4 Steel Insights, May 2015

COnTEnTs

44 | SPECIAL FOCUSFunds tie-up huge challenge for steel industry: Narendran`12 lakh crore is required to meet additional target of 200 mt in 10 years, a tall task.

28 | FEAtUREIndia’s steel capacity addition to be muted in medium term: CRISIL The 34 mt of additional crude steel capacity falls short of the 90 mt announced by industry.

47 | INtERVIEWStress should be on product differentiation in India: tubacex‘Make-in-India’ could lead to demand for quality products from India, feels MD of this Spain-based firm.

19 | SPEACIAL FEAtURE India to cut export duty on low grade iron ore Move is good news for Goa, the country’s top iron ore exporting state.

6 | COVER StORY Steel imports squeeze local producers’ margins Steel imports surged by whopping 71 percent to touch a record high of 9.32 million ton in 2014-15.

16 Steelimportsneedquick-fixsolution 18 China’s steel-makers targeting India’s

urbanizing drive 21 India may remain net iron ore importer in FY16 22 DMF burden to stress out steel producers – Ind

Ra 23 Quake-proof structures – Mission possible 27 Sponge iron producers face tough market 32 Auto industry hopeful of smoother ride in FY16 34 Coking coal prices drop to record low 35 Worldsteel forecasts slow steel demand but

positive India growth 36 Domestic steel demand to remain subdued till

2017: Study 38 Govt steps in to recast India’s foundry sector 40 Start – ups may give fresh lease of life to

commercial real estate 41 2014-15 was a rough ride 43 Make steel affordable: Naveen Jindal 45 JSWSteeladoptsflexipricingforlongproducts 46 Global steel output to scale 2,000 mt by 2030 50 Iron ore handling by major ports down 37% in

Apr-Mar 51 Railways’ iron ore handling down 9.23% in

2014-15 53 Global crude steel production up 8% in March

m-o-m 54 Jindal Stainless commissions state-of-the-art

metal recovery facility 55 Tata Steel crude output growth up marginally 56 Welspun posts 11-fold jump in Q4 net 56 JSW crude production up 4% in FY15 57 Hazira Complex, Essar Steel – one of the

safest plants in the world 61 Primetals Technologies to supply EAF

Quantum to Acciaieria Arvedi 62 International iron ore prices, LTA renewals

create buzz

6 Steel Insights, May 2015

COvER sTORy

Steel imports squeeze local producers’ margins Tamajit Pain

Steel Insights, May 2015 7

Steel imports into India surged by a whopping 71 percent to touch a record high of 9.32 million ton in 2014-15,

putting pressure on the already-squeezed margins of domestic firms.

Steel-makers in India, which remained a net importer of the commodity for the year, have been suffering for quite some time now, mainly due to dearer raw materials while their counterparts in China, Japan and Russia took advantage of lower iron ore prices and, in some cases, sops offered by the government.

India had imported 7.38 mt of steel in 2009-10, 6.66 mt in 2010-11, 6.86 mt in 2011-12, 7.93 mt in 2012-13 and 5.45 mt in 2013-14.

Exports, however, have been at a slower pace than imports, especially in more recent years. Shipments of steel stood at 3.25 mt in 2009-10 and 5.98 mt in 2013-14, only to plunge 8 percent to 5.5 mt last fiscal.

Due to rising imports from countries like China, Japan and Russia, the domestic steel industry is struggling to retain margins. Cost structures in these countries have significantly come down because of a fall in the prices of iron ore and depreciation of their currencies against the dollar. So, in dollar terms, their cost of production has come down,” said an analyst based out of Mumbai.

“The government should act by initiating protectionist measures by increasing the import duty. Many countries in the world have taken such measures and India should also do this. The rise in imports will impact the Indian steel industry, particularly the smaller ones, because their cash flow would be squeezed,” he added.

Stating that the long-term future of the steel sector was still exciting, he, however, said because of significant jump in imports even the bigger companies would find it difficult to service their debt.

The problem of the domestic steel industry got compounded by the subdued demand. Though the last fiscal was better compared to the previous one, it still remains below potential. Real consumption of the alloy grew by 3.1 percent to 76.35 mt in the last fiscal compared to 59.34 mt in 2009-10, 66.42 mt in 2010-11, 71.02 mt in 2011-12, 73.48 mt in 2012-13 and 74.09 mt in 2013-14.

However, pinning hopes of better demand in the days ahead, they continue to raise their output. Production for sale saw

a steady rise to 88.12 mt in 2014-15 from 60.62 mt in 2009-10, 68.62 mt in 2010-11, 75.69 mt in 2011-12, 81.68 mt in 2012-13 and 87.67 mt in 2013-14.

Steel imports to India attract duties between 5 percent and 7.5 percent. The domestic industry has been clamouring for raising the duty to at least 10 percent. The steel ministry has also written to its finance counterpart to raise the duty.

Lower capacity utilisation Led by the higher imports, crude steel producers are choosing to run plants at low utilisation levels, as it is not viable to produce or sell steel at prices which are higher than that of imported steel.

Seshagiri Rao, Joint Managing director and Group Chief Financial Officer of JSW Steel, says: “A peculiar scenario has emerged this time. Domestic slowdown has resulted in China turning into a big exporter of steel. Also, globally, all other currencies have depreciated, making their exports more viable. In India, the situation is compounded, because costs remain high and there are no tariff or non-tariff barriers against cheaper steel imports. Also, the rupee has depreciated by merely 4 percent against a sharp drop in other currencies.”

Other than India, several countries have raised trade barriers against cheaper Chinese steel imports. With a total annual capacity of 1.16 billion tons, China accounts for nearly 50 percent of the world’s steel capacity. In order to offset the slowdown at home, Chinese steel mills have been flooding world markets with steel products at throwaway prices.

In November 2014, the US imposed anti-dumping duties of up to 100 percent on Chinese steel wires. In February 2015, the European Union imposed a 25.2 percent duty on sheet, coil, and strips from China and up to 12 percent duty on Taiwanese products. In India, there is an import duty of five percent on long products and 7.5 percent on flat products. Due to free trade pacts, there is negligible duty on steel from Korea and Japan.

The steel sector has been crying hoarse for a solution but the government has done nothing to prevent the dumping of Chinese, Russian, and Korean steel into India.

Ankit Miglani, Deputy Managing Director, Uttam Galva Steel, one of the largest manufacturers and exporters of value-added steel, says: “Steel plants in India are shutting due to a lack of ore. Though steps have been taken to ease the situation, there is no clarity on when the iron-ore mines will open and supplies will improve. Until the domestic issues are resolved, the government will need to support the sector to tide over this crisis.”

In Karnataka, 54 sponge iron units have shut down. Bigger companies are running plants at low utilisation levels.

The shortage of iron ore and coal in India has pushed up prices of key raw materials, hiking Indian steel prices compared to global prices of crude steel. For instance, hot rolled coils in India are upwards of `30,000 per ton, while an import consignment, after duties,

COvER sTORy

Country-wise imports of steelQuantity in ‘000 tons

Country Apr - Mar 15 (Prov.)

Apr - Mar 14

Growth (%)

CHINA 3610.47 1088.44 232

JAPAN 1601.93 1358.09 18

KOREA 1926.65 1320.83 46

RUSSIA 228.54 147.4 55

UKRAINE 349.05 323.17 8

OTHERS COUNTRIES

2299.94 1470.25 56

TOTAL Steel 10016.58 5708.18 75

A peculiar scenario has emerged this time. Domestic slowdown has resulted in China turning into a big exporter of steel. Also, globally, all other currencies have depreciated, making their exports more viable. In India, the situation is compounded, because costs remain high and there are no tariff or non-tariff barriers against cheaper steel imports. Also, the rupee has depreciated by merely 4 percent against a sharp

drop in other currencies.

Steel Insights, May 2015 19

India to cut export duty on low grade iron ore

Steel Insights Bureau

India will reduce the export tax on low-grade iron ore to 10 percent from the existing 30 percent, Finance Minister

Arun Jaitley recently said. This will be a big boost for the top iron

ore exporting state of Goa which is close to restarting its mining industry.

Court action against illegal mining had shut the industry in Goa for more than two years, although companies, including top miner Vedanta Limited are starting to get approvals to resume work in about a month.

The new export duty will be effective from June 1, Jaitley told the parliament. The tax stays at 30 percent for higher grades.

Iron ore prices have almost halved in the past 12 months and are hovering near their

Move comes as a booster shot for this steel-making raw material industry in Goa

sPECIAL fEATuRE

lowest in a decade. This has made Goa’s low-quality ore, which contains less than 58 percent iron, unappealing to traditional buyers in China, who can now buy better grades of the steel-making raw material at competitive prices.

Goa Mineral Ore Exports Association Secretary Glenn Kalavampara welcomed the move.

“Now the head is slightly above water,” Kalavampara said. “We can now at least breathe but prices are still a concern.”

Goa is unlikely to be able to start exports before October at the earliest, pending some approvals and as the four-month monsoon season begins in June, an official with a mining company in Goa said.

The state has about 8 million tons of ore waiting at ports without buyers due to the 30 percent duty.

Goa exported about 50 million tons of iron ore a year before the mining ban was imposed in 2012. The Supreme Court of

Steel Insights, May 2015 23

sPECIAL fEATuRE

Kingshuk Banerjee

Remember that scene from Mission Impossible: Ghost Protocol? Tom Cruise was scaling down glass walls

of Burj Khalifa in downtown Dubai and an ominous sandstorm was moving fast towards the tallest building in the world.

But what would have been the scenario had an earthquake started at that very moment? Could Cruise have scaled down with the same ferocity in the midst of the tremors? Could the colossal structure of 160 stories have survived the rock-n-roll of Mother Earth?

Experts, however, are least bothered. According to them, Cruise was playing the role of a super-agent in a movie who could not fail in any circumstance. So nothing would have diverted him from his goal, be it a sandstorm or a tremor. And the scene was not a real one, a mere reel version.

But the building?Experts point out that Burj Khalifa, the

tallest building in the world, is a quake-proof structure. So Cruise would have been more or less safe on that count too.

But as the saying goes, fact is not only stranger but harsher than fiction too. The mountain of debris in Kathmandu bears testimony to this reality. Thousands of buildings not only got demolished like a pack of cards in the massive tremors but also snuffed out precious lives as well.

As the magnitude of the devastation and destruction brought forth by the Nepal quake gets clearer by the day, experts have started analysing the aftermath of nature’s fury.

As one expert said, ”the tremor did not directly kill the thousands rather they were crushed under the debris of fallen buildings and houses they used to dwell in. Therefore, it’s necessary to build quake-resistant buildings so that the impact of this kind of a catastrophe can be minimised. It’s high time people took of constructing quake-proof houses.

Quake-proof structures - Mission possible

Before delving deeper into the topic, lets understand the technicalities of the issue.

From the expert’s opinion, it could be safely concluded that quake-proof structures are needed to minimise human and material losses.

While no structure can be entirely immune to damage from earthquakes, the goal of quake-proof constructions is to erect structures that fare better during seismic activity than their conventional counterparts.

According to norms, earthquake-resistant structures are intended to withstand the largest of earthquakes of a certain probability that are likely to occur at their location. This means the loss of life should be minimised by preventing collapse of the buildings during such rare seismic vibrations while the loss of functionality should be limited for the more frequent ones.

To combat earthquake destruction, the only method available to ancient architects was to build their landmark structures to last, often by making them excessively stiff and strong like the El Castillo Pyramid at Chichen Itza.

28 Steel Insights, May 2015

fEATuRE

Steel Insights Bureau

Indian steel-makers will add about 34 million tons (mt) of crude steel capacities from 2014-15 to 2018-19, according to a

report by CRISIL Research. This will translate into approximately

30 mt of finished steel equivalent against an incremental demand of about 25 mt over the same period.

The estimate of 34 mt is far lower than around 90 mt of crude steel capacity additions announced by the industry players, primarily because of issues relating to land acquisition, environmental and forest clearances, CRISIL said .

CRISIL said most of the capacity additions over the next 5 years will be through brownfield projects. Large players will dominate steel capacity additions during the period and a major part of the additions is expected to happen through the BOF route

so the share of BOF technology is expected to increase in the coming years.

Furthermore, many of the large players are planning to add capacities in the long product segment, which has traditionally been dominated by small and non-integrated players and re-rollers. “Thus, going forward, the steel industry’s capacity creation will be large scale, increasing more cost efficient and quality complaint,” the CRISIL report added.

India’s demand for flat products to be highIndia’s demand for flat products will be high at around 7 percent, according to the CRISIL Research report.

The automobile industry accounts for a significant 20 percent share in domestic flat steel consumption. Within this segment, the cars and utility vehicles sector is expected to see pick-up in demand post 2015-16 with

India’s steel capacity addition to be muted in medium term: CRISIL

an expected revival in consumer sentiment, lower cost of ownership and lower fuel prices. It is expected that cars and utility vehicle sales would grow an impressive 10-12 percent CAGR over the 5-year period, the report said.

Commercial vehicles sales are forecast to grow at 14-16 percent during the next 5 years owing to increase in replacement demand and improvement in industrial activity in line with faster economic growth.

The steel pipes industry, accounting for 16 percent of the demand for flat steel, witnessed significant moderation on account of slowdown in the oil and gas sector. However, over the long run, steady investment in water supply and sanitation and irrigation projects, coupled with further development of gas pipeline infrastructure, are expected to drive demand for steel pipes, the CRISIL report said.

As a result of better offtake from sectors such as automobiles, consumer durables and steel pipes will drive flat steel demand to around 44 million tons, the report said.

India’s long steel demand to rise 6%Long steel demand is expected increase 6 percent CAGR over the next 5 years, according to a steel industry report by CRISIL Research.

Investments in infrastructure and industrial construction sectors, which together account for about 70 percent of domestic long steel demand, will act as growth drivers, the report said.

“We expect aggregate investments to continue to grow at a sluggish pace in the short term, impacted by the slowdown in industrial capital expenditure and infrastructure investments. Implementation of projects in key infrastructure segments such as power, irrigation, and roads is expected to suffer in the short term on account of land acquisition issues, delays in clearances and strained finances of companies. Investments in the construction space are also likely to grow at a muted pace during this period,” the report said.

However, beyond 2015-16, industrial and infrastructure investments are likely to improve gradually, the report said adding that the central government’s focus on segments such as roads, urban infrastructure and railways will boost investments in infrastructure. “By contrast, we foresee lower

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