Steel Insights, July 2021

CONTENTS 13 Imported scrap offers rise 14 India pig iron production up y-o-y in June 15 May sponge iron production up 53% y-o-y 16 May crude steel production up 47% y-o-y 17 Decarbonization represent both a challenge and an opportunity: EY Report 21 Mecon to study viability of local capacity rolls production 22 Seaborne coking coal offers rise in June 23 Car sales firm in June as leading makers report gain 25 Traffic handled by major ports up 31% till May 26 Indian Railways’ iron-ore handling up 80% till May 27 Global crude steel output up 3% in May 30 US Steel, Equinor to work on clean hydrogen 32 Advanced products and solutions can minimise disruption to mining 33 Trend in commodity prices 37 Coal India may raise prices, revise production targets 43 JSW Steel to invest over `25,000 crore 45 Jindal Stainless Hisar gets rating upgrade 46 Graphite India rides steel demand revival 48 GR Infraprojects sees roads, railways driving demand 49 MN Dastur to set up Carbon Capture project for ArcelorMittal 51 Corporate update 53 Government update 55 import export data 59 Price trends 60 Ferro alloy data 61 Production data 63 Consumption data

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6 | COVER STORY

Raising the bar: Indian steel sector on capex spree A detailed look at capacity addition plans.

18 | FEATURE

Price correction to be gradual: Care Ratings Supply increase to prevent further hikes.

28 | FEATURE

Canada to support Algoma’s green plan Funding part of Net Zero Accelerator project.

34 | CORPORATE

Tata Steel sees better profitability for steel industry Strives to be leader in green economy transition.

41 | CORPORATE

NMDC steel plant delayed to FY22end To seek board nod for demerger plan.

COVER STORY

Raising the bar: Indian steel sector on capex spree Sumit Maitra

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ndian steel industry, particularly the large primary steel makers, are ferociously creating new production capacities prodded by an apparent commodity supercycle, sustained high domestic price levels, profit reserve buffer created out of a spiraling revenue and margin improvement supported by aggressive investment in infrastructure by the government, a stated policy to overcome the ravages of the Corona pandemic.

With historic sales and profit growth, steel makers are paying off their debt and thus improving their financial health to take on the responsibility of undertaking the current round of capex.

And considering that steel mills are already operating at close to 90 percent capacity utilisation, steelmakers have already doubled their planned capex for the period 2022-24 compared with the previous three fiscals.

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Medium term capacity addition plans

The top six players (SAIL, Tata Steel, JSW, RINL, Jindal Steel & Power, Tata Steel BSL) constitute around half of India’s crude steel capacity, with the balance being constituted by other small to medium scale producers.

Blast Oxygen Furnace (BOF) technology accounted for 40 percent share in terms of installed capacity and 44 percent share in terms of production in Fiscal 2020.

As much as 27 million tons of capacity, accounting for almost 20 percent of domestic capacity, is expected to get added by fiscal 2025. This could get accelerated further, given sizeable brownfield opportunities for companies, including in acquired assets, says rating agency Crisil.

By the fag end of the current fiscal, around 7 mt of capacities including JSW’s Dolvi plant expansion of 5.6 mt, will come on board. Almost 18 mt would come as flat steel

capacity and with flat steel taking more time to recover, it shall weigh on utilisation or, alternatively, driving more flat steel towards export markets, said industry insiders.

On the other hand, long steel will see better utilisation levels due to limited additions in modest demand growth scenario.

Large steel makers to gain market share

All these capacities would come from large steel players.

And with stressed assets worth 22 mt under the bankruptcy court along with brownfield capex and acquisitions, there will be consolidation in the industry with share of large players expected to rise to 65 percent

by FY25.

Large steel makers exploited the opportunities thrown up by the pandemic induced realignment of the global trade, increasing their market share by 500 basis

COVER STORY points on year to 58 percent at the cost of smaller players as their share of industry capacity remained unchanged.

The improvement was driven by supplychain efficiencies, higher exports, and captive mines that limited the impact of iron ore shortage.

Higher exports helped counter lacklustre domestic demand for large steel makers (especially in the closing quarter of last fiscal and the first quarter of this fiscal). They also gained domestic market share, especially in the long-steel space. Consequently, they operated at over 80 percent utilisation levels as against sub-optimum levels of 62 percent by midsized and small steel makers.

Shadow of steel sector bankruptcy

Any major mismatch between the long term demand and current capex plans in an inherently capital-intensive and cyclical sector might trigger another round of debt defaults and bankruptcies seen in the previous down-cycle.

Following the steel sector upcycle from 2004–2011, steel makers, primary as well as secondary, expanded at a fast pace.

However, the sector faced a severe downturn between 2014 and 2016 leading to widespread bankruptcy proceedings in 2018.

Financial institutions suffered as most of these projects were funded by banks leading to sharp haircuts.

“This time, the industry is better

positioned for a down-cycle, with almost the entire expansion expected through brownfield mode, which involves lower cost and is less likely to see delays. Also, about 35 percent of the capex is towards increasing the proportion of downstream value-added products, besides on mining and efficiency, while the balance is on upstream capacities.

More importantly, the industry has seen significant consolidation and balance sheets are expected to be much stronger,” say Naveen Vaidyanathan, Associate Director, Crisil Ratings in a report.

Major expansion plans

Tata Steel eyes up to 40 mtpa by 2030 Tata Steel is increasing capacity of its India operations through organic and inorganic growth with a target of achieving 35-40 million tons per annum (mtpa) by 2030.

This would double its steelmaking capacity in India from 19.6 mt currently.

The company’s work on 2.2 mtpa CRM Complex and pellet plant at Kalinganagar is progressing well while expansion of the 5 mtpa Kalinganagar Phase II is on full swing, Tata Steel official said during a recent virtual Investors Day where the company laid out its growth plans and carbon reduction strategy.

For this, the company would be investing `10,000-12,000 crore a year over the next five years.

While no new projects were announced,

the organic capex plan of `50,000–60000 crore in India over the next five years indicates more brownfield expansions (beyond Kalinganagar Phase 2) are likely to be initiated soon to achieve the targeted doubling of India capacity by 2030, analysts said.

With the resumption of the 5 mt expansion at Kalinganagar, it has already taken the first step in this direction.

It also aims to set up a 0.5mt Electric Arc Furnace capacity by 2024, which would take its capacity to 25 mtpa in FY25.

It would pursue the remaining 15mtpa of growth through a mix of brownfield expansions at Kalinganagar, Angul, Jamshedpur and inorganic growth opportunities for long products.

The expansion process would improve the share of longs in its products mix to 25 percent by 2030 from 20 percent currently implying 2.5x inorganic growth in longs capacity.

It aims to increase its downstream capacities such as CRM, ductile iron pipes, tinplate, tubes, and wires to 11.5 mtpa (from 6.6 mtpa) over the medium term.

Furthermore, it aims to increase its iron ore capacity to 50 mtpa to meet the higher iron ore requirement and sell the surplus iron ore on the market.

JSPL Angul to emerge largest single location plant Jindal Steel and Power Ltd has recently

Capex outgo to reach its earlier peak

Steel Insights, July 2021

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FEATURE

Steel price correction to be gradual: Care Ratings Steel Insights Bureau

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mproving supply-side situation is expected to abate any further increase in the steel prices while global prices may not witness any steep correction from its peak levels, says Care Ratings in a research report.

“The decline in prices will only be gradual largely supported by the continuing robust growth in steel demand and higher iron ore prices,” the rating agency said.

Riding on the back of various stimulus packages, a sharp rebound in global demand had significantly widened the demandsupply gap, resulting in an upsurge in steel prices so far.

While the demand continues to remain

robust, normalcy in the economic activity, post relaxation of lockdown restrictions, has resulted in higher finished steel output across all major steel-producing economies.

Care Ratings expects that the global steel prices are likely to follow the trend in iron ore prices, which means that despite an expected decline in steel prices during the second half of 2021, the spreads for the steel players may continue to hold, thereby ensuring a firm profitability of steel players.

On the domestic front, while the second wave had slowed down the demand for steel momentarily, Care Ratings expects domestic demand to bounce back post the end of the monsoon, largely driven by the infrastructure and construction sector.

“Global steel prices are likely to follow the trend in iron ore prices, which means that despite an expected decline in steel prices during the second half of 2021, the spreads for the steel players may continue to hold, thereby ensuring a firm profitability of steel players.”

Care Ratings

Global steel prices remain hot, achieving higher peaks Support from stimulus packages

China accounts for a global share of more than 55% in both steel production & consumption

Source: World Steel Association, OECD, CARE Ratings

18 Steel Insights, July 2021

Taking cognizance of the pandemic impact, the last few quarters have witnessed a new sense of urgency by the policy makers, both in domestic as well as global platforms, to aggressively target the hindrances to economic recovery through announcement of large stimulus packages.

While these steps have surely helped economies in buying time to find a sustainable long-term solution, the impact of these measures has resulted in a significant up-turn in global commodity cycle.

The difference though this time around was that the world witnessed a much sharper recovery in 2020, when compared with the global financial crisis of 2008-09.

No doubt, the action was much more judicious and the size of the stimulus much higher in 2020. The upswing witnessed in global steel prices during the second half of 2020 has virtually continued its momentum in 2021 as well.

INTERNATIONAL

Canada commits financial support to Algoma’s green steel plan

Steel Insights Bureau

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anadian government has committed Canadian dollar (C$) 420 million to help Algoma Steel become the ‘greenest’ flat-rolled steel producer in Canada.

The commitment was made recently by country’s Prime Minister Justin Trudeau along with Minister of Innovation, Science and Industry, François Phillippe Champagne, who visited the company’s production site and made the announcement to facilitate Algoma Steel’s proposed transformation to electric arc furnace steelmaking (EAF).

“The financial commitment includes up to c$200 million from the Innovation Science and Economic Development Canada’s

28 Steel Insights, July 2021

Strategic Innovation Fund (SIF) through the Net Zero Accelerator to rapidly expedite decarbonization projects and accelerate Canada’s industrial transformation,” the company said in a release.

Under an investment agreement in principle, the Canada Infrastructure Bank is committing c$220 million towards the project.

“The funding will be provided over four years and will support thousands of direct and indirect jobs in Sault Ste. Marie and the province of Ontario, and ensure green steel products are available for inclusion in automobiles, consumer products, and renewed infrastructure that utilizes Algoma steel,” the company said.

Algoma Steel’s proposed EAF

transformation has the potential to reduce the company’s carbon emissions by approximately 70 percent, making the project among the lowest-cost-per-ton of GHG reduction in Canada.

“Having a commitment of this magnitude from the Government of Canada shows leadership towards a net-zero, climate-resilient Canada, and is so very important as we look to make our proposed transformation to EAF steelmaking a reality,” Algoma Steel Chief Executive Officer, Michael McQuade commented while showcasing the new No.2 Ladle Metallurgy Furnace to the ministers.

On February 22, 2021, Algoma Steel celebrated the first arc at its No.2 Ladle Metallurgy Furnace (No.2 LMF).

CORPORATE

Tata Steel sees better profitability for steel industry Steel Insights Bureau

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he steel industry is entering a phase which will see better spreads enabled by robust demand and geo-political factors, Tata Steel Chairman N. Chandrasekaran told investors in the company’s annual report.

And Tata Steel is poised to seize the opportunity.

“The strategic moves your company has made over the last few years has given it the structural and financial strength to capture the opportunities that arise going forward, while ensuring its resilience in the

face of uncertainty and a dynamic operating environment,” he said.

Tata Steel will strive to be a leader in the transition to a greener economy – aiming to create a virtuous cycle of growth and returns for the shareholders, he told investors.

“Beyond the near-term uncertainty, it is clear that the post-pandemic world will be unavoidably different. Recent years have been marked, for example, by elevated geopolitical volatility, accelerated technology disruption and greater action to mitigate climate risks, among other important global trends. The pandemic has accelerated many of these shifts, while underscoring the pace at

“In the next decade, your company has the vision to build significant scale and consolidate its position as one of the most competitive and valuable steel companies globally.”

N. Chandrasekaran, Chairman, Tata Steel

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which we need to act to remain ahead of the curve,” Chandrasekaran said.

Focus on capex

And pursuing an enterprise deleveraging plan, Tata Steel Group will continue with critical capital expenditure focused on India, including the ongoing Pellet plant and Cold Roll Mill commissioning at Kalinganagar.

“Once completed, these investments will help expand margins by boosting value-added products into the existing mix,” the Chairman said in his statement to shareholders.

Expansion of Kalinganagar project

Commissioned in 2016, the Kalinganagar plant attained production levels at its rated capacity of 3 million tons per annum (mtpa) in less than two years.

“A capacity expansion to 8 mtpa (Phase II) is currently underway, which will augment our product portfolio with new value-added

CORPORATE

NMDC steel plant commissioning, demerger delayed to FY22-end

As with all other customers who offtake iron ore, NMDC has a long-term agreement for the steel plant and iron ore would be supplied at arm’s length pricing. from Bacheli and subsequently NMDC would be building in the second phase, another pipeline up to Visakhapatnam and a pellet plant there of 6 million tons capacity.

As with all other customers who offtake iron ore, NMDC has a long-term agreement for the steel plant and iron ore would be supplied at arm’s length pricing.

Coking coal sourcing

Steel Insights Bureau

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he commissioning of NMDC’s 3 million tons per annum steel plant is further delayed due to non-arrival of foreign expats amid Covid-19.

The company has spent `18,600 crore till now and the plant is now expected to be commissioned by FY22-end, Chairman cum Managing Director, Sumit Deb told analysts during a conference call following FY21 results.

NMDC will seek Board approval on July 31 for draft demerger plan of steel plant.

Thereafter, various statutory permissions would be required; the demerger is likely to be completed by Q4 of FY22.

Of the total capex of `21,300, another `3,000 crores is pending, he said.

“Total capex for this year is around `3,700 crores and for the steel plant would be around `1,500 crores and we are looking at commissioning the plant in Q3,” Deb said.

“We expect the board to sort of give its approval to the draft demerger scheme by July 31. Once that happens then we take it to SEBI and Competition Commission of India and come back and then modify if they have something to say,” he said.

This could take anything between 100 and 160 days depending on how much time Securities and Exchange Board of India and other bodies take.

“So, if I start from August 1, it could be anything within 100 days to 160 days from August,” Deb said.

Steel project

The commissioning of the Nagarnar steel plant would be integrated, it starts with the coke ovens and then heating out the coke ovens and then it ends with the rollout of the coil.

NMDC is putting up a pellet plant of 2 million tons at Nagarnar. There is also a slurry pipeline in phase I up to Nagarnar

NMDC has placed orders for around 75,000 tons of coking coal for the coming requirements.

Other raw materials like limestone and dolomite have all been tied up.

“So we are pretty confident of starting the commissioning process,” Deb said.

Pellet plant

NMDC’s pellet plant is still making losses despite a significantly high level of pellet prices.

NMDC is currently addressing issues related to the plant which also has a beneficiation plant.

The beneficiation plant has some technical issues with regard to the pressure filter which the company has taken care of now and the pressure filters which have been installed by a company are being tested.

One module is ready and the next module is also being ordered.

“The plant has started production and hopefully we believe that the plant will gradually be ramped up to its rated capacity,” Deb said.

Steel Insights, July 2021

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CORPORATE

MN Dastur to set up first industrial scale Carbon Capture project for ArcelorMittal Steel Insights Bureau

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N Dastur & Co’s foreign arms, US-based Dastur International Inc and Dastur Energy Inc, have been awarded a US Department of Energy (DOE)-funded study for the design and engineering of a carbon capture project for ArcelorMittal’s North America facility.

The project is designed to enable the production of low-carbon emissions steel through CO2 capture of up to 2 million tons per annum from the available blast furnace gases. This is the first industrial-scale carbon capture project for the steel sector in North America.

“Dastur is the prime recipient of the Award and will be supported by Boulder, CO based ION Clean Energy, Inc. and Austin, TX based University of Texas at Austin’s

Jackson School of Geosciences,” a release by the DOE said.

Addressing a major share of carbon emissions in the integrated steelmaking process, the project aims to design an industrial scale and cost-effective solution for the capture and disposition of CO2 and provide a hydrogen-rich gas stream for meeting the energy needs of the host steel plant.

Dastur’s proposed approach and design targets to bring down the cost of capture and disposition to mid $40/ton of CO2, a significant improvement over incumbent solutions in the 60-100 $/ton range, the release said.

The Biden Administration, in its “2030 Greenhouse Gas Pollution Reduction Target”, has announced that “The US can address carbon pollution from industrial

processes by supporting carbon capture as well as new sources of hydrogen - produced from renewable energy, nuclear energy, or waste - to power industrial facilities.”

Acting Assistant Secretary and Principal Deputy Assistant Secretary for Fossil Energy and Carbon Management (FECM) Dr Jennifer Wilcox at the US DOE’s Office of Fossil Energy said, “We are pleased to support this project for industrial-scale and cost-effective carbon capture from blast furnace gases at a large integrated steel plant in the US. We hope that this approach can provide a viable pathway for the decarbonisation of an important sector of the US economy.”

“This is the first and a very important carbon capture project at an integrated steel plant in the US. With the Department of Energy’s support and with Dastur’s expertise in the design of commercial-scale engineering systems for carbon capture, this project can provide a competitive path for decarbonization of the US steel industry,” said Peter Marcus, Founder and Managing Partner at World Steel Dynamics, a leading strategic advisor in the steel sector.

Atanu Mukherjee, President and Chief Executive Officer of Dastur, said, “As a leader in industrial decarbonization and designs for industrial plants to minimize the ‘carbon premium’, Dastur is pleased to receive this award from the US Department of Energy.

This is in quick succession of Dastur’s

“We are pleased to support this project for industrial-scale and cost-effective carbon capture from blast furnace gases at a large integrated steel plant in the US. We hope that this approach can provide a viable pathway for the decarbonisation of an important sector of the US economy.”

Dr Jennifer Wilcox, Office of Fossil Energy, US Department of Energy Steel Insights, July 2021

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Tear along the dotted line

Tear along the dotted line