Steel Insights, October 2019

Contents 24 Imported, domestic scrap offers drop 25 Pig iron production down 1.6% in AprilAugust 26 August sponge iron production down 0.9% on year 27 Crude steel production down 3.6% in August 28 Unit cost of transport in Dedicated Freight Corridor to come down by 40% 31 CIL launches tranche 5 of linkage auction for steel cos 32 Subdued demand continues in Sept with hit of recovery for Motown 34 Seaborne coking coal offers slid in September 35 Industry demands “attractive” auction norms 36 Mining cos fear iron ore supply may be hit 37 Railway Board may cut wagon intake on weak demand 40 Met coal a challenge to meet NSP targets: RINL 41 Global crude steel output flat in August m-o-m 42 Traffic handled by major ports up 2% till August 43 Indian Railway’s iron ore handling up 9% on year 45 Government Update 49 Iron ore prices set to touch $57 a ton by 2021, Aussie government report 51 13th Indian Coal Markets Conference 2019 52 Proptech set to transform real estate, construction sectors 54 Ferro alloy data 55 Price data 56 Production data 57 Global production data 59 Import export data

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6 | COVER STORY

Raw Material Security in Steel: Proactive steps required As steel sector aims for NSP targets, raw material requirements to jump manifold

29 | FEATURE

India’s met coke dilemma Time to review anti-dumping duty? Prabal Bhowmik of Avani Resources explores

38 | FEATURE

Domestic steel demand to grow in 2nd half of FY20: Rating agencies Weak 1st half to bring down realisation for steel makers

44 | CORPORATE

RINL achieves higher EBIDTA, net profit Adjudged as National Energy Leader

47 | INTERNATIONAL

China launches stainless steel Futures contract Yuan-denominated futures is first of its kind in the world

Cover Story

Raw material security in steel: Proactive steps required Tamajit Pain

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Cover Story

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oday, it is estimated that the global steel industry uses about 2 billion tons of iron ore, 1 billion tons of metallurgical coal and 575 million tons of recycled steel to produce 1.7 billion tons of crude steel annually. Efficient use of natural resources is critical to sustainability.

The industry uses advanced technologies to increase production yield rates and to facilitate the use of co-products. Steel’s advantage is that it is 100 percent recyclable and can be reused infinitely. As a result of the intrinsic recyclability of steel, the value of the raw materials invested in steel production lasts far beyond the end of a steel product’s life.

Steelmaking materials markets

Raw materials in steelmaking

Steel is an alloy consisting mostly of iron and less than 2 percent carbon.

Iron ore is, therefore, essential for the production of steel, which in turn is essential in maintaining a strong industrial base. 98 percent of mined iron ore is used to make steel. Iron is one of the most abundant metallic elements. Its oxides, or ores, make up about 5 percent of the earth’s crust.

Average iron content for high-grade ores is 60 percent to 65 percent, after taking into account other naturally-occurring impurities.

Iron ore is mined in about 50 countries.

The majority of iron ore is mined in Brazil, Australia, China, India, the US and Russia.

Australia and Brazil together dominate the world’s iron ore exports, each having about one-third of total exports.

Worldwide iron ore resources are estimated to exceed 800 bt of crude ore, containing more than 230 bt of iron.

The unprecedented growth of China’s steel production in the 2000s resulted in very strong growth in global demand for steelmaking materials.

Global iron ore exports grew from half a billion tons in 2000 to 1.5 bt in 2016.

Australia consolidated its position as the main supplier of steelmaking materials with iron ore exports growing from about 150 mt to 800 mt.

Key raw materials needed in steelmaking include iron ore, coal, limestone and recycled steel.

The two main steel production routes and their related inputs are: ♦♦ Route 1: The integrated steelmaking route, based on the blast furnace (BF) and basic oxygen furnace (BOF), which uses iron ore, coal, limestone and recycled steel. On average, this route uses 1,370 kg of iron ore, 780 kg of metallurgical coal, 270 kg of limestone, and 125 kg of recycled steel to produce 1,000 kg of crude steel. ♦♦ Route 2: The electric arc furnace (EAF) route uses primarily recycled steels and direct reduced iron (DRI) or hot metal, and electricity. On average, the recycled steel-EAF route uses 710 kg of recycled steel 586 kg of iron ore, 150 kg of coal and 88 kg of limestone and 2.3 GJ of electricity, to produce 1,000 kg of crude steel.

Around 70 percent of total global steel production relies directly on inputs of coal via the BF/BOF route. In 2017, about 1.2 Gt of crude steel were produced in BOFs, which required the output of about 1.1 Gt of BF (hot metal/pig iron) and about 200 Mt of scrap.

In 2017, global EAF output accounted for about 30 percent of global steel production (around 480 Mt), which required the output of about 60 Mt BF, 90 Mt of direct reduced iron (DRI) and 380 Mt of scrap.

Steelmaking materials are some of the biggest commodities in the world in terms of volume of production, consumption and transportation.

For example, iron ore, with a production volume of around 2 billion tons (bt) and an export volume of about 1.5 billion tons, is the third largest commodity in terms of production volume - after crude oil and coal - and the second most traded commodity after crude oil - globally. Ferrous scrap, with a global recycling volume of more than 600 million tons (mt), is the largest commodity recycling activity in the world.

Iron ore

Coal and coke

Coking coal is a key raw material in steel production. As iron occurs only as iron oxides in the earth’s crust, the ores must be converted, or ‘reduced’, using carbon. The primary source of this carbon is coking coal.

Coke, made by carburising coking coal (i.e. heating in the absence of oxygen at high temperatures), is the primary reducing agent of iron ore. Coke reduces iron ore to molten iron saturated with carbon, called hot metal. ♦♦ Around 1 bt of metallurgical coal are used in global steel production, which accounts for around 15 percent of total coal consumption worldwide. ♦♦ Coal reserves are available in almost every country worldwide, with recoverable reserves in around 80 countries. Although the biggest reserves are in the US, China, Russia, Australia and India, coal is actively mined in more than 70 countries. ♦♦ China is by far the biggest producer of coking coal in the world. Australia dominates metallurgical coal exports, accounting for about 200 mt of a total of 310 mt of metallurgical coal exports globally. ♦♦ About 30 percent of coal can be saved by injecting fine coal particles into the blast furnace, a technology called Pulverised Coal Injection (PCI). One ton of PCI coal used for steel production displaces about 1.4 tons of coking coal.

Coals used for pulverised coal injection into blast furnaces have more narrowly defined qualities than steam coal used in electricity generation.

Recycled steel

Steel products naturally contribute to resource conservation through their lightweight potential, durability and recyclability. At the end of a product’s life, steel’s 100 percent recyclability ensures that the resources invested in its production are not lost and can be infinitely reused. Due to its magnetic properties, steel is easy to separate from waste streams, enabling high recovery rates and avoiding landfills.

Steel is the most recycled material in the world, with about 670 Mt recycled in 2017, including pre- and post-consumer scrap.

By sector, global steel recovery rates are estimated at 85 percent for construction, 90 percent for automotive, 90 percent for machinery, and 50 percent for electrical and domestic appliances.

Recycled steel (scrap) can be collected from excess material in steel facilities and foundries (home scrap) or downstream

Steel Insights, October 2019

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FEATURE

India’s Met Coke Dilemma: Time to review anti-dumping duty?

8 countries across the globe and delivered to clients mostly in India and China.

Indian Metallurgical Coke Manufacturers Association (IMCOM), on behalf of the domestic producers of Low Ash Metallurgical Coke in India, namely Saurashtra Fuels Pvt. Ltd, Gujarat NRE Coke Ltd, Carbon Edge Industries Ltd, Bhatia Coke and Energy Ltd and Basudha Udyog Pvt Ltd had submitted an application for initiation of investigation and imposition of anti-dumping duty on the dumped imports originating in or exported from Australia and China.

Following sufficient prima facie evidence submitted by the applicants, authorities issued notification in December 2015 initiating the antidumping investigation.

The product under consideration didn’t include other metallurgical coke with high ash content in excess of 18 percent.

Low ash met coke is produced by destructive distillation of coking coal in the absence or regulated presence of oxygen at high temperatures (ranging between 1100 to 1350 degree centigrade) causing the coal to soften, liquefy and then re-solidify into hard but porous lumps.

Following investigations, anti-dumping duty was imposed by the government vide customs notification in November 2016.

Findings of anti-dumping investigations

Steel Insights Bureau

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he Government may withdraw anti-dumping duty on Low Ash Metallurgical Coke originating from Australia and China imposed in 2016 following a recent mid-term review.

The finance ministry, through a notification dated in 2016, had imposed an anti-dumping duty of $25.20 per ton on met coke imports from China and $16.29 per ton on imports from Australia for a period of five years.

“With major met coke player, Gujarat NRE facing financial difficulties and international prices no longer cheaper, there is a case for review of import duty on LAM coke and a mid-term review was launched

in December,” Prabal Bhowmik of Avani Resources Pte Ltd said while addressing Indian Coal Markets Conference organised by mjunction services ltd.

“With major met coke player, Gujarat NRE facing liquidation and international prices no longer cheaper, there is a case for review of import duty on LAM coke and a mid-term review was launched in December,” said Prabal Bhowmik, Business Head (Met Coke) Avani Resources Pte Ltd. Avani Resources, founded in 2010 in Singapore, was set up by Rawmet Resources Pvt Ltd, founded by team of steel industry professionals and now manages revenues exceeding $1.75 billion, trading about 15 million tons of commodities sourced from

The dumped imports of LAM coke from China and Australia increased significantly in the period of injury as compared to base year 2011-12. The goods have been exported to India below normal values, the dumping margins are positive and significant. The domestic industry suffered material injury on account of subject imports from the subject countries. The material injury has been caused by the dumped imports of subject goods from the subject countries.

Current scenario

LAM coke imports into India grew about 8 percent a year in FY18-FY19 before plummeting by 30 percent year-to-date current year.

JSW and ESSAR Steel accounted for close to 50 percent of coke imports into India. JSW is no longer an importer of coke and Essar Steel alone accounts for 44 percent of the total coke imports into India which is entirely non-Chinese and non-Australian.

Steel Insights, October 2019

29

FEATURE

Domestic steel demand to grow in 2nd half of FY20: Rating agencies

Steel Insights Bureau

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omestic steel demand and global market sentiment is likely to improve in the second half, but a weak first half is expected to lead to a 5-6 per cent contraction in realisations for steel makers this fiscal, ratings agency Crisil has said in its latest research report on the sector.

Falling spreads on earnings before interest taxes depreciation and amortization (Ebitda) will weigh on steel sector capex, the report said, adding that the industry is yet to see a recovery in prices despite a run-up in raw material costs.

"Global steel prices dropped 13 percent in the first eight months of 2019 due to weak demand, unseasonal jump in global inventory

38 Steel Insights, October 2019

levels of up to nearly 35 percent through August and trade tensions," the report said.

This was despite a whopping 56 percent runup in global iron ore prices during the same period.

"Steel prices in India mirrored the trend, falling 10 percent from `42,000 per ton in January to `38,000 per ton in August 2019," the report added.

Not surprisingly, Indian steel manufacturers’ earnings before interest, tax, depreciation and amortisation (Ebitda) spreads contracted 420 basis points (bps) on-year in the first quarter of fiscal 2020.

The contraction was more for large nonintegrated players, at 470 bps.

To add to it, "subdued domestic demand and weak export markets cloud the industry’s

prospects in the rest of this fiscal as well," the Crisil report said. After a robust 7.5-8 per cent growth in the previous two fiscals, the domestic steel industry is expected to witness a mid-cycle slowdown at 4-5 per cent this fiscal, given muted construction investments and weak automotive market, the report predicted.

CRISIL Research said: “Steel prices have not been able to recover despite a cost push.

We therefore believe weak realisations will shear 350-370 bps off the sector’s Ebitda margins for the first half and 200-250 bps for the fiscal as a whole, reversing a three-year climb."

"Large non-integrated players will see their margins shrink more, by 300-350 bps this fiscal, given weak flat steel market and

international

China launches stainless steel Futures contract on Shanghai exchange

Steel Insights Bureau

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hanghai Futures exchange has just started trading a a Yuan-denominated stainless steel futures, the first of its kind in the world.

The listed futures at the Shanghai Futures Exchange are eight contracts to be delivered from February to September of 2020 having benchmark prices set at 15,585 yuan ($2,203.6) a ton, Chinese news agency Xinhua has reported.

On the first day of trading, the futures

settled a trading volume of 195,240 lots with a turnover of about 15.2 billion yuan (about $2.15 billion).

The most active ss2002 contract for February 2020 delivery edged down 10 yuan to close at 15,575 yuan per ton in daytime trading, it said.

“The launch of the stainless steel futures helps provide an open, continuous and transparent price signal and an effective risk management tool for companies in the industrial chain,” said Jiang Yan, chairman of the Shanghai Futures Exchange.

It also will help enhance the price-setting power of the country, the world’s largest stainless steel producer and consumer, in the global stainless steel market, said Jiang.

China witnessed a rapid growing stainless steel industry, with its production reaching 26.7 million tons in 2018, accounting for over half of the global output. The country became a net stainless steel exporter in 2010, reversing from the world’s largest importer.

Su Weizhong, deputy secretary-general of the China Iron and Steel Association, said the launch of the stainless steel futures will

Steel Insights, October 2019

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62 Steel Insights, October 2019

Tear along the dotted line

Tear along the dotted line