steel insights, october 2015

4 Steel Insights, October 2015

COnTEnTs

28 | FEATUREWires get crossed over safeguard, customs dutiesWire makers up against safeguard duty, says 30-40 percent capacity can close down, leading to job losses.

24 | FEATURERBI rate cut: a positive for steel, allied industriesMove set to energise stressed steel and allied sectors.

45 | INTERVIEW‘Current crisis more serious than 2008’Indian steel-makers are competitive but need government support to survive dumping, says Seshagiri Rao

20 | SPECIAL FEATURE India’s iron ore imports set to fall in FY16Fall in iron ore imports will not change India’s status as net importer as exports will also slump.

6 | COVER STORY Will 200-day safeguard make steel industry competitive?With the safeguard duty in place, focus for steel companies will be to improve capacity utilisation.

22 Low iron ore exports to prevail on weak prices, oversupply

26 Foundry body wants revisit of Electricity Act 30 India unveils ambitious climate action plan 31 US companies seek dumping duty on Indian

steel pipes 32 JSW Steel aiming at 30 mt capacity by 2020 33 High power tariff makes ferro alloy units

unviable in AP 34 Realty sector hails RBI rate cut 35 Commercial real estate up across major

cities 36 Smooth ride + bumps = Sept, for auto cos 38 Coking coal prices drop in September 39 Indian steel sector may take 18-24 months

to revive: Abbasi 40 R&D on SteelMin’s radar 41 Phoenix rises to serve! 48 Iron ore handling by major ports drop 51% in

Apr-Aug 49 Global crude steel output dips 0.66% in

August m-o-m 50 SAIL sees good growth for steel in coming

years 51 Tata Steel invests `22,000 cr in Odisha plant;

to start phase l soon 52 Output begins at Tata Steel’s Kalinganagar

coke ovens 53 Corporate updates 55 Primetals bags order from Turkey’s Erdemir 56 Revamped slab caster commissioned by

Danieli 57 Workers sing the blues as Redcar steel plant

closes down 58 Japanese steel: from tsunami to Olympics

and after 64 Price data 65 Ferro alloy data


COvER sTORy

Will 200-day safeguard ...

... make steelindustry competitive?

Tamajit Pain

Steel Insights, October 2015 7

COvER sTORy

India’s steel sector currently has a capacity of 110 million tons and the Government of India (GoI) envisages increasing this

to 300 million tons by 2025. With the alarming increase in imports

from countries with overcapacity (like China), how the Indian government will match this vision and have the domestic industry participate in the nation-building process needs to be seen.

According to industry experts, India has seen a shocking surge in the import of steel products from countries like China, Japan and South Korea. As per data released by the Joint Plant Committee (Ministry of Steel), India has imported 9.32 million tons of finished steel in 2014-15, which is 71.1 percent higher from that in the previous fiscal.

Statistics show that imports, on an average, have almost doubled post the execution of the Comprehensive Economic Partnership Agreement (CEPA) with Japan and Korea.

Predatory pricing policies were adopted by exporting countries. For instance, Japan is exporting at 34 percent lower compared to its domestic selling price. This has led to a widening of gap between domestic prices and imports into India, making the industry even more uncompetitive, sources said.

An insight into the data shows that China increased its share of imports from 20 percent to 40 percent in the last one year.

Imports from Korea and Japan, on an average, have almost doubled post the execution of CEPA. This year, for the period April – June, imports from China, Japan and Korea have grown by 61 percent.

Imports have nearly doubled from an average of 0.5 million tons (mt) during the

first four month of FY2014-15 to nearly 1 million tons in the second half. This trend is continuing in FY2015-16. Most of the imports are of commercial quality, according to industry experts.

Surging imports were impacting the competitiveness of the Indian steel industry, while depreciating currencies against the US dollar (USD) of the exporting countries have made them competitive for exports globally, including India.

Protectionist measures by the West could be a cause of worry for Asian markets due to proximity to China, Korea and Japan.

The predatory pricing policy adopted by exporting countries has led to decline in steel prices in India by over 20 percent in the last 8 months.

Higher NPAs pose risk The stressed metal sector, coupled with the surge in imports and increased statutory levies in India, have led to a sharp decline in profitability. Most of the steel companies are over-leveraged, with debt/EBITDA*>12x and interest cost per ton being significantly

Country-wise imports from major countriesFigs in million tons

CountriesApril – March April – June

2013 - 14 2014 - 15 % Surge 2014 - 15 2015 - 16 % Surge

China 1.09 3.61 232% 0.48 0.72 49%

Japan 1.36 1.60 18% 0.29 0.59 105%

Korea 1.32 1.93 46% 0.42 0.62 49%

Ukraine 0.32 0.35 8% 0.11 0.10 -15%

Russia 0.15 0.23 55% 0.06 0.06 5%

Others 1.47 2.30 56% 0.40 0.68 68%

Total Imports (Including Semis) 5.71 10.02 75% 1.76 2.77 57%

Source: Joint Plant Committee

higher than their global peers and well above their current EBITDA per ton, industry data showed.

A steel debt of US$63 billion is now with companies having debt/EBITDA>6x and half of it with debt/EBITDA>12x. Data analysis shows the following results:

♦ Share of the metal sector of interest coverage <1 debt increased to 29 percent in 1Q16 from 11 percent in 1Q15.

♦ Total debt with steel companies is now greater than the debt of the infrastructure sector with interest coverage <1 (US$ 49 billion).

♦ Iron & steel is 50-100 percent of PSU banks’ net worth and stressed steel exposure is equivalent to 60 percent of the current gross non-performing loans.

♦ With increased stress in the iron and steel sector, non-performing asset recognition is expected to rise on the back of a 7 percent share of advances.

♦ Overall, steel sector stress is not limited to the sector itself but can cascade to the economic level. The Indian government has

acknowledged this sudden surge in imports and the impact it has on the domestic steel industry and has undertaken timely measures like import duties and the recent levy of a safeguard duty of 20 percent for 200 days. The duty has also been approved by a government-appointed panel of secretaries – commerce, steel and revenue.

The Indian steel industry is reeling under pressure from several fronts domestically – from high to cost of procuring raw material, low utilisation of steel plants, softening of global prices, high debts and increased costs of financing.

Month-wise imports into India (million tons)

Source: Joint Plant Committee


India’s iron ore imports set to fall in FY16

Steel Insights Bureau

India’s iron ore imports are set to decline during the current financial year as domestic production has shown

considerable improvement and prices have seen a downward correction. The import of the key steel-making raw material is projected at 6-10 million tons in FY16, lower than the volume in the last financial year, according to the Federation of Indian Mineral Industries (FIMI).

In 2014-15, Indian steel-makers imported a record level of 15 mt after the global iron ore prices hit a historic low of $45 per ton for 62 percent Fe-grade iron ore.

“There is an abundant quantity of iron ore available in the country. The total stocks lying at various mines are estimated at 150 mt. In addition, there will be fresh production this year. Overall, there is no need to import iron ore in the country,” R K Sharma, Secretary General, FIMI, said.

Industry sources said for the period April to August, 2015, steel mills and traders were believed to have imported around 2.8 mt of

sPECIAL fEATuRE

were sold at `4,500 per ton about a year ago. Going by the current trend, the total imports for this year will not exceed 6-10 mt, industry sources said.

NMDC has reduced its prices by 33 percent between March and September this year. The company currently sells iron ore fines at `1,660 per ton compared to `2,460 per ton in March this year. “The weak sentiment, coupled with higher production estimated for the current fiscal, has resulted in the lowering of prices in the domestic market. This situation has led to a decline in imports of iron ore this year,” an analyst said.

Iron ore production for fiscal 2016 is estimated at 160 mt, if Goa opens up mining, otherwise it would be in the range of 145-150 mt compared to 129 mt in FY15, industry sources added.

Karnataka sitting on permits to reopen 93 iron ore minesTwo-and-a-half years after the Supreme Court allowed 117 iron ore mines in Karnataka to reopen, only two dozen have become operational. The state government is

iron ore. JSW Steel, which was the largest importer of iron ore last year at 10 mt, has imported barely 700,000 tons in the first five months of the current financial year. The company might import more depending on the prices in the domestic market and supply situation in Karnataka, sources said.

Apart from JSW Steel, other importers this year include Tata Steel, Essar Steel, KIOCL and private traders.

The steel mills are hardly producing around 45 mt of steel using iron ore as raw material, while the balance 42 mt of steel is produced by induction furnaces, which do not use iron ore. This means, the requirement of iron ore for integrated steel mills is not much and whatever they require is available in the country, Sharma said.

Currently, the domestic iron ore with 62 percent Fe grade is available at `2,500 per ton, which is 50 percent lower than the landed cost of imported iron ore. Whereas the imported iron ore with similar grade costs `4,500 per ton to `5,000 per ton. So, there is not much scope for importing iron ore this year, sources said.

The 62 percent Fe-grade iron ore fines


At the same time, inflation has remained under control and is expected to reach 5.8 percent in January, a shade lower than the August projection of 6 percent, Rajan said.

Inflation measured by the consumer price index in August eased to a record low of 3.66 percent from a revised 3.69 percent in July, helped partly by low commodity prices that have curbed imported inflation.

RBI kept the cash reserve ratio, or the portion of deposits that banks must set aside with the central bank, unchanged at 4 percent.

Impact on steel & allied sectors

The impact of the repo cut and other developmental and regulatory measures will be incrementally positive for banking and economy and will be seen in the short to medium term period, according to economists and industry insiders.

Corporate India has all the reasons to rejoice before the upcoming festive season, as they feel the overall economy is likely to revive as expected, with interest rates on loans expected to come down.

RBI rate cut: a positive for steel, allied industries

Steel Insights Bureau

In a surprise move, the Reserve Bank of India (RBI) slashed the repo rate by 50 basis points. Repo rates are the rates at

which the central bank lends to commericial banks.

The central bank’s move to lower its benchmark interest rate by a higher-than-expected 50 basis points to a four-year low is an effort to ease borrowing costs and stimulate economic growth by taking advantage of record-low consumer price inflation.

The higher-than-expected rate cut should silence critics who believe RBI’s insistence on inflation control above all else has come at the cost of economic growth, which slowed to 7 percent in the three months ended June from 7.5 percent in the preceding quarter.

State Bank of India, the country’s largest lender, responded swiftly with a 40 basis point cut in its base rate, the rupee strengthened, bond prices rose and stock indices jumped after the rate cut.

RBI will maintain an accommodative stance, but the focus of the monetary action for the near term “will shift to working with the government to ensure that impediments to banks passing on the bulk of the cumulative 125 basis points cut in the policy rate are removed”, RBI Governor Raghuram Rajan said, referring to the quantum of rate cuts since January.

Finance Minister Arun Jaitley welcomed the rate cut, which followed implicit government calls for a lowering of borrowing costs to stimulate investment and lift growth in the economy.

“We are now looking forward to transmission of the cuts which will effectively

help boost investment and confidence,” he told reporters.

Rajan noted that global growth had moderated, especially in emerging market economies (EMEs), since August when he made his last policy statement. The September 17 decision by the US Federal Reserve to hold interest rates steady in response to global conditions and weak domestic inflation lifted financial markets briefly, “but overall financial conditions are yet to stabilize”, he said.

“In India, a tentative economic recovery is underway, but is still far from robust,” he said, noting that monsoon rainfall is deficient by 14 percent although foodgrain production is expected to be higher than last year.

“Manufacturing has exhibited uneven growth in April-July, with industrial activity slowing sequentially in July, although it has been in expansionary mode for the ninth month in succession,” he said.

Capacity utilisation by manufacturing and industrial units is still low at 70-72 percent. This clearly shows there is scope to revive demand without stoking inflation, said Rajan.

fEATuRE


InTERnATIOnAL

Kingshuk Banerjee

That September night nobody slept in Tokyo.

And when the good tidings came in the wee hours, whole of Japan erupted in joy and cheering. Banzai was the word that could be heard throughout the island nation. TV presenters struggled to rein in their emotions, while newspapers rushed out special editions and a rainbow emerged through the drizzle

as Tokyo greeted the news that it had been chosen to host the 2020 Olympics.

“My heart was pounding before the announcement – I am so happy,” Prime Minister Shinzo Abe said, adding that Japan would respond to the support it received “by holding a successful Games. I think we conveyed the message that we can hold a safe Olympics”.

Jacques Rogge, the President of the International Olympic Committee (IOC),

had barely finished uttering the city’s name thousands of miles away in Buenos Aires when countless Tokyoites began celebrating. There were hugs, tears and relief that the Games were coming to their city for the second time.

The 2,000 supporters who had gathered at a gymnasium near Komazawa Stadium – built for the first Tokyo Olympics in 1964 – cheered as the IOC’s decision was relayed via a big screen. Gold ticker tape fell from the

Japanese steel

From Tsunami to Olympics and after


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steel insights, october 2015

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