Steel insights Sept 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, The second quarter of 2013-14 is about to end but there seems to be no respite from the economic downturn. The latest industrial production data for June revealed a contraction of 2.2 percent due to poor show by the manufacturing, mining and power sectors and a decline in the production of capital goods. The GDP for the April-June quarter grew a mere 4.4 percent.

Meanwhile, the WPI inflation inched up to 5.8 percent in July from 4.9 percent in June and the fall in the rupee, which hit a record low of 68.85 to the dollar, is playing havoc with market sentiment.

The rare positives amidst the negatives are the 3.3 percent growth in the eight core infrastructure industries in July and Raghuram Rajan’s big-bang entry as the new Reserve Bank of India (RBI) chief.

Rajan’s clear indications of strong-arm tactics to propel the battered economy paid off in the short run with the rupee firming up a bit.

RBI unveiled a slew of measures, including a shift in focus to inflation control, market reforms, reduction in banks’ requirements to invest in government securities in a calibrated way, steps to internationalise the rupee etc to rescue the beleaguered financial markets and bolster capital inflows. Now all eyes are on Rajan’s first Monetary Policy on September 20.

As for the steel market, leading domestic steel makers SAIL, Essar Steel, Jindal Steel & Power and JSW Steel raised prices by 4-5 percent for September, due to the sharp increase in input costs.

The price hike has been necessitated by the fact that the rupee has depreciated by over 20 percent in the last few months, leading to the sharp increase in raw material and other input costs. With prices at rock bottom levels in the last three months, mills are hoping against hope that the market would absorb the price hike with a slight uptick in demand.

To tackle the impact of the depreciating rupee on their margins, top domestic primary steel producers are planning to focus on increasing exports and lowering the inventory build-up period of coking coal.

Meanwhile, Stemcor has kept September 10 as the deadline for putting in the bid for its Indian assets and is expected to auction the same this month itself. Goldman Sachs is advising the British steel trading major on the sale. Although it needs to be seen to what extent the Indian assets are being put up for sale, the properties on the block are estimated at $800 million.

Also, it is to be seen what would be the government’s stance on the iron ore export duty, given New Delhi’s efforts to contain the current account deficit (CAD) at 3.7 percent of the gross domestic product (GDP) this financial year, against last year’s 4.8 per cent.

In this edition, Steel Insights travelled all the way to Bhilai to see how Bhilai Steel Plant (BSP) is planning to tighten its belt and has chalked out a multi-pronged strategy to optimise costs and reduce inventory levels to manageable limits at a time when net sales realisations (NSR) of steel makers world-wide are under severe pressure because of the difficult economic situation. The edition also carries an interview of P Madhusudan, CMD-designate of RINL, wherein he shared that the steel industry’s cyclical downturn is likely to end in 1-2 years.

(Rakesh Dubey) Steel Insights, September 2013

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Contents 28 Check, please 31 GRSE aims to increase vendor base of special steel 33 Linde betting big on Kalinganagar steel cluster 34 Steel consuming sectors continue to lack shine 36 Land Acquisition Bill to hit steel, other sectors 37 Auto sector slowly turning around 39 Ferro alloy market exhibits divergent trends 40 Seaborne coking coal prices firm up in August 41 Danieli to upgrade the JSPL Steckel mill 42 Danieli commissions ultra-modern WRM at SAIL, ISP Burnpur 43 Danieli bags Bangladesh firm’s order for finishing lines 44 Tata Steel records strong Q1 net profit 45 SAIL defies slowdown with 16 percent sales growth 47 RINL saleable steel output rises 9% in Apr-Aug, 2013 48 JSPL commissions India’s largest SMS in Odisha 49 Essar Steel appoints Firdose A Vandrevala as Executive Vice-Chairman 50 Texmaco reports 46% fall in Q1 net 51 Mundra port counts on more cargo handling 52 Traffic handling by major ports up 0.47% in April-July 53 Railways’ iron ore handling down 6.42% in July m-o-m 54 On the waterfront: KoPT gets in shape

4 Steel Insights, September 2013

6 | Cover Story

Inventory management: Key to increase profitability BSP plan multi-pronged strategy to maintain net sales realization

22 | Interview

‘Cyclical downturn likely to end in 1-2 years’ Cyclical fluctuations last 5 yrs. Downturn to end soon, says P Madhusudan

23 | SPECIAL FEATURE Will India revise iron ore export duty?

Reduction in export duty may not be beneficial unless railway tariff is revised

29 | Feature

Mills eye overseas markets as rupee heads south Domestic steel producers keeping no stone unturned to hedge from falling rupee

30 | Feature

Stemcor India assets sale in focus as deadline approaches Formal bid deadline likely on Sept 10, exact size need to be ascertained

Cover Story

Inventory management: Key to BSP’s future strategy to increase profitability Steel Insights Bureau

A

t a time when net sales realisations (NSR) of steel makers world-wide are under severe pressure because of the difficult economic situation, Bhilai Steel Plant (BSP) of Steel Authority of India Ltd (SAIL) is planning to tighten its belt and has chalked out a multi-pronged strategy to optimise costs and reduce inventory levels to manageable limits to maintain its status as the most profitable unit in the SAIL stable.

6 Steel Insights, September 2013

In an exclusive interview to Steel Insights, immediately after the company won the Prime Minister’s Trophy for the 11th time, the Chief Executive Office (CEO) of Bhilai Steel Plant, S Chandrasekaran, who aimed to join a manufacturing industry right from his graduation days in Tamil Nadu, shared the company’s strategy to move forward in an otherwise difficult economic environment.

Excerpts:

Steel Insights, September 2013

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Cover Story How was your first year at BSP? The steel industry is going through a dark patch. How do you see the situation, going forward, so far as BSP is concerned?

Without doubt, it has been the most challenging year of my career in heading the flagship unit of SAIL and one of the best steel collectives in the country. It is an excellent plant with a devoted set of people who work tirelessly as if they own the plant.

It is not only the people, but the product mix too, which gives the plant a tremendous advantage – helps it when the market is not favourable for a particular product.

From the outset, two major challenges confronted Bhilai Steel Plant – first, to sustain and add momentum to production and, secondly, to give thrust and speed to the modernisation and expansion programme.

Only in the previous year, the Steel Collective of Bhilai had confronted and overcome an unprecedented situation in

Work done in the first four months of FY14 ♦♦ Completion of a new 700 tons per day (tpd) air separation unit No 4 at Oxygen Plant 2 ♦♦ Concreting of SMS3 Convertor Foundation in record time of five days ♦♦ Commencement of the coke oven battery-9 refractory work ♦♦ Erection of equipment in the upcoming universal rail mill project ♦♦ Erection of roll table conveyors in the new rail welding line ♦♦ Started civil jobs for boilers 1 & 2 of power & blowing station -2 ♦♦ Fast progress in blast furnace 8 projects with laying of carbon blocks ♦♦ Lighting up of chimney of coke oven battery-11 ♦♦ Rapid progress for 2nd sinter machine in sinter plant 3 ♦♦ Rapid progress in augmentation of ore handling plant facilities ♦♦ Equipment erection in progress in bar and & rod mill

8 Steel Insights, September 2013

the coke ovens and was recovering from the downstream effects of the crisis.

While the plant made steady improvements in production, controlling the cost of production had to be accorded overriding priority in order to maintain our competitive edge. Technological discipline and cost efficiency became our controlling agenda.

However, not for a moment did we lose our customer focus even as we strove to significantly enhance production levels.

Delivering greater value to the customer was the mantra we adopted knowing fully well that it is quality that separates us from our competitors and which adds value to our relationships with our customers.

Our strategies for meeting the annual business plan paid off. We have made significant headway in securing our future iron ore supply from Rowghat, having obtained all the statutory clearances and restarted work for laying the railway link from Rajhara to Rowghat.

The MoU with the government of Chhattisgarh for development of the Eklama iron ore reserves in Kawardha has also been a significant step in the direction of securing future ore supplies.

The launch of the country’s first indigenous aircraft carrier, INS Vikrant, its hull made largely from BSP plates, and the announcement of BSP being selected for the PM’s Trophy for the “best integrated steel plant in the country for 2011-12” have been some of the high points of the current year.

The plant has emerged stronger, because of the collective will to experiment and take risks.

How is BSP different from other plants of SAIL? Bhilai Steel Plant (BSP) is today among the top plants of SAIL only because of hard work of the employees and executives.

In addition, the product mix of this plant is definitely an advantage. So even if the market conditions are not that favourable, this has helped a lot. For example, if the market for one product is not that good then we are in a position to focus on other products…

Our strategy is to first utilise the highlyefficient workforce and secondly utilise the facilities in the best possible way to give the plant its edge by improving profitability and productivity.

What, according to you, are the strengths of BSP? So far as Bhilai Steel Plant is concerned, my product mix is a big source of strength.

There may be few products, the cheaper imports of which may affect us temporarily, but as we have production flexibility we can reduce the output of one and increase that of another.

We also have a dedicated set of customers who know that today China may be offering a product at a lesser price, but when the market improves, it may not be offering the same product at a similar price. It is right now behaving mainly like a

Tear along the dotted line

Tear along the dotted line

70 Steel Insights, September 2013