Steel Insights, July 2018 by mjunction services ltd

CONTENTS

6 | COVER STORY

16 India steel demand, production likely to be firm in FY19 18 Coking coal offers move up in June

The Great Steel Shake-out

19 Sponge iron production increases y-o-y, m-o-m

It could be a major league of big players post-NCLT. Also, it seems, infrastructure will drive steel demand for them.

20 Car sales in June ride northward 22 Indian iron ore offers rise in FY18 23 Global crude steel output up 4% in May m-o-m 24 Traffic handled by major ports up 2% in Apr-May 25 Indian Railways’ May iron-ore handling down 12% y-o-y

26 | LOGISTICS

SER gearing up for steel industry’s loading needs by 2030 The steel industry will need three times more loading capacity by SER in 2030 when crude capacity may touch 300 mt.

28 PM dedicates modernized Bhilai Steel Plant to nation

Coking coal in India is always a challenge!

29 JSW Steel to expand steel manufacturing capacity 30 Corporate update 32 India’s triple woes amidst trade sanctions 36 ISMC focuses on realignment in steel sector post-consolidation 42 ‘India needs `10 lakh crore to raise steel output’ 49 Price data 50 Ferro alloy data 51 Production data 55 Consumption data 56 Import data 58 Export data 60 Import-Export data

4 Steel Insights, July 2018

37 | SPECIAL FEATURE

43 | INTERVIEW

The industry expects a 10 percent growth in coking coal imports in a price-volatile market by the end of the current fiscal.

‘We may be entering a long, flat sideways peak’ Dr Edwin Basson, DG, worldsteel, speaks on India’s prospects and how global steel usage will level out.

46 | INTERVIEW

KIOCL expects to cross `1,800-cr topline in FY19 KIOCL is busy with projects that are the first to have been taken up since 1987, says CMD M V Subba Rao.

COVER STORY

The Great Steel Shake-out Life post-NCLT Madhumita Mookerji

6 Steel Insights, July 2018

COVER STORY

hen people in the know of things look up at the global steel firmament, they say they see 2 stars shining bright. One is South East Asia and, the second, is, hold your breath, India. But how can that be, sceptics ask, with the kind of challenges this country’s steel industry is grappling with? What about its raw material issues? Cancellations of or issues in iron ore and coal mine allocations? Delays in land acquisition and obtaining environmental clearances? Increased logistics and raw material costs and higher operating cost for companies? Does the very introduction leave a bitter taste in the mouth? Well, we can silence the sceptics by saying the pros truly outweigh the cons in this argument. As said Dr Edwin Basson, the Director General of the World Steel Association, “We think that India will be the undoubted star in terms of steel demand growth. We forecast an increase of 5.5 percent this year (2018) and a further 6.0 percent in 2019, so there are clearly good prospects in India and in South-East Asia too. These are the two bright spots we see in the next few years. However, we should be clear that in India there are several bottlenecks on the production side that have to do with land use or steel market development or logistics issues, but these are normal for a developing economy at this phase in its growth.” Sounds quite comforting, doesn’t it? While we march towards 2030, the entire steel landscape is about to change from which will sprout the 300 million tons that the government has targeted. From this consolidated terrain, only a few last mills will stand tall to meet demand to take the country’s infrastructure forward. Yes, we are talking of the post-NCLT scenario. Industry experts stress that going forward, a few key players will jointly dominate the steel sector. Indeed, the National Company Law Tribunal (NCLT), which had been constituted by the government under the Companies Act, 2013, with effect from June 1, 2016 to dispose of debt-ridden assets to the right bidder, has had a cathartic effect especially on the steel industry, because it had been the largest contributor to the Indian banking system’s overall non-performing assets (NPA) load. In fact, according to an SBI research report, the capital-intensive steel

industry is considered the largest contributor to the banks’ overall NPAs, with the top 5 steel companies – Essar Steel, Monnet Ispat, Bhushan Steel, Electrosteel Steels and JSPL – seen having the maximum NPA problems. The aggregate debt burden, as per the report, stood at Rs 148,289 crore as of March-end 2016. Further, with a stressed advances ratio of 45.8 percent, by March 2017, the steel industry’s advances stood at around 76 percent of total advances to the basic metal and metals products industry, the report said, predicting pithily that, “However, some of the integrated steel players may undergo consolidation and revive hopes when demand for steel inches up.” In line with the report which had said that the steel industry is now more dependent on government policies based on anti-dumping duties and rationalisation of import duties, many analysts whom Steel Insights spoke to on the sidelines of the recently-held Indian Steel Markets Conference, organised by mjunction services limited, agreed to that effect. “The government has played a key role time to time to ensure consolidation or critical issues in the sector are taken care. I have been closely involved with the (steel) ministry for the last 2 years and this is why I am aware of the efforts that have gone in to ensure that all these enabling provisions actually resolve the issues. Bhushan, Electrosteel and Monnet are moving forward and hopefully Bhushan Power & Steel will also get resolved soon,” said Niladri Bhattacharjee, Partner and Sector Leader, Metals & Mining, KPMG. “We have had fairly good government policies and these have actually helped us to come out of the deep trough,” corroborated Dr Bhaskar Chatterjee, Secretary General of the Indian Steel Association (ISA). Where the deal status under NCLT is concerned, Bhushan Steel has been acquired by Tata Steel. The cost of acquisition has been Rs 36,400 crore (Rs 35,200 crore to financial creditors and Rs 1,200 crore to operational creditors), against a debt of about Rs 44,478 crore. The acquisition increases

Tata Steel’s capacity to 18.6 million tons per annum (mtpa). Electrosteel Steels has been acquired by Vedanta. The cost of acquisition is Rs 5,320 crore against a debt of Rs 10,734 crore. This acquisition also marks Vedanta’s entry into the Indian steel market. Where Monnet Ispat is concerned, the JSW-AION Capital plan has been approved by Competition Commission of India (CCI) and the committee of creditors (CoC). The bid amount is `3,750 crore against a debt of `10,333 crore. However, the NCLT has reserved its judgement on the Monnet Ispat resolution plan. About a year back, the JSW Group scion, Parth Jindal, had said in Kolkata that the group “was very keen on Monnet Ispat and Bhushan Steel. At the right price, Essar Steel is also attractive”. The deals that are under process in the NCLT are Bhushan Steel & Power and Essar Steel. Where the former is concerned, the bidders are Tata Steel and Liberty House. The NCLT has asked the CoC to proceed with bids submitted by Tata Steel and UK-based Liberty House. The NCLT directed the CoC to complete the resolution proceedings by June 23. Details are still awaited, going into July, with lenders choosing Tata Steel as the preferred bidder in end-June. For Essar Steel, the bidders are Numetal, ArcelorMittal and Vedanta. In the first round, the bids of Numetal and Arcelor Mittal were rejected. ArcelorMittal, Numetal-JSW Steel and Vedanta submitted their bids in the second round. The NCLT declared the second round of bidding as invalid due to procedural non-compliance in the first round by the CoC and the Resolution Professional (RP). There are around 12 stressed assets waiting in the wings, of which, some are potentially good buys, and are likely to be scooped up. The list includes Visa Steel, Uttam Galva, Jai Balaji, Asian Colour Coated Steel, Rohit Ferrotech, Concast, Ramsarup, SBQ Steel, Usha Martin, Welspun Corp, BMM Ispat and Jayaswal Neco.

This consolidation phase will end with 5 major plants, may be a few more, getting acquired. The rest could face liquidation.

Steel Insights, July 2018

LOGISTICS

SER gearing up for steel industry’s loading needs by 2030

Steel Insights Bureau

he steel industry will need three times more loading capacity by South Eastern Railways (SER) in 2030. To meet this demand, the line capacity works under progress within SER will be sufficient in the coming few years. Going further, capacity of SER is to be augmented in a phased manner if the steel industry meets the target of 300 mt, said Varinder Kumar, Chief Freight Transportation Manager, South Eastern Railway. Speaking at the Indian Steel Markets Conference, organised by mjunction services limited recently in Kolkata, Varinder Kumar said the total steel freight volume carried by SER in 2030 is expected to go up to 239.4 mt from 81.33 mt carried in 2017-18. Now this looks like a massive more than 194 percent jump that SER will have to meet. And the total number of rakes will have to increase to 177.1 per day from 60.3 per day seen in 201718, which again will be a corresponding 194

26 Steel Insights, July 2018

percent jump. This increase is of importance against the backdrop of a rakes shortage that has become a norm in the commodities industry. In 2017-18, SER carried 15.9 mt from the entire 102 mt of crude steel production and keeping in mind the target of 300 mt crude capacity by 2030, SER is expecting to increase the steel traffic to 46.8 mt. The rakes available per day for crude steel volume traffic will have to increase from the present 15 to 44.2 per day by 2030. Where steel raw material traffic like iron ore is concerned, it will increase to 192.6 mt in 2030 from 65.43 mt carried in the previous fiscal of 2017-18. The rakes per day required for carrying steel raw materials will have to increase from 45.3 per day in 2017-18 to 132.9 per day by 2030. Way ahead

Is Railways prepared to move this much of material through railways? Looking at the long-term, Kumar said,

“In order to achieve the targets, we need to have proper stock utilisation and at the same time we expect terminals to work more efficiently,” Kumar said. For instance, in special stock, the holding was 43 and utilisation at 22 rakes per day in the previous fiscal. In 2030, this is expected to touch 127 and 65 respectively. He also said where system improvements in loading and releasing points are concerned reducing terminal detention will lead to increased supply of empties. Full rake siding, bulb loop, full length overhead equipment (OHE) will avoid detachment of locomotive and there should be standby tipplers. He said major steel plants take a lot time in loading. For instance, Bokaro Steel Plant’s is 21 hours and Rourkela Steel Plant’s is 26 hours and Tata Steel’s 16 hours. However, at new plants like the Tata Steel’s Kalinganagar it is only 5 hours,” he observed. Unloading time is also very high at 15;42 hours for Bokaro Steel Plant, 10:01 hours for RSP and 09:15 hours for Tata Steel, he added. Requirement of BOXN and special stock for raw materials in 2030 (Rakes/Day) 2017-18

2030

BOXN Utilisation

Holding

204

SPECIAL STOCK Utilisation

Holding

127

INTERVIEW

We may be entering a long, flat sideways peak

r Edwin Basson, as the Director General of the World Steel Association (worldsteel), is focused on taking steel consumption to places in a global industry that has been rocked by the slowdown but is just beginning to sprout some green shoots. Madhumita Mookerji caught up with the ‘man of steel’ on the sidelines of the recently-held Indian Steel Markets Conference, organised in Kolkata by mjunction services limited, for a freewheeling interview, where he spoke on topics ranging from the impact of Trumponomics on global steel, China’s impending demand plateau of the metal, India’s future steel prospects and how, globally, steel usage growth will level out because ‘circularisation’ will displace new demand. Excerpts:

How frequently do you travel to India? It depends. Last year I visited only once, but this year I will be here four times, something which reflects India’s increasingly important place in the global steel industry. A couple of years ago, India overtook the United States to become the world’s third-largest steel producing country and it is poised to overtake Japan in the very near future. Interestingly, when the cycle picks up, I find myself touring India a lot more. As a point of comparison, I generally visit China three to four times a year. What role does the World Steel Association (worldsteel) play in promoting steel consumption? worldsteel acts as the focal point for the steel industry, not just in promoting steel consumption, but in providing global leadership on all major strategic issues

impacting the industry, particularly focusing on economic, environmental and social sustainability. It delivers benchmarking analysis and drives global improvement initiatives in the areas of environmental protection, technology, safety and people development as well as promoting global market development opportunities for steel and promoting steel to the world at large. It provides on a timely basis world-class economic data and analysis on the global steel industry and its value chain, as well as assessments on life cycle aspects of steel. worldsteel increases awareness, understanding and support for the steel industry amongst all external stakeholders and key target audiences worldwide. It also promotes market competition that is free of government interventions preventing fair trade.

What do you feel about the present global steel scenario? Had you seen any green shoots arising which may have been stumped because of Trumponomics? I will start with Trumponomics and then come back to whether I had seen green shoots emerging. We have not yet seen much negative feedback on Trumponomics, other than the energy wasted in all the back and forth! Initially, when the Section 232 announcements were made in March, everyone quickly received extensions of two months or so. Now we have reached the point where most countries that had received extensions are losing them, like the European Union (EU), China and others. Now, I think we are only just beginning to see implementation of the countermeasures, both from China and the EU, against the United States, so we will have to wait and see what the impact will be.

Steel Insights, July 2018

INTERVIEW

kiocl expects to cross `1,800-cr topline in FY19

What is the present installation capacity of KIOCL’s Mangaluru plant and capacity utilisation? KIOCL Limited is a flagship company under the Ministry of Steel, Government of India. It was formed on April 2, 1976 for mining and beneficiation of low grade iron ore at Kudremukh, Karnataka. KIOCL has been a pioneer with over 4 decades of experience in operations in iron ore mining, beneficiation and ironoxide pelletisation in the country. KIOCL currently operates a 3.5-million tons per annum (mtpa) iron-oxide pellet plant and has a blast furnace unit for manufacturing 2.16 lakh tons per annum of foundry grade pig iron at Mangaluru, Karnataka. What was the volume of pellets production in the last fiscal? What is the volume of production targeted in fiscal year 2018-19? Although our target for 2017-18 was 1.9

46 Steel Insights, July 2018

million tons (mt), the total pellet production achieved exceeded the target to touch 2.33 mt and the despatched volume was 2.30 mt, out of which 1.46 mt was sold in the export market. This was the highest quantity of pellets produced and despatched since closure of the Kudremukh mines at the end of December 2005. The volume of pellet production targeted for financial year 2018-19 is over 2.17 mt and the despatch target is the same volume, although we have an internal target which is much higher. KIOCL is making concerted efforts to go for higher volumes in order to improve its capacity utilisation and also earn precious foreign exchange for the country through ‘Make in India’ initiatives. Under this, a concept has been implemented to use the pellet plant also as a tolling plant to optimise the production capacity and convert imported ore/concentrate into pellets and supply back to the customers.

IOCL (formerly known as Kudremukh Iron Ore Company Limited) has come a long way since the closure of its Kudremukh mine by an order of the Supreme Court in 2005. KIOCL, since then, has embarked on an aggressive expansion and diversification plan. Today, it has its plate full, after being granted a mining lease in the Devadari range in Bellary, Karnataka, with a slew of projects under its belt. These include a 2 mtpa iron ore beneficiation plant and 2 mtpa iron oxide pelletisation plant here, as well as a pellet plant in Vizag and DI pipes and coke oven plants at Mangaluru. The pellet plant to be set up at Vizag will be as a JV with RINL. The governmentowned company has also expanded its business scope by entering into operations and maintenance contracts and mineral explorations, M V Subba Rao, Chairman-cumManaging Director, KIOCL Limited, tells Madhumita Mookerji

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Tear along the dotted line