Steel Insights, June 2023

CONTENTS

16 Impor ted ferrous scrap offers remain subdued

17 India pig iron production up 4.5% y-o-y in May

18 Sponge iron production up 8% in April FY23

19 Cr ude steel production in April up 3% y-o-y

20 WSA environment delegation meets at JSW Vijayanagar

22 All eyes on Odisha prices post NMDC revision

23 Seabor ne coking coal offers down in May

24 Utility vehicles boost growth for Motown in May

29 Iron ore handled by major por ts down 13% in April

30 Indian Railways’ iron ore handling up 6% in April

31 Global cr ude steel output down 2% in April

34 EU notifies carbon tax, to be effective from October

36 Vale partnering for low-carbon hubs across globe

38 Hebei Iron, Chiyoda Steel adopt Danieli’s lowcarbon DRI tech

39 China steel market likely to stay range bound in June

45 Coal India e-auction premium cools down to 192% in January-March

50 JSW draws up `17,000-crore capex program

54 HEG bets on decarbonisation driving EAF demand

26

INTERVIEW

Interview of Hrishikesh Kamat, Chief Procurement Officer, AM/NS India.

Demand resilience to drive steel sector

Latest economy data points support demand growth in coming days.

32

INTERNATIONAL

Aussie push to Hydrogen Headstart initiative

Budget announces $2-billion measure to scale up large-scale green hydrogen.

42

CORPORATE

SAIL plans `1 lakh crore capex to reach 35 mt by FY30

Capex to peak in FY28 and FY29 when all the modernisation will be going on together.

48

CORPORATE

Shyam Metalics group entity bags quality iron ore block

Ore quality better than what is available in Odisha.

Steel Insights, June 2023

“Strong SOPs, using captive resources in full & multiplicity of options, key to efficient SCM”

Demand resilience to drive steel sector

Sumit Maitra

The headwinds are strong for the global steel sector: current global geopolitical situation and slow-down in several sectors of the Chinese economy particularly in construction activities will lead to stagnant growth in steel production during the current financial year.

Both input costs and steel prices have softened in recent times.

But recently revealed key data points and several indicators of Indian economy point to its inherent strength that will support demand growth in the domestic steel market.

GDP jumps to 6.1% in Q4 aided by services, manufacturing

Economic output expanded at a better-thanexpected pace of 6.1 percent in Q4 of FY23 from an upwardly revised 4.5 percent growth in Q3 FY23.

A rebound in the manufacturing sector’s output and double-digit growth in construction supported industrial growth.

For FY23, the economy clocked a growth of 7.2 percent, higher than the earlier estimate of 7 percent as per second advance estimate.

“Services sector was the key driver which benefitted from the pent-up demand. The strength in domestic demand supported the

momentum amid the global slowdown,” Care Ratings said.

There was a broad-based improvement in growth across sectors.

Services sector sustained momentum owing to growing travel demand as reflected in strong passenger traffic (both railways and airports) and PMI-services data.

“Better-than-expected growth was largely fueled by investments, as consumption growth remained weak. Real consumption grew 2.7 percent y-o-y in Q4, while real investments rose faster (at 7.8 percent y-o-y). Exports spiked 11.9 percent y-o-y in Q4FY23 led by a stellar growth in services exports while imports growth moderated to 4.9 percent due to a fall in commodity prices,” Motilal Oswal Institutional Research said in a report.

Expenditure

On the expenditure side, the private consumption to GDP ratio stood at 55 percent in Q4 FY23 and was lower than 56.7 percent a year ago.

On a positive note, the investment rate jumped to 35.3 percent in Q4 FY23 compared with 34.3 percent last year in the same period.

For FY23, private consumption to GDP ratio was only marginally higher compared

to the last fiscal. However, investment rate bounced to a decadal high supported by the government’s continuous thrust on capital expenditure.

“Going ahead, high core inflation, easing of pent-up demand, weak labour market and weather-related challenges could have a bearing on private consumption. Consequently, we expect the private consumption to GDP ratio to moderate marginally in FY24. On the investment front, global slowdown and financial uncertainties could weigh on pickup in the private investment cycle but the support from government capital spending will bode well for the overall investment in the economy,” Care Ratings said.

Details suggest that real consumption growth picked up to 2.7 percent y-o-y in Q4FY23 over 1.8 percent in Q3FY23, led by an improvement in private consumption (2.8 percent y-o-y in Q4FY23 against 2.2 percent y-o-y in Q3) and a growth of 2.3 percent in government consumption (against a negative 0.6 percent in Q3).

In contrast, real investments (Gross Fixed Capital Formation + change in inventories)

“(In May) demand conditions demonstrated remarkable strength, with factory orders rising at the fastest pace since January 2021. This surge in sales paved the way for stronger increases in production, employment and quantities of purchases.” S&P Global

Hrishikesh Kamat, Chief Procurement Officer, ArcelorMittal Nippon Steel India

“Strong SOPs, using captive resources in full & multiplicity of options, key to efficient SCM”

Aussie push to Hydrogen Headstart initiative

Steel Insights Bureau

Australia’s Federal Budget has announced the establishment of Hydrogen Headstart, a $2 billion measure to scale up large-scale green hydrogen in Australia.

Hydrogen Headstart will underwrite the biggest green hydrogen projects to be built in Australia through a competitive process, which will provide revenue support for ongoing operational costs in the form of production credit.

Funding will bridge the commercial gap between the cost of hydrogen production from renewables and its current market price for early projects.

Hydrogen Headstart aims to support two to three flagship large-scale projects which could deliver up to a gigawatt of electrolyser capacity by 2030.

The program aims to catalyse the hydrogen sector, unlock further investment and improve the competitiveness of green hydrogen and its derivatives in Australia.

In doing so, Hydrogen Headstart will position Australia as an early mover and global leader in the hydrogen.

How it works

The project have been allocated $4.2 million in the Federal Budget to support the development of the program in consultation with the Department of Climate Change Energy Environment and Water.

Further information including guidelines will be released following further consultation and program design, the Australian government said in a communication.

Expressions of interest are expected to open in early 2024 and successful projects will be awarded contracts with ongoing payments over a 10 year period from 2026-2027.

The program will be developed over coming months in consultation with industry and communities, it said.

Major iron ore miner Fortescue said the Hydrogen Headstart announcement demonstrates how seriously the government is taking the green hydrogen industry and its critical role in Australia’s future.

“This is a great first step. We look forward to working with the government on the broader response over the rest of this year which will catalyse the whole industry in Australia,” the company said.

Fortescue has the green hydrogen projects in the pipeline ready to go to help drive the

Australian industry forward. Green energy will create significant economic growth and prosperity for Australia in the years ahead.

“Green hydrogen will lower emissions, create greater energy security for Australia and create new jobs. It is an important part of the decarbonisation of the Australian economy,” the company said in a release.

Over the years ahead, the hydrogen industry in Australia will create tens of thousands of jobs according to independent modelling from Deloitte.

“The Albanese Government’s second Budget is ensuring Australia can reach its potential as a renewable energy superpower, with $2 billion for a new Hydrogen Headstart program to scale up development of Australia’s renewable hydrogen industry. This critical new investment is all about making Australia a global leader in green hydrogen, as competition for clean energy investment accelerates around the world. The Net Zero transformation is the largest

Hydrogen Headstart aims to support two to three flagship largescale projects which could deliver up to a gigawatt of electrolyser capacity by 2030. Funding will bridge the commercial gap between the cost of hydrogen production from renewables and its current market price for early projects.

An artist’s impression of the CQ-H2 hydrogen production facilities proposed for Gladstone in Queensland with Stanwell progressing to front-end engineering and design study.

SAIL plans `1 lakh crore capex to reach 35 mt by FY30

Insights Bureau

Steel Authority of India Ltd’s (SAIL) capex for its planned expansion of capacity to 35 million tons (mt) by FY32 is seen at `1 lakh crore, according to the company’s Finance Director Anil Tulsiani.

“We have projected a total outlay of nearly `1 lakh crore for our entire expansion and the debottlenecking facilities over the next 9 to 10 years. The capex will be peaking basically in 2027-2028 and 2028-2029 when all the modernisation will be going on together,” Tulsiani told analysts during a conference call post the January-March financial results declaration.

SAIL’s next phase of growth will take the current capacity to 35.65 million tons (mt) by FY31 and it plans to commence this mega project by setting up a flat steel capacity at IISCO followed by Bokaro and other plants, Tulsiani had earlier disclosed to analysts post the October-December financial results declaration.

“We have got plans lined up and will be going in for ramping up some of our facilities and that will add almost 3 mt in the next 3-4 years and beside this we are planning expansion plans in IISCO Burnpur of 4.5 mt, then 3 mt in Bokaro and by FY32 we can have it in Rourkela steel plant. So our plan is to achieve around 35 mt by FY32. We have

obtained the in-principle approval of the Board to go ahead with the preparation of Draft Project Report for Bokaro and IISCO Burnpur. Shortly, we will be also going in for Durgapur,” Tulsiani said recently.

The company is planning a capex of `6,500 crore for FY24, he said and the jump in capex due to capacity expansion projects would start from the second half of FY25.

“We will start placing the orders in FY24. The real work will start from the second half of FY25,” he explained.

“Work towards capacity expansion would start around FY25. In actual terms, peaking of investments will happen in and around FY28 and FY29, with 35 mt going on-stream by FY32. So we are envisaging a

Steel

“SAIL capex for its planned expansion of capacity to 35 mt by FY32 projected a total outlay of nearly `1 lakh crore for entire expansion and debottlenecking facilities over the next 9 to 10 years. The capex will be peaking basically in 2027-2028 and 2028-2029 when all the modernisation will be going on together,”

Anil Tulsiani, Finance Director.

MoU signing between Indian Oil Corp Ltd and Salem Steel Plant for supply of Piped Natural Gas to Salem. The MoU was signed in presence of D S Nanaware, Director (Pipelines), IOCL, V K Pandey, ED, SSP, S K Jha ED (CGD), IOCL and Shailesh Tiwari, ED (SRPL), IOCL.

Shyam Metalics group entity bags quality iron ore block

Steel Insights Bureau

Natural Resources Energy Pvt. Ltd, where Shyam Metalics and Energy Ltd’s (SMEL) promoter group company, Dorite Tracon Pvt Ltd holds 49 percent economic interest, has been declared as the preferred bidder by the Directorate of Geology and Mining, Government of Maharashtra for Surjagad 1 iron ore block during the recent auction held for commercial iron ore blocks with 126.35 percent revenue share.

“Our operating companies shall now reap the benefits of having iron ore mines and be fully backward integrated,” SMEL said while disclosing the information on May 13. The company later told analysts that the ore quality of the mine spread over 1,526 hectare, is better than what is available in Odisha.

“We have been able to identify and get iron ore mine which contains rich quality of iron in excess of 66 Fe content. We also would like to state that generally in the Odisha iron ore mines, the grade are very low and the fines generation is in the tune of around 70-75 percent. But the mine what we have been allocated has around 65 percent to 70 percent lumps and are very extreme Fe content. We have received a composite license as of now which has more than 10 years to start the extraction for the same. We intend to use the exploration period before

we decide the final usage of the material but potentially having consistent access to high quality resources can have invaluable synergy to our steel business,” Brij Bhushan Agarwal, Vice Chairman and Managing Director, Shyam Metalics, told analysts.

The mines also does not have a challenge of land acquisition because the complete land is under the forest and the government is spared of dealing with land aggregators.

With the government policy of converting the forest land into a normal mine, land will not be an issue in starting the project on time, Agrawal said. Also, since the mine has a very high grade ore, coke consumption, carbon consumption and CO2 emission and product quality improves.

Improvement in realisation

The company has been reaping the benefit of moving up in the value chain from the integrated steel chain business, improving sales mix with revenue shares of pellets, sponges, billets reduced from 63 percent plus in FY19 to 31 percent in FY23.

“This shows that we had been always value adding our product and trying to increase the realisation and getting into a much better market and price rise. Going forward this share will be further reduced to 25 percent over next two years. Our finished steel has improved from the contribution of 17 percent

in FY19 to 48 percent in FY2023 to our revenues. “This will sustainably improve our company profitability,” Agarwal said.

Financial performance

On a consolidated basis the company during Q4 of FY23 reported an operating revenue of `3,380 crores, a growth of 18 percent y-o-y.

During the quarter, the company could sell higher percentage of finished steel at a higher realisation which enabled it to post EBITDA

“We have been able to identify and get iron ore mines with quality of iron in excess of 66 Fe content. Generally in the Odisha mines, the grades are very low and fines generation is around 70-75%. But the allocated mines has around 65% to 70% lumps and are very extreme in Fe content,”

Brij Bhushan Agarwal, Vice Chairman and Managing Director, Shyam Metalics & Energy

HEG bets on decarbonisation driving EAF demand

ago is currently at a level of 12 percent and is aiming to reach 20 percent in the next few years.

“The demand for electrodes in China is going to boom. The 5 percent has already become 12 perent in 4 years’ time, which is already 2.5x of what they were doing only 5 years ago. And from 12 percent now, they are still on the path to go to 20 percent, he said.

Capacity expansion

To cash in on the opportunity, HEG is ready with its expansion from 80,000 tons to 100,000 tons. “Trial runs are already at the final stage. Out of 5 operations, which go into electrode making, 4 have been already operating for the past couple of months and the last one is more or less at the final stage of operation,” Jhunjhunwala said.

HEG expects EAF sector to grow at a CAGR of about 3 percent in the next decade, which would straight away translate into a substantial increase in electrode demand.

Steel Insights Bureau

Several global steelmakers are creating new Electric Arc Furnace (EAFs) capacities to make low-carbon steel as the world rapidly marches towards a Net Zero era. And this will continue to drive demand for graphite electrodes that are used in EAFs, believes HEG, the largest domestic manufacturer.

EAF-routed steel emits one-fourth carbon in the environment as compared to same steel produced by traditional Blast Furnaces.

As per World Steel Association, EAF steel production, except China, has gone up from 44 percent to 49 percent between 20152022 while China’s production through EAF is around 11 percent and is likely to go up to around 15-20 percent by 2025.

There have been several announcements by large steel companies, especially in the U.S. and Western Europe, announcing new greenfield capacity for steel production only through the EAF route.

Out of such announcements, 25 million

tons (mt) is being set up in US, of which, 7 mt has already come on stream and the balance 18 mt would be operational in the next 2 years, adding to further electrode demand, HEG management recently told analysts.

“We have increased our sales in US by at least 2.5x to 3x. US produces more than 70 percent of its total steel through electric arc furnace and is the single largest producer of EAF steel and the single largest consumer of electrode. So we have been focusing on US for a long time,” Ravi Jhunjhunwala, Chairman, MD & CEO, HEG told analysts.

Similar EAF capacities have also been announced by steel companies in EU, replacing about 16 mt capacities from Blast Furnace to EAF.

“All this augurs well for the graphite industry. This is a very encouraging sign, especially for us at HEG, as except ours, no new capacity when electrode industry have been announced by any existing graphite player,” Jhunjhunwala said.

China, which only produced 5 percent of its steel through EAF, still about 5 years

“Though in the short-term, the outlook of the steel industry appears to be bearish, steel demand is still being impacted by the fear of global recession, but the medium- to long-term growth path, especially for the electric arc furnace industry, to which we cater, is very clear,” he added.

In the current year, due to current geopolitical situation, steel production is likely to be stagnant, which might impact the demand of electrodes.

However, HEG maintains a fairly strong and unwavering belief in the medium- to long-term growth potential of the electrode industry, particularly due to the ongoing and serious decarbonization efforts by major steelmaking countries in the Western world.

“We at HEG have been operating the single largest plant under one roof in the world with a capacity of 80,000 tons for a long time now. And with our expansion of 100,000 tons, very soon going to be in operation, we are in a very good position to take advantage of all the growth in demand for electrodes,” Jhunjhunwala said

With extensive global market reach, exporting 2/3 of its production to more than 35 countries, HEG expects to benefit from this shift to EAF from the BF route.