Steel Insights March 2015

Contents 6 Budget dashes iron ore mining industry’s hope 8 NMDC cuts prices in March to align with global trend 10 Govt to auction iron ore, bauxite mines 12 Rail budget effects marginal hike in steel, iron ore freight rates 15 Reserve Bank lowers policy rates 16 Metals recycling biz needs special attention 17 Coking coal offers fall to record low in 4 years 18 Cheap imports hurt Indian merchant met coke makers 19 Budget proposal for 2015-16 a mixed bag for coal consumers 20 Auto sales hit fuel & interest cost bumps in Feb 22 Auto industry aims to pillion-ride Budget to long-term growth 23 Realty makes noise on silence on smart cities 25 Sponge unit to have online pollution monitoring system 26 Ferro alloy prices decline on low demand 27 Hajigak railway project under study: Afghan envoy 48 Iron ore handling by major ports at 13.91 mt in Apr-Jan 49 Railways’ Jan iron ore handling edges up 10.38% m-o-m 50 Global crude steel production dips 0.45% in January m-o-m 51 PSU steel plants operated at 105% and pvt plants at only 75% capacity in 2013-14 52 Tata Steel to supply rail to London’s Crossrail 53 JSPL stresses on energy efficiency via coal gasification 54 Vizag Port to hand over its iron ore complex soon

28 | COVER STORY

Budget 2015: Will it re-ignite the growth engine?

Proposals to have limited impact in short term but infra thrust is positive in long term.

36 | SPECIAL FOCUS

Long portfolio: Opportunities in the long run Demand for long steel in India expected to grow at CAGR of 7.6 percent till 2020-21.

39 | INTERVIEW

High electricity, logistics costs taking shine off stainless steel

43 | INTERVIEW

India is going to be a booming market for stainless steel, despite current doldrums.

‘Find in India’ key to realizing ‘Make in India’ vision Vedanta Group CEO feels iron ore output will be lesser than last year’s levels.

40 | INTERVIEW

Domestic market looks optimistic for the next few quarters There is improvement in level of optimism in conveyor belting market in India.

Publisher’s Statement

Statement about ownership and other particulars about Steel Insights required to be published under Rule 8 of the Registration of Newspapers (Central) Rule, 1956.

FORM IV (See Rule 8) 5. Editor’s Name : Rakesh Dubey 1. Place of publication : Kolkata Whether citizen of India : Yes 2. Periodicity of publication : Monthly Address : Tata Centre, 43 J L Nehru Road 3. Printer’s Name : CDC Printers Kolkata 700071 Whether citizen of India : Yes 6. Names and addresses of : mjunction services ltd 4. Publisher’s Name : Rajarshi Chattopadhyay individuals who own the Tata Centre, 43 J L Nehru Road Whether citizen of India : Yes newspaper and partners or Kolkata 700071 Address : Tata Centre, 43 J L Nehru Road shareholders holding more Kolkata 700071 than one per cent of the total capital I, Rajarshi Chattopadhyay, hereby declare that the particulars given above are true to the best of my knowledge and belief.

Sd/ Rajarshi Chattopadhyay Dated: March 2015 Publisher

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Rail Budget effects marginal hike in steel, iron ore freight rates Steel Insights Bureau

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he Narendra Modi-led government’s maiden Railway Budget for 201516 was placed in Parliament on February 26 and the first take-away from it for the steel and iron ore sector was a possible hike in end-products on the back of a marginal increase in these two sectors’ freight charges.

In fact, coal, steel, iron ore and cement prices, amongst other commodities like urea, are likely to go up with Railway Minister Suresh Prabhu proposing a hike in freight rates up to 10 percent for various commodities.

The adjustments in freight rates would hike carriage charges of cement, coal and coke, iron ore, steel and petroleum products.

The proposed hike for cement is 2.7 percent, coal 6.3 percent and iron and steel 0.8 percent respectively.

However, for limestone, dolomite and manganese and speed diesel oil, the rates have been reduced by 0.3 percent and 1 percent respectively. The railway minister has also raised the base freight rates by up to 10 percent.

The freight charges hike will likely mop up `1.21 lakh crore in FY16 for the government against `1.06 lakh crore in FY15.

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While there was no hike in passenger fares or announcement of any new trains, Prabhu laid out a few strategies for transforming the nation’s lifeline.

Plan outlay

Outlining the Budget Estimates (BE) for the coming year, he proposed a plan outlay of `100,011 crore, an increase of 52 percent over the Revised Estimate (RE) of 2014-15.

Passenger earnings growth has been pegged at 16.7 percent and earnings target budgeted at `50,175 crore.

Goods earnings are accordingly proposed at `121,423 crore, which includes rationalisation of rates, commodity classification and distance slabs.

Other coaching and sundries are projected at `4,612 crore and `7,318 crore. Gross traffic receipts are estimated at `183,578 crore, a growth of 15.3 percent.

Investment push

Stressing that railway facilities had not improved substantially for the past few decades, which is a result of under-investment that affects capacity, leading to poor morale, Prabhu said investments in the overloaded railway network would be increased to `8.5 lakh crore over the next five years that would see translated into modernised tracks and introduction of faster trains, amongst other developments.

In the proposed investment plan for 201519, an amount of `199,320 crore has been allocated towards network decongestion; `193,000 crore towards network expansion; `39,000 crore for national projects (northeastern and Kashmir connectivity projects); `127,000 towards safety; `5,000 crore in IT and research; `102,000 crore in rolling stock (locomotives, wagons and coaches – production and maintenance); `12,500

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Auto sales hit fuel & interest cost bumps in Feb Steel Insights Bureau

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utomobile sales for the month of February showed a mixed trend. High fuel and interest costs continued to remain major factors that impacted sales during the month, early reports revealed.

Though the Society of Indian Automobile Manufacturers (SIAM) is yet to bring out the total sales report for the month, it has been found that most of the major players in the passenger vehicles segment posted growth in their February sales on an annualised basis while players like General Motors India posted decline in sales for the month.

Sales of India’s largest passenger car manufacturer, Maruti Suzuki India Limited (MSIL), grew by 8.7 percent in the month under review at 118,551 units from 109,104 units sold in the corresponding period of last year. Chennai-based automobile manufacturer Hyundai Motor India Limited’s (HMIL’s) overall sales, including exports, grew by 2.4 percent in February 2015.

“Reduction in interest rates could bring in the thrust to break the threshold of low growth and initiate the double digit growth,” said Rakesh Srivastava, Senior VicePresident, Sales and Marketing, HMIL.

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Other major players in the auto market, Tata Motors and Mahindra & Mahindra (M&M), reported mixed sales results.

Tata Motors’ overall sales, including exports, during February, increased by 11 percent to 44,225 units from 39,951 units sold during the like period of last year while Mahindra & Mahindra’s overall sales, including exports, during February, declined by 10 percent to 38,033 units from 42,166 units sold during the corresponding period of last year.

“With an expected revision in lending rates in the Reserve Bank of India policy in early April, the industry should see better times ahead,” said Pravin Shah, Chief Executive, Automotive Division, Mahindra & Mahindra.

US-based General Motors’ Indian subsidiary’s sales during last month plunged by 22.95 percent and stood at 4,320 units from 5,607 units sold in the corresponding month of last year.

“Going forward, car sales will be driven mainly by new entries and we expect the market to gain momentum only if interest rates are reduced in phases to facilitate consumer spending since over 85 percent vehicles are purchased through financing,”” said P Balendran, Vice-President, General Motors India.

January sales

According to data furnished by SIAM, domestic passenger car sales in January stood at 1 69,300 units, up 3.14 percent from 1, 64,149 units sold in same month a year ago.

According to SIAM the growth is at “realistic levels” considering the current economic situation.

“December sales were an aberration due to the excise duty cut coming into play from January,” SIAM Director General Vishnu Mathur said, adding: “The industry would grow in the range of 3-5 percent in the remaining part of the fiscal as expecting more than that would be an ambitious target.”

During the month of January, passenger vehicle (PV) sales continued to recover gradually despite withdrawal of excise benefit, said a report by ratings agency ICRA. Domestic passenger vehicle industry sales volumes stood at 230,619 units in January 2015, up 3.2 percent y-o-y. In the first 10 months of the current fiscal, passenger vehicles sales improved by 3.6 percent y-o-y.

Cover Story

Budget 2015: Will it re-ignite the growth engine?

Tamajit Pain

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he second Budget of the new, Indian government, presented by Finance Minister Arun Jaitley on February 28, contained a mixed bag of offerings for the steel industry.

Globally, the steel industry is witnessing a slowdown in steel demand due to reduced requirements from China as its gets transformed from an investment-driven economy to a consumption-driven one, devouring around 45 percent of the global steel production.

Further, with respect to India, the delay in

28 Steel Insights, March 2015

execution of construction projects and lower demand from automobiles and consumer durables have led to a drop in the growth rate of steel in the country.

The prevailing over-capacity in the industry and staggering demand from the end-user industries is leading to a constant pressure on the prices of steel products.

Further, steel companies in India are experiencing a rise in operating costs due to a shortage of iron ore on account of restrictions on mining and a hike in power rates.

Eventually, the pressure on prices of steel

products, coupled with rising operating costs, has led to declining operating margins.

There were no major announcements for the steel industry in Budget 2013-14 as well as the Interim Budget, 2014-2015, due to which the overall impact on the steel sector was neutral.

The steel industry is a capital-intensive one and majorly dependent on banks for its capex as well as working capital finances.

Thus, due to the continuous slowdown in demand, rising operating costs and decreasing operating margins, companies across the

Interview

High electricity, logistics costs taking shine off stainless steel

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igh interest rates on working capital, continuous investment on pollution control equipment and freight charges are combining to increase the cost of production for the stainless steel industry. Added to that, imports of raw materials like nickel ore and molybdenum ore, which are not found in India and dumping by China.

However, being in India does not seem a bad thing for a stainless steel player at present. Chander Parkash Gupta, Founder & Managing Director, Ambika Steels, tells Tamajit Pain of Steel Insights that the steel sector’s biggest opportunity in India is the low per capita consumption of the commodity.

Excerpts from an interview:

Steel Insights, March 2015

39

Corporate

Tata Steel to supply rail to London’s Crossrail

Steel Insights Bureau

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ata Steel has announced the signing of a prestigious contract to supply highly wear-resistant rail for the Crossrail project beneath the heart of London.

The Crossrail route will serve 40 stations and travel more than 100 km from Reading and Heathrow in the west, through new twinbore 21km tunnels below central London to Shenfield and Abbey Wood in the east.

Tata Steel has already commenced deliveries to the Crossrail project and will ultimately supply the project with more than 57 km of its heat-treated, wear-resistant rail.

In total 7,000 tons of Tata Steel rail will be used to create one of Europe’s largest railway and infrastructure projects.

During 2015, Crossrail’s major tunnelling works will conclude and the focus will shift

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towards fit-out and implementing railway systems within the tunnels and stations.

Alstom, TSO and Costain Limited Joint Venture (ATCjv) have been appointed to provide the tunnel fit-out, including track and train power supply, in the central area which extends east under London from the Royal Oak tunnel portal at Paddington.

Tata Steel rail will be installed across the route.

Gérard Glas, Tata Steel’s Rail Sector Head, said: “The Crossrail project will have a huge impact on improving the commuting experience in London and we are delighted to be a part of that.

“Our premium heat-treated rail is produced using a unique patented process which ensures it has exceptional wear resistance.”

“Rather than using traditional methods of heating and cooling, Tata Steel has developed a system where the rail moves

through an induction furnace which uses an electromagnetic field to heat the steel to 950°C. The rail is then rapidly cooled using compressed air. The resulting uniquely low residual stresses provide further protection against risk of rail failure compared to other in-line heat treatment processes.”

He added: “This combination of innovation and a close working relationship with the customer means Tata Steel is able to provide the best possible solution for this historic new line.”

Steel will be manufactured at Tata Steel’s Scunthorpe site in the UK before being rolled at the company’s Hayange mill in northern France.

Mike Greenwood, ATCjv Project Director, said: “We are delighted to have awarded the contract for the supply of rail to Tata Steel and look forward to their involvement in helping us deliver a worldclass railway.”

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Tear along the dotted line

Tear along the dotted line