the only Iranian port with direct access to the Indian Ocean. Being close to Afghanistan and the Central Asian countries of Turkmenistan and Uzbekistan, it has been termed the “Golden Gate” to these landlocked countries.

India is negotiating the Chabahar project to facilitate the growing trade and investment with Iran and other countries in the region, notably Afghanistan, and also to provide opportunities to Indian companies to penetrate and enhance their footprint in the region.

India and Iran had in 2003 agreed to develop Chabahar. But the project was stalled for various geo-political reasons. It was only after the US lifted the economic sanction over Iran, things started looking brighter.

The Modi government decided last year to invest $85.21 million in developing the strategically important port, allowing India to circumvent Pakistan and open up a route to landlocked Afghanistan.

The port, located 72 km west of Pakistan’s Gwadar Port, holds immense strategic and economic significance for India.

It is already connected to the city of Zaranj in Afghanistan’s south-western province of Nimruz and can serve as India’s entry point to Afghanistan, Central Asia and beyond.

New Delhi and Tehran both view Chabahar as critical to developing connectivity with Kabul and as a geopolitical lever vis-à-vis Pakistan.

Recently during External Affairs Minister Sushma Swaraj’s visit to Iran, the 2 sides agreed that the contract and modalities for a $150-million credit for the port would be signed soon.

Steel Insights, July 2016

43

Interview

‘In a downturn, steel plants should bring down cost of ownership’

S

Please walk us through the market for lubricants in India and what is Shell India’s share in this space?

The market for lubricants is strong in India with rising opportunities. Ranking third after the United States and China, India is one of the most important geographies.

As per Kline reports, the overall lubricants market in India is approximately over 2 billion litres. In this, 50 percent is automotive and the balance 50 percent industrial oils.

The industry in India is expected to grow at a compound annual growth rate (CAGR) of 2.2 percent. But this market includes a lot of process oils, industrial oils etc.

With respect to the company’s performance, Shell Lubricants has 10-15 percent market share in what we call the ‘accessible market’ in India.

When we say ‘accessible’ market, we mean cheap oils that are sold in large parts of the country, even in the finished lubricants segment. These are just the base oil etc.

hell India, part of Royal Dutch Shell plc, is a diversified energy company. Shell Lubricants is the global market share leader in finished lubricants. Shell Lubricants find applications in a range of industries, including metals, mining, power generation, heavy-duty transport, general engineering and consumer motoring.

Despite the current gloomy scenario in the steel industry, Shell Lubricants has trained a long lens on the sector. Moreover, Akhileshwar Jha, Vice-President, Technical, Shell Lubricants India, tells Madhumita Mookerji of Steel Insights that in a sluggish market, steel mills should become more value-led, which includes taking a relook at their oils and lubricants to bring down the cost of ownership. Excerpts from an interview: But, in Shell, we have our priority sectors. These are automotive, auto components, agriculture, power, construction, metals, mining, manufacturing and fleets. So this is the accessible market where we want to play.

Globally, we are the largest with about 13 percent market share, and in India too we plan to continue growing at a double-digit rate over the next 3-5 years.

However, we do not play in the lowest price government tendering space.

As an energy company, Shell ranks among the top Fortune 500 companies in the world.

We have 150 patents on lubricants and 350-plus field staff and product application specialists working with our customers and original equipment manufacturers (OEMs) around the world.

What is the size of the lubricants market in terms of the metals and mining sector? How does Shell India plan to increase its share in this space?

The share of metals and mining is around 80 million litres. In this, Shell Lubricants’ share is very small at present, at 4-5 million litres per annum.

Several regulations have been recently implemented in mining and so this space is opening up. A positive point is that mining contractors are now going to play a more enhanced role. Thus, we clearly see a lot of opportunities in this space.

We have launched a grease product called Gadus S3 V 460 D2, which is meant for pin-bush applications while Gadus S3 V220 C2 is for multi-purpose applications in mining.

We recently launched Shell Rimula

Steel Insights, July 2016

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Tear along the dotted line

Tear along the dotted line