Steel Insights, March 2018 by mjunction services ltd

Contents 21 Direct sourcing of coal by Indian steel cos impacting traders 22 Steel demand picks up in first 9 months of FY18: ICRA 23 Sponge iron production down in January 25 Coking coal offers rise in February 26 Car sales in February accelerate 14% y-o-y 28 Malls making a comeback 30 Industry 4.0 at infant stage in foundry sector 31 Global crude steel output edges up 1% in Jan m-o-m 32 Traffic handled by major ports up 4.6% in Apr-Jan 33 Railways’ Jan iron ore handling dips 1% y-o-y 34 Tata Steel net profit surges in Q3 35 SAIL swings into profit in the third quarter 36 NMDC Q3 standalone PAT up 49% 37 Heralding merchant coke making in India via recovery S3 route 40 Primetals implements new spare parts management concept at ARBZ 41 Steel minister elated as India comes close to Japan in crude output 42 US proposed steel import duty may boomerang 43 US Commercial Service matching mining equipment, met coal suppliers with Indian partners 50 Price data 51 Ferro alloy data 52 Production data

6 | COVER STORY Alloy of mixed fortunes

14 | COVER STORY

There are two sides to the `23,000-cr Indian ferro alloys story. Manganese alloy fortunes waver, but ferro chrome maintains growth momentum.

One India, one power tariff is need of the hour India should aim to own ferro alloy assets overseas, says J K Chatterjee, Secretary General, IFAPA.

17 | COVER STORY

Tata Steel targeting `5,000 cr from chrome alloys biz in FY19 With India as 2nd-largest SS producer, chrome alloy’s future is bright: TVS Shenoy, Chief (M&S), FAM SBU, Tata Steel

24 | FEATURE

Pressure to ease on iron ore prices as mining firms resume operations The Supreme Court order allowing some large iron ore mines in Odisha to restart is likely to help ease iron ore prices.

46 | INTERVIEW

‘We aim to develop DSP as a special steels plant’ Posting a turnaround after 10 quarters of losses, DSP is now focusing on special steel products, says Mr A K Rath, CEO, DSP. 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. 1. Place of publication

: Kolkata

2. Periodicity of publication : Monthly

FORM IV (See Rule 8) Whether citizen of India Address

3. Printer’s Name Whether citizen of India

: Rajarshi Chattopadhyay : Yes

4. Publisher’s Name Whether citizen of India Address

: Rajarshi Chattopadhyay : Yes : Tata Centre, 43 J L Nehru Road, Kolkata 700071

5. Editor’s Name

: Rakesh Dubey

Dated: March 2018

4 Steel Insights, March 2018

: Yes : Tata Centre, 43 J L Nehru Road, Kolkata 700071

Names and addresses of : mjunction services ltd individuals who own the Tata Centre, 43 J L Nehru Road, Kolkata 700071 newspaper and partners or shareholders holding more 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 Publisher

Cover Story

Alloy of mixed fortunes Manganese alloy fortunes waver, ferro chrome maintains growth momentum Madhumita Mookerji

here are two sides to the `23,000-crore ferro alloys story in India. The divergence, perhaps, has to do with access to the basic input materials, policy short sightedness and the extent to which players can control the pricing mechanism. While the ferro chrome segment seems to be doing okay, raking in smooth top and bottomlines, all is not well with the ferro manganese players. The installed capacity of the bulk ferro alloy industry in India is 5.15 million tons (mt). The bulk ferro alloys comprise ferro silicon, ferro manganese and silico manganese, medium carbon ferro manganese and ferro chrome. However, the capacity utilisation is only at 50-55 percent. Incidentally, India produces 3.5 mt of ferro alloys and consumes around 2.3 mt in which the share of chrome alloys is around 1.2 mt, with the rest being manganese alloys. The country exported 1.3 mt of ferro alloys, earning a foreign exchange of around `8,900

6 Steel Insights, March 2018

Cover Story crore. It may be noted that around 365,000 tons of extra capacity came into the market in 2016, and an additional 180,000 tons was expected to come in during 2017. The higher supplies have likely brought down profitability further. Actually, the capacity utilisation level keeps changing, essentially because of two factors. One, ferro alloys are a caravan industry. As power supply and incentives become available, units are set up but consequently power tariffs go up and these incentives eventually lapse. Secondly, it is an easily switch-on-switch off industry, in the sense that if one player wants to move from chrome to manganese, he can do so with ease when the prices go up. These are the swing producers. They need to have ore sources (imports) or buy the ore from the spot market, convert it (into either ferro manganese or ferro chrome, as the case may be) and export it. These players make money for 3-4 months at a stretch and then move on. But here, they require an exceptionally agile supply chain. Overall, the ferro alloys players, mainly the manganese alloys players, are reeling from demand recession, relatively high cost of power and logistics, high interest costs and importantly, cheaper imports from Malaysia. In most cases, the raw materials used – like manganese ore and low-phos coke – are imported with high tariffs on them along with an anti-dumping duty on met coke. Thus, there is an urgent plea that the import duty on all ferro alloys should be increased to 10 percent to allow the domestic players a level playing field. The ferro alloy industry is globally a very volatile one and typically characterised by five-year spikes when there is invariably a demand-supply gap of 30,000-40,000 tons that triggers a huge spurt in demand and prices. As says J K Chatterjee, Secretary General, Indian Ferro Alloy Producers Association (IFAPA), who had seen this spike for the first time in 1994, when ferro chrome prices had spiralled to 80 cents: “At that time the South African prices were hovering around 25 cents without any loss incurred. In India, rates were around 35-40 cents. But, suddenly, the prices started going up. During that period, many new capacities came up. You see, any player who had a furnace, would automatically prefer to join the bandwagon and make some money.”

Power

Power has been a source of headache for the sector for many years. Many in this sector feel the electricity duty acts as a major disincentive for a power-intensive industry like ferro alloys. Even captive generation of power used specifically for this industry is not exempted from the electricity duty. Thus, sources feel, the industry should be given an opportunity to source power by implementation of open access power from independent power producers (IPPs) and captive power producers (CPPs). They also feel power should be available at a viable rate of less than `3 per kWh. They further feel the electricity duty should either be abolished or kept at a minimum 1 percent instead of the wide range it swings between at present and the cross-subsidy across states should be rationalised. Chatterjee told Steel Insights: “The capacity utilisation level is a function of the power tariffs. Earlier, this was even lower. I feel the ferro alloy industry needs power at competitive pricing. Just as we have a ‘One India, one tax’ concept under GST, so do we need a “One India, one power tariff ’ proposal. That is, one India, one industrial power tariff.” Today, power tariffs vary from `4 to `7 per kilo watt hour (kWh), which is on the higher side, even though the country is not deficient in power. In fact, there are pockets where power is abundantly available. Chatterjee adds that there are various rules and regulations linked to power that further aggravate matters. In West Bengal, unlike in other states, one cannot sell power viably due to cross subsidy and other charges. For instance, a leading private met coke player has a 120-MW power plant which can serve the entire export-oriented ferro alloys belt in Haldia at a very competitive `3-4 per kWh. But ferro alloy producers with facilities there

have to buy power from the state electricity board and the power tariffs keep increasing. Thus, these units are dwindling or have been closed down. Consequently, it is understood that this power plant is selling its power to the state of Odisha. T V Srinivas Shenoy, Chief (Marketing & Sales), Ferro Alloys & Minerals (FAM) Division, Tata Steel, says: “Where power is concerned we have to depend upon the grid. Power costs in India are quite high at `5.50 per unit. We are working towards being selfsufficient in power and various plans are under way.” India used to be one of the major exporters of ferro alloys in the world. The total Indian ferro alloy exports in first half (H1) 2016 (January-June) was 242,170 mt, primarily driven by exports of ferro manganese to the tune of 10,912 mt. However, it lost its market share over the last few years in many major markets while exports from countries like Malaysia, Ukraine, South Africa and China have picked up, giving Indian exporters of the materials a run for their money and lowering production levels in the process. But this fact is intrinsically linked to power tariffs. In fact, Malaysia is stealing a march on domestic manganese alloy producers essentially because it is costcompetitive to produce in this South East Asian country in terms of power. Against India’s average `5-6 per kWh, South Africa’s is `2.50 per kWh and Malaysia’s rate is equivalent of `1.80-`2.50 per unit. Power costs account for 40 percent of the production cost of manganese alloys and 25 percent of ferro chrome production. The difference in power tariffs between India and Malaysia is estimated to be around $20 per megawatt hour. While India depends on thermal power, Malaysia relies on a mix of hydro-electric and gas power.

The capacity utilisation level keeps changing, essentially because of two factors. One, ferro alloys are a caravan industry. As power supply and incentives become available, units are set up but consequently power tariffs go up and these incentives eventually lapse. Secondly, it is an easily switch-on-switch off industry, in the sense that if one player wants to move from chrome to manganese, he can do so with ease when the prices go up.

Steel Insights, March 2018

Cover Story

‘One India, one power tariff is need of the hour’

he installed capacity of the bulk ferro alloys industry in India is 5.15 million tons but the capacity utilisation level is only at 50-55 percent. This is because the domestic ferro alloy industry (manganese alloys) is reeling under high power tariffs and cheaper imports from Malaysia. The need of the hour is thus a relook at the country’s energy pricing policies. India should also look to build further on its existing presence in overseas locations like South Africa, Zambia, Mozambique etc and seek opportunities to own ferro alloy assets there, J K Chatterjee, Secretary General, The Indian Ferro Alloys Producers' Association (IFAPA), tells Madhumita Mookerji. He also feels the industry should look at value-added ferro alloy products big time and explore ways to market the same. Excerpts from a freewheeling interview:

What is the installed capacity of the ferro alloy industry in India? The installed capacity of the bulk ferro alloy industry in India is 5.15 million tons (mt). The bulk ferro alloys comprise ferro silicon, ferro manganese and silico manganese, medium carbon ferro manganese and ferro chrome and the capacity utilisation is 50-55 percent. Incidentally, India produces 3.5 mt of ferro alloys and consumes around 2.3 mt. The country exported 1.3 mt of ferro alloys, earning a foreign exchange of around `8,900 crore. India's production of around 3.5 million tons of ferro alloys consists of 1 mt of ferro chrome (FeCr) and 2.5 mt of manganese alloys. It may be noted that around 365,000 tons of extra capacity came into the market in 2016, and an additional 180,000 tons was expected to come in during 2017. The

14 Steel Insights, March 2018

higher supplies are likely to bring down profitability. Actually, this capacity utilisation level keeps changing. As we say, it is a caravan industry. As power supply and incentives becomes available, units are set up but consequently power tariffs go up and incentives eventually lapse, as happened in West Bengal. At one time, Bishnupur was cited as a very good location and 5-6

Today, power tariffs vary from `4 to `7 per kilo watt hour (kWh), whereas the country is not deficient in power! There are pockets where power is abundantly available.

ferro alloy plants came up here too. At that time, power was available at a discount of 40 percent. Now, the industry is practically closed in this area because of high power tariffs. The plants are still there but these are illusory. I feel clustering can help in this area. Power tariffs are too high for the manganese alloys industry in India. What do you feel about this drawback? The capacity utilisation level is a function of the power tariffs. Earlier, this was even lower. I feel the ferro alloy industry only needs power at competitive pricing. Just as we have a “One India, one tax concept under GST, so do we need a “One India, one power tariff ” proposal. That is, one India, one industrial power tariff. Today, power tariffs vary from `4 to `7 per kilo watt hour (kWh), whereas the country is not deficient in power! There are pockets where power is abundantly available. But, there are various rules and regulations. For instance, in West Bengal, one cannot sell power viably due to cross subsidy and various other charges, whereas one can in other states. For instance, a leading private met coke player has a 120MW power plant which can serve the entire export-oriented units (EOU) belt of ferro alloy units in Haldia at a very competitive `3-4 per kWh. But ferro alloy producers with facilities there have to buy power from the state electricity board and the power tariffs are increasing. Thus, these units are dwindling or closed. Hence, this power plant is selling its power to the state of Odisha. “One India, one power tariff ” was a good proposal and in fact there should be uniformity in taxing power, water, fuel etc. But the drawback is that ours is a federal country where every state has to look around to generate its own revenue streams. So, the areas that get hit first are power, water, fuel, etc, on which industries are dependent. There is no question of subsidy. Earlier, in the 1990s, power could be bought from NTPC at `1.20 paise. It was subsidised by the ministry of commerce to enhance exports because the country, at that juncture, needed a lot of foreign exchange. And that

Cover Story

Tata Steel targeting `5,000 cr from chrome alloys biz in FY19

he fate of the chrome alloys industry is entwined with that of the stainless steel (SS) sector. However, with India having overtaken Japan to become the second-largest SS producer in the world, the future looks bright for chrome alloys. Moreover, domestic and overseas players are also eyeing new SS capacities within India. But, three factors further bolster the future of the country’s and Tata Steel’s chrome alloys business, in particular. These are a steady and cost-effective source of domestic chrome ore, availability of coke and power at competitive prices and an ability to park the finished goods in the right geographies, T V Srinivas Shenoy, Chief (Marketing & Sales), Ferro Alloys & Minerals (FAM) Division, Tata Steel, tells Madhumita Mookerji. Excerpts from a free-wheeling interview:

Please give an overview of the present ferro chrome industry India produces 1.1-1.2 million tons (mt) of ferro chrome alloys annually. Out of this, almost 50 percent is used in India and the balance 50 percent is exported to China, Japan, Korea, Taiwan, Europe and the US, amongst other countries. Significantly, India is extremely self-sufficient in its ferro chrome requirement. From an overall perspective, India produces close to 10 percent of the global chrome alloys (against the global chrome

alloy production of almost 11 mt) which caters to the 46 mt of stainless steel (SS) production globally. In calendar year (CY ) 2016, India’s ferro chrome production was around 1.05 mt. Currently this is at around 1.2 mt, and by the end of 2019, we see a growth of at least 5 percent. In revenue terms, the current annual turnover is $1.5 billion from the chrome alloys business in the country, which is a function of market prices. We expect this to touch $1.7 billion by financial year (FY ) 2018-19.

The ferro chrome industry is intertwined with the stainless steel industry. India recently became the second largest producer of SS, overtaking Japan. What does it imply for the ferro chrome players? The chrome business globally is highly dependent on the stainless steel (SS) industry. As a thumb-rule, for every ton of SS (depending on the grade), there is 17-23 percent of chrome content in it. So, to make 1 ton of SS, there is a need of approximately 200 kg of chrome content. Hence, if the stainless steel industry grows, the chrome alloys industry grows.

Steel Insights, March 2018

Interview

‘We aim to develop DSP as a special steels plant’

n tandem with Steel Authority of India Limited’s turnaround, Durgapur Steel Plant (DSP), a unit of SAIL, reversed a losing streak in the third quarter of FY18 after losses in the last 10 quarters. The turnaround, Mr Arun Kumar Rath, Chief Executive Officer, DSP, tells Madhumita Mookerji can be attributed mainly to various mission projects undertaken at DSP which reduced costs and increased the topline. It was also helped by a positive market sentiment in the industry. DSP is now gearing up for a brighter future with a focus on special steel products some of which are being manufactured solely at this SAIL unit. These are special forged wheels for highspeed trains, developed entirely through indigenous technology, and the lightestever and least-cost electric poles to be produced from the new Medium Structural Mill. Excerpts from an interview:

China is clamping down on polluting industries and how is this impacting procurement of refractory products? Actually, there is a product called fused magnesia, which is used as raw material for magnesia-carbon refractory used in steel ladles and converters. China is the main producer of fused magnesia for both raw material and finished magnesia carbon refractory for the Indian steel market. In addition to the above, China is also the main producer of graphite flakes, which are used

46 Steel Insights, March 2018

as one of the main ingredients in magnesia carbon refractory. The sudden crackdown by the Chinese government due to the environmental policy led to closure of most of the mines. As a result, there is scarcity of magnesia carbon refractory in the Indian steel market. On the other hand, sea water magnesia prices also skyrocketed due to the crisis of fused magnesia. Hence, supply from Chinese sources dried up and they reneged on the contracts.

Thus, the steel industry came to a juncture where it saw around 150 percent rise in prices of magnesia carbon refractory. In DSP, trial was carried out with dolomite refractory bricks (replacing partial quantity of magnesia carbon refractory, ie, 70 percent) in steel ladle. The same has been supplied by an established vendor of DSP. Trial of 2 ladle sets has been successfully completed. Dolomite refractory ladle set is much more cost competitive in comparison to magnesia carbon refractory in this present

62 Steel Insights, February 2018

Tear along the dotted line