Steel Insights, June 2020

Contents 18 How steel can emerge stronger from Covid crisis: Experts’ take 21 Imported scrap offers move 22 Pig iron production down y-o-y, m-o-m in April 23 April sponge iron production down 88.9% y-o-y 25 April crude steel production down 65.2% on year 26 Steel sector divided over pellet exports 27 Passenger vehicles sale fails to pick up in May 29 Cash crunch and competition: Coal India stares at new normal 31 Government rolls out National Coal Index 38 Use Covid-19 crisis to revamp mining sector: KPMG 42 Rating agencies see 15-20% demand shrinkage in FY21 45 Rising production, lower costs to help steel makers’ margins 46 Seaborne coking coal offers slightly up in May 47 Government Update 49 China pushes for fast economic recovery: Moody’s 53 Traffic handled by major ports down 22% in April-May 54 Global crude steel output down 7% in April 55 JSPL shows all round improvement in operations 56 Corporate Update 58 Import Export data 63 Price data 64 Production data 66 Consumption data 67 Import 68 Export data

4 Steel Insights, June 2020

6 | COVER STORY

Charting post-Covid world Pick-up in exports & policy support to save Indian steel industry.

25 | FEATURE

Mining sector all set to create `100 crore worth e-com opportunity Government showcases immense opportunity to the EPC companies through privatisation initiatives.

33 | FEATURE

Government to chalk out action plan for post-Covid steel sector Consultant to target input imports, logistics costs.

35 | FEATURE

Extreme lockdown to hit steel recovery in India: World Steel Body sees 18% decline in steel demand in 2020.

51 | INTERNATIONAL

As Brazil falters, iron ore exports from Australia jump India also benefitted with ore exports rising sharply.

Cover Story

Charting post-Covid world Exports & policy support to lift steel Sumit Maitra & Tamajit Pain

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Cover Story

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rom lockdowns, economies across the globe are now entering the unlocking phase though in a cautious mode particularly in India where there is little respite from the continuous spiraling of Covid-19 infection cases.

Even after partial easing of lockdown, construction sector may not witness upsurge in activities during the rest of the year as it would be a major challenge getting labour back on board and completing ongoing projects.

Subdued government spending on infrastructure, decision by the finance ministry to freeze all new projects except those part of the Atmanirbhar Bharat initiative will also impact demand for steel.

Government stimulus package

The central government’s economic stimulus package is in the nature of medium to long term reforms for various sectors including medium and small scale sector, the mining and housing sector.

The focus has been inclined towards the supply side to provide an impetus to activity in the medium term while demand side focus has been more towards relief rather than any changes in the tax structure or announcement of capex spending.

Absence of demand-side push might delay the recovery in automobile sector, one

of the key steel consuming industries while some policy easing would help the housing sector in terms of generating demand for middle income houses.

The auto sector has been witnessing one of the worst cyclical downturns over the past six quarters, and the segment is likely to remain under pressure in the near term too.

The improvement in auto markets of China and Korea indicates that the Covid-19 related pain is temporary and it is expected that full recovery of the auto sector would kick in the next financial year on the back of pent-up demand.

Out of the `20 lakh crore Covid-19 package which has been announced, bulk of the allocations have been directed towards social sector spending and enabling credit flow to the stressed sectors of the economy.

“Unlike an investment led stimulus, the measures announced thus far by the government may not lead to an immediate rebound in domestic steel demand in the prevailing weak demand environment,” said rating agency Icra.

“Economic revival will crucially depend on proactive intervention by the central and state governments, but unfortunately, the stressed fiscal situation of the country limits their ability. The government has announced a `20.97 lakh crore stimulus package, but

“The `70,000-crore boost to housing and Middle Income Group through extension of CLSS shall help in creating job opportunities leading to investment in housing.

This shall also stimulate the demand for steel, cement, transport and other raw construction material.”

Rohit Poddar, Managing Director, Poddar Housing and Development Ltd according to our estimates, the fund infusion through fiscal operation is likely to be just around `1.8 lakh crore in the current fiscal,” Rajat Bahl, Chief Ratings Officer, Brickwork Ratings, said.

Affordable Housing

The Credit-linked subsidy scheme for middle income group in the category of `6-18 Lakh has been extended to March 2021, or one year from the earlier deadline of March 2020.

The initiative is likely to lead to investments of `70,000 crore in housing and help boost demand for sectors like steel, cement while creating jobs.

“The `70,000-crore boost to housing and Middle Income Group through extension of CLSS shall help in creating job opportunities

Steel Insights, June 2020

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FEATURE

Government to chalk out action plan for post-Covid steel sector Strategy to target input imports, logistics costs

Sumit Maitra

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overnment has decided to chalk out a roadmap to mitigate the adverse impact of the pandemic, rejuvenate the steel sector following the challenges being posed by the pandemic and to help the industry emerge stronger and competitive in a post Covid world.

For this, the government, along with the Joint Plant Committee, has responses from reputed consultants for “for development and implementation of an action plan for the Indian steel sector in the wake of ongoing Covid crisis across the world”.

“The action plan is to be developed and implemented within a timeframe of 12 months from the date of signing the contract,” the EoI document issued by the ministry said.

Strategy objectives

Till February 2020, the Indian steel sector was all set to achieve cumulative capacity expansion projections of 180-190 million tons a year by 2024-25 and also become self-sufficient in manufacturing auto grades, electrical steel, API grades. “However, due to the global slowdown induced by the Covid lockdown in India as well as the important

steel producing and consuming countries round the world, the projections of the Indian steel industry are required to be recalibrated and the strategy for development of the domestic steel industry needs to be revised,” the EoI document says.

While Indian steel sector sources almost its entire requirement of iron ore and pellets, ferro-manganese, ferro-chrome domestically, the country imports more than 90 percent of coking coal, about 25 percent of scrap and almost entire steel grade limestone is imported.

Dolomite is both imported as well as procured domestically while more than 60 percent thermal coal for DRI units is imported.

“There is thus a need for the domestic steel industry, both primary and secondary, to increase sourcing of coking and thermal coal as well as limestone and dolomite from within the country,” the document said.

Another major cost component for the Indian steel sector is logistics, which is about 16-17 percent of the total cost.

Inbound logistics cost is 2.5 times higher than the outbound logistics cost, mainly on account of higher cost of moving goods by rail and road, and low availability of costeffective modes such as inland waterways, and slurry pipelines for moving minerals.

In order to reduce the logistics cost for the steel sector, it is important to focus on promoting multi-modality for both raw materials as well as finished steel, reducing the cost of rail and road freight, increasing speed of movement and loading/unloading as well simplifying processes and procedures.

The strategy would targets following key areas ♦♦ Identification of the current challenges arising out of the global Covid pandemic and its impact of the steel sector ♦♦ Ways to increase sourcing of coking and thermal coal as well as limestone & dolomite from within the country ♦♦ Reduce logistics cost for the steel sector by ways to promote multi-modality for both raw materials as well as finished steel, reducing the cost of rail and road freight, increasing speed of movement and loading/unloading as well simplifying processes and procedures

Steel Insights, June 2020

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FEATURE

Rating agencies see 15-20% demand shrinkage in FY21 Steel Insights Bureau

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ating agencies like Icra and India Ratings expect steel demand contracting by anywhere between 15 and 20 percent on year during the current fiscal.

There would also be steel prices correction on the back of new capacity addition and inventory build-up especially of intermediate steel products with downstream facilities of most primary steel producers being shut during the lockdown.

Slackness in demand, migration of labour, timely availability of raw material and

working capital availability remain some of the key challenges grappling end-consumers of steel.

Recent announcements on liquidity injection measures by the government and the Reserve Bank of India could partly help alleviate the interim stress for both steelmakers and end-users of steel tide over the ongoing phase of subdued economic activity.

Demand contraction

India Ratings see demand contracting 10-15 percent on year in FY21 with governmentled spending necessary for demand revival.

“Flat products segment, which was already facing headwinds prior to the lockdown, is likely to be more impacted than the long products segment, led by the weak demand conditions in the enduse industries such as automobiles, capital goods and white goods, due to consumers delaying discretionary expenses.�

India Ratings

The agency expects steel prices to correct over FY21, with an inventory building-up especially of intermediate steel products with downstream facilities of most primary steel producers being shut during the lockdown.

However, there could be certain temporary periods when prices may receive support due to lower production levels limiting supply as the economic activity resumes. Steel players will find some respite though from subdued raw material prices (both iron ore and coking coal).

With supply exceeding demand in the seaborne coking coal market, prices are likely to remain low. However, iron ore prices may gradually increase as Odisha iron ore mines gradually ramp-up, given the high auction premiums upon acquisition by new lessee, India Ratings said.

Given the dwindling corporate earnings and falling tax collections, capital investments

42 Steel Insights, June 2020

INTERNATIONAL

As Brazil falters, iron ore exports from Australia jump China unlikely to ramp up ore production

Steel Insights Bureau

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xports of iron ore to China from countries competing with Brazil like Australia have jumped as Chinese steel production capacities returns to normal.

India has also benefitted with ore exports rising sharply although India largely exports lower grade ores with Fe content of up to 58 percent.

The good times for iron ore rich countries would continue as China’s own iron ore miners are not expected to raise production to fill the supply gap due to strict environmental regulations.

Spot iron ore price have gone past the $100 as the corona pandemic continue devastate Brazilian and expand its reach within the country severely restricting its ore mining.

Brazil has now surpassed US in new

coronavirus cases with the pandemic reportedly spreading to northern states, which accounts for about 8 percent of global supplies. The country’s iron ore exports fell 13 percent in May on year as its key

iron ore miner, Vale SA, struggles to restart operations.

This comes after Vale lost almost 100 million tons of iron ore production following the Brumadinho dam burst.

China imported iron ore price index 5 June 2019 - 5 June 2020

Steel Insights, June 2020

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70 Steel Insights, June 2020

Tear along the dotted line

Tear along the dotted line