Steel Insights, October 2020

FROM THE CHIEF EDITOR Chief Editor Dr Mahul Brahma, Tel: +91 85840 08241, E-mail: mahul.brahma@mjunction.in Editor Tamajit Pain, Tel: +91 91633 48065, E-mail: tamajit.pain@mjunction.in Associate Editor Sumit Kumar Maitra, Tel +91 85840 08181, Email: Sumit.Maitra@mjunction.in Editorial Board Jayant Acharya, Director (Commercial & Marketing), JSW Steel Ltd K Ranganath, former CMD, KIOCL Rana Som, former CMD, NMDC Ltd S K Basak, former ED (Collieries Division), SAIL Sushim Banerjee, Director General, INSDAG Vikram Amin, former ED (Strategy and Business Development), Essar Steel Ltd Senior Correspondent Ritwik Sinha, Tel + 85840 08234, Email: ritwik.sinha@mjunction.in Balaka Ghosh Chatterjee, Tel + 85840 08190, Email: Balaka.Chatterjee@mjunction.in Analyst Sanjoy Bag, Tel +91 85840 08215, Email: sanjoy.bag@mjunction.in Business Lead Soumitra Bose, Tel: +91 92310 00232, Email: soumitra.bose@mjunction.in Advertising Soudipto Malakar, Tel: +91 91633 48243, Email: soudipto.malakar@mjunction.in Sumit Jalan, Tel: +91 83369 25981, Email: sumit.jalan@mjunction.in Subscription Niladri Kar, Tel: +91 83369 96510, Email: niladri.kar@mjunction.in Email: publication.vspl@mjunction.in Toll free number 1800 41 920 001, press 6 for publication.

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Dear Reader, These are times of contradictions. The passenger car sales will boast that car makers are having a great time. The commercial vehicle delivery story will give you a different picture altogether.

Steel price movements within and outside the country will leave you more confused.

While the domestic producers continue to jack up prices, in China, which is the major force in determining the price movement, prices are softening.

Industry experts believe that there isn’t any more head room available for prices as it will trigger a surge in imports.

Steel imports, in fact, are already rising at an alarming rate. Value of steel imports tracked by government’s Steel Import Monitoring System has touched $822 million in August from $746 million in July, and close to $1 billion seen in March.

Demand revival in the domestic market also means the steel companies can now avoid exporting cheaper low-value products just to keep the blast furnace running.

Iron ore paints a similar story: local shortages and upward price movements contrasts with global glut that is pushing down prices.

This issue of Steel Insights tries to make a sense of these confusing signals for you.

The steel sector is still not fully out of the grip of the depressing impacts of Covid-19 and the resultant lockdown. Steel demand growth in August was meagre 1.4 percent and crude steel production fell 0.9 percent when compared with July.

Industry insiders are maintaining a cautious outlook on the sector for the second half of FY21 and it expects an operational recovery to preCovid level gradually by the second half of FY22.

In the corporate sector, SAIL saw a major restructuring of its Board with the heads of the subsidiaries given board position.

Industry watchers see this move as the first step towards making the public sector steel major turn more responsive to market dynamics.

The month also saw Tata Steel Mining Ltd, wholly-owned subsidiary of Tata Steel commencing operations at its Sukinda chromite mine, the first step towards commercial mining.

It would be interesting to see how successfully Tata Steel manages this new area of operations.

The issue covers both these developments in details.

As Covid keeps throwing curveballs, industry experts think steel demand will be able to dodge it in H2FY21.

The future’s not ours to see, Que Sera Sera, what will be, will be.

Articles are invited from industry partners for publication in Steel Insights.

The selection of articles is subject to scrutiny by the editorial desk and its decision will be final and binding. The copyright of the published articles will be held by the publication.

Steel Insights, October 2020

3

CONTENTS 16 Imported scrap offers fall

6 | COVER STORY

17 India pig iron production down on month 18 August sponge iron production down 2.2%

Demand dodges Covid Curveball

19 August crude steel production down 1% on month

Consumption of steel is reviving across most sectors pushing up prices

20 Govt, industry must join hands for sustained sector recovery: EY-CII report 28 Car sales northbound as PV sales take lead 30 Global supply glut to pull down iron ore prices 31 Low domestic iron ore output impacts supply, prices 32 Seaborne coking coal offers move up in September

23 | FEATURE

Steel makers bid for commercial coal mines 40% of mines get no response

26 | FEATURE

33 Traffic handled by major ports down 16.6% till August 34 Indian Railways’ iron-ore handling down 12.5% in April-August

August steel import value touches highest since March

38 Global crude steel output up 2% in August 40 Tata Steel starts commercial mining at Sukinda 41 Board restructuring to make SAIL more agile 44 NMDC reworking strategies to raise output: CMD 45 Graphite electrode makers to revive in FY21 46 Dalmia-OCL launches magnesia carbon line for steel sector 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, October 2020

Imports crossed $1 billion before lockdown.

35 | INTERVIEW

“There is lot going for green furnace in terms of performance and new features” Satadri Chanda, ED, Megatherm discusses the state of induction furnace sector.

39 | INTERNATIONAL

Major Aussie coking coal project goes underway 15 mtpa capacity eyes China, India markets

COVER STORY

Demand dodges Covid curveball Sumit Maitra and Tamajit Pain

6 Steel Insights, October 2020

COVER STORY

I

ndia’s steel sector has now turned the corner post lock-downs with meaningful recovery in domestic demand across several sectors and improved margins.

And it’s not just cost push because of higher raw material prices but demand pull also which have led to sharp price hikes across the board and steel producers continue to raise prices even in October.

And the momentum is expected to continue as there is still some steam left.

Domestic demand

The domestic steel demand in India has recovered in the past three months and is back to the pre-Covid levels largely due to an increase in demand from automotive and white goods.

These sectors have seen significant demand revival with the lifting of lockdowns across the country.

And, while construction sector has revived in a limited way particularly in the affordable sector, further rebound is likely post the monsoon and return of migrant workers who had deserted construction sites earlier.

At the same time, higher regional prices and tight domestic supply situation due to higher export bookings by domestic steel

mills have resulted in an increase in prices of Indian hot rolled coil (HRC) steel.

Flat steel prices have risen by 15 percent over past two months and are above 9 percent above pre-Covid levels i.e., March 2020.

Improvement in domestic consumption will help all the major steel players in the country.

Though JSW Steel’s volumes were impacted by lower domestic demand in the first quarter and the spread of Covid-19 at its Vijayanagar plant in Karnataka, which affected production, recovery in the auto segment demand bodes well for the company as it contributes around 15 percent to its volumes in a normalised scenario.

Similarly, Tata Steel’s India margins is expected to be strong in the near term.

Robust integrated domestic operations with captive iron ore availability is expected to be positive for Tata Steel.

On the other hand, it is expected that SAIL’s margins will improve, supported by better realisation.

Jindal Steel & Power Ltd, which has bettered most of its peers since the beginning of the pandemic saw its consolidated steel sales growing 30 percent on year.

“We are ramping up sales and production, as India comes out of the lockdown effect

Sector-wise steel demand drivers

“We are ramping up sales and production, as India comes out of the lockdown effect and ramps up its economic activities towards a renewed growth path.”

V R Sharma, MD, JSPL and ramps up its economic activities towards a renewed growth path,” V R Sharma, MD, JSPL, said.

Volumes are expected to grow further supported by ramp up in under-utilised capacities.

The steel ministry has proposed incentives of around `3,345 crore to boost the domestic production of various grades of steel that are largely imported to meet the local shortfall.

While few sectors, such as automotive and domestic appliances, are showing encouraging signs of demand revival, going forward, infrastructure, construction, and real estate will play a crucial role in further driving demand.

Demand recovery leading flat steel prices hike

Domestic steel makers continue to hike prices, raising HRC offerings by `1,0002,000 a ton for October deliveries, market sources say.

Since July, steel mills have hiked HRC steel prices by `7,000-7,500/ton which now stands at `43,000-43,500/t whereas CRC prices stand at around `52,000/t.

The improved demand outlook is driven by strong recovery in automotive, consumer durables and other white goods, etc.

“We believe the robust demand in flat rolled steel is also driven by replenishing of inventories by end-users amidst tight supply of HRC, even as inventories remain low in the system. Further, export commitments of

Steel Insights, October 2020

7

FEATURE

Steel makers bid for commercial coal mines 40% of mines get no response Steel Insights Bureau

C

ommercial coal mining auction has received lukewarm response from the private sector with the Tata group and also foreign investors staying away although there was good amount of interest from steel makers who have been importing coal.

Overall, out of 38 mines put on auction, bids were received for only 23 coal mines or 60 percent of total.

Technical Bids for the 11th tranche of auction of Coal Mines under CM (SP) Act, 2015 and 1st Tranche of auction of Coal Mines under MMDR Act, 1957 was opened on September 30 at The Ashok Hotel in New Delhi following which the bidders’ details were made available.

Key takeaways from bidders’ list

♦ Steel companies that rely on imports to meet their coal requirements have bid like JSPL (2 bids), JSW Steel (1 bid), Sunflag Iron & Steel and Welspun Steel (1 bid) ♦ Participation from logistics, real estate companies and traders. With bid qualification relaxed and coal mining and sales decontrolled, there was significant response from such non-traditional players, experts believe ♦ Adani Group was the largest bidder with 12 bids through its various arms ♦ All three primary aluminium producers Hindalco, Nalco and Balco have bid as the auction has allowed concurrent bidding for coal as well as bauxite mines as well

♦ There was no participation from foreign companies or Tata group.

The bids will be evaluated by a multidisciplinary Technical Evaluation Committee and Technically Qualified Bidders would be shortlisted for participation in the electronic auction to be conducted on MSTC portal from October 19.

The online bids were decrypted and opened electronically in the presence of the bidders. Subsequently, sealed envelopes containing offline bid documents were also opened in the presence of bidders. The entire process was displayed on the screen for the bidders.

Bidder analysis

The highest number of bids were received

Steel Insights, October 2020

23

FEATURE

August steel import value tracked by SIMS touches highest since March

Sumit Maitra

V

alue of steel imports tracked by government’s Steel Import Monitoring System has jumped 10 percent to $822 in August from $746 m in July, a growth of 10.11 percent in dollar terms.

June imports were even lower at $629 m.

The consistent rise in imports is happening at a time when the government is focusing aggressively on import replacement through indigenous production.

26 Steel Insights, October 2020

Month on month registrations ($M)

FEATURE

Global supply glut to pull down iron ore prices Sumit Maitra

G

rowing iron ore supplies amid signs of steel sector weakness in China and subdued demand recovery elsewhere are likely to keep ore prices under check in coming months.

From a peak of $130.55 a ton for 62 percent ore at the beginning of September, prices came down to $123 at the end of the month when prices saw some temporary spike with the onset of the Chinese Golden Week holiday.

Trigged by decline in iron ore prices, China HRC price corrected by 4 percent during that month.

Rising global production

Brazil’s ore exports, as per official data released by Ministry of Industry, Foreign Trade and Services, have grown 18.5 percent on year in September to 37.86 million tons (mt), the highest monthly data since December 2015.

And over August, shipments were more by 21 percent in line with Vale’s rise in production.

The volume shipped last month is the largest since December 2015, with Brazil exporting a record 39.5 mt, according to the Ministry of Industry, Foreign Trade and Services. Compared with August, there was a 21percent increase in Brazilian iron ore shipments in September.

Its Viga concentration plant in Brazil which was earlier closed due to a court order resulting in a loss of 11,000 tons per day of iron ore production, has reoped on October 4 after Vale reportedly complied with all the due legal requirements for the permits issuance.

It’s not just Brazil, other major iron ore exporters like Australia and South Africa are also raising their shipments.

30 Steel Insights, October 2020

China glut

Iron ore supplies from Brazil have been normalizing, and port inventories in China have been rising, which does not bode well for iron ore prices, says a research report of Motilal Oswal.

By the end of September, the slowing down of Chinese steel sector was perceptible with falling blast furnace utilization and softening of iron ore prices.

“China’s demand for iron ore is expected to be lower than today in the second half of the 2020s as crude steel production plateaus and the scrap-to-steel ratio rises. At the same time, the likelihood of new supply of iron ore from West Africa has increased. This implies that it will be even more important to create competitive advantage and to grow value through driving exceptional operational performance,” BHP said.

Short term price jump

In the last week of September, International prices rose to $123 per ton from $117 per ton in the previous week as steel makers restocked before the holiday week coupled with rise in futures prices, decrease in steel inventories and improving manufacturing purchasing managers’ index (PMI) in China.

Announced by Vale of the suspension of operations at a concentrated plant in Brazil also played it’s part though according to latest reports, the plant has restarted operations.

Outlook

In addition to the iron ore availability and price risk as well and the timeliness of governments infrastructure spending, the movement in international prices and import pressure from Free Trade Agreement countries would be the key factors.

The world crude steel output rose 3 percent on month in July, signaling a potential

China’s demand for iron ore is expected to be lower than today in the second half of the 2020s as crude steel production plateaus and the scrap-to-steel ratio rises. At the same time, the likelihood of new supply of iron ore from West Africa has increased. This implies that it will be even more important to create competitive advantage and to grow value through driving exceptional operational performance. recovery in global demand conditions with China leading, although it was down 2.5 percent on year. This has contributed towards increased global steel prices.

While domestic steel players have capitalised on this by increasing exports to China (especially of intermediate and flat products), the domestic demand has been muted during 1QFY21. However, India’s steel exports are likely to reduce, as volumes are reallocated to the more profitable domestic market and Chinese production ramps up.

INTERNATIONAL

Major Aussie coking coal project goes underway 15 mtpa capacity eyes China, India markets

“The project will supply steelmaking coal to markets globally and continues to attract strong interest within the industry across Asia, including Japan, Korea and China.

Olive Downs has already assembled the key elements required to commence construction following the grant of the Mining Leases, including securing access to power, water, rail and port, even as finance and offtake partners are finalised,” the company said in a release.

Local stimulus

Steel Insights Bureau

P

embroke’s 15-million tons a year at peak capacity metallurgical coal project has received Australia’s Queensland government approval recently and is largely being seen as an economic stimulus for the economy with potential to create 1,000 jobs once the mining project is complete.

The output would be sent by rail to Dalrymple Bay coal terminal for export to markets in Japan, China, India and also South Korea.

“Pembroke Resources is developing the Olive Downs Coking Coal Project into a world class independent and large-scale producer of metallurgical coal, delivering high quality coking coal and PCI products to key markets including Japan, South Korea, China and India,” the company said.

Mining Leases

The granting of the Olive Downs leases follows approvals from the department of

agriculture, water and the environment under the Environment Protection and Biodiversity Conservation (EPBC) Act in early 2020 According to Pembroke Chairman and Chief Executive Officer Barry Tudor, the mining lease approvals were the final approval hurdle to commence the first stage of the project.

The Olive Downs project is being developed to produce up to 15 mtpa of saleable coal over its 79 year mine life.

Pembroke claims it consulted extensively with the local community over the past four years with a focus on creating local jobs and proactively engaged with all stakeholders asscciated with the project including establishing a strong relationship with Barada Barna as the traditional owners of the land, with whom the miner has an Indigenous Land Use Agreement and Cultural Heritage Management Plan in place,” Tudor said.

With some 838 mt of open cut JORC reserves, Olive Downs is strategically positioned in the Bowen Basin and with access to infrastructure.

The mine is expected to provide much needed local stimulus in the recovery from the impact of the pandemic, with significant economic benefits for Queensland, including the creation of up to 500 jobs during construction.

The project will also provide opportunities for local and regional suppliers, contractors, service providers and the wider business community.

“In addition to employment in, and its contribution to, the local economy of Central Queensland, the steelmaking coal project is also expected to generate around $5.5 billion in royalties for the Queensland Government over the life of the mine,” the release issued by the company said.

The project takes resources investment in Queensland over the past five years to $21 billion, creating 8000 jobs, the government said.

Member for Mackay Julieanne Gilbert said the granting of final approvals meant Pembroke could begin delivering more jobs for the Mackay region.

“Olive Downs can now proceed to deliver up to 500 construction jobs building the mine and its associated infrastructure including rail and transmission lines, water pipelines and access roads,” Ms Gilbert said.

When at its peak production, and over its 79-year life, the mine will go on to employ up to 1000 workers in the local region, including in and around Moranbah and Dysart.

The project is expected to contribute an estimated $8 billion to the local economy and more than $10 billion to Queensland’s economy over its 79-year lifespan.

Steel Insights, October 2020

39

62 Steel Insights, October 2020

Tear along the dotted line

Tear along the dotted line