Steel Insights, May 2016

Contents 20 Government measures taken to safeguard ailing steel industry 21 Paradox of GDP growth vs steel demand 22 MIP impacts welding electrodes 23 MMDR amendments to help steel, cement sectors: Ind-Ra 24 DGAAD starts dumping probe into CR coils, sheets 26 Ferro alloy offers remain volatile in April 27 Met coke prices surge on short supply in China 28 Iron ore imports plummet; India set for a glut 30 Real estate looks gloomy in short term 32 Coking coal offers firm up in April 33 Auto cos kick-start FY17 with 14% y-o-y sales growth 34 JSW Energy to acquire JSPL’s power plant 35 Corporate snippets 38 H.E.S issues Primetals Technologies with final acceptance for modernised bar mill 40 Specialised conveyor belt cleaners designed for unique applications 42 Govt feels steel sector is ‘turning around’ 50 China set to cut capacity ahead of Green meet 51 Iron ore handling by major ports down 28.13% in Apr-Mar 52 Indian Railways’ FY16 iron ore handling edges up 4.08% 53 Global crude steel output jump 14% in Mar m-o-m 54 US steel prices climb up 55 Domestic steel prices turn weak in April 56 Price data

4 Steel Insights, May 2016

6 | COVER STORY

Demand creation only cure for glut, debt-ridden steel sector Sustained demand & rising steel intensity in manufacturing can only enable sector to pay off loans.

25 | FEATURE

Steel capacity utilisation falls in FY16 Tough market conditions led to drop in capacity utilisations of RINL, JSW and JSPL.

43 | INTERVIEW

‘India steel output to remain lacklustre due to overcapacity’ Prices have dipped, imports set to fall post MIP: Susmita Dasgupta.

44 | INTERVIEW

Urbanisation to drive India’s steel demand Banks should draft specific MoUs with steel-makers for delayed payments.

47 | INTERVIEW

‘Safeguard, MIP, anti-dumping steps may cut imports by 50% If the recent jump in FOB prices sustain for 6 months, it would augur well for steel industry.

Cover Story

Demand creation only cure for glut, debt-ridden steel sector Tamajit Pain

6 Steel Insights, May 2016

Cover Story

T

he Indian steel industry is currently passing through a severe downturn phase. The chief reason for the stress in the sector is mainly downbeat global demand trend and overcapacity.

Globally, demand slowdown and overcapacity have resulted in major steel producing countries like China, Japan and the Republic of Korea adopting predatory pricing strategies and dumping their products in India at prices often lower than their cost of production.

Consequently, domestic producers have considerably reduced prices, thus eroding their profit margins.

For reducing the stress in the steel sector, the Reserve Bank of India, RBI extended the 5:25 scheme in July 2015, whereby a longer amortisation period for loans to projects in the infrastructure and core sectors, say 25 years, based on the economic life or concession period of the project, with periodic re-financing, say in every 5 years, is allowed.

India imposed a provisional safeguard duty of 20 percent on certain imported steel products in September for 200 days.

In March, the safeguard duty was further extended up to March 2018.

In February, India also put in place a minimum import price (MIP) on various categories of steel to further curtail cheaper imports. These measures have failed to arrest the rise in imports seen in March, which was 9.1 percent higher compared to February imports. However, the duty would be reduced to 10 percent in stages over the next two years.

However, despite its utmost efforts, steel imports increased 25.6 percent to 11.71 million tons (mt) in the 2015-16, compared to 9.32 mt in 2014-15.

This led to a decline in the domestic production of finished steel in the last financial year to 90.39 mt (provisional), over 92.16 mt in 2014-15.

The Indian government recently informed that after the issue of the quality control order, imports of seconds and defective products by some unscrupulous importers were reported in respect of some categories of steel products but the government does not maintain data on imports, sale and storage of such substandard steel products standards-wise.

However, despite all these anomalies in the demand supply situation in the country,

Indian steel import growth in last six years Year

Steel import growth %

Actual Steel import in million tons

2010-11

-7.9

6.79

2011-12

2.4

6.82

2012-13

14.6

7.86

2013-14

-31.3

5.44

2014-15

71

9.32

2015-16

25.7

11.71

Source: Steel ministry

the government is still maintaining its longterm vision of increasing domestic steel production capacity to 300 million tons per annum by 2025.

There are even two steel projects from two central public sector enterprises (CPSEs) under the Ministry of Steel that have seen time overruns, namely, expansion of the Bhilai Steel Plant and setting up of integrated steel plant at Nagarnar, Chhattisgarh, which are being implemented by the Steel Authority of India (SAIL) and NMDC respectively.

Most part of the last financial year saw domestic steel manufacturers struggle with higher and cheaper steel imports from countries such as China and Russia, impacting both demand and prices in the domestic steel segment.

“It is largely believed that the cumulative impact of these two recent and other existing policy measures would lead to further reduction in imports into the country in the coming days,” a steel ministry statement said.

Anti-dumping investigations

Following a petition from domestic steel producers, the Directorate General of AntiDumping & Allied Duties (DGAD, part of the Department of Commerce) has begun an investigation into imports of hot-rolled (HR) coils, sheets and plates from six countries.

The countries in question are China, Japan, Korea, Brazil, Indonesia and Russia.

Certain product specifications are being considered for the July–December, 2015 period. There seems evidence of dumping of these products, causing significant injury to the domestic steel industry, according to DGAAD. “It is definitely a move in the right direction. HR steel is one of the most important products and steps need to be taken to curb its cheap imports,” said Sanak

Mishra, General Secretary of the Indian Steel Association (ISA).

HR steel products had a safeguard duty levied last year, too. The Joint Plant Committee, the officially recognised data bank on the Indian iron and steel industry, said total imports of finished steel in the year ended March 31, 2016 grew 25.70 percent to 11.7 million tons, making the country a net importer of the commodity.

The investigation into anti-dumping has been initiated on a petition from Essar Steel, SAIL and JSW Steel, with support from Tata Steel and Jindal Steel & Power.

H Shivramkrishnan, Chief Commercial Officer, Essar Steel India, said, “Expediting of the provisional anti-dumping duty is the next milestone, ensuring such predatory imports are curtailed.”

HR steel import from the countries in July-December, 2013-14 (FY14) was 1.46 mt and rose 275 percent to 5.5 mt in FY16, said industry officials. “The situation in the domestic industry is such, we are going to see some more measures for the sector in the coming months,” said Mishra of ISA. “This is going to be a recurring story.”

Industry officials said many more products need to come under the antidumping purview, for the industry to escape from the heat of cheaper imports. Since last year, the government has been trying to protect the domestic industry, including

DUTY IMPOSITION TO CURB STEEL IMPORTS ♦♦ 2.5% hike in import duty on long products in June 2015 ♦♦ Up to $316 per ton anti-dumping duty on stainless steel in June 2015 ♦♦ 2.5% hike in import duty on flat products in August 2015 ♦♦ 20% safeguard duty in September 2015 on hot-rolled flat products of non-alloy and other alloy steel with a width of 600 mm or above ♦♦ 5-57% anti-dumping duty on imports of cold rolled flats products of stainless steel in December 2015 ♦♦ $341 to $752 Minimum import price on 173 steel products in February 2016

Steel Insights, May 2016

7

FEATURE

Ferro alloy offers remain volatile in April Steel Insights Bureau

F

erro alloy prices remained volatile in April 2016 on selective procurement by end-users, traders said.

However, both the manganese alloys – silico manganese and ferro manganese – witnessed extreme volatility with prices surging and retreating throughout the month of April.

Ferro silicon and ferro chrome prices moved in a narrow range.

In India, a revival in demand for ferro alloys in the domestic market, combined with furnace shutdowns in 2015, meant that the Indian manganese ferro alloys market is tighter than it has been for many years.

Given that these conditions have combined with minimal ore inventory, Indian ferro alloy producers have aimed to take full advantage of the low manganese ore situation and immediately factored the higher ore prices into the offers, with an average silicomanganese export price of around $815 per ton FOB India in March.

After months of loss-making, this has turned Indian producers’ margins positive, given the costs of production is based on the average ore price in March at $2.7.3 /dmtu.

However, at an average ore price of $3.80/dmtu, CIF China for April, Indian

exporters will need to raise prices to around $880 per ton, FOB India in order to break even and prices would have to lift to over $950 per ton in order to achieve the same margin calculated for March.

Prices in Asia react

In China, the manganese ferro alloy rally picked up pace following the Chinese Lunar Year holiday, with prices rising 14-35 percent, depending on the alloy.

The increase has been sharp, as sellers have quickly reacted to the skyrocketing manganese ore prices and a shortage in manganese ferro alloy supplies in the market.

For some alloy producers in China, the market has improved sufficiently to warrant the restart of furnaces and it is believed that side-lined production would have returned if manganese ore supply had been more available at steady prices.

Manganese ore prices rebound

The price of benchmark 44% Mn manganese lump was around $2/dmtu, c.i.f. China in mid-February and from mid-March the average price assessed has been almost double that, at around $3.80 /dmtu.

Since the end of last year, manganese ore prices had hit the floor but subsequently rebounded. But the extent of the rally

Prices of ferro alloys in various markets during the past one year (Rs/ton) Product FERRO SILICON

Name of the Market

Price Rs./ Ton as on

Price Rs./ Ton as on

Price Rs./ Ton as on

Price Rs./ Ton as on

27-Apr-16

26-Apr-16

28-Mar-16

30-Oct-15

28-Apr-15

GUWAHATI

59,600 538

538

455

550

705

ROURKELA

51,400

51,400

55,000

43,700

46,400

53,200

53,200

52,000

42,200

46,100

565

565

548

625

915

57,900

57,900

55,900

60,400

67,400

FERRO VANADIUM SILICON MANGANESE

Price Rs./ Ton as on

HC FERRO MANGANESE RAIPUR FERRO MOLY

59,600

58,000

65,100

66,000

HC FERRO CHROME

JAJPUR

MANGANESE ORE

BALAGHAT

6,700

6,700

5,500

6,500

7,200

CHROME ORE

BARBIL

8,600

8,600

8,600

12,700

12,300

Source: Compilation from various sources & ISMW data

26 Steel Insights, May 2016

that followed had been far stronger than anticipated.

The impressive rally was due to a few key factors like supply cuts from major exporters meant fewer shipments in the first two months of the year and a shortage of material available from this “first choice” source of supply.

Just prior to the Chinese Lunar New Year, the Chinese manganese ferro alloys sector began to improve. Appetite for ore increased after the holiday, as consumers sought to restock, either to replenish stocks to meet contract obligations with steel mills or to purchase ore in order to restart operations, given the more buoyant sentiment.

Port stocks stepped in as the “back-up” source of supply, with traders seizing the opportunity to dramatically increase prices for immediate delivery in the knowledge that buyers had no alternative option.

Major exporters have followed the price trend, some tentatively at first, but now this is applicable across all lifting price quotes for May delivery, across all grades of manganese ore.

Ore-alloy price relationship

Indian and Chinese manganese ferro alloy producers continue to push for higher prices for their final product and for lower prices of manganese ore.

Success with the latter is expected in the near-term and, last week, the price for carbonate ore (ie, 36-38% Mn lumps) started to fall back.

However, ferro alloy prices in China have also retreated in the last two weeks due to a lack of support from the steel sector.

Meanwhile, the rally in Indian silicomanganese export prices is also stalling as traders in Europe and NE Asia are freezing imports from India, given that prices in other key markets – Europe in particular – have not risen to the same degree.

Overall, Indian and Chinese ferro alloy sellers have recovered most of the higher costs, driven by the sharp increase in ore. But acceptance of the higher alloy prices is now fading.

Europe, US too slow

Meanwhile, international ferro alloy producers in the US and Europe are arguably in the worst position, as prices in these

FEATURE

Iron ore imports plummet; India set for a glut Steel Insights Bureau

I

ron ore imports by the country plummeted 62.9 percent to 5.6 million tons in 2015-16 compared to 15.1 mt recorded in the previous financial year of 2014-15 on a glut in the domestic market that ensured availability of ore at cheaper prices, cutting dependence on imports.

As per provisional figures, the country’s iron ore production is pegged at 155 mt by the end of FY16, nearly 20 percent higher than 129 mt clocked in 2014-15. Odisha, the biggest iron ore producer, has seen the sharpest jump in iron ore output to a level

28 Steel Insights, May 2016

of over 80 mt, about 70 percent more than the lowly 47 mt which the state recorded in 2014-15 when some of its key mines had to shut production on the orders of the Supreme Court.

Karnataka and Chhattisgarh recorded iron ore production of around 25 mt. Goa, which kicked off production following removal of the export duty on low grade ore, turned in production of 5 mt. Revival in iron ore production fuelled growth in exports from the country from 4.8 mt to 6 mt, an increase of 25 percent. The surge in exports was on the back of a waiver in the export duty and pruning of rail freight.

Easing domestic supply and subdued demand from the steel sector has provided sufficient raw material to domestic steel producers. This has led to slowing imports of iron ore which India has seen for the last couple of years due to mining restrictions.

Given the slowing steel demand and oversupply in the iron ore market, India’s imports of this raw material is expected to see a declining trend, said an industry participant.

Iron ore imports in 2016-17 would be limited, since only the plants on the west coast will find the import cost-competitive with domestic prices, said another source.

Meanwhile, global iron ore prices remained weak for most part of the last financial year except in February when some uptick in demand was noticed. Globally, iron ore prices slumped by 35 percent between June 2015 and January 2016. Total global iron ore production in 2015 stood at over 2,300 mt but demand subsided, leading to global oversupply of around 50 mt. Iron ore

Interview

Safeguard, MIP, anti-dumping steps may cut imports by 50%

I

ndia, when placed against the backdrop of the global steel scenario, is marginally better placed, with a 4-5 percent growth in demand for the commodity projected. In fact, in the rubble of the global slowdown, India seems to be finding a few stepping stones that could help it get directions out of its own sluggish market. Because of excess capacity, the only geographical locations from where demand could emanate are South East Asia and Middle East. Thus, it should look to tap these markets, going forward. And, hopefully, the present hike in prices will sustain at least for the next 6 months. Sushim Banerjee, Director General, Institute for Steel Development & Growth (jointly promoted by the Ministry of Steel and steel producers), shares his thoughts on the current global and Indian steel scenario with Madhumita Mookerji of Steel Insights.

What do you feel about the global scenario at present? Survival seems to be the buzzword at present…? Does India find any direction in this global downturn scenario?

Why are we all talking of survival? We all know the global economy is passing through an extremely challenging period and all the global organisations estimating global economic growth have been cutting down their projections. The latest IMF data also projects 0.2 percent lower than what it projected in the month of January. So its present projection on global economic growth is 3.1 percent.

Spectacularly, we find very few countries in that total list for whom growth had been projected in January but which has been either projected downward or at a flat rate three months later. Notably, for India, along with a few South Asian countries like

Myanmar and Vietnam, growth projections have been somewhat higher.

India is likely to experience a GDP growth of 7.5 percent against China’s 6.9 percent. And China’s growth for next year, ie, 2017, has been projected at another 0.4 percent lower against India’s 0.3 percent higher.

Brazil and Russia are in extreme recession whereas in the UK, there is absolutely no demand for steel which has forced Tata Steel to sell off plants and facilities there. The EU is experiencing stagnant growth though the PMI indices say business sentiment is marginally looking up in this geographical location.

Global growth is thus being basically supported by the growth in the emerging and developing economies, mostly from the South East Asia and a part of the Middle East.

That gives some sort of a strategic thrust for Indian steel.

However, along with survival, we must talk of growth, though we are fighting with our back against the wall. India is one of the few emerging economies that has potential for big growth as evident from a low per capita consumption of steel. People who attend seminars outside the country return and tell us that everybody is looking at India where growth is going to play a big role.

Basically we are talking of economic growth where industries are an integral part.

What is your outlook on steel prices for the short term?

Steel prices may climb by an average `5,000-6,000 per ton (post February) by May-June but these are likely to stabilise from there.

Where the short-term outlook is concerned, there will be some fluctuations but prices will not come down from the current levels, though the rate of growth may come down.

And the reasons for the prospective stability envisaged in prices lies in the fact that the industry is also very aware of the concerns of the user-industries. The ministry is also advising the industry on a regular basis to be responsive to the needs of the user industries and not to go in for very steep price hikes.

Firmer prices have held up because, currently, inventory build-up is almost over, essentially due to the fact that there has been consumption by the end-user industries. Now, once again, it is inventory build-up time. Prices have not reached very high levels and so the user-segment is current feeling that this is the right time to buy since prices may go up further. Demand is thus also going up.

What is your outlook on coking coal prices which are showing an upswing?

Premium coking coal prices, which have already reached almost $99 per ton, will hover around $100-110 for a few more months because of slightly higher demand levels emanating from India. Also Chinese demand needs to be watched.

Coking coal also needs demand for steel

Steel Insights, May 2016

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66 Steel Insights, May 2016

Tear along the dotted line

Tear along the dotted line