steel insights, september 2015

4 Steel Insights, September 2015

COnTEnTs

42 | FEATUREPOSCO inks deal to set up Maharashtra plantCompany ties up with Shree Uttam Steel & Power for 3-million-ton integrated steel plant.

34 | FEATUREUrban India: Turning visions into realty!Govt unveils Smart Cities Mission; steel industry to be direct beneficiary.

47 | INTERVIEW‘Infrastructure laid today should be for future’Smart cities project to add and upgrade much needed basic infrastructure in cities.

28 | FEATURE Steel mills seek safeguard duty against imports Safeguard duties are levied on imports as temporary measure to protect local industry.

6 | COVER STORY Band-aid solutions will not work: JaitleySecondary steel makers will have to be competitive to stay afloat in difficult market.

22 Goa resumes output after 3 years 24 States likely to auction 22 iron ore mines in

Oct-Nov 25 Trouble in China may impact Indian steel

sector: ASSOCHAM 27 ISSDA lauds move to introduce quality

standards 29 Iron & steel net earnings hit by impairment:

ICRA 31 Land Ordinance buried for time being 32 Indiafacesflatrealestatesales,stagnant

prices in next 12 months: Report 39 Sponge iron makers seek steps to curb iron

ore prices 40 Coking coal offers slide in August 41 Gujarat NRE expects 20% reduction in interest

costs post-CDR 43 No an august month for auto sector 45 Govt weighing import duty, FTAs, assures

Tomar 49 Dighi aims to reach 18 mtpa capacity by end-

2015 51 Major ports iron ore handling drops 57% 52 Global crude steel output falls 2% in July

m-o-m 53 SharphikeinTataSteel’sQ1netprofity-o-y 54 SAIL posts Q1 net loss of `321.64 crore 56 NMDC posts 47% drop in Q1 net to `1010

crore 57 Corporate snippets 59 Primetals to supply more Eco Slide Disc side

guides for voestalpine coilers 61 China: From market crash to price cuts and

beyond 67 China impact, crisis in Mandi Gobindgarh

create buzz 68 Price data 69 Ferro alloy data 70 Production data


COvER sTORy

Band-aid solutions will not work: Jaitley

According to Steel and

Mines Minister Narendra

Singh Tomar, the steel

industry is an employment

generator and the vision to take

production of the commodity from

the present level of 110 mt to 300

mt cannot be realised without the

active participation of secondary

steel-makers. But, these mills are

struggling to stay afloat in the face

of the huge dumping onslaught

from China, Japan and Korea. On

the other hand, Finance Minister

Steel Insights, September 2015 7

COvER sTORy

Steel is the backbone of any modern economy. The level of per capita consumption of steel is often

considered an important index of the level of economic development.

Steel production in India has been steadily increasing, and has doubled in the last 10 years, from 43.44 million tons (mt) in 2004-05 to 88.12 mt in 2014-15. Today the steel sector contributes nearly 2 percent of the country’s GDP.

India occupies a central position on the global steel map and has overtaken the US to become the third-largest steel producer in the world.

India is predicted to triple its production capacity from roughly 110 mt presently to about 300 mt in the next 10 years.

The steel production landscape across the globe is largely dominated by blast furnace based integrated steel producers who make steel using the basic ore.

However, in India, the contribution of this route of steel-making is low at around 45 percent and majority of the steel (55 percent) production is done through the electric process, using steel scrap or sponge iron produced in-house or purchased.

While some of these units are very large, of the order of several million tons, most of the units are small, producing a few thousand tons to a few lakh tons per annum and conventionally known as mini steel plants.

These are mostly electric induction furnaces (EIF) and/or electric arc furnaces (EAF).

India enjoys a unique position in steel making where about 32 percent steel is produced at electric induction furnaces.

India is also the largest producer of sponge iron, at about 24 million tons per annum. Besides the steel producers, there are a large number of steel processing units, viz, steel re-rolling mills, cold rolling mills, galvanizing units and colour-coating units which produce value-added steel from purchased/imported semi-finished/finished steel inputs.

In trade and commercial parlance, all steel producers and processors are classified under the broad category of the secondary steel sector.

India’s steel ministry is also assigning importance to the secondary steel sector and is looking at the readiness of the producers in this category to reach the target of 300 mt and the issues and challenges they foresee therein.

According to Steel and Mines Minister Narendra Singh Tomar, the steel industry is an employment generator and the vision to take Indian steel production from the present level of 110 mt to 300 mt cannot be realised without the active and equal participation of secondary steel-makers, along with major steel producing companies.

Prime Minister Narendra Modi’s recent visits to steel plants in Burnpur and Rourkela, his presence at the signing of memoranda of understanding (MoUs) in Chhattisgarh and Jharkhand for setting up of integrated steel plants through the special purpose vehicle route validate that this government is whole-heartedly committed to the Make-in-India initiative.

Hand-holding possible up to a limit: FM

In a recent steel ministry-organised conference on “Roadmap to 300 million tons: Opportunities & Challenges for Secondary Steel Producers”, in which representatives of almost all the major steel producers in the country, including secondary steel-makers, were present, Minister of Finance (FM), Corporate Affairs and Information & Broadcasting Arun Jaitley said Indian steel-makers, particularly the secondary players, will have to unshackle themselves and become competitive to face the difficult market situation created by external factors like weakness in Chinese growth.

“You have to enable yourself to be cost-competitive. In the eventual race, hand-holding can take place up to a point. Beyond that, one has to stand up on his own strength and run the industry on his own strength,” Jaitley said.

China has a huge excess capacity and that has also a certain amount of price competitiveness. Therefore, their ability to flood markets across the world is there, he said.

Some economies have interpreted this flooding as dumping as a result of which our sectors – both primary and secondary – at times are feeling stressed, he said.

“In fact, the direct result of this is that the largest single non-performing assets (NPAs) with the banks is the steel sector and this can have a spiral impact,” Jaitley said.

“The ability of the banks to lend elsewhere gets impact and, therefore, there is a larger problem in store and then one has to go and address the root cause because band

Crude steel production by integrated & other steel producers in India(in ‘000 tons)

Year Production by integrated steel producers Production by other steel producers

2009-10 36658 29181

2010-11 37722 31853

2011-12 40500 33292

2012-13 43082 35227

2013-14 44238 37302

2014-15 45440 42813

2015-16 (April-July) 15942 14443

Source: Steel ministry

Arun Jaitley recently made it

clear that Indian steel-makers,

particularly the secondary players,

will have to unshackle themselves

and become competitive to face

the difficult market situation

created by external factors and

that hand-holding can be done up

to a point, implying that too much

of help from the government may

not be forthcoming in the future in

quelling the China impact. Rakesh

Dubey & Tamajit Pain of Steel

Insights explore.


Urban India: Turning visions into realty!

Madhumita Mookerji

The Narendra-Modi-led government has just unveiled its Smart Cities Mission under which 100 cities will

be vying to secure a place under the Indian sun, whereby citizens will, hopefully, get to live and work in a highly secure environment devoid congestion and pollution. Sounds Utopian? Right, but the government is resolute in providing governance that uses IT and ITES as its infrastructure backbone with a stress on resource optimisation.

For the first time, a Ministry of Urban Development (MoUD) programme is using the “challenge” or competition method to select cities for funding and using a strategy of area-based development, in a bid to capture the spirit of “competitive and cooperative federalism”, according to the ministry.

What’s more, the domestic steel industry will be a direct beneficiary of such initiatives. As says a Tata Steel spokesperson: “The World Steel Association has estimated that steel consumption in India will go up by 6.2 percent in 2015 and 7.3 percent in 2016. With the pace of setting up of the 100 smart cities picking up, India’s steel consumption is expected to be a notch higher than WSA estimates. As India gears up for the construction of these cities, India’s steel consumption growth will put the country among the world’s 10 biggest steel consuming countries.”

But what is a Smart City? The government says this is a bold new initiative meant to set examples that can be replicated both within and outside the Smart City, catalysing the creation of similar environments in various regions and parts of the country.

As says Shubhranshu Pani, Managing Director – Infrastructure Services, JLL India, “I foresee many cities developing employment and liveability and growing quickly to be modern locations of global standards.”

The core infrastructure elements in a smart city would include:

y Adequate water supply, y Assured electricity supply, y Sanitation, including solid waste

management, y Efficient urban mobility and public

transport, y Affordable housing, especially for the

poor, y Robust IT connectivity and digitalisation, y Good governance, especially

e-governance and citizen participation, y Sustainable environment, and y Safety and security of citizens

Typical Smart City features include: y Promoting mixed land use in area-based

developments. The states will enable some flexibility in land use and building bye-laws to adapt to change;

y Housing and inclusiveness - expansion of housing opportunities for all;

y Creating walkable localities - reducing congestion, air pollution and resource depletion, boosting local economy, promoting interactions and ensuring security;

y Preserving and developing open spaces - parks, playgrounds and recreational spaces in order to enhance the quality of life of citizens, reducing the urban heat effects in areas and generally promoting eco-balance;

y Promoting a variety of transport options - Transit Oriented Development (TOD), public transport and last mile para-transport connectivity;

y Making governance citizen-friendly and cost effective - increasingly relying on online services to bring about accountability and transparency;

y Applying smart solutions to infrastructure and services in area-based development in order to make them better. For example, making areas less vulnerable to disasters, using fewer resources, and providing cheaper services. The government has zeroed in on a

few models of development. The strategic components of area-based development in the Smart Cities Mission are city improvement (retrofitting), city renewal (redevelopment)

fEATuRE


‘Infrastructure laid today should be for future’

What do you feel about the government’s Smart Cities Mission agenda?

The government’s Smart Cities Mission is a well thought-out infrastructure upgrade for our fast growing cities. It is going to add and upgrade much-needed basic infrastructure in the cities, with a sharp focus on water, sewerage, energy and transportation. The government is looking at creating walkable localities, preserving and developing open spaces, multi-modal transport, ease of doing business and citizen-friendly governance, and also at providing distinct identities to these cities.

Smart cities are also going to favourably impact job creation.

The Smart Cities Mission is to drive economic growth and improve the quality of life of people by enabling local area development and harnessing technology, especially one that leads to “smart” outcomes. How far is this feasible in the Indian scenario where technology penetration is still low in general?

As with any intervention, this is going to be a gradual process – it will call for making cities smart and then educating the public and the government to leverage the incorporated smartness in terms of training and execution. Many of the ‘smart’ outcomes are already implemented in pockets around the country, with a high degree of success. This now needs to be critical ramped up nationally.

Some of the implemented smart outcomes are thus: Smart governance in Telangana and Karnataka, smart traffic in Bangalore and Kerala, smart energy management and monitoring in Pondicherry, etc.

InTERvIEw

The government has just unveiled its Smart Cities Mission whereby 100 cities have been shortlisted and which will be able to get

selected through a six-stage process, failing which these will have to prepare for the next round of the challenge. Amongst the various methods mooted for implementation, the easiest form is Greenfield, Shubhranshu Pani, Managing Director – Infrastructure Services, JLL India, tells Madhumita Mookerji of Steel Insights. He further adds that among the various key challenges the government will face in implementing its agenda, is choosing the right project to work on, apart from, of course, funding.

Excerpts:


Kingshuk Banerjee

Will this $5-trillion meltdown at the Chinese stock markets check mate the global steel industry?

Would finally Beijing start dictating global steel prices? Or is it the beginning of the end of the Chinese juggernaut in the global steel arena? Amidst this mayhem, can major steel producing nations like India make her presence felt?

These questions are doing the rounds in the global corridors of the steel industry and no one seems to know the right answer.

Terrible Tuesday and afterIt’s all started on August 11, 2015.

On that Monday, the People’s Bank of China set its daily “reference rate” for the yuan at 6.2298 to $1, compared with 6.1162 yuan on the previous day– in effect 1.86 percent lower. (A reference rate is one that determines pay-offs in a financial contract and that is outside the control of the parties to the contract)

And this simple act created complete mayhem in the market by triggering a chain process devaluation in the currency markets. As the authorities picked the mid-point from the previous day as the basis for the next day’s reference rate, they were forced to devalue again or risk ignoring market forces. Choosing the former, it set the rate at 6.3306, fractionally weaker than Monday’s market close. The spot rate has responded by falling another 1.6 percent on Tuesday, forcing a further devaluation.

The People’s Bank of China’s move led Chinese currency against the dollar to its lowest in almost three years. According to market analysts, this was the biggest one-day loss since China unified official and market exchange rates in 1994.

Backdrop of changeThe dollar had appreciated for the first time since the financial crisis. As a market

leader it dragged the yuan also up. And the result is heart breaking for Beijing as it made country’s goods dearer compared to regional rivals, especially South Korea and Japan. And this has hit Chinese exports hard. Now the US Federal Reserve is close to its first rate rise in seven years, potentially pushing the dollar to new highs. The situation is set to worsen from China’s point of view.

Coupled with it, industrial production, investment and retail sales data for July were weaker than expected, while Chinese exports tumbled 8.3 percent in July, their biggest drop in four months. After a string of weakening output growth figures going back to last year, the authorities have come under intense pressure internally to address the slowdown with a dramatic policy shift.

But the billion dollar question is would this step help?

Beijing prays so.Chinese businesses compete with regional

rivals to supply the world with everything from raw steel to fridges, and a cheaper yuan will make Chinese exports less expensive,

potentially boosting the overseas sales that have been among the main drivers of growth during the nation’s remarkable run over the past three decades. However, controls on the currency have given Chinese businesses a high degree of predictability when they plan investments in industries heavily dependent on exports.

Take the case of steel. It’s all-round decline in production.

According to the National Bureau of Statistics (NBS), China’s Crude Steel output fell 4.6 percent in July 2015 from July 2014

China: From market crash to price cuts and beyond

and down 4.5 percent from June 2015 to 65.84 million tons (mt).

Average daily crude steel output dropped 7.58 percent from June 2015 to 2.12 mt in July 2015, as producers cut output in the wake of falling prices and the government’s request to reduce pollutions.

Over January-July, total crude steel output posted a drop of 1.8 percent on year-to-year basis to 476.04 mt. Meanwhile, total output of steel products rose 1.5 percent from the previous year to 650.91 million tons during the same period, while that of pig iron decreased 2.8 percent on year to 414.27 million tonnes, data showed.

In July 2015, China produced 92.3 mt of steel products, down 1.9 percent on a year-to-year basis and down 6.2 percent on month-to-month; while output from pig iron fell 4.8 percent on a year-to-year basis and down 2.9 percent from June to 57.33 mt.

According to China Iron and Steel Association (CISA) statistics, China’s key steel producers produced 1.6 mt of crude steel on average each day in July 21-31, down 2.7 percent from July 11-20.

Data showed stocks in key steel mills stood at 15.12 mt by July 31, falling 9.12 percent from July 20 and down 7.66 percent from the month before.

In addition, key steel mills’ daily output of pig iron reached 1.6 mt during the same period, dipping 1.65 percent from June. Industry insiders said steel products price bottomed out in late July, which may lead to an increase of profit margins for steel mills. In August, key steel mills might find it hard to see any sharp drop in crude steel output.

Immediate effect of devaluation on steelSteel is one of the very first sectors where impact of devaluation was first felt. As the yuan got cheaper compared to the dollar, Chinese steel makers plunged to utilise the situation by slashing the price.

In fact, devaluation would act as a double edged sword for Beijing. On the one hand, a weaker yuan would make foreign goods dearer in China. It would make Chinese export cheaper in the global market. In fact suspicion is that Beijing’s surprise move to devalue its currency gives the country’s exporters leeway to cut prices.

Adding fuel to their suspicion, according

InTERnATIOnAL

“Let China sleep, for when it awakes it will move the world”

-French Emperor Louis Bonaparte

Tear

alo

ng th

e do

tted

line

Tear

alo

ng th

e do

tted

line

Steel Insights, September 201578

steel insights, september 2015

Documents