Steel Insights, November 2014

Contents 6 Mining, iron ore need props 10 NMDC’s iron ore output up 13% 12 India has potential to be 2nd largest steel consumer: Report 14 Structural, PEB per capita use to rise in 10 yrs: Deloitte 18 Prices rule firm, launches down in realty market 24 October sales wipe out festive smiles 27 Coking coal prices drop in October 32 Domestic mills build capacity ahead of demand curve 39 New sinter plant, coke oven battery launched at Bhilai 40 Tata Steel agrees to refinance $5.4 bln 41 RINL revenues from ops hit by sluggish market 41 Balmer Lawrie sees better offtake in steel drums 42 JSW posts sharp growth in standalone Q2 profit 42 Sesa Q2 net profit up 15% 43 JSPL PAT slumps 12.09% 43 Shell Lubricants launch technical webinar series 44 Steel ministry planning steel technology mission 45 Siemens to supply bar rolling line for SLR’s Hospet unit 46 Mobile DTE 10 Excel 68 helps Schwing improve efficiency 47 Iron ore handling by major ports at 9.14 mt in H1 48 Railways’ Sept iron ore handling down 9% m-o-m 49 Steel imports up 33% in H1, raises alarm 50 Global crude steel production dips 0.40% in Sept m-o-m

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20 | FEATURE

Shine may come back to stainless steel Stainless steel consumption is expected to reach around 5.46 mt by 2023.

22 | FEATURE

India forecasts manganese ore supply gap by 2020 Indian Bureau of Mines sees manganese ore supply-demand gap at 4 mt by 2020.

28 | COVER STORY

Despite delays, steel MNCs stay committed to India Despite inordinate delays, the steel behemoths did not fully abandon the country.

35 | COVER STORY

‘Steel players watching out for Budget 2014’ Overseas and domestic players are waiting for demand drivers in next Union Budget.

37 | INTERVIEW

Renault aiming to ride ‘gradual turnaround’ The car maker hopes of possible turnaround in remaining two quarters of FY15.

SPECIAL feature

Mining, iron ore need props Steel Insights Bureau

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ndia’s mining output has fallen by 3.5 percent over the last two years, making the sector among the worst hit by policy impasse. Of the 218 coal blocks allocated since 1993, only 46 are producing coal or close to doing so, while the rest are dogged by clearance and land acquisition issues.

As for iron ore, companies are still struggling to resume production after states like Karnataka and Goa banned mining to curb illegal activities. Recently, Jharkhand ordered the closure of a majority of iron-ore mines operating under “deemed renewal” status after their leases expired.

The upshot is that mining sector woes have not only slowed GDP growth but also contributed to India’s current account deficit (CAD) — even more than the popularly blamed gold imports.

Domestic fuel supply shortages have meant power and steel producers have had to rely heavily on imports in the last three years.

Consequently, coal and metal scrap imports have risen by 50 percent since fiscal 2011 to $30 billion in the last financial year.

Iron ore exports, on the other hand, have fallen from $6 billion to just $1.6 billion after the mining ban in Karnataka and Goa. This has meant India’s trade deficit in mining, measured as the difference between iron-ore exports and coal-plus-metal scrap imports, widened to 1.5 percent of the GDP last fiscal from just 0.9 per cent in 2011. The impact of this increase on India’s CAD is even larger than the impact of rising gold imports over the same period.

Iron ore production set to fall in FY15

India’s iron ore production fell to 136 million tons in 2013-14 from a peak of 218 million tons in 2009-10 and production this year is expected to fall below last year’s levels due to shutdown in Odisha, according to industry sources.

The Supreme Court (SC) verdict on closure of several iron ore mines in the state is likely to have an adverse impact on iron ore

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production during the current fiscal. Odisha is one of the biggest iron ore producing states in the country. The SC had ordered closure of 26 iron ore and manganese mines as their licences had expired.

According to official sources, the apex court verdict hit iron ore production in the state during the first two quarters (AprilSeptember). Odisha’s April-September production has decreased substantially as compared to the previous year. Most of the steel companies in the state are now forced to import iron ore from outside the state.

According to the Associated Chambers of Commerce and Industry of India (ASSOCHAM), restrictions aimed at curbing illegal mining in Goa and Karnataka have choked the iron ore industry in the country. “Production this year is expected to fall below last year’s levels due to shutdown in Odisha,” ASSOCHAM sources said.

India’s biggest iron ore producing state, Odisha, expects production to fall 23 percent to 60 million tons this fiscal ending March due to a court shutdown of mines pending their licence renewals.

Odisha’s April-September production fell more than a quarter to 23 million tons

from a year ago, according to the state’s mines department officials.

In Goa, mining of ore was banned in September 2012 after findings of a judicial commission said illegal mining operations over 12 years had led to massive losses to the exchequer.

Goa is among India’s topmost oreproducing states, and nearly a fourth of its total revenues come from mining. Because of the ban, suppliers from Australia and Brazil have stepped into the space left vacant for the last 18 months.

The Goa government is making haste to kick-start mining operations there. Recently, its mining department moved a file clearing 10 mining leases, and it is hoped most will come online soon. India’s Supreme Court, which had lifted the ban on Goa’s mining operations, asked the local government to form a policy before allotting the leases. Thus, the new Grant of Mining Leases Policy was recently passed by the government.

Steel mills import more

JSW Steel Ltd, India’s No. 3 maker of the alloy, said it expects to increase imports of iron ore by up to 80 percent to 900,000 tons

Cover Story

Despite delays, steel MNCs stay committed to India Steel Insights Bureau

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eading steel multinationals seem to be unperturbed by the delays in land acquisition and regulatory clearances in terms of material supplies for getting a pie of the Indian market.

This comes at a time when even domestic mills are cancelling or delaying their projects as low demand and economic slowdown have marred growth prospects.

However, if Deutsche Bank is to be believed, India’s steel demand is expected to rise by 4-5 percent this year and touch a 15 percent compound annual growth rate (CAGR) after FY17 as the country has the potential to emerge as the second-largest steel consuming market after China over FY15-20.

There are expectations that the new government will put a thrust on jumpstarting stalled projects and this would be followed by pushing the large flagship ones, including freight and industrial corridors.

Cover Story Thus, it is expected that India will resume moving on the path of materials-intensive growth by the end of this year, the bank said in a recent report.

South Korea’s POSCO and the world’s largest steel producer, ArcelorMittal, have announced detailed plans for India. In fact, POSCO and ArcelorMittal have been biting the dust for years now to start their respective projects, which were held up due to local protests against land acquisition and raw material security issues.

Unable to maintain patience over long delays, ArcelorMittal has aborted its Odisha project. So, taking all these factors into account, the picture is not as rosy as it appears to be. However, despite inordinate delays, the steel behemoths did not fully abandon the country or their projects, which, once implemented, would completely change the economic dynamics of the states where these are planned.

POSCO’s Odisha venture

Despite hurdles in getting land and mining linkages, POSCO recently reiterated its commitment to go ahead with its mega steel project located in Jagatsinghpur district.

Even the state government submitted certain clarifications sought by the Centre regarding giving the Khandadhar iron ore reserves in Sundargarh district to the company.

Gee Woong Sung, the Chairman-cumManaging Director (CMD) of POSCO India, made it clear that the company would not withdraw its proposed $12-billion steel mill. “No, we would not quit. We are waiting since the last 10 years,” he has said.

The POSCO executive had been busy meeting steel and mines secretary G Srinivas and Odisha Industrial Infrastructure Development Corporation (IDCO) CMD Vishal Dev to make the project move.

POSCO’s pact, signed in 2005 with the state government, lapsed in 2010.

The state government, on its part, is trying to push the Centre to grant a prospecting licence (PL) for Khandadhar to POSCO. “Acting on the basis of the Centre’s communication (earlier this month), we have sent the report,” official sources in Odisha said.

The sources said the government has sent a proposal for mining in the notified area of Khandadhar mine. “Although surveys for both notified and non-notified areas were done, the government has recommended that

POSCO be given a PL for the notified area only,” an official said.

The government is yet to decide on making any recommendation for the nonnotified area.

On October 10, the Centre asked the Odisha government to clarify on the allotment of the PL to POSCO for the notified and non-notified areas. Non-notified area means a region which the state government has not recognised as bearing minerals.

The state government had earlier recommended to the Centre to grant a PL for Khandadhar mine, spread over 2,500 hectares, including 415 hectares which fall in the non-notified area.

POSCO is also in the process of discussions on acquisition of an additional 1,000 acres, which is in IDCO’s possession, for the project. Of the total requirement of 2,700 acres, IDCO has handed over 1,700 acres to the South Korean company for its 8-million tons per annum (mtpa) steel project.

POSCO’s original plan of constructing a 12-mtpa integrated steel plant (ISP) on 4004 acres still exists. However, considering the significant delay in land acquisition, the

company decided to change its construction schedule. Accordingly, it required 2,700 acres (only government land) to construct an 8-mtpa plant. (First stage: two phases x 4 mtpa each, Second stage: 1 Phase x 4 mtpa).

Later on, when the remaining land is cleared and handed over, the ultimate capacity of 12 mtpa would be achieved.

The investment cost for the proposed 12-mtpa ISP is estimated to be around $12 billion. However, given the increase in prices and changes in market conditions, the cost needs an adjustment. After the land is handed over to the company, it needs to recalculate the costs and the adjustments shall be made accordingly.

Total iron ore requirement for the 12 mtpa ISP would be around 600 million tons.

The ore is to be sourced from Khandadhar.

Meanwhile, POSCO India has set up its Pune processing centre, a service centre created in 2006 for providing value-added services to Indian customers, especially in the western region of the country.

The plant is located at Talegaon, Pune and has an annual processing capability of 250,000 tons from its two plants. It caters to

India’s steel demand is expected to rise by 4-5 percent this year and touch a 15 percent compound annual growth rate (CAGR) after FY17 as the country has the potential to emerge as the second-largest steel consuming market after China over FY15-20.

Steel Insights, November 2014

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Cover Story

Domestic mills build capacity ahead of demand curve

commendable progress on expansion to end the year on a stronger note, albeit with some occasional hiccups. Keeping in mind that most producers had drawn up extensive plans for capacity addition, most of which were to be completed by 2015-16, it was very important that work on these projects made substantial progress during this year.

The most commendable part is the noticeable progress in some major greenfield projects, which gathered pace in line with brownfield ones despite being mired in legal battles on the land acquisition and environmental fronts.

Steel Authority India Ltd (SAIL)

Tamajit Pain

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conomic downturn, regulatory measures, land acquisition problems and raw material availability have taken a toll on steel companies in India. But these factors have failed to deter them from undertaking and implementing expansion projects.

Though India still maintains at fourth position in the world with 81 million tons (mt) of crude steel production after China (779 mt), Japan (111 mt) and the US (87 mt) in 2013, the World Steel Association (WSA) has projected Indian steel demand to grow 3.4 percent in 2014 as compared to the global steel use growth of 2 percent and Chinese growth of 1 percent. For 2015, further recovery is projected for India (6 percent) while globally (2 percent) it will remain stable and a slowing down is forecast for China (0.8 percent).

According to industry leaders, there exist many factors which carry the potential of raising the per capita steel consumption in the country, currently at 59.2 kg. These include, among others, an estimated infrastructure investment of nearly a trillion dollars, a

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projected growth in manufacturing from the current 8 percent to 11-12 percent, increase in urban population to 600 million by 2030 from the current level of 400 million and emergence of the rural market for steel which is currently consuming around 10 kg per annum.

Thus, projection of a stable demandside growth in the near term has kept the expansion projects rolling despite fresh ones being mired in land acquisition hurdles and regulations relating to raw materials availability.

India’s crude steel capacity was at 102 mt in 2013-14 and the country is expected to become the second-largest producer of crude steel in the world by 2015-16, provided demand is driven by policy push towards infrastructure development.

After beginning on a rather low note in 2014, the Indian steel industry made

Steel Authority of India Ltd (SAIL) is finalising its Vision 2025 document, which will steer the company towards increasing its production capacity of hot metal to 50 million tons, along with related/enabling business activities. Implementing the vision would entail an investment of about `150,000 crore in addition to the investment made in the current phase of expansion.

SAIL has been spending an average of over `10,000 crore each year for the past five years. It planned capital expenditure of `9,000 crore on modernisation and expansion during financial year 2014-15 as well.

According to C S Verma, Chairman, SAIL, facilities of about `26,000 crore have already been operationalised. Cumulatively, orders for `62,778 crore have been placed under the current modernisation and expansion plan of the public sector unit.

Expenditure till August 2014 has been more than `55,000 crore.

SAIL, a fully integrated iron and steelmaker, produces both basic and special steels for domestic construction, engineering, power, railways, automotive and Defence. It manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanised sheets, electrical sheets, structurals, railway products, plates, bars and rods, stainless steel and other alloy steels.

It produces iron and steel at five integrated

Indian steel industry : Production for Sale in million tons

Category

2009-10

2010-11

2011-12

2012-13

2013-14

Pig Iron

5.88

5.68

5.371

6.870

7.950

Sponge Iron

24.33

25.08

19.63

14.33

18.20

Total Finished Steel (alloy + non alloy)

60.62

68.62

75.70

81.68

87.67

Source: Joint Plant Committee

Interview

Renault aiming to ride ‘gradual turnaround’

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muted annualised growth in October 2014 has dampened the merriment of the festive season for most car manufactures. At a time when most of the car manufacturers hold high interest rates and muted market sentiment responsible for this, Renault India thinks positive.

In a candid interview, Sumit Sawhney, Country CEO and Managing Director- Renault Operations, India spoke to Priyalina Basu of Steel Insights about the possibility of the industry’s turnaround in the remaining two quarters of 2014-15. He also highlighted that tier II-IV cities in India have major growth potential for the sector.

To what extent is the industry likely to grow in the second half of FY15?

According to a report by SIAM, automobile sales are yet to stabilise. What is your take on this view?

Yes it is true that sales in the automobile industry are stabilising with subdued figures in October.

However, a gradual economic turnaround has been witnessed in the first half of the year and if that continues in the next two quarters, the auto industry will benefit as well.

One of the clear positives for the industry is the commitment and focus of the government.

The recent ‘Make in India’ campaign is a great example of pro-business initiatives that will enable the manufacturing sector, led by the auto industry, to bounce back stronger and deliver on its potential of becoming

one of the largest and most efficient in the world.

The formation of a stable government has led to tremendous optimism for progress and we are already witnessing an improvement in macro-economic factors, including the improving GDP, surge in the stock market and measures to control inflation.

With positive policy intervention like the diesel deregulation and other such pro-business initiatives, we should see an upswing in sales in the coming months.

There are reports that Renault India is trying to enter the used car space? How big is the market in India? What is your vision for this segment in the next three years?

We do have plans to develop some new services, including the used car business. A

We do have plans to develop some new services, including the used car business. A lot of customers who are buying cars today already own a car and seek an exchange platform to get the right value for their existing vehicle.

Next year will be important for us as we will launch two new products in key segments. The first will be in the MPV segment and the second will be an A-entry, which is the heart of the Indian automotive industry. lot of customers who are buying cars today already own a car and seek an exchange platform to get the right value for their existing vehicle.

We are working on a model where we will provide customers the options to liquidate their existing Renault car to buy a new one. The used car business is important both from a customer point of view, and also for the dealers.

What is the current share of localisation and imports in Renault India in terms of manufacturing?

Localisation is a key focus for us and we are constantly working on programmes to increase the localisation content across our product portfolio.

One example is the Renault Duster, which has significant localisation content , including: yy yy yy yy yy yy yy yy

K9K Diesel engine Gear box Instrument panel Exhaust system Tyres and wheels Battery Seats Interior and exterior trims (bumper, roof liner) etc.

We will continue to increase our localisation plan as we expand our presence in India.

What are your future plans in the Indian market?

Renault is still one of the youngest automobile brands in the country. During our journey in the last three years, we have rapidly expanded our presence both

Steel Insights, November 2014

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Tear along the dotted line

Tear along the dotted line

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