Steel Insights, November 2013 3

Dear readers,

The festive season has just got over. But steel prices were in a downward spiral in October after a surge in the previous month as the optimism linked to festive demand has started waning, putting a question mark on the revival expected in the second half of the year.

Indian steelmakers, including JSW Steel and Essar Steel, raised prices in August and September to benefit from the demand associated with the festive season and protect their margins from the rising raw material prices and to also gain from the rupee depreciation that pushed up prices of imported steel. However, the situation is slowly changing, putting downward pressure on prices.

Analysts say reversal of the rupee-dollar depreciating trends amid the weak steel demand scenario is putting pressure on prices.

October steel prices are pointing towards a gloomy future. Long steel prices, which jumped 15 percent in September from the lows of July, have fallen almost five percent in October. Flat steel prices have also followed the same trend of decline in October from a year’s high in September.

Some in the industry feel that the fall in prices was a result of an increase in global capacity utilisation in the month of October. They are expecting a modest pick-up in the second half of the year. However, steel dealers are not too optimistic and are blaming the price decline on the lack of demand that is usually seen coming from the construction and auto industries, starting October.

Meanwhile, the World Steel Association (WSA) has slashed its projection for India’s steel demand growth to 3.4 percent for the current year from the earlier forecast of 5.9 percent as high inflation and structural problems are constraining steel user sectors’ activities. The demand growth projection for the next year has also been reduced to 5.6 percent from the seven percent projected earlier.

Subdued sales, financial costs and rupee depreciation have already started taking a toll on the second quarter results of steel companies like Jindal Steel & Power (JSPL), Jindal Stainless Limited (JSL) and JSW Steel. Now it needs to be seen how the Q2 figures pan out for biggies like Tata Steel and Steel Authority of India (SAIL).

In another development, the Justice M B Shah Commission, appointed in November 2010 to investigate illegal iron ore mining practices and track the financial records of transactions in the mining industry between 2006 and 2010, handed over its final report as its term came to an end in October. The government’s decision to end the enquiry will halt detailed hearings in the three states of Chhattisgarh, Maharashtra and Madhya Pradesh. It also needs to be seen whether the efforts by the Goa government to re-start mining gets the apex court’s approval even as the court sets up panels for further probe.

In this edition of Steel Insights, we examine how Tata Steel, which changed the face of the steel trade in India by putting an emphasis on branding and retail, is working on a slew of strategies that could only reinforce its leadership position across several of its brands in a market that seems to have lost a considerable amount of sheen in the last few years.

Happy reading!

(Rakesh Dubey)

EDITORIAL

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Editorial BoardDr Abhirup Sirkar, Professor Economics, Indian Statistical Institute (ISI)Dr Amit Chatterjee, Consultant and former Advisor to MD, Tata Steel LtdJayant Acharya, Director (Commercial & Marketing), JSW Steel LtdK Ranganath, former CMD, KIOCLVikram Amin, ED (Strategy and Business Development), Essar Steel LtdRana Som, Former CMD, NMDC Ltd

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4 Steel Insights, November 2013

COnTEnTs

41 | TEChnologyJSW repeats order for Danieli’s FCC billet caster for Dolvi unitJSW, Danieli sign pact for 1.5 mtpy billet caster with 1.4 mtpy bar mill for Dolvi works

31 | FEATURERailways busy season surcharge burdens cement, steel cosSteel makers, who use railways extensively, will feel impact on costs.

29 | FEATUREIndia set to miss 12th Plan steel production goalDomestic steel mills defer expansion plans on delays or lack of regulatory clearances.

23 | SPECIAl FEATUREFull stop for Shah Commission; will mining resume in goa?Shah Commission submits final report; SC plans panel to look at various aspects of mining.

6 | CovER SToRyA lot more steel to comeTata Steel is readying a blueprint for retaining its market leadership in India.

28 Biggies shortlisted to bid for Stemcor assets 32 Steel consumers falter on sluggish

sentiment 34 Festivities temporarily fuel auto sector 36 Liquidity squeeze puts pressures on realty

margins 37 Spot coking coal prices lack fizz 38 Ferro alloys follow steel volatility trend 39 WSA forecasts 3.1% steel demand growth

in 2013 40 Indian steel mill orders new rebar rolling

mill from Siemens 42 Steel, allied sectors witness mixed results

in Q2 44 Tata Steel Q2 saleable output up 18% at

2.2 mt 45 Railways, RINL to set up forged wheel

plant 46 JSW crude steel output up 37% in Q2 47 Stemcor, discounts and Phailin create a

buzz 48 Coal compensates for iron ore at NMPT 50 Traffic handling by major ports up 2.33% in

Apr-Sept 51 Railways’ coal handling falls 7.25% m-o-m

in Sept 52 Macroeconomic indicators of India 53 Global crude steel output up 1.23% in Sept

m-o-m54 Domestic long & flat markets 55 Domestic raw materials 56 Price data 57 Production data 59 Ferro alloy data 62 Iron ore data

Call 9163348243 for more details

6 Steel Insights, November 2013

COvER sTORy

They say, when the going gets tough, the tough gets going. Tata Steel, the company that changed the face of the steel trade in India, by putting emphasis on branding and retail, is readying a blueprint for retaining its market leadership in India. Linus Lobo and Madhumita Mookerji of Steel Insights give an overview

A lot more steel to come

8 Steel Insights, November 2013

COvER sTORy

The Tata Steel Group, one of the top 10 steel companies globally, is bracing to “steel” a march over its

competitors with a slew of strategies that could only reinforce its leadership position across several of its brands in a daunting market that seems to have lost a considerable amount of sheen in the last few years.

Working against the backdrop of a challenging scenario where the World Steel Association has slashed its projection for India’s demand for the commodity to 3.4 percent against the earlier forecast of 5.9 percent and the global recovery not exactly expected to be buoyant with the International Monetary Fund (IMF) having revised the growth forecast for 2013 to 2.9 percent over the previous 3.1 percent, the company’s first half (H1) figures for crude and finished steel as well as in sales underscore the fact that it has been able to effect a volume increase even in a soft environment.

Tata Steel registered a 19 percent year-on-year (y-o-y) increase in its crude steel production in the just-concluded second quarter (July-September, 2013) of the current fiscal, at 2.29 million tons (mt), and a 21 percent increase in the same for the half year ended September 30, 2013 at 4.51 mt. Its saleable steel sales graph headed northwards by 18 percent in Q2 y-o-y to 2.2 mt and 21 percent in H1 at 4.35 mt.

According to analysts, Tata Steel India

is likely to drive growth with the company witnessing a significant shift in its business composition whereby capacity expansion is being carried out in the high-margin domestic business segment.

But, what overall factors give Tata Steel the steely resolve to hold its own in a scenario where the global outlook is still dull and the domestic market is plagued by a demand slump?

Plan of action

This is just what the doctor ordered. It is a lethal prescription of honing its already sharpened marketing skills, looking at virgin markets, deepening its presence in non-substitution markets while tapping into other substitution areas for its own products, backed by an effective service-oriented approach and the high, intangible brand premium.

Tata Steel is prepared to face the future in each of its strategic business units. Plans are afoot to capture greater market-share while not loosening its leadership grip.

The tubes division of the company, for instance, is putting a thrust on tubular structural since this segment has largely been using its more conventional counterpart. As says Vineet Saraf, Head of Sales Planning, Tata Steel, Tubes Division, “That is where the opportunity is although there has been a slowdown in infrastructure projects in the country.

In pipes, going forward, this growth strategy is no pipe dream and will involve dispersed production facilities closer to consumption centres, primarily, to cut down logistics costs in terms of serving customers. The company is in the process of creating capacities in the south and west of India.

These are brownfield capacities which the company has taken over as external processing agents to the extent of 100 percent capability of their plants. “These will be making products which will be branded as Tata Pipes which is our parent brand,” informs Kulvin Suri, Chief of Marketing & Sales, Tata Steel Tubes Division.

Tata Steel is the largest player in pipes in India with a plant located at Jamshedpur, which manufactures around 3 lakh tons per annum. However, the eastern region is not where the demand lies but largely in the north, west and south, with the latter offering around 35 percent of the market. Because of the locational disadvantage, Suri says: “As far as growth is concerned, logically speaking, we need to have production units closer to the consuming centres. That is what our strategy is.”

In the pipes industry, raw materials comprise over 80 percent of the costs. “Therefore, you need to be very smart in terms of raw material sourcing and also logistics costs in order to really compete with the local players,” Suri reminds.

The company is looking at producing and supplying almost 475,000 tons of tubes. Of

♦ The tubes division is putting a thrust on tubular structural since this segment has largely been using its more conventional counterpart.

♦ In pipes, the growth strategy will involve dispersed production facilities closer to consumption centres.

♦ For flat products, the future thrust areas will be the rural market, automotive, mining industry equipment and oil and pipelines segments.

♦ Long products aim to focus on the construction segment.

♦ Agri equipment business looking at more than tripling its sales in the next couple of years under Tata Agrico.

Tube train♦♦ Capacity: 0.50 mtpa ♦♦ Plant: Jamshedpur (3 lakh tons),

Kolkata, others♦♦ Key♦markets: West, north, south♦♦ Industry♦size: 4 mtpa♦♦ Verticals: Conveyance (190,000

tons), structural (110000 tons) and precision (90,000 tons)

♦♦ Conveyance: plumbing and irrigation (through retail channels), fire-fighting, pharmaceutical

♦♦ Key♦brand: Tata Pipes♦♦ Structural: Airports, Railways♦♦ Key♦brand: Tata Structura♦♦ Precision: Automotive industry

66 Steel Insights, November 2013

Tear along the dotted lineTear along the dotted line