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EDITORIAL Dear readers, Many major events rocked the Indian economy in the last few days. Significant among them is the sustained fall of the rupee on dollar demand from importers. After crossing the 60-mark, the rupee is not far from its life’s low of 60.76 reached on June 26. Markets seemed to be awaiting potential measures from the government to open up more sectors to foreign investment in a bid to narrow a record high current account deficit that has now helped send the rupee to consecutive weekly fall. Analysts feel the government and central bank will be forced to unveil new steps if the rupee does not stop its slide. An overseas bond issue targeted at non-resident Indians is one of the options the government has, while the central bank can again open a dollar window for oil refiners to take a big chunk of dollar demand out of the market. But whatever is required needs to be done swiftly. Back to the steel market, the rupee depreciation helped hot rolled coil makers go for a 2-3 per cent price hike in July. However, the slow market conditions posed a question as to whether they would be able to sustain the price hike or revert to offering discounts. Meanwhile, the iron ore miners are up in arms after a government panel proposed an increase in mining royalty rates by as much as 50 percent. This will make the royalty rates 15 percent ad valorem from 10 percent. In a note of dissent, iron ore industry body Federation of Indian Mineral Industries (Fimi) called for a downward revision of the rates to 7.5 percent ad valorem. Fimi argued that higher royalty rates would result in lesser revenues for states as mining of marginal grade material would become unviable and lessees would be forced to mine higher grades. Now it needs to be seen what the government decides finally. Meanwhile, the industry feels that the normal monsoons and resultant good harvest would lead to some buying support for steel from rural areas in the September-October period. Amidst this, Steel Minister Beni Prasad Verma announced that India’s steel capacity has gone up 36 percent to 90 million tons a year between 2009 and 2012. This higher capacity is a cause of concern as it would result in higher inventories during times of sluggish demand. However, there is a silver lining as the per capita steel consumption in the country has risen marginally to 60 kg in 2011-12. Coming back to Steel Insights, in the current edition, we have tried to analyse how Essar Steel has geared up to meet sluggish market conditions with cost competitive measures. The issue shows how the company, with strong backward integration in place, plans to stress on value-added products for growth in tough times. The edition also delves in detail into SAIL’s modernisation and expansion plans and whether the expansion would benefit the maharatna company in the long run.
Disclaimer: This document is for information purpose only. Certain information herein has been acquired from various external sources believed to be reliable. While we have taken reasonable care to compile this report, we in no way assume any responsibility for any error or discrepancy in regards to information contained herein. Readers are requested to make appropriate judgment without any prejudice or compulsion.
(Rakesh Dubey) Steel Insights, July 2013
Contents 3 5 India’s steel capacity up 36% at 90 mt 36 Demand pick up can happen if liquidity is infused: JSW 37 Afisco aims to complete Hajigak prospecting in 18 months 38 Steel consuming sectors show dismal growth 40 Auto sector in grip of slowdown, waits for Q3 41 Q3 coking coal contracts with Japan steel maker down 15.69% 42 Sporadic activity mark ferro alloy trade in July 43 Govt takes steps to clean up realty sector, tax SEZs 44 Danieli Automation launches QDrive in Kolkata & Ranchi 45 Tata Steel completes upgrade of UK automotive coating line 46 New Usha Martin pellet plant to hike furnace yield by 2% 47 NMDC net profit declines 13% 48 Mjunction coal conference delves into key issues 49 Rupee fall may not be all bad for steel sector 50 Traffic handling by major ports down 2.74% in April-May 51 Railways coal handling up 1.9% in May 52 Macroeconomic indicators of India 53 Global crude steel production up 3.09% m-o-m in May 54 Domestic long & flat markets 55 Domestic raw materials 56 Price data
4 Steel Insights, July 2013
6 | Cover Story
Focused approach may boost Essar growth in tough times
18 | Interview
Essar adopting three-pronged approach of capacity utilization, value maximization and cost reduction for growth
Capacity addition in FY14 to put pressure on margins Domestic steel production is expected to be around 110-115 mt by the end of 12th Plan: Alok Gupta
22 | SPECIAL FEATURE
Smooth SAILing into the future? Diversified product basket, access to resource, integrated ops & distribution to give edge post expansion
28 | SPECIAL Feature Bengal foundry players keen to don a new look
Foundry makers, back from Japan visit, plan to emulate best practices of units in that country
30 | SPECIAL Feature
Royalty hike to impact miners, end users Iron ore miners say royalty hike to have adverse impact, demands slashing of rates
luggish demand and financial uncertainty have put the world steel industry in a difficult spot. Volatility in prices across the steel value chain and oversupply have dented industry profits. In this scenario, India could not be an exception. The fourth quarter results of 2012-13 are a testimony to the contracted margins of steel mills. This has resulted in investors pulling the selling trigger in once bluechip firms like
Steel Authority of India Limited (SAIL) and Tata Steel. Adding to the woes of the industry, steel consumption in India, the worldâ€™s thirdlargest user, grew at the slowest rate in four years as a faltering economy and lack of spending on cars and infrastructure projects eroded demand. Steel use in the year ended March 31 is estimated to have risen 3.3 percent to 73.3 million tons (mt) from a year earlier,
according to data published on the steel ministryâ€™s joint plant committee website. Production rose 2.5 percent to 77.6 mt. Steel demand growth was less than half of the Indian governmentâ€™s eight percent estimate as home and car buyers delayed purchases. The economy grew five percent in the year ended March, the slowest pace since 2003. Car sales fell for the first time in a decade, prompting producers to cut costs.
Focused approach may boost Essar growth in tough times Tamajit Pain
6 Steel Insights, July 2013
Tear along the dotted line
Tear along the dotted line
66 Steel Insights, July 2013