Steel Insights, November 2019

Contents

6 | COVER STORY

18 Imported, domestic scrap offers move up 19 Pig iron production down y-o-y in September

Steel’s constructive way to growth

20 September sponge iron production up 5.1% on year

As India aims to become a $5-trillion entity in coming years, construction sector needs to play a key role.

21 Crude steel production up 1.6% y-o-y 23 Vehicle scrapping facility draft guidelines issued 26 Festivities bring in some luck for motown 28 Seaborne coking coal offers rise in October

22 | FEATURE

29 India to allow steel firms to divert iron-ore from captive mines

Steel prices drop below dumping duty levels on muted demand

31 Steel players hail RCEP exit relief

Demand however is expected to grow during FY2020

32 Global steel demand to grow 3.9% in 2019: WSA

25 | FEATURE

34 Cabinet clears realty revival package 35 Global crude steel output down 3% in Sept m-o-m

Core sector September output contracts 5.2%

36 Traffic handled by major ports up 1.5% till Sept

Steel production growth falls to a nearly 4-year low of -0.3% from 5% growth in previous month

37 Indian Railway’s iron ore handling down 3% on year in September 38 Government Update 39 Twin ladle heating furnace inaugurated in VSP

43 | CORPORATE

40 Tata Steel reports 6% net profit growth on tax benefits

JSL, Braithwaite ink deal for Railway foot-over-bridges

41 JSW Steel Q2 net profit surge 21.5%

As per industry data, 25% of rail bridges are over 100 years old and need replacement

43 Graphite electrode sector’s woes not over yet 46 Corporate Update 50 Steel excess capacity to grow: Global forum 52 Iron ore prices to fall 12% in 2020 53 Price data 54 Production data

4 Steel Insights, November 2019

48 | INTERNATIONAL

Sanjeev Gupta sets up Liberty Steel Group, plans IPO Single entity with 18 mt steel capacity to be launched through a consolidation.

Cover Story

Steel’s constructive way to growth Tamajit Pain

6 Steel Insights, November 2019

Cover Story

I

ndia is one of the economies in the world where steel demand is continually showing positive growth.

The country’s growing urban infrastructure and manufacturing sectors indicate that demand is likely to remain robust in the years ahead.

If India is to achieve the goal of being a “developed nation”, the steel industry must play a crucial role as has been the case with all the major developed countries and East Asian countries like Japan, South Korea and China.

Notwithstanding the current challenges, Indian steel industry still has significant potential for growth. the accelerated spend in infrastructure sector, expansion of railways network, development of domestic shipbuilding industry, opening up of defence sector for private participation, anticipated growth in automobile and capital goods industry and the construction in urban & rural areas, are expected to create significant demand for steel in the country.

Growth in steel consumption in a country is typically linked to the economic growth and steel intensity. While growth in GDP is a crucial determinant of growth in overall consumption, steel intensity is the definitive parameter for an economy and determines the growth rate of steel demand vis-à-vis consumption over time.

According to the National Steel Policy, steel consumption from construction & infrastructure sectors is expected to increase to 59 percent by 2030-31.

Creation of steel demand in the country is one of the major task to be undertaken in this direction. To drive steel demand, Ministry has identified construction and manufacturing sectors like Rural development, Urban infrastructure, Roads & Highways, Railways etc. to be the key focus areas and will take necessary steps to achieve the same through following – Steel structures are highly cost effective and have shorter lead time for erection and have greater durability with high design comfort. Hence usage of steel needs to be encouraged in all buildings and structures.

Efforts will be made to emphasize the lower lifecycle costing while evaluating projects rather than looking at just the upfront cost in isolation, which would encourage greater usage of steel in Government as well as the private sector.

The Government has chalked out an

extremely ambitious plan of Housing for all by 2022 as well as schemes such as Pradhan Mantri Awas Yojna, Saansad Adarsh Gram Yojna etc. These provide a huge opportunity for use of steel intensive structures and designs, usage of pre-fabricated and precast steel structures, etc. Hence, the government is taking all necessary measures to promote the increased usage of steel intensive structures/ designs under these schemes.

Commercial, Residential buildings and flyovers also provides immense opportunities. Necessary efforts are being made in conjunction with Ministry of Road, Transport & Highways to evaluate the replacement benefits of the existing bridges, pavements and crash barriers used in Roads & Highways and consider for projects in steel bridges, steel reinforced pavements and steel crash barriers respectively.

Usage of steel in railways is limited

to laying of railway tracks, rolling stocks, wagons, platforms and coaches. Efforts are being made to increase the steel usage in making railway station, foot over bridges, rail coaches, construction of steel based railway colony buildings especially in seismic prone areas, construction of dedicated freight corridors & superfast rail corridors and construction of more steel bridges for saving time & capital expenditure.

The “Make in India” initiative is expected to witness significant investments in Construction, Infrastructure, Automobile, Shipbuilding and Power sectors, which will stimulate steel demand. Hence, efforts are being made to pass on such benefit to the domestic steel producers. Use of cost efficient and competitive ‘Indian Made steel’ will pave the way for infrastructure development and construction activities in the country.

Sector wise steel consumption in India in MT (unless stated) Sr. No.

Item

Current demand 2015-16

Projected demand in 2030-31

1

Infrastructure (Steel Projects, Oil refinery, Highways & Bridges, Airports, Seaports, Urban Infrastructure, Water transportation & sanitation, Industrial sheds, Pre-fabricated buildings)

9.5

90

2

Construction (Real Estate – residential, institutional, commercial & Industrial)

23.5

45

3

Engineering & Fabrication (Capital goods, Consumer durables, Yellow goods, Electrical goods, Industrial boilers & Pressure vessels, General engineering, Tube making, Cold reducing, Wire drawing, Nails, Fasteners, Bright bars, Agriculture implements, General fabrication including SMEs)

35

43

4

Automotive (Cars, two-three wheelers, commercial vehicles, auto components, tractors, bus trailer, tractor-trolley etc.)

2.5

10

5

Railways (Rail tracks, rolling stocks, wagons, coaches, etc.)

2

5

6

Packaging (Petroleum, non-petroleum, LPG cylinders, grain bins, GI boxes)

2

6

7

Energy (including Power projects, wind mills, power transmission)

3

11

8

Ship Building (AH 32/36, DH32/36, EH 32/36)

3

9

Oil & Gas Pipelines (X60, X65, X70 & X80 – For main line, X70 is mostly in use whereas X80 used in very limited quantities. For smaller pipes, X60 & X65 grade materials are in use

4

10

Defence (including space, nuclear) (Steel grades – Maraging Steel, Ultra high strength steels such as AISI/SAE 4130, High strength 4140, deeper hardening and high strength 4340, 6150 & 8640; High alloy Hardenable steel viz. HP9-4-20, HP9-4-25, HP94-30, HP9-4-45, HP9-4-20 & HP9-4-30)

11

Others (Misc. other machinery)

Total Finished Steel Consumption in MT Per Capita Finished Steel Consumption in Kgs

4 2

11 81.5

230

61

158

Source: Ministry of Steel, MECON

Steel Insights, November 2019

7

FEATURE

Steel prices drop below dumping duty levels on muted demand

On the other hand, India’s steel exports, which fell by about 27 percent in June quarter, jumped almost 34 percent in September quarter.

However, a 12 percent fall in Chinese export HRC prices since August could act as a fresh challenge for domestic steelmakers looking to augment exports amidst depressed domestic demand conditions, sources added.

Steel demand expected to grow during FY2020

Steel Insights Bureau

S

teel prices dropped below the antidumping duty of `34,719 a ton due to weak demand in the country. In fact, the domestic hot rolled coil (HRC) prices fell to 34-month low of `34,250 a ton in second week of October raising huge concern to the industry, which was expecting a demand revival in the festival season.

The anti-dumping duty is considered as the floor for domestic prices as steel imports cannot be done below that price level.

The domestic HRC prices have fallen 16 percent in this fiscal following lacklustre demand from the key end-user industries.

As per the definitive anti-dumping duty imposed on certain flat steel products valid till August 2021, the threshold HRC prices stand at $489 tons (about `34,719 a tons).

22 Steel Insights, November 2019

Series of price cuts taken by domestic steel makers has pushed prices lower than the floor points, heightening concerns about poor demand. The difference between domestic and imported HRC prices has widened in recent months with the current local HRC prices were trading at a discount of 13 percent to import prices.

Steel demand growth in September quarter this year dipped to four per cent against 6.9 percent logged in June quarter and 0.2 per cent lower compared to September quarter last year.

India’s steel demand growth dropped to 5 per cent in first half of this fiscal much lower than 7.5 per cent and 7.9 per cent logged in the same period of previous fiscals. Moderation in steel demand is largely attributable to the weakness in the automobile and construction sectors.

Indian steel demand is expected to grow by 5 percent during FY2020. Despite the ongoing slowdown in the domestic economy, this, admittedly, has also made India a magnet to attract higher imports from steel surplus economies, especially from the FTA countries (like South Korea, Japan, ASEAN etc) given nil duty at the time of imports.

Currently, about 65 percent of steel imports into India originates from the FTA countries - including China to this, the share of imports from this group increases to 85 percent. This is a source of risk to the health of the domestic steel industry necessitating close monitoring and effective remedial measures, according to analysts.

Indian economic activities during the quarter were underpinned by credit squeeze, weakened consumer sentiment and prolonged monsoon season. As a result, IIP growth and manufacturing PMI dropped sharply.

The Government has undertaken a series of measures including reduction in corporate tax rate, unclogging pending government payments, GST refunds, etc.

Further, the government is mulling measures to monetise investments in order to generate resources for infrastructure investment. The combination of above measures is likely to support an uptick in GFCF cycle over the medium term.

Weaker automotive sales volumes and consumer durables sales in recent months is a matter of concern. Having said that a modest recovery is expected on the back of festivity demand and various initiatives of government to facilitate credit availability in the system. A better than normal monsoon bodes well for farm incomes and a potential uptick in rural demand. Overall, supportive fiscal and monetary measures are likely to spur investment and consumer demand over the medium term. 

FEATURE

Core sector September output contracts 5.2%, steel growth moderates

Steel Insights Bureau

C

ore industries shrank by 5.2 percent on year in September, pulled down by coal which de-grew by minus 20.5 percent while steel production fell to a nearly 4 year low of -0.3 percent against 5 percent growth in the previous month due to slowdown in demand from the end user industries owing to monsoons.

The index of eight core industries, which represent more than 40 percent of the total index of industrial production (IIP), dropped to its lowest level since the beginning of the new base year (2011-12).

“The combined index of eight core industries stood at 120.6 in September 2019, which declined by 5.2 per cent as compared to the index of September 2018. Its cumulative

growth during April to September was 1.3 per cent,” said a statement released by the Ministry of Commerce and Industry accompanying the data release on Oct 31.

The core sector growth for August was revised upwards to 0.1 percent from the earlier contraction of -0.5 percent.

During the first half of this fiscal year, the eight core industries production grew by 1.3 percent, 4.2 percent lower than that in the comparable period a year ago.

“Negative growth in IIP cannot be ruled out in September’19 given that the core sector has contracted sharply and it constitutes 40 percent of items included in IIP,” rating agency CARE said in a release.

Government spending on railways and to an extent urban development have been supporting steel demand, experts believe.

Industry-wise growth

♦♦ Coal production contracted sharply by 21 percent in September over a contraction of 8.6 percent in the previous month and growth of 6.4 percent in September of 2018. Prolonged monsoons have weighed on the coal production. ♦♦ Cement production contracted for the second consecutive month by 2.1 percent over the 5.1 percent contraction in the previous month and 11.8 percent growth in the comparable period a year ago.

Unfavourable base effect and prolonged monsoon weighed on the cement production during the month ♦♦ Steel production fell to a nearly 4 year low of -0.3 percent from the 5 percent growth in the previous month and 3.2 percent growth in the corresponding period a year ago. This can be attributed to slowdown in demand from the end user industries owing to monsoons ♦♦ Electricity production continued to witness contraction in this month as well. It declined by 3.7 percent as against the 0.9 percent contraction in the previous month. High base effect and lower commercial demand given the low industrial growth has led to lower electricity production ♦♦ Refinery products, having the highest weight of 28 percent, contracted by 6.7 percent as against the positive growth of 2.6 percent in the previous month and 2.5 percent in the year ago month.

Planned shutdowns for upgradation and maintenance along with inventory pile up of refinery products and extended monsoons came in the way of refinery production ♦♦ Growth in fertilizer production rose to an 8-month high of 5.4 percent during Sepember, higher than the 2.9 percent growth in August and 2.5 percent growth in the corresponding period a year ago.

Restocking activities ahead of the rabi sowing season supported the fertilizer production ♦♦ Crude oil production contracted by 5.4 percent in Sep’19, same as of last month ♦♦ Natural gas contracted to a 14-month low at 4.9 percent in September as against the 3.9 percent contraction in the previous month and 1.7 percent contraction in the comparable period a year ago

Steel Insights, November 2019

25

international

Sanjeev Gupta sets up Liberty Steel Group, plans IPO Steel Insights Bureau

I

ndian origin entrepreneur Sanjeev Gupta is consolidating his global steel business under a single company, Liberty Steel Group.

A single global company with 18 million tons of rolled steel capacity annually is to be launched through a consolidation of GFG Alliance’s steel businesses, with an ambition to lead the industry towards a carbon-neutral future, the group said in a release.

Liberty Steel Group, which altogether employs 30,000 people in 10 countries, will be incorporated by the end of this year through a merger of GFG’s upstream and downstream steel manufacturing, mining and distribution businesses around the world.

“Whether it’s the steel, aluminium or energy companies ... all the companies will be made ready in terms of governance, reporting and transparency, so they’ll be ready in every way to go for a listing as and when they want to,” Gupta told news agency Reuters.

Currently the steel assets are held under GFG’s Liberty House Group, but will be incorporated by the end of the year with a board of directors and consolidated accounts for its $15 billion of annual turnover.

“The merger will take place by the end of the year and we’ll do a set of proforma numbers within Q1 next year,” said Gupta, executive chairman of the GFG Alliance.

“We are creating a new force in steel with the size, scale and agility to forge a path towards a sustainable future for our steel businesses and the communities in which we operate,” Sanjeev Gupta, Executive

48 Steel Insights, November 2019

Chairman of GFG Alliance, said while addressing World Steel Dynamics’ European Conference in Milan.

Liberty Steel Group will be the eighth largest steel producer outside China, with operations stretching from Australia to continental Europe, the United Kingdom and the United States, and it will have annual sales of approximately $15 billion. Although individual businesses will retain a high degree of autonomy, consolidated accounts will be produced and a united strategy will be developed.

At the heart of the group’s mission will be an ambition to build on GFG’s existing Greensteel strategy to aim for net carbon neutral status by 2030 – placing Liberty Steel Group on a pathway to become the first carbon neutral steel company in the world.

This will include exploration of the best use of new technologies such as hydrogen generated from renewable power to produce steel.

The Greensteel strategy focuses on using electric arc furnaces to recycle scrap steel, rather than producing all material from scratch, as well as using renewable sources of energy. Steel from recycled scrap using fossil fuel based energy generates less than a third of the CO2 emissions compared with primary steel making, with the benefit dramatically increasing to almost zero emissions with the use of renewable power.

Liberty’s plants already recycle three million tons of scrap steel annually, with investment underway in electric arc furnaces in the UK, Australia and the United States.

Liberty’s sites around the world are

already working to reduce transport emissions, cut electricity use and minimise waste. Renewable energy initiatives include the Cultana solar farm in Australia, Glenshero hydro-electric plant in Scotland and Newport waste-to-energy project in Wales.

Speaking at World Steel Dynamics’ European Conference in Milan, Italy, Sanjeev Gupta, Executive Chairman of GFG Alliance, said: “We are creating a new force in steel with the size, scale and agility to forge a path towards a sustainable future for our steel businesses and the communities in which we operate. Our integrated group will stretch around the world, with a financial and governance structure suitable for an intercontinental business of our size.

“Steel is the building block of modern life and the GFG Alliance has always put sustainable strategies at the heart of its business model. We recognise that becoming carbon neutral by 2030 is a very ambitious target but we have firm foundations already with our GREENSTEEL strategy in motion, and with technical viability of hydrogen usage for direct reduced iron now proven it gives us the confidence that such developments allow us to aim even higher with our goals.

“As a responsible business, the legacy we pass on to future generations is every bit as important as our bottom line. Liberty Steel aims not just to produce top-quality steel but to be an agent of change in the industry.

In doing so, we can open the door to the re-industrialisation of the developed world by reviving and restoring often neglected industry.”

Liberty Steel Group will include operations drawn from Liberty House in the UK, Liberty Steel Continental Europe, Liberty Steel USA, Infrabuild and Liberty Primary Steel and Mining Australia. It will be organised in three divisions: Liberty Primary Steel, Liberty GreenSteel and Liberty Engineered Steel.

The group’s strategy will encompass a balanced model, rather than a silver bullet – including transitioning our existing blast furnaces towards electric arc furnaces, investing in new electric arc furnaces and piloting new clean technologies around the world. It will aim to tackle emissions at its sites by exploring technologies such as Direct Reduced Iron, carbon capture and storage

62 Steel Insights, November 2019

Tear along the dotted line

Tear along the dotted line