Steel Insights, November 2015

Contents 20 India iron ore output to rise as closed mines open up 22 China mills hungry for India’s low-grade iron ore 26 India resilient to global steel slowdown: Worldsteel 28 Steel-makers seek safeguard duty on coated goods 32 India does drive home a car this Diwali!

34 M&M to invest `500 cr in UV, HCV segments 36 Indian traders see ‘future’ in LME contracts 38 75% of `14 lakh cr real estate projects nonstarters: ASSOCHAM 40 Future of ferro alloy prices looks dull 43 Met coal, coke prices have scope to come down by 10% 45 Coking coal offers down in October 56 Coastal shipping trigger has to come from plants themselves 58 Iron ore handling by major ports down 48.72% in Apr-Sept 59 Railways’ H1 iron ore handling down 1.80% 60 Global crude steel output dips 1.21% in Sept m-o-m 61 Tata Steel’s Q2 saleable steel output up 9% 62 Tata Steel Q2 profit rises 22%, beats forecast 63 JSW Steel Q2 net profit plunges 84% 64 SAIL posts net loss of `1,056 crore in 2nd quarter 65 First LD (BOF) converter from Primetals started up at JSW 66 JSW chooses Danieli long products casting technology 67 Price data 68 Ferro alloy data 69 Production data 72 Import data

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6 | COVER STORY

Construction/infrastructure lifeline for ailing steel?

42 | FEATURE

Steel demand revival hinges on construction sector, which make up around 50-55% of consumption.

“Allocate blocks to upgraded DRI plants on preferential basis” Ailing DRI sector faced with supply, pricing and quality issues of coal and iron ore, Sheshadri.

46 | INTERVIEW

“Expect some recovery in coking coal prices by mid-2016”

50 | INTERVIEW

There could be slight firmness in coal prices as mine closures in Australia and US impact, Bristow.

Quippo Equipment to tap mining, port, telecom Construction equipment rental market is under-penetrated in India at mere 15 percent.

52 | INTERVIEW

JSW to tap iron ore hedging to reduce costs: Seshagiri Rao Now is the best time to look for iron ore assets within the country for backward integration.

Cover Story

Unlike in major global economies, where capacity expansion prospects are limited

Construction/ infrastructure lifeline for ailing steel?

Tamajit Pain

6 Steel Insights, November 2015

Cover Story

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here is much excitement in India about the “Make in India” programme launched by the new Modi government. It is expected that with improved ease of doing business in India, including the reform of labour laws, rationalisation of land acquisition and faster provision of transport and connectivity infrastructure, both foreign and domestic investment will lead to a pick-up in manufacturing.

The hope is that the rate of growth of manufacturing will accelerate and the share of manufacturing in the GDP, which has been stagnant at about 15 percent for the last three decades, will increase to 25 percent. Unfortunately, performance of the manufacturing sector during 2014-15 has been below expectation. The rate of growth of industrial production during the year has been only 2.3 percent, much below the growth rate of the GDP. There is considerable excess capacity in the manufacturing sector, and private corporate investment is not yet showing signs of a strong resurgence. There is clearly a need for deeper understanding of what ails our manufacturing sector and what needs to be done to change the situation.

Steel forms about 2 percent of the GDP and about 16 percent of the industrial sector.

A healthy steel sector is vital for the economy, particularly for manufacturing.

While the steel industry in other major economies are aging, with little prospect of high growth, India’s steel industry is young.

While many old steel producers are struggling with the difficult task of retrofitting, India as a late-comer has the advantage of leapfrogging to the latest technology that is efficient and eco-friendly.

If India’s economic growth accelerates, production of steel should increase by several hundred million tons over the next few decades. But analysts feel the current conditions of the steel industry in India are dismal, with very low profits, low capacity utilisation and dim prospects of new private investment, either foreign or domestic.

The August devaluation of the Chinese yuan is further fuelling fears of dumping of steel into the Indian market. The enthusiasm about “Make in India” appears, at least to industry insiders, to be bypassing the steel industry.

The steel industry is constrained

Per capita steel consumption v/s per capita GDP Per capita steel consumption (kg.)

GDP per capita (in 2013 PPP US$)

India

57.8

5411.6

China

545.0

11906.5

Brazil

132.1

15037.5

Iran

219.0

15590.2

Russia

304.6

24114.1

Italy

359.5

35597.3

Japan

516.8

36449.1

France

213.5

37871.9

Canada

402.8

43247.0

Germany

463.2

44469.4

United States

300.8

53042.0

Country

In India, the land-man ratio is as low as that in east Asian countries, and this may point to high steel intensity that is required by heavy infrastructure and the vertical growth of real estate properties in cities.

Draft Steel Policy, 2012

The aspirational goals presented above are broadly in line with the government’s Draft Steel Policy, 2012 (DSP). The DSP aims at reaching crude steel capacity of 300 million tons (mt) and a production level of 250 mt by 2025–26. Based on the experience during 2005–12 when steel consumption grew at 10 percent per annum and production at 7.8 percent per annum, it assumes that the constraints are on the supply side and not on the demand side.

not just by the usual supply-side factors, such as availability of land or minerals Five golden years or environmental clearances, but also by The 5 years from 2003–04 to 2007–08 were inadequate demand and several other golden years for the Indian economy as well macroeconomic factors. as for the steel sector, confirming the synergy If the high potential of the steel industry between the two. The GDP growth rate in India is to be realised, the government must during this period was 8.8 percent per year. introduce a transformational programme for All the growth components connected with the industry. Mere tinkering with the present steel consumption had healthy growth rates. policies and exhorting greater efforts will not Gross fixed capital formation grew at achieve much.

16.20 percent per year, construction at 12.40 In Europe and North America, per percent per year, manufacturing at 9.40 capita consumption of steel reached a peak percent per year and mining at 4.60 percent of about 400 kg per year by 2001 and then per year. Finished steel consumption grew declined to about 300 kg by 2013. The major at 12 percent per year, implying an income infrastructure development programmes of elasticity of steel consumption of 1.4. these countries seem to have been completed and per capita Golden years of growth (2003–07) for the consumption of steel is levelling Indian economy and steel off. In East Asian countries CAGR (percent), such as Japan, South Korea and Indicators 2002–03 2003–04 2007–08 2003–07 China, per capita of steel use GDP at market was on a higher trajectory than 3.8 7.9 9.8 8.8 price in the US and Europe.

Gross Fixed The consumption of steel Capital (–)0.4 10.6 16.2 16.2 peaked at about 650 kg in Formation Japan, 1,200 kg in South Korea GDP in and has reached a high level of 8.3 12.4 10.8 12.4 construction 500 kg in China. This higher GDP in intensity of steel consumption 6.9 6.3 10.3 9.4 manufacturing in east Asian countries was GDP in mining 8.4 2.7 3.7 4.6 due partly to their higher share of manufacturing in Finished steel consumption 31 33 52 12.0 the GDP and partly due to (million tons) the high demand for steelIndustry profits intensive infrastructure that 932 6554 19615 24.5 (` crore) was necessitated by their low Source: CSO and CMIE land-man ratio.

Steel Insights, November 2015

7

SPECIAL feature

India iron ore output to rise as closed mines open up Steel Insights Bureau

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e-opening of some key iron ore mines in the top producing states of Odisha and Karnataka would increase production in India this fiscal, feel industry watchers and analysts. Iron ore output in the country is seen at 153 million tons (mt) by the close of this fiscal, higher than 123 mt logged in FY15.

Industry sources said opening up of the closed iron ore mines in Odisha, Karnataka and Goa, the major mining states, has resulted in increased supplies of materials in the market, thereby causing prices to

20 Steel Insights, November 2015

fall. This, in turn, has made the domestic steel-makers go for domestic raw materials, resulting in a fall in imports of iron ore in this fiscal.

Iron ore imports by the country are projected at 5 mt this fiscal, nearly a third of 12-15 mt imported in 2014-15 on the back of surplus availability of ore in the domestic market.

Analysts feel subdued demand in steel and the falling rupee will play a role in pulling down imports.

Due to domestic supply issues, India saw imports of iron ore in the last two fiscals but given the subdued market in steel and iron ore and fall in domestic iron ore prices,

the trend is not expected to sustain. Going forward, any notable import of iron ore is not expected. Further, a falling rupee will make imports of iron ore costlier, sources said.

Following the enactment of the amended Mines and Minerals (Development & Regulation) Act, Odisha has already issued orders to extend validity of the 50-odd mine leases, said an official with a mining company. Of this, 27 iron ore mines have re-commenced production, raising hopes of robust output. Odisha’s iron ore production is pegged at 65 mt this fiscal, up from the lowly 47 mt that the state achieved in the year-ago fiscal, marred by shutdown of 26 crucial mines after a Supreme Court order in May 2014. The state, the biggest iron ore producer, is tipped to contribute 4042 percent of the country’s overall iron ore output in FY16.

Ore output in Chhattisgarh will move up marginally from 31 mt to 33 mt this fiscal.

For Karnataka and Jharkhand, the growth is also projected to be modest. The ore output

Interview

India underestimating its ore reserves

“Expect some recovery in coking coal prices by mid-2016�

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t may be difficult to visualise a recovery in coal prices now, but one year on, there could be a slight firmness, as the closure of mines in Australia and the US start to impact supply, says Dr. Neil J Bristow, managing director of Australia-based global energy consulting firm H&W Worldwide Consulting Ltd Pty. Such a recovery would, apparently, start with coking coal market before it catches up with the thermal coal industry. In an exclusive interview, Bristow tells Arindam Bandyopadhyay of Steel Insights why coal will continue to occupy the pride of place in the global fuel market and that the world will come to terms with this in next 3-5 years.

Excerpts.

How do you look at the supply-demand scenario in the international coking coal market? How is the market expected to behave, going forward?

The coking coal market remains presently oversupplied, and I expect the market to remain oversupplied into next year as well.

But the pick-up in coking coal prices should

46 Steel Insights, November 2015

Interview

JSW to tap iron ore hedging to reduce costs: Rao

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hough India is the third-largest producer of steel and third-largest consumer of the commodity as well, it is importing the same in copious volumes from countries like China, Japan and South Korea but exporting its iron ore! It has 10 billion tons of coking coal reserves but is not able to mine this for various reasons. The need of the hour is to be self-sufficient in key raw materials to trigger the competitive advantages for reaching that 300 million tons target by 2025. And one key route out of the mess could be auction of coking coal mines to the non-regulated sector, especially steel. Consequently, JSW Steel is spearheading a plan to revive the Jharia coking coal mines where all the stakeholders will be given a fair deal, according to Seshagiri Rao MVS, Joint Managing Director & Group CFO, JSW Steel Limited. He further says now is the best time to look for iron ore assets within the country for backward integration and that JSW Steel, unlike many others in the industry, is able to service its debt from its own cash accruals. Madhumita Mookerji & Tamajit Pain of Steel Insights recently caught up with him. Excerpts from the interview:

What do you feel about the current raw material scenario in steel?

India is the third largest producer of steel and third largest consumer of steel in the world and, at the same time, we are also importing steel which is growing at the rate of 40 percent in the current financial year.

What is also important is that India is the second largest industry in terms of competitiveness in the steel sector next to Russia.

So, we see that we are producing and consuming steel. But we are importing steel and are competitive too!

So, what must we do, as an industry?

If we are competitive, then it means we have some comparative advantages in producing steel. So, how do we use those comparative advantages for the benefit of the country? In that context, what are the key inputs for steel-making? One is iron ore, the other is coal. We are fortunate in India

52 Steel Insights, November 2015

that we have both iron ore and coal. But, we export iron ore and import steel! In the case of coal, we have it but are not able to exploit it properly for our use, particularly coking coal!

In the core sector, we are the thirdlargest producer of coal and also the thirdlargest importer of it!

At JSW Steel, we have 14.30 million tons (mt) of steel production in India.

However, we import all the coal that we use.

In fact, we are the largest importer of coal at 20 mt per annum, which includes 7 mt is coking coal, 1 mt of anthracite, 1 mt PCI and 8-9 mt of thermal coal. So, that’s a large amount.

You may have noted that I have used the word ‘largest’ several times! India is the largest consumer of steel, largest producer of steel and coal and yet the largest importer of coal!

There is some inconsistency here!

Whenever we talk of the Indian coal sector, there is a stress on the government’s part to increase coal production in India.

The steel industry will often talk about the low quality of the coal in India – its low calorific value and high moisture and high ash content and the fact that it is difficult to mine.

But, we must note that the quality of coal is globally deteriorating. Therefore, for us the user-industries, it is important to see how we can use low-grade iron ore and coal to produce steel. We are working on that. We have 17 suppliers of coal across the world. We have varying technologies – Corex etc. We use 3mt of Corex coal to produce steel.

The point is we have large coal resources which can be used for steel-making.

Some of the steel companies in India are using 50 percent of indigenous coal to produce the metal.

78 Steel Insights, November 2015

Tear along the dotted line

Tear along the dotted line