Steel Insights, November 2022

15 Imported scrap offers fall 16 Pig iron production up 0.5% y-o-y in September 17 September sponge iron production up 5.5% 18 September crude steel production up 1.8% y-o-y 19 G20 shadow on coal mining sustainability 23 EU steel demand not to revive before Q2 of 2023: Eurofer 31 Seaborne coking coal offers rise in October

India iron ore offers remain range bound

Festivities light up car sales in October

Iron ore handled by major ports down 29% in H1

Railways’ iron-ore handling down 12% till October

Global crude steel output up 0.80% in Sept m-o-m

Glencore coking coal output drops

ArcelorMittal, Mitsubishi, BHP join hands for CCU initiative

Tata Steel suppor ts call for mandatory nature assessment, disclosure

Tata Steel reports consolidated EBITDA at `6,271 crores

NMDC steel plant begins coal charging

JSW Steel domestic sale crosses 5-mt tons mark in Q2

Jindal Stainless PAT down by 48% y-o-y

Vedanta sees 1.5 mt hot metal in FY23 from ESL

The great margin squeeze Steel facing multiple headwinds

Sumit Maitra

High energy costs, export ban and softening of prices not fully compensated by decline in iron ore and coking coal prices have all conspired to squeeze the profit margin out of the steel businesses in India.

“Drop in realisations in India, lower volumes in Europe coinciding with consumption of high-cost inventory led to margin compression,” Tata Steel told investors after announcement of its September quarter financial performance explaining the factors at play.

“Global steel prices continued to moderate in July-September period amidst concerns about global recovery and seasonal dynamics. Iron ore and coking coal prices have declined by around 15-20 percent. Energy costs remain elevated especially

natural gas prices in Europe,” the company said in its presentation to analysts.

Margins might improve temporarily in coming months as growth slowdown turns into global recession as being widely predicted which would continue to pull down input prices.

But it would also impact both steel prices and well as consumption, impacting sales as well as margins in the medium term, believe industry experts. “Monetary tightening, energy shortages, geopolitical risks and strong Dollar are weighing on global growth,” JSW Steel told investors recently in a presentation to investors.

“When you look at the numbers globally as regards to steel, production cuts are happening across the world due to slowing demand. Falling steel prices, elevated raw

material costs are leading to squeeze in margins,” Seshagiri Rao, Joint Managing Director, JSW Steel told analysts during a conference call.

While India remains fastest growing large economy; global slowdown will be a headwind, the company said.

“Global slowdown, monetary tightening by central banks and further geopolitical disruptions are major risks. Macro imbalances could emerge despite relatively strong fundamentals,” JSW said.

Intenational Monetary Fund has highlighted risks to global growth driven by high inflation, policy tightening and ongoing Ukraine conflict.

Global growth forecast for 2022 has remained unchanged while rate for 2023 hgas been reduced to 2.7 percent.

While in the US, falling real disposable incomes is impacting consumer demand while high interest rates are hurting real estate, in Europe growth slowdown is likely to deepen in the second half of 2022 with energy shortages, high inflation and rapid tightening by ECB.

In China, strained property sector, continued Covid lockdowns and weakening global demand is hurting growth.

Sector sees deep margin squeeze

For Tata Steel, drop in realisations in India, lower volumes in Europe coinciding with consumption of high-cost inventory led to margin compression.

Its EBITDA per ton in second quarter (Q2) of FY23 dropped to a low of `8,045 from a high of 24,112 in the corresponding period of FY22.

JSW’s net sales realisation fell 14 percent quarter-on-quarter (q-o-q) in Q2 of FY23 due to fall in global prices.

“Because our costs have not gone down to the extent where steel prices have fallen, the margins got adjusted to that extent,” Rao of JSW said.

While its operating costs are lower q-o-q due to fall in raw material prices, correction in raw material prices is less than the fall in steel prices, and there is a lag effect of raw material costs flowing through the company’s P&L, JSW has told investors.

“The government of India imposed duty on iron ore, pig iron, among others. This impacted our realisation and our margin fell 88 percent sequentially,” Sunil Duggal, Group Chief Executive Officer of diversified metal and commodity company Vedanta Ltd recently told analysts.

Duggal, however, added that the company has depleted high-cost inventory in Q2 and see cost reduction in Q3 of FY23.

For JSW, margins got squeezed because of higher interest costs, which increased 6 percent quarter-on-quarter due to higher benchmark rates.

Lost exports

JSW’s exports fell sharply by 62 percent y-o-y and 37 q-o-q on imposition of export duty in

May 2022. Share of its exports dropped to 10 percent in Q2 of FY23 from 38 percent in Q2 of FY22.

JSW is waiting for the export duties to get withdrawn so that its new capacities can find markets.

“We have now capacity at Dolvi, and we also now expanded at BPSL. So, it is possible to get additional volumes and then take this opportunity of exporting if duty is removed,” Rao of JSW Steel said.

Once export duties are removed, Rao sees major exports opportunities in Europe as India’s competitiveness would improve due to lower energy costs.

“If you look at the European market, the production cuts which have taken place in the last few months on an annualized basis it’s almost close to 20-million-tons equivalent. So, the situation of energy the way it is going forward, the situation of labor going forward, that space may not change too much. The energy cost will maybe stabilise, but it will stabilize upwardly,” Rao of JSW said.

For stainless makers, the decision on export dutiy was harsher as it was invoked at a time when the domestic industry is struggling with continuous dumping of stainless steel imports from China and Indonesia.

“Despite being suppliers of high-quality products, the cost competitiveness of the Indian stainless steel manufacturers has been severely affected by the government’s decision to impose a duty on the export of stainless steel products,” Jindal Stainless Steel said.

This, the company said, led to a 60 percent fall in exports of stainless steel flat products between June-August as per the Ministry of Commerce, thus widening the trade deficit.

“On one hand, this has disrupted the ongoing expansion plans of domestic producers. On the other hand, it has led to a lack of trust in Indian policies among global customers. Overall, this decision is damaging India’s reputation as a reliable stainless steel exporter,” the company said.

“If we have to be on high capacity utilisation we need to export. I imagine the government of India will take care of the export duty on steel,” Dilip Oommen, CEO of ArcelorMittal Nippon Steel (AMNS) and

Tata Steel

President of Indian Steel Association (ISA), said.

Rao of JSW sees enough reason for the government to remove the duty following moderation in steel price inflation.

“As per the WPI number, the steel inflation number has come down from 27 percent in April to 4.5 percent in September. Therefore, these numbers are being closely watched even by the government. They have been telling us that the whole purpose of imposing the export duty is to contain inflation,” he said.

Falling back on domestic market

Most integrated players posted significant growth in domestic volumes in the September quarter. In India, the consumption grew by 11 percent y-o-y in the first half of FY23.

While domestic deliveries for Tata Steel were higher by 21 percent q-o-q and 7 percent y-o-y, for JSW, sales in India grew by 47 percent q-o-q during the September quarter.

“I think it is a volume story in the last quarter,” Rao told investors.

The reason why most integrated steel players could post significant growth in sales was the space given to them by the domestic market which could absorb all the sales meant for the export market.

JSW cites the government’s continued focus on infrastructure on the back of robust tax collections, Gati Shakti, National Logistics Policy, domestic defense production and PLI scheme for manufacturing driving

“Drop in realisations in India, lower volumes in Europe coinciding with consumption of highcost inventory led to margin compression.”

Railways prefers aluminium to steel for eco-friendly wagons

Insights Bureau

India’s first indigenously-developed aluminium wagon has been put to use by Indian Railways, which, compared to steel, is being seen as a cost-effective, energy efficient and more sustainable alternative to steel wagons.

The aluminium freight rakes are low maintenance, 180 tons lighter, have lesser carbon footprint and higher payload over the current conventional rakes.

“India’s first aluminium rake with 80 percent salvage value, will serve a longer life of up to more than 10 years than the existing steel rakes,” Indian Railways said during the launch of the wagons during a recent event at Bhubaneswar railway station.

A single rake in its lifetime saves over 14,500 tons of CO2, is 85 percent recyclable, with 180 ton extra carrying capacity, Indian Railways claimed

Ashwini Vaishnaw, Minister of Railways, termed the introduction of aluminium rakes a “significant step towards the fulfilment of Green Railways initiative”.

The wagons have been indigenously developed through joint efforts of Railways, Besco Ltd Wagon Division and Hindalco.

Features of aluminium rake

♦ Fully Lock bolted construction with no welding on superstructure.

♦ 3.25 tons lower tare than steel rakes

♦ 180 ton extra carrying capacity resulting in higher throughput per wagon

♦ Higher payload to tare ratio 2.85.

♦ A single rake can save over 14,500 tons of CO2 over lifetime

♦ 80 percent resale value of the rakes

♦ Cost is 35 percent higher as the superstructure is all aluminium

♦ Lower maintenance cost due to higher corrosion and abrasion resistance

The reduced tare (unladen weight) will reduce carbon footprint as lower consumption of fuel in empty direction and more transport of freight in loaded condition. Also, steel industry consumes nickel and cadmium which comes from import.

“So, proliferation of Aluminum wagons will result in less import. At the same time, this is good for local aluminum industry,” Indian Railways said.

Container Rail volumes to surge at 16% CAGR by FY25: study

Container rail volumes is expected grow at

a healthy compounded annual growth rate (CAGR) of 15.60 percent in FY22-FY25 with steady improvement in rail-coefficient to 31 percent, a new study by Care Ratings has shown. In this report, CareEdge Ratings has analysed the imminent shift in the mode of freight movements from roadways to railways and the underlying factors facilitating the transition.

Slated completion of the prestigious Dedicated Freight Corridor (DFC) project by June 2023, increased trips of cost-effective double-stack container trains and incremental volumes of cement cargo through railways are prominent factors influencing the switch from roads to rail.

CareEdge Ratings believes that transit assurance under DFC aiming to squeeze the travel period by 40- 50 percent for some of the major routes shall accelerate this transition. This shall help in achieving ‘Just in Time’ inventory management and hence improve cost competitiveness.

Nevertheless, higher haulage rates for freight traffic due to extensive crosssubsidization of passenger traffic and the absence of a regulatory body for the railways are the underlying key challenges for the modal shift, the rating agency said.

A dedicated freight corridor boosts the modal shift from road to rail Container cargo transported through railways grew by a healthy year-on-year (y-o-y) rate

Steel

“Iron industry consumes a lot of nickel and cadmium which comes from import. So, proliferation of Aluminum wagons will result in less import.” Indian Railways

Ashwini Vaishnaw, Minister of Railways, inspecting aluminium wagons at the Bhubaneswar railway station.

High steel prices driving up RE costs: IEA

Steel Insights Bureau

Cost pressures are being felt across the energy sector from persistent strains on supply chains and from higher prices for critical minerals and essential construction materials such as cement and steel, says International Energy Agency (IEA) in its World Energy Outlook 2022.

While prices of polysilicon tripled in 2021, steel was up by 70 percent over the same period and aluminium was up 40 percent resulting in costs of solar panels and wind turbines go up by between 10 percent and 20 percent since 2020.

For many technologies, this puts the spotlight firmly on raw material inputs, which now account for a larger proportion of overall costs than they did before, IEA has said.

“We expect recent rises in clean technology costs to be temporary, and to recede in the face of the forces of innovation

and improvements in manufacturing and installation processes. Current trends are, however, prompting governments to pay closer attention to the resilience and diversity of clean energy supply chains, which cannot be taken for granted,” the report says.

Challenges to steel decarbonisation

Several other challenges stand in the way of industry sector decarbonisation, the report points out.

♦ First, many technologies required for the transition in the industry sector are still at prototype or demonstration stage and not yet ready for deployment at scale.

♦ Second, in a number of cases new production processes with substantially lower emissions intensities will - at least initially - have higher costs.

♦ Third, many heavy industry sector products, such as steel, are traded internationally in competitive markets,

with margins that are too slim to absorb elevated production costs or to encourage first movers to adopt new technologies.

♦ In addition, heavy industrial facilities are long-lived and capital intensive. These challenges call for a multi-pronged approach to decarbonisation in industry in the NZE Scenario.

Changing role of coal in steelmaking

In steel, nearly three-quarters of total final consumption is currently provided by coal, a higher share than in any other sub-sector. Coke, produced from coking coal, provides high-temperature process heat and serves as a reducing agent for the reduction of iron ore in the blast furnace route.

In the Net Zero scenario, share of unabated coal in total sector demand falls

Energy intensive industries such as refining, chemicals, steel and iron, cement and aluminium production could be deeply affected by energy transitions and possible accompanying price volatility. Future investment in energyintensive industries is likely to favour regions with outstanding clean electricity and CCUS potential in particular.”

ArcelorMittal, Mitsubishi, BHP join hands for CCU initiative

World’s leading global steel company ArcelorMittal, Mitsubishi Heavy Industries Engineering (MHIENG), a pioneer in carbon capture technology, leading global resources company BHP, along with Mitsubishi Development Pty Ltd are collaborating on a multi-year trial of MHIENG’s carbon capture technology with ArcelorMittal, following the signing of a funding agreement between the parties.

The companies will also conduct a feasibility and design study to support progress to full scale deployment.

“The agreement, which involves a trial at ArcelorMittal’s steel plant in Gent, Belgium and another site in North America, brings together the expertise of the various partners in identifying ways to enhance carbon capture and utilisation and/or storage (CCUS) technologies in the hard-to-abate

steelmaking industry,” a joint release by the parties said.

The industry is estimated to account for around 7-9 percent of global greenhouse gas (GHG) emissions.

CCUS has the potential to be a key technology for reducing emissions from existing global blast furnaces, which are anticipated to remain a significant portion of steel production over coming decades.

International Energy Agency estimates CCUS technology needs to apply to more than 53 percent of primary steel production by 2050, equivalent to 700 Mtpa of CO2, for the Net Zero Emissions scenario.

“There are no full-scale operational CCUS facilities in blast furnace steelmaking operations at present, with only a limited number of small CCU pilots underway or in the planning phases globally. However, later this year ArcelorMittal Gent will commission its Steelanol project, a scale demonstration plant that will capture carbon-rich process

gases from the blast furnace and convert them into ethanol.

To further understand how carbon capture technology can be incorporated into existing steel plants, ArcelorMittal is facilitating the trial at its 5 million tons steel plant in Gent, Belgium, and at another location in North America, with MHIENG supplying its proprietary technology and supporting the engineering studies,” the release said.

“There is currently no certain or single pathway to net zero for steelmaking. CCUS is one of the key abatement technologies with potential to support development of some of those pathways, so working with industry leaders like ArcelorMittal, Mitsubishi Development and MHIENG, we hope to arrive at scalable solutions more quickly to help reduce carbon emissions in steelmaking,” Vandita Pant, Chief Commercial Officer, BHP

Steel Insights Bureau

JSW Steel domestic sale

crosses 5-mt tons mark in Q2

Lack of export opportunities due to high duties and revival in domestic demand have pushed up JSW Steel Ltd’s domestic sales to cross the 5 million tons (mt) mark in the September quarter of FY23.

Sales volume on a standalone basis during the quarter was 5.01 mt and 5.63 mt on stand-alone basis. Out of this, 5.07 mt was sold in the domestic market, which is a growth of 47 percent quarter-on-quarter (q-o-q). JSW Steel achieved 5.58 mt of production including Bhushan Power and Steel Ltd (BPSL).

“This is the first time where we have crossed 5-mt mark and we have increased our market share to 18 percent in the domestic market, even though exports have fallen by 37 percent,” Seshagiri Rao, Joint Managing Director, JSW Steel, told analysts.

Value-added sales volume has gone up by 24 percent q-o-q (its share maintained at above 50 percent) while retail sales, sales in the renewable sector and to the automotive sector, all went up in the last quarter.

Supplies to auto sector was up 52 percent y-o-y and 9 percent q-o-q. against auto industry volume growth at above 38 percent y-o-y and 11 percent q-o-q.

Sales to appliances sector grew 23 percent y-o-y but fell 19 percent q-o-q while sales to Renewables (solar and wind) segment was up 78 percent q-o-q.

“That has made us to increase our overall sales volume in the domestic market. But in spite of increasing sales volume the margins were under tremendous pressure as is prevalent in the steel sector globally. The reasons being very steep fall in the net sales realisation,” Rao added.

“Exports fell sharply, by 62 percent y-o-y and 37 percent q-o-q on imposition of export duty in May 2022,” the company said.

Plants operated at 86 percent capacity utilisation for the standalone operations (including Dolvi Phase-II).

“Iron ore availability issues and maintenance shutdown impacted utilisation levels,” the company said.

Fall in realisation by 14%

Net sales realisation on a blended basis have

fallen by 14 percent which was `10,000 lower than Q1.

“Costs have not kept pace with the fall in steel prices as we have been guiding in the last quarter that we had high-cost raw material inventory that they were to be consumed in the Q2 therefore margins will be under pressure in the Q2. In line with our guidance, the costs have fallen by only `5,200

Steel Insights Bureau

“Exports fell by 62% y-o-y and 37% q-o-q on imposition of export duty in May 2022. Plants operated at 86% capacity utilisation for the standalone operations (including

Dolvi Phase-II). Iron ore availability issues and maintenance shutdown impacted utilisation levels.” JSW Steel

Retail & branded stores sales

AM/NS India set to expand Hazira steel plant’s capacity to 15 mtpa

the global best practices of its parent companies and investing in technology and R&D. “The company is now a selfsustaining, free cash flow generating business, and well-positioned in a fast-growing market to deliver long-term value to its employees, communities, and the Indian steel industry,” the company said.

As part of its expansion programme, AM/NS India will continue to contribute to the strengthening of India’s steelmaking expertise and capabilities, including the development of downstream facilities to produce value-added steels to reduce India’s reliance on steel imports for use in sectors such as defence, automotive and infrastructure.

Beyond volume growth and improving the quality and diversity of its steels, AM/ NS India is also focused on efforts to lead the decarbonisation of the steel industry through initiatives such as integrating renewables into its energy supply chain and exploring the use of a range of lower-carbon technologies over the next decade.

The ground-breaking ceremony was graced by Narendra Modi, Prime Minister of India, Bhupendra Patel, Chief Minister of Gujarat, Jyotiraditya Scindia, Steel Minister, Yasutoshi Nishimura, Minister of Economy, Trade and Industry, Japan,

ArcelorMittal Nippon Steel India has commenced work on its `60,000 crore expansion project at Hazira in Gujarat that will take its capacity to 15 million tons per annum (mtpa) from 9 mtpa, creating 60,000 jobs.

“This expansion at Hazira comes nearly three years after AM/NS India was established, and will involve upstream and downstream steelmaking expansion and strengthening nearby communities with initiatives that deepen sustainability,” AM/ NS said in a release.

Since 2019, the joint venture between ArcelorMittal and Nippon Steel, has made strong progress on performance and debottlenecking at Hazira plant by applying

Steel Insights Bureau

Prime Minister Narendra Modi addressing the ground-breaking ceremony of AM/NS India.

Lakshmi Mittal, Executive Chairman, ArcelorMittal and Aditya Mittal Chairman, AM/NS India at the ground-breaking ceremony.