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Contents 21 FM presents rural focused Union Budget for FY19 23 Budget 2018-19: Impact on Indian steel industry 25 Economic Survey: Steel exports surge 53% on govt measures in Apr-Dec, 2017 28 India’s crude steel production rises 6.2% to 101.4 mt in 2017 29 Coking coal offers plummet in January 30 Motown kick-starts 2018 on a high note 32 Budget disappoints luxury car makers 33 Realty sector hails Budget push for affordable housing 34 Mining industry to be optimistic in 2018 35 Global crude steel output up 1.31% in Dec m-o-m 36 Traffic handled by major ports up 3.6% in Apr-Dec 37 Railways’ December iron ore handling down 6% y-o-y 38 Tata Steel commissions SLS plant for GCP slurry 39 Phoenix aims at tech intense market 40 SAIL’s Bhilai plant blows in new BF 41 JSW Steel Q3 profit more than doubles to `1,774 crore 42 Vedanta reports flat growth in profit at `2,173 crore in Q3 43 Tata Metaliks Q3 net profit surges 44 Tasra sets SAIL 47 India should increase steel exports to 6-7%: Minister 48 Could Davos show glimmer of hope? 51 Price data 52 Ferro alloys data

4 Steel Insights, February 2018

6  |  COVER STORY

2018 likely to be better calendar year for steel

19  |  COVER STORY

2018 would give more benefits to the steel industry in terms of demand, costs of production, market realisation and exports.

‘Further price improvements should see better Q4 for steel cos’ “Steel companies’ operating performances are gradually limping up, backed mainly by rising steel prices.”

26  |  FEATURE

Steel industry stresses on shortage of iron ore availability Shortages arise after Odisha suspends operations of 7 mines owing to payment issues.

27  |  FEATURE

Stainless steel industry demands ignored in Budget: ISSDA Govt decision to continue with import duty on ferro-nickel and stainless steel scrap will act as deterrent for the domestic industry.

49  |  INTERVIEW

‘Procurement strategy key for stainless steel sector growth’ Procurement planning is key as most stainless steel raw material is imported, domestic players remain under margin pressure.


Cover Story

2018 likely to be better calendar year for steel Operating performance of major steel cos see upward movement Madhumita Mookerji & Tamajit Pain

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s we assess how 2018 would shape up for the steel industry, it is generally believed that this year would give more benefits to the steel industry in terms of demand, costs of production, market realisation and exports than what was experienced in the previous year. The global prices of iron ore, Australian premium coking coal and scrap prices are expected to settle lower, implying that there is likely to be a minor downward trend in costs of steel production. The Chinese economy has been slated to grow at 6.6 percent and India’s GDP is expected to move up by 7.4 percent in 2018 as compared to 6.7 percent in the previous year. Europe and the US have been projected to grow by 2.2 percent and 2.4 percent, respectively in 2018. The positive growth scenario in these two major markets in the current year would provide comfort for Indian exports in these traditional destinations. It appears that the excess capacity syndrome in the global steel industry would pose a lesser adverse impact in 2018. China has been

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Cover Story successful in closing down the induction furnace (IF) capacity to the extent of 40 million ton and eliminating additional steelmaking capacity by 30-35 million tons over the last two years as part of closing down nearly 150 mt of steel capacity by 2020. A favourable market scenario of the global steel industry is likely to give India a good platform to maximise exports and a much lesser threat of cheap imports in 2018. It is possible to enhance the export share of finished steel production. The individual exporters must earmark a higher tonnage for steel exports in the current year by diversifying the export destinations to Africa, West Asia and South East Asian countries. The current applicable AD on imports of HR, plates, CR, wire rods and coated products would eliminate the threat of cheap imports. The recently formed Global Steel Forum has acknowledged India’s capacity expansion of steel as a function of growing consumption in the domestic market. Higher consumption is crucially dependent on infrastructure investment from public and private sources in port-led and rail and road-led development. More spending by the household and the government in real estate, affordable housing and smart cities, would enable demand to grow by a minimum 7-8 percent from the current level of 5.2 percent. A brighter market demand would make India’s crude steel production grow by a minimum 8 percent to reach around 108 mt by 2018 to enable it to occupy the second position in global steel production. The NCLT resolution during the year would also enable the Indian steel industry to achieve a higher capacity utilisation in crude steel production by the second half of 2018. Performance of steel mills point to better fiscal

The Indian iron and steel sector, which accounts for 24 percent of the total gross non-performing assets (GNPA) in basic metal and metal products category for public sector banks, had been going through troubling times. However, the industry, which, as per the National Steel Policy, 2017, contributes around 2 percent to the country’s Gross Domestic Product (GDP), has been seeing a gradual improvement in the sense that the operating performances of the steel companies have been showing an upward momentum.

“With further improvement in prices, we expect the third quarter (Q3) to be better than Q2. And this is evident, so far, based on what we see from the reported performance of the few smaller steel companies. Further improvement can be expected in Q4,” Goutam Chakraborty, Assistant Vice President, Institutional Research, Emkay Global Financial Services Ltd, told Steel Insights. He adds: “Production and sales volume of the bigger companies have been improving over the last few quarters. This can be attributed to higher exports by these companies and also, to some extent, disruptions and lesser competitiveness of the smaller players. All the bigger companies have increased their capacities and are in the process of ramping up their production levels. Exports have been playing a major role in this, as domestic demand is yet to see any meaningful pick-up. For instance, Tata Steel’s standalone operations saw a 3-fold increase in profitability when compared to the same quarter in the previous year. JSW Steel also witnessed around 30 percent year-over-year jump in its standalone profitability. The Steel Authority of India (SAIL), though the public sector unit (PSU) continued to make a loss, made an operating profit for the first time since the second quarter of financial year 2016-17 (Q2FY17). “The above pointers can be attributed to stronger steel prices, stable raw material prices, especially coking coal prices,” Chakraborty, said, adding that due to higher sales volumes, operating leverage also played an important role so far as improvement in profitability was concerned. Experts say, it is mainly the focus on enriching the product mix and value-added and special products and increase in export

sales that have increased the top-lines of the steel companies. SAIL, for instance, is focusing predominantly on value-added products and looking forward to offering an array of differentiated and quality products in the market while focusing on value along with volume. During interaction with employees at SAIL’s Durgapur Steel Plant (DSP), SAIL Chairman P K Singh had said, “In the prevailing stiff market competition, value-addition to our products and processes, along with tailoring the product quality and attributes in line with market demands, rather than producing only volume, can be a game changer for us.” He had added that the state-of-the-art 1 million ton per annum (mtpa) capacity medium structural mill (MSM) installed at DSP is capable of producing world-class structural steel products which have a high demand for various on-going and upcoming infrastructure and construction projects in India. Singh also added that with Railways switchover to LHB coaches in a phased manner in the next few years, wheels for such railway coaches are in advanced stages of validation at DSP and the metallurgical testing of the wheels has already been completed. India’s steel demand growth improved in the third quarter of fiscal 2017-18 (3QFY2018) – largely due to the base effect. However, steel consumption is expected to grow strong on the back of the government’s push for infrastructure spending and strengthening consumer demand. While steel imports into the country have moderated in recent months, YTD import of flat products increased by 16 percent y-o-y. Imports stood at 6.097 mt during April - December 2017, a growth of 11 percent

India’s production of crude steel has been creeping up year-on-year. In fact, the output during April-December, 2017 was at 75.642 mt, a growth of 4.8 percent compared to April-December, 2016 while year-on-year, the output was at 8.796 mt, a growth of 4.9 percent compared to December 2016 and a growth of 4.4 percent month-onmonth, compared to November 2017. SAIL, RINL, Tata Steel, Essar, JSW Steel and Jindal Steel & Power (JSPL) produced 5.146 mt during this period, which was a growth of 6.3 percent compared to December 2016 and a growth of 5.6 percent compared to November 2017.

Steel Insights, February 2018

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Cover Story

‘Further price improvements should see better Q4 for steel cos’

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he steel companies’ operating performances are gradually limping up, backed mainly by rising steel prices, coupled with stable raw material and increased global prices. With higher GDP projection pointers in the Economic Survey, and bolstered by policy support, it is expected that steel demand growth should also improve gradually. The MIP withdrawal impact was not felt too much because of the support received from the anti-dumping duty (ADD), Goutam Chakraborty, AVP, Institutional Research, Emkay Global Financial Services Ltd, tells Madhumita Mookerji. He adds that the absence of China from most of the markets helped Indian producers to export more. Excerpts from an interview:

How has the performance of the steel sector been in terms of results up till the last quarter? And what about the third quarter in particular, as well? There has been a gradual improvement in the operating performance of the steel companies. This can be attributed to stronger steel prices, stable raw material prices, especially coking coal prices. Due to higher sales volume, operating leverage also played an important role as far as improvement in profitability is concerned. Tata Steel’s standalone operations saw a 3-fold increase in profitability when compared to the same quarter in the previous year. JSW Steel also witnessed around 30 percent year-over-year jump in its standalone profitability. SAIL, though the public sector unit (PSU) continued to make a loss, made an operating profit for the first time since the second quarter of financial year 2016-17 (Q2FY17). With further improvement in prices,

we expect the third quarter (Q3) to be better than Q2. And this is evident, so far, based on what we see from the reported performance of the few smaller steel companies. Further improvement can be expected in Q4.

competitiveness of the smaller players. All the bigger companies have increased their capacities and are in the process of ramping up their production levels. Exports have been playing a major role in this, as domestic demand is yet to see any meaningful pick-up.

How have the big 5 fared in terms of production, sales and consumption from an analyst’s perspective?

While capacity building has been on track, steel consumption is a problem. How does one tackle that, because if there is low consumption, no amount of production efficiency will help?

Production and sales volume of the bigger companies have been improving over the last few quarters. This can be attributed to higher exports by these companies and also, to some extent, disruptions and lesser

This has been challenging for the industry. The steel consumption growth rate has been hovering at around a mere 3-4 percent.

The steel consumption growth rate has been hovering at around a mere 3-4 percent. However, the scope for demand growth is huge. India, being a developing country, it requires a lot of infrastructure build-up.

Steel Insights, February 2018

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FEATURE

Steel industry stresses on shortage of iron ore availability

Steel Insights Bureau

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ndia’s steel industry has started stressing on possible shortage of ironore availability after Odisha suspended operations of seven iron ore mines owing to leaseholders failing to pay penalties, industry sources said. Steel makers are also complaining of high prices of domestic iron ore, sources said. Various steel producers, including blast furnace operators without captive iron-ore mines as well as direct reduction induction (DRI) furnace operators, have demanded that the country’s largest iron-ore producer, government-owned NMDC Limited, roll back hikes in January prices. The steel producers claim that the miner had effected an increase in prices even as a bull run in international prices was fizzling out and on a downward curve, as per current month trends. While domestic miners, including NMDC, claim that their domestic price was based on the import parity of iron-ore, neither various industry segments nor the government have any reference point to estimate price movement in either direction

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in the absence of any standardized benchmark price set by the government. The Mines Ministry has appointed a committee to evolve a benchmark price for domestic iron-ore, but differences between miners and steel producers over an acceptable methodology to evolve such a benchmark are proving to be a major hurdle in framing a price model that would be acceptable to all segments of the industry, sources said. The Ministry-appointed committee had only two bases for working out a benchmark – an import parity price or an export parity price, but both the options were being opposed by the conflicting interests of various segments of the industry. A section of steel companies in their representation have pointed out that logistics and handling costs form a significant part of raw material costs and vary vastly based on the distance of plant location from the ironore source. Hence, an import parity price base would not be relevant as it would deprive domestic steelmaking of the benefit of the country’s vast iron-ore resource. Instead, steel producers want a benchmark based on an export parity price, considering that overseas shipments are at least 10-15 percent lower than the domestic price of iron-ore.

However, miners are not willing to link the export price to the domestic price of the raw material, pointing out that India’s predominant export shipments are of medium- and low-grade iron-ore fines that are not accepted by local steel mills at their current level of technology. The prices would not be comparable. The need to find an acceptable domestic benchmark price has become all the more urgent in view of high volatility in international prices and a projected fall in domestic production in the current financial year, resulting in a push to prices and issues of volume availability for local steel mills. Meanwhile, NMDC has kept the prices of iron ore unchanged in February 2018 as compared to that of January 2018. Prices of lump ore stood at `3,100 per ton and that of fines at `2,760 per ton. In 2017-18, Indian iron-ore production is estimated to be lower than the 194-million tons produced in the previous financial year, though the extent of the shortfall in volume is yet to be fixed by the government. The expected fall in the current year’s iron-ore production comes after a registered growth in production over the past two consecutive years. Iron ore production in the country is projected to fall 15 percent in FY18. The shunting out of operations of seven working iron ore leases in Odisha on January 1 this year will impact production as their combined annual capacity is 20 million tons per annum. The revision in annual cap in Karnataka will only lead to marginal enhancement in iron ore production in that state. Last month, the Supreme Court enhanced the cap on iron ore mining in Karnataka from 30 to 30 million tons a year. The last time the country’s iron ore production slumped was in 2014-15 when it fell 15 percent to 129 million tons, from 152 million tons in 2013-14. But since 2014-15, iron ore production has been expanding. Data by the Union mines ministry shows the country’s iron ore output stood at 108 million tons at the end of October, 2017. Odisha till December end, produced 78 million tons almost the same run rate as in the previous fiscal but output is likely to show a downtrend in January-March quarter on mines closure. Odisha has an approved EC (environment clearance) limit of 120 million tons for its working iron ore mines. 


Interview

‘Procurement strategy key for stainless steel sector growth’

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tainless steel consumption in India is growing at 7 - 9 percent annually since the last one decade as the country has now graduated as one of the top three consumers and producers in the world. Since most of the raw material is imported, domestic players remain under margin pressure. In such a situation, procurement planning and strategy will play a key role for meeting the increased requirement of raw materials which constitute around 70 percent of the total cost of production, said R Ganesh, Director - Sourcing, Jindal Stainless Limited in a freewheeling interview to Ritwik Sinha.

What is the current cost impact of importing ferro-nickel and stainless steel scrap? Ferro Nickel (Fe Ni) and stainless steel scrap are two key raw materials used in manufacturing stainless steel. Almost 100 percent industry requirement for both these raw materials is met through imports alone as domestic availability is scarce. The pricing of Fe Ni and stainless steel scrap is completely dependent on the supplydemand scenario of Nickel in the market.

The pricing of both these inputs is also determined by the prevailing market prices of chromium (Cr) and mild steel scrap (MS Scrap). Broadly speaking, Nickel prices regulate the pricing of Fe Ni and stainless steel scrap. There is a scope of discount on Nickel at times but it varies according to market dynamics. There is 8-9 percent discount on Nickel as suggested by last few months trend. Moreover, there is a cost impact of 2.5 percent import duty on Fe Ni and stainless steel scrap which adds to the input cost.

Which are the countries from where ferronickel and stainless steel scrap are imported? What is the annual requirement? Domestic Fe Ni requirement is completely met through imports as it is not available locally. However, stainless steel scrap is available in very limited quantity and not sufficient to meet the demand of stainless steel industry. Both the raw materials are sourced from all over the world like US, Europe, Middle East, South East and Far East, etc. The import requirement is not

Steel Insights, February 2018

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Tear along the dotted line

Tear along the dotted line

Steel Insights, February 2018  

Steeling a glance at 2018 Operating performances of major steel companies pointer to a better year Also read: · Cover interview: ‘Further...

Steel Insights, February 2018  

Steeling a glance at 2018 Operating performances of major steel companies pointer to a better year Also read: · Cover interview: ‘Further...

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