Steel Insights, November 2020

CONTENTS

6 | COVER STORY

14 Imported scrap offers fall 15 Pig iron production down on month in September

Demand revival keeps steel homebound

16 September sponge iron production down 5.9% 17 September crude steel production down 2.9% on year, 4.5% on month 18 Anti-dumping duty on stainless steel may not protect domestic players 22 Capital goods makers need R&D to boost local steel usage: EY 25 Time for a health revolution in world’s second-largest steelmaker 28 Festive season brings cheer to auto makers 30 Seaborne coking coal offers fall in October

26 | FEATURE

Steel Ministry aiming at increasing rural steel consumption Per capita steel consumption of 74 kgs can be increased through growth of rural consumption

31 Domestic iron ore prices remain firm 32 Traffic handled by major ports down 14% till September

37 Global excess capacity to touch 606mt in 2020: Forum 39 Liberty Steel Group eyes thyssenkrupp Europe steel biz 43 JSW Steel domestic sales up 2.5 times on demand recovery 47 Corporate Update 49 Government Update 51 Import export data 55 Price trend 56 Ferro Alloy data 57 Production data 59 Consumption data

4 Steel Insights, November 2020

35 | INTERNATIONAL

ArcelorMittal restarts idled capacities as demand revives

33 Indian Railways’ iron-ore handling down 7.8% in April-September 34 Global crude steel output remain flat in September

A broad-based economic recovery in India is helping steel makers turn away from export market

Third quarter marked improved operating performance with steel markets recovering gradually

41 | CORPORATE

JSPL eyes 7.5 million tons output in FY21 Exports to stay at 20 percent of production till March-end, management tells analysts

45 | CORPORATE

GFG Alliance restarts Adhunik operations New owner plans to double capacity

COVER STORY

Demand revival keeps steel homebound Sumit Maitra

6 Steel Insights, November 2020

COVER STORY

A

broad-based economic recovery in India is underway with business sentiments improving substantially over the recent months. Manufacturing activities is witnessing strong rebound, and the service sector is gradually stabilising.

The recovery in automotive sector, notably in two wheelers and passenger vehicle, is better than anticipated.

Cement demand in terms of housing is showing green shoots. Cheap housing loans and the need for space is also spurring some demand. Infrastructure projects are also coming back into stream.

From June onwards, steel consumption has started reviving and as per latest data for October available with Joint Plant Committee, finished steel production in the country has crossed previous year’s level by 1 percent while steel consumption continues to be bit under pressure and has de-grown by 2 percent on year.

From August onwards, fall in steel consumption has been arrested and degrowth has started coming down, said Ranjan Bandhyopadhyay, executive secretary, Joint Plant Committee during a webinar organised by mjunction Services.

JPC has concluded a study on end-use of steel in association with rating agency

CRISIL taking data from most of the stakeholders in the steel industry.

The sector is still not out of the woods though as till October, crude steel output is down by 22 percent while finished steel is lower by 18 percent from previous year’s level, he pointed out.

Steel consumption as a whole is down by 25 percent during April-October period.

The country will end up consuming 8586 million tons of steel by March, down from 100 mt consumed in FY20, Bandhyopadhyay pointed out. Rohit Sadaka, director, India Ratings and Research, said during the webinar that there could be 18-20 percent lower steel consumption in FY21 as compared to FY20 due to lower Gross Fixed Capital Formation to the extent of 26-27 percent.

Real estate and manufacturing are the two major components of GFCF and both these sectors are not witnessing any kind of growth pushing down overall percentage.

“Manufacturing sector will invest in capacity expansion only when capacity utilisation crosses 90 percent, which is currently hovering around 75-76 percent,” Sadaka said.

The End-Use study has identified five sectors from where bulk of the demand will come.

“There could be 18-20 percent lower steel consumption in FY21 as compared to FY20 due to lower Gross Fixed Capital Formation to the extent of 26-27 percent.” Rohit Sadaka, director, India Ratings and Research In coming days, growth of steel demand would come from sectors like housing and infrastructure sectors.

“There are several major government flagship programme being carried out while several stakeholders’ meetings are being

Indian steel - Quarterly

Steel Insights, November 2020

7

FEATURE

Steel Ministry aiming at increasing rural steel consumption

Steel Insights Bureau

I

ndia’s per capita steel consumption of 74 kgs has to be increased and there is immense scope for growth of steel consumption in rural areas, Dharmendra Pradhan, Union Minister for Steel and Petroleum and Natural Gas said while addressing a webinar on ‘Atmanirbhar Bharat: Fostering steel usage in Rural economy organised by Ministry of Steel in association with Confederation of Indian Industry (CII).

He shared his views on the role of India’s steel sector in the growth and prosperity of our villages and in making our rural economy strong and self-reliant.

“Ministry of Steel is working with CII to enhance the domestic demand and usage of steel across various segments of the country.

In this regard, we have been working with major user ministries like railways, defence, housing and urban affairs, civil aviation, rural development for fostering the steel usage in these key sectors,” he said.

Steel products have not made much inroads into hitherto untapped Indian rural markets. For future growth of the Indian steel industry, the rural market is likely to play a

26 Steel Insights, November 2020

vital role in generating tremendous amount of untapped latent demand and holds great potential in intensifying steel usage.

Demand emanating from rural India provided the silver lining during the Covid-19 lockdown when export demand coupled with rural recovery supported steel sales.

The minister informed that government has started disbursing the `10,000-crore Agriculture Infrastructure Fund with many new sectors being included in the priority sector.

“We are developing 5000 Compressed Bio-Gas (CBG) plants across the country.

Reserve Bank of India has recently included CBG in the priority sector. We are working on to make ethanol from rice. The mission to ensure housing for all, investments in rural roads, railway infra augmentation and impetus to agriculture will all create greater steel demand. Enhancing per-capita steel consumption is in the interest of all,” he said.

He mentioned that rural India holds key to enhancing per-capital steel usage in the country. It will bring greater strength to society, ensure rural development and create jobs.

Narendra Singh Tomar, Minister of Rural Development, Agriculture and

Farmers Welfare, Panchayati Raj and Food Processing Industries said steel as a strength giving material has to play an important role in making villages strong and self-reliant.

He said the shift in rural demand during the last few years has been encouraging.

Ability of rural consumers spending has improved by policy support, development efforts, farm loan waivers, higher minimum support prices, Direct Benefit Transfer (DBT), and a rural development-focused budgetary process, he said.

“There are immense opportunities available in rural sector covering rural infrastructure development projects, food processing, rural housing, food storage, agriculture equipment manufacturing etc. to foster steel usage. Rising rural economy is opening up new opportunities for greater steel usage. Key Government missions like PM Awas Yojana, Jal Jeevan Mission, MSP are improving lives and strengthening rural economy also involve greater steel usage”.

The minister stated that growth in areas like energy, dairying, fisheries, food processing, agri-equipments etc. will also have a positive bearing on the steel consumption in rural areas.

He also suggested formation of a working

INTERNATIONAL

ArcelorMittal restarts idled capacities as demand revives Costs rationalised for post-Covid scenario Steel Insights Bureau

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lobal steel major ArcelorMittal has begun to restart hot idled capacity as market demand improves on a region by region basis. Nevertheless, as concerns around second wave impacts persist, the group maintains its flexibility to quickly adapt production as conditions evolve.

The company continues to focus on cost reduction initiatives to protect profitability as it navigates the evolving demand backdrop.

“Economic activity has shown improvement since the lockdown measures were eased; nevertheless, demand remains below normal levels and the pace and profile of recovery is uncertain. The Company has begun to restart hot idled capacity as market demand improves on a region by region basis.

Nevertheless, as concerns around second wave impacts persist, the Company maintains its flexibility to quickly adapt production as demand conditions evolve,” ArcelorMittal told analysts.

Moving forward, as economic activity recovers the company said it will respond by increasing production, leading to the return of some fixed cost. However, this will be in line with higher volumes, and so fixed costs per-ton are not expected to increase.

“The third quarter marked an improved operating performance for the group with steel markets recovering gradually from the very challenging second quarter after the ending of lockdowns. All steel segments saw improved demand with Brazil and ACIS showing particularly encouraging profitability improvement,” Lakshmi Mittal, ArcelorMittal Chairman and CEO, said. Mining operations performed well taking advantage of the higher iron-ore price environment and outperforming production targets.

Cost rationalisation

At the same time, the experience of the last 6-7 months has forced the business to operate differently in particular with a leaner cost structure.

“The company is now using this experience to identify and develop its options for further structural cost improvements, to appropriately position the fixed cost base for the post Covid-19 operating environment,” the company said.

Cost rationalisation moves include permanent closure of the blast furnace in Kraków, Poland.

The shutdown process in the blast furnace and the steel shop began in October.

The blast furnace and steel shop in Kraków were temporarily idled in November 2019, as a result of the market downturn, high energy costs and large volumes of steel imports from outside the European Union.

The coke plant in Kraków will continue to operate as well as the downstream operations (two rolling mills, the hot dip galvanizing line and the new organic coating line). The slabs for the rolling mills in Kraków will come mainly from the steel shop in Dabrowa Gornicza.

Demand recovery

ArcelorMittal’s total steel shipments in third quarter of 2020 increased by 17.5 percent to 17.5 million tons, as compared with 14.8 mt in second quarter. “Economic activity is recovering across all regions following the severe impacts of the Covid-19 pandemic on 2Q 2020, with all segments experiencing quarter-on-quarter shipment growth (Europe +20.1 percent, Brazil +17.8 percent, NAFTA +16.8 percent and Africa and

“The third quarter marked an improved operating performance for the group with steel markets recovering gradually from the very challenging second quarter after the ending of lockdowns. All steel segments saw improved demand with Brazil and ACIS showing particularly encouraging profitability improvement.” Lakshmi Mittal, ArcelorMittal Chairman and CEO Steel Insights, November 2020

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INTERNATIONAL

Global excess capacity to touch 606mt in 2020: Forum Demand recovery to remain inadequate Steel Insights Bureau

E

xcess capacity in the global sector is going to increase significantly this year, to a level of at least 606 million tons and is likely to remain high for the foreseeable future, Global Forum on Steel Excess Capacity (GFSEC) said following a meeting in Paris.

“Market imbalances are now growing, with steel production continuing to expand rapidly, notably in China, despite the severe demand downturn. These reactions are made possible by the existence of excess capacity and a lack of market function. Moreover, new plants continue to be built domestically or abroad with the support of governments.

Until policy actions are taken to reduce structural excess capacity and allow markets to work more efficiently, the industry

and its workers will continue to suffer unnecessarily,” the forum said in a statement issued following the ministerial meeting held virtually on October 26, co-organised by the forum’s co-chairs – the European Union and Korea – and facilitated by the OECD. India refuses data sharing

Incidentally, India was the sole member of the forum that refused to share its planned capacity data. During the two rounds of information sharing in 2020, GFSEC members exchanged information and reviewed developments on steelmaking capacity in their economies.

Members also discussed capacity developments taking place in G20 economies that are not members of the GFSEC. All but one of the GFSEC’s 31 members, India, participated in the information sharing rounds conducted by the GFSEC in 2020.

Global steel capavcity-demand gap set to increase in 2020

These members provided updated data on crude steelmaking capacity in 2019, confirmed or provided updated data for 2014-2018 and, where applicable, provided preliminary information on capacity developments in the first half of 2020.

“India was the only GFSEC member that did not participate in the information sharing process in 2020. In light of India’s non-participation, the report used public data from the OECD to measure India’s crude steelmaking capacity,” a report issued by the forum said.

The development comes on the back of China’s exit from the forum in 2019.

“In this respect, members regret the decision by the People’s Republic of China and Saudi Arabia to discontinue their membership of the Forum as of 2019 and look forward to the resumption of India’s participation in 2021. The excess capacity affecting the steel sector is a genuine global issue, which requires a multilateral engagement by all G-20 countries,” the forum said.

Forum member capacity down from 2018 levels

Based on data submitted by GFSEC members (and data from the OECD for India), total steelmaking capacity among GFSEC members amounted to 953.4 mt in 2019. This combined capacity corresponds to about 40 percent of global capacity and 75percent of capacity outside China.

These data indicate that total combined capacity among GFSEC economies declined from 957.2 mt in 2018 to 953.4 mt in 2019.

On the basis of these data, between 2014 and 2019 steelmaking capacity in the 31 GFSEC member economies increased by 5.1 mt.

Demand recovery can’t absorb new capacities

Source: OECD

The downward trend in steel demand served as a clear indicator that developments in demand would not be sufficient to address the problem of excess capacity in the steel sector; such progress would require structural reform on the supply side, the forum said.

Moreover, while demand and supply

Steel Insights, November 2020

37

CORPORATE

JSPL eyes 7.5 million tons output in FY21 Exports to stay at 20% of production till March-end

primarily selling semis. Now, such exports have stopped and are being converted into finished products.

“We are currently exporting plates to Europe, beams to Europe and South Africa, rails to neighbourhood countries like Sri Lanka and Bangladesh, transmission equipments to Saudi Arabia,” Sharma said.

Rising profitability

Sumit Maitra

J

indal Steel & Power is likely to produce 7.5 million tons of steel in FY21, up from 6.5 mt in FY20.

With revival of demand in the domestic market, the efficient steel maker is producing more value-added products which will continue to drive rise in operating profits.

“In the first half we could produce 3.5 mt.

In H2, we would be in line, producing another 3.8 mt. That would be about 7.3 mt (for the FY21), may be even more and would try to achieve 7.5 mt as a whole,” managing director V R Sharma told analysts during a conference call following the September quarter results.

During the second quarter of FY’21, the company on a standalone basis reported highest ever steel production volumes (including pig iron) at 1.84 mt and sales of 1.93 mt.

The second quarter has been good for JSPL achieving highest ever EBIDTA, sales turnover and production. While the flat prices rallied during the quarter, long prices were largely range bound during the monsoons, though overall better on a sequential basis.

On back of increased volumes and marginal increase in realisations, JSPL

standalone reported gross revenue of `8,667 crore. Increasing efficiencies and lower raw material costs helped JSPL standalone post it’s reported highest ever EBITDA at `2,435 crore, up 33 percent on quarter.

During 2QFY21, production of pellets was 2.01 mt. The company recorded external pellet sales of 0.73 mt during 2QFY21.

JSPL has been producing 4,000 tons/day from its Angul DRI plant and is planning to ramp up to 6,000 t/day. Blast furnace is running at 10,000 t/day and will soon ramp up to 11,000t/day.

Exports tapering off

JSPL’s steel exports fell by 17.8 percent on quarter to 740,000 tons in the second quarter as the company concentrated on domestic value added product instead of exports of low-value semis.

With revival in domestic demand, JSPL is cutting down on exports, which will come down to 20 percent of total produce in November from a high of 70 percent during the initial period of lockdown.

“Exports were 32 percent in October which will come down to just about 20 percent, (a level) which will be maintained till the end of the year,” he said. JSPL was EBIDTA (Rs. in cr)

JSPL did some reengineering and could reduce costs, resulting in higher EBIDTA, Sharma told analysts. Profitability would improve further with fall in prices of inputs like coking coal.

Coking coal prices have gone down, from $128 to $104 FOB in during October and that has encouraged JSPL to do forward booking till February at that price level.

Once the prices start going up after December, we will reap the benefits,” Sharma said. Standalone steel EBITDA per ton of steel was `12,000 plus, primarily due to availability of old, paid-for iron ore stock from Sarada mines.

Shadeed operation in Oman is now being reported as discontinued operations, pending completion of sale execution. Excluding Oman, EBITDA stood at `2700 crore for the quarter.

Demand revival

“Demand in sectors like auto and infrastructure has picked up. Due to investment by the government in infrastructure projects like pipelines, storage tanks, shipbuilding and railways. These are some of the areas we are reaping the benefits,” Sharma told analysts during a conference call.

(Figures in Rs. crores)

Steel Insights, November 2020

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62 Steel Insights, November 2020

Tear along the dotted line

Tear along the dotted line