Steel Insights, November 2021

CONTENTS 2 5 Imported scrap offers fall 26 Pig iron production up y-o-y in September 27 September sponge iron production down y-o-y 28 September crude steel production up 7.2% y-o-y 29 Shrinking China output to boost India exports 31 India pledges Net Zero by 2070, asks for $1 trillion 32 Country to clock best-ever yearly crude steel production in FY22: SAIL CMD 33 Seaborne coking coal offers remain rangebound 34 Coking coal price spurt to pare profitability of steel makers in H2: Crisil 35 Fuel price hike, supply chain disruption hurt festive sales 37 Iron ore handled by major ports down 17% in H1 38 Indian Railways’ iron-ore handling up 25% in H1 39 Global crude steel output down 8% in September 41 Vale on path towards decarbonised steelmaking 44 Tata Steel sees rangebound steel, iron ore prices 46 High iron-ore, energy costs hurt AM/NS profit 47 JSPL to get own Aussie coking coal in December 49 Steel prices to stay elevated till input price correction: JSW 51 JSL revises FY22 target EBITDA by 25% 53 MOIL embarks on expansion projects 55 Corporate update 57 Government update 59 Import Export data

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6 | COVER STORY Steel’s Net Zero mission

Sector roadmap for decarbonisation

15 | INTERVIEW

“Decarbonisation pathway can be achieved in 3 distinct phases” Prabodha Acharya, Chief Sustainability Officer, JSW on technologies to achieve sector Net Zero.

20 | INTERVIEW

“Five enablers: way forward to sustainable cleaner steel” Madhulika Sharma, Chief Corporate Sustainability, Tata Steel details key enablers for decarbonisation.

40 | INTERNATIONAL

Nippon Steel eyes new pricing norms Reworking strategy to pass on raw material costs.

42 | CORPORATE

SAIL eyes 17 mt saleable steel in FY22 Expects sales volume of 9.4 mt in H2

COVER STORY

Steel’s Net Zero mission Sumit Maitra

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he country’s commitment to achieve Net Zero within a targeted timeframe will now propel its steel sector towards a sustainable future in line with global trends.

Major global steelmakers have all chalked out their own Net Zero path by creating a roadmap to bring down emission, raise recycling, improve efficiency and make the steelmaking processes and mining activities environment friendly.

And Indian Prime Minister’s recent commitment to achieve Net Zero by 2070 would now accelerate the sector’s decarbonisation initiative, Sheshagiri Rao, Joint Managing Director & Group CFO, JSW Steel Ltd, said.

“The entire world is moving towards energy transition and our Prime Minister in the COP26 has also made a very important announcement that India will become Net Zero carbon emissions by 2070. So, the need for the Indian steel industry to look at decarbonisation at a much faster pace than what we are doing right now,” Rao said at the Global Steel Summit 2021.

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COVER STORY “India has now joined the growing list of countries that have made Net Zero commitments to be reached somewhere between 2050 and 2070. With the decision of India, close to hundred percent of global steelmaking capacities are now situated in countries that already have made Net Zero announcements. So we as an industry have to also step up and reduce our CO2 emissions,” Dr Edwin Basson, Director General, WorldSteel Association said during the event.

Entered into force in 2015 by 195 countries, the Paris Agreement set out the target to limit global warming to well below 2°C and pursue efforts to further limit it to 1.5°C. The Paris Agreement is a bridge between today’s policies and climateneutrality before the end of the century.

Governments agreed to reduce emissions and achieve a balance between emissions and removals in the second half of the century – which is the very definition of carbon neutrality.

To become Net Zero, companies must calculate their carbon footprint, reduce their current emissions to the point where it reaches a balance, and neutralise what they cannot reduce with carbon offsets.

“As the repercussions of climate change become stronger at all levels, our products and processes have been put under the magnifying glass. I think it is time for all of us to ask ourselves this question: in aiding the progress of society, are we building a better and cleaner future?”

Sajjan Jindal, Chairman, WorldSteel Association Remaining emissions can be offset through reforestation of degraded areas or purchase of carbon credits.

India’s role in championing the

“With the decision of India, close to hundred percent of global steelmaking capacities are now situated in countries that already have made Net Zero announcements. So we as an industry have to also step up and reduce our CO2 emissions.”

Dr Edwin Basson, Director General, WorldSteel Association

sustainability journey of the steel industry has been recognised by World Steel Association with two Indian groups– Tata Steel and JSW – featuring prominently in the list of nine Steel Sustainability Champions of 2021.

“Sustainability is a core business requirement, vital to a company’s continuing license to operate. An ethical and socially responsible approach can act as a competitive advantage for forward-thinking steel companies,” said WSA in its latest report on sustainability indicators.

“There is little doubt in our mind today that steel has a very important role to play in supporting sustainability of the modern society. The key task ahead for all of us is to address the climate change challenges before us. Steel already has a lower CO2 footprint than most of its competing materials. But our industry is planning for the future production of steel with lower carbon emissions,” Dr Basson said.

“As the repercussions of climate change become stronger at all levels, our products and processes have been put under the magnifying glass. I think it is time for all of

Steel Insights, November 2021

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COVER STORY

“Steel’s decarbonisation pathway can be achieved in 3 distinct phases”

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rabodha Acharya, Chief Sustainability Officer at JSW Group develops and drives sustainability strategy for the group companies with nearly three decades of experience in the field of corporate sustainability, environmental management, emissions reduction, climate change corporate strategy and policy development. He spoke to Tamajit Pain of Steel Insights sharing his thoughts on the path steelmakers are taking to achieve decarbonisation as India pledges Net Zero by 2070. There are two main technologies which are expected to be commercially feasible in the long run for the decarbonisation of steel industry. These are CCUS and Green Hydrogen based reduction of Iron. The key enablers for successful implementation of the above technologies are policy Initiatives, R&D and technology collaboration, access to finance, preferential public procurement and carbon credit mechanisms.

More steel companies internationally are adopting decarbonisation initiatives for sustainable growth. How do you see the trend picking up in India?

At present, the global steel industry accounts for 7-9 percent of the total industrial CO2 emissions in the world, while contributing to 7 percent of global GDP, which makes it increasingly important to step-up decarbonisation initiatives in the sector. It is not just investors, but employees, customers, suppliers, and numerous other stakeholders, are looking at steel companies to design and implement long-term, sustainable policies that support growth, address the environmental and social impacts the companies have and play a crucial role in the planet’s decarbonisation pathway. This means that all the leading steel players have a responsibility to focus on decarbonisation pathways.

The path that global steel sector can take for decarbonisation, may not be same to an Indian steel sector.In the world 75 percent of steel is being made through the primary routeand 25 percent is made through electric arc furnace (EAF)-scrap route. Once more scrap is available, the share of EAF would increase that can eliminate the iron making process, where the majority of CO2 emissions happen. That is not available in India because we are a growing economy.

Typically steel made takes 40 years to become scrap. Still we are not in a stage where scrap is available to the extent required. India has iron ore but the quality is not good and we need more coke, resulting in higher CO2 emission.

India’s commitment to cut emissions intensity per unit of GDP by 33 to 35 percent by 2030 (which is now enhanced to 45 percent

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COVER STORY

“Five enablers: way forward to sustainable cleaner steel”

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ight and scalable technology, appropriate policy guidance by government, access to finance to fund transition, willingness of customers to pay for cleaner products and infrastructure for use of new technologies are the need of the hour for a sustainable and cleaner steel industry, according to Madhulika Sharma, Chief Corporate Sustainability, Tata Steel. In a free-wheeling interview with Steel Insight’s Tamajit Pain, she said the right policy guidance to incentivise the steel producers to commit to decarbonisation and create demand for low carbon embodied steel is key for transition of Indian Steel sector. Steel companies will have to invest significantly for piloting and scaling up near zero technologies like use of Hydrogen as an alternate to carbon and carbon capture for mitigation of its high carbon footprint. Collaboration is also the need of the hour and the transition can be accelerated by inter-sectoral collaboration.

There is a general trend towards adoption of decarbonisation for sustainable growth. How do you see steel players gearing up and what are the challenges?

With the run up to COP26, countries like China, Korea and Japan have come out with their net zero commitments. China has announced its commitment of net zero by 2060, Japan and Korea by 2050. Till now Asian countries were not there in net zero commitment. These were largely being led by the European countries.

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These countries – China, Japan and Korea, are also significant producers of steel. So, the steel companies operating in these geographies have also come out with commitments.

However, unlike power sector and low distance mobility, deep decarbonisation of steel is not only a matter of adopting an available technology because carbon is used in steel making as reductant and is a process requirement. Initially for power sector also adoption of available technology was an issue because of high cost of generation.

FEATURE

Shrinking China output to boost India exports

Steel Insights Bureau

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hinese government’s policy to cap 2021 steel production below 2020’s level should keep a lid on supply which bodes well for Indian steel producers, believes domestic steelmaker JSPL. “It is expected that the restrictions will not be relaxed until the end of Q1 of 2022 and may become the norm in the future,” Chinese steelmaker Baoshan Iron and Steel

Co Ltd said while announcing its financial report.

With export rebate being eliminated, mills are now moving away from exports, JSPL said in a presentation.

“The Chinese policies which are wheeling around two themes of widespread or common prosperity and also the decarbonisation, those policies which have been finalised by China, have led to a visible slowdown in the overall economy. That also led to lower

Chinese crude steel production growth has contracted sharply in 3QCY21

Chinese export peaked during 1QFY22 but decreased thereafter

“In the third quarter of 2021, the company actively responded to the pressure from external policies, such as production curtailment and dual control system on energy consumption and intensity, as well as coal resource shortage and surging prices.”

Baoshan Iron and Steel Co Ltd investments in the residential property sector.

We have seen a contracting steel demand in China month after month,” Seshagiri Rao, Joint Managing Director and Group CFO, JSW Steel Ltd told analysts.

“Both the crude steel capacity and production restriction will continue in China in future, and the iron ore market will return to oversupply, so the iron ore prices will also run weak with less fluctuations in 2022,” Baoshan said.

China’s steel capacity expansion has ended, said the Chinese steelmaker. It will not only ensure ‘carbon peak’ in 2030, but also limit the height of peak. “As a high carbon emissions industry, China steel industry must be arranged as early as possible, and both the capacity and output limitation will be the norm in future,” Baoshan said.

Steel demand is falling in China at a progressive rate, from 13 percent in July to 18 percent in August to 24 percent in September.

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CORPORATE

SAIL eyes 17 million tons saleable steel in FY22 Steel Insights Bureau

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ublic sector steel major SAIL has guided saleable steel volume of 17 million tons (mt) for FY22E, raising it from previous guidance of 16-16.5 mt. For the next financial year, FY23, the steelmaker expects saleable steel volume of 18 mt.

“Management expects sales volume of 9.4 mt in second half of FY22 against 7.6 mt in H1. With Covid impact reducing in international markets and economic activities picking up, SAIL looks to explore higher export opportunities,” Centrum Research said in a report following the announcement of financial results of the company for Q2 and H1 of FY22.

SAIL largely caters to the construction and infra segment (65 percent of sales), where strong demand recovery is expected in H2 of FY22, as monsoons have receded, and seasonally, construction activities pick up strongly during the period, the report pointed out.

Modernisation & expansion plan

Products being added ♦ Auto grade CR Products, Galvanized Coils /Sheets ♦ Plates / Pipes to meet up to API 100 Grade specification ♦ Universal Beams/Heavy Beams to support increasing Infrastructural requirements ♦ Rails for Metro – Railways and Dedicated Freight Corridors. Increased production of Rails and Wheels to meet the increasing requirements of Indian Railways ♦ Quantum jump in Rounds and Structural production ♦ Wider Plates in the size of 4300 mm

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Expected outcome ♦ Production through twin-hearth furnace (THF) route to be replaced by BOF-LD converter route ♦ Production through Ingot – teeming route to be replaced with continuous cast production route ♦ Enhancement of production volume by addition of 2 new 4060 m3 Blast Furnaces and one Blast Furnace of 4160 m3 ♦ Increased market share ♦ World class technology and products ♦ Improved Product Mix / proportion of value added products to increase. ♦ Enhanced pollution control measures, with environmental conservation.

Capex

Going forward SAIL would invest in capex avoiding leveraging that will check

creation of loan burden. Analysts were told that further brownfield expansion will be conducted in phases, with expansion of 5 mtpa in one plant at a time and a gap of 12-18 months before the next expansion in other plant.

“We believe this capex will not lead to any leveraging of balance sheet, as the maximum capex/year could be `10,000 crore and SAIL has the ability to generate such cash flows (assuming EBITDA/t of `9,000 and volume of 18 mt),” Centrum Research said.

SAIL said in an investor’s presentation that its capex was `2,134 crore during H1 of FY22 which included `1,387 crore during Q2 FY22.

The capex for ongoing projects is about `61,870 crore consisting of `39,131 crore on capacity expansion and rest for value addition, product mix improvement, debottlenecking and modernisation.

Raw material security

Iron ore Post its expansion program for 23.46 mt of hot metal against 16.58 mt now, SAIL’s iron ore requirement will rise to 39 mt a year from 27.35 mt now.

Ongoing capex

CORPORATE

JSPL to get own Aussie coking coal in December Steel Insights Bureau

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oking coal from Naveen Jindal-led Jindal Steel and Power’s (JSPL) Russel Vale mine in Australia is likely to reach Indian shores by early December helping the steelmaker to protect its margins from rising coking coal prices.

“First consignment of coking coal of 50,000 tons from our Australian mine is likely to reach by end November or early December. We would be producing 2-2.5 million tons (mt) to begin with and will slowly ramp it up,” V R Sharma, MD, JSPL told analysts during a conference call.

Higher coking coal price would impact margins in the third quarter with upward trend in premium hard coking coal prices continuing, rising beyond $400/ton for the first time ever, JSPL management said.

However, incremental supply from Russel Vale mine in Australia and declining iron ore prices should help contain margin compression from rising coking coal prices, JSPL told investors.

JSPL’s Wollongong Coal owns two coking coal mines – Wongawilli and Russel Vale.

JSPL’s thermal, coking and anthracite coal assets are spread across Australia, Mozambique and South Africa. The second quarter saw sharp rise in input costs, impact of which was compounded by exhaustion of low-cost iron ore inventory in the first quarter.

Against coking coal prices of around $400 a ton, JSPL’s cost of production in Australia is $90 a ton. The actual cost would include freight charges, washing costs and also costs associated with converting coking coal to coke at coke ovens.

Considering its long-term contracts and own sourcing of own coking coal from Australia, JSPL sees a modest impact of $50 per ton of steel due to coking coal price rise.

While coking coal prices rose sharply during the quarter, the impact was significantly lower in Q2 given the company had already booked material at lower prices for the quarter.

Export strategy

JSPL would continue to export 30-35 percent of production with current export prices continuing to be higher than domestic prices by 7-8 percent.

Steel capacities across life cycle

“First consignment of coking coal of 50,000 tons from our Australian mine is likely to reach by end November or early December. We would be producing 2-2.5 mt to begin with and slowly ramp it up.”

V R Sharma, MD, JSPL There is good demand for specialty and structural steel for construction and the company is withdrawing from exporting low value products like semis and blooms, which is now being catered to by suppliers from Russia and Iran.

“The company continues to benefit from buoyant export markets as share of exports in overall volumes increased to more than 40 percent in Q2 FY22 compared to 34 percent in Q1FY22 and 38 pecent in Q2FY21.

Exports have become key channel of sales for the company, especially in times of subdued domestic demand,” JSPL said in a release.

Price outlook

Till the time coking coal prices start coming down, JSPL sees little correction in steel prices. “The moment the coking coal prices start softening the correction would take place correspondingly,” Sharma said.

JSPL in the first week of November raised flat prices by `2,000 a ton and by `1,000 a ton for long products to give effect to the rise in input costs.

This follows the price hike undertaken in October by `2,000 a ton for flats and by `1,500 a ton for long products.

Iron ore outlook

Taking a cue from falling seaborne iron ore

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