Steel Insights - Mar 2012 by mjunction services ltd

EDITORIAL Chief Editor Rakesh Dubey, Tel: +91 91633 48159, E-mail: rakesh.dubey@mjunction.in Executive Editor Tamajit Pain, Tel: +91 91633 48065, E-mail: tamajit.pain@mjunction.in Editorial Board Dr Abhirup Sirkar, Professor Economics, Indian Statistial Institute (ISI) Dr Amit Chatterjee, Consultant and former Advisor to MD, Tata Steel Ltd Jayant Acharya, Director (Commercial & Marketing), JSW Steel Ltd K Ranganath, CMD, KIOCL Vikram Amin, Executive Director (Strategy and Business Development), Essar Steel Ltd Advertising Soumitra Bose, Tel: +91 92310 00232, Email: soumitra.bose@mjunction.in Sumit Jalan, Tel: +91 91633 48243, Email: sumit.jalan@mjunction.in Subscription Rachita Das, Tel: +91 91633 48045, Email: rachita.das@mjunction.in Design Debal Ray, Ishawer Kumar Sriwastva, Sobhan Jas For suggestions, feedback and queries, please write to steelinsights@mjunction.in

Dear Readers, The Assembly elections in India are over and it’s time for speculations as it needs to be seen what will be the impact of the poor performance of Congress in the elections. There are apprehensions that the Congress-led UPA may not be able to push through the economic agenda in view of the poor showing of the party in the polls. The BSE Sensex dropped by 190 points as the results trickled in on these concerns. There, however, is a contrarian view. Many think there would not be a major change and the government needs to have a more investment and growth oriented Budget to show that poll results will not reflect in their governance at the Centre. In the Assembly elections of five states, the Congress has done well only in Manipur. While the Samajwadi Party will form the government in Uttar Pradesh, the Shiromani Akali Dal-BJP alliance has retained power in Punjab with a clear majority. BJP is all set to form the government in Goa and Congress and BJP are almost equally matched in Uttarakhand. Analysts feel that the results are a reflection of the government’s poor pursuance of key economic reforms in sectors like insurance, pension, banking and opening of retail and aviation to foreign investment because of political reasons.

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Coming back to the steel sector, steel demand in the second half of the current financial year is better than the first half. The overall demand growth in India in the first 10 months of this financial year is over 5 percent. As for the worldwide steel demand-supply dynamics, the January numbers are showing a huge amount of moderation in overall steel production in the world. In January, the world production has come down by 7 percent that is 117 million tons, relative to January 2011. It is driven mainly by China – the production was down in China by 13 percent in January 2012. So there is a moderation which is happening across the continents. In Europe production was down. Japan production was falling too. India is facing a huge amount of moderation in line with the subdued demand across the world. That is why we are not seeing a big correction from the current levels in the steel prices. In this scenario, we at Steel Insights examine the cost structure of steel companies in India to see how they are coping with the challenges of low demand and rising input costs. The issue also delves into steel technology and ways by which technology can be leveraged for growth. We also have a special corporate update on JSPL. Happy reading. Warm regards, Rakesh Dubey Chief Editor

Contents

6 | Cover Story

Managing cost: Steelmakers take up tough challenge The steel industry is coping with the challenges of low demand and rising input cost

21 | CORPORATE uPDATE

27 Tata Steel seeks to raise borrowing limit 28 JSW Q3 net profit dips 56% 29 ArcelorMittal makes some headway in Karnataka project 31 SesaSterlite to generate $7-8 bn annual surplus 32 ECL receives MoEF nod for iron ore mine 33 Steel makers should focus on heat loss utilisation, waste management 34 Supply constraints lift iron ore prices 36 Scrap prices show mixed trend

JSPL Odisha coal gasification unit by July

37 Spot coking coal prices slip over 2% in Feb 38 India’s coking coal, coke deficit to double by 2015

The project marks a new beginning in India’s pursuit for CTL

23 | Corporate UPDATE SAIL to set up 1.2-mt rail mill at Bhilai

Heavy rails to be produced for the first time in India

30 | Corporate UPDATE

41 Jharia coalfields must be evacuated to augment coking coal production 43 Steel ministry may favour raising of import duty on steel 44 Ferro alloys show mixed movement in Feb 46 Sponge iron Q3 production down 21% y-o-y 50 Steel industry seeks input duty cut in Budget 51 April-Jan iron ore traffic down 25% y-o-y 52 Indian Railways Apr-Jan commodity freight revenue up 9.7% 54 Macroeconomic indicators of India 56 Global crude steel output down marginally

NMDC eyes overseas acquisition of more mineral assets

58 International flat product markets: Mixed trend amid uncertainties

Raw material security uppermost in NMDC’s priority

60 International long product markets: China, Japan firm up; US remains soft

48 | FEATURE

Auto sector revival trend continues SIAM forecasts full-scale revival in 201213

STEEL INSIGHTS 4 March 2012

61 Domestic flat & long products: Mixed trend in prices as year draws to a close 63 Domestic raw materials: Low output keeps pig iron stable 64 Ferro alloys and metals price trend 65 Iron ore export data for February 66 Market price data for February

Cover Story

ndia occupies an important position on the global steel map, with the establishment of new state-of-the-art steel mills, acquisition of global scale capacities by players, continuous modernisation and upgradation of older plants, improving energy efficiency and backward integration into global raw material sources. However, the sector is faced with a unique situation – the twin challenges of inflation and slow demand growth. As the monetary authorities are left with little choice but to squeeze liquidity out of the system through multiple doses of interest rate hike, the steel sector is faced with no alternative but to squeeze costs to stay afloat. Leading steel giants are finding it difficult to maintain both its topline and bottomline growth in this complex situation. Things are even more complex as the sharpest minds in the global steel sector need to balance both the short term and long term goals. And amidst the current volatility and uncertainty, at times it is getting difficult even to decide on a feasible long term goal.

Luckily, the environment is relatively better because of the fact that India is less affected by the recent financial hit as compared to other countries, primarily the developed countries like the US and Japan. But even then the Indian steel makers are competing with its global peers in several areas including raw material cost, energy efficiency and high end technology to produce superior grade steel. With China occupying centrestage, the world of steel raw materials, including iron ore and coking coal, has witnessed some of the sharpest volatilities with an upward bias. This has hit India hard due to its large dependence imports for coking coal. According to industry stalwarts, in the period of 1995 and 2005, i.e., in a period of 10 years, raw materials used to cost 35 percent and the rest was value addition. Today the situation is completely different. Today, raw materials comprise 70 percent of the cost and what value is added, account for the remaining 30 percent. The steel mills are gradually getting into a stage where what is being controlled is becoming lesser. So obviously the margins of the steel industry are under pressure. It is also forcing the steel industry to go in for more and more assured and steady supply of raw materials. This is forcing steel players to go an extra mile in order to work out an optimal strategy balancing short term and long term growth even in today’s environment of extreme uncertainty. Leading Indian steel players are moving ahead quite aggressively leveraging its existing advantages on account of access to iron ore, relatively cheap labour and a relatively robust domestic market. Major players are taking numerous steps to

Managing cost:

Steelmakers take up tough challenge Tamajit Pain

STEEL INSIGHTS 6 March 2012

Cover Story improve its efficiencies even in areas which do not occupy the top slots in the entire production. Some of the initiatives have started showing results and are expected to significantly add to the bottomline of steel giants of the country. At the same time, they are on with their effort to secure supply of crucial raw materials from overseas assets. And above all, nearly all steel players are focusing immensely to increase their energy efficiency whose benefits are far reaching. Times are difficult, but it is undoubtedly an opportunity wherein India can make up for time gone by where it has not been able to strategically grow as its global peers. Once again, it is a matter of time before we find out how Indian steel makers manage the test of time. SAIL When low cost steel production is top priority, the prime state owned steel producer in the country Steel Authority of India (SAIL), is banking big on its massive modernisation and expansion plan. It has 100 percent security in the iron ore segment and is the only steel producer to have its own coking coal arrangements. However, India being not so rich in the coking coal segment, the steel major has to depend on imports for 70 percent of its requirement. Consequently, owing to the highly volatile coking coal market, the company’s margins get affected. SAIL has been constantly emphasising on cost reduction and productivity improvement through systematic application of new technology and strong awareness to control cost at all levels of operation. Several strategic actions to achieve cost control savings include optimisation of coal blend, higher yield, reduction in specific energy consumption and coke rate, higher BF productivity, higher CC production, low power consumption and improvement in other techno-economic parameters. Fostering technology leadership is one of the prime focus areas of the company in keeping with the requirement of low cost production. Thus, to augment technology an MoU has been signed with Posco, Korea and a detailed feasibility study is being conducted to explore exploration of upstream and

downstream opportunities based on FINEX technology which would use iron ore fines for steel making. As a result, it will help reduce dependence on high-grade metallurgical coal, as it will use ordinary coal with iron ore fines, thus insulating the company from cost push on the coking coal front. In another similar initiative, an MoU has been signed with Kobe Steel Limited of Japan for exploring the technical and economic feasibility of ITmK3 technology for producing premium grade iron in the form of nuggets. The company is in talks with other leading steel producers on technology intervention in steel and related areas. Under the company’s ongoing expansion plan, SAIL intends to achieve saleable steel production of 21.4 million tons (mt) by 2012-13 from 13.8 mt now, at a cost of `61,870 crore approximately. Thus, post the implementation of the project, the production will be through twin-hearth furnace route to be replaced by BOF– LD Converter route. This upgradation is aimed at increasing automation, higher cost saving, reduction in use of energy and better product quality matching market requirements. In a similar initiative, production through ingot teeming route will be switched to continuous cast production route. Further, enhancement of production capacity by addition of new 4060 m³ blast furnaces would help in cost control. At the Bhilai Steel Plant, which is India’s sole producer of rails and heavy steel plates and major producer of structural, the Steel Melting Shop-2 has been upgraded and provided with a second ladle heating furnace, which has augmented its productivity. The plant is the sole supplier of the country’s longest rail tracks of 260 metres. With an annual production capacity of 3.153 mt of saleable steel, the plant also specializes in other products such as wire rods and merchant products. Hot metal desulphurisation facility and torpedo ladle system are also to be added to the shop, along with several other provisions to increase its capacity. The plant’s Coke Oven Battery-5 has already been rebuilt with higher productivity and zero emission technology. Batteries-1 &2 are also being upgraded similarly. The blast furnace-2 of the plant has been rebuilt with volume enhancement from 2000 cubic metres to 2365 cubic metres and productivity augmentation to 2T/M3/day. In Furnace-3 Stoves (Hoogovens) and some other facilities have been upgraded and furnace-5 is also being upgraded. Besides furnaces-2 and 3 have also been provided with coal dust injection facility. Furnaces-1, 2 & 3 will see installation of cast house slag granulation facility to help slag management in a gainful and efficient manner. The ore handling facilities too have been upgraded, as are some support facilities and utilities. In phase II, the plant plans to upgrade and add newer facilities for significant capacity addition in all areas. Plan includes two 7-metre tall coke oven batteries, along with rebuilding of some existing batteries. For iron making, two new blast furnaces of 4060 cubic metres are to be set up. Besides two new Steel Melting Shops (SMS-III: 4.3 mtpa, SMSIV: 2.42 mtpa) will be installed, with conventional and thin slab casting facilities.

STEEL INSIGHTS 8 March 2012

Cover Story BSP Product-Mix

Tons/Annum

Semis

5,33,000

Rail & Heavy Structural

7,50,000

Merchant Products (Angles, Channels, Round & TMT bars)

5,00,000

Wire Rods (TMT, Plain & Ribbed)

4,20,000

Plates (up to 3600 mm wide)

9,50,000

Total Saleable steel

31,53,000

Source: SAIL

The Bokaro Steel plant, which has a capacity of around 4.5 mt of liquid steel, will see the addition of a new 7 meter tall coke oven battery no 11, additional sinter machine in existing sinter plant No. 3 of 360 sq.m, new blast furnace No.8 (4060 cu. metre) of 8000 tons per day (tpd) capacity, new steel melting shop No. 3 of 4 mt capacity complete with all secondary refining and casting facilities. The plant has also taken up a project for rebuilding of the existing coke oven battery No 6. The new coke oven battery, along with coke dry cooling plant, by product plant and new coal handling plant, will enhance coke capacity by 0.88 mtpa. Besides, the technology ensures better pollution control, improvement in yield, better coke quality, extended oven life, recovery of waste heat and power generation. Two other batteries are being rebuilt, of which Battery#5 is ready for commissioning and Battery#6 rebuilding is under progress. In the area of iron making, BSP will have a new and bigger 8000-tpd blast furnace (BF 8) designed to produce more than 2.8 mtpa of hot metal using modern technology and TRT system for power generation using waste gases. BSP will set up the new sinter machine of 360 sq.m. grate area along with associated facilities in the existing SP-3 complex to produce 3.706 mtpa of gross sinter to meet the additional sinter requirement in blast furnaces. Currently, Bokaro is producing top quality hot rolled products that are well accepted in the global market. Bokaro is designed to produce flat products like Hot Rolled Coils, Hot Rolled Plates, Hot Rolled Sheets, Cold Rolled Coils, Cold Rolled Sheets, Tin Mill Black Plates (TMBP) and Galvanised Plain and Corrugated (GP/GC) Sheets. Bokaro has provided a strong raw material base for a variety of modern engineering industries including automobile, pipe and tube, LPG cylinder, barrel and drum producing industries. Meanwhile, Durgapur Steel plant, which has a capacity of 2.088 mt of hot metal,1.8 mt of crude steel and 1.586 mt of DSP Product-Mix Tons/Annum saleable steel, has decided to Merchant Products 2,80,000 keep some of the older units Structural 2,07,000 by rebuilding it, coupled with Skelp 1,80,000 addition of some new units. Wheels & Axles 58,000 Along with this, there will Semis 8,61,000 be significant upgradation of technology. Moving Total Saleable steel 15,86,000 strategically, DSP intends to Source: SAIL

increase its finished steel component, through efficient caster route from 84 percent rated capacity to nearly 100 percent, debottlenecking of existing facilities to sustain and marginally enhance production and have appropriate infrastructure and services facilities. In line with this strategy, DSP has slated revamping of certain major facilities which include the rebuilding of a 4.45-metre tall coke oven battery under jet furnace recovery type. There will not be much investment in the three existing blast furnaces of DSP. Post the de-bottlenecking process, the blast furnaces will be able to produce 2.4 mt of hot metal per annum. Rourkela Steel plant, which is the first plant in India to incorporate LD technology of steel making and also the first steel plant in SAIL and the only one presently where 100 percent of slabs are produced through the cost-effective and quality-centeric continuous casting route, will be adding a new coke oven battery, sinter plant and blast furnace of 4060 cubic metres, among others during the modernization plan. Some of the other downstream facilities include a third BOF with a capacity of 150 tons with LH and RuhrstahlHaraeus Oxygen-Blowing (RH-OB). RSP will also set up a new third single strand slab caster with balancing facilities for operation and increased production in SMS-II. RH-OB and LHF for quality improvement of steel and several other logistic and support facilities will be installed during the first phase of expansion. Currently, RSP has the capacity to produce 2 mt of hot metal, 1.9 mt of crude steel and 1.67 mt of saleable steel. It is SAIL’s only plant that produces silicon steels for the power sector, high quality pipes for the oil and gas sector and tin plates for the packaging industry. Its wide and sophisticated product range includes various flat, tubular and coated products. The IISCO Steel Plant (ISP), has the capacity to produce 426,000 tons of saleable steel and 254,000 tons of pig iron annually. It has planned installation of certain major facilities which include the setting up of a new blast furnace having a useful volume of 4060 cubic metres. Besides this, the plant will also set up one 7 metre tall coke oven battery in addition to its existing 4.5 metre tall coke oven battery. Setting up of a sinter plant with two machines of

STEEL INSIGHTS 10 March 2012

Cover Story capacity of 204 metre grate area each, is also included in the new installation list. In addition to this, ISP is also coming up with three new basic oxygen furnaces with capacity of 150 tons each. ISP produces a large number of steel structurals and special sections as well as pig iron. the plant pioneered the production of centre –sill Z-section used in the fabrication of wagon and Z-type sheet piling section used in construction of barrages, bridge foundations and other projects and colliery arch section used for roof support in collieries. The plant has also developed ‘slit rolling’ for small diameter rounds (10 mm and 12 TMT), which are in high demand in the domestic market. The plant through its modernisation-cum-capacity expansion would take its hot metal production capacity to 2.5 mt by 2011-12. In the specialty steel segment, Alloy Steel plant’s capacity has been revised to 246,000 tons of liquid steel and 178,000 tons of saleable steel. ASP has the capacity to produce slabs, blooms, bars, plates and forged items of over 400 grades in a wide range of sizes. It also produces value added items like Cold Rolling Mill rolls, Concast rollers, crane wheels, springs, hammers, grate bars, hot saw blade, shear blade, bright bar, stainless steel liner plate, etc. ASP is also supplying import substitution item components to many customers through established conversion agents. The plant is entailing augmentation of stainless steel making facilities through installation of new EAF#8 and AOD Convertors. As part of a long-term plan, ASP, which will enable itself as a standalone producer, has envisaged a new UHP (40MVA transformer rating) EAF replacing two of the existing old EAFs, round-cum-billet caster, investments in blooming and billet mill, forge shop, balancing facilities and utilities. The plant has also set up a second ladle furnace right in AOD-CCS bay. The rationale behind this was to address the constraint and enhance its stainless steel production, as the existing ladle furnace is shared by both production routes and this has given rise to certain logistics issues. In addition, ASP has also taken up several plant-level capital schemes in a phase-wise manner for purpose of de-bottlenecking in operations, maintenance and services functions. Meanwhile, for Salem Steel plant, the `1900-crore expansion programme saw the setting up of a steel melting shop with production facilities which included a 55-ton capacity electric arc furnace, 60-ton capacity AOD Refining Convertor, a 60-ton capacity ladle furnace, a single strand slab caster, slab grinder and associated facilities. Alongside, the CRM is also being strengthened with additional facilities like a third annealing and pickling line, second slitting line, tension levelling line, second skin pass mill, roll grinders and other auxiliary facilities.

RSP Product-Mix Plate Mill Plates HR Plates HR Coils ERW Pipes SW Pipes CR Sheets & Coils Galvanized Sheets (GP& GC) Electrolytic Tin-Plates Silicon Steel Sheets Total Saleable Steel Source: SAIL

Tons/Annum 2,99,000 92,500 3,98,000 75,000 55,000 4,33,000 1,60,000 85,000 73,500 16,71,000

Raw materials Although SAIL is one of the most secured steel producers in India, its production cost gets affected owing to the dependence on imports for coking coal. SAIL is developing new technologies to make the indigenous coal suitable for use in the steel mills and thereby reduce the dependence on imported coking coal. One of the initiativesalong this line is the implementation of the Finex technology. The current import component in the coking coal requirement is 70 percent of the total requirement. The company imports over 90 percent from Australia. However, the remaining 30 percent is sourced from the indigenous player Coal India Ltd. Currently SAIL has a captive coking coal mine which produces around 0.5 mtpa. However, with the augmentation of capacity to match the coking coal demand, SAIL intends to go for long term or quarterly contracts to cover 95 percent of its import requirements. This has been in effect from the last fiscal. In addition to this, SAIL is also developing the Tasra coal block to produce 4 mtpa of ROM (2 mtpa washed coal). The Sitanala coal block in the same region is also being developed for production of 0.75 mtpa of ROM (0.4 mtpa of washed coal). In addition to this, new opportunities for alliances, linkages and acquisitions are being explored. SAIL has the largest captive iron ore operations in India, which takes care of its entire requirement. With plans in place to expand the mining operations, the company will continue to be self sufficient in iron ore after completion of the on-going phase of expansion. Post-modernisation and expansion, the iron ore requirement is estimated to go up to about 43 mt. To meet this challenge, besides augmenting production from the existing mines, the company is vigorously pursuing with the state government of Jharkhand for development of Chiria and Gua Mines. In tune with the corporate plan 2012 of SAIL, various capacity expansion projects have been taken up at the raw material division (RMD) mines in order to cope with the enhanced requirement of iron ore and limestone of desired quality. The major projects cover the Expansion of capacity of Bolani Ore Mines, Development of Central Block at Meghahatuburu Iron Ore Mine, Development of South Block at Kiriburu Iron Ore Mine, Mechanisation and development of Chiria Mines, Development of Taldih Block, and Opening a new mine at Thakurani. RMD also has a centralized workshop at Bolani for repair/overhauling of engines & transmission of heavy earthmoving machinery operating at the mines. Besides the above, RMD has three customer service offices (CSO) at Rourkela, Durgapur andBokaro and three liaison offices at New Delhi, Bhubaneswar and Ranchi for liaison and better coordination with various government agencies as well as different statutory agencies. In the power segment SAIL’s captive power plants take care of about 70 percent of its total power need. Power constitutes a major and critical input in maintaining the cost

STEEL INSIGHTS 12 March 2012

Cover Story SAIL’s raw material resources Sl. No

Mines

State

Year of Commissioning

Rated Capacity (in Mt)

Iron ore 1.

KIRIBURU

JHARKHAND

1964

4.25

MEGHAHATUBURU

JHARKHAND

1985

4.30

BOLANI

ORISSA

1960

4.20

BARSUA

ORISSA

1960

2.01

KALTA

ORISSA

1966

1.10

GUA

JHARKHAND

1919

2.40

MANOHARPUR (Chiria)

JHARKHAND

1907

0.70

Kuteshwar (Limestone)

MADHYA PRADESH

1974

1.10

Bhawanathpur (Limestone)

JHARKHAND

1979

0.80

Tulsidamar (Dolomite)

JHARKHAND

1970

0.34

Flux

Source: SAIL

competitiveness of a steel plant. The power requirement of SAIL is expected to grow to around 1900 MW by 2012 -13 from the current level of about 1180 MW. By 2020 the average load of steel plants including the power requirement of mines is likely to grow to about 4600 MW. SAIL plans to meet this power demand by setting up additional incremental power generation capacity of 1725 MW in the first stage and the balance in the second stage. Further, a large manpower base results in higher manpower cost as a proportion of turnover for the company. SAIL has been successful in reducing this significantly through natural and other separations. Nevertheless, a part of the operations in the company continues to be from energy inefficient processes for example open hearth and ingot route of production. This will be eliminated once the current expansion programme is completed. Tata Steel Tata Steel continues to be one of the most profitable steel operations in the world. As the entire group, as others in the world of steel, are taking bold steps to create value in the long term, the group is taking several initiatives in several areas of operation, strategic growth, R&D, etc. As it is going ahead with its multi-pronged strategy to have a control on escalating cost and rising volatility, primarily on ground of raw materials, the group has undertaken several technological initiatives to increase production efficiency which will ultimately boil down to an improved bottomline. It has several continuous improvement initiatives in place. Cumulative cost savings of `1,061 crore was achieved during 2010-11 with areas such as slag rate reduction, raw material optimisation and shared services being addressed. ‘Kar Vijay Har Shikhar‘ (‘conquer every peak’) is a new initiative launched during the year, which focused on Tata Steel’s aspiration to improve its EBITDA. It is a multi-unit, multi-

location, cross functional improvement programme that aims to excel across the entire steel value chain all the way from raw materials mining to marketing and sales of finished steel. ‘Kar Vijay Har Shikhar’ Operations, the operational improvement programme, is being rolled out in three phases, with phase-1 covering blast furnaces, Haldia Met coke and FAMD, phase-2 covering the coke plant, West Bokaro and the sinter plant and phase-3 looking at the coal and coke value chain, cold rolling, hot metal and scrap, the Jharia clean coal throughput unit and hot metal logistics. ‘Kar Vijay Har Shikhar’ marketing and sales is pursuing value creation in the small and medium enterprise market space and has been launched in flat products, long products, the wires and tubes divisions. This marketing and sales initiative aims to provide Tata Steel with an additional growth lever, improve the group’s product offering and ability to achieve premium prices and enhance the service capability of the marketing and sales organisation in India. Tata Steel India is implementing an expansion project at Jamshedpur works to increase its crude steel capacity from 6.8 mtpa to 10 mtpa. The facilities under this project are scheduled to be completed in FY 2011-12. Simultaneously, the company is implementing a few other major capital schemes at Jamshedpur which include coke plant battery (No. 11), coke dry quenching at coke ovens batteries (No 5, 6 & 7) and a new mill for producing full hard cold rolled (FHCR) coils. This is expected to bringing down cost in a significant manner. As true for any steel maker across the world today, the group is also continuing to implement its long-term strategy to secure ownership of assets that will increase its raw materials security and share of value-added products. During the financial year 2010-11, the company’s primary focus was on expediting implementation of its existing ventures. The Tata-Riversdale Joint Venture in Mozambique that conducted a formal ‘ground breaking ceremony’ at the Benga Coal Project, is entailing an initial production of 5.3 million ROM tons per year to produce approximately 1.7 mtpa of high quality hard coking coal and 0.3 mtpa of thermal coal by the second half of 2011. Tata Steel has 35 percent stake in the joint venture with 40 percent off -take right to the coking coal

STEEL INSIGHTS 14 March 2012

Cover Story produced from these mines. The group plans to supply the hard coking coal from this project to its facilities in Europe in the initial phase of the project development and also for the requirements of the Indian operations in future. The Direct Shipping Ore (DSO) Project in Canada (New Millennium Capital Corporation) will also bring in a lot of value for the Tata Steel group. According to sources, the feasibility study estimates proven and probable mineral reserves of 64.1 mt and the project is expected to produce 4 million dry tons per year of iron ore products commencing in the second half of 2012. The iron ore from this project will be supplied to Tata Steel Group’s facilities located in Europe, solving a major area of concern of the group’s European operations. According to H.M. Nerurkar, managing director of Tata Steel Ltd, In India, currently the company has 100 percent captive iron ore and 45 percent coking coal. As the company grows the company has been promised iron ore leases to match the output, both in Jharkhand and Odisha. The coking coal situation is, however, chaotic. As far as the European operations are concerned, the company will be about 25 percent self sufficient in iron ore in about two years’ time. For coal of course the company has the Mozambique investments and the company expects 1.75 mt of total coal buy coming from it. “As far as coal is concerned, security wise we have some share in CDJV in Australia where we have a 5 percent investment and 20 percent offtake. And we are depending a lot on the Mozambique property also which will again come into stream sometime end of next year which should give us something around 1.7 mt of hard coking coal,” according to Nerurkar. The group has also laid huge emphasis on energy conservation which along with environment implication also has a major financial implication for the group. Some of the initiatives include waste heat recovery from pressure reducing and de-superheating (PRDS) at power house (No 5) resulted in additional 3 MW power generations, use of regenerative burners for lean gas (i.e. BF gas) at 3rd reheating furnace of hot strip mill, modification in LD gas export system, which has resulted in higher LD gas recovery, efficient use of by-product gases for power generation amongst others.

Initiatives Tata Steel initiated several projects to bring down the cost and enhance efficiency in production process that will bring in substantial gain to the company’s bottomline. It undertook several performance improvement team (PIT) projects that were implemented in various operational units across the Tata Steel Group. One such project aimed to reduce the cost of iron-making and steel-making by optimal recycling of iron-bearing waste. This had to be done without affecting the performance of the BF, the sinter plants and the steel plant. The efforts paid off with savings of 500 kilo tons per annum and estimated savings exceeding $100 million per annum at current ore prices. Another project was to reduce chimney emissions to less than 50mg/Nm3. The team studied the problem thoroughly and came up with measures such as the replacement of carbon monoxide outlets, controlling draft and optimisation of gas flows, among others. This resulted into steady reduction of suspended particulate matter (SPM) level which was brought down to the desired level resulting into a cost savings of $16 million up to February 2011. It is expected that there will be additional savings of $40 million by March 2012 through the production of 120,417 tons of additional coke. Continuous casting machine (CCM) productivity plays a key role in steel manufacturing, not only helping a plant meet desired volumes, but also controlling overall costs. Caster break-out at the SISCO plant had been increasing over the last two years and there was a need to reduce the frequency of this occurrence. The project team, after doing in-depth study, arrived at corrective actions, such as designing a new slag fishing rod for better pick-up, restoring and maintaining the CCM in prime condition with regular inspections on the CCM status. As a result, break-out rates fell from 0.15 percent to less than 0.12 percent, while casting heats per tundish increased from 11.86 to 12.80. The group has been significantly investing in research and development with a major focus on cost savings amongst others. For example, a novel process has been developed for production of sponge chrome and chrome nuggets. According to the developed process, sponge chrome will be used for production of ferrochrome in existing Submerged Arc Furnace (SAF) process. It will reduce the power and coke consumption by about 20 percent and increase the productivity of SAF. The chrome nuggets will be directly used as alloying element in the stainless steel and alloy steel-making process. In FY 2010-11, the techno-economic feasibility of sponge chrome production process was undertaken by a cross functional team consisting of members from R&D, ferro alloy operations, marketing and business performance enhancement group. As a result, the sponge chrome production idea having `370 million EBITDA benefit potential (100 ktpa plant) was selected as one of the key ‘Shikhar’ project for Ferro Alloys and Minerals Division (FAMD).

STEEL INSIGHTS 16 March 2012

Cover Story Consolidated financial results summary (under Indian GAAP) for the nine months ending Dec ’11 All figures in US$ million, unless specified 9M FY’ 12

9M FY’ 11

18.01

17.86

18,639

16,006

2,496

2,337

13.4

Highlights Steel Deliveries (Mn tons)

Q3 FY’ 12

Q3 FY’ 11

Q2 FY’ 12

5.84

5.9

6.12

Turnover

6,239

5,482

6,181

EBITDA

366

636

555

14.6

EBITDA Margin (%)

5.9

11.6

9.0

645

612

Depreciation

219

212

209

407

378

Net Finance Charges

133

140

135

1,403

1,334

(3)

296

197

7.5

8.3

PBT Margin (%)

(0.05)

5.4

3.2

934

906

Profit after Taxes, Minority Interest and Share of Associates

(114)

189

5.0

5.7

PAT Margin (%)

(1.8)

3.4

0.6

Profit before Taxes (after Exceptional Items

For the purposes of converting all financial numbers into US$ for all comparable periods, a US$ exchange rate of 53.06 has been used throughout this document. Source: Tata Steel

The project will be under taken in two phases. In the first phase of the project, a 10 ktpa sponge chrome production pilot plant will be built and integrated with existing ferrochrome production process at FAP, Bamnipal which will be up-scaled to full scale operation of 100 ktpa plant in second phase of the project. The pilot plant will help to generate data for up-scaling the process to full scale plant operation. For the 10 ktpa pilot plant, the team has already completed the site selection and prefeasibility activities with the help of Engineering Project Consultant. R&D has innovatively developed new agglomerates “cold bonded chromite pellets” for submerged arc furnace to produce ferrochrome which will reduce 70 percent energy in chromite pelletizing. These pellets exhibit superior reduction characteristics as compared to sintered chromite pellets but consume only 30 percent of the energy. The objective of the investigation was to reduce energy consumption and carbondioxide emissions during chromite pelletizing and ferrochrome production. Cold bonded chromite pellets, as compared to conventional heat hardened pellets, are estimated to decrease specific energy consumption of chromite pelletizing by 70 percent and mitigate carbondioxide emissions by around 10,000 tons per annum. Chromium recovery is expected to increase by 5-8 percent during ferrochrome production bringing in a lot of recovery for the company. Tata Steel’s consolidated group EBITDA in the nine months ended FY 2012 was `13,242 crore ($2.5 billion) compared to `12,399 crore ($2.34 billion) in the nine months ended FY2011.

JSW Steel Leading steel makers have been trying to undertake strategic measures to hedge itself from plausible risks in the longer term while maintaining a high growth momentum. Moving aggressively with its multi-pronged approach including ‘strategic collaboration’, leading private steel maker JSW Steel is all set to create sustainable wealth for its stakeholder through sophisticated and optimally hedged production plan. The year 2010-11 marked an important milestone in JSW’s journey. The year was packed with events like acquisition of coking coal assets in USA, technology collaboration agreement with equity participation by Japanese steelmaker JFE and acquisition of Ispat Industries. In its effort in bringing down its cost significantly, the company has decided to invest significantly in technology. It has commissioned a beneficiation plant at Vijayanagar works to utilise the low grade iron ore fines. The company also has a new sinter plant (sinter plant 3 with capacity 5.75 mtpa commissioned in February 2011) to enhance the sinter percent share in the feed which will further increase the productivity of its blast furnace (BF) and reduce its fuel consumption. In order to further increase energy efficiency of steel plant, JSW is implementing various projects like coke dry quenching, coal briquetting, waste heat recovery boilers, micro pelletization amongst others. As a part of the massive expansion plan that the company has undertaken, the first phase of the 20-mtpa beneficiation plant was commissioned in phases in April 2011. The second phase of the beneficiation plant is scheduled to be completed by November 2011. At the same time, the company is expected to complete its pellet plant 2 (with capacity of 4.2 mtpa) shortly. Coming specifically to raw materials, the single most crucial area around which the entire steel story is revolving at the moment, the company has acquired coking coal mines in West Virginia, USA where it is expected to begin operations and ramp up to 3 mtpa in a period of three years. The current year’s production could be ramped up to 0.5 mt subject to receipt of requisite permits. This will significantly contribute to the costing and sustainable supply for coking coal for the steel makers operation contributing significantly to its cost structure. Conservation of energy is also high in the priority list. The company has already undertaken several initiatives to conserve energy across all its operational locations during the year. For example, it has installed CLIMS, an intelligent, real-time load management system which balances generation with consumption. Financial ratios – standalone Particulars EBITDA Margin

3QFY12

3QFY11

15.9%

17.4%

PAT Margin

2.1%

6.6%

Diluted EPS (`)

7.18*

16.97*

ROCE

8.8%

9.2%

* Not Annualized

STEEL INSIGHTS 18 March 2012

Source: JSW

Cover Story In 2010-11, JSW Steel increased injection of coal dust resulting in reduction of coke rate, generated approximately 11 MW of power by replacing the bypass electrical actuator with hydraulic high capacity actuator, facilitating 94 percent of BF gas to pass through to the turbine installed at the top of BF3, amongst others. Each of these individually contributed to cost savings and enhanced efficiency, thereby strengthening the bottomline of the company. Going ahead, the company will be commissioning the second phase of beneficiation plant II to process low grade of fines to reduce cost. Along with that the company will also undertake modernisation of beneficiation plant I in line with the technology of beneficiation plant II, enabling it to upgrade iron ore quality. In the iron making zone, the company has already undertaken several initiatives to enhance productivity and optimise cost. Some of the initiatives include replacing calibrated ore with sinter in the furnace feed in BF 1 and BF 2 thereby saving cost, reusing blow water from BF gear box, secondary cooling circuit of BF 3 in GCP, saving 500 m3 per day of make-up water, altered the nut coke screen in BF 3 enhancing net nut coke consumption and lowering the cost of screening fines amongst many. Going ahead, the company plans to convert the burden distribution technology in BF 2, expected to improve productivity. JSW has also undertaken several initiatives at its other plants including Salem which has helped to increase efficiency, bringing in cost savings. Amongst several such steps some include improvement in stamp charging technique thereby increasing the BF coke percent chargeable to the BF from 90 percent in 2009-10 to 91.5 percent in 2010-11, increasing the proportion of sinter in the BF input from an average 57 percent in 2009-10 to an average 62 percent in 2010-11 reducing the use of coke and calibrated ore in the BF which optimised production cost, increased the injection of coal fines and dusts to optimise costs, amongst several other. Going ahead, the company has already planned some more initiatives at the Salem unit that will help the company to optimise costs further. New projects Project

Coke Oven Plant

Pellet Plant

Location

Project 1.6 MTPA steel plant 810 MW captive power 3 MTPA Steel Plant 80,000 BPD Coal to Liquid 2, 400 MW Thermal Power 1, 980 MW Thermal Power 6,100 MW Hydro Power

Angul, Orissa Patratu, Jharkand Orissa Chhattisgarh Jharkand Arunachal Pradesh

1 MTPA

4 MTPA

0.8 MTPA

Project Cost

`975 Crores

`835 Crores

`330 Crores

Environmental Clearances

In Place

In process

Implementation period

Dec 2013

21 months from zero date

18 months from zero date

Benefit to JSW Ispat

• Assured availability of good quality coke • Improved productivity

• Assured supplies of pellets

• Reduce dependence on a few large customers

Benefit to JSW Steel

• 25% return on investment

• Larger share of value-added downstream market

Investment

Investment till 31 Dec 2011

USD 3.1 Bn

USD 2.0 Bn

USD 2.9 Bn

USD 0.3 Bn

USD 8.0 Bn

USD 0.02 Bn

USD 2.9 Bn

USD 0.51 Bn

USD 2.4 Bn

USD 0.01 Bn

USD 8.1 Bn

USD 0.12 Bn

Projects – Under planning Location Angul, Orissa Angul/Barbil Patratu, Jharkand Raigarh, Chhatisgarh Bolivia Jharkand Orissa Source: JSPL

Project 2.8 MTPA Steel Plant 7 MTPA Merchant Pellet Plant 1,320 MW Power Plant 3 MTPA Steel Plant 5 MTPA Pellet Plant, 4 MTPA DRI , 1.7 MTPA Steel Plant 2, 640 MW Thermal Power 1, 320 MW Thermal Power

JSPL Jindal Steel & Power Ltd (JSPL), with 3 mtpa steel making capacity, 1.5 mtpa hot briquetted iron making capacity and 5 mtpa pellet making capacity, is riding on 15 mtpa iron ore and coal mining and 2164 MW power generation capacity. The company is relying on its huge resource pool to drive growth in the near future. Resource pool to fuel JSPL’s growth Mine Tensa Jiraldaburu Bailadila Total

Gare IV / 1 & IV/6 Gare IV / 2 & 3 (JPL) Jitpur & Amarkonda Utkal B 1 Urtan North Ramchandi (CTL) Total South Africa Mozambique Indonesia Total Source: JSPL

STEEL INSIGHTS 20 March 2012

Geological Reserve (Mn MT) Domestic Iron Ore Orissa 20 Jharkand 80 Chhattisgarh 100 200 Overseas Iron Ore Bolivia 20 billion MT Domestic Coal Chhattisgarh 300 Chhattisgarh 270 Jharkand 305 Orissa 224 M.P. 55 Orissa 1500 2634 Overseas Coal 50 1200 250 1,500 State

El Mutun CRM Mill

Capacity

Source: JSW

Projects – Under implementation

Purpose Steel Steel Steel

Steel Steel & Power Power Power Steel & Power Steel & Power Coal to Liquid & Power

Corporate update

JSPL Odisha coal gasification unit by July

Steel Insights Bureau

indal Steel & Power Ltd (JSPL), the flagship company of the $10-billion OP Jindal Group, is all set to commence operations at its coal gasification plant at Angul in Odisha by July 2012, a top company official told Steel Insights. “We expect the Angul project to come on stream by JuneJuly. The plant will have a capacity of 80,000 barrels per day (bpd) equivalent of key oil products (such as gasoline),” V.R. Sharma, deputy managing director and CEO of JSPL, said. Coal gasification is the process that converts coal to synthesis gas by partial oxidation using oxygen and superheated steam as the reactants. The synthesis gas mainly consists of carbon monoxide, hydrogen and methane which will be used as a reducing agent for the iron oxide to produce DRI in the shaft furnace. The company was earlier expected to commence operation last year, but the work was delayed due to various reasons, including gas pricing issues. Sharma noted that India has been a rather slow-starter to this field of energy, but gradually “coal gassification is becoming viable in this country.”

STEEL INSIGHTS 21 March 2012

V R Sharma, Deputy MD and CEO, JSPL

Corporate update While being confident of the commercial success of the Angul project, he said the company has planned to come up with similar plants in future. Already, an amount of `50,000 crore has been earmarked for coal to liquid (CTL) projects and the projects would come up by 2017, he added. Investments In order to expand its presence in steel, power and related sectors, JSPL has earmarked more than `100,000 crore investment in steel, power and coal to liquids projects, company sources said. This investment would come in phases in the next eight years, they said. A total amount of `45,000 crore has been earmarked for expansion in the steel sector, the sources said, adding that about `15,000 crore has been already invested till date. An amount of `50,000 crore has been earmarked for coal to liquid projects and the projects would come up by 2017, he said. The company has also earmarked `35,000 crore for power sector. Of this `10,000 crore has already been invested. Apart from this the company is planning to come up with a 4,000-MW hydro power plant in Arunachal Pradesh subject to government support. The total investment for the hydro power project is `24,000 crore. “We are working closely with the state government. The MoU has been signed and the rehabilitation work has started. We intend to start the project work in near future,” the official said. However, the company is still waiting for the final go ahead from the central government and its assurance regarding security matters. Commenting on the project, a power industry source said, “There is huge hydro power potential in the northeastern state, estimated at around 50,000 MW. A number of private sector companies, including JSPL and Reliance, have evinced interest in this sector. However, these projects will need active

support of the governments. There are security issues and only government can dispel such concerns.” Net profit Meanwhile, JSPL is expecting to achieve 30 percent growth in net profit in 2011-12 at `3,000 crore, Sharma said. Asked about the revenue growth, he said the company expects to clock revenues of around `15,000 crore during the current year. The topline growth was around 25 percent in the nine month period ended December 2011. Earlier, on January 19, the company had reported a 6.6 percent increase in third-quarter group profit aided by a onetime gain and higher demand. Net profit rose to `997 crore in the three months ended December 31 from `935 crore a year earlier. Total expenses, including raw material costs, for the quarter jumped 58 percent to `295 crore, the company said. Jindal Steel made an exceptional gain of `25.94 crore in the period. Jindal Steel plans to build a 5 million-ton steel plant and two power plants in Jharkhand. The company, scouting for coal assets overseas to meet requirements for its blast furnace and power plants, will start output at its mine in Mozambique this year. Production for quarter ended December 31, 2011 Product

Qtr III

Growth (%)

2011-12

2010-11

Metallics (DRI & Pig Iron)

770,958

770,162

Steel Products *

756,662

581,567

Pellets

938,280

801,865

1,182

916

Power (million KWh)

* only slab/round/bloom/beam blank

JSPL’s integrated steel plant

STEEL INSIGHTS 22 March 2012

Corporate update

SAIL to set up 1.2-mt rail mill at Bhilai Sanjukta Ganguly SAIL chairman C.S. Verma said that the company contributed about 7 percent percent of the total freight business of the Indian Railways in India in both volume and monetary terms. “SAIL is already the sole supplier of rails to the Indian Railways, including long rails of 260 metres,” he said. Till date, SAIL has supplied over 16 million tons (mt) of rails to the Railways with a total rail length of around 4 lakh km, enough to encircle the earth 9.5 times, a company statement said. It added that the bond has been further strengthened with collaborative efforts with Railways including a pact with RITES to set up a wagon manufacturing unit at Kulti in West Bengal to annually manufacture 1,200 wagons and undertake rehabilitation of 300 wagons. SAIL, which is currently in the process of modernising and expanding its production units, raw material resources and other facilities to maintain its dominant position in the Indian steel market, aims to achieve a production capacity of 26.2 million tons per annum (mtpa) of the hot metal by 2013 from the base level production of 14.6 mtpa (2006-07 – Actual).

tate-owned Steel Authority of India Limited (SAIL) is setting up a `1,600-crore universal rail mill with 1.2 million tons (mt) capacity at its Bhilai facility in Chhattisgarh to produce heavy rails for the first time in India. The mill is likely to be operational by next year, company sources said. "SAIL is investing `1,600 crore in a new universal rail mill to produce single 130-metre rails. The mill has been designed to produce heavier rail sections up to 75 kg/m and head-hardened rails for the first time in India," it said in a statement. Railways Minister Dinesh Trivedi visited Bhilai Steel Plant of SAIL on February 8, accompanied by Minister of State for Railways K.H. Muniyappa. “SAIL plants like in Bhilai occupy pride of place in India’s industrial firmament and SAIL and Indian Railways together are strengthening the foundations of the country,” Trivedi said while appreciating the success of the long business relationship between the Indian Railways and SAIL and acknowledged that it was being strengthened further through the continuous initiatives being taken by SAIL and Indian Railways to meet the growing requirements of the Railways, both technically and volume-wise. STEEL INSIGHTS 23 March 2012

Corporate update

Coke oven battery operation

Other projects The commissioning of the new plate mill of Rourkela Steel Plant (RSP) of SAIL is likely to be delayed "slightly" due to delay in civil construction work, a company source told Steel Insights. "The new plate mill with expanded capacity to process 4 meter wide plates has been slightly delayed because of civil construction work. The construction work got delayed as foundation work took more than expected because of rocks below the surface. The mill has currently a capacity to process plates of up to 2 metres," the source said. The wider plates are in good demand in the market, but transportation is a challenge. It is used in ship building and infrastructure and the main buyers are defense industry, structural and railways (for wagon making) among others. Besides the plate mill, RSP is working on making some more grades of special steel, the source said. "We are already making silicon steel at SMS1, but with the installion of RHOV at SMS2 not only will our capacity increase, but we will be able to make clean and good steel such as extra deep drawing (EDD) steel," the source said, adding, "EDD has been delayed a bit and will now be commissioned in March 2013." Another major project of BSP is that the plant has rolled out a fresh order of 54 tons of Ultra High Strength Special Steel Plates of 9.2 mm thickness that will be used for the main

body of India's indigenous space launch vehicles such as Polar Satellite Launch Vehicle (PSLV) and Geosynchronous Satellite Launch Vehicle (GSLV) that are manufactured by India Space Research Organisation (ISRO). The plates were rolled in Plate Mill from slabs supplied by

Work at Bolani mines stop, to resume soon

Steel Insights Bureau

he state of Odisha has asked the Steel Authority of India (SAIL) to stop operations at its Bolani iron ore mine after forest clearance expired on February 11, according to sources. The mine, which is spread over 1,321.45 hectares, produces 10 million tons (mt) of iron ore annually and supplies to several plants of SAIL. However, sources said mining was likely to resume soon as the company hopes to obtain necessary clearances soon. SAIL is expected to boost its iron ore requirements by 68 percentpercent to 39 mt in 2013 from 23.25 mt in 2010 to meet expansion needs.

STEEL INSIGHTS 24 March 2012

Corporate update

SAIL reports 43 percent dip in Q3 profit

Steel Insights Bureau

tate-run Steel Authority of India Ltd on February 13 reported a 43 percent dip in net profit for the third quarter ended December 31, 2011 at `632 crore compared to `1,107 crore in the corresponding period last year on costlier raw material and forex loss. The total income of the company declined to `10,729 crore against `11,280 crore a year earlier. Its raw material consumption grew to `5,991 crore during the quarter against `5,262 crore in the third quarter of last fiscal. SAIL largely meets its iron ore requirement from captive sources, but it had to rely heavily on imported coking coal to fire the blast furnaces in the reporting quarter. The weaker rupee also negatively impacted the steel makers’ bottom line to the tune of `466 crore during the reporting quarter. SAIL attributed the forex loss to “unusual and steep depreciation in the value of the rupee against US dollar and euro”.

includes plates of 8 to 120 mm thickness, 1500 to 3200mm wide and in lengths up to 15 meters. Close to 50 percent of the total production from the plate mill is of the special steel variety. The mill has advanced facilities for ensuring high product quality i.e., Hydraulic Automatic Gauge Control, Plan View Rolling, Online Ultra-Sonic Testing Machine, Normalizing Furnaces. Among such new and advanced facilities recently added are Heavy Duty Shear and an Edge marking with bar coding and decoding facility that is under commissioning. Bhilai has collaborated with the Indian Navy to develop and supply DMR-249A (ABA) grade steel plates meant for use in constructing hull of the aircraft carrier warships of frigates. The collaboration with the Navy is expanding and BSP is also making steel (DMR 249B) for manufacture of submarines. These grades are specially toughened, warship-grade steel from Bhilai for use in constructing hull of the aircraft carrier warships or frigates and submarines. Several projects of national importance are sourcing their requirement of special steel plates with the right properties and strength from Bhilai's Plate Mill. To meet the requirement

Mishra Dhatu Nigam Ltd (MIDHANI), the company said in a release. Steel is widely used in construction of space shuttles along with metals like aluminium, titanium and other high grade materials. Such special grades of steel are made out of special alloys and are capable of withstanding metal fatigue which occurs due to tremendous changes in heart and atmospheric pressure on the spacecraft when it returns to orbit. Special care was taken in Bhilai’s Plate Mill for proper heating and soaking this grade as the steel requires eight hours of retention time inside the furnace. BSP had earlier rolled this special grade of plates for space application in 2009. The officials witnessing the production in plate mill have expressed confidence in Bhilai’s capabilities for rolling out more such grade of plates for space applications in future. Bhilai's plate mill that has been rolling the required grades for use in defence and space sector, has become a kind of onestop shop for wide and thicker customised and special grade plates for meeting a variety of end usages in the power and energy sector, super-construction projects, ship building and manufacture of boiler and pressure vessels, heavy engineering machinery and equipment, pipelines for water, crude and gas transportation etc. The product range of Bhilai’s plate mill is wide and STEEL INSIGHTS 25 March 2012

Corporate update

of BHEL, Bhilai produced for the first time 120 mm thick normalized ASTM A36 grade plates with ultrasonic testing for supply to M/s BHEL, Ranipet for construction of auxiliary structure of high capacity boilers. Another grade developed for BHEL, Haridwar is the thicker gauge Boiler Quality plates in IS 2002 Gr.II in 120mm thickness for use in the Turbine pedestal of 500MW Thermal Power Plant. Suzlon's windmills are being made with the required grade of plates from Bhilai. Indian Railways that gets all its rails in lengths of 13 metre, 26 metre and 130 and 260 metre from Bhilai also sources plates in SAILMA 300 HI grade of thickness up to 80 mm for its Diesel Locomotive Workshop from Bhilai. Big industrial houses like Thermax sources boiler quality plates for providing sustainable energy solutions. The Bangalore Water Supply Board has sourced huge quantities of plates from Bhilai for its 69 km pipeline to get Cauvery's water to the city. It is worth mentioning that most of the new grades of special steel successfully developed and rolled by Bhilai in the last several years as part of its ‘one new grade every month’ product development programme have been plates. Out of the 12 new grades of special steel successfully developed

and rolled by Bhilai steel plant in 2010-11, as many as nine were new grades of special steel plates rolled in the Plant’s Plate Mill. Among the new grades developed recently is one special grade for M/s BEML that is manufacturing coaches for the Delhi Metro. M/s IOTL is sourcing pressure vessel plates with superior impact toughness for horton spheres of ethylene storage vessel for a petrochemical project in Assam. In the current fiscal year, Bhilai has successfully developed and rolled out several new special grades of steel. These include corrosion-resistant grade of plate to be used in the manufacture of bogey frames for rail coaches, a new ASTM grade of plate for use in the manufacture of pressure vessel for a petrochemical project. M/s Siemens Transport Systems too is getting special steel plates with low temperature impact toughness to be used for manufacturing railway passenger bogies from Bhilai. Several other special steel grades of plates are in advanced stages of development. These include a dual-grade Boiler Quality plate for M/s GR Engineering for intermediate and low temperature application by boiler and pressure vessel manufacturers. While Bhilai has 22.2 percent percent share in the market for plates in the country, the plant also exports boiler quality, ship building grades, thicker plates as well as mild steel grades and low carbon plates for earthmoving equipment to several European countries. The plant has supplied dual certification plates for export to Thyssen, Germany for use in different shipyards. An export grade plate has been developed and supplied for Titagarh Wagon Ltd for manufacturing of highspeed light oil tank wagons for the French National Railways as well.

STEEL INSIGHTS 26 March 2012

Corporate update

Tata Steel seeks to raise borrowing limit Steel Insights Bureau

ata Steel, the world’s seventh largest steel manufacturer, has sought permission from its shareholders to raise its borrowing limit by about 25 percent to `50,000 crore to part-finance the various expansion initiatives which the company has already undertaken, according to information available with Steel Insights. “Taking into consideration the requirements to meet the cost of the company’s greenfield projects in India, and investments in raw materials projects globally, it is expected that the limit of `40,000 crore sanctioned by the shareholders

Tata Steel posts Q3 loss

ata Steel posted a quarterly loss in the third quarter of the current fiscal, its first in more than two years, as higher raw material costs and weak demand in Europe hurt margins. Tata Steel reported a net loss of `687 crore for the quarter ended December 2011, compared with a net profit of `949 crore a year earlier. Net sales rose 15 percent percent to `32,964 crore. After minority interest and share of associates, it reported a net loss of `603 crore. Tata Steel said consolidated margins for the quarter slumped to 5.9 percent from 11.6 percent a year earlier. Sales at its Indian operations, which account for a quarter of its global capacity, rose 16 percent to `24,450 crore. It posted a 1.1 percent drop in volume because of slowing economic activity and weak demand from the construction and automobile sectors. Its steel deliveries eased to 5.84 million tons (mt) from 5.9 mt in the previous year. The company, which operates two-thirds of its global capacity of about 28 mt in Europe, warned it did not expect a significant revival in demand in its core markets in 2012. “The December quarter marked the height of the cyclical cost-price squeeze. We are accelerating cash conservation in expectation of muted but stable demand in our core markets in 2012,” said Karl-Ulrich Kohler, head of its European operations. “We expect steel demand to improve on expectations of the Reserve Bank of India relaxing monetary policy to aid growth and investment,” Tata Steel managing director Hemant Nerurkar said. The company is expected to complete a planned expansion of its Indian capacity to 9.7 mt by March, from 6.7 mt now. Tata Steel also operates units in Thailand and Singapore. Earlier this month, ArcelorMittal, the world’s largest steelmaker, posted an unexpected quarterly net loss, while Korea’s Posco, the world No. 3, reported a smallerthan-expected profit rise.

will not be adequate,” Tata Steel said in a notice to the shareholders, according to media reports. Tata Steel has a net debt of `50,528 crore, which includes a part of the loan taken by the company to acquire UK-based steel-maker Corus in 2007 as on December 31, 2011. Moreover, last year, the company had raised about `4,977 crore through a follow on public offer and bond issue. According to information available with Steel Insights, the company has kept a capex of $2.5 billion (about `12,500 crore) for 2012-13, out of which $800 million (about `4,000 crore) will be spent on the company’s plant at Kalinganagar in Odisha. Apart from setting up of a 6 million tons per annum (mtpa) steel plant at Kalinganagar, Tata Steel also has other expansion plans. This includes adding 2.9 million tons (mt) new capacity by March at its Jamshedpur plant, taking the total production capacity of the company to 10 mtpa. Apart from these domestic investments, the company will also spend $600 million on its European operations and about $400-500 million on its Jamshedpur plant, according to sources. Expansion work In tandem with chalking out investment plans, expansion work is also in full progress. In fact, the installation of two roller hearth furnaces at Tata Steel’s thin slab casting and rolling plant at its integrated works in Jamshedpur is set to be completed by the end of the first quarter of 2012, according to company sources. The installation of a second roller furnace is at an advanced stage, according to industry sources. The second furnace could be completed before the end of the first quarter of 2012. Both the furnaces have a reheating capacity of up to 280 tons per hour of slab. The slabs produced are later re-rolled into coils at the Jamshedpur plant. Apart from this, Tata Steel has ordered three walking beam furnaces from Tenova to be installed in phases at its new 6 million tons per year mill in Odisha, according to industry sources. The beam furnaces are due to be installed in two phases for an undisclosed fee. The first two furnaces have a commissioning date of October 2013, while installation of the third - which will signal full production utilisation at the mill – is due in October 2014. The re-heaters at the works’ 5.5-mtpa hot strip mill will convert semis into finished products, which will be sold both in the Indian and export markets. Work at the Odisha site began in 2010. This latest investment follows a chain of Tata orders placed in Tenova technology, which included the provision of a ferrochrome furnace at Tata Steel South Africa’s Johannesburg site in 2008. With such initiatives already in progress, Tata Steel looks well set on its way to achieving its production target for the coming fiscal.

STEEL INSIGHTS 27 March 2012

Corporate update

JSW Q3 net profit dips 56% Steel Insights Bureau

SW Steel Ltd, part of the energy-to-steel JSW Group, reported a 56 percent drop in its fiscal third quarter net profit from a year earlier, hurt by a significant foreign exchange loss because of sharp a depreciation in the rupee against the dollar. Net profit for the October-December period fell to `168.24 crore from `382.30 crore in the year-earlier period, the company said in an exchange filing. Net sales for the quarter rose 36 percent to `7,589.62 crore from `5,771.42 crore a year earlier. The earnings were below market expectations. Analysts had tipped net profit at `348.5 crore on net sales of `9,258.7 crore. The company reported a foreign exchange loss of `500.11 crore for the quarter, during which the local currency lost 7.7 percent against the dollar. According to sources, the company is currently operating its main 10 million ton (mt) Vijayanagar plant in Karnataka at 90 percent capacity and has tied up iron ore suppliesfor the plant till May. JSW Steel cut its production and sales forecast for the current fiscal year by 14 percent and 13 percent respectively, late last year, due to acute shortage of iron ore after India's top court put an interim ban on mining in Karnataka. Crude steel production JSW Steel Limited, a leading steel maker of the country and a part of the O.P. Jindal group, has produced 610,000 tons of crude steel in February 2012, showing a growth of 13 percent over corresponding month of previous year, the company said in a statement. The cumulative crude steel production for 11 months of the financial year stood at 6.77 million tons

JSW Ispat controls net loss

SW Ispat Steel, formerly known as Ispat Industries, recorded `308.57 crore loss in the October-December quarter of the current fiscal due to a rise in raw material, power and fuel costs and steep decline in the value of rupee. The JSW group subsidiary had recorded a net loss of `409.31 crore in the corresponding quarter of the 2010-11. “The financial results for the quarter have been adversely impacted due to steep decline in the value of Indian rupee against US dollar/Japanese yen,” the company said in a filing to the Bombay Stock Exchange. The company’s raw material cost increased about threefold to `1,784 crore during quarter under review from `635 crore in October-December quarter of the last fiscal. Also, its power and fuel cost doubled to `450 crore from `224 crore in the corresponding period of 201011. Net sales, however, rose to `2,666 crore during the quarter as compared to `961 crore during the same quarter of 2010-11.

Seshagiri Rao, Joint MD & Group CFO, JSW

(mt) with a growth of 15 percent over previous period, the statement added. “The crude steel production during February 2012 was severely impacted due to usage of inferior grades of iron ore. As the stockpile of 25 mt is getting exhausted, the quality of iron ore being offered in e-auction is deteriorating substantially. Further certain iron ore in e-auctions contained high alumina, silica, manganese and Low Fe, which led to poor Sinter quality, high slag formation and low productivity in the blast furnaces,” said Seshagiri Rao, Joint Managing Director and Group CFO. The quantity of iron ore sold in the e-auctions during the entire month of February 2012 was only 1.17 mt as against the industry requirement of 3 mt per month. Even after paying higher prices in e-auctions, the availability of quality iron ore remained the biggest challenge, threatening the continuation of steel production efficiently, company sources said. Steel industry in Karnataka region, therefore, is not only facing shortage of iron ore but poor quality of iron ore is impacting the equipment, productivity and efficiency. Moreover, since Central Empowered Committee (CEC) recommended opening up of clean mines (Category A), the company expects that the Supreme Court will permit mining at least in Category A mines, as per the company statement. The break-up of production during February 2012 and February 2011 is as below: Product Crude Steel Rolled Products : Flat Rolled Products : Long

STEEL INSIGHTS 28 March 2012

Production ( in Lakh tons) Feb’12 Feb’11 6.10 5.41 4.47 4.42 1.52 0.75

Growth 13% 1% 103%

Corporate update

ArcelorMittal makes some headway in Karnataka project Steel Insights Bureau The company's plans to build two mega steel mills of 12 mt each in Jharkhand and Odisha are yet to take off. These projects including the steel plant in Karnataka, would require an investment of about `1,30,000 crore, according to company sources. However, for the Jharkhand project, where it now intends to set up a 3 million tons per annum (mtpa) capacity plant in the first phase, the company has sought "adequate land" under the State Government Consent Award Scheme under which, the state government will facilitate the legal transfer of land for a project after an investor has secured the landowner's consent to the sale of the land, the source added. H1 of 2012

L N Mittal, Chairman, ArcelorMittal

he world's largest steel producer ArcelorMittal has made some headway in India by getting possession of about 1,827 acres for the proposed 6-million-ton (mt) plant in Karnataka. The company said in its annual report for 2011 that it has completed all necessary steps to acquire the land in Karnataka and is expecting to get the remaining 972 acres by May for the `30,000-crore ($ 6.5 billion) project. "A draft feasibility report for the contemplated steel plant is currently being prepared, and hydrological and environmental impact assessment studies have been initiated," it added. Alongside the steel mill in Karnataka, ArcelorMittal has also proposed to build a 750-MW captive power plant. Company chief L.N. Mittal had said earlier this month that ArcelorMittal is not counting on India in its business plans for the next few years largely due to regulatory issues.

ArcelorMittal feels that continued progress on management gains and asset optimisation plans would help the company report a better EBITDA in the first half of 2012 compared with the second half of 2011. It, however, feels that the first half of 2012 is likely to be lower than the comparable period of 2011 even though overall steel shipment volumes are expected to be at a similar levels as in first half of 2011, the company said in its outlook after announcing fourth quarter of 2011 and full year results. Mining production volumes are expected to be higher in first half of 2012 in line with plans to increase iron ore and coal production by about 10 percent percent in 2012, the company said in a release. The company expects a capital expenditure of $4-4.5 billion in 2012 and a further reduction in net debt anticipated with a focus on working capital management and non-core asset divestments. The company reported a net loss of $1.0 billion for the fourth quarter off 2011 due in part to $1.3 billion of non-cash charges (reduction in deferred tax asses of $0.9 billion) together with asset impairments ($0.2 billion) and restructuring charges associated with asset optimization ($0.2 billion). The company's steel shipments during the quarter stood at 20.6 million tons down 2.5 percent over third quarter driven mainly by destocking in Europe. It managed to reduce its debt by $2.4 billion during the fourth quarter to $22.5 billion driven by improved cash flow from operations of $2.9 billion, inflow of $0.8 billion from MacArthur coal divestment and foreign exchange gains. Despite a loss in fourth quarter, its 2011 net income stood at $2.3 billion and EBITDA at $10.1 billion, up 18.7 percent y-o-y.â&#x20AC;&#x201A;

STEEL INSIGHTSâ&#x20AC;&#x201A; 29â&#x20AC;&#x201A; March 2012

Corporate update

fter acquiring 50 percent equity in Legacy Iron Ore Limited and also inducting three Directors in the Legacy board with N.K. Nanda being appointed as chairman, NMDC Limited has now set its eyes on acquiring more mineral assets overseas, according to information available with Steel Insights. In fact, the company has recently said in a statement that Legacy will serve as a platform to propel acquisition and development of mineral assets in Australia. NMDC Limited, a government of India enterprise, is actively pursuing the acquisition of overseas strategic mineral assets with the objective of meeting its own requirements and also to ensure uninterrupted supply of raw material for the country’s steel and fertiliser industries. After successful acquisition of Legacy iron ore mines, NMDC has set its mind on further acquisitions in Brazil, Mozambique, Russia, USA and South Africa. The company has identified an iron ore asset in Brazil very close to the port with reserves of more than 1 billion tons of the material. In Russia and in Mozambique, it has identified coking coal mines with reserves of more than 50 million tons and 150 million tons respectively, whereas in Australia, the company is planning to use Legacy as their arm for further acquisition, a company source informed. Steel production As part of its forward integration and value addition programme, NMDC is setting up its 3 million tons per annum (mtpa) steel plant at Nagarnar in Chhattisgarh. The land acquisition for the project was completed in August 2010 in a record time of 10 months and five major packages of the steel plant have already been awarded to internationally acclaimed companies at a cost of around `6,500 crore, according to a company statement. The company is also aggressively considering the proposal of the steel plant in Karnataka with the largest steelmaker N K Nanda, CMD, NMDC of Russia, Severstal.

Within the country, NMDC is in active discussion with Tata Steel to set up a steel plant in Chhattisgarh where they have adequate land and raw material mines. Net profit percent NMDC has recorded a sharp increase of 22.45 percent in net profits during the quarter ended December 31, 2011 as compared to the corresponding period last year. Net profit during Q3FY12 stood at `1,858.81 crore as against `1,518.03 crore recorded during corresponding period last year. Sales turnover of the company during Q3FY12 stood at `2,821.95 crore while it stood at `2,621.22 during the quarter ended December 31, 2010. Total income of the company during this quarter stood at `3,347.34 as against `2,915.94 earned during the corresponding period of previous year. The largest domestic iron ore producing company also made its first overseas acquisition during the quarter, purchasing a 50 percent stake in Australia’s Legacy Iron Ore for about `92 crore, the company said in a statement. Currently, the company is also doing due diligence to acquire two other Australian properties – the Ridley iron ore deposit of Atlas Mining and the Wonarah phosphate reserve of Minemakers Ltd. The process is expected to be completed soon. On the domestic front, construction of the company’s first steel plant of 3-mtpa capacity in Chhattisgarh’s Nagarnar district is in full swing, as most of the packages have been awarded for the project. The plant is expected to be commissioned in 2014. During the quarter, the company also signed an agreement with Russia’s Severstal to set up a steel plant in Karnataka, which will have an initial production capacity of 3 mtpa. NMDC will supply iron ore to the plant, while coking coal will be sourced from the Russian firm’s mines, the statement added.

STEEL INSIGHTS 30 March 2012

Corporate update

Sesa Sterlite to generate $7-8 bn annual surplus Steel Insights Bureau

Anil Agarwal, Group Chairman, Sesa Sterlite

usinesses of Sesa Sterlite, the new entity announced by Vedanta Resources for its India operations, will generate an annual surplus of $7-8 billion, Anil Agarwal, Group Chairman has said. Sesa Sterlite, which will be created out of the merger of metals producer Sterlite Industries and iron ore miner Sesa Goa, will have the capability to repay the debt within the next three years, if it chooses to do so, media reports said. “We (Sesa-Sterlite) have a debt of $7 billion whereas the assets are amazing. The new entity with five businesses will generate profits of $7-8 billion every year,” Agarwal said. Sterlite Industries (India) Ltd, Sesa Goa Ltd and Vedanta Resources Plc announced on February 25 a recommended merger of Sesa Goa and Sterlite and the proposed consolidation and simplification of the Group structure. The proposed new name is “Sesa Sterlite”. The merger of Sterlite into Sesa Goa will be carried out with three Sesa Goa shares to be issued for every five existing Sterlite shares. Vedanta Aluminium Ltd and The Madras Aluminium Company Ltd will be 100 percent consolidated into Sesa Sterlite. Vedanta’s direct holding of 38.8 percent in Cairn India Limited will be transferred to Sesa Goa, together with the

associated debt of $5.9 billion, at cost. Post the transfer, Sesa Sterlite will have a 58.9 percent shareholding in Cairn India. This transaction will make Sesa Sterlite India’s natural resources champion and the company is expected to be seventh largest global diversified natural resources major by EBITDA. Also, Sesa Sterlite will be listed in India, with American Depositary Shares listed on the New York Stock Exchange. Post consolidation Vedanta will own a 58.3 percent shareholding in Sesa Sterlite. The Group’s 79.4 percent shareholding in Konkola Copper Mines Plc will continue to be directly held by Vedanta. The new company will have resources such as zinc-lead-silver, copper, aluminium, commercial power, iron ore, oil and gas. On concerns that the debt of the London-listed Vedanta Resources will be transferred to the new Indian entity, he said the top management has held a series of meetings with minority and institutional investors to take them on board. “We are constantly in touch with our shareholders. They fully understand the developments (behind the restructuring) and appreciate. They are getting aligned with us,” said Agarwal. The debts are long-term and Sesa Sterlite would be able to generate substantial cash flow to repay all its debts, he further added. The group currently has several expansion projects going on, including increasing the aluminium production facility to three million tons (mt) by 2015. Besides, the copper production is also targeted to double and iron ore to 40 mt by then. In fact, significant synergies are expected from the move, resulting in cost savings of `1,000 crore per annum. According to company sources, Sesa Sterlite is going to be one of the largest global diversified natural resources majors whose transaction will be a natural evolution, leading to simplification of the Gorup's structure. Sesa Sterlite will be the principal operating company and the vehicle for future mergers and acquisitions in the group. Sterlite profit Sterlite Industries (India) Ltd has posted a net profit of `284.32 crore for the quarter ended December 31, 2011 as compared to `316.38 million for the quarter ended December 31, 2010. Net sales of the company for the quarter stood at `4582.20 crore while the figure stood at `4,378.41 crore during the corresponding period of previous year. Total expenditure of the company stood at `4,301.46 crore while it stood at `4,285.42 crore during the corresponding period of last year.

STEEL INSIGHTS 31 March 2012

Corporate update

ECL receives MoEF nod for iron ore mine Sanjukta Ganguly

lectrosteel Castings (ECL) has received forest stage-I clearance for its iron ore mines located at Kodolibad, West Singhbhum, Jharkhand, from the Ministry of Forests and Environment (MoEF), according to information available with Steel Insights. The company expects to receive stage-II clearance in the coming two to three months and then sign mining lease with the state government. After signing the mining lease, ECL can develop the mine and resume full-fledged production. The mine has reserves of 91 million tons (mt) of iron ore with 64% Fe content. ECL expects to commence production from this mine in FY2013. “For developing the Parbatpur coking coal mine and Kodalibag iron ore mine and also to finance some other projects, we are raising around $200 million through overseas borrowings,” Ashutosh Agarwal of the Electrosteel group said earlier in conversation with Steel Insights. With upcoming production from coking coal and iron ore, ECL will turn into a fully integrated steelmaker in the coming days. Although there is lack of clarity on the timelines for commencement of meaningful production from its coking coal and iron ore mines, ECL’s margins are expected to be significantly higher than its peers once it reaches optimum production capacity at its mines, according to analyst reports. Moreover, ECL’s associate, Electrosteel Steels (34.8% stake) with 2.2 million tons of steel capacity is expected to benefit

ECL posts `10.78 crore loss in Q3FY’12

Steel Insights Bureau

lectrosteel Castings Limited, has posted a loss of `10.78 crore in the quarter ended December 31, 2011 while the figure stood at `47.44 crore during the corresponding period of last year, according to information available with Steel Insights. Net sales of the company during the quarter stood at `443.78 crore while in Q3 of FY’11 the net sales figure was at `424.95 crore, according to company sources. Total expenditure of the company during the quarter stood at `487.12 crore while during Q3 of FY’11 the expenditure stood at `363.81 crore.

M K Jalan, Director, ECL

the most, as ECL will supply coking coal and iron ore from its mines to Electrosteel Steels at subsidized rates (cost + 20%). Other plans Electrosteel Castings Limited’s Director M.K. Jalan said, “We are now looking at the possibility of setting up DI pipe plants in the Gulf region. We are looking at two destinations – Qatar and Kuwait – and are currently evaluating as to which of the two would be a better option. Also, the final selection would depend on where we can find a local partner,” Jalan added. Raw material security The company which aims to achieve an exponential growth in the next 10 years, is no doubt, at an advantageous position from its competitors when it comes to securing its supply of raw materials especially at a time when most of the companies are fighting for raw material security, according to H.K. Modi, Executive Director, Electrosteel Castings Limited. Having coal blocks and iron ore mines at their disposal for captive use, this leading ductile iron pipe maker is already enjoying an edge over its competitors as far as supply of adequate quantity of raw materials is concerned.

STEEL INSIGHTS 32 March 2012

special focus

Steel makers should focus on heat loss utilisation, waste management B.P. Sarkar

ndia is presently producing crude steel about 70 million tons per annum (mtpa). In view of the fairly large reserves of iron ore and the current low per capita consumption of steel in the country, it has been predicted by many experts in the field that production of crude steel will be around 120 mtpa by 2015. The pessimists are indicating a figure of 140 mtpa by 2020. The expansion will be carried out by both large steel plants as well as smaller units using DRI and Induction Furnace (IF) routes. Large steel plants having capacity 3 mtpa and above normally chooses BF-BOF (blast furnace-basic oxygen furnace) route. In the case of medium sized plants, DR (direct reduced)-liquid hot metal and EAF (electric arc furnace) route is getting popular in India. The plants having annual capacity of lower than 1 mtpa are following DRI-IF (direct reduced iron-induction furnace) route. India has large reserves of rich iron ore. However during mining, more than 60% of fines are generated. There is hardly deposit of good quality coking coal. But the reserves of noncoking coal are large although these contain high percentage of ash (30-40%). There is no significant oil or gas deposit. Thus in order to produce steel at sustainable production cost, it is necessary to use the indigenous ore and non-coking coal. For coal, some of the producers are setting up washing facilities to bring down the ash percentage. The lower ash coal is used for DRI production and higher ash fraction goes to captive power plants. Another new trend is the coal gasification route whereby non-coking coal is gasified and synthetic gas is used for DRI production getting most of the advantages of gas-based DRI in respect of plant capacity and better quality of DRI. In the case of iron ore fines, these are beneficiated and pelletised or sintered depending on the size of fines and then used in DRI or Corex/ blast furnace. Thus the various routes being developed in India or being considered for installing are as follows: ♦♦ Use of fines to make pellets and using these as feed material for rotary kiln to make sponge iron. Coal is also used in the kiln as fuel. ♦♦ Use of lump ore and non coking coal for coal-based DRI and generate power from the hot gas coming out of the kiln. ♦♦ Use coal gasification to make gas-based DRI which can be coupled with EAF for making large sized steel plants. ♦♦ Use alternate iron making process such as Finex (ore fines and non coking coal), Corex (ore lump or pellets and use of imported coal as indigenous coal is not of good quality). Production of iron nugget through ITmk3 process using

ore fines and non-coking coal is also being considered. HIsmelt process can also be used for making good quality liquid iron using ore fines and non coking coal. ♦♦ Use BF-BOF route using blend of imported coal and indigenous soft coal and use stamp charging for making good quality coke which will be cheaper than imported coke. ♦♦ In case the iron is in liquid form, BOF is the suitable option. For charge comprising various proportion of solid, liquid, etc, EAF or Conarc process are popular. For smaller units, IF is used and steel produced in IF has constraints of high sulphur and phos. One more refining operation is needed to produce steel as per specification in case of IF route. However in case of EAF or BOF there is no such problem. Continuous casting should be done in the size closer to the final size. Thus thin slab caster or near shape casting have come into practice in case of flat and non-flat products respectively. There should be hot charging of concast material and continuous endless rolling should be the aim to achieve the final product for better yield and lower overall length of the mill. Since the present iron and steelmaking operations consist of repeated heating and cooling right from sponge iron or sinter/coke making up to hot rolling, it is necessary to utilise the heat losses at various stages for various applications. There is also generation of enormous amount of solid, liquid and gaseous wastes at various stages and technologies are available to minimise the generation and utilise the products. Recovery and recycling of waste materials are of paramount importance for making the steel production sustainable. B P Sarkar is the advisor to mjunction services ltd and publisher of Steel Tech

STEEL INSIGHTS 33 March 2012

Feature

Supply constraints lift iron ore prices Steel Insights Bureau

ron ore, the world’s second-biggest commodity cargo after crude oil, is extending a bull market after rallying 22 percent from the lows in October as the slowest expansion in exports restricted supplies. New mines and expansions of existing ones are being postponed by rising costs and licensing delays. Morgan Stanley cut its forecast for export supply by 9.6 percent since October and expects a 99-million-ton (mt) deficit in the seaborne market this year, at least the ninth consecutive annual shortage. Several analysts also said additional iron-ore supply that

investors had been afraid of is going to be late and the market still remains tight. Ore with 62 percent metal content delivered to the Chinese port of Tianjin was at $143 a ton at the end of February. Delayed projects include Minas Rio in Brazil, which Anglo American originally expected to open in 2009, and Simandou in Guinea, which Rio Tinto Group anticipates will start in 2015 rather than next year, as previously forecast. Vale also said that it had delayed the start of an $8-billion expansion at the Carajas Sierra Sul mine in Brazil by two years to 2016. Ironore mining costs rose at least 20 percent in Australia and Brazil in 2010, according to reports.

Rio Tinto may cut contract price

Steel Insights Bureau

io Tinto, the world’s second largest iron ore supplier, may lower iron ore contract prices for the second quarter of 2012 by 9 percent for customers in northeast Asia who use the “quarterly lag” pricing system. Rio’s iron ore fines could fall to $2.1023/dry metric ton unit FOB Australia in April-June from $2.3161/ dmtu in the current quarter. The price marks the fourth quarterly decline. It is also a 24 percent drop from the $2.7638/ dmtu it charged in the same quarter a year earlier. Consequently, the price of the company’s flagship product – Pilbara Blend fines – would be set at $128.24/ dmt FOB Australia in Q2 compared with $141.28/dmt in the current quarter, based on an iron content of 61 percent. Rio Tinto’s pricing mechanism considers the average of spot prices in December-February to determine Q2 prices. This reference period had been used since April 2010, but for steelmakers in China, has changed since Q4 last year, after a sharp decline in spot prices in October and tight credit reduced contract performance. Chinese customers of the miner have said they have

shifted to buy ore based on current-quarter or currentmonth index values, or on a spot basis. Steelmakers in northeast Asia excluding China have generally preferred a quarterly lag system.

STEEL INSIGHTS 34 March 2012

feature

Iron ore crisis dogs JSW Steel

SW Steel Ltd has enough stock of iron ore to run its main Karnataka plant for two months, as it continues to struggle to ensure adequate supplies of the critical raw material following a mining ban in the southern Indian state. According to Chief Financial Officer Seshagiri Rao, JSW has 6 mt of iron ore to meet the production requirement of its 10-mtpa steel plant and that it expects to get another 3 mt soon. The company has been hit hard by a Supreme Court ruling last year that banned iron ore mining in three districts of Karnataka. Before the mining ban, JSW used to get iron ore through contracts with miners in the state. Reports said Standard Chartered expects a 145-mt shortage this year as deliveries from India drop 35 percent because of curbs on mines that do not have permits to operate and after the government raised export duties. Exports from Brazil, the secondbiggest shipper behind Australia, will grow 7 percent, the slowest pace since 2008, according to predictions. Global supply needed to grow by at least 100-mt a year in the next eight years to meet demand and replace mines that close, Rio said in a presentation. China’s government plans to build 36 million affordable houses by 2015. Each uses about 3.3 tons of steel, industry consultant MEPS estimated. Construction accounts for 55 percent of steel demand in China, MEPS said. China may also have to seek additional ore supply from Australia and Brazil. In a recent interaction, India’s mining secretary V. Trivedi also said India’s iron ore exports will recover from this year’s depressed levels but will not rise above 100 mt as a crackdown on illegal sales pays off. Traders have already slashed forecasts for 2011-12 exports from India to around 50 million tons, about half of last year’s figure, dropping it below South Africa in the export rankings. The fall came after the Supreme Court banned mining in some areas and the government hiked export taxes to crush illegal sales. In 2010-11, India exported 97 mt of iron ore and has exported about 100 mt a year for several years, mainly to China. Illegal mining in India is widespread and usually entails removing resources outside permitted zones. An ongoing

However, since August, JSW, which does not own an iron ore mine, has been relying on court-mandated auctions of the raw material to run its factory in Vijaynagar town. Rao said the company is running the plant at 85 percent-90 percent of its total capacity. The steel output of unit JSW Ispat Steel Ltd., which it acquired in 2010, has been hit by a shortage of natural gas supply to run its blast furnace. The government has mandated power and fertilizer companies as the primary customers for natural gas, hurting those cement and steel companies which rely on gas to run their plants. JSW Ispat has a total production capacity of 3.3 million tons a year.

case in Karnataka state, which used to account for about 25 percent of India’s exports, found a nexus between politicians and miners behind an alleged $3.6-billion export scandal. The government has proposed a Mining Bill that will create an independent regulator and impose profit and royalty sharing arrangements with villagers as well as opening up the sector to foreign investment. While the government has shown an inclination to conserve resources, it says it does not support a blanket ban on exports and wants just to bring in transparency in the sector. In addition, Indian steelmakers lack the technology currently to use the ore fines which the country mostly produces and exports to China.

STEEL INSIGHTS 35 March 2012

feature

Scrap prices show mixed trend

Steel Insights Bureau

errous scrap prices showed a mixed trend in the international market during the month of February 2012 with some major markets showing increased buying while others witnessing a slow down. Going forward, the market would largely be driven by demand from Turkey and India, market participants said. Scrap import prices in India rose by an average of $10 per ton cfr Nhava Sheva during February as compared to a month ago. As of end February, prices of HMS 1&2 (80:20) stood at around $455-465 per ton cfr, compared to $445-460 per ton reported in the previous month. Shredded scrap import prices also showed a similar increase during the month under review. The February increase followed a softening in the second half of January. The Indian import prices, according to sources, were impacted by the uptrend in the Turkish market. In the domestic market, prices showed a similar trend in February. Local ferrous scrap prices remained firm in places like Mandi Gobindgarh, Jalna, Alang and Kandla. Supply also remained critical in major places like Ghaziabad, Muzaffarnagar, Kanpur Durgapur and Kolkata. Sources said ferrous scrap prices are likely to correct in line with UP elections getting over and availability of cheaper imported cargoes in the domestic market. However it may rebound by the end of the March. In Turkey, scrap import prices firmed up in late February after a drop since January. Overall, the prices of HMS 1&2 (80:20) hovered around $440-445 per ton cfr main Turkish port in the last week of the month. Earlier, scrap import prices had dipped by around $15-20 per ton cfr in January after a similar rise in December. According to reports, the increased buying

by steel mills indicated the inventory might be low and that the buying may continue in coming weeks. However, the increased prices may limit the volume of restocking at this stage. In Europe, prices showed a mixed trend. In line with expectations, export prices for HMS 1&2 (80:20) from Rotterdam showed a drop to around $405-410 per ton fob in February from $415-425 per ton fob in January. Export of shredded scrap from Rotterdam stood at $410-415 per ton fob during the month. After softening in recent months, domestic prices in UK showed an uptrend in early March. Shredded scrap prices also firmed up in the domestic markets in north Europe. This resulted from improved demand in the domestic market. However, the US domestic scrap market remained subdued as increased imports of pig iron from South America restricted the scrap price movements during the month. Lately, the export prices for shredded scrap from East Coast showed a downward trend and decreased by around $5 per ton fob early March, market sources said. In East Asia, markets remained largely quiet during the month. The rebar demand in Taiwan continued to remain weak. There however was improved sentiment in south China, but rebar prices remained weak in north China. In Japan, some rebar producers have lifted price for March. Shredded scrap prices were up in February. In March, the scrap prices are likely to show a similar mixed trend in the international market. While prices may stay firm in India, in Europe and the US, there could be a flat demand during the month. Overall, scrap prices are not likely to show any major movement in the coming weeks, the sources said.

STEEL INSIGHTS 36 March 2012

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Spot coking coal prices slip over 2% in Feb

Steel Insights Bureau

pot prices of hard coking coal slipped over 2 percent in February on weaker buying interest. Prices of premium low-vol coking coal were lower at $212 per ton fob Australia, down $5 since the beginning of February. Prices of hard coking coal peak downs were lower at $214 per ton fob Australia, down $5 since the beginning of February. The midvol HCC assessment, however, remained marginally down to $187 per ton fob. News of initial HCC contract price settlements reached on February 27 causing the sentiment to become more cautious, as many took time to wait for news of subsequent conclusions with other miners. Indian buying interest for a March-delivery cargo is around $240-245 per ton cfr, but only around $220 per ton cfr for an April-delivery cargo, based on differences in the Q1 and Q2 contract prices, sources said. However, Indian demand for coking coal imports was currently strong. In 2010-11, Indian steelmakers imported close to 27 mt of the raw material. China buyers were also talking lower prices and bidding at around $220 per ton cfr for Australian low-vol premium. The lower Q2 contract price caused at least one trader in northern China to withhold taking any positions at above $200/mt CFR China for second-tier HCCs with about 60 percent CSR. Sources said the current prices are not unattractive, but there are expectations for seaborne HCC prices to drop further. News of Posco’s settlement of Q2 contract prices with Teck, which came in at $206 per ton, down $29 per ton below those in the previous quarter, led some to believe spot prices had room to fall. Q1 contract price Price negotiation for coking coal has reached an agreement with regard to hard coking coal and LV PCI coal for blast furnace for first quarter (April to June) of 2012-2013, industry sources said. Out of the above, the first quarter contract price of highgrade hard coking coal of Queensland, Australian and Canadian origins is around $205-210 fob, nearly 11 percent less from the previous term (January to March), they said. On the other hand, the first quarter contract price of LV PCI coal of Queensland and Canadian origins is around $153.30 per ton fob, 10.4 percent less from the previous term. As a result of these, the prices of both hard coking coal and LV PCI coal have been reduced in four consecutive quarters since the second quarter (July to September) of 2011-12.

Incidentally, the contract prices of high-grade hard coking coal and LV PCI coal for the first quarter of 2011-12 were $330 per ton fob and $275 per ton fob respectively. The prices have been reduced because of the worldwide dwindling demand on the steel products attributed to the economic crisis in the European Union. The contract price for the fourth quarter of 2011-12 (January to March in 2012) was $230-235 per ton fob Australia. The contract for the third quarter (October-December) was signed at around $285 per ton, but since then the spot prices had dipped sharply on low demand from European, US and Chinese steel makers. The contract for second quarter (JulySeptember) was signed at $315 a ton. Coking coal prices, which were earlier fixed on an annual basis, were around $97 per ton fob during 2007-08. The prices touched a higher of $300 per ton in 2008-09 before dropping to $129 per ton in 2009-10. However, prices started rising again from 2010-11 as the miners started quarterly contract from Q1 of 2010-11 and touched a high of $225 per ton for the fourth quarter of the year. Prices peaked to $330 per ton in the first quarter of 201112 owing to floods in the Queensland region of Australia, but gradually fell to current levels as supply became normal over time. Met coke import prices The prices of imported metallurgical coke moved both ways during the month of February on swinging demand scenario, but domestic prices firmed up a bit as some of the captive coke plants went for maintenance, industry sources said. The price of imported met coke fell to around $366 per ton during the middle of February from $383 per ton at the beginning of the month, but recovered to settle at around $372 per ton cfr India on some rebound in enquiries. Earlier in January, prices had risen by close to $20 per ton, from $362 per ton cfr to $386 per ton cfr tracking the appreciation of the Indian Rupee against the US dollar. Sources said east Indian met coke prices had risen on ongoing maintenance at several of SAIL’s coke ovens at Bhilai and Bokaro plants which will create additional demand. Incidentally, SAIL had floated tenders to procure met coke through forward e-auction for its Bhilai, Bokaro and Rourkela plants. Prices of met coke, as on February 29, in east India were up to `20,000-21,000 per ton ex-works for 62 percent CSR, 12.5 percent ash material, up from `19,000 per ton towards end of January.

STEEL INSIGHTS 37 March 2012

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India’s coking coal, coke deficit to double by 2015

Arindam Bandyopadhyay

ndia’s supply deficit of coking coal and met coke is set to double in the next four to five years, posing availability issues for the steelmaking sector and leading to doubling of imports of these vital inputs, industry sources told Steel Insights. As for coking coal, the supply deficit is likely to jump from the current 30 million tons (mt) to around 65 mt by 2015. This will be driven by the continued growth in steel production and installation of new capacities. “India currently imports around 30 mt of coking coal, of which 85 percent comes from Australia. Another 10 percent is procured from US and the remaining part from CIS and other parts of the world. We expect the volume of imports to reach 65 mt by 2015,” an industry source said. As of today, all of the major Indian steelmakers – SAIL, JSW, RINL, Tata Steel, JSPL, Essar – procure some part or their entire requirement of coking coal from overseas miners. Only the integrated steel plants – such as SAIL and RINL – get some portion from Bharat Coking Coal Ltd (BCCL), the only major producer of coking coal in India.

Among the major steel producers, only Tata Steel has been able to secure a part of its coking coal requirements, having acquired coking coal mines (through joint ventures) in Australia (Bowen Basin in Central Queensland) and Mozambique (Benga Coal Project). The company mostly sources the fuel from its own overseas operations for its steel plants in Europe, Asia and elsewhere. This, however, remains a rarity in the Indian steel vertical. Except for very few players – that includes coke maker Gujarat NRE Coke Ltd – acquisition of coking coal mines have not been on the radar of the Indian corporate entities. Nevertheless, almost all the major Indian steelmakers have embarked on very aggressive expansion plans to increase installed capacity. SAIL has aimed to increase its annual hot metal production capacity from the current 13.8 mt to 24 mt by FY13. Accordingly, the company’s coking coal import could increase from current 13 to 14 mt to 21 mt by the next few years. Similarly, the annual coal consumption of JSW, the country’s largest private sector steelmaker, will reportedly

Jharia coalfields of BCCL

STEEL INSIGHTS 38 March 2012

feature double from current 7.4 mt to 14 mt by next two years. Even if the Indian steel sector fails to achieve the targeted 10 percent “The Indian steel industry is currently facing production growth annually, coking huge challenge to meet their coke requirements. coal consumption by all the major steel companies would grow immensely Most of the integrated steel plants are already by 2020. SAIL has targeted to have a increasing the coke making capacities, but capacity of 60 mt by that year. RINL, not equivalent to the steel capacity increase. another public sector unit, has chalked Additionally, Chinese export of coke is not out an expansion from current 6.3 happening from 2009.” mtpa to 20 mtpa by 2020. JSW, on its part, has planned 34 mtpa production by then, from 14.3 as of March 2011. estimated at 19 mt. Secondary steel producers have captive Most of this expansion would be undertaken through installed capacity of 4 mt, while merchant cokeries have the Blast Furnace/Basic Oxygen Furnace (BOF) route, which remaining installed capacity of 7.2 mt. require coking coal as primary raw material. Attempts are As for merchant cookeries, the average capacity is around being made by a few companies to adopt the Corex/Finex 30,000 tons per annum or below. Of the total capacity of 7.2 technology, whereby thermal coal can be directly used for mt, around 5.2 mt comes through small/tiny coke plants. The ore reduction and melting work. But the initial investment majority of Indian coke plants are spread in clusters around requirement is substantial and there is significant technology Orissa, Dhanbad and Gujarat. barrier in terms of patent rights. The coke making segment faces numerous challenges. As a result, such prolific expansion in India’s steel making Although current installed capacities are 7.2 mt, output capacity cannot but be achieved without a huge surge in from these plants is always around 2-2.5 mt, said Ganesan coking coal imports. As estimated by Mark Pervan, Head Natarajan, Whole Time Director and President, Ennore of commodity research at the Australia and New Zealand Coke Ltd. Banking Group (ANZ), India may triple coking coal imports “Coking coal is the key challenge because of the size and as early as 2015. He estimates that India’s coking coal imports inventory,” he said. Any spike in coking coal price invariably will go up from current 30 mt to 90 mt by 2015 surpassing leads to an upward momentum in coke prices. For instance, Chinese coking coal imports. By comparison, China’s coking during August 2008, when coking coal prices touched $460 per coal imports may be at most 70 mt by 2015. ton cif, coke prices had shot up to $750 per ton from $350 per “I think India will become a bigger importer than Japan ton a year ago. In line with the increase in coking coal prices and China, the current leaders in importing coking coal,” from $180 per ton cif India to $255 per ton cif India over the Pervan was quoted as saying. While ANZ estimate may seem to be a little on INTEGRATED STEEL PLANTS WITH CAPTIVECOKE the higher side, another estimate by Merlintrade & MAKING PLANT (MLNT) Consultancy Ltd put India’s coking coal imports at 90 mt in 2020. Going forward, there will be two factors that may compel the Indian steelmakers to look for changes in their procurement strategies. Firstly, the availability may become a concern, and secondly, the pricing issue may crop up with increased global demand – the second factor essentially being an upshot of the former. Met coke deficit The expected tightening in coking coal market would also affect another intermediary segment of the Indian steelmaking vertical, namely the Indian coke makers. Currently, coke plants in India have installed capacity close to 30 mt. Integrated steel plants have their coke making capacities, STEEL INSIGHTS 39 March 2012

feature Asked about the coking coal production scenario, T.K. Lahiry, CMD of BCCL, said the company is targeting a production of 30.2 mt in 2011-12. “We think it is achievable. We have already produced 23.23 mt till January 2012. The balance target, although difficult, is achievable.” Noting that there has always been a demandsupply gap in coking coal in India, Lahiry said, with the finalisation of tenders for construction of new coking coal washeries at BCCL, the raw coking coal production can further be enhanced. Raw coking coal production will increase manifold on execution of Master Plan in the next 10 years. With the commissioning of new washeries, washed coking coal production will also increase manifold, thereby reducing the demand-supply gap. “We hope that dependence on import of coking coal by the Indian steel sector will reduce making them more viable.” The future coking coal projects of BCCL, he said, will mainly be from the implementation last 10 years (2011 to January, 2012), coke prices have jumped projects of Master Plan and new MDO concept based to from $ 300 per ton $440 per ton. underground (UG) projects like Madhuband, Moonidih, Along with price increases, the availability is also becoming Kapuria, among others. a concern. Deficit of met coke is expected to rise to 28 mt in Besides enhancing production, the company is also trying 2015 from 12 mt in 2009-10, Natarajan said. to increase the supply of washed coking coal. Out of 20 “The Indian steel industry is currently facing huge challenge washeries to be set up in Coal India Ltd (CIL), BCCL has been to meet their coke requirements. Most of the integrated steel entrusted to set up 6 washeries of 18.6 mtpa capacity. Out of plants are already increasing the coke making capacities, but these six, tenders for two, namely Madhuband and Patherdih, not equivalent to the steel capacity increase. Additionally, has been finalised. EMP clearance has been obtained. The Chinese export of coke is not happening from 2009,” he said. construction is expected to be completed within one-and-aAlso, the logistics constraints pose a major concern for the half years. The tender for the third one, Dugdha, is in the final segment. Needless to mention, the challenges would become stage, Lahiry said. only steeper if corrective measures are not taken at the earliest. “With the addition of new washeries, around 20 mt of raw coking coal will be required as an input and the expected BCCL production washed coking coal will be around 10 mt. With the existing In the face of huge demand, BCCL, the country’s only major capacity of 2 mtpa, BCCL will be in a position to supply 12 coking coal producer, is striving to increase its production mtpa to the steel plants. Additionally, BCCL has tied up with and the share of washed coal for the steelmaking sector. different ISPs for raw coking coal supply on year to year MoU The company, a subsidiary of Coal India Ltd (CIL), has its basis. This will further enhance the availability of washed headquarters in Dhanbad and is operating coking coal mines coking coal and reduce the uncertainty of steel sector as far in Jharia and Raniganj Coalfields. as import of coking coal is concerned,” he added. Along with undertaking new projects for raw and washed coal, BCCL is taking “With the addition of new washeries, initiatives to improve the logistics for around 20 mt of raw coking coal will be faster despatch. BCCL has planned to introduce Rapid Loading System (RLS) required as an input and the expected to speed up despatches. It has also washed coking coal will be around 10 mt. issued the work order for 5 mtpa RLS at With the existing capacity of 2 mtpa, BCCL Mahespur. “As per work order, the job will be in a position to supply 12 mtpa to is to be completed in three years, but we are trying to finish it within two years,” the steel plants.” Lahiry added. COKE VS COKING COAL

STEEL INSIGHTS 40 March 2012

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Jharia coalfields must be evacuated to augment coking coal production J.P. Panda

oking coal is one of the most critical steel making raw materials and domestic availability is limited. Steel makers thus have no option but to import coking coal. Total coking coal reserves in the country is 34 billion tons, approximately 12 percent of the total reserves of 285 billion tons. Occurrence is also limited to mostly Jharkhand and the Jharia coal basin is the biggest coking coal reserve of this country. If the country has to augment its own coking coal production and reduce dependence on imports, it does not have any alternative but to go for evacuating the Jharia Coalfields. Apart from reducing dependence, the import bill may also become very high as global coking coal price is moving up daily and may touch as much as $500 per ton in the near future. Therefore if we conduct a cost benefit analysis of importing 100 million tons (mt) of coal at $500 per ton at the port plus transportation charges to the steel plant and cost of infrastructure to handle to handle 100 mt of coking coal and compare it with the cost of evacuation of townships, building of new townships and the mining cost of working at a very high coal:overburden ratio, we will find the latter option will be far more economical. Problems of Jharia coalfields The Jharia coalfield is one of the oldest coalfields of India which started mining in the mid 18th century and is also one of the biggest problematic areas from the mining point of view. It has been exploited for more than 150 years leaving behind a landscape riddled with fire, subsidence etc. There are 65 surface and underground fires in the coalfield and billion tons of coal locked up due to fire. Depillaring of pillars cannot be done in the area due to problem of blocked reserves under townships, underground and surface fire, waterlogged workings etc. There are townships like Jharia , Kirkend, Katras etc, under which huge coking coal reserves are blocked. Unfortunately, nearly 60 percent of the prime coking coal has been lost due to poor extraction technology. The whole of Jharia coalfields has on the surface a habitation of nearly 12 lakh people who need to be evacuated. In any case they are in the danger zone because of the fire underneath and have to be evacuated in course of time. A Jharia Action Plan is in operation for the evacuation of endangered persons.

Planning for Jharia coal basin Immediately after nationalisation of coking coal in the year 1971, Polish mining engineers planned for an integrated development of the whole coal basin. They had planned to divide it into 10 to 11 opencast blocks and five to six underground blocks. Somehow the management was so shortsighted at that point of time that it did not approve such a balanced integrated approach. The result is that we are facing acute shortage of coking coal at an exorbitant cost to the nation. However, I believe it is not too late even now. I believe the shortage of coking coal in the country can be met by subdividing the Jharia coal basin into mega opencast projects. This assumes a lot of importance at a stage when the coking coal import may touch 100 million tons per annum (mtpa) by 2020 at an astronomical cost of nearly $50,000 million. Even if a fraction of this amount is utilised, then Jharia and its neighbouring townships can be evacuated. A cost benefit analysis, as I mentioned earlier, will show that evacuation of the townships will be a cheaper alternative. The upper seams of Jharia coalfield are prime coking coal, i.e seams XVIII to IX seam and semi coking are VIII to V seam and the rest are non coking. Mega washeries may be set up for washing the run of mine. The washed coal is used by steel plants. The Damodar river and a few rivulets are passing through the Jharia coalfields and a lot of coal is blocked under the river and the rivulets. As I already mentioned, a lot of prime coking coal which has been lost due to poor extraction rate of the upper coking coal seams can be taken out once the surface is freed from townships. Once the fire is dug out, huge quantities of prime coking coal will be released for extraction. Also, the Damodar and the rivulets should be diverted if necessary for releasing the coal underneath. Fire and subsidence is threatening a large population of the Jharia Basin. Even the townships of Jharia, Kirkend and Katras are threatened. An approved project, the Jharia master plan of approximately `10,000 crore envisages that 79,159 houses will be rehabilitated. Since the Directorate General of Mining Safety (DGMS) has already mentioned that most of the areas are unsafe for living, it will be prudent for the government to act before any disaster happens. The master plan can be extended further to evacuate the

STEEL INSIGHTSâ&#x20AC;&#x201A; 41â&#x20AC;&#x201A; March 2012

feature Jharia, Kirkend and Katras townships in a phased manner and make the whole area free from habitation. After that, the entire BCCL operations can be converted into a few mega projects of 40 to 50 mtpa capacity mines. Mega project planning should include infrastructure planning of the whole coalfield/coal basin or the mega coal mine, involving the Planning Commission, ministry of coal, ministry of railways, ministry of power and ministry of environment. All coal mega projects should be treated at par with UMPPs of the power sector. A single window clearance should be aimed for all the mega projects. Comprehensive mine planning including Rehabilitation & Resettlement (R&R) package and mine closure plan can be sanctioned at one go. New and modern townships can be built to settle the Project Affected People (PAPs). Furthermore, employment opportunities for the local populace can be created by building skill development centres. Some advantages of mega opencast projects are: ♦♦ All the coal lost due to underground mining can be recovered; ♦♦ All fires can be dug out and environ can be made very clean; ♦♦ The time taken for all clearances, like environment and forests, is the same as that of small project. Indeed it is always advisable to go for environment clearance for the whole Jharia coal basin; ♦♦ The infrastructure such as rail, road etc. can be planned much in advance;

♦♦ Large coal washeries can be built in the peripheries for beneficiation of coal; ♦♦ The mechanisation level can be very high and manpower requirement will be much less; ♦♦ The environment management can be managed by a highly skilled team and indeed zero pollution level can be easily achieved and maintained; ♦♦ The backfilling and post mining restoration of ecology or the mine closure plan can be done in a much better way; ♦♦ The CSR (corporate social responsibility) and other needs of local population can be met due to higher profit; ♦♦ Very high capacity HEMM (heavy Earth Moving Machinery) like Draglines of 122 m3 bucket capacity with 128 m boom length, rope shovels of up to 63 m3 capacity, hydraulic shovels with 50 m3 bucket capacity and dumpers with 360 to 400 t payload and dozers up to 860 HP are the maximum sizes presently available in the market. Coal India has already procured and inducted 42 Cum shovel and 240 ton dumpers at Gevra OCP producing currently 35 mt that is likely to go up to 50 mt. The necessary expertise is available with Coal India, which can be of huge advantage in mining mega projects. (The author is managing director of Priya Mining Consultancy and Services Ltd, which provides consultancy on both underground and opencast coal mines, including EMP-EIA, forest clearance etc. The company has also produced CDs on a wide variety of subjects including all DGMS circulars from 1957 till December 2010, a history of disasters in coal mines for the last 100 years and safety and productivity improvement in both opencast and underground mining. The author can be contacted at jppanda2003@yahoo.com.)

STEEL INSIGHTS 42 March 2012

fEATURE

Steel ministry may favour raising of import duty on steel

Steel Insights Bureau

ith domestic steel producers raising the issue of cheaper steel imports impacting their sales, the steel ministry may decide to recommend 5 percent duty on imported steel. If the finance ministry accepts the recommendation, the total import duty on steel would be 10 percent. In the two-hour-long meeting with top steel ministry officials, steel producers said that they would have to resort to cutting down on production as cheaper imports would lead to rising inventories. They told the meeting chaired by steel secretary PK Misra that imports of flat products have surged by 150 percent to 200 percent during the November-January period as has been found by the ministry’s Joint Plant Committee. It has been found that steel producing countries like Brazil

Coal ministry notices likely for block holders

he coal ministry is likely to issue show cause notices within a month to about 50 block holders, asking them to either start production or face de-allocation. According to reports, the development comes close on the heels of a direction from the Prime Minister’s Office to the coal ministry to ensure adequate supplies of coal to power producers. The decision to issue show cause notices to those sitting idle on captive coal blocks was taken by a panel looking into the development of reserves. The notices are likely to be issued within a month. Concerned over the increasing demand supply gap, the coal ministry had in January reviewed the progress of mines allocated to companies, including Tata Steel, Coal India, SAIL and NTPC for captive use. The progress of coal blocks allotted to firms, including Jindal Power, Jindal Steel & Power, BALCO and MMTC was also reviewed during the two-day meeting. Last year, the Coal Ministry had cancelled allotment of 14 coal blocks and one lignite block to six PSUs, including NTPC, and three private firms for failing to develop mines. However, in January government gave back six coal blocks of the deallocated mines to firms, including Damodar Valley Corporation and Tenughat Vidyut Nigam Limited and NTPC.

P K. Misra, Steel Secretary

and China have imposed import duties while incentivising exports from their territorial boundaries. They also said that demand in the CIS countries and the Middle East has nose dived leaving India as the sole fertile ground for consumption. Meanwhile, domestic steel consumption in the first 10 months of the current fiscal grew by 5.5 percent to 57.24 million tons (mt), primarily on account of growing demand from the construction sector. Domestic consumption was 54.24 mt in the April-January period in the last fiscal. The construction sector generally consumes 70 percent of the volume. The growth in production was higher than demand growth at 58.35 mt during the April-January period against 54.51 mt over the same period last year. The global steel production in January, however, was 117 mt, down 7.8 percent over the same month last year. India's import of steel during the April-January period recorded 0.6 percent drop to 5.59 mt compared to 5.62 mt a year ago. Although some feel that the drop in imports during the period might prompt the government not to tweak the existing duty levied on steel imports. However, a section of the industry is of the view that government needs to double the rate to 10 percent in order to protect the domestic steel industry to check growth in imports. India's steel exports, however, increased to 3.45 mt against 2.76 mt a year ago.

STEEL INSIGHTS 43 March 2012

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Ferro alloys show mixed movement in Feb Steel Insights Bureau

he ferro alloys market showed a mixed movement in prices in February due to moderate demand from steel mills. While some of the ferro alloy segments showed upward bias in movement, all other segments showed either stable or negative movement, much in line with the trend witnessed in January. The lack of demand for steel products, both in domestic and international markets, and the iron ore shortage continued to plague ferro alloys procurement by the domestic steel industry. In the domestic market, ferro silicon (silicon 70 percent min) remained flat at `72-73 per kg, while ferro vanadium (vanadium 50 percent min) is quoted at `730-750 kg with an upward bias. The silico manganese prices also showed an upward bias from `50-51 per kg but high carbon ferro manganese (manganese 70 percent min) remained flat at around `49-50 per kg and low carbon ferro manganese showed a downward bias from `140-141 per kg. Ferro-chrome (high carbon 60 percent min) moved up to `74/kg basic in February from `73/kg (basic) in January but low carbon ferro chrome (chrome 65 percent min) showed a downward bias from `165-170 per kg.

IFAPA wishlist for Ferro Alloys sector The proposals for indirect Ttaxes on the ferro alloy industry ♦♦ To List Ferro Manganese Slag under Free Items Instead Of Restricted Items under Heading 2621 9000 It is necessary to allow free import of ferro manganese slag under Customs Tariff Heading 2621 9000 under Chapter 26 for production of Silico Manganese, to cater to the domestic steel industry, and continue to meet the export market. Therefore, it is suggested that Ferro Manganese Slag be listed under Customs Tariff Heading 2621 9000 under Policy as Free instead of Restricted items. ♦♦ Increase the Customs Duty on Ferro Alloys under Heading 7202 To 7.5 percent except Ferro Nickel (7202 6000)Since Ferro Alloys (7202) also come under the same Chapter 72 of Iron and Steel, it is suggested that the basic customs duty on ferro alloys be increased to 7.5 percent (except ferro nickel, which is 100 percent

imported). This will ease the working condition of the industry to a great extent. ♦♦ To waive Customs Duty on Raw Materials i.e., Ores under Chapter 26 and 28 for Production of Ferro Alloys. It is therefore requested that the government may consider to reduce the Customs Duty on Manganese Ore under Heading 2602 0010 to 2602 0090, Chrome Ore under Heading 2610 0010 to 2610 0090 and Roasted Molybdenum Ore and Concentrate under Heading 2613 1000 and 2613 9000 and Vanadium Oxides, Pentoxide and Hydroxides, Ammonium Metavanadate, Vanadium Compound, Vanadium Concentrate, Vanadium Sludge, under Heading 2825 30 and Other Salts of Oxometallic Acids under Heading 2841 9000, to Zero percent from the existing 2.5 percent, which will help the Industry to a great extent to produce the required Alloys to cater to the growing Steel Industry, and be competitive in the domestic and international market.

STEEL INSIGHTS 44 March 2012

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IFAPA wishlist for Manganese ore industry Manganese ore reserves are depleting and no new deposit has been located or no new mine has been developed in recent times. The industry should first meet the requirement of domestic manganese alloy industry in full and on priority basis. Considering the availability issues of manganese ore within the country, the basic customs duty on import of manganese ore needs to be reduced to 0 percent i.e., nil percentage from the existing duty of 2.5 percent. This will help the industry to blend the imported high grade ore with the domestically available low grade ore, and conserve the ore for a longer period. For the development of the chrome ore industry in India, the IFAPA has observed that the availability of chrome ore is very limited in the country. The chrome ore industry therefore should first meet the requirement of the domestic ferro chrome industry in full and on priority basis. The government needs to reduce the Basic customs duty on chrome ore to 0 percent i.e., Nil percentage from the existing 2.5 percentage of duty. This will help the industry to import lumpy high grade ore for blending with domestic low grade ores.

According to experts, the higher input costs, primarily of thermal coal, continued to put pressure. Ferro titanium and chrome ore (chrome 38 percent) remained flat at `140-145 per kg and `5.7-6 per kg respectively. Some semblance of stability in the Rupee against the US Dollar brought in stability in the market. Some suppliers are upbeat, as there is not much material in the spot market. Meanwhile, some Asian steelmakers are looking at switching to term contracts of between three months on growing tightness in the spot market. Spot supply in Asia has fallen as some Chinese traders are focusing more on the domestic market. However, the future of the long-term

contracts is still uncertain as buyers are interested in buying at competitive prices. Further, the market is unlikely to see much change before the Spring Festival; thus the transaction activities were sluggish. However, the supply of silico-manganese of Indian origin has tightened in the past two weeks due to output cuts in the second half of last year. Most Indian producers have sold out January cargoes and some of them have sold out February cargoes as well. Meanwhile, the Indian Ferro Alloy Producers’ Association (IFAPA), the apex body representing manufacturers of bulk and noble ferro alloys in the country, expects the 2012-13 Budget to either maintain the WTO recommended level of duties on ferro alloys and its raw materials or increase to minimum 7.5 percent basic duty from the present level of 5 percent. The association is also looking forward to a reduction in the duty on basic raw material to 0 percent from the present level of 2.5 percent-7.5 percent.

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STEEL INSIGHTS 45 March 2012

fEATURE

Sponge iron Q3 production down 21% y-o-y Sanjukta Ganguly

roduction of sponge iron in India has declined by 21.36 percent in Q3 of 2011-12, as compared to the production during the corresponding period last year, according to the data made available to Steel Insights by a member of the Sponge Iron Manufacturers’ Association of India (SIMA). During Q3 of 2011-12, total production of sponge iron stood at 4,510,459 tons whereas in Q3 of 2010-11, the figure was at 5,735,347 tons, as per the available data. Out of the total sponge iron production during OctoberDecember 2011, gas based production accounted for 977,754 tons (1,473,008 tons in October-December 2010) whereas the remaining coal based production of sponge iron stood at 3,532,705 tons (4,262,339 tons in Q3 of 2010-11). Exports of sponge iron by three major sponge iron manufacturers – namely Welspun Maxsteel Limited, Tata Sponge Iron Limited and Monnet Ispat & Energy Limited – has dipped by 70.53 percent in the third quarter of 2011-12 as compared to the corresponding period of 2010-11, according to the data. In Q3 (October-December) of 2011-12, total exports of sponge iron by these companies stood at 13,583 tons whereas

the exports were 46,092 tons during the corresponding period of last year. Export of sponge iron (in tons) Company Tata Sponge Iron Limited Welspun Maxsteel Ltd Monnet Ispat & Energy Limited Total

Oct-Dec (2011-12) 0 3,540 10,043 13,583

Oct-Dec (2010-11) 4,900 41,192 NA 46,092

*Note: Sponge iron export figures of Monnet Ispat & Energy Limited for Q3 of 2010-11 is not available. Source: SIMA

DRI Production in Q3 of 2011-12 (in tons) Oct TOTAL GAS BASED

Nov

341,718

Dec

311,031

325,005

TOTAL COAL BASED

1,168,241

1,150,631

1,213,833

GRAND TOTAL

1,509,959

1,461,662

1,538,838

SPONGE IRON MANUFACTURERS ASSOCIATION DRI Production 2011-2012 CPTY L/T A. GAS BASED ESSAR STEEL LTD. JSW ISPAT STEEL LIMITED WELSPUN MAXSTEEL LTD. TOTAL GAS BASED B. COAL BASED AARTI SPONGE & POWER LTD. ACTION ISPAT & POWER LTD. ADHUNIK CORPORATION LTD. ADHUNIK METALIKS LTD. AKSHARA INDUSTRIES LTD. AMBEY IRON PVT LTD. AMBEY METALLIC LTD ARYAVRATA STEEL PVT LTD. BALAJI SWAMI PREMIUM LTD. BALDEV ALLOYS PVT LTD. BELLARY ISPAT PVT LTD. BENAKA SPONGE IRON LTD. BIHAR SPONGE IRON LTD. CRACKERS INDIA LTD. DHANALAKSHMI SPONGE IRON DIVYAJYOTI STEELS LTD. DINABANDHU STEEL LTD. DROLLIA ELECTRO STEEL LTD. ELECTROTHERM INDIA LTD. SCAN STEELS LIMITED GALLANTT METAL LTD.

APR

MAY

70.00 16.00 10.00 96.00

375834 105682 80360 561876

329878 104632 66930 501440

0.60 2.50 0.60 2.70 0.60 0.45 0.36 0.36 0.20 0.30 0.20 0.60 1.86 0.60 0.60 0.30 0.60 0.66 0.75 0.60 1.70

4799 10456 3926 16537 4763 0 0 705 1081 2854 516 1272 5180 3585 3554 1115 0 5069 11759 3000 8687

3049 11512 3514 14465 5044 0 0 715 951 2323 843 1757 4638 3227 532 1759 0 3559 15330 2600 8895

JUNE

JULY

AUG

357746 88570 67635 513951

404956 99348 55297 559601

351275 121087 53430 525792

2853 12836 3669 3669 4133 0 0 713 1049 2616 439 1932 11894 3115 473 1048 0 3616 12042 2400 7165

3786 9368 3762 14090 4375 0 0 606 1087 1873 772 835 6821 2564 0 0 0 2762 10852 2200 5223

2171 7592 4062 8277 4162 0 0 662 1269 1172 441 1045 10835 1683 0 0 602 3764 6789 2100 3876

STEEL INSIGHTS 46 March 2012

SEPT

OCT

NOV

DEC

TOTAL

267557 102534 34550 404641

208613 96970 36135 341718

181845 77761 51425 311031

205147 75328 44530 325005

2682851 871912 490292 4045055

2651 7564 2638 22107 3705 0 0 631 152 2072 1294 452 9504 1702 0 0 2268 3357 5897 1900 7017

3502 4980 3109 18248 4371 0 468 547 600 2558 650 760 5138 1650 1303 0 1898 3500 2901 1600 10370

2907 5623 2131 5719 4202 0 3198 760 500 1852 540 750 3917 1500 2681 0 370 3400 3869 1800 9853

1960 5707 0 12286 4483 0 2152 882 450 3089 600 800 4818 1600 2499 0 1466 3600 4093 1700 8858

27678 75638 26811 115398 39238 0 5818 6221 7139 20409 6095 9603 62745 20626 11042 3922 6604 32627 73532 19300 69944

fEATURE

GAYATRI METALS LTD. GANESH SPONGE PVT LTD. GODAWARI POWER & ISPAT HI-TECH POWER & STEEL LTD. HOSPET ISPAT PVT LTD. HOTHUR ISPAT LTD. HOWRAH GASES LTD. HARYANA STEEL & POWER HARE KRISHNA METALLICS JAI BALAJI SPONGE/HEG JANKI CORP. LTD. JINDAL STEEL & POWER LTD. JAI DURGA IRON PVT LTD. JAYASWALS NECO INDUSTRIES JAY IRON & STEEL LTD. KANISHK STEEL INDUS. LTD. MINERA STEEL & POWER PVT LTD. LLOYDS METAL & ENGG. LTD. MONNET ISPAT & ENERGY LTD. NALWA STEEL & POWER LTD. NOBLE DISTILLERIES LTD. OCL IRON AND STEEL LTD. ORISSA SPONGE & POWER PGM FERRO STEELS LTD. POPURI STEELS LTD. RAYEN STEEL LTD. SARDA ENERGY LTD. RANGINENI STEEL LTD. RASHMI ISPAT LTD. RUNGTA MINES LTD.(Est.) SKS ISPAT LTD. NARBHERAM POWER SCAN SPONGE IRON (Est.) SHRADDHA ISPAT LTD. SHRI BAJRANG & POWER SHYAM SEL LTD. SINGHAL ENTERPRISES LTD. SURANA INDUSTRIES LTD. SURENDRA MINING INDS. LTD. SREE METALIKS LTD SUNFLAG IRON & STEEL CO. SURAJ PRODUCTS LTD SURYAA SPONGE IRON LTD. TATA SPONGE IRON LTD. TOPWORTH STEELS LTD. VANDANA GLOBAL LTD. VISA STEEL LTD. MPL Cement & Sponge Pvt Ltd. WELSPUN STEEL LTD. YESHASHVI STEEL LTD. OTHER UNITS (Est.) TOTAL COAL BASED GRAND TOTAL (A+B) EXPORTS 2010-2011 WELSPUN MAXSTEEL LTD. TATA SPONGE IRON LTD. MONNET ISPAT & ENERGY LTD. Total

CPTY L/T 0.30 0.90 4.95 0.60 0.60 0.90 0.60 0.35 0.75 3.45 1.80 13.70 0.36 2.55 0.60 0.60 1.20 3.00 8.00 1.98 0.72 1.20 2.50 0.60 0.45 0.60 2.10 0.25 0.60 6.30 2.70 1.00 0.24 0.60 2.10 1.60 2.50 1.28 1.20 1.74 2.55 0.36 0.84 3.90 1.65 2.31 3.00 0.09 1.20 0.30 140.00 250.60 346.60 10.00 3.90 8.00

APR

MAY

JUNE

JULY

AUG

SEPT

OCT

NOV

DEC

TOTAL

595 5220 26107 3279 0 0 2428 2000 7210 18560 7974 126834 1281 17344 768 2363 6590 12604 58889 14820 0 9201 3946 3000 672 2370 19395 1057 2288 35000 12922 8193 1200 3372 9305 11914 13875 1242 3514 13325 5034 2655 900 27364 12482 14368 10376 240 12000 306 850000 1495240 2057116

0 4960 34656 4304 0 0 2714 1900 5092 17299 7377 128459 1208 16748 448 2885 5942 13455 55842 15264 0 9601 4804 2750 1544 1132 20832 787 1635 35000 10329 5746 1100 3440 10891 12252 13983 619 2945 11239 13032 3016 3036 23272 15605 11147 11734 200 11840 12 850000 1496789 1998229

562 3965 29957 3949 0 0 2735 1800 8044 15198 7032 108360 1365 21130 712 1220 5034 16743 51126 13734 0 8272 1938 2500 1295 1104 21687 1455 1489 35000 11212 180 1000 3049 12385 11504 15064 2205 2983 8548 13699 2714 2286 20469 14052 16300 13733 192 10179 287 850000 1455109 1969060

203 3460 31985 3221 0 738 2291 1500 4733 19365 9862 117554 1351 19037 631 2294 5588 17122 71262 14857 0 8149 0 2000 1100 78 21879 1130 1650 35000 11509 8969 1000 2640 7340 10993 11363 963 3111 7771 7982 2576 2665 22684 14081 15369 18301 248 10060 1633 800000 1430274 1989875

209 3690 31015 2312 0 1443 1738 1300 8988 14761 11305 115595 1207 19529 489 2753 8614 17064 71135 15617 0 8007 0 1800 1100 984 18820 956 2115 35000 13613 2948 1000 3092 11645 11903 13959 1952 3514 5700 11992 2529 1283 27802 11448 16435 15922 216 9037 726 700000 1324764 1850556

0 1870 17759 3227 0 1203 2593 1100 9450 14578 10940 106660 768 14252 345 1886 8018 13754 67705 15173 0 7013 3284 1700 1100 512 16187 335 1662 35000 11533 0 1000 3034 9092 9832 9242 2680 1249 4668 14096 2560 340 23530 13981 10285 4490 216 7842 50 650000 1212705 1617346

0 3135 29369 3167 0 1200 2167 1200 8056 14490 18255 100030 627 15667 116 1332 7510 14885 76433 13166 0 8333 1446 1600 1200 439 19462 0 1235 35000 10231 0 1200 3200 6726 10811 11250 737 2914 4448 15316 2467 0 8876 11785 14894 3756 194 11763 0 600000 1168241 1509959

0 2570 28098 2837 0 1100 2710 1350 9350 17592 12060 100557 1245 4147 534 1333 8018 7660 70316 14955 0 9868 4103 1500 1150 460 21646 0 1392 35000 12766 7973 1150 2369 7708 9327 12703 51 2542 5923 15287 2500 0 13042 11496 13925 2861 775 10911 199 600000 1150631 1461662

0 2505 19131 3802 0 1250 1890 1250 8453 17812 12235 111577 1335 18055 518 2185 8349 9349 73580 14606 0 7670 6189 1800 1250 669 19130 0 2921 35000 11600 4775 1000 2584 7637 13055 15542 127 3147 4894 9327 1776 0 31455 16232 10441 24408 258 11996 25 600000 1213833 1538838

1569 31375 248077 30098 0 6934 21266 13400 69376 149655 97040 1015626 10387 145909 4561 18251 63663 122636 596288 132192 0 76114 25710 18650 10411 7748 179038 5720 16387 315000 105715 38784 9650 26780 82729 101591 116981 10576 25919 66516 105765 22793 10510 198494 121162 123164 105581 2539 95628 3238 6500000 11947586 15992641

7754 0 2601 10355

15278 2500 2576 20354

2591 2500 2607 7698

3102 2451 5252 10805

1852 869 7616 10337

1570 7500 10275 19345

500 0

0 0

500

3040 0 10043 13083

35687 15820 40970 92477

STEEL INSIGHTS 47 March 2012

fEATURE

Auto sector revival trend continues Steel Insights Bureau

n line with the trend witnessed in January 2012, car sales in the Indian market continued to rally in February with major OEMs reporting healthy growth in numbers. This was the fourth consecutive month of growth after a prolonged slowdown in the second half of 2011. The early trend in 2012 corroborates the forecast of a full-fledged revival in 2012-13 by industry body Society of Indian Automobile Manufacturers (SIAM). Among the automobile giants, Maruti Suzuki, Mahindra & Mahindra (M&M), Tata Motors, Hyundai Motors and Hero MotoCorp have reported sales growth in February over sales achieved during the same month last year. A number of carmakers also registered the highest monthly production in FY12 during the month. “The industry is showing signs of a revival. We expect the market to return to the high growth trajectory in coming months,” said an industry analyst. The easing of inflationary pressure and overall improvement in economic climate would be the major drivers of growth, going forward. The February numbers also dispelled fears that the recent spurt in sales would be shortlived. However, the future trend could be affected by the budget declarations by the government on March 15. Jan sales up 12%: SIAM While the major carmakers have declared continued growth in February, SIAM was yet to bring out the industry numbers for the month. However, the January figures released by the association showed encouraging results. The recent uptrend, the data showed, has helped ease the impact of a sharp decline in 2011. Among the automobile majors, Maruti reported about

5.2 percent increase in sales in January, while M&M posted 22 percent jump. Tata Motors registered around 16 percent growth in sales during the month. According to SIAM, the overall sales growth recorded for April-January 2012 was 12.51 percent. In January 2012, domestic sales registered growth at 12.18 percent as compared to January 2011. SIAM data showed that passenger vehicles segment recovered marginally at 1.45 percent during April-January 2012 over the same period last year. Passenger cars recorded de-growth of (-) 1.19 percent, utility vehicles grew by 13.03 percent and vans grew by 8.40 percent in this period. In January 2012, passenger cars, vans and utility vehicles recorded growth at 7.20 percent, 14.15 percent and 15.72 percent respectively. Growth in overall passenger vehicles was at 8.86 percent in January 2012. The overall commercial vehicles segment registered a growth of 18.63 percent during April-January 2012 as compared to the same period last year. While medium & heavy commercial vehicles (M&HCVs) registered growth of 9.70 percent, light commercial vehicles (LCVs) grew by 26.37 percent. However, in the month of January 2012 over January 2011, the growth in sales of the overall CV segment was 13.52 percent. Three-wheeler sales recorded de-growth of (-) 0.44 percent in April-January 2012. While passenger carriers registered decline by (-) 2.92 percent during April-January 2012, goods carriers registered a growth of 10.36 percent. Two-wheelers registered a growth of 15.06 percent during April-January 2012. Mopeds, motorcycles and scooters grew by 10.59 percent, 13.66 percent and 22.76 percent respectively.

STEEL INSIGHTS 48 March 2012

fEATURE If we compare January 2012 to January 2011, the growth figures for two-wheelers was at 13.63 percent. Three-wheelers registered de-growth at (-) 3.49 percent in the month of January 2012. Meanwhile, the cumulative production data for April-January 2012 shows overall production growth of 14.56 percent over the same period last year. Production in January 2012 registered growth of 11.25 percent as compared to January 2011. Exports In January 2012, compared to January 2011, overall automobile exports registered a growth of 22.93 percent. During AprilJanuary 2012, overall automobile exports registered a growth rate of 28.36 percent. Passenger vehicles registered growth at 20.64 percent in this period. Two-wheeler, commercial vehicles and three-wheeler segments recorded growth of 28.52 percent, 27.60 percent and 39.70 percent respectively during April-January 2012. Maruti Suzuki Maruti Suzuki India Limited has sold a total of 118, 949 vehicles (including 11,296 units for export) in February 2012, recording a rise of 6.5 percent in sales from 111,645 vehicles sold during the corresponding month of the previous year, the company said in a statement. However, Maruti Suzuki India’s export surged by 11.8 percent in February 2012 to 11,296 units from 10,102 units in the year-ago period, the company statement said. On a year-on-year basis, during the first 11 months (AprilFebruary) of the current financial year, the company’s total auto sales dropped by 12.3 percent and stood at 1,007,743 as compared to 1,149,053 vehicles sold during the corresponding period of 2010-11. Tata Motors Tata Motors' total sales (including exports) of Tata commercial

and passenger vehicles in February 2012 stood at 92,119 vehicles, up by 19 percent over the number of vehicles sold in February 2011. The company's sales of commercial vehicles in February 2012 in the domestic market were 86,704 recording a growth of 19 percent as compared to 73,039 vehicles sold in February last year. However, cumulative sales of commercial vehicles in the domestic market for the fiscal stood at 471,917, a growth of 19 percent over last year. The company's sales from exports stood at 5,415 vehicles in January 2012, up by 20 percent as compared to 4,504 vehicles in February 2011. The cumulative sales from exports for the fiscal stood at 57,711, up by 11 percent over 52,112 vehicles sold in the same period last year. M&M Mahindra & Mahindra Limited (M&M Ltd), a part of the Mahindra Group, recorded a 29 percent increase in auto sales during the month of February 2012, which stood at 43,087 units against 33,378 units sold during February 2011, the company said in a statement. The company’s domestic sales stood at 40,461 units during February 2012, up 27 percent as against 31,967 units during February 2011. Exports for the month have also grown by 86 percent and stood at 2626 units while the 4-wheeler commercial segment which includes the passenger and load categories has registered a growth of 36.54 percent at 13,522 units, the statement said. “We are happy to maintain a healthy growth of 29 percent in February 2012, with all our brands doing well. While the XUV500 continues to create excitement in the market, the recently launched New Xylo has also evoked a very positive response from customers,” said Pravin Shah, chief executive, automotive division, Mahindra & Mahindra Ltd, while talking on the company’s performance during February.

STEEL INSIGHTS 49 March 2012

social buzz

Steel industry seeks duty cut in Budget Steel Insights Bureau

Steel Insights has recently started a group on LinkedIn called India Steel Market Watch (ISMW). The readers are welcome to join the group and participate in daily conversations and surveys conducted by ISMW on the online forum. Steel Insights may, at its discretion, publish the results of such surveys and discussions for the benefit of a larger audience.

s the country’s annual budget drew closer, the stakeholders of the Indian steel industry stirred up to seek redress to their demands. While the large industry bodies were busy with the annual ritual of submitting budget proposals to the government, members of ISMW posted their wish list to a captive audience on LinkedIn. Here are some of the notable mentions: ♦♦ Private power companies seek abolition of import duty of 5 percent on coal ♦♦ Removal of both customs & excise duties on mining, power equipment imports ♦♦ Iron ore exporters want export duty to be cut to 15 percent-20 percent (current 30 percent) ♦♦ Iron ore exporters seek freight charges to be reduced on exports of iron ore ♦♦ Ferro alloys manufacturers want import duty on manganese ore & chrome ore to be waived off The points mentioned could be summed up as duty cuts on inputs. A major concern is the government’s way of handling the iron ore issue. An anonymous view has been that the government’s moves are not serving the purpose of the domestic industry. Incidentally, the top honcho of a large steel manufacturer recently said, “Some of the government policies are affecting the industry very badly.” One only hopes the government appreciates the concerns of those for whom it is formulating its policies. Global demand up While India is going for budget, the global steel market is looking in the face of a slowdown. Ashima Tyagi, consultant at Infraline Energy quoted a report by World Steel Association (WSA) to indicate that global steel demand would register a 5.4 per cent growth in 2012 to 1,500 million tons (mt). The growth should be lower than 2011 figures. However, in absolute terms, steel demand would be 103 mt higher than 1,397 mt consumed in 2011. India’s steel consumption was around 68 mt in 2011. The third-highest steel consuming country in the world is expected to see a 4-5 percent growth in 2012. As for China, WSA said Chinese demand for steel is likely to be 6 percent, its lowest level over the last three years, and reach 682 mt.

Commenting on the forecast, Steven S, Marketing Director at Luoyang Xingqi (forged special steel bars, forgings & drill string), said at ISMW, “I do not think the number is reachable because the environment of steels and related fields face a ‘cool winter’ now.” Logistics down Another major issue that came up for discussion was the logistic lags facing the Indian steel sector. In a recent report, apex chamber Assocham has voiced concern over poor logistics infrastructure for supply of iron ore and coal for the steel industry, and said slurry pipelines should be given the status of infrastructure industry to address bulk transportation needs of the sector. “Moving iron ore and coal by pipelines in slurry form has advantages like low operating costs, higher availability and environment friendly. Existing railway lines are almost reaching a saturation point,” said the chamber. “While augmenting railways infrastructure is important, slurry pipelines may eventually re-invent raw material transportation for the iron and steel industry,” it said in its recommendations for the National Steel Policy. The members at ISMW agreed to the proposals and called for the government’s attention. Steel prices up & down The majority of the forum had forecast a flat trend in steel prices in India in 2012. There however was a recent hike in prices in some pockets. Prices shot up by Rs 1,500-2,000/ton in a very short span, according to Sanjoy Chakraborty, senior analyst, mjunction services limited. “Indian steel prices (are) on the acclivity at present but might cool off in mid March as per market experts,” he commented. “There is absolutely no buying in finish market. Buyers are unwilling to pay high. Prices will not sustain in near term as per a TMT dealer in Muzaffarnagar. Hence, though prices are high but volumes are extremely thin and it looks like prices might correct on weak demand and low trading volumes.” The observation followed a move by SAIL to cut its flat steel prices in select regions.

STEEL INSIGHTS 50 March 2012

logistics

April-Jan iron ore traffic down 25% y-o-y Steel Insights Bureau

ovement of iron ore through the 12 major Indian ports dropped significantly by as much as 25 percent to 52.147 million tons (mt) in the April 2011 to January 2012 period, against 69.525 mt in the corresponding period last year. According to data released by the Indian Ports Association (IPA), Mormugao port handled the highest volume of 24.219 mt of iron ore during the April-January period of the current fiscal. This volume, however, was about 6.895 mt less than the iron ore traffic moved during the same period last fiscal. The Traffic handled at major ports (during Apr to Jan, 2012* vis-a-vis Apr to Jan, 2011)

(*) Tentative

Ports 1 KOLKATA Kolkata Dock System Haldia Dock Complex TOTAL: KOLKATA PARADIP VISAKHAPATNAM ENNORE CHENNAI TUTICORIN COCHIN NEW MANGALORE MORMUGAO MUMBAI JNPT KANDLA TOTAL:

(in '000 tons)

April to January Traffic

% Variation Against prev.

2012* 2

2011 3

Year traffic

10230 26495 36725 45540 57943 12064 47084 22915 16711 26964 31994 45152 55443 68563 467098

10625 28923 39548 46120 55708 8381 50865 20140 14731 26068 38794 45586 53500 68758 468199

-3.72 -8.39 -7.14 -1.26 4.01 43.94 -7.43 13.78 13.44 3.44 -17.53 -0.95 3.63 -0.28 -0.24

port has shown a negative growth of 17.53 percent during the period. The movement of coking coal also fell marginally by 1.29 percent to 23.978 mt during the same period, the data showed. Movement of coking coal through Paradip, Kolkata, Chennai and Kandla ports declined during the period when compared to the corresponding period last year. Visakhapatnam port shipped the highest quantity of 5.836 mt of coking coal during the period. As per the data, the 12 ports together handled 467.098 mt of total traffic during the April-January period of the current financial year, 0.24 percent lower than 468.199 mt recorded during the corresponding period last year. As opposed to coking coal and iron ore, the volume of thermal coal through the major ports was up 14.42 percent to 41.178 mt during the period, compared to 35.988 mt achieved during the same period last year. Among the major ports, Paradip port had the distinction of handling the highest quantum of thermal coal of around 13.283 mt during the period. Movement of container traffic both in terms of tonnage and TEUs showed an increase during the April-January period. The major ports handled 100.597 mt, besides 6.530 million TEUs during the period under review compared to 93.128 mt of tonnage and 6.256 mt of TEUs respectively. Six major ports showed positive growth in traffic handling during the April-January period of the current fiscal, while the remaining six showed negative growth on a year-on-year basis. In terms of growth, Ennore port topped the list with a record 43.94 percent increase in cargo throughput. New Mangalore port’s growth was lowest at about 3.44 percent during the period. In terms of traffic volume, Kandla port clinched the top rank with a cargo volume of over 68.563 mt recorded for the period. The Mormugao port registered the highest decline of 17.53 percent in traffic handling during the period.

STEEL INSIGHTS 51 March 2012

Logistics

Indian Railways Apr-Jan commodity freight revenue up 9.7 percent Steel Insights Bureau

ndian Railway’s revenue earnings from commodity wise freight traffic increased by 9.70 percent to `55,382.80 crore during the first 10 months (April-January) of 2011-12 from `50,487.91 crore during the corresponding period of 2010-11, according to information available with Steel Insights. The commodity-wise freight traffic volume during the period increased by 4.76 percent to 791.84 million tons (mt), compared to 755.86 mt during the corresponding period last year. The Net Tonne Kilo Metres (NTKM) went up from 498,014 million during April 2010 to January 2011 to 524,186 million during April 2011 to January 2012, showing an increase of 5.26 percent. The data revealed that the Railways’ revenue earnings in January 2012 was `6,173.57 crore while freight traffic volume stood at 87.03 mt and NTKM at 57218 million. The Railways earned `2,583.54 crore from transportation of 41.35 mt of coal in January 2012, marginally higher than `2,548.54 crore earned from transportation of 41.01 mt coal in December 2011. However, earnings from transportation of iron ore for exports, steel plants and other domestic users fell to

`481.60 crore (8.25 mt) in January 2012 from `543.64 crore (8.94 mt) in December 2011. Earnings from transportation of cement increased to `615.32 crore (9.92 mt) in January 2012 from `562.73 crore (9.37 mt) in December 2011, while that from foodgrains was up to `434.18 crore (4.24 mt) from `403.71 crore (3.94 mt). According to the data, earnings from transportation of petroleum oil and lubricant (POL) in January 2012 fell to `322.21 crore (3.46 mt) from `328.89 crore (3.52 mt) in December 2012. Earnings from transportation of pig iron and finished steel from steel plants and other points increased to `403.34 crore (3.23 mt) in January 2012 from `369.32 crore (3.10 mt). Revenues earned from transportation of fertilizers fell to `462.01 crore (5.32 mt) in January 2012 from `484.77 crore (5.61 mt) in December, while earnings from transportation of raw material for steel plants, except iron ore, by container service increased to `312.78 crore (3.45 mt) from `100.41 crore (1.12 mt). Earnings from other goods remained flat at `458.62 crore (6.60 mt) in January 2012, compared with `456.80 crore (6.74 mt) in December 2011.

Volume of freight and earnings by the Railways in January 2012 vs January 2011 Commodity

Quantity (in mt)

Jan'11

Jan'12

Jan'11

Jan'12

Coal i) for steel plants ii) for washeries iii) for thermal power houses iv)for public use v) Total Raw material for steel plants except iron ore

4.02 0.17 25.44 8.38 38.01 1.31

3.92 0.12 28.11 9.2 41.35 1.21

167.38 2.4 1527.13 498.09 2195 100.87

179.91 0.96 1809.14 593.53 2583.54 99.97

Pig iron and finished steel i) from steel plants ii) from other points iii) Total

2.38 0.67 3.05

2.49 0.74 3.23

284.61 61.21 345.82

342.66 60.68 403.34

Iron ore i) for export ii) for steel plants iii) for other domestic users iv) Total Cement Foodgrains Fertilizers Mineral Oil (POL)

1.92 3.97 4.21 10.1 8.77 4.03 4.21 3.48

0.32 4.94 2.99 8.25 9.92 4.24 5.32 3.46

400.81 118.98 234.3 754.09 529.82 400.5 343.33 303.85

90.2 181.21 210.19 481.6 615.32 434.18 462.01 322.21

Container Service i) Domestic containers ii) EXIM containers iii) Total Balance other goods Total revenue earning traffic.

0.9 2.39 3.29 6.3 82.55

0.8 2.65 3.45 6.6 87.03

85.09 207.45 292.54 432.54 5698.36

80.91 231.87 312.78 458.62 6173.57

STEEL INSIGHTS 52 March 2012

Earning (in `crore)

Tear along the dotted line

macro outlook INR movement against select major currencies 83 81 79 77 75 73

Steel Insights Bureau

1-Mar-12

31-Jan-12

15-Feb-12

1-Jan-12

16-Jan-12

2-Dec-11

17-Dec-11

2-Nov-11

17-Nov-11

3-Oct-11

YEN

18-Oct-11

3-Sep-11

USD

18-Sep-11

4-Aug-11

19-Aug-11

5-Jul-11

20-Jul-11

5-Jun-11

20-Jun-11

6-May-11

21-May-11

6-Apr-11

71 21-Apr-11

INR vs USD, Yen

INR vs GBP

Macroeconomic indicators of India

69 67 65 63 61 59 57 55 53 51 49 47 45 43

GBP

Source: rbi The INR logged monthly losses in February to the extent of 4.15 percent on foreign fund outflows. The INR lost February 2012 against the USD ending the month at `49.01 per USD from hovering around `47.06 per USD recorded during the end of January.

Foreign Exchange Assets

Inflation Rate in India 325000

11.00%

9.47%

9.54%

9.74%

9.51% 9.56%

9.78%

10.00%

9.11%

9.36%

8.00%

1530000

305000

1480000

300000 295000

1430000

290000

1380000 1330000

280000

6.55%

6.00%

310000

285000

7.47%

7.00%

1580000

315000

9.73%

in Rs crore

9.00%

9.68%

in million $

10.00%

1630000

320000

1280000

275000

in Million $

in Rupees crore

Source : OEA, GoI, Ministry of Commerce & Industry

Source: rbi

Inflation, as measured by the WPI, eased to a 26-month low of 6.55 percent in January. It stayed above 9 percent for 12 straight months until November, forcing the central bank to run a 20-month interest rate tightening cycle that ended in October.

India’s forex reserve rose to $295.048 billion as of February 24 from $293.440 in the previous week. Foreign currency assets, the biggest component of the forex reserves kitty, rose by $1.567 billion to $261.102 billion during the week. This rebound in forex reserves was mainly on account of a strong rally in the Indian equities markets and rebound in the value of rupee on the back of huge inflow of funds from overseas investors as since the beginning of the year.

Wholesale Price Index (Selected Categories)

Index of Industrial Production

210 200 190 180 170 160 150 140 130 120 110

205 185 165 145 125 105 ALL COMMODITIES MANUFACTURED PRODUCTS Basic Metals Alloys & Metal Products

PRIMARY ARTICLES FUEL & POWER Steel

Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Mining & Quarrying

Manufacturing

Electricity

General Index

Source : OEA, GoI, Ministry of Commerce & Industry

Source : Govt. of India, MoSPI

India’s wholesale price index (WPI) (Base 2004-05=100) for the month of January 2012 rose by 0.5 percent to 157.7 (provisional) from 156.9 (provisional) in December. The index for non-food articles rose by 2.4 percent to 182.8 (provisional) from 178.6 (provisional) for the previous month.

The index of industrial production (IIP) rose by 1.8 percent in December 2011 as against 5.9 percent in November 2011 after witnessing a contraction in the previous month by 4.74 percent. The slow growth in IIP was because of negative growth in mining, manufacturing and electric segments.

STEEL INSIGHTS 54 March 2012

market report

Global crude steel output down marginally Sumit Kedia

World crude steel production

orld crude steel production for the 59 countries reporting to the World Steel Association (worldsteel) was 116.7 million tons (mmt) in January 2012, down .33 percent as compared to 117.1 mmt reported in December 2011. It needs to be noted here that in December 2011, there were 64 countries reporting to Worldsteel and thus the figure pertains to 64 countries. However, January 2012 figures have only 59 countries. Three African countries – Algeria, Libya and Morocco – as well as two Middle East countries – Iran and Qatar – no longer report their monthly production statistics to Worldsteel. As per the data, crude steel production for January 2012 was 8.89 percent lower than January 2011. China, the single largest producer, produced 52.1 mt of crude steel in January this year, a m-o-m drop of 0.18 percent and a y-o-y decline of 13.03 percent. Elsewhere in Asia, Japan produced 8.6 mt of crude steel in January 2012, a decrease of 10.61 percent compared to the same month last year. India’s production for January 2012 stood at 6.1 mt, down 0.73 percent compared to January 2011. South Korea produced 5.1 mt during the same period, a 9.61 percent decrease on the same month 2011. Overall, Asian markets, in comparison to January 2011 recorded a 11.44 percent decrease in production of crude steel as the region closed the January 2012 month with crude steel production of 73.8 mt. In the EU, Germany’s crude steel production for January 2012 was 3.4 mt, a decrease of 8.51 percent on January 2011. Italy produced 2.2 mt of crude steel in January 2012, 4.58 percent higher than January 2011. France’s production also rose to 1.4 mt of crude steel in January 2012, 11.20 percent up compared to the same month of 2011. EU’s total production in January this year stood at 13.9 mt, a decrease of 5.59 percent as compared to the corresponding period in 2011. However, compared to December 2011, production grew by 11 percent.

Russia recorded a y-o-y growth of 0.36 percent in January producing 5.9 mt, while Ukraine witnessed a y-o-y production fall of 1.61 percent to 2.9 mt of crude steel. Turkey’s crude steel production rose by 14.35 percent to 3.1 mt in January 2012 as compared to January last year while Brazilian crude steel production for the same period was 2.8 mt, up 0.58 percent to January 2011. The US crude steel production stood at 7.6 mt in January 2012, recording a rise of 5.68 percent over January 2011 The world crude steel capacity utilisation ratio of the 59 countries in January 2012 rebounded slightly to 71.3 percent, 0.5 percentages point higher than from December 2011. Compared to January 2011, the utilisation ratio in January 2012 decreased by -9.6 percentage points.

Crude steel production growth rate (Y-o-Y)

Steel capacity utilisation ratio

European Union (27) Other Europe C.I.S. (6) North America

14,674

15,174

14,244

12,541

13,920

-5.30%

3,035

3,213

3,324

3,089

3,345

3,384

11.32%

9,452

9,060

9,495

9,140

9,318

9,404

0.37%

10,218

9,839

9,853

9,885

10,134

10,340

5.04% 0.32%

4,061

3,880

3,795

3,798

1,090

1,202

1,084

Middle East

1,677

1,661

1,681

1,641

1,718

464

China

58,752

56,700

54,673

49,883

52,164

52,072

India

6,160

5,950

6,150

6,000

6,150

6,100

8.73%

Japan

8,909

8,889

6,150

8,695

8,397

8,631

-10.61%

South Korea

5,519

5,478

6,087

5,785

5,950

5,120

-8.76%

Taiwan, China

1,911

1,738

1,800

1,740

1,920

1,900

8.57%

81,251

78,754

78,188

72,103

74,581

73,823

-10.51%

668

626

473

434

424

458

-37.49%

65,488

66,226

68,782

65,623

64,894

64,603

-3.77%

124,240 122,926 123,455 115,506 117,058 116,675

-8.13%

Asia Oceania Rest of the world except China Total 64 countries

Jan12/11

Dec11/10

Oct11/10

Nov11/10

Sep11/10

Aug11/10

July11/10

June11/10

Apr11/10

May11/10

Mar11/10

Jan11/10

Feb11/10

Dec10/09

Oct10/09

Nov10/09

Sep10/09

Aug10/09

July10/09

June10/09

Apr10/09

12,616

1,206

May10/09

Jan 2011

3,997

-0.1 Mar10/09

Dec 2011

1,103

0.1

Jan10/09

Nov 2011

4,123

0.2

Feb10/09

Oct 2011

1,200

0.3

Rest of the world except China

Sep 2011

South America

0.4

China

Jan 2012 / Jan 2011 (% change)

Aug 2011

Africa

0.5

-0.2

(in ‘000 tons)

World

STEEL INSIGHTS 56 March 2012

-13.03%

Market Report

International flat product markets

Mixed trend amid uncertainties Steel Insights Bureau

he global flat steel market witnessed mixed trends amid a phase of anxiety as the global economic environment remained shrouded in great uncertainty. There is genuine concern about the economic health of several major economies and this is likely to impact the demand for steel products significantly. The initial signs of such an impact are already apparent in the flat steel segment. The Chinese, UAE and Turkish markets showed some strength. But the US remained quiet and flat following the uncertainties in the market dynamics. Chinese prices increase Export prices of Chinese commercial plate have increased by $5-10 per ton in February. Producers have pushed prices higher mainly because order bookings have increased and because domestic plate prices have also trended upwards. Offer prices of boron-added 14-20mm thick commercial plate from some eastern China producers have increased to $645-655 per ton fob, up $5 per ton from mid-February and by almost $15-20 per ton compared with offers in early February. Transaction prices are heard to be quite close to those offers. Meanwhile, transaction prices for similar materials from one northern China steelmaker are heard at around $630 per ton fob, up about $10 per ton from mid-February. Plate export volumes are expected to rebound in MarchApril as a result of the improved orders. In January China exported 347,363 tons of plate, down by just 2 percent from December’s 354,489 ton, according to data supplied by the China Iron & Steel Association. Currently, domestic prices of Q235 14-20mm plate are prevailing at RMB 4,320-4,400 per ton with 17 percent VAT or RMB 3,692-3,761 per ton non-VAT in the Shanghai dealer market, up RMB 40-50 per ton. Meanwhile, China’s exports of hot rolled coil and sheet rebounded by 28 percent month-onmonth in January after falling for three consecutive months. Chinese exporters expect the HRC export volumes to continue growing in the coming months following improved orders in December-January for February-April shipment. China exported 316,743 tons of HRC in January, up 69,677 tons or 28 percent from December, according to data supplied by China’s customs. Chinese HRC export prices have increased since early January on the back of improved orders. However, as HRC producers continued pushing export prices higher in February, transactions have slowed. Exporters believe some time will be needed to see whether buyers could accept the recent rapid price increases. Currently, prevailing export offer prices for Chinese boronadded HRC 5.5mm thick and above have increased to around

$635-640 per ton fob for May shipment, up $5-10 per ton from early February and up $35-40 per ton from early January. Some deals have already been closed at around $635 per ton fob to South America, up $10 per ton from early February. US prices trend down US grain-oriented electrical steel (GOES) producers AK Steel and Allegheny Technologies Inc (ATI) have cut their monthly GOES surcharges for April deliveries. AK’s surcharge is slated to fall from $450/short ton to $395/s.t, and ATI’s surcharge is scheduled to fall from $469/s.t to $440/s.t. This is the first time AK has cut its monthly GOES surcharge this year, while ATI’s adjustment brings its surcharge to its lowest level yet this year. AK and ATI’s surcharge mechanism differs, accounting for the discrepancy in levies, but base price adjustments make transactional pricing similar. American coldrolled and hot-dip galvanized sheet mill lead times fell, while hotrolled coil lead times inched up slightly. The shorter lead times come as domestic spot pricing continued to trend downward. After starting the month of February in the range of $720-750/short ton, HRC is now selling for roughly $700-710/s.t, fob midwestern US mill. UAE steel prices firm up United Arab Emirates-based flats producer Al Ghurair has increased its hot dip galvanized coil price by $15 per ton, while fellow local producer Asian Ispat is also planning a hike soon. Domestic demand is strengthening, while import offer prices are moving up. Al Ghurair is selling 0.7mm thick, 180 grams/square meter zinc coated HDG at $865 per ton ex-works for May production. Asian Ispat’s price for 0.5mm thick, 120 grams/square meter zinc coated HDG is at $810-840 per tons ex-works, while skin pass coil is quoted at $880-920 per tons ex-works. Hot rolled coil imports are offered to the UAE at $680-710 per ton cfr, up from level of $670-800 per ton cfr. Turkey prices to increase soon Cold rolled coil prices in Turkey are expected to increase soon, following recent upward movement in hot rolled coil prices; there is also a shortage of some gauges. Demand from end users is also strengthening because stock levels are low. Turkish producers are offering CRC at $800-820 per ton exworks, with levels expected to increase by $10-20 per ton soon. These prices were $760-780 per ton in early February. HRC prices increased to $720 per ton ex-works, $40/t up on early February.

STEEL INSIGHTS 58 March 2012

Market Report

International long product markets

China, Japan firm up; US remains soft

Steel Insights Bureau

he international long steel market witnessed mixed trends in February in line with the uncertainties in the global economic front. The Chinese and Japanese markets showed some firming up. However, the US market remained lacklustre. The market sentiment remained positive for now since the period between March and May is considered the peak season for steel consumption in China. Higher scrap prices have resulted in Japanese long product mills to lift their selling prices. However, US wire rod market participants remained unsure about where prices are headed. They agreed that they will have to wait and see what happens with scrap prices. There were some imports coming in, but Turkish rebar is not going to be a big factor. Chinese rebar prices rebound Rebar prices in northern China have stabilised. The market sentiment remained positive for now since the period between March and May is considered the peak season for steel consumption in China. In the Beijing market, 18-25mm diameter HRB400 rebar sourced from Hebei Iron & Steel, was fetching RMB 4,2804,300 per ton, with 17 percentVAT. HRB335 rebar of the same size from the same source also held steady at RMB 4,220-4,230 per ton. While Hegang, the leading construction steel supplier in northern China, reduced its February contract price to what traders regard as a reasonable level, the list price for early March remained high. Market prices have stayed at a low level through most of February; with February coming to an end, traders are eager to push up their prices to brace for the traditional peak steel consumption season in March. But after such a tremendous hike, there may be little room for further increases. US prices soft US wire rod market participants remained unsure about where prices are headed. They agreed that they will have to wait and see what happens with scrap prices. Turkish wire rods have become too expensive. Their numbers rose $20 per ton. And now they are basically outpriced and this is at the same time that domestic mills are quietly giving discounts based on the lower scrap numbers. Mesh quality rod from Turkey is priced at $715-720 per ton cfr US, or $648-653 per short ton. The price of wide flange beams in the US seems to be firming, though customers are still benefiting from discounts. One midwestern US service centre source said some buyers

are paying full fob mill list price for WF, which would be $840 per short ton for 8x8-inch sections, but discounts are available. According to sources, the price could be more than $810 delivered from the mill. The sources said spot prices will remain flat or perhaps soften a little in March and the market will continue to be weak unless there are more government incentives to bring more beams to worksites. Some sources said business conditions overall are good, and that they are having no problems in getting material. Meanwhile, the price of rebar is moving down largely because of lacklustre demand, and not higher import volumes. The rebar price assessment moved down to $730-760/short ton, fob mill, from $760-780/s.t in mid-February, as more small to midsize service center buyers are quoting lower prices. A northeastern stockist said there are some imports coming in, but he does not expect Turkish rebar to be a big factor until April. He says other service centres probably did some hedge buying in December while prices were lower, as he did. In the eastern side the most recent spot price deal for No. 5 rebar, grade 60, was $725/s.t, fob mill. Some sources say that demand will be flat through the end of the year. They are waiting for his customers’ business to pick up before he restocks. Japan prices move up Higher scrap prices are leading Japanese long product mills to lift their selling prices. Over the past few days Tokyo Steel Manufacturing has raised prices of its H-beams and rebars for project usage twice – on February 23 and 27– and each time by ¥1,000 per ton. Consequently, its price for senior sized H-beams for projects is now ¥74,000 per ton and that for rebars for projects is ¥59,000 per ton for base-size bars. Tokyo Steel’s list prices for retail sales for March contacts are ¥71,000 per ton for beams and ¥53,000 per ton for bars. Himeji-based Yamato Steel also lifted its H-beam prices for project usage from February 27 contracts by ¥3,000 per ton to take these to ¥68,000-70,000 per ton, depending on size. Higher scrap costs are a factor and increase in project prices also reflects changes in market environment. Tokyo Steel’s most recent export contract for H-beams was around $780-790 per ton fob, some $20 per ton higher. Also Kyoei Steel, Japan’s largest rebar producer, stopped accepting orders at its Yamaguchi works in western Japan while it monitors market movements. Rebar demand in Kyushu – the key sales region for the Yamaguchi works – is slower than in other areas and as a countermeasure Kyoei is eyeing higher prices.

STEEL INSIGHTS 60 March 2012

Market Report

Domestic Flat & Long Markets

Mixed trend in prices as year draws to a close Anondo Kumar Dutta & Sanjoy Chakraborty

Price trend as observed in the auction held at metaljunction for flat products Following graphs show the price trend observed in the auction services of metaljunction for the months of January and February 2012 for different HR and CR products. Percent change for hot-rolled flat products (m-m, q-q, y-y basis) Products

Jan ’12 Price (Avg.)

Feb’12 Price (Avg.)

% change (M-M)

% change (Qtr-Qtr)

% change (Yr-Yr)

Cobble Plate

31321

30769

-1.76

3.51

8.04

Def. Plate

28797

29048

0.87

4.47

16.46

Def. HR Plate

29165

29179

0.05

0.74

12.99

Semi Rolled Plate

29115

30727

5.54

6.40

22.16

SRP Coil Form

30483

31005

1.71

4.93

21.73

Def. HR Coil

30774

30188

-1.90

-5.35

1.65

Def. HR Sheet

30850

31200

1.13

-4.78

–

Wtd. Avg. Prcie (Rs./MT)

35000

HR Products Price Trend

33000 31000 29000 27000 25000

Defective HR Plate-Rourkela Defective Plate Defective HR Plate-Bokaro

Semi Rolled Plate Cobble Plate HR Sheet

Price in `/t is basic

Percent change for cold-rolled flat products (m-m, q-q, y-y basis) Products

Jan’12 Price (Avg.)

Feb’12 Price (Avg.)

% change (M-M)

% change (Qtr-Qtr)

% change (Yr-Yr)

Def. CR Coil

32957

34678

5.22

1.66

5.37

Def. CRNO Sheet

31497

31669

0.55

-4.45

-8.76

CR Coil End SPM-I

33499

34103

1.80

2.98

11.15

CR Coil End SPM-II

34616

34900

0.82

5.07

10.75

Def. CR Sheet

29800

30725

3.10

-6.33

-6.68

CR Sheet Cutting

29800

30155

1.19

2.35

15.24

37000

Wtd. Avg. Price (Rs./MT)

he month of February has been really slow for the flat steel market as opposed to the long steel segment. In fact, the negative sentiments are so high that producers are even considering a rollover in prices for March. End-user demand for steel could rise as consumers rush to achieve their annual targets before the fiscal year ends, but interim buyers would want to keep inventories down, which would lead to slow buying. Transaction prices of 2062 grade A HRC, 3mm thick and above, presently average `35,000-36,000 per ton exworks. Earlier, steelmakers had attempted to lift prices but faced resistance from buyers. In the long steel segment, on the other hand, billet and other long manufacturers across India have raised their offers by `500-900 per ton on improved demand and high raw material costs like scrap and sponge iron. Demand is said to be overwhelming, especially from Ghaziabad and Muzzafarnagar as most induction furnaces in UP are not operating on unavailability of scrap. Billet prices in Raipur are hovering around `32,800-32,900 per ton, whereas, there are a few other markets who are quoting much higher than market prices. Traders are taking comfort from primary manufacturers to stick to these price hikes as scrap prices are still climbing.

CR Products Price Trend

35000

33000

31000

29000

CR Coil End from SPM - I UACE from HDGL Def CR Sheet

Price in `/t is basic

STEEL INSIGHTS 61 March 2012

Defective CR Coil CR Coil end from SPM-II Defective CRNO Sheet

Market Report Outlook The flat steel market price movement has been rather unpredictable in the secondary steel segment. Buyers bought only to satisfy immediate need and in an attempt to balance their books before the financial year ends. This has been reflected in both hotrolled and cold rolled products. Apart from a couple of products, for all major products, any rise in prices got corrected in the following week, only to rise again.

services of Metal Junction for the months of December 2011, January & February 2012 for different long products. Percent change (m-m, q-q, y-y basis) Jan’12 Price (Avg.)

Feb’12 Price (Avg.)

% change (M-M)

% change (Qtr-Qtr)

% change (Yr-Yr)

Defective Billet

31826

31548

-0.87

4.11

9.84

TMT Bar Cutting

33600

31896

-5.07

6.68

17.74

Following graph shows the price trend observed in the auction

MM End Cutting

31872

30661

-3.80

2.18

14.53

Long Products Price Trend

Rejected Bloom

28516

27543

-3.41

-1.91

12.09

Plate Cutting

32128

31194

-2.91

-0.17

11.00

Price trend as observed in the auction held at metaljunction for long products

Wtd. Avg. Price (Rs./MT)

35000 33000

Products

31000

Outlook

29000 27000 25000

Defective Billet Rejected Bloom

TMT Bar Cutting Plate Cutting

MM end Cutting

Price in `/t is basic

In the long steel segment, price drops were witnessed in the last week of January but after producers increased prices which were buoyed by rise in demand for construction materials, traders bid in line with these sentiments. Prices grew steadily across major categories of construction materials. However, insiders predicted that these sentiments are temporary and prices are expected to slow down again as the financial year ends, and businesses attempt to close their books.

Price trend in domestic flat & long steel sector on a quarterly basis Kolkata Feb'11 May'11 Aug'11 Nov'11 Feb'12 Delhi Feb'11 May'11 Aug'11 Nov'11 Feb'12 Mumbai Feb'11 May'11 Aug'11 Nov'11 Feb'12 Chennai Feb'11 May'11 Aug'11 Nov'11 Feb'12

Billet 100*100 mm

Bloom 150*150 mm

Wire Rod 6 mm

TMT Bar 10 mm

Angle 50X50X6 mm

Joist 125*70 mm

Channel 75*40 mm

HR Coil 2.00 mm

CR Coil 0.63 mm

GP Sheet 0.63 mm

GC Sheet 0.40 mm

36035 36965 37630 38660 39435

34385 35220 35910 37535 38275

39885 43660 44235 44190 44915

39810 42505 43015 44940 46175

40170 41050 41615 43015 44505

40230 41110 41780 42795 44585

40615 41840 42685 44340 44845

44460 42440 42395 45915 45935

47435 47290 47685 51395 51680

52375 54245 54060 55560 55120

53530 55720 55725 56615 56425

37015 37300 38080 38910 39510

35330 35540 36370 37840 38460

41735 44540 45325 45090 45900

41070 43310 44115 46065 46790

41015 40890 41500 43235 44550

41260 41060 41850 43935 45080

41550 42280 42715 45305 45440

45820 43020 43140 47565 47610

49480 48380 48140 51960 51720

53355 51540 51990 53730 54210

56965 54650 55400 56580 55000

37160 38100 38260 39600 40690

34245 36000 36200 38150 38730

41225 44890 45615 45695 46805

40290 43425 43990 45815 47845

40665 41630 42210 43835 45250

41025 41705 42380 43930 45390

41170 42375 43085 45275 46040

44170 42145 42270 47920 47910

46640 46720 47505 51710 51710

51720 53170 54445 55975 55855

53460 55080 56250 56405 56420

35800 37475 37490 38855 39990

33435 34760 34615 36840 37570

40235 45450 45320 45295 45950

39205 44000 43865 45375 47055

39980 42150 42930 43905 45290

40765 42125 42830 44145 45585

40440 42495 43210 45485 45715

43015 42010 42035 47600 47575

47635 47530 47500 52175 52280

55290 58915 58480 60780 59840

56620 60425 60620 61600 60850

Source: JPC. All prices quoted above are in `/t, all inclusive.

STEEL INSIGHTS 62 March 2012

Market Report

Domestic raw materials market

Low output keeps pig iron stable Anondo Kumar Dutta & Sanjoy Chakraborty Scrap Products Price Trend

38000

Wtd. Avg. Price (Rs./MT)

omestic pig iron prices have been stable mainly on low production. Market sentiments indicate that prices are unlikely to correct soon in the current scenario. Most of the plants in crucial regions like Raipur, Raigarh, Rourkela and Jharsuguda are closed on account of unavailability of iron ore and higher coal prices. However, rising steel and international scrap prices might put some pressure on the prices, but not in the near future. Steel grade pig iron prices in Raipur are currently trading at `27,500 per ton while prices in Raigarh are hovering around `26,800-26,900 per ton. At the end of the month, steel grade pig iron prices of NINL, Orissa was said to be prevailing at `25,300 per ton (basic), retail by road delivery.

34000

30000

26000

22000

CR Coil End WRM Material

Side-End Shearings Turning & Boring

CR Gas Cut Coil End Cutting

Price in ` per ton is basic

Price trend in domestic metallic sector on a quarterly basis Pig Iron

Melting Scrap H M S-I

Melting Scrap H M S-II

Sponge Iron (Coal Based)

30475

23125

23290

20220

Kolkata February 2011 May 2011

31065

23985

23130

20355

August 2011

32260

25470

24845

24095

November 2011

32915

27375

26625

24500

February 2012

33300

29500

28875

25625 24750

Delhi February 2011

33750

28000

27450

May 2011

30900

26000

25500

22500

August 2011

34600

26850

26100

24750

November 2011

34500

27000

27500

27000

February 2012

33750

29000

29500

27500

Mumbai February 2011

28000

18500

May 2011

28500

18000

August 2011

29000

18500

November 2011

29000

19000

February 2012

32400

26600

28600

25220

19760

18200

Chennai February 2011 May 2011

27560

27200

22880

19500

August 2011

27830

25725

24675

21000

November 2011

28880

24680

23630

21530

February 2012

32550

26515

25465

23100

Source: JPC. All prices quoted above are in `/t, all inclusive.

STEEL INSIGHTS 63 March 2012

price trend

Ferro alloys & metals price trends Steel Insights Bureau

Ferro alloys & Metals

HC Ferro Chrome (Cr - 60%)

HC Ferro Manganese (Mn - 70%)

Silico Manganese (Mn - 60%, Si - 14%)

MC Ferro Manganese (Mn - 70%, C - 1.5)

LC Ferro Manganese (Mn - 70%, C - 0.1)

Ferro Vanadium

Moly Oxide (Mo - 57% min)

Ferro Titanium (Ti - 30%)

CPC (FC - 98%, S - 1.2%, Size - 0–10mm)

February 2012

January 2012

December 2011

Ex-works Rs/ ton 74000

73000

68000

Ex-works Rs/ ton 49500

49500

50000

Ex-works Rs/ ton 51500

50500

47000

Ex-works Rs/ ton 73500

73500

74000

Ex-works Rs/ ton 121000

140500

149000

Ex-works Rs/ kg 755

715

730

CIF in US$/lb of moly 15.15

14.15

Ex-works Rs/ ton 142500

142500

146000

Ex-works Rs/ ton 30500

STEEL INSIGHTS 64 March 2012

30500

28000

export data

Iron ore export data for February 2012 Steel Insights Bureau Port

Kolkata

Date

Exporter MAP MINES

15000

5-Feb-12

FORST / DURGESH

20100

7-Feb-12

JINDAL STEEL & POWER LTD.

18900

8-Feb-12

GNG EXPORT

20500

9-Feb-12

EXPANDABLE / CONDAI

24000

10-Feb-12

JAGWANI PROJECTS

16000

GOYAL ISPAT

11000

SALASAR INT.

6000

12-Feb-12 19-Feb-12

NOBLE RESOURCES LTD

25-Feb-12

FALGUN EXPORT

9500

26-Feb-12

R.PIYARELALL

8200

Kolkata Total

11-Feb-12 14-Feb-12

KK RESOURCES

38000

MODERN MIN

12000

JINDAL STEEL & POWER LTD.

36500

BAGA

11000

GRM

14000

LG MINERALS 25-Feb-12

11498

SINGHANIA

2900

Vizag

47846

8-Feb-12

22570

11-Feb-12

36100

21-Feb-12

20000

22-Feb-12

28000

Vizag Total

Mormugao

1-Feb-12

SESA

253000

2-Feb-12

VMS

61800

CCL

48900

MAGNUM MIN

56000

ALPINE MIN. METALS

70900

PRIME MINERALS

70000

PTI

73000

SESA

85000

SFI

41000

SESA

74000

5-Feb-12 6-Feb-12 8-Feb-12

Exporter

55400

PTI

140000

SESA

92000

SESA

65000

13-Feb-12

SRCL

67000

14-Feb-12

CCL

53450

17-Feb-12

SRL

88000

18-Feb-12

SESA

165000

CCL

90000

RBSM

55000

SESA

77000

VGM

53650

19-Feb-12

21-Feb-12

23-Feb-12

SFI

77000

CCL

160000

MPL

6500

CCL

55000

SESA

100000

TIMBLO

30000

24-Feb-12

FRPL

77000

25-Feb-12

SESA

95000

28-Feb-12

SFI

Mormugao Total

Panaji

2-Feb-12

MANIPAL GLOBAL

50000

5-Feb-12

PEC LTD

59000

6-Feb-12

BAGA

45000

14-Feb-12

MG MINES & MIN

51000

17-Feb-12

ROTOMAX

18000 223000

16-Feb-12

GOLD STAR

58000

18-Feb-12

KARISHMA

57000

25-Feb-12

RATA

Redi Total Gangavaram

77000 2512600

Panaji Total Redi

Qty (In Tons)

CCL

12-Feb-12

20-Feb-12

154516

4-Feb-12 Mormugao

10-Feb-12

133898 4-Feb-12

Date 9-Feb-12

8000

ORECAST

Paradip Total

Port

15400

164600 4-Feb-12

Paradip

Qty (In Tons)

2-Feb-12

52000 167000

13-Feb-12

31500

16-Feb-12

40000

Gangavaram Total

71500 Grand Total

3427114

Diclaimer: The data provided here which has been compiled from various sources, is correct to the best of our knowledge. The data, however, is not exhaustive, and errors may creep in during the process of data collection, or may even lie in the source itself. In case of any discrepancy, we urge our readers to use their discretion and check their facts. While we have taken adequate care to provide correct data, we accept no responsibility for any error that may have inadvertently crept in.

STEEL INSIGHTS 65 March 2012

Price data

Market price data February 2012 Steel Insights Bureau

Market

Product

Remarks

27-Feb-12

31-Jan-12

Variation

Billet

All Inclusive

36200

35600

1.69%

Ingot

All Inclusive

34700

34400

0.87%

Sponge Iron

All Inclusive

26600

26500

0.38%

TMT 12 mm

All Inclusive

39400

40000

-1.50%

Billet

All Inclusive

33600

32600

3.07%

Ingot

All Inclusive

33600

32400

3.70%

Pig Iron

All Inclusive

29000

27580

5.15%

Sponge Iron

All Inclusive

24300

23100

5.19%

Billet

All Inclusive

33600

37000

-9.19%

CRC

All Inclusive

42450

42200

0.59%

HRC

All Inclusive

38700

39500

-2.03%

Ingot

All Inclusive

33000

36100

-8.59%

Pig Iron

All Inclusive

28400

28700

-1.05%

Sponge Iron

All Inclusive

24000

26200

-8.40%

Gobindgarh

Raipur

Durgapur

STEEL INSIGHTS 66 March 2012