Steel Insights, Oct 2013

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 Statistical Institute (ISI) Dr Amit Chatterjee, Consultant and former Advisor to MD, Tata Steel Ltd Jayant Acharya, Director (Commercial & Marketing), JSW Steel Ltd K Ranganath, former CMD, KIOCL Vikram Amin, ED (Strategy and Business Development), Essar Steel Ltd Rana Som, Former CMD, NMDC 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 Toll Free No.: 1800 4192 000 1. Press 8 for publication Email: publication.tbss@mjunction.in Design Debal Ray, Sobhan Jas For suggestions, feedback and queries, please write to steelinsights@mjunction.in

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EDITORIAL Dear readers, Steel mills began the third quarter of 2013-14 on a depressing note. First, steel ministry data showed consumption growth has been mere 0.3 percent in April-August period at 30.33 million tons. Second, the decisions by the Railway Board to increase the Busy Season Surcharge from 12-15 percent effective October 1 will drill deep holes into the profits of bulk commodity manufacturers like cement and steel.

Steel manufacturers, who like cement makers use the railway network extensively, feel the impact on costs will be substantially higher. A back of the envelope calculation shows the cost increase would be around `400 per ton because of the railway freight hike. Steel mills may absorb a lot of the increase but will have to pass on some costs to customers. Typically price rise by major steel producers are expected to increase factory prices of both long and flat products by an average `1,000 per ton. Steel manufacturers move raw materials such as iron ore and coal on railway wagons and also finished products like steel through rail. There is a possibility but not much will move out of the railway network.

Meanwhile, in a surprise move, a UN panel of experts urged South Korean steel giant POSCO to suspend plans for a $12 billion steel plant over concerns the project threatened the rights and livelihoods of tens of thousands in eastern India. The call by the UN experts follows a June report by rights groups saying that alleged land seizures threatened to displace 22,000 people and deprive thousands more of their means of existence in Odisha.

Mineral-rich Odisha has been trying to woo investors, both foreign and Indian, by giving them mining rights, electricity and water at low prices. But the move to acquire farm and forest lands has run into violent protests, with many farmers and forest-dwellers saying the project would leave them without homes, livelihoods and possible access to clean water. The protests have helped to keep the proposed plant, India’s largest-ever foreign investment project, mired in legal hurdles for eight years. However, as India’s economy has slowed over the past year, the government has reduced some barriers to allowing the company to obtain a license to explore for iron ore.

UN observations come after POSCO pulled out of a proposed $5.3 billion steel plant in Karnataka in July, dealing a blow to government efforts to attract foreign investment. The company said it scrapped the project because of inordinate delays stemming from local opposition to land acquisition for the project.

In another development, Indian steel makers’ hopes for buying the Indian assets of Stemcor had hit a roadblock with the Calcutta High Court staying the asset sale following a petition by ICICI Bank that its `587 crore exposure in the company will be jeopardised. Unless this row is resolved, the buyers have no option but to wait.

In this edition of Steel Insights, we tried to find out whether Prime Minister Manmohan Singh’s renewed thrust on trebling India’s steel output to 300 million ton by 2025 is feasible? On its part SAIL has come out with plans to expand capacity to 50 million tons and the steel ministry has asked states to come up with land and ore availability plans for setting up ultra-mega projects.

Happy reading!

(Rakesh Dubey) Steel Insights, October 2013

3

Contents 3 4 Tata Steel names T V Narendran as MD 35 Steel mills take retail route to beat slump 36 DRI output falters on high input costs, alternative usage 37 How Green is my steel plant?

38 Steel consuming sectors see marginal rebound 40 Currency, land issues rattle construction sector 41 Input costs force auto majors to hike prices 42 Coking coal prices head north post Q4 contracts 43 ‘Coal enquiries yet to pick up’ 44 Danieli to supply Skin Pass-cum-Tension Leveling Line for ACCIL plant 45 Megatrends to fashion steel’s future 46 Siemens modernises blast furnace in Vizag Steel 47 Coke Dry Quenching – An innovative step in operational excellence 49 SAIL working on 50 mtpa capacity proposal 50 RINL to achieve 7.3 mtpa capacity in 20 months 52 JSW, Marubeni-Itochu plan steel processing unit 53 Increased exports can get better of a weakened rupee 54 Traffic handling by major ports up 1.85% in Apr-Aug 55 Railways’ coal handling falls 7.25% m-o-m in August 56 Macroeconomic indicators of India 57 Global crude steel output dips 1% m-o-m in August

4 Steel Insights, October 2013

6 | Cover Story

PM’s 300 mt target: Reality or pipedream?

Hurdles include slow GDP growth, demand, fund constraints, land and raw material issues

20 | Interview

Large government projects can lift steel consumption: INSDAG Steel consumption expected to pick up in H2, demand growth like at 5-6% in FY14

24 | Interview

‘We expect to double our biz from India to $50 mln’ Danieli Corus expects to double our staff strength in India as well, says MD

28 | Interview

Uttam Galva puts Karnataka project on hold We had to restrategise product mix to tide over gloomy period: Dr B N Singh

30 | SPECIAL Feature

Will non-revision of iron ore export duty increase availability?

Production likely to drop with exports, proper regulatory mechanism need of the hour

Cover Story

PM’s 300 mt target:

Reality or pipedream?

Tamajit Pain

Prime Minister Manmohan Singh recently set an ambitious target of reaching 300 million tons of crude steel production by 2025. But, Steel Insights delves deep to find out that there are a few hurdles that may take the sheen off such proposals. These include optimistic GDP growth expectations, over-supply, erosion in demand, funding constraints and land and raw material issues 6 Steel Insights, October 2013

Cover Story

N

early six months have passed since the draft National Steel Policy was put up by the Steel Ministry for public comments.

Even as it looked like another policy announcement with no thought about its implementation, Prime Minister Manmohan Singh chaired a meeting of a High Level Committee on Manufacturing in New Delhi in July to invest the policy initiative with renewed vigour.

The Prime Minister said manufacturing has to be the backbone of our growth strategy over the next decade. The country is witnessing a major shift in the structure of the economy. Agriculture, which continued to account for more than 50 percent of our population, today constitutes less than 15 percent of our GDP. Singh opined that if we have to grow at 8-9 percent in the future, this has to come through sustained growth in manufacturing, particularly labour-intensive manufacturing.

“Manufacturing, and manufacturing alone, can absorb all those who need better livelihood opportunities,” he said.

There are certain manufacturing sectors which have undoubtedly done well over the last 20 years. Automobiles, auto-components, pharmaceuticals, metals and cement are some such areas which quickly come to one’s mind.

However, the Prime Minister felt that we have not been able to leverage our strengths, both in traditional industries and emerging sectors, to the extent we could have. “We hardly have any manufacturing capabilities in electronics and telecommunications.

Often, our production is at the lower end of the value chain. Our exports consist of raw materials and primary goods and our imports consist overwhelmingly of manufacturing,” he said.

Singh felt there is a need to remedy this situation by removing the bottlenecks that hinder our progress in manufacturing and take full advantage of our strengths. In the steel and textile sectors, there is a need to ramp up output and he suggested that the ministries act on the lines proposed and come up with action plans.

The meeting of the High-Level Committee on Manufacturing was attended by all the ministers and officials of departments relating to the manufacturing sector, including the ministers of Science & Technology, Heavy Industry, Civil Aviation,

8 Steel Insights, October 2013

The meeting also decided that a Master Plan for achieving 300 million tons of production would be prepared. It was also decided that as the private sector finds it difficult to assemble land and get clearances, the state would assume a pro-active role in partnership with state governments.

Steel, Textiles & MSME and the Deputy Chairman of the Planning Commission. The discussion centered on the proposals of the National Manufacturing Competitiveness Council which were presented by its Chairman, V. Krishnamurty.

Growth strategy for steel industry: targeting 300 mt ton output

The growth strategy endorsed at the meeting aims at production of 300 million tons of crude steel by the middle of the next decade i.e., by 2025. In the short run, pro-active facilitation of projects in the pipeline would be taken up on priority jointly by the steel ministry and the new investment facilitation mechanism in the Cabinet Secretariat.

The high-level meeting decided that Steel Authority of India (SAIL) would leverage its existing infrastructure to substantially expand capacity. It would work out its plans for capacity expansion and production of speciality steels.

The meeting also decided that a Master Plan for achieving 300 million tons of production would be prepared. It was also decided that as the private sector finds it difficult to assemble land and get clearances, the state would assume a pro-active role in partnership with state governments.

Project specific special purpose vehicles (SPVs) would be floated for identified sites which would assemble land, get necessary approvals and clearances and tie up water and raw materials linkages.

The SPV would then be offered in a transparent manner for takeover by investors through a bidding process. The steel ministry would prepare a roadmap with timelines for the above in eight weeks.

The Prime Minister’s initiative seems to be in line with the draft of the National Steel Policy 2012, which aims at India’s crude steel capacity of 300 million tons per annum (mtpa) by 2025 from about 96 mt in 2012-13.

But there are many problems: The increase is dependent on an annual GDP growth of seven percent which, at present, is too optimistic.

Second, the government wants to set up special purpose vehicles of public sector enterprises to build capacities but one has to just look at the dismal records of the building capacities of the biggest steel PSU, SAIL, for this!

Third, the track record is poor as earlier estimates say steel capacity should have crossed 120 million tons per annum in 2012.

Instead, it was about 96 mt per annum, as mentioned earlier.

Thus, an in-depth analysis is required to ascertain whether the targets are realistic.

Consumption not in line

India has traversed a long way in steel production. From two million tons of crude steel production in 1947 to around 16 mt in 1990 and then a quantum jump to around 74 mt in 2011-12.

This means production has grown by over four times in the last 22 years against an eight-fold growth in the previous 43 years.

However, till now, per capita consumption of steel in India is at around 60 kg and real consumption of finished steel is around 73 mt, while crude production was 78 million tons in 2012-13. This clearly points to an oversupply situation.

Comatose economy

As with the global scenario, the Indian economy is also showing its grim face. The real GDP in the first quarter of 2013-14 grew 4.4 percent as against 4.8 percent in third quarter of 2012-13. The IIP figures showed a slight reversal of 2.6 percent growth in July 2013 even as inflation inched up to 6.1 percent in August 2013.

The main consumers of steel products are also showing stagnant growth.

Tear along the dotted line

Tear along the dotted line

70 Steel Insights, October 2013