Steel Insights, March 2020

Contents

6 | COVER STORY

19 Imported scrap offers move up 20 Pig iron production down y-o-y, m-o-m in January

Metallics in steel: Achieving the right mix

21 January sponge iron production up 10.6% on year 22 January crude steel production down 3.2% y-o-y 27 Coronavirus plagues passenger car sales in Feb 29 Seaborne coking coal offers move up in February 34 Government Update

Growth of steel industry hinges on metallics availability

16 | INTERVIEW

“Diversification is something we are seriously looking into” Chairman Vinit Kumar talks out new plans as KoPT celebrates 150th anniversary

36 Global crude steel output up 2% in January on month

23 | FEATURE

37 Traffic handled by major ports up 1% till January

Anti-dumping duty on China coated flats likely

38 Railway’s iron ore handling in January up 19% on year 39 Sector slowdown hurts SAIL performance 42 Tata Steel group India profit down on lower steel prices

DGTR recommends duty on coated products from China, Vietnam, Korea

25 | FEATURE

44 NMDC sees iron ore demand surge post lease expiry

Corona pandemic to delay steel sector revival

46 Fitch downgrades JSW on sector challenges

With most of the hikes already taken, China weakness to drive down prices

30 | INTERNATIONAL

48 Steel demand, DFC to drive orders: Titagarh Wagons 49 Corporate Update

Rio Tinto to invest $1 billion to fight climate change

51 Import Export data 55 Price trends

Sees greater scrap use in low-emission steel making

56 Ferro Alloy data 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

: Amit Surana : Yes

4. Publisher’s Name

Whether citizen of India

Address

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

5. Editor’s Name

: Tamajit Pain

Dated: March 2020

4 Steel Insights, March 2020

6.

: 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, Amit Surana, hereby declare that the particulars given above are true to the best of my knowledge and belief.

Sd/Amit Surana Publisher

Cover Story

Growth of steel hinges on metallic availability Tamajit Pain

6 Steel Insights, March 2020

Cover Story

T

he semi-finished steel market, a critical part of the steel making process, forms the very basis of quality of raw material required and the final output at the hands of the consumers.

Sponge iron is used in steel manufacturing as a substitute to scrap steel.

It is also used as a substitute for pig iron, which uses coking coal for manufacturing, prices of which fluctuate due to supplydisruptions in Australia.

Thus sponge iron, pig iron, scrap, ingot and billet or the semis are an integral part of the whole process of steel making.

The Indian steel industry is structured in between three broad categories based on route wise production viz. BFBOF, EAF and IF. BF-BOF route producers have large integrated steel making facilities which utilize iron ore and coking coal for production of steel.

Unlike other large steel producers, the Indian steel industry is also characterized by the presence of a large number of small steel producers who utilize sponge iron, melting scrap and non-coking coal (EAF/IF route) for steelmaking. As on March 2016, there were 308 sponge iron producers that use iron ore/ pellets and non-coking coal/gas providing feedstock for steel production; 47 electric arc furnaces & 1128 induction furnaces that use sponge iron and/or melting scrap to produce semi-finished steel and 1392 re-rollers that rolls out semi-finished steel into finished steel products for consumer end use.

Thus demand for pig iron for merchant use, such as for castings and supplementary metallic in the electric arc or induction furnaces, is projected to increase to 17 million tons by 2030-31. Similarly, demand for sponge iron is projected to increase to 80 million tons by 2030-31. It is projected

Production

In 2018-19, production of total finished steel (alloy/stainless + non alloy) was 101.287 million tons (mt). The country is the largest producer of Sponge Iron in the world and the 3rd largest finished steel consumer in the world after China and USA. Production of Pig Iron in 2018-19 was 6.414 mt, a growth of 11.9 percent over last year. The coal based route accounted for 79 percent of total Sponge Iron production (34.71 mt) in the country in 2018-19.

2017-18

Particulars

Within the Indian steel industry, the sponge iron segment was the first to be delicensed way back in 1985, much before the delicensing and opening up of the Indian economy in 1991. At that time India’s second-largest import (after crude oil) was steel melting scrap.

From 2003, the coal-based sponge iron route dominated because of limited availability of natural gas and fast growing demand of metallics. In fact, no gas-based sponge iron/HBI plant came up after 1994.

During 2003-2008, there had been a rapid growth of coal-based sponge iron plants.

The rapid growth of the sponge iron industry was fuelled by a rise in steel-making capacity through the induction furnace (IF)/ electric arc furnace (EAF) route to meet the fastgrowing demand of steel in the country, high price of steel melting scrap and its restricted availability.

2018-19

2017-18

2018-19

Gas based installed capacity

1,26,00,000

1,21,00,000

Coal based installed capacity

3,60,30,000

3,65,00,000

Total

4,86,30,000

4,86,00,000

Source: SIMA

India has a host of coal based units located in the mineral-rich states of the country. Over the years, the coal based route has emerged as a key contributor and accounted for 79 percent of total sponge iron production in the country. Capacity in sponge iron making too has increased over the years and stood at 46.56 mt (2018-19), according to the steel ministry. However, according to Sponge Iron Manufacturers Association website, sponge iron capacity stood at 48.6 million tons.

Imports of steel melting scrap

Due to the slowdown in the world steel industry, a lot of steel melting scrap is finding its way into India. Lower import duty on

Import & export of finished steel (in million tons) April-January 2019-20

2014-15

2015-16

2016-17

Pig iron

10.23

10.24

10.34

5.73

6.41

4.78

Sponge iron

24.24

22.43

28.76

30.51

34.71

31.26

Finished steel^

104.58

106.6

120.14

126.85

101.29

84.93

^ Upto FY18, production of finished steel includes value added product Source: Ministry of Steel

Indian sponge iron production capacity (in tons)

Sponge Iron

Production (in million tons) Product

However, from 2009 onwards there has been stagnation in the sponge iron industry due to several reasons like de-acceleration in steel demand, restricted availability of vital inputs like iron ore, non-coking coal, natural gas and environmental related issues.

Geographically, these units are mainly concentrated in Chhattisgarh, Odisha, West Bengal, Jharkhand, Gujarat, Maharashtra and Karnataka. Major clusters of sponge iron plants are Siltara (Chhattisgarh), Kuarmunda (Odisha), Saraikela - Kharswan (Jharkhand), Jharsuguda (Odisha), West Midnapur (West Bengal) and Bellary (Karnataka).

that the sponge iron capacity may increase to 114 million tons by 2030-31 with around 30 percent share of gas based capacities under increased environmental considerations and long term availability of gas.

2014-15

2015-16

2016-17

2017-18

2018-19

April-January 2019-20

7.48

7.83

5.99

9.62

6.36

7.21

Import Quantity

9.32

11.71

7.23 Export

Quantity

5.59

4.08

8.24

Source: Ministry of Steel

Steel Insights, March 2020

7

FEATURE

Anti-dumping duty on China coated flats likely

Steel Insights Bureau

D

irectorate General of Trade Remedies (DGTR), part of the commerce ministry, has recommended the imposition of antidumping duty on aluminum and zinc coated flat products from China, Vietnam, and Korea, following complaints by JSW Steel Coated Product (JSW).

Usage

In solar power projects, the flat panels are placed on the module mounting structures, which are made up of aluminum and zinccoated flat products.

“Solar industry purchases Galvalume for use in solar mounting structures including purlins, rafters, columns, bracers etc. which clearly demonstrates that JSWs Galvalume (Galvos brand) is being used for making solar mounting structures including purlins, rafters, columns, bracers, angles, etc. In this regard, Applicant provided sufficient

evidence to the authority vide its letters October 21 and December 16 clearly demonstrating that two of the biggest solar project developers in India purchased JSWs Galvalume for making solar mounting structures including purlins, rafters, columns, bracers, angles, etc,” the findings report released recently said.

Investigation

Following JSW’s applications, authorities in April 2019 initiated investigations into the allegations of dumping.

On the basis of preliminary investigation carried out, the authority in July recommended imposition of provisional anti-dumping duty on the imports of the subject goods originating in or exported from China, Vietnam and Korea for a period of six months from the date of its notification.

Period of investigation was from October 2017 to September 2018 and injury investigation period was however considered from April 2015.

At the stage of initiation, the product under consideration was defined as: “Flat rolled product of steel, plated or coated with alloy of aluminium and zinc.

This alloy of aluminium and zinc may contain one or more additional elements which in individual or in combination shall not exceed 3 percent by weight. The product under consideration may be in coil form or not in coil form whether or not plain, corrugated or in profiled form. Product under (PUC) consideration may be skinpassed/processed on temper-mill or nonskin-passed whether or not surface treated with or without additional non-metallic coating. It may be supplied in various trade names including but not limited to AluZinc, Al-Zn, Zinc Aluminum, Aluminum Zinc, Zincalume, Galvalume etc. PUC offers resistance to corrosion and is used in many applications and sectors including but not limited to infrastructure projects, solar power projects, roofing, walling decking, cladding and framing, white goods and appliances,

Steel Insights, March 2020

23

FEATURE

Corona pandemic to delay steel sector revival Sumit Maitra

J

ust when the steel makers started celebrating sector revival set in motion since November with successive rounds of price hikes, the coronavirus pandemic that continues to spread its tentacles outside China, has played spoilsport and could delay any long term and sustained revival in demand and prices of steel.

“With the majority of steel price hikes behind and Covid-19 issues still unresolved, we believe there is more downside for steel prices in the near term. We expect demand revival to be sluggish in the near term,” Emkay Research said.

ArcelorMittal believes the effect of the coronavirus will likely have a short-term negative demand impact in China and to a lesser degree elsewhere. Even as Chinese plants reopen and production resumes though not in full capacity, subdued demand and halted logistics have led to significant scale up of stocks which China would now try to dump on markets like India which is seeing revival of demand.

“Weak global steel demand and any increase in exports to India, possibly due to the impact on the global economy if COVID-19 prevails for a prolonged period, present risks,” Fitch Ratings said.

Stocks of steel in China touched about 23.75 million by end February, highest since 2006 as per reports.

However, some benefits are also expected on softer imported coking coal and international iron ore prices.

ArcelorMittal’s current view is that the vast majority of the impact on the first quarter of 2020 demand is expected to be recovered throughout the remainder of the year and its perspective on the fundamentals of the Chinese steel market remain unchanged.

“However, the recent increase in cases outside China is worrying and increases the risk of a global pandemic and a much larger negative impact on global GDP. The Company is monitoring the situation closely and in particular in Italy, as should the virus spread more widely through Europe this will likely have a material impact on the Company’s sales and profitability in 2020,” ArcelorMittal said.

“Today, we face a very uncertain world due to the outbreak of the Coronavirus. As we all know, this is resulting in restriction to the global movement of people and potentially trade flows. And, the effects of the virus have also affected sentiment and creates a risk to global GDP. Indeed, the Chinese economy has already been impacted – mainly the services, construction and manufacturing sectors - and supply chain disruptions are a real possibility,” JS Jacques, Chief Executive, Rio Tinto said.

“We are watching high frequency activities, such as the traffic in Shanghai and of course, production flows. Whether the recovery is V shaped or L shaped will be in part a result of peoples’ ability to return to work,” Jacques said.

“There is uncertainty today but what we do know is that the Chinese government is acting. With a first priority to contain the virus, then to resume economic activity and limit supply chain impacts. The government has many possible stimulus measures at their disposal and we expect them to act.

We believe this action will have a positive impact later in the year,” he said. There are optimistic voices elsewhere too.

“Regional steel prices are expected to find support from supply discipline.

Domestic steel prices are picking-up with better supply-demand balance and increasing activity levels,” Tata Steel said.

“Today, we face a very uncertain world due to the outbreak of the Coronavirus. And, the effects of the virus have also affected sentiment and creates a risk to global GDP.”

JS Jacques, CEO, Rio Tinto

“Global steel demand is expected to improve on sustained monetary stimulus and restocking; however, Coronavirus is a risk.

India steel demand is expected to improve in seasonally stronger 4QFY20 with increase in the government spending and improving liquidity,” the company said.

“Chinese market, after returning from the impact of Coronavirus, might deploy a large-scale stimulus to revive the economy, which will boost steel consumption and prices, and in turn support higher iron ore prices,” Emkay said.

While dumping into Indian market is a threat, failure of China to keep supplying steel to its markets particularly in several Southeast Asian markets also provides an opportunity to Indian steel producers.

Steel Insights, March 2020

25

Corporate

Fitch downgrades JSW on sector challenges Steel Insights Bureau

G

lobal rating agency Fitch has revised the outlook on JSW Steel’s long-term issuer default rating (IDR) to negative from stable while affirming IDR rating at BB. The outlook downgrade comes on the back of 88 percent fall in JSW’s consolidated net profit at to `187 crore for December quarter from a level of `1,603 crore in the same quarter last year along with 12.13 percent fall in sales to `17,416 crore from `19,821 crore on a yearly basis.

“The revision of the outlook reflects the risks in JSW Steel’s ability to deleverage and generate positive free cash flow because of the various challenges in the Indian market,” Fitch said.

Apart from weak industry conditions, JSWS’s deleveraging and improvement in its free cash flows can be delayed by an increase in its planned capex or inability to stabilise and improve performance at acquired assets, the rating agency said.

Fitch sees JSW’s total gross debt/ EBITDA leverage, including acceptances, a long-term customer advance and potential outflows for acquisition of assets under insolvency proceedings in India, will increase to above 5x in FY20, which is above the 4x threshold where Fitch would consider negative rating action.

“We also expect JSW’s free cash flow to be negative until FY22, before turning positive. We expect margins to improve and volumes to expand from FY21, driven by better industry-wide spreads and a pick-up in domestic steel demand, in addition to higher contribution from subsidiaries. This should enable JSW’s leverage to be in line with its rating,” Fitch said.

46 Steel Insights, March 2020

EBITDA likely to improve

JSW’s operating profits were down 40 percent yoy in nine months to December mainly driven by weaker steel prices and margins, as EBITDA per ton fell to around `7,500 against `12,300 for the corresponding period in the previous year.

Sales volumes, marginally lower by 1 percent, reflected tepid steel demand in India due to factors such as a slowdown in disbursals for public-sector projects, tighter liquidity conditions for the private sector and weak auto-sector sales, Fitch said.

Fitch however expects higher margin in FY21 based on normalising raw material costs and stabilising steel prices.

“Indian steel demand should also pick up, driven by government spending on infrastructure and better overall economic growth, supporting healthy volume growth for JSW. However, weak global steel demand and any increase in exports to India, possibly due to the impact on the global economy if COVID-19 prevails for a prolonged period, present risks,” Fitch said.

Overseas operations to see ops profits in FY21

JSW’s nine month EBITDA was dragged down by losses at its overseas operations, which mainly comprise a plate and pipe mill in Baytown and a flat steelmaking facility in Mingo Junction, both in the US, and the Aferpi rolling mill for long products in Italy.

Aferpi and Acero Junction were acquired in 2018 and JSW expects to improve their utilisation rates and derive positive EBITDA in FY21.

The company also expects to generate EBITDA from the plate and pipe mill from FY21 following capex for equipment upgrade.

“We expect JSW’s free cash flow to be negative until FY22, before turning positive. We expect margins to improve and volumes to expand from FY21, driven by better industry-wide spreads and a pickup in domestic steel demand, in addition to higher contribution from subsidiaries. This should enable JSW’s leverage to be in line with its rating.”

Fitch Ratings

“We think these units will gradually increase their contribution to JSW’s consolidated EBITDA from FY21,” Fitch said.

Bhushan Power acquisition

JSW received regulatory clearance to acquire Bhushan Power and Steel Ltd (BPSL) on February 17. Details on the transaction structure and valuation are not yet available, but JSW guided earlier that it will acquire a minority stake, and news reports indicate an enterprise value of around `19500 crore.

“We assume `4300 crore of outflow from JSW for the purchase of a 49 percent stake in FY20,” Fitch said.

62 Steel Insights, March 2020

Tear along the dotted line

Tear along the dotted line