Tear along the dotted line
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EDITORIAL Dear Readers, The wait for the union budget 2013-14 is over. As expected, Finance Minister P Chidambaram walked a tight rope to strike a balance between the high fiscal deficit and low economic growth. Being the last full budget before parliamentary elections in 2014 the measures taken were largely on expected lines. However, there was nothing much for the steel sector to cheer about, except for the fillip given to boost demand from the housing and infrastructure sectors. Sponge iron makers were left in the lurch. The sector is hit hard by iron ore shortage, scrap imports and low capacity utilisation and had sought 5 percent import duty and zero duty on import of iron ore and pellets. But the plea was left unheard. Moreover, an increase in import duty on thermal coal and hike in railway freight will certainly escalate the cost of electricity thereby shrinking the margins of secondary players in India. A notable development was the elimination of 7.5 percent export tax on HDG. With depreciated rupee and export tax exemption, steel mills are now expected to increase export to Europe, Middle East, Africa and CIS. Idle capacity in the value added segment will be utilised to earn foreign exchange. Meanwhile, steel consumption in India has been dismal in the current financial year. According to the steel ministry, in AprilJanuary 2012-13, real consumption grew only 4.1 percent. The total production of steel in the same period was up by a modest 4.4 percent. Apart from the subdued demand, steel makers are also reeling from shortage of iron ore in the country. Many steel makers, such as JSW Steel, are importing iron ore for their subsidiaries. Essar Steel too is known to have imported certain quantities of ore in recent months. However, despite the low demand conditions prevailing in the market, Steel Authority of India Ltd (SAIL) and Naveen Jindal-led Jindal Steel and Power Ltd (JSPL) have hiked steel prices, citing a rise in coking coal prices internationally by up to $20 (around Rs 1,100) per ton. JSPL has hiked steel prices by Rs 1,000 per ton, while SAIL, the country’s largest steel maker, has increased prices by up to Rs 500 per ton for March. Interestingly, the price rise comes at a time when NMDC Ltd has cut prices of iron ore lumps for March by 2.2 percent. Other steel makers have not yet made up their minds on revising prices. A spokesperson of Essar Steel Ltd said the company hadn’t tinkered with prices this month, but the prices might vary depending on the freight rates. Railway Minister Pawan Kumar Bansal, in the Railway Budget presented on February 26, proposed a raise in freight charges by 5 per cent for the next financial year. In view of the prevailing market scenario, we at Steel Insights tried to find out in the current issue whether India needs a re-orientation of its strategies and to focus on demand creation rather than jump in for “mindless” capacity expansion as projected in the draft steel policy. The edition also delves into a series on why the days of cheap iron ore are over for India. Happy reading!
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, March 2013
6 | Cover Story
36 Steel production to cross 120 mt at best by 2016-17: Gujarat NRE Coke
Steel Policy to make sense only with social development
38 Coking coal prices maintain firm bias in Feb
Capacity expansion will be valid if demand for steel picks up.
39 Consuming sectors contract in low growth period 41 Auto industry peeved over SUV tax, fears decline in growth 43 Union Budget fails to cheer steel sector 45 Investment based on PPP model gains ground in CII Infra East
26 | SPECIAL FEATURE The days of cheap iron ore are over
The first of a series of articles on the sector as India struggles with the mining ban.
34 | INTERVIEW
47 SAIL plans capex of Rs 13,000 crore in FY14
I fail to understand why KIOCL was not considered for mine allocation
49 SAIL posts 23% drop in Q3 profit 50 Tata Steel’s consolidated Q3 net loss widens
CMD Malay Chatterjee hopes the authorities will wake up to the company’s need.
51 KBL inaugurates ARC facility at Jamshedpur 52 JSW Steel’s consolidated net loss widens 53 Metal cos show mixed results in Q3 54 Iron ore handling by major ports down 54.68% in April-January 55 Railways iron ore handling up 6% m-o-m in January 56 Macroeconomic indicators of India 57 Global crude steel production up 2.8% m-o-m in Jan 58 Domestic flat & long markets 59 Domestic raw materials 60 Price data 62 Production data 63 Ferro alloy price trend 64 Iron ore data
4 Steel Insights, March 2013
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ndia has come up with a draft National Steel Policy in February. The policy, which has been put up for comments from the general public, will be finalised shortly by the government. However, before we do an in-depth study of the policy, we need to understand whether the ground realities of the economy and society have been taken into consideration while fixing the targets for steel, which is a social commodity. This only can help demand for steel to grow and make it feasible to achieve the tall targets fixed in the policy. India has traversed a long way in steel production. From 2 million tons (mt) of crude steel production in 1947 to around 16 mt of crude steel production in 1990
and then a quantum jump to around 74 mt of crude production in 2011-12. This means production has grown by over four times in the last 22 years against a 8 times growth in the previous 43 years. However, till now per capita consumption of steel in India is around 58 kg and real consumption of finished steel is around 71 mt in 2011-12. This clearly points to an oversupply situation. Before embarking on the next quantum leap which the draft steel policy envisages, we need to introspect whether this â€œmindlessâ€? capacity expansion is at all necessary or sustainable. And for that, we need to examine how the economy or consumption pattern of the country is behaving.
to make sense only with social development Tamajit Pain
6 Steel Insights, March 2013
Cover Story Economy stagnant
Like in the global scenario, the Indian economy is also showing its grim face. The real GDP in the third quarter of 2012-13 grew by 4.5 percent, decelerating from 5.3 percent growth in the second quarter and 6 percent growth in the corresponding quarter of the previous year. The industrial sector slightly rebounded to 3.3 percent during the quarter from 2.7 percent in the second quarter of 2012-13 and 2.6 percent in the corresponding quarter of the previous year. The manufacturing sector alone contributes more than 50 percent to industrial growth and it reported a 2.5 percent growth, higher than the marginal 0.8 percent growth in the previous quarter and 0.7 percent growth in the corresponding quarter of the previous year. This shows that the industrial sector, which is the main consumer of steel products, is showing a stagnant growth. A quick look at GDP growth estimates in 2013-14 show it is expected to grow at 5.7 percent, the mean of the growth estimates by CSO at 5 percent, RBI at 5.5 percent and economic survey at optimistic level of 6.1 percent. Whatever may be the growth estimates, a recovery in growth crucially rests on drivers such as incentivising investments, a pick-up in consumption and exports, removing structural supply-side bottlenecks etc. A deeper study of steel consuming sectors also reflects erosion of consumer demand in the recent times. The automobile sector, a major consumer of flat steel products, shows that the industry is suffering its steepest decline in sales. “The market is depressed. There is a drop in enquiries with lower rate of conversions to purchase. The increase in fuel prices negatively impacted the already low market sentiments. We expect the challenge to continue in the next quarter following these moves in the Budget,” an industry insider said. The construction and infrastructure sector is exhibiting slow growth even as Finance Minister P. Chidambaram in his recent Budget announced a number of steps to boost growth, including setting up two new ports and creation of two new industrial corridors and seven new smart cities. Industry data shows industrial and
8 Steel Insights, March 2013
infrastructural projects worth `1.8 trillion have already been commissioned during 2012-13 and 1,700 pending projects are scheduled to get commissioned in industries like steel, gas transportation, power generation and distribution, in Q4. But increasingly it’s becoming difficult to operate ports and airports profitably and increase in usage charges for better and profitable operation of the infrastructure is being met with severe criticism and opposition. Also, it’s becoming difficult for mall owners to sell space and occupancy rates were precarious. The toll roads and highways sector is also reeling under this pressure and there are no takers for new projects. The capacity addition in this fiscal has fallen drastically and a number of players such as GMR and GVK have exited the sector. The government is attracting road builders by offering to invest 100 percent of the project costs and offering these projects on an EPC mode. The capital goods sector is showing a negative growth rate of (-) 0.9 percent in December 2012 over December 2011. Data shows that three of the five key steel consuming capital goods subsector, have shown de-growth over the past nine months and import of capital goods has increased in December 2012 over December 2011. Analysts feel the slowdown in the sector will continue till investment sentiments improve. Similarly, the consumer durables sector contracted by 8.2 percent in December 2012 compared to December 2011, due to the high base effect. The consumer demand has fallen drastically in the post-festive season and this has affected the production levels due to the inventory pileup at the selling points. The white goods sector have also slowed down in the last few months, though the high sales during the festive season and the low base effect has helped the year to date figures to remain in the green. Steel for whom?
The basic question then becomes who are we making the steel for. For making 1 ton of steel, 5 tons of water and 4 tons of raw material is required apart from power and transportation costs. Typically, it costs around `4,000 crore to set up a steel plant of 1-million-ton capacity. Therefore, before fixing the targets
and policy for capacity expansion it has to be figured out whether it is sustainable or whether there is demand for the material for which capacity is being created. Thus the new steel policy needs to include the whole society into its plans. Only then can steel demand move up and only then would it make sense to jump into the capacity creation bandwagon. There should be efforts to provide affordable housing to all. Cost of housing relative to per capita income is extremely high in India. There should be work on the effectiveness of its programs to deliver water, food, sanitation and healthcare. Surprisingly, this will spur demand for steel more than anything else. If quality of life improves, people will have aspirations. Right now it is a struggle to survive. India has amongst the lowest daily food calorie intake. This segment of population is destitute and will not contribute to steel demand. It is more likely to contribute to resistance to private and public sector acquiring mineral rich resources for commercial exploitation. SWOT analysis
Now we need to take a close look at the draft policy and see whether SWOT analysis and policy goals taken are in tandem to create steel demand in line with the capacity expansion projections taken for the purpose. The need to come up with a policy on steel, which is extensively used in strategic areas such as defence, power, atomic energy, and in creation of social and economic infrastructure of the country, was felt as it was viewed by the government that the earlier policy formulated in 2005 was outdated and even though steel is a freely traded commodity, large scale dependence of India on imported steel may make the economy vulnerable to uncertainty in global supply, export policies of different countries and volatility in international prices. A major concern in the last few years has been the slow pace of capacity build-up, especially through investments in greenfield sites due to supply-side bottlenecks in areas such as acquisition of land, grant of environmental and forest clearances, availability of raw material linkages and other infrastructure related supports needed by the sector.
Weaknesses Uncertainties with regard to future availability of iron ore due to environmental, legal and social challenges in addition to potential exhaustion risks due to excessive exports. A significant portion of the steel industry continues with obsolete technologies and produces poor quality steel, generates high level of pollution and CO2 emissions. Socio-economic costs of continuation or of closure can be very high. Higher transport costs, being one of the highest in the world, has the potential to rob the domestic industry of vital competitive strength. Inadequate availability of land in right size at the right place. Very slow implementation of the projects due to variety of problems including delays in land acquisition. Inadequate efforts to develop necessary R&D base within the steel industry. High dependence on imported coal due to low quality of domestic coking coal. Lack of Indigenous capability to design and manufacture iron/steel equipment leading to high capital cost Slow progress in acquiring and developing overseas mineral assets High level of litigations especially related to grant of mineral assets and environmental clearances. Strengths Easy availability of iron ore for short and medium terms. Low wage rates in India in global comparison. Potential availability of manpower with requisite technical & managerial skills. New plants, technology and production efficiency approaching international benchmarks. Higher efficiency gains expected from the existing integrated steel plants, currently undergoing modernisation and expansion of capacity. Strong legal institutions and administrative framework to support competition within the industry to maximise consumer interests. A resilient domestic economy with potential of sustained growth in domestic steel demand. Opportunities Strongly expanding economy with a low steel consumption base, a large and growing young population with the prospect of raising steel consumption base, backlog of investment in infrastructure ready to be cleared by visionary government spending and potential expansion of the industrial base to raise steel consumption base in the country. Opportunities in rural markets are likely to increase significantly due to rising rural incomes, development plans of the government with focus in housing and construction of rural infrastructure such as bridges, etc. to support a stronger rural steel consumption base. Significant scope of reducing costs by improving efficiency levels More clarity on important policy issues such as land acquisition, grant of mineral assets likely to emerge on enactment of related bills. Further, the qualitative performance of the steel industry measured in terms of techno-economic parameters of efficiency and productivity has been much below expectation. It is also being felt that environment and local communities have had
10 Steel Insights, March 2013
Threats Fear of the new steel plants losing competitiveness due to high costs of land, labour, capital and higher provisions for protection of environment, CSR and increases in costs towards use of infrastructure such as power, railways, roads and ports. Euro-zone financial crisis and slowdown in other developed world may continue longer than expected. Slowdown in China may lead to oversupply, dumping of steel and depression of steel prices Social tensions and environmental concerns related with supply of water to industry likely to pose a bigger threat in future Rising trend in wage rates in the context of inadequate growth in labour productivity leading to erosion of labour cost advantage of the Indian industry. Drop in efficiency level in general in Indian manufacturing sector as a whole which may impact steel demand growth at one level and higher capital equipment costs for the industry at another.
to pay a high price for the growth of industry. In particular, the government felt that a strong policy push is required to expedite creation of greenfield steel capacity as growth in steel supply has not been keeping pace with rise in domestic demand for steel.
It was also felt that policy making should address the issues related to sustainable growth especially related to long term availability raw materials, protection of environment, inclusive growth, quality of steel products and Research & Development (R&D) with
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Cover Story greater focus. In this connection a SWOT analysis was done by the government based on which strategic goals were fixed. Strategic goals
On the basis of the SWOT analysis the major strategic goals of the National steel Policy 2012 have been fixed as follows: ♦♦ To attract investments in Indian steel sector from both domestic and foreign sources and facilitate speedy implementation of investment intentions on board so far so as to reach crude steel capacity level of 300 million tons by 2025-26 to meet the domestic demand fully. ♦♦ To ensure easy availability of vital inputs and necessary infrastructure to achieve a projected production level of 275 million tons by 2025-26. ♦♦ To provide greater focus on Research and Development (R&D) for developing indigenous technologies especially for finding solutions for optimum utilisation of indigenous resources and mitigating the concerns of environment and climate change. ♦♦ To develop indigenous capabilities of design, engineering and manufacturing of critical capital equipment required for steel production. ♦♦ To encourage production and consumption of value-added steel by Projected demand for finished steel (Million Tons)
Projected demand for finished steel 2011-12
GDP growth rate at 7% pa
GDP growth rate at 8% pa
Crude steel capacity required to sustain projected demand
Source: Draft National Steel Policy
Estimated Demand for Processed Inputs, 2011-12 to 2025-26 (Million tons)
12 Steel Insights, March 2013
providing necessary focus on availability and product development especially for (a) meeting the special requirements of rural India, b) meeting the special requirement of auto, power, construction and shipping sectors c) producing lighter but stronger steels which help in achieving higher energy efficiency in end applications and also help in mitigating the concerns on environment, climate change and human health. ♦♦ To foster competition at the market place, discourage cartelisation and encourage production of quality steel for maximisation of consumer welfare and for protecting the interests of common man and while simultaneously protecting the producers against unfair practices of domestic and overseas competitors. ♦♦ To ensure sustainable development of the industry with minimum possible displacement of local people and loss of their livelihoods and with minimum damage to the environment by adopting best practices in the production processes and ensuring adoption of people and environment friendly practices by the investors. ♦♦ To become globally competitive by achieving efficiency levels at par with the global bests especially in areas such as energy consumption, material efficiency, quality of steel, water consumption, productivity of major iron/ steel making equipment, pollution levels and CO2 emissions. Demand projections
The basic assumptions of the steel demand forecast adopted by the National Steel Policy are as follows: ♦♦ GDP growth is sustained around 7 to 8 percent per annum with perceptible improvements in basic structural strength of the economy so that the projected growth rates can be sustained over a long term. Projections made here, however, assume that no drastic structural change of the economy will take place involving major parameters such as savings and investment. ♦♦ The projections of demand has been made on the assumption of zero trade balance in steel e.g., imports and exports of steel balance out.
To overcome project implementation constraints, the government said it will consider taking the following measures: ♦♦ Introduction of a transparent and easy system for submission and tracking of status of applications for grant of resources/clearances from multiple governmental agencies through an online single e-window in consonance with national e-governance plan. ♦♦ Enhance the powers of the existing Inter-Ministerial Group (IMG) for more effective co-ordination to cut delays in project implementation resolution of conflicts. ♦♦ The New land Acquisition Act, R&R Policy of the government and new provisions of the proposed MMDR Act have already taken up the relevant issues and one expects the policy and procedural issues to have been sorted out in the near future. However, there is a need to eliminate potential conflicts arising out of the various policy documents so that transparency is brought about in every aspect of the policy framework. The government will take appropriate steps in this direction. ♦♦ There is a need for proper identification of project sites/areas to balance requirements of business, society and service providers. Many steel projects have not taken off due to conflicting interests of various stake-holders. Therefore, there is a need to create an institutional mechanism consisting of producers, project evaluators, local administration and service providers e.g. railways, NHAI, port authorities, MoEF etc. For informed decisions on site selection for faster implementation of projects. Apart from the inter-Ministerial Group (IMG) that already exists, the government will set up a new government body for the purpose involving government agencies and experts in respective fields. ♦♦ The government will appoint an appropriate agency to prepare documents highlighting the benefits of industrialisation and organise regular interactions with them to create a conducive environment for investment in steel capacity.
Cover Story Raw material requirement (million tons)
At 7% GDP Iron ore Coking coal Non-coking coal
Met coke (including captive) At 8% GDP Iron ore
PCI Met coke (including captive)
Source: Draft National Steel Policy
Demand for raw material for steel industry at 6% GDP growth rates 6% GDP growth rate Crude steel production
Merchant pig iron for sale
PCI Coking coal Non coking coal
7 138.5 49.7
Source: Draft National Steel Policy
The draft policy said India’s competitive edge in steel production derives, to a large extent, from the indigenous availability of iron ore and coal to a limited extent – the two most critical inputs of steel production. However, recent developments in India’s mining sector have given rise to uncertainties in regards to their adequate supply potential, especially of iron ore, and have brought the issue of long term raw material security for India’s burgeoning steel industry to the centrestage. Sustaining the competitive advantage for the Indian steel industry rests crucially on devising appropriate strategies to ensure uninterrupted supply of the steel-making raw materials to the Indian steel industry over the next few decades. Iron ore
The policy said the government will adopt the following measures to ensure adequate supply of iron ore to the steel industry:
14 Steel Insights, March 2013
♦♦ T here is a view that the current assessment of iron ore reserves/resources are underestimated as they have so far been based on exploration depth of only 60 metres and the Fe-cut off at 50 percent only. Future efforts, therefore, will have to be focused on exploration beyond the depth of 60 meters and bringing down making use of the iron ore with Fe content as low as that. ♦♦ To enhance the exploration and mining of iron ore, a detailed study will be undertaken involving domestic and foreign expert agencies to explore the potential of mining iron ore in the ecologically fragile areas in the country. One of the technologies that may need attention for support is underground mining which has been engaged successfully in several parts of the world. ♦♦ Support intensive R&D efforts for developing techno-economically viable technologies of beneficiation and agglomeration suitable for the mineral extracted from different iron ore regions of the country. ♦♦ Take appropriate fiscal measures, whenever deemed necessary, to encourage beneficiation and agglomeration with special emphasis on manufacture of pellets to substitute consumption of precious lump ores by steel producers and thereby add to efforts of conservation and environmental degradation caused
by accumulation of iron ore fines. The government may devise differential schemes to encourage investment in beneficiation depending on the ownership of the iron ore, such as those coming from captive mines and those bought out from the market. ♦♦ Lack of raw material security has been one of the major causes for tardy progress of steel capacity expansion projects (both green-field and brown-field) in the recent past. The government will consider to further strengthen the provisions of allocation of captive iron mines to steel producers in a transparent manner through a process of open bidding for all the well prospected mines after having earmarked potential large areas for the purpose. The government may further consider putting some of the iron ore mines in a general category open for bidding by all. Iron ore export
Given the possibility of early exhaustion of iron ore, the national policy has dwelt on the following measures: ♦♦ An Inter-Ministerial Committee will be constituted to draw up a road map for phased reduction of iron ore exports to a moderate level. While holding a general policy to discourage iron ore exports, the government will actively engage itself in granting iron ore mining concessions in
Cover Story an absolutely transparent manner to draw adequate investment into the area and to ensure finally that there is sufficient mining capacity to feed the growing demand for iron ore within the country. ♦♦ The government will incentivise beneficiation of low grade iron ore fines to ensure long term supplies of iron ore to the domestic industry and trigger adequate technology change within the industry for iron making. ♦♦ The government will engage an appropriate government agency to draw up a long term resource security and development plan for the Indian steel industry and monitor the same on a dynamics basis. Mining leases
The policy says the following measures will be taken to make available adequate iron ore resources to the proposed steel plants and thereby accelerate creation of domestic capacity to meet envisaged future demand of around 250 million tons: ♦♦ The government will remove the barriers to movement of iron ore from one state to another and develop a comprehensive federal policy in respect of allocation of iron ore mines to steel producers on captive basis. ♦♦ The government will open up all the mining leases held by the steel producers on captive basis, which are yet to be in operation and those where no investments
have so far been made, for bidding among other steel producers. While doing so, it will be ensured that the same lies in excess of the projected requirement of the respective producers for the next thirty years. Domestic coking coal
The policy proposes the following measures to enhance the reserve/resource position of coking coal in India: ♦♦ As indigenous proven resources of prime coking coals are very limited, exploration efforts have to be focused on the prime coking coal resources available beyond 300m depth to bring them to ‘Proved’ category status. Remaining resources of coking coal in other coal fields also need to be explored in detail to make them available for exploitation. ♦♦ Existing coking coal mines under CIL in operation are to be de-merged to form a separate PSU. ♦♦ Idle coking coal assets lying with CIL, to be offered for commercial exploitation to other Public Sector Units (PSUs) under suitable terms of operation and business ♦♦ Virgin coking coal assets, lying undeveloped with CIL can also be put on auction for steel companies for unrestricted use for captive consumption or merchant sales. In addition, the government will move towards phased deregulation of the coal
sector to tap its full potential. It will also provide incentives for underground coal mining through tax breaks, lower royalty and financial support to new technologies in underground mining. In order to increase availability of coal to steel producers in the short to the medium run, the government will: ♦♦ Encourage greater investment in washing and beneficiation of low grade coking coal so as to make them suitable for use in the steel sector and thereby stop their diversion to other uses. The government will also encourage dry beneficiation of coal at pithead so that the load on transport system is lowered. ♦♦ Ensure speedy implementation of the already approved Jharia Action Plan (JAP). ♦♦ Draw up long term Fuel Supply agreement (FSA) between coal companies and Sponge Iron producers and other integrated steel plants (ISPs) ♦♦ Encourage integrated steel producers to set up their own washeries and beneficiate raw coking coal procured from CIL to produce washed coal of required quality. Manganese and chromite ore
The policy says other critical raw materials for steel making of which India has sizable reserves are manganese and chromite ores. The government will further strengthen and rationalise the existing policy framework so that export of ores, especially high grade ores, is reduced keeping in view the rising consumption of the Indian steel industry. Apart from restraining exports, the government will also encourage investments in beneficiation of low grade ores through necessary incentives. The government of will encourage exploration of deep sea nodules for manganese ore. For this, the government may consider providing equity funding to the existing PSUs to set up subsidiaries to undertake these specific activities. The government will discourage export of chromite ore for conserving it for domestic value addition. Limestone
In view of very limited availability of steel grade limestone deposits in India, the government will act to ensure that steel grade limestone is wasted by supplying them to
16 Steel Insights, March 2013
Cover Story cement producers. It needs to be conserved for utilisation by steel plants only. Ferro alloys
The government may also consider allocation of coal blocks on captive basis to power plants attached to ferro alloy producing units. There is a need for government sponsored research in collaboration with industry in the area of beneficiation of low grade manganese ore for utilisation by the domestic ferro alloy industry. Refractories
Enhanced R&D efforts are required for increasing the use of indigenous inputs by developing suitable technical specifications. Transportation infrastructure - rail, road, port & slurry pipeline
In the Base Case Scenario of demand and supply, total transportation needs of the steel sector (i.e., major raw materials, finished steel and pig iron) is slated to more than double from around 325 million tons in 2011-12 to about 815 million tons in 202526. Rising share of large producers in total steel production indicates that around 70-75 percent of this will be transported by rail and the remaining by road. Railways In case of Railway system, which is facing very slow expansion of route length and fixed line capacity, congestion in main trunk routes, low capacity of rolling stock etc, the government said it will seek to: ♦♦ Create a Mineral Development Fund for building infrastructure in the mining belts; ♦♦ Bring in necessary policy changes in respect of railways and promote private
18 Steel Insights, March 2013
sector participation in specific projects involving secondary infrastructure such as dedicated railways lines connecting mines to plants; ♦♦ Prioritise funding of the projects connected with Dedicated Freight Corridor already approved. Roads Specific concerns for the steel industry in road transportation include low road density and poor quality of roads in the three ironore rich states resulting in high transaction costs due to delay and loss of materials in transit. A second source of problem is the inadequate network of state and district level roads connecting mines and plants to the National Highways, especially in the mining areas in the eastern sectors. In view of the rising importance of road network in steel related transportation, policy said efforts will be made to promote and encourage PPP mode of funding of road projects as a vital link in multi-modal transportation system, especially in relation to port and mine connectivity and distribution of steel in remote areas. Ports Assuming imports of 85 percent of coking coal, 20 percent of non-coking coal and 30 percent of scrap and imports and exports of steel at 10 percent of consumption and production by 2025-26, total steel-related port traffic is projected to increase two-fold from around 64 million tons in 2016-17 to an estimated level of 130 million tons in the Base Case. The policy recognised that as far as ports are concerned, the major problem is not inadequacy of capacity but of low productivity of operations attributed mainly to slow evacuation of cargo leading to increased transaction costs and loss of competitiveness of the Indian steel industry. The government will take specific measures in this respect, focusing on: ♦♦ Acceleration in the rate of evacuation through seamless connectivity of ports with a multimodal system of
land transportation i.e., railways and roads, under the PPP route with active collaboration amongst steel investors, the state governments and other related agencies providing transport-related services. ♦♦ Providing required assistance in building of deep draft ports so that larger vessels can be berthed and economies of scale are achieved. Slurry pipelines Alternative modes of transporting raw materials e.g., through slurry pipelines will go a long way in reducing the problems of congested transportation network in the mining areas. Such efforts also deserve encouragement and support. The government will actively support investment on slurry pipelines through appropriate fiscal incentives such as tax breaks. Coastal waterways and shipping
Given the sources of raw materials and increased dependence on imported raw materials such as coal, it is likely that more and more steel plants will be located in the coastal areas. This means there will be strong potential for coastal movement of raw materials and finished products from one place to another in the country itself. Coastal transportation can also take place partially in a multi modal system if the plants are located in the hinterland. The government will actively encourage this mode of transportation to reduce pressure on the existing railways and roadways system and create the necessary infrastructure for the same. Power
In the Base Case scenario, power required by the steel industry is estimated to increase to 16,000 MW in 2025-26 from around 8,200 MW in 2016-17. The top four steel producing states of Odisha, Jharkhand, Chhattisgarh and Karnataka are power surplus as far as generation is concerned. However, deficits in peak power and energy levels occur and are likely to continue as these states are under obligation to transfer power to other regions. For steel projects, especially the large with captive power plants, the problems will be less severe. However, dependence on grid will
Cover Story continue to be high for small and medium steel units. As power generating capacities rise in the country with mega projects under construction, the government will ensure adequate assured supply of power to the domestic industry through the national grid. The policy said government, at the same time, will constantly encourage use of energy intensive technologies in the production of steel. Water
Consumption of water by the steel industry is estimated to go up from 360 million cu. m. in 2016-17 to around 650 million cu. m. in 2025-26 in the Base Case Scenario. Total requirement of water by steel is a minute fraction of total consumption in the country i.e., steel’s share was only 0.04% in 2006-07 at 215 million cu. m. out of a total of 62900 million cu. m. Total industrial usage during that year was 5 percent. The three largest iron-ore bearing states of Odisha, Jharkhand and Chhattisgarh have large surface water sources (i.e., river basins) and also account for 10 percent of all ground water reserves in the country. Despite this, steel projects may face problems on account of low priority accorded to the industry in allocation of water. Moreover, the need for steel producers to build external infrastructure for accessing water as a result of inadequate public storage infrastructure and low public water supply also pose serious problems for the steel industry. Very often such efforts result in excessive dependence on ground water resources. To minimise the deleterious intergenerational environmental and social impacts of depletion in ground water resources and contamination of water sources by industrial effluents, efforts will be made to: ♦♦ Involve all stakeholders i.e., local community, the steel plants, the state agencies, in chalking out an optimum water sharing agreement and monitoring of the quality of water in the various water sources in the vicinity of steel units; ♦♦ Initiate water footprint mapping and rainwater harvesting in steel industry and related mining areas;
20 Steel Insights, March 2013
♦♦ F ix a system of penalty and rewards aimed at bridging the gap between international best practice norms of water use or recycling in steel plants and the Indian standard practices. Land
One of the major impediments to growth for the Indian steel industry in the past decade has come in the form of delays in acquisition of adequate ‘Land’ at the preferred locations. It is expected that the benefits of speedy transfer of land will far outweigh the extra private costs incurred on account of added social responsibility. However, as land becomes more expensive, it is expected that the plants will use this resource more efficiently and that there will be some substitution of land by capital at the margin. In a deregulated steel economy such a process will be triggered by forces of competition. However, in order to reduce requirement for land, the policy said government will encourage the industry to have vertically arranged facilities in compact designs which take significantly less land even if capital costs for such plants may be very high. Similarly, formation of steel clusters, especially for small and medium sized units/ service/steel processing centres and creation of related common infrastructure on a consortium basis will be encouraged and supported for optimising land use through scale economies. Efforts will be made to provide fiscal/financial/administrative help for such shared infrastructure in steel clusters.
Technology, R&D and environment management
The National Mission for Enhanced Energy Efficiency (NMEEE) aims at reducing the emission intensity of India‘s GDP by 2025 percent by 2020 from the 2005 level. The potential of the initiatives devised by NMEEE should be fully exploited by steel companies, especially the small and medium enterprises, if they are to survive in a stricter regulatory environment aimed at compliance with the stated goals. Ministry of Steel will facilitate the Industry in the process of utilising opportunities available under the NMEEE. Technological excellence, innovation and adoption environment friendly techniques in all stages of production from extraction of minerals to treatment of wastes – are the key to sustained growth in this sector. The major areas of concern and related strategies are as follows: ♦♦ The government in partnership with the steel companies needs to frame specific strategies towards reduction of pollution level (PM) below 0.5 kg per ton of crude steel, zero effluent (water) discharge and drastically reduce water consumption. ♦♦ Absence of a common methodology in reporting environment performance with respect to the status on resource consumption, emissions, effluent and waste recycling makes comparison of relative performance of the steel plants difficult. This calls for development of an internet based tool, which adopts a common and verifiable procedure for reporting of environment data by the steel plants.
Strategic goals Parameter/ area Specific energy consumption
Strategic goal/projection by 2025-26 4.5
T/T of C Steel
T /T of C Steel
Utilisation of BOF slag
Share of continuous cast production
CO2 emissions Material efficiency Specific make up water consumption (works excluding power plant)
BF productivity BOF productivity R&D expenditure/turnover Source: Draft National Steel Policy
No of heats / coverter/year
Cover Story ♦♦ D ocuments on best available technologies (BAT) for energy efficiency and environment protection will be made available to the industry, especially small and medium enterprises, to ensure faster progress towards the goal of sustainable development. In accordance with the worldwide trend in adoption of such technologies, the government shall encourage/mandate Indian industry to make use of the available technologies. ♦♦ Strict enforcement of existing environmental laws and a phased movement towards the international best practice norms will be followed to regulate the growth of environmentally damaging steel units. Stricter enforcement of tax laws to ensure that growth of the industry is not at the cost of environment and loss of public revenue. ♦♦ Steel plants will be encouraged to achieve the goals of zero waste generation through 100 percent recycling of wastes generated. A nation-wide policy in line with fly ash utilisation shall be formulated to make use of LD/EAF slag. ♦♦ Promote Smelting Reduction (SR) technologies which can use low grade iron ore/slimes and indigenously available noncoking coal. R&D intervention and speedy implementation of these technologies compatible with India’s indigenous resource base will be encouraged. Currently, expenditure on research and development has been quite low, varying in the range of 0.15 to 0.3 percent of turnover. The extremely low level of expenditure on R&D in the steel sector poses a grave challenge to the prospects of long term growth of this industry. The strategies proposed to promote R&D in the steel sector are: ♦♦ Leverage the government grants for R&D through public-private partnerships to achieve the strategic goal of R&D expenditure at 1.5 -2 percent of turnover. ♦♦ A few dedicated Centres of Excellence could be set up, preferably with involvement of the private sector in industrial sites to address relevant issues relating to: • Research and technology development, and product development Resource • Human Development through pursuing M.Tech, Ph.D and
22 Steel Insights, March 2013
Post Doctoral programmes for creating a talent pool for research activities. Efforts shall be made to improve linkages between laboratory-based R&D and actual industrial application. This needs to be done through extensive market driven translational research customised to the needs of the industry. The priority areas to be considered for incentivising the industry as well as for public funding of research projects will be environment management, energy efficiency and reduction in GHG emissions. Optimum utilisation of indigenously available natural resources – beneficiation, agglomeration and adoption of SR technologies Product development for strategic areas such as Defence, Space Research and Nuclear Energy Optimum utilisation of land, especially in greenfield steel plants by vertical space management, irrespective of process routes.
In the absence of good design, engineering and manufacturing facilities in the country, the steel producers have to depend on import of modern plants and facilities at phenomenal cost. It is desirable that a beginning is made in this area to avoid long term dependence on imports of equipment. Some of the viable policy options are:
♦♦ T o overcome resource constraints for creating manufacturing facilities, pooling of resources by steel companies through a MoU may be undertaken, with the government providing necessary incentives and subsidy. Revival of HEC into a modern manufacturing center may be explored as one the viable options. ♦♦ Steel companies may associate themselves with known equipment suppliers individually or as a group to promote new process development activities. Generation of key knowledge and IPRs from such collaborations will make the process easily adoptable during the commercialisation stage. ♦♦ Encourage leading global equipment manufacturers to set up their manufacturing base in India ♦♦ Shortage of professionals and experts due to perceptible decline of interest in pursuing career in metallurgical industries amongst B Techs, M Techs and PhDs is an area of concern. Education systems and corporate policies are to be tuned to facilitate and generate domain experts in every walk of steel plants to achieve higher efficiency and productivity. ♦♦ There is a need for instituting a professional body on the lines of World Steel Association, Japanese Iron & Steel Federation etc for knowledge sharing, information dissemination and evolving nationwide strategies.
Cover Story Promotion of steel consumption
The policy said that the government will encourage steel consumption, supporting R&D projects such as for product design and generic campaign in specific areas which help in addressing concerns related to environment, climate change, human health, housing for the masses and higher rural penetration for inclusive growth. Advantages of steel use in terms of sustainability, durability, amenable design and life cycle costing compared to alternate materials like plastics and wood will be made more visible and adequately propagated through sustained programs of awareness. Some of the application areas which may qualify for the special treatment are as follows: ♦♦ In specific applications where steel can substitute a competing product on the promise of greater environmental safeguards. ♦♦ Promotion of stainless steel in infrastructure such as bridges, ports etc.. in the coastal areas which are prone to severe and extreme corrosion. ♦♦ Promotion of stainless steel in railway coaches for longer life and passenger safety. ♦♦ Application of high strength steel and support to R&D for their use in automotive and appliance industries. ♦♦ Promotion of application research involving tubular frames and other pre-fabricated products for use in energy efficient highrise structures aimed at bringing in affordable housing to accommodate India’s growing urban population. ♦♦ The government will encourage use of steel in areas where it has the potential to mitigate the risks associated with natural calamities such as earthquakes. ♦♦ In promoting and providing safe packaging, in particular for food products, to replace competing toxic packaging materials and discouraging use of seconds and defective steel materials. Trade policy issues
The policy said while deciding on terms of bilateral trade agreements, care will be taken to ensure a level playing field to the Indian steel industry, especially vis-à-vis partners with mature steel industry. This will be done keeping in view the possibility of trade distortions hampering the progress of the Indian steel industry.
24 Steel Insights, March 2013
Where FTAs may lead to substantial overall gains for the economy, concerns of the steel sector may be addressed by not including steel in the list of items for preferential or free tariff regime when FTAs and PTAs involve nations with strong and competitive steel industries. The government will encourage the industry to follow an aggressive export strategy to tap the opportunities in the global market. Further the country’s steel industry will have to diversify its exports to markets such as Africa, Latin America and Asia including ASEAN member nations. Thrust on exports is also desirable to mitigate the adverse effects of current account deficits and neutralise the impact of rise in imports of coking coal on net earnings of foreign exchange by the steel industry. Policy needs orientation
Although the policy objectives are expected to take steel production to 300 million tons of crude steel by 2025-26, strategic goals and the resultant policy have missed out on ways to create steel demand. Promotion of steel consumption by supporting R&D projects such as for product design and generic campaign in specific areas which help in addressing concerns related to environment, climate change, human health, housing for the masses and higher rural penetration for inclusive growth would not provide the net results until the social cycle is taken care of. India has amongst the lowest daily food calorie intake. This segment of population is destitute and will not contribute to steel demand. It is more likely to contribute to resistance to private and public sector acquiring mineral rich resources for commercial exploitation. Project implementation will also be difficult if there continues to be strong social resistance for conversion of agricultural land to industrial land. Apart from restriction of huge exports of natural resources like iron ore and concentration of higher use of magnetite ore, it is to be ensured that mining leases fall on proper hands and production is regulated for proper use in the industry. Leave aside beneficiation of iron ore, government has to open up all the mining leases held by the steel producers on captive basis, which are yet to be in operation and those where no investments have so far been made, for bidding among other steel
producers. While doing so, it will be ensured that the same lies in excess of the projected requirement of the respective producers for the next thirty years. The proposal for de-merging of existing coking coal mines under CIL in operation to form a separate PSU has already been rejected by the Coal Ministry and CIL. So some other initiative needs to be taken in this regard. Currently the expressed investment intentions and progress of the various ongoing steel projects indicate concentration of steel capacity close to the sources of raw material i.e., in the iron ore rich states of Odisha (25 percent), Chhattisgarh (13 percent), Jharkhand (14 percent), Karnataka (9 percent) and the adjoining areas of Andhra Pradesh. Since it is expected that this geographical distribution of steel-making capacity would continue over the next 20 - 25 years, with marginal variation in the latter years as availability of steel-making scrap increases in the industrial regions of the South and the West, it is absolutely required to develop the lifestyle of people of these regions for overall growth. Setting up of compact mills because of land constraints is a welcome motion adopted in the policy. But more studies need to be undertaken on best utilisation of land and on how Posco’s plant in Pohang is built on water. As far as ports are concerned, the major problem is not inadequacy of capacity but of low productivity of operations attributed mainly to slow evacuation of cargo leading to increased transaction costs and loss of competitiveness of the Indian steel industry. The government needs to take specific measures in this respect. Industry analysts feel that steel exports can only be raised if the quality and customisation of the product is improved constantly. The policy should take steps in this endeavor. Last but not the least it needs to be properly assessed as to what would be the steel consumption levels before jumping on capacity expansion projects which require water consumption levels of 360 million cu. m. in 2016-17 and around 650 million cu. m. in 2025-26 and iron ore of over 350 million tons. Unless all these factors are taken into consideration, the National Steel Policy 2012 in its final avatar, would be a futile exercise with lopsided focus.
The days of cheap iron ore are over Beginning with the March edition, Steel Insights brings to its readers an analytical series on the iron ore sector. The readers are welcome to send in their feedback. Steel Insights may, at its discretion, publish the discussions for the benefit of a larger audience.
NMDC performance Results
Iron Ore Production (L+F)
Iron Ore Sales (L+F)
Profit before tax No. of Employees
than Essar) was interested in fines and were mainly interested in lumps. Thus other than Essar, there was never any effort to invest in beneficiation technology and pelletisation capacity. Inception of NMDC
The business of iron ore mining thus began as a loss making venture with few players like NMDC in the forefront. Incorporated in 1958 as a government of India enterprise, NMDC is under the administrative control of the Ministry of Steel, government of India. NMDC became Indiaâ€™s single largest iron ore producer, presently producing about 30 million tons (mt) of iron ore from three fully mechanised mines viz., Bailadila Deposit-14/11C, Bailadila Deposit-5, 10/11A (Chhattisgarh State) and Donimalai Iron Ore Mines (Karnataka State). Steel Insights Bureau
here was a time it was dust lying unwanted in the dumps. Now it is unadulterated treasure. That, in a nutshell, is the story of iron ore in India. If old timers in the industry are to be believed, there was a time when the going rate for iron ore was `70 per ton ex-mines and export prices hovered around $20 per ton and around $16-18 per ton ex-Goa, as recently as in the 1990s. Prime steel mills of that time were reluctant to take over captive mines as it was not their core activity to dig the ore from the earthâ€™s crust. There were instances of Ispat being offered a lease which it did not take and Tata Steel considering hiving off its mining operations as non-core. No company in India or globally was showing interest in acquiring IISCO, which had substantial captive iron ore and ultimately it came into the fold of Steel Authority of India. Also no Indian steel company (other
26 Steel Insights, March 2013
Production process of NMDC
SPECIAL feature Ten Years Performance
(Rs. in Crore)
Iron Ore (WMT) (in lakh tons)
Sponge Iron (in tons)
Iron Ore (WMT) (in lakh tons)
Sponge Iron (in tons)
Operating Statistics: Production
Financial Statistics: Income Total Income Profit Profit before depreciation, Interest & Taxes Source:NMDC
History of Bailadila
The story of NMDC is woven around the dreamy hills and the deep jungle land of Bastar in Chhattisgarh, known as Dandakaranya from the epic periods. The Bailadila iron ore range - “The hump of an ox” - in the local dialect, was remote, inaccessible and replete with wild life. The range contains 1,200 mt of high grade iron ore distributed in 14 deposits. The entire area was brought to the mainstream of civilisation by the spectacular effort of NMDC by opening-up of mines. Today, Bailadila is a name to reckon with in the world iron ore market because of its super high grade iron ore. Bailadila complex possesses the world’s best grade of hard lumpy ore having +66 percent iron content, with negligible deleterious material and the best physical and metallurgical properties needed for steel making. In the past, NMDC had developed many mines like Kiriburu, Meghataburu iron ore mines in Bihar , Khetri Copper deposit in Rajasthan, Kudremukh Iron Ore Mine in Karnataka, Phosphate deposit in Mussorie, some of which were later handed over to other companies in public sector and others became independent companies. NMDC is presently producing about 22 mt of iron ore from its Bailadila sector mines and 7 mt from Donimalai sector mines. Because of its excellent chemical and metallurgical properties, the calibrated ore from Bailadila deposits has substituted the iron ore pellets in sponge iron making and hence became an important raw material for three major gas-based sponge iron steel
28 Steel Insights, March 2013
producers like Essar Steel, Ispat industries and Vikram Ispat. In addition to these three, the entire requirement of the Visakhapatnam Steel Plant is also being met from Bailadila. The demand for steel will continue to grow in the years to come and this in turn would call for increased demand for iron ore. NMDC is gearing itself to meet the expected increase in demand by enhancing production capabilities of existing mines and opening up new mines - Deposit -11B in Bailadila sector and Kumaraswamy in Donimalai sector. The production capability would increase to around 50 million tons per annum (mtpa) by 2014-15. Besides, NMDC is also in the process of securing mining leases of the following iron ore mines (some as JVs with state governments): ♦♦ Sasangada Iron Ore Deposit, Jharkhand ♦♦ Ghatkuri Mine, Jharkhand ♦♦ Ramandurg, Karnataka ♦♦ Deposit – 13, Bailadila, Chhattisgarh ♦♦ Deposit-4, Bailadila, Chhattisgarh For value addition, NMDC is in the process of developing a 3-mtpa steel plant at Jagdalpur and two pellet plants at Donimalai (1.2 mtpa) and at Bacheli (2 mtpa). Besides, NMDC has acquired Sponge Iron India Limited with plan for expansion to produce billets.
The fortunes of the industry took a turn for the better with China starting to import from India after 2000. Chinese steel production took a quantum leap since then resulting in higher imports from India. Chinese crude steel production reached 716 mt in 2012, up from 222 mt in 2003. Industry insiders say China uses Fe ore of 27 percent content while India has never used Fe ore of less than 52 percent content. Ore that is mostly used is Fe 60 percent and above. Global scenario
Stimulated by increase in world steel production, world iron ore production which exceeded 1 billion mark in 2003, reached 1.6 billion tons in 2009. Output increased mainly in four major producing countries- Brazil, Australia, China and India. World seaborne iron ore trade increased by 11 percent in 2009 to 895 mt and expected to increase by 10 percent every
Source: Insights Research
SPECIAL feature Major iron ore importers - 2009
of iron ore seem inadequate and has been levied by Central Government if the steel industry capacity and collected by respective state government. Conceptually, royalty is a payment made expansion and production potential are to be fully realised. by the mining lessee to the State owner of Strict enforcement of the mineral as a consideration for the mineral environmental and forest- which the lessee extracts and sells. related laws and difficulties in acquisition of land imply that Mining ban iron ore supply may not be able In July 2010, Karnataka banned iron ore to keep pace with projected mining operations in the state citing illegal domestic demand if production mining operations. This was followed by targets are to be realized. restrictions in Odisha and ban in Goa. Source: Insights Research Exploitation of magnetite Meanwhile, mining output in resources will be a challenging Chhattisgarh and Jharkhand are already Major iron ore exporters - 2009 task as most of these resources low because of the security issues due to the lie in environmentally sensitive Maoist problems in those states. This has Western Ghats and adjoining also led to stagnant production growth by areas. The current judicial NMDC in the last few years, despite best position and the declaration of efforts by the state-run company, according the Western Ghats as a world to an official in a merchant mining company. heritage site will restrain full According to Claude Alvares, director exploitation Domestic production/ consumption/ trade of the resources there. The iron ore Source: Insights Research resources year. Chinaâ€™s iron ore import was 628 mt â€“ 70 will be exhausted even percent of seaborne trade. faster if exports are China imported a little over 66 percent of maintained at high levels the global import of iron ore in 2009. Japan similar those witnessed in and European Union import close to about Source: Insights Research the past few years. 150 mt annually, while South Korea imports about a third of it. Total global imports were Major states producing iron ore (2009) Royalty 940.7 mt in 2009. The major revenue accrual to the state governments Domestic scenario from the mining sector Currently Indian resources of iron ore are 28 is by way of royalty on billion tons (6 percent of global) and ranks minerals extracted from fifth in high quality reserves. mines within the state. Indiaâ€™s mine production grew at a CAGR Revenues from other of 16.79 percent from 2004-2009. sources are dead rent, Currently, Tata Steel and SAIL mine iron Source: Insights Research annual fee payable by for captive purposes, while NMDC and Sesa mineral concession holder Goa are the two large listed mining companies on the basis of the area Major producing companies in India that sell iron ore apart from merchant miners held, surface rent, sales tax like Essel Mining and Rungta Mines among or VAT, local area tax (e.g. others. Private companies (estimated around Panchayat tax) and stamp 100-125) contribute close to 125 mt of mine duty. production of iron ore. The royalty is a variable return and it Current situation varies with the quantity Despite India having total resources of over of minerals extracted or 28 billion tons of iron ore and the fact that the removed. Royalty in strict number can rise with greater efforts towards sense and in common Source: Insights Research exploration, the currently assessed reserves parlance may not be tax
30 Steel Insights, March 2013
SPECIAL feature Iron ore Production (in million tons)
Domestic consumption (in million tons)
Quantity (in million tons)
Value (in `crores)
Source: For finished steel - Joint Plant Committee; Ministry of Steel, For production and consumption of iron ore – IBM, Ministry of Mines; For export of iron ore – MMTC, Department of Commerce.
Production trend for iron ore in India (in million tons)
Mineral 1947 1951 1961 1971 1981 Iron ore
1991- 2001- 2008- 2009- 201092 02 09 10 11
18.7 34.31 41.61 57.46
Growth in Production (from 1947 to 2009-10)
Source: Insights Research
of Goa Foundation, spearheading the illegal mining issue in Goa in the Supreme Court, “I have been critical of mining in the state of Goa because of its impact on the environment since 1977, but what happened in the last six years is something quite atrocious. More than 50 percent of the `22,000 crore made by these companies and traders in the year 2010-11 for example, for instance, went into private pockets. Contrast or compare that with the budget for Goa state which is around `6,000 crore.” “Thus, the almost 100 percent export of ore from Goa to China is unacceptable. At least in Karnataka some portion of it was going to many local iron and steel manufacturers. We need only half of what we are mining today for our requirements of steel, and the rest is being exported. Hence we have no doubt in demanding that all export of iron ore from India should be stopped and the ore should be kept exclusively for the purposes of local consumption. In fact, it is better we import ore rather than export it, if our iron and steel mills are facing a shortage,” Alvares said. Supply constraints
The mining ban did have a severe impact on supplies. India, traditionally the world's third-largest iron-ore exporter, is on course to be a net importer of the steelmaking ingredient in 2013-14, according to industry officials, who say a combination of export and mining bans is forcing domestic steel mills to seek the commodity elsewhere. India is set to see its iron ore output halved in the year that ends March 31, with
32 Steel Insights, March 2013
its reduced contribution to the global trade having helped pull prices up from multiyear lows in September after the country's Supreme Court banned exports from Goa and Odisha states earlier in the year due to complaints about illegal mining. Exports are likely to fall to 3-4 mt in 2013-14 if mining bans in Goa and Orissa, along with another major producing state, Karantaka, continue, according to B. Poddar, vice-president of the Federation of Indian Mineral Industries. This compares with likely figure of around 20 mt this fiscal year and 62 mt in 2011-12. Meanwhile, Indian steelmakers, who lack their own captive iron ore mines, are sharply increasing imports and are likely to import around 10 mt in 2013-14, sources said. Until last year, India dominated spot iron ore sales to China, the world's largest Country
Rate of royalty
2% of sale value
2% of sale value
New South Wales
2.75% advalorem Beneficiated ore 5% advalorem
Fines ore 5.63% advalorem Lump ore 7.5% advalorem
Source: Insights Research
consumer, but exports started falling from an average approaching 100 mt two years ago, when the Supreme Court banned exports from the southern Indian state of Karnataka, also due to illegal mining. Global prices, which fell to below $90 a ton in August, have since risen to as much as $165 per ton for ore with 62% iron content. According to Goa Mineral Ore Exporters Association spokesman S. Sridhar, efforts to ease the ban have been unsuccessful so far. ”We have sought relief from the Supreme Court,” he said, but so far there is no change in the position. While some miners could in theory continue to extract ore, as they have not been investigated for illegal mining, a number have curtailed output in the absence of a market. Indian steelmakers are not able to economically utilise their relatively lowgrade ore or fines and the ban on exports means that Chinese steelmakers who can process their products cannot buy it. The court has allowed some miners in Karnataka, to restart production after they passed environmental hurdles, but it will still take a year or two for them to resume fullfledged operations, sources said adding eight or nine mining leases lapsed as court hearings proceeded in Karnataka, which miners are seeking to renew, but it will take time. Meanwhile, African and Russian producers are stepping in to make up for lost Indian imports in China, and Chinese producers are also increasing output, he said. On the other hand, the iron ore industry failed to convince the government to take measures to improve the export situation, with removal of a 30 percent export tax on iron ore in the federal budget. Price rise
The supply constraint has already led to a rise in prices of the material. Moreover, government in its budget has on one hand ignored to look into the reduction of iron ore exports duty and on the other has hiked the railway freight charges by 5 percent. Steel mills have started complaining of the higher prices in the e-auctions ordered by the Supreme Court to clear stock from the pitheads and partially deal with the shortage of the steel making raw material. Prime steel mills like JSW are regular buyers from the e-auctions in Karnataka.
Other buyers of iron ore lumps and fines are Kalyani Steels Ltd, BMM Ispat Ltd, Sona Alloys among others. Major players buying ore from Odisha are JSW, Bhushan, Essar, Jai Balaji and Monnet. The average bid prices including royalty and forest development tax are given below: Material
Indicative grade %Fe
Bid price Rs/ton
Fines Source: Steel mills
Although it’s for certain that the days of cheap iron ore are over and prices would hardly breach the levels attained presently but efforts to improve domestic supplies need to be undertaken at an urgent basis to stop prime and medium steel mills operate at 7080 percent capacity levels when the country hopes its steel demand to rise to 113 mt by 2016-17. According to Alvares, much would improve if extraction of ore for export is banned. This would mean halving production. The impact on the environment of this reduction in extraction is bound to be that much less. “The environmental position is to advise the recycling of metal rather than mining of ore since the latter always involves destruction of nature and that destruction is very often irreversible. The government should appoint a monitoring committee which can visit working leases and identify those
companies which are mining responsibly by showing they are rehabilitating the environment after mining. It would make good sense to grant future leases only to such companies,” Alvares said. Secondly, efforts by the government in the right earnest is required to allot mining leases to responsible companies, may be state-run companies, to increase supplies of the steel making raw material. According to Malay Chatterjee, chairman and managing director at KIOCL, the company has made 28 mining lease and eight prospecting licence applications all over the country and are hoping for allotment of mines in the states of Karnataka, Jharkhand, Odisha and Andhra Pradesh. “KIOCL is a premier Central PSU in the mining sector and has put up the country’s first ever 3.5-mtpa pellet plant and 7.5mtpa beneficiation plant with a slurry pipeline of 67 km from Kudremukh to Mangalore. It has also demonstrated its expertise in the mining and pelletisation process. In spite of that, I fail to understand why KIOCL has so far not been considered for allotment of mines in the aftermath of the mining ban. However, we are sure that better sense will prevail and KIOCL will be bailed out of its current crisis,” Chatterjee said. Meanwhile, government is also planning to take steps
to ensure adequate supply of iron ore to the steel industry. Government feels that future efforts will have to be focused on exploration beyond the depth of 60 meters and bringing down making use of the iron ore with Fe content as low as that. Apart from this government plans R&D efforts for developing techno-economically viable technologies of beneficiation and agglomeration suitable for the mineral extracted from different iron ore regions of the country to encourage beneficiation and agglomeration with special emphasis on manufacture of pellets to substitute consumption of precious lump ores by steel producers and thereby add to efforts of conservation and environmental degradation caused by accumulation of iron ore fines. Government also plans to allocate captive iron ore mines to steel producers and stop exports from the country altogether. However, it is needless to say that whatever needs to be done is required to be done urgently. Otherwise lack of raw material security and high prices would foil the good efforts being made in the sector.
Steel Insights, March 2013
I fail to understand why KIOCL was not considered for mine allocation: CMD
We do not have any mining concessions at Donimalai. We have been considered for allotment at Ramanadurga deposits in Bellary district which is also pending a decision. We have made 28 mining lease and eight prospecting licence applications all over the country and are hoping for allotment of mines in the states of Karnataka, Jharkhand, Odisha and Andhra Pradesh. By when do you expect to start mining from these mines and what has led to the delay? The entire mining sector is on the backfoot in the state of Karnataka, because of the decision of the apex court. The entire mining operation in Karnataka is being looked after by the Central Empowered Committee, so it is difficult for us to set a timeline for a decision at our end. Have you applied for any mining leases in recent times? We have applied for mining leases in the states of Karnataka, Odisha, Jharkhand and Andhra Pradesh. Being a Central PSU with core competency and expertise in mining, we are hopeful of getting some mining allotments in the near future.
IOCL, established as the countryâ€™s premier pellet making public sector undertaking along with Kudremukh Mines, has no captive mines, thereby threatening its long term sustenance. The central public sector undertaking, with 28 mining leases and eight prospecting licence applications all over the country, is awaiting allotment of mines in the states of Karnataka, Jharkhand, Odisha and Andhra Pradesh. In a free-wheeling interview with Steel Insights, chairman and managing director Malay Chatterjee rued the fact that KIOCL, in spite of its contribution to the mining sector, was not considered for mine allotment. Excerpts:
34 Steel Insights, March 2013
How do you see the future of KIOCL in the aftermath of closure of Kudremukh mine since 2006? KIOCL was established as the countryâ€™s premier pellet making public sector undertaking along with Kudremukh Mines. However, since today KIOCL has no captive mine, its long term sustenance is being threatened. We have aggressively taken up various other business modules to make KIOCL, a vibrant and profit earning central public sector undertaking (CPSU). What is the status of the mining concession that KIOCL got at Donimalai? So far, KIOCL has made 25 mining lease and four prospecting licence applications in the state of Karnataka for allotment of mining assets. Allotment of mining lease at Chikkanayakanahalli, Tumkur District has been cleared by the government of Karnataka. However, we are waiting for forest clearance and signing of mining lease in our favour, which is pending since December 2010.
Why is KIOCL not being given more mining leases given its credibility as a government company and experience in mining activities, at a time when illegal mining is an issue in the country? KIOCL is a premier Central PSU in the mining sector and has put up the countryâ€™s first ever 3.5-mtpa pellet plant and 7.5-mtpa beneficiation plant with a slurry pipeline of 67 km from Kudremukh to Mangalore. It has also demonstrated its expertise in the mining and pelletisation process. In spite of that, I fail to understand why KIOCL has so far not been considered for allotment of mines in the aftermath of the mining ban. However, we are sure that better sense will prevail and KIOCL will be bailed out of its current crisis. What are your prospects in pellet and beneficiation? KIOCL Ltd., the erstwhile Kudremukh Iron Ore Co. Ltd., was started as a premier beneficiation and pellet making company
interview opening up some new verticals wherein there are less number of players and ample scope for business, such as e-commerce, solar energy and eco- tourism to name a few. Do you have any plans to acquire mines abroad? If yes, have you initiated the process? If no, why?
Malay Chatterjee, CMD, KIOCL
and it continues to be a frontrunner in that aspect. The role and importance of KIOCL is going to increase exponentially with the setting up of new pellet and beneficiation plants. Currently, we are in dialogue with sister public sector companies such as NMDC, SAIL and OMDC for setting up of beneficiation and pelletisation plants that will involve a capital expenditure of `10,000 crore in the next three to five years. Nevertheless, the role will also be important and significant in the light of the new MMDR Act. How much iron ore does KIOCL require currently on an annual basis and from where is it getting the ore? As KIOCL has a 3.5-mtpa pellet plant, it needs around 4 mtpa of iron ore to run it at its rated capacity. However, we are
unable to meet the demand because of the logistic issues in sourcing iron ore fines from NMDCâ€™s Baila and Bacheli mines, Chhattisgarh, since Doni mines is closed in the state of Karnataka. What is the current price at which you are getting iron ore? Is it annual or quarterly pricing? We are sourcing iron ore fines from NMDC, which is the merchant mining CPSU and the rates are determined by them on monthly pricing basis. Please elaborate on the areas where KIOCL is planning to diversify. KIOCL, being a mine and steel basedPublic Sector Undertaking (PSU), once played an important role in its core sector in taking forward the process of pelletisation in the country. However, we are contemplating
Since KIOCL is a PSU under the ministry of steel, it is also a partner in prospecting and looking for valuable mining assets abroad along with its sister PSUs such as NMDC, MOIL and SAIL. In the past, we have made some efforts in West Africa for scouting iron ore assets which has not been very encouraging due to size of investment and logistics. However, recently a team from the steel ministry had made an effort for scouting mining assets in South American countries such as Brazil, Peru and Chile and we are very much a member of this consortium which is looking into various aspects of due diligence for acquisition of such assets. How do you see the future of KIOCL going forward? KIOCL is a frontrunner in beneficiation and pelletisation of pellets, and a 100 percent EoU, CPSU under the ministry of steel. Since pellets are an intermediary product between iron ore and steel, the role of KIOCL in enhancing the production capacity of steel making in the country will be significant. The steel production capacity is projected to grow to 125.9 million tons by 2016-17 and utilisation of pellets in steel making will be very essential since iron ore fines will play a pivotal role in future steel making.â€‚
Call 9163348243 for more details
Steel Insights, March 2013
Steel production to cross 120 mt at best by 2016-17: Gujarat NRE Coke
coke. Before they removed the export tax, Chinese coke was priced at around $460 per ton fob, which went down to $310 per ton fob. However, after adding freight cost, this cost is higher than the price of domestic coke or the ones available from other import sources. Thus it is unlikely to have any significant effect in the global or domestic markets. The Chinese domestic coke market is tight and there has been no significant interest in export of Chinese coke of any grade in the world market. However, it is felt by many analysts that reduction in export tax might result in increased demand of coking coal by Chinese coke makers, which might result in increase in coking coal prices in the global markets. What is your view on met coke prices in 2013-14 considering the fact that steel markets are yet to show any signs of recovery? On a medium term basis, it seems the prices of met coke have bottomed out and from now on should only move up. Also, met coke prices generally follow the trend of coking coal prices, and with coking coal showing an uptrend, the same should be followed by met coke.
otwithstanding the sluggish demand for steel, Gujarat NRE Coke Ltd, India’s leading merchant coke maker, still expects to register a growth in its 2012-13 coke production. Gujarat NRE’s current installed coke making capacity is 1.434 million tons per annum (mtpa) spread over two locations (Khambhalia, near Jamnagar – 0.358 mtpa and Bhachau – 0.504 mtpa) in Gujarat and one plant at Dharwad near Hubli in Karnataka with a capacity of 0.572 mtpa. In a free-wheeling interview to Steel Insights, the Gujarat NRE Coke chairman and managing
36 Steel Insights, March 2013
director Arun Jagatramka, said that availability of good quality coking coal and subdued domestic demand has been plaguing the Indian coke making sector. Jagatramka also spoke on a wide spectrum of other issues – ranging from global coking coal prices to China’s withdrawal of its export tax. Excerpts: Do you think there will be further impact on metallurgical coke prices in the international or Indian market after China withdrew export tax with effect from January 2013? China’s withdrawal of 40 percent export tax is not expected to have any significant impact on the global supply or price of met
In 2012, according to a compilation of Steel Insights, there had been sharp increase in India’s met coke imports to around 3.04 mt from a low of around 1.21 mt in 2011 and around 1.61 mt in 2010. What according to you could be some of the possible reasons for the spurt in 2012 imports? The spurt in imports primarily seems to be due to the demand from SAIL. The PSU steel making behemoth has been buying met coke, both from domestic as well as from international markets, due to shutdown of coke oven batteries in few of its steel plants due to repair and maintenance activities. It is worth mentioning that Gujarat NRE has been one of the prime suppliers of met coke to SAIL among the domestic suppliers. However, this increased import figure should not be misconstrued as any pick up of demand in the secondary steel market in India. The secondary steel mills are faced with a few critical challenges, availability
Arun Jagatramka, CMD, Gujarat NRE Coke
of iron ore being one of them, which has resulted in them operating at a much lower capacity. Thus there has been no change in coke offtake by secondary steel mills and other users either from the domestic or international markets. What is your view on coking coal prices in 2013-14 considering that current spot prices have firmed up in recent weeks and JanuaryMarch contract price was fixed at $165 per ton? On a medium to long term basis, coking coal prices should be hovering at around $200 to $250 per ton. The strengthening of spot prices to around $170 per ton only points to the fact that the next contract price might be settled at a higher level. After a long time, spot price is higher than the existing contract price. There are reports that coking coal supplies from Mongolia to China have been hampered to great extent. What will be the impact of this on international coking coal prices? Mongolia has been supplying coking
coal to China, which had until late taken some heat away from Australia. However, with supply from Mongolia being hampered, the Chinese mills would turn to Australia to meet the gap, resulting in tightening of the demand-supply position. The price of Australian coking coal fob is considered as the global benchmark coking coal price.
Where do you see coking coal and coke demand in India to reach by 2016-17 when steel production capacity is estimated to be 150 mt?
What are the major challenges facing the coke makers in India? How can this be overcome?
The main drivers for good financial results are strong fundamentals and prudent strategies. We have been able to increase our sales revenue and also bring in operational efficiency.
At the outset, it needs to be pointed out that the estimate of 150 mt of steel production by 2016-17 is too ambitious. It is expected to cross 120 mt in a very best case scenario in the next three to four years. Coking coal demand is expected to be around 90 mt and met coke at around 50 mt by then. Gujarat NRE has posted good financial result in the third quarter of 2012-13. What were the main drivers for the robust performance?
Availability of good quality coking coal has been one of the primary challenges of coke makers in India. The solution to this is not easy. Gujarat NRE has been able to meet the challenge somewhat as it owns two prime hard coking coal mines in Australia. The other challenge is the subdued domestic demand from the secondary steel industry due to a host of reasons, which can only pick up with increased economic activity.
What is the current coking coal production capacity of Gujarat NRE Coke from its Australian mines and what is your expectation in the coming years?
What is India’s current coke making capacity? What would be India’s merchant and captive coke making capacity by 201617?
What is Gujarat NRE’s current coke making capacity? Please provide break-up of capacities of each of the facilities?
India’s current coke making capacity is around 30 million tons (mt), of which around 75 percent is captive production by integrated steel plants and secondary steel mills and around 25 percent is through merchant coke producers. India’s met coke demand by 2016-17 is expected to be around 50 mt. Domestic capacity may increase to around 40-45 mt while the rest is to be met by imports. This is considering that steel production reaches over 120 mt by that time.
The coking coal production for the current year ending March 2013 is expected to be around 1.7 mt. The coking coal production from the Australian mines is expected to be around 3 mt next year and we expect the production from both the mines which are presently under longwall mining to be over 5 mt by 2016.
The present coke making installed capacity of Gujarat NRE Coke Ltd is 1.434 million tons per annum (mtpa). The break up is Khambhalia (near Jamnagar, Gujarat) 0.358 mtpa, Bhachau (Gujarat) 0.504 mtpa and Dharwad (near Hubli, Karnataka) 0.572 mtpa. How much coke was produced by Gujarat NRE in 2011-12 and what is the expectation for 2012-13 and 2013-14? We had produced 0.7 mt in 2011-12 and we are expecting it to be 0.8 mt in 2012-13.
Steel Insights, March 2013
Coking coal prices maintain firm bias in Feb Arindam Bandyopadhyay
oking coal prices maintained a firm bias for the major part of February as compared to the previous month, but eased later on due to lack of Chinese buying interest. Overall, prices were down by $1.5 per ton fob Australia for hard coking coal and premium low-vol, compared to end January. The semi soft variety saw a decline of $3 per ton fob Australia over the same period. As of February 28, hard coking coal prices were quoted at $168 per ton fob Australia, compared to $169.5 per ton fob on January 31. Prices of premium low-vol stood at $168.5 per ton fob, compared to $170 per ton fob at January end. Semi soft variety was quoted at $119 per ton fob on February 28, down from $122 per ton fob on January 31. Earlier, the month started with a $2.5 per ton jump in prices across categories in the
first week, as Japanese and Korean demand as well as Chinese enquiries kept the market vibrant. Adding to this, there were concerns over a supply disruption due to flooding in central Queensland and weekend strike call by Pacific National’s coal haulage unit in New South Wales. The firm trend continued in the next week before the withdrawal of Chinese buyers led to a drop in demand conditions. China, which accounted for more than three quarters of Asian spot coking coal deals so far in 2013, was largely absent from
Coking coal prices fob Australia Dates 1 Feb 2013 4 Feb 2013 5 Feb 2013 6 Feb 2013 7 Feb 2013 8 Feb 2013 11 Feb 2013 12 Feb 2013 13 Feb 2013 14 Feb 2013 15 Feb 2013 18 Feb 2013 19 Feb 2013 20 Feb 2013 21 Feb 2013 22 Feb 2013 25 Feb 2013 26 Feb 2013 27 Feb 2013
Peaks Down (CSR-74%, VM-20.7%, Ash-9.7%, S-0.6%, P-0.03%, TM-9.5%) 172.00 172.00 172.50 172.75 172.75 173.00 173.00 172.00 172.50 172.50 172.00 172.00 172.00 172.50 172.50 170.00 169.50 168.00 167.50
Source: Insights Research
38 Steel Insights, March 2013
Prem Low Vol (CSR-71%, VM-21.5%, Ash-9.3%, S-0.50%, P-0.045%, TM-9.7%) 172.50 172.50 173.00 173.50 173.50 173.50 173.50 172.50 173.00 173.00 172.50 172.50 172.50 173.00 172.75 170.50 170.00 168.50 168.00
HCC 64 Mid Vol (CSR-64%, VM-25.5%, Ash-9.0%, S-0.6%, P-0.050%, TM-9.5%) 156.50 156.50 156.00 156.00 156.50 156.50 156.50 155.00 155.00 155.00 155.00 155.00 155.00 155.00 155.00 154.75 154.25 153.50
125.00 125.00 125.50 125.50 125.50 125.50 125.50 125.00 125.00 125.00 123.50 122.00 122.00 122.00 121.50 120.75 120.00 119.00 118.50
302.00 302.00 300.00 300.00 300.00 300.00 300.00 300.00 300.00 298.00 298.00 296.00 296.00 296.00 296.00 296.00 296.00 298.00 298.00
the market after the Lunar New Year break set in. The country’s absence dramatically impacted activity levels in the international market. The sentiment was further affected after the Chinese government announced that it would maintain a strict control over the real estate sector. This also affected the iron ore market. Prices were down by $2 per ton fob Australia during the third week and continued to slide thereafter. Meanwhile, the market was rife with speculations about the outcome of the AprilJune 2013 quarterly contract negotiations. A coke maker in India told Steel Insights that coking coal prices are likely to firm up in coming months and may cross $200 per ton level in the medium term. “On a medium to long term basis, coking coal prices should be hovering at around $200 to $250 per ton,” he said. Noting that the spot prices have surpassed the JanuaryMarch contract price of $165 per ton, he said, “The strengthening of spot process to around $170 per ton only points to the fact that the next contract price might be settled higher. After a long time, spot price is higher than the existing contract price.” Forecast for March
In the absence of significant Chinese demand, spot coking coal prices are likely to remain range bound in the month of March. Demand from Indian steel mills is also likely to be lukewarm in view of the low demand facing the domestic steel sector. Also, supply issues in Australia have eased in recent weeks. Overall, no major movement is expected by the market in spot prices, going forward.
Consuming sectors contract in low growth period Steel Insights Bureau
he Economic Survey released by the finance ministry said that the Indian economy is set for a mild recovery. This comes as a silver lining at a time when India is headed into its weakest rate of economic growth in a decade. A few hours after the new Union Budget was tabled in Parliament, the government released its first growth estimates for the third quarter of the current fiscal. It shows that the economy continues to lose momentum. It expanded by 4.5 percent in the three months to December, which means that the quarterly growth rate has now fallen for six out of the past seven quarters. What’s more, the Indian economy is likely to grow at only around 4.7 percent in the fourth quarter, going by the recent estimate by the Central Statistics Office that the growth rate for the entire year will be 5 percent. So the growth in the fourth quarter is likely to be a bit higher than what it was in the third quarter. Is this the first sign of an incipient turnaround? It is hard to tell because the data is sending mixed signals. The Economic Survey says that economic growth in the next fiscal will be between 6.1 percent and 6.7 percent. A convenient assumption would be that the economy grows at this rate in all four quarters, but it is surely unrealistic to assume that the data will be distributed in this way. What is more likely is that the economic recovery will be gradual. It’s given that there is very little policy space available right now: the Indian government has committed itself to a policy of lowering its deficits while the Reserve Bank of India has often indicated that it does not have the freedom to cut interest rates drastically given the inflation situation. There might be a mild improvement because of a base effect as well as some endogenous improvement, but the chances of a sustainable recovery in the near future
are dim unless the investment cycle turns, the national savings rate rises, inflation is tamed and the twin deficits are brought under control. In this background, the steel consuming sectors also showed tepid growth. Automobile sector
the challenge to continue in the next quarter following these moves in the Budget,” an industry insider said. However, some analysts are optimistic and hope that with improvement in interest rates, the passenger vehicle segment is expected to finish 2012-13 on a stronger note than current levels. However, no imminent improvement in commercial vehicles demand is expected. Analysts expect commercial vehicles production is expected to fall by 2 percent in 2012-13 in comparison to same period previous year. Construction sector
The construction sector is exhibiting slow India’s car industry suffered its steepest growth but is expected to gain momentum decline in sales during the current financial by the end of the financial year. year as eroding customer confidence hit Industry data shows that industrial and sales in February. This is in stark contrast infrastructural projects worth `1.8 trillion to February 2012, when carmakers reported have already been commissioned during their biggest sales increase during that 2012-13 and pending 1700 nos. projects are financial year. scheduled to get commissioned in industries Maruti Suzuki and Hyundai, India’s like steel, gas transportation, power largest carmakers by sales, led the drop to generation and distribution, in Q4. register their second successive monthly In a major fillip to investment, especially decline, even as Mahindra and Mahindra and in the infrastructure sector where a $1-trillion French carmaker Renault bucked the general expenditure has been envisaged in the 12th trend, helped generously by burgeoning Plan, Finance Minister P. Chidambaram demand for their SUVs in February. announced a number of steps to boost However, with the government raising growth, including setting up two new ports excise duty on SUVs to 30 percent from 27 and creation of two new industrial corridors percent in the Budget, the rise in SUV sales and seven new smart cities. may be difficult to sustain. Spelling out his budget priorities, The largest carmakers Maruti Suzuki, Chidambaram said debt funds for Hyundai and Tata Motors which comprise infrastructure would be encouraged and tax80 percent of the Indian passenger vehicles free bonds up to `50,000 crore allowed in market, were the most affected and 2013-14. The government would also seek preliminary sales data furnished by different funds from multilateral agencies like the carmakers reveals that the decline could be World Bank and the Asian Development in the range of 20-21 percent in February, Automobile sector growth steeper than January’s 12 percent year-onyear decline. “The market was depressed. There was a drop in enquiries with lower rate of conversions to purchase. The increase in fuel prices negatively impacted the already low market sentiments. We expect Source: SIAM
Steel Insights, March 2013
feature Corridor project. Plans were already drawn up to establish seven new smart cities along the industrial corridors. Work on two smart cities at Dholera in Gujarat, and ShendraBidkin in Maharashtra would start during 2013-14. On the power front, the Minister said he had given the nod for constructing Source: MOSPI a transmission link from Srinagar Capital goods sector growth to Leh in Jammu and Kashmir at an investment of `1,840 crore. The Dabhol LNG terminal, with a capacity of five million tonnes a year, would be fully operational in 2013-14. As for rural infrastructure, he said the National Bank for Agriculture and Rural Development, which Source: CMIE was operating the Rural Infrastructure Development Consumer durables sector growth Fund (RIDF), had successfully utilised 18 tranches so far. Another proposal is an allowance for new, high-value investments. “A company investing `100 crore or more in plant and machinery between April 1, 2013 and March 31, 2015 will be entitled to Source: CMIE deduct an investment Bank to build roads in the north-east, linking allowance of 15 percent of the investment in addition to the current rates of depreciation. it to neighbouring Myanmar. Chidambaram referred to creation of a There will be enormous spillover benefits to regulator to give a boost to road projects and small and medium enterprises,” the minister address bottlenecks faced by investors. The said. India Ratings said the constitution of most important of the initiatives was creation of two new industrial corridors — Bangalore- a regulatory authority for the roads sector Chennai and Bangalore-Mumbai — on would address a long-felt need. The budget the lines of the Delhi-Mumbai Industrial reiterated the government’s commitment Constructuion sector growth
40 Steel Insights, March 2013
to press ahead with previously announced measures such as credit enhancement from India Infrastructure Finance Company Limited and encouragement for setting up infrastructure debt funds. Both of these had the potential to galvanise the bond markets to fund the massive infrastructure investments India urgently needed, the agency said. Meanwhile, the budget announced that basic customs duty on bituminous coal to be reduced from 5 percent to 2 percent, while the countervailing duty on bituminous coal to be reduced from 6 percent to 2 percent. It is marginally positive for cement companies. The budget also announced that for home loans up to `25 lakh taken in 2013-14, additional income tax deduction of `1 lakh towards interest is allowed for one year is positive for the cement sector. The cumulative growth rate of cement production (Apr-Dec 2012) increased from 5.8 percent to 6.1 percent (y-o-y). Capital goods
The capital goods sector is showing a negative growth rate of (-) 0.9 percent in December 2012 over December 2011. Data shows that three of the five key steel consuming capital goods subsector have shown de-growth over the past nine months and import of capital goods has increased in December 2012 over December 2011. Analysts feel the slowdown in the sector will continue till investment sentiments improve. Consumer durables
The consumer durables sector contracted by 8.2 percent in December 2012 compared to December 2011, due to the high base effect. The consumer demand has fallen drastically in the post-festive season and this has affected the production levels due to the inventory pileup at the selling points. Growth is dependent on improvement in the consumer demand, which is not expected to rise much in the coming months. The white goods sector has also fallen in December 2012, though the high sales during the festive season and the low base effect has helped the year to date figures to remain in the green. Analysts and industry insiders say with the sudden fall in the demand patterns, the white goods will see a lull in the next few months.
Auto industry peeved over SUV tax, fears decline in growth Steel Insights Bureau
n a country where four-wheeler penetration is as low as 2 percent, taxing the sector highly should not make much business sense for the government. And when such taxes are targeted to the best performing segment, it raises questions over the government’s point of view on fostering industrial growth, at least in the automobile vertical. For the last couple of months, the Indian automobile industry has been looking forward to the Union Budget for policy support to tide over the slowing trend in the domestic market. In fact, the current fiscal year (201213) has seen one of the poorest growth in almost a decade. Only the performance of sports utility vehicles (SUV) was bringing some hope to the manufacturers. But, with the Budget announcing an increase in excise duty on SUVs from 27 percent to 30 percent, that hope is dashed, said S. Sandilya, president, Society for Indian Automobile Manufacturers (SIAM). One area “which the industry did not expect was the increase in excise duty on SUVs used as personal vehicles. This is the only segment in the industry which has been doing well this year and increasing price of these vehicles would dampen sales and impact market sentiments further,” he said. Sandilya, however, welcomed the other provisions in the Budget regarding the sector. Under the current economic environment, he felt, the Finance Minister has tried to balance the need for growth with fiscal compulsions. “The announcement of investment allowance reintroduction is very positive. Focus on infrastructure is also a welcome move which will help growth of the economy.” While there are several innovative proposals, the auto industry had expected that the Finance Minister would come out with more specific roadmap for implementation of Goods & Services Tax (GST). The industry would be keenly looking forward to full implementation of GST at the earliest, he added.
“SIAM appreciates the Finance Minister’s gesture of allocating double the funds under JNNURM scheme enabling substantial part for purchase of up to 10,000 buses. This was very much needed for revival of CV sector. Finance Minister has also accepted SIAM recommendation to lower excise duty on commercial vehicle chassis from 14 percent to 13 percent which was raised in the last budget and led to significant drop in off-take of chassis by the body builders,” he said. With a view to deteriorating market sentiments, SIAM had also recommended reduction of excise duty for passenger cars by 2 percent which could have led to significant improvement in sales. However, the Finance Minister has accepted SIAM’s recommendation on extension of concession for import of electric and hybrid electric vehicle parts till March 31, 2015. “The increase in customs duty for luxury cars and motorbikes seems to be an effort to raise more revenue and to encourage local manufacturing, value addition and employment. The proposal to increase duty on second hand vehicle from 100 percent to 125 percent is the right step. It clearly conveys that India is not ready to accept second hand old vehicles from other countries,” he noted. January performance
The cumulative production data for AprilJanuary 2013 shows production growth
of only 2.76 percent over the same period last year. The industry produced 1,840,858 vehicles in January 2013 as against 1,703,926 in January 2012, with growth at 8.04 percent.
Budget proposals for auto sector
♦♦ Status-quo on basic excise duty for small cars, large cars (ex. SUVs), commercial vehicles (ex. chassis fitted), two-wheelers, threewheelers and tractors. ♦♦ Excise duty on SUVs intended for non-taxi use increased to 30 percent from the current rate of 27 percent. ♦♦ Reduction in excise duty on chassis fitted trucks to 13 percent from 14 percent earlier. ♦♦ Purchase of 10,000 buses under JNNURM. ♦♦ Increase in basic customs duty on motorcycles (with engine capacity of 800cc or more) to 75 percent from 60 percent earlier and on luxury cars/SUVs to 100 percent from 75 percent earlier. ♦♦ Period of concession available for specified parts of electric/hybrid vehicles extended till March 31, 2015.
Steel Insights, March 2013
feature Domestic sales
The overall growth in domestic sales during April-January 2013 was 4.66 percent over the same period last year. While in January 2013, overall sales grew only by 5.31 percent over January 2012. Passenger Vehicles segment grew at 6.80 percent during April-January 2013 over same period last year. Passenger Cars declined by (-)1.80 percent, Utility Vehicles grew by 56.87 percent and Vans grew by 2.63 percent during April-January 2013 as compared to the same period last year. However, in January 2013 passenger car sales further declined by (-)12.45 percent over January 2012. Total passenger vehicles sales also declined by (-)4.62 percent in January 2013 over same month last year. The overall Commercial Vehicles segment registered de-growth of (-)0.37 percent in April-January 2013 as compared to the same period last year. While Medium & Heavy Commercial Vehicles (M&HCVs) declined by (-)21.37 percent, Light Commercial Vehicles grew at 15.48 percent. In January 2013, M&HCVs sales further declined by (-) 38.96 percent over January 2012. Three Wheelers sales grew by 5.10 percent in April-January 2013. Passenger Carriers grew by 9.07 percent during April-January 2013 and Goods Carriers registered degrowth at (-)10.09 percent during this period. Two Wheelers registered a growth of only 4.53 percent during April-January 2013. Scooters, mopeds and motorcycles grew by 17.76 percent, 2.44 percent and 1.43 percent respectively over same period last year. However, in January 2013 Scooters, Motorcycles and mopeds grew by 12.24 percent, 7.45 percent and 8.26 percent, respectively. Exports
During April-January 2013, overall automobile exports registered de-growth of (-)3.01 percent compared to the same period last year. Passenger Vehicles grew by 7.79 percent, while the other segments like Commercial Vehicles, Three Wheelers and Two Wheelers fell by (-)10.51 percent, (-)18.97 percent and (-)2.43 percent respectively. In January 2013 Passenger Vehicles and commercial vehicles declined by (-)13.53 and (-)46.94 percent respectively. While, Two & Three wheelers segment grew only marginally by 1.26 percent and 1.00 percent respectively.
42 Steel Insights, March 2013
Tata rolls out 2 millionth truck
Indonesia. Among them is Jaguar Land Rover, the business comprising the two iconic British brands. It also has an industrial joint venture with Fiat in India. Maruti Suzuki sales down 1.1%
Tata Motors Ltd said that its Jamshedpur plant marked a red letter day on February 19 with the roll-out of the 2 millionth truck from this world-class manufacturing facility. The plant manufactures Tata Motors entire range of medium and heavy commercial vehicles, including the Tata Prima, both for civilian and defence applications. Commenting on this milestone, Karl Slym, MD, Tata Motors, said, “We are proud that the mother plant of the company, from where our operations started, has today released its 2 millionth truck. We have modernised the plant through the years, which today produces our most technologically rich and high performing civilian and defence products, catering to customers across the world.” With the plant manufacturing over 200 truck variants, ranging from multiaxle trucks, tractor-trailers, tippers, mixers and special application vehicles, the Jamshedpur facility has led the company’s evolution into a manufacturer of global repute. Besides India, these vehicles are sold in South Africa, Russia, Myanmar, the SAARC region and the Middle East. The Jamshedpur facility was Tata Motors was set up in 1945 to manufacture steam locomotives. The company started making commercial vehicles at the plant in 1954 and the plant has been modernised through the decades, with a particularly intense scale in the last 10 years. Tata Motors is India’s largest automobile company with consolidated revenues of `165,654 crore ($ 32.5 billion) in 2011-12. Through subsidiaries and associate companies, Tata Motors has operations in the UK, South Korea, Thailand, Spain, South Africa and
Maruti Suzuki India Limited has sold a total of 114,205 vehicles (including 11,179 units for export) in January 2013, recording a fall of 1.1 percent in sales from 115,433 vehicles sold during the corresponding month of the previous year. However, Maruti’s export fell by 22.3 percent in January 2013 to 11,179 units from 14,386 units in the year-ago period. On a year-on-year basis, during the first 10 months (April-January) of the current year, the company’s total auto sales rose by 6 percent and stood at 941,930 as compared 888,794 vehicles sold during the corresponding period of 2011-12. Mahindra sales up 11%
Mahindra & Mahindra Ltd. (M&M Ltd.) has announced a growth of 11 percent in its auto sales which stood at 49,503 units during January 2013 as against 44,718 units during January 2012. The company’s domestic sales stood at 47,841 during January 2013, as against 41,369 during January 2012 recording an increase of 16 percent. The 4 wheeler commercial segment which includes the passenger and load vehicles registered a sale of 14,451 units, while the 3 wheeler segment clocked 5,811 units in January 2013. Exports for January stood at 1,662 units.
Union Budget fails to cheer steel sector
previous week. Also, price of plates of 12-20 mm, which was quoted at around `39,500/ ton, including excise but excluding VAT, on February 26 was quoted at around `39,600/ ton on March 1. Similarly, the prices of plates of other thicknesses had gone up too, he pointed out. “But it cannot be said that prices are firm because of budget or demand. It is only because freight is up that there is slight increase in prices as traders are passing on the impact of freight hike on consumers,” he added. Earlier, the Railway Budget which preceded the General Budget hiked freight
Budget highlights for the steel sector Iron Ore ♦♦ Export duty on iron ore unchanged at 30 percent
Steel Insights Bureau
he Indian steel industry, passing through a lean phase, was given a rather lukewarm treatment in the Union Budget 2013-14. The budget announced by Finance Minister P. Chidambaram on February 28, 2013 had barely mentioned about the steel industry, or its primary raw materials such as iron ore. No wonder, the steelmakers were a disappointed lot as the budget did not touch upon some crucial issues the industry hoped the government to address. “There is nothing in the Budget for the steel industry because the duty structure has been largely kept unchanged and no new mega infrastructure project has been announced,” an official of a leading steel maker said. Although the budget focused on rural and infrastructure development, which may increase steel consumption, it refrained from
addressing any core issue affecting the sector. There was no cut in the 30 percent excise duty on exports of both iron ore lumps and fines as desired by Ministry of Mines and Federation of Indian Mineral Industries (FIMI). There was also no mention of reduction in import duty on iron ore from 2.5 percent as demanded by steel makers like Tata Steel. Indian iron ore exports figures witnessed a sharp drop of 68 percent in April 2012 to January 2013. In the last year's budget, government had lowered basic customs duty on plant and machinery for setting up of iron ore pellet plants or iron ore beneficiation plants from 7.5 percent to 2.5 percent to discourage exports. There was no such direct intervention in 2013-14. However, the market saw an immediate movement in prices of steel products in some following the budget. According to a market source in Kanpur, prices of HR plates had firmed up a bit compared to the
Coal ♦♦ To levy 2 percent Customs, CVD on coal (Steam and Bituminous) imports; ♦♦ Coal blending only solution as coal imports to rise 185 million tons by 2016-17, will work on PPP projects with Coal India. Infrastructure ♦♦ Finance minister gives big boost to infrastructure sector; looks to spend on rural development; ♦♦ Proposes to provide `600 crore to rural housing fund in 2013-14; ♦♦ FM announces `50,000 crore of tax free bonds to raise money for infrastructure & targets $1 trillion in infrastructure in the 12th Plan; ♦♦ Infrastructure Debt Funds will also be encouraged and there is a proposal to constitute regulatory authority for the roads sector. Excise duty ♦♦ Excise duty kept unchanged at 12 percent and educational cess at 3 percent Ships/vessels ♦♦ No duty on import of ships, vessels
Steel Insights, March 2013
feature rates by about 5 percent. The Rail Budget presented by Rail Minister Pawan Bansal on February 26 proposed to link freight rates with diesel prices which will result in a rise in average freight rates. Budget’s focus on core sectors
The market analysts, however, noted that the budget’s focus on increasing demand for core sectors would augur well for the domestic steel industry. Fitch group company India Ratings said the budget attempts to boost the demand for core sectors such as steel, cement and construction by providing an investment allowance on capital expenditure and additional interest deduction to first time homeowners. The proposal to provide 15 percent investment allowance to manufacturing companies investing in excess of `100 crore over the next two years may potentially enhance the viability of investments by improving the internal rate of return for such projects by 200bps to 300bps (depending upon the duration of the project and the debt equity mix). The economic equivalent to this is an interest rate reduction in cost of debt for the project to the tune of over 75bps. However, given the structural issues impacting capital investments, the benefits are likely to accrue largely to brownfield expansions. The proposal to allow first time homeowners, availing home loan of less than `25 lakh an incremental deduction for `100,000 of interest has a similar impact of reducing effective interest rate by 75bps to 100bps on the home loan. Cumulatively, India Ratings expects these two proposals to provide fillip to investment activity as well as support to core sectors in the short term. Rail Budget to benefit steel sector: Verma
The Rail Budget of 2013 has a 20 percent higher plan outlay of `63,360 crore in FY14, compared to FY13, which augurs well for the railway infrastructure and also the steel industry, said C.S. Verma, chairman of Steel Authority of India Limited (SAIL) and NMDC. For the steel and mining sector, he said, the last mile connectivity planned for some ports and mines will help enhance the sector’s competitiveness. In fact, the investment of
44 Steel Insights, March 2013
Budget aims to spur investments, bring fiscal consolidation: Rao The Union Budget announcement of 15 percent incentive for acquisition and installation of new plant and machinery by manufacturing companies during the period from April 1, 2013 to March 31, 2015 is a welcome step to boost the investment, according to Seshagiri Rao, joint managing director at JSW Steel. Higher allocation of 29.4 percent towards plan expenditure and increased outlays for social infrastructure, education, rural development, health and urban development are also expected to stimulate economic activity, Rao said. As most of the projects are stalled due to regulatory and bureaucratic delays, the expectations from the budget to ease the process of clearances is not met since the effectiveness of Cabinet Committee on Investment is yet to be established, according to Rao. Rao said it is a matter of concern that the total non-Plan revenue expenditure particularly interest payment and subsidy remain at elevated levels. It is also challenging to achieve an increase of 19 percent in tax revenues when the economy is slowing down and there are no immediate signs of recovery. However, lower fiscal deficit, announcement of introduction of DTC bill in this budget session and possible GST rollout are encouraging take outs from this budget. According to Rao, the budget, with the limited availability of fiscal space, attempted to bring fiscal consolidation with lower fiscal deficit of 4.8 percent and simultaneously made higher allocations to various schemes to spur investments. `100,000 crore planned by Railways for the Twelfth Plan (2012-17) through the PPP mode is eagerly awaited by the steel industry. “The thrust of the Rail Budget on new projects like DFCC, new coach manufacturing plants, up-gradation of stations, doubling of lines/gauge conversion will definitely boost steel consumption as Railways is one of the largest consumers of steel in the country,” Verma added. “The increased investment by Indian Railways will spur steel consumption at a time when large capacities for steel are being installed by SAIL, which shall be beneficial to us,” he further added. However, the fuel adjusted component linking freight tariffs with fuel prices is expected to increase tariff by 5 percent with effect from April 1, 2013. For SAIL, this is estimated to have a negative implication of `200 crore per annum on inward traffic and around `100 crore per annum on outbound finished goods traffic, a company release said. Commenting on the Rail Budget, Dilip Oommen, CEO and MD of Essar Steel said,
“The Budget marked a departure from the recent past as it was shrewd between populism and pragmatism, though overall it lacked an insight to improve railways’ revenues as there was no clear roadmap to augment its capacity and overall rail infrastructure.” According to him, there is no doubt that the paradigm shift in freight tariff and 5 percent increase in freight rates from April 1, 2013, will generate higher revenues for Railways, but it also runs the risk of losing its already dwindling market share to roads and highways. As far as rail infrastructure is concerned, though land acquisition for the Dedicated Freight Corridor is almost complete, construction contract will only be awarded by end of next fiscal. Also there is no clear mapping as to how the private investment will be utilised for some of the PPP projects announced. While improvement of connectivity to mines is a welcome step, increase in freight will not only push up steel prices, but also add to inflationary pressures, Oommen said.
Investment based on PPP model gains ground in CII INFRA East
Eminent speakers at CII Infra East conference
Sanjukta Ganguly & Tamajit Pain
t a time when the industrial sector of eastern India is passing through a relatively tough phase, the existing infrastructure of the country is far from sufficient for proper industrial development. To induce economic growth, more investment is necessary in developing the infrastructure of the country especially the eastern region on public-private partnership (PPP) basis. M.V. Satish, executive vice-president & head, Buildings & Factories of L&T Construction, was speaking to Steel Insights on the sidelines of the CII INFRA East conference held recently in Kolkata. However, proper planning of the projects coupled with effective risk management and development of skilled manpower tailored to handle such projects can only ensure a better industrial development of the country, he said. “There is every reason to be optimistic
about the steel sector of the country as we are already handling a number of projects in different parts of the country including those of the biggest steelmakers--Tata Steel and SAIL,” Amit Kumar Ghosh, regional manager of the Kolkata region of the company said. However, to support this infrastructural upgradation, availability of adequate capital is of utmost necessity. Therefore, it is the need of the hour for both the government and the non-government financial institutions to come forward and join hands if necessary to meet this need, all the topnotch industrial personnel present at the occasion suggested. State-owned India Infrastructure Finance Company Ltd (IIFCL) expects to disburse over `6,000 crore for infrastructure projects in the country by the end of 201213 compared to `4,600 crore disbursed in 2011-12, Harsh Kumar Bhanwala, executive director, told Steel Insights.
Bhanwala who was also speaking on the sidelines of CII conference on “Infra East – Building a better India” said, infrastructure projects consume a lot of steel bars and steel structural products made by the steel mills. Bhanwala stressed on the fact that roads, power transmission, wind and solar energy projects made up a major chunk of the loans during the current fiscal. However, he agreed that the awarding of projects were sluggish during the current year. Bhanwala said about 70 percent of the funding for infrastructure projects are being done by financial institutions. He said there is an urgent need for developing the bond market for infrastructure projects and look at newer funding ways for infrastructure projects as some of the projects require long gestation period of over 7-10 years, while the funding agencies have deposit raising capabilities of up to 10 years. IIFCL recently it signed the guarantee agreement for the first pilot under its much talked about credit enhancement scheme GMR Jadcherla Expressways. This would pave the way for GMR Jadcherla Expressways Ltd, which is the infrastructure project company, to raise low cost funds, especially from insurance companies, through a bond offering. By this guarantee agreement, IIFCL has provided partial credit guarantee to the upcoming bond offering of GMR Jadcherla to enhance its rating to AA level, thus making it eligible for investments by institutions like insurance companies and pension funds. In the absence of credit enhancement, insurance companies and pension funds are unable to participate in debt funding of infrastructure projects as the ratings of most of the infrastructure companies in the initial years remain around BBB levels. By regulation, insurance companies are allowed to invest in debt instruments rated AA or above. It would also help the commercial banks in managing the challenges like AssetLiability mismatch and exposure constraints which they face in long-term infrastructure lending. Besides, private-public partnership model and capital adequacy, further discussion was made on decision making process. It was discussed that in the context of decision making under uncertainty, a ‘good’ decision is one that is based on the sound decision
Steel Insights, March 2013
India Ratings maintains negative outlook for Indian infra projects Steel Insights Bureau
itch group company India Ratings has maintained an overall negative outlook for Indian infrastructure projects for 2013, considering project companies’ continued weak credit profiles. However, some sub-sectors have a split outlook. The outlook for power projects remains negative while certain pockets in the transportation sector have a stable outlook, it said in a statement. The agency observed that a range of recent policy initiatives announced by the government are encouraging and have kindled a sense of optimism among market participants. However, it believes that the process of addressing fundamental risks through concrete and sustained on-the-ground actions to repair damaged credit quality is likely to be protracted. The policy initiatives include a presidential directive to the state-owned Coal India Ltd to sign fuel supply agreements, financial restructuring of distribution utilities, constitution of the Cabinet Committee on Investments and the likely introduction of the Land Acquisition Bill in the ensuing Budget session of Parliament. India Ratings expects that in 2013 a number of projects are likely to default on their bank debt obligations. Alternatively, lenders might be compelled to approve forced debt restructuring packages. This is in view of their weak financial structures and multiple risks including construction delays, plant stabilisation issues and fuel supply constraints in the power sector and traffic under-performance in the transportation sector. Reduced sponsor capacity to extend support would also likely contribute to this phenomenon. In a majority of the agency’s rated infrastructure projects, sponsors have played a significant role in preserving the credit profile of their projects. Deterioration in sponsor’s profile will impair their ability to keep supporting projects that have a low economic value. Some of the macro-economic variables – a pick-up in GDP growth rate, abatement of inflationary pressures and the expected drop in interest rates – may turn favourable during 2013. This may result in cash flows of infrastructure projects experiencing some
making principles. Because the decision must usually be made before uncertainty is resolved. A good decision might have unlucky consequences. However, decision makers should not be criticized for unlucky outcomes. They should be criticized only if their analysis at the time of the decision has to be made is faulty. According to another industry personnel, so far as project management is concerned, projects are undertaken to build future but future is uncertain and hence inherently risky.
46 Steel Insights, March 2013
improvement though the ‘lag’ effect would imply that benefits are unlikely to accrue immediately. India Ratings maintains a negative outlook for power projects. Many projects face protracted delays in completion – either because of technical issues such as longer plant stabilisation or due to slow land acquisition for plant area, constraints in developing railway and transmission infrastructure and delays in operationalising captive coal mines. Fuel shortage, off take risks and counterparty credit profiles are compounding the issues faced by these projects, making them vulnerable to ratings downgrades. Construction delays and traffic underperformance will remain the two most important rating drivers for toll road projects in 2013. Many projects exhibit stable characteristics with drastic rating downgrades averted only on account of expectation of continued sponsor support to fund cost overruns and/or bridge marginal revenue shortfalls in case of operating assets. The ratings of availability-based (annuity) road projects will be stable in 2013 because of low revenue risks and simple maintenance requirements considering the operator-cum-sponsor’s track record in the sector.
Therefore, 50 percent of project management is managing risks on a continuous basis. In case of any infrastructural project, real information is the key and the relationship between uncertainty and information is inverse. Hence, for the project manager, condition of relative uncertainty or partial information prevails which at times proves to be insufficient for the materialization of the project. Moreover, project risk involves with it a number of factors such as integration, communication, human resource,
procurement, cost, time, quality and scope. A project can successfully materialize when all of them are in place and in sync with each other, he added. However, well thought out plans and initiatives to boost up the industrial scenario of eastern India is the acute need of the hour amid all adversities such as land acquisition, infrastructure and capital inadequacy. How the industrialists and the government deal with it to strengthen the bleeding economy of the country is to be watched.
SAIL plans capex of `13,000 crore in FY’14 Steel Insights Bureau
he Steel Authority of India Limited (SAIL) plans to spend `13,000 crore in the next fiscal to part fund its ongoing expansion which will take its installed capacity to over 24 million tons per annum (mtpa). In fact, the proposed investment represents an increase of `1,000 crore than SAIL is expected to put in the current fiscal but `1,500 crore lower than the budgetary estimate for the current fiscal, the 2013-14 Budget documents revealed. The entire expenditure proposed for the next fiscal will be funded by SAIL from its internal resources. SAIL has 14 mtpa steelmaking capacity and after the `72,000-crore expansion, it will go up to 24 mtpa. Out of the `13,000 crore capex for next fiscal, Bhilai Steel Plant (BSP) is proposed to get the highest share at `5,900 crore for installation of a 700 tons per day (tpd) oxygen plant, a hot metal desulphurisation unit and a railway track. The second highest fund allocation has been envisaged for Rourkela Steel Plant in which a total of `2,400 crore will be spent for expansion and a 700 tpd oxygen plant and a coke oven gas holder among others. A sum of `1,800 crore has been earmarked for expansion of SAIL’s IISCO Steel Plant and rebuilding a coke oven battery. The Bokaro Steel Plant will get `1,425 crore for expansion and setting up of a steel processing unit at Bettiah among others. An outlay of `900 crore has been proposed to be spent towards capacity expansion at SAIL’s Durgapur Steel Plant and installation of a steel processing unit at Kangra. SAIL also plans to invest `25 crore and `45 crore at Alloy Steels Plant and Salem Steel Plant respectively. The remaining `505 crore has been
provided for its raw material division Central Units of the firm and Chandrapur Ferro Alloy Plant for various ongoing and new schemes. End-forging plant
SAIL chairman C.S. Verma has inaugurated the new end-forging plant installed in Bhilai Steel Plant’s Rail & Structural Mill for forging of thick web assymetric rails, a company release said. The new end-forged ZU – 1-60 profile of rails would be used for manufacture of track switches for the Indian Railways, the release said adding this is an important milestone in the field of import substitution. SAIL’s Bhilai Steel Plant, the sole supplier of rails to Indian Railways including long rails in lengths of 130 and 260 metres, has begun commercial production of this new profile of rails. At present, this profile is being imported by Indian Railways. The new end-forging plant has been installed at a cost of `45.54 crore approximately. The successful development of the thick web assymetric rails and installation of end forging facilities has further strengthened SAIL’s commitment to fulfill the requirement of Indian Railways. BSP production
BSP has achieved a growth of 2.2 percent, 3.2 percent and 3.0 percent, respectively
in hot metal, crude steel and saleable steel production in the 11-month period of current fiscal from April 2012 to February 2013 over the corresponding period of previous year, a company statement said. The growth registered in cumulative crude steel production has been supported by the Steel Melting Shop I achieving a growth of 4 percent and Steel Melting Shop II achieving a growth of 2.4 percent over corresponding period of previous year. The plant produced 4.76 million tons (mt) of hot metal and 4.58 mt of crude steel during the period. The plant’s Rajhara iron ore mines recorded growth of 4.4 percent over corresponding period of last fiscal year, the statement said. With Rail & Structural Mill, Merchant Mill and Wire Rod Mill recording growth of 2 percent, 15.7 percent and 8.8 percent, respectively in April to February cumulative production, a growth of 4.3 percent has been achieved in finished steel production over corresponding period of last year. The plant produced 3.99 mt of saleable steel in the April-February period. Along with the growth in the three main parameters of performance, best ever cumulative figures since inception have been achieved in production of high tensile (HT) plates, loading of Long Rails, processing of heats through ladle furnace, RH degasser & secondary routes, and labour productivity.
Steel Insights, March 2013
Corporate Production of 139,300 tons of HT plates for home sales, loading of 130,200 tons of long rails, Labour Productivity at 327.5 tons/man/year, processing of 13,252 heats through ladle furnace, processing of 12,081 heats through RH degasser and processing of 16,366 heats through secondary route were all the best ever figures for the April to February period of any fiscal year since inception, the statement added.
SAIL increases product prices by `500/ton for March
Coke oven battery at BSP
BSP has commissioned a Coke Oven Battery No 8 (COB 8) on February 28, 2013 after completion of cold repairs that had begun in January, 2012, the company said in a statement. The first oven pushing was done by S. Chandrasekaran, CEO of BSP in presence of ED (Works) Y K Degan, ED (Projects) SB Jagdale, ED (Personnel & Admin) LT Sherpa and a large number of officers of the Plant and members of the CO & CCD collective. Coke Oven Battery 8 was cooled down for cold repairs on January 11, 2012 to undertake refractory repairs, replacement of oven top equipment and hydraulic main gas lines to enable coke production from the battery. Following completion of cold repair, the battery was charged on February 27, 2013 and commissioned on February 28, 2013, thus further strengthening BSP’s production facilities in the last quarter of the current fiscal year, the statement said.
BSP’s coke oven battery
48 Steel Insights, March 2013
SAIL, the largest domestic steel maker, has increased the prices for its products by up to Rs. 500 per ton for March, senior company’ officials said. According to officials, the price hike has been implemented for all the products, so that they can be aligned with the international prices. “The (price) correction was required, prices in international markets are rising. Coking coal prices have gone up by $15-20 per ton (internationally) in recent times, other input costs have also increased. So we had to increase the prices, its up to `500 per ton increase,” C.S. Verma, chairman and managing director was quoted as saying in media reports. The battery was cooled down for repairs due to adverse condition. The thermal shocks combined with the advanced age of the battery had caused deformation in the structure of the battery including Anchor Column, Armour Frame, Door Frame & Hydraulic Main, causing continuous burning in the battery. The machines working in the battery were frequently under breakdown because of the disturbance in the battery structure. Only 27 ovens were in operation at the time of shutting down of the battery for cold repair. Early completion of repairs could be achieved with the combined contribution of various agencies like Contract Cell, Finance, Material Management, CED, Instrumentation and other departments who rose to the occasion as one and helped in completion of repairs and commissioning of battery within a period of 14 months.
SAIL posts 23% drop in Q3 profit Steel Insights Bureau
teel Authority of India Limited (SAIL) posted 23 percent drop in profit for the quarter ended December 30, 2012 to `484 crore, down from `632 crore in the corresponding period previous year, weighed by higher input and wage costs and sluggish sales. Sales turnover for the OctoberDecember quarter of 2012-13 rose 1 percent to `11,801 crore from `11,686 crore in the corresponding period of previous year. In October-December 2012 quarter, total sales by SAIL grew 5.1 percent and production of saleable steel was up 1.8 percent compared to corresponding period of previous year. The techno-economic parameters registered significant improvements with Blast Furnace productivity up 3.9 percent, energy consumption down 2.1 percent and coke rate down 1.2 percent. Lower NSR due to a subdued market and increase in royalty of raw materials impacted the profitability of the company. The SAIL board approved an interim dividend for its shareholders at 16 percent of the company’s paid-up capital, as against the interim dividend of 12 percent last year.
C S Verma, CMD, SAIL
The cumulative net worth of the company in April-December period of 2012-13 period, increased from `38,811 crore to `40,771 crore. The April-December 2012 period, saw development of new products in the company. SAIL Bhilai Steel Plant supplied special soft iron magnetic plates for the prestigious India-based Neutrino Observatory (INO) project of Bhabha Atomic Research Centre (BARC). SAIL plants at Bokaro and Salem started production of IS 2062 E450 and E 350 HR Coils tailor-made for Indian Railways. During the current financial year, significant progress was made in the modernisation and expansion projects, especially at Rourkela (RSP) and IISCO (ISP) Steel Plants. At RSP, the new sinter plant has commenced production. The new Coke oven Battery and the 4060 m3 blast furnace at this plant are also ready and likely to commence production in a couple of months. At ISP, despatches from the new Sinter Plant to Bokaro Steel Plant have already commenced. The new coke oven battery, the power & blowing station and the wire rod mill are also ready for commencing operations from this month itself at Burnpur. C.S. Verma, chairman, SAIL said, “2013 is a crucial year for SAIL, with new capacities coming up in its plants. With strong signals of growing investment in infrastructure SAIL is well positioned to benefit from the growth phase of the economy and steel industry in near future.”
Steel minister Beni Prasad Verma has congratulated the Steel Authority of India Ltd (SAIL) for crossing the `40,000 crore net worth mark for the first time this year since inception but has expressed his concern over the drop in profit of the company. While reviewing the third quarter (October-December) performance of SAIL, the minister asked the SAIL management to take necessary steps to improve the performance. In the third quarter SAIL has recorded sales growth of 5.1 percent and production growth of 1.8 percent in saleable steel as against corresponding period last year. Acknowledging successful efforts in the R & D area, Verma appreciated SAIL Bhilai Steel Plant for supplying tailor made special soft iron magnetic plates for the prestigious India based Neutrino Observatory project of Bhabha Atomic Research Centre. He also encouraged SAIL’s plants in Bokaro and Salem for starting production of IS 2062 E450 and E 350 HR coils, for the Indian Railways by Bokaro and Salem plants of SAIL.
Steel Insights, March 2013
Tata Steel’s consolidated Q3 net loss widens Steel Insights Bureau
ata Steel posted a consolidated net loss of `763 crore in the quarter ended December 31, 2012 compared to a net loss of `603 crore in the corresponding period of the previous year. Group consolidated turnover was at `32,107 crore compared to `33,103 crore in the same period last year. Group EBITDA in the third quarter was at `2,252 crore compared to `2,023 crore in the same period last year. The Group’s steel deliveries in the third quarter stood at 5.83 million tons (mt) against 5.84 mt in the same period last year. Tata Steel managing director H.M. Nerurkar said: “The Indian operations performed steadily despite the overall weak steel demand situation in India. Our ability to achieve sequential volume growth in a difficult market reaffirms the strength of our distribution channels and customer orientation strategy.”
“Government reform initiatives and the reduction in interest rates should help boost steel demand. During the quarter, we continued to ramp up the production from Jamshedpur and we expect to achieve rated capacity utilisation levels by the end of current financial year,” he said. He said the company remains focused on the Kalinganagar project execution and has mobilised significant resources on site to achieve the project timelines. Dr Karl-Ulrich Köhler, MD & CEO of Tata Steel in Europe said: “Sliding demand
Tata Steel takes delivery of first cargo of iron ore from Northland Resources Tata Steel has taken delivery of the first shipment of iron ore from a new iron ore supplier, Northland Resources. The MV Star Norita arrived at Tata Steel’s IJmuiden terminal in the Netherlands on 2 March loaded with 55,000 tons of high-grade iron ore pellet feed, the company said in a statement. The ore comes from Northland Resources’ new mine, Kaunisvaara, in Sweden and was shipped via the Norwegian port of Narvik. It is thought Kaunisvaara could be the first entirely greenfield iron ore mine to start up in Europe for several decades. Kees Gerretse, Tata Steel’s Group Procurement Director, said: “New sources of iron ore do not come to market every day, especially in Europe. We are delighted that Northland Resources has successfully shipped its first cargo from its new mine and look forward to receiving further shipments as our relationship grows under our long-term supply contract.” The contract between Tata Steel and Northland Resources envisages 6 million tons of Kaunisvaara iron ore of more than 69% iron content being delivered over a 7-year period. A second cargo for Tata Steel is due to start loading in late March or early April.
50 Steel Insights, March 2013
was a key problem for European steelmakers in 2012 and this was reflected in our December quarter deliveries.” “With the restart of the No 4 blast furnace at Port Talbot this week, we have regained our normal operational and logistical flexibility, enabling us to improve our delivery performance and our service to customers. This, together with the improvements we continue to make in our product range and our customer relationships, will further strengthen our ability to make a difference to our customers’ business performance,” he added. Coke oven battery 10
Tata Steel’s newly commissioned coke oven battery 10 is expected to reach its rated capacity of 0.7 mtpa by April 2013 even as the company expects to reach the rated capacity of its new pellet plant during the financial year 2013-14, an official said. The coke oven battery 10 was commissioned in December 2012, the official said. Pellet plant is passing through a phase of stabilisation and has produced a total of 1.94 mt of pellets during the first nine months of 2012-13, with a production of 0.83 mt during the October-December 2012 quarter, the official said. Meanwhile, Tata Steel’s “I” Blast Furnace has stabilised and the April-December 2012 production was 2.02 mt. The production from this furnace was 0.78 mt during the third quarter October-December of 2012-13.
KBL inaugurates ARC facility at Jamshedpur
Inauguration of ARC at Jamshedpur
Steel Insights Bureau
irloskar Brothers Limited (KBL), a global fluid management company, inaugurated its third Authorised Refurbishment Centre (ARC) in India at Jamshedpur on February 6, 2013. The new facility, which was inaugurated by H.M. Nerurkar, managing director, Tata Steel Limited, is well equipped with state-ofthe-art facility to service, repair and improve efficiency for all small, medium and large pumps manufactured by KBL, a company statement said. Kirloskar Brothers Limited has six manufacturing plants in India and seven outside India, and has now embarked on the ARC, the third of which is being set up in Jamshedpur. The main objective behind commencing this new facility is to provide its customers with better conveniences of saving transportation cost, reduction in downtime and saving energy by upgrading the pumps. The facility will offer services like overhauling of pumps, hydro testing, corrocoating, performance enhancement, testing, shot blasting & painting and will also cater to customers having annual maintenance contract (AMC). Speaking on the occasion, Sanjay Kirloskar, chairman & managing director
of Kirloskar Brothers Limited said, “The refurbishment Centre in Jamshedpur is yet another innovative initiative by Kirloskar Brothers to build up a stronger bond with our customers. And it will address the service needs of our esteemed customers in and around Jamshedpur. We are planning to set up similar refurbishment centers at different locations in India.” “All our initiatives at KBL are undertaken keeping in mind our vision to be the world’s top five pump manufacturing company by preferred choice of customer,” he added. Commenting on the inauguration, Ravindra Murthy, vice president & business head, Customer Service & Spares, KBL said, “The refurbishment centre in Jamshedpur adds another feather to KBL’s cap. We at Kirloskar Brothers Limited have always believed in customer care and focused on delivering best of technology and services to fulfill the needs of our consumers.” He further added that the new initiative of Customer Care Portal on latest Version 7.1 of SAPCRM will bring KBL closer to the existing and potential customers. The facilities at Jamshedpur ARC will provide real-time cost effective solutions to them and this is yet another step towards realising KBL’s vision of providing sustainable and competitive advantage.
Shriram Automall launches website to encourage biz in preowned cars In a bid to reach out to a wider customer base, Shriram Automall has launched its corporate website (www.samil.in), which showcases an extensive range of services dedicated to the transport industry. The website will help consumers overcome physical barriers by presenting a chance to virtually check the options and physically verify the same at an offline location. Only when the buyer is satisfied at both the junctures, will a transaction be made. This approach will be an advantage in addition to the offlineonly pattern employed. The website has a user-friendly interface and provides a safe-secure platform for transactions. Customers can visit the website and search for year-round events and participate in the online and physical bidding events. Umesh Revenkar, Managing Director, Shriram Transport Finance Company Ltd, said, “Shriram Automall is a one-of-its-kind initiative for the trading of pre-owned vehicles, which is gaining popularity by the day. The Automall has been a successful medium for ‘Shriram Transport’. It has helped us create new clientele base and also fulfill the needs of existing valued customers. In today’s world, social media is a very useful platform that helps a business expand at a faster rate. We are confident that our online vehicle trading segment will provide an enhanced user experience to our customers, and also help us reach a wide spectrum of customers.” India’s used vehicle segment and market holds great potential. But owing to lack of organization and due to persistent decentralization, prices and vehicle types vary to a great extent.
Steel Insights, March 2013
JSW Steel’s consolidated net loss widens
Night vision of JSW’s Vijayanagar plant
Steel Insights Bureau
SW Steel Limited’s consolidated net loss widened to `74 crore for the quarter ended December 31, 2012 mainly on account of poor performance by associate firm JSW Ispat and `268-crore hit due to exchange fluctuation. The company had recorded `48 crore net loss after tax and after share of profits of minority and associates in the corresponding period a year ago, it said. “The consolidated loss of `74 crore for the quarter was primarily due to losses reported by associate company JSW Ispat Steel Ltd,” the company said in a statement. The net loss incurred by JSW Ispat during the quarter stood at `131 crore. “Net loss (for JSW Ispat) was `131 crore after considering forex loss of `83 crore on restatement of foreign currency monetary items which was considered by the company as an exceptional item,” the statement said. Due to the significant movement in the value of the rupee against US dollar, the net foreign exchange gain/loss has been considered by the company as an exceptional loss, it added. The forex loss during the
52 Steel Insights, March 2013
quarter stood at `268 crore. The company reported a 5 percent jump in net sales to `8,866 crore during the October-December quarter against the corresponding quarter in the previous fiscal. It had reported a net sales of `8,405 crore during the third quarter in 2011-12. Total expenses of the company during the quarter under review stood at `8,119 crore as against `7,602 crore in the year-ago period. The company’s consolidated net total debt gearing stood at 1.15 as against 1.04 as on September 30, 2012, it said. Meanwhile, the company said it has reported a drop of 11 percent in its crude steel production at 7.16 lakh tons in January and attributed the decline to iron ore shortage. The company had produced 8.05 lakh tons crude steel in January 2012. “The production was impacted in January 2013 due to poor quality and insufficient availability of iron ore. The restrictions imposed by Odisha government on movement of iron ore to other states have further restricted the availability of ore to Salem plant,” it said. The production of long products declined by 3 percent to 1.46
lakh tons in January from 1.51 lakh tons in January 2012 while the output of flat products declined by 1 percent to 5.89 lakh tons from 5.95 lakh tons in January 2012. JSL Q3 net loss
India’s largest stainless steel producer Jindal Stainless Limited (JSL) posted a net loss of `257 crore in the October-December quarter. The loss is larger than losses it posted in the previous quarter and the same quarter last year. JSL said its results were adversely impacted during the quarter by subdued global economic conditions, depreciation of the Indian rupee and ongoing ramp-up at its Odisha stainless steel works. JSL registered net loss of in `152 crore in July-September 2012 and `110 crore in October-December 2011. The steelmaker booked revenue of `2,584 crore in OctoberDecember 2012, an increase of 4.9 percent quarter-on-quarter, but it was not enough to offset its expenses which rose 4.6 percent q-o-q to `2634 crore in the quarter. JSL’s net loss totaled `641 crore in nine months ended December 2012.
Metal cos show mixed results in Q3 Steel Insights Bureau
ountry’s largest iron ore producer NMDC’s net profit fell 30.45 percent year-on-year to `1,292 crore in the third quarter of financial year 201213. Total income too was below expectations at `2,047.7 crore in December quarter, down 27.4 percent compared to `2,822 crore in a year ago period. Operating profit margin fell quite sharply to 67.9 percent in the third quarter of FY13 as against 80.1 percent in the corresponding quarter of last fiscal. Selling expenses including freight increased four times year-on-year to `176.4 crore during the quarter. JSPL net falls 13% to `867 crore in Q3
Jindal Steel & Power posted a 13 percent fall in consolidated net profit for the October to December quarter. Net profit for the three months to December 2012 stood at `867 crore as compared to `997 crore for the quarter ended December 31, 2011, JSPL said. Total sales increased over 9 percent from `4,400 crore for the quarter ended December 31, 2011 to `4,813 crore for the quarter ended December 31, 2012. Shares in JSPL traded near the day’s low, down 3.5 percent to `391.80 on the BSE, as of 2 p.m. The stock underperformed the broader BSE metal index, which traded 0.7 percent lower. Texmaco posts 225% rise in Q3 net y-o-y
Texmaco Rail & Engineering Ltd, “ADVENTZ” group company, posted 225 percent rise in net profit for the third quarter ended December 31, 2012 to `34.93 crore compared to `10.74
crore in the corresponding period previous year. Total income from operations rose to `242.51 crore in the third quarter of the current financial year from `96.45 crore in the same period last year. There is continuing delay in inviting the tender for 2012-13 by Indian Railways, which as per latest indications is expected to be issued shortly, the company said in a statement. The performance of Steel Foundry Division, which is also linked with Rolling Stock Division, could be better but for the delay in release of wagon tender by Indian Railways, the company said. The company’s hydro mechanical equipment division has strong order book position of approximately `400 crore, and the execution of new orders bagged by the company shall commence in the early part of the next financial year. The division’s performance against a major order for 2,000 MW Subansiri Project in Assam/Arunachal Pradesh, which has been frequently interrupted due to political agitation at site, is expected to pick up with the problems getting sorted out. The EMU coach manufacturing facility at the company’s Sodepur Works is at an advanced stage of completion and is expected to commence production around mid-2013, the company said. The company’s 50:50 JV project with UGL Rail, Australia, for manufacture of components/ sub-assemblies for global market is now ready for commencing production with full ramp up by March 2013. The 50:50 joint venture of the company ‘Touax Texmaco Railcar Leasing Pvt Ltd” formed with the French Group, Touax Rail, expects to sign off for leasing of Railcars in the near future. MOIL posts 13% rise in Q3 net
State-owned MOIL clocked 13 percent rise in net profit at `114 crore for the third
quarter ended December 2012 despite a slight dip in income. The net profit of the Nagpur-based firm was at `101 crore a year ago. Sales of the company declined to `228 crore during the quarter from `240 crore during the October-December quarter of the last fiscal, it said in BSE filing. Expenses stood at `122 crore from `137 crore a year ago, it added. Adhunik Metaliks posts 72% rise in Q3 profit
Adhunik Metaliks Limited, manufacturers of alloy, special and construction steel, posted 72 percent rise in net profit to `39.75 crore in the third quarter of 2012-13 compared to `23.11 crore in the same period last year. Total income from operations surged by 28 percent on a consolidated basis to `612.58 crore compared to `478.69 crore reported in the corresponding quarter in the previous year. “We are excited about our foray into the power sector that holds huge potential in the country. The 270 MW that was set up in Jharkhand during the quarter has been synchronised and commercial operations have begun at the unit. Adhunik Metaliks has always been focused on optimizing its cost structure at the same time mitigating business risk through diversification & focus on core area of operations,” Manoj Kumar Agarwal, Managing Director, Adhunik Metaliks, said. Usha Martin posts 18% rise in Q3 net
Specialty steel and wire rope maker Usha Martin Ltd has registered a consolidated profit after tax of `30.41 crore for the third quarter ended December 31, 2012, against `25.72 crore a year ago, an increase of 18 percent. The company’s net sales during the quarter grew 9 percent to `889.05 crore from `816.28 crore in the same period last year. However, compared with the net sales of `939.98 crore in the second quarter, sales during the period under review were lower by 5.31 percent.
Steel Insights, March 2013
Iron ore handling by major ports down 54.68% in April-January Steel Insights Bureau
ovement of iron ore through the 12 major Indian ports stood at 23.67 million tons (mt) in the April 2012 to January 2013 period, dropping as much as 54.68% from 52.23 mt in the same period last year, as per data released by the Indian Ports Association (IPA). The drop happened largely due to the restrictions imposed on iron ore mining and a hike in export duty on iron ore. Vishakhapatnam port handled the highest volume of 10.01 mt of iron ore in April-January. This volume, however, was about 15.17 percent lower than the iron ore
traffic moved through the port in the same period last year. According to the data, the ports handled a total of 24.12 mt of coking coal during the period, up 0.24 Traffic handled at major ports percent as compared (During Apr-Dec, 2012* vis-a-vis Apr-Dec, 2011) with 24.06 mt (*) Tentative (in '000 tons) handled in the same period last year. April to January traffic % Variation against Ports Movement of prev. year traffic 2013* 2012 coking coal through KOLKATA Paradip, Kolkata, Kolkata Dock System 9609 10230 -6.07 Visakhapatnam and Chennai ports Haldia Dock Complex 22793 26495 -13.97 declined during TOTAL: KOLKATA 32402 36725 -11.77 the period when PARADIP 46610 45540 2.35 compared to the VISAKHAPATNAM 49153 57943 -15.17 corresponding period last year. ENNORE 14264 12064 18.24 The total traffic CHENNAI 44336 47084 -5.84 handled by the ports V.O. CHIDAMBARANAR 23560 22915 2.81 during the period stood at 453.73 mt, COCHIN 16536 16711 -1.05 about 2.86 percent NEW MANGALORE 30494 26964 13.09 down from 467.09 mt MORMUGAO 15934 31994 -50.20 recorded during the MUMBAI 48522 45151 7.47 same period last year. The movement JNPT 53765 55443 -3.03 of thermal coal KANDLA 78154 68563 13.99 through the major TOTAL 453730 467097 -2.86 ports was up 15.6 Source: IPA percent to 47.60 mt
54 Steel Insights, March 2013
during April-January, compared to 41.17 mt achieved in the same period last year. Movement of container traffic in terms of tonnage fell in the April-January period, while that of TEUs also dropped during the period. The major ports handled 99.90 mt of tonnage and 6.43 million TEUs in AprilJanuary period compared to 100.59 mt of tonnage and 6.52 million TEUs in the same period last year. Among the major ports, Paradip port had the distinction of handling the highest volume of thermal coal of around 17.30 mt in April-January period. Visakhapatnam port handled the highest quantity of 5.90 mt of coking coal during the period. Six major ports showed negative growth in traffic handling during the April-January period of the current fiscal, while the remaining six showed positive growth on a year-on-year basis. In terms of growth, Ennore port topped the list with 18.24 percent increase in cargo throughput. Paradip portâ€™s growth was lowest at about 2.35 percent during the period. In terms of traffic volume, Kandla port clinched the top rank with a cargo volume of 78.15 mt recorded for the period. The Mormugao port registered the highest decline of 50.20 percent in traffic handling during the period due to a fall in iron ore export.â€‚
Railways iron ore handling up 6% m-o-m in January Steel Insights Bureau
he Indian Railways transported 10.02 million tons (mt) of iron ore in January 2013, moving up around 6% from 9.46 mt the month before, as per information available with Steel Insights. Revenue from transportation of iron ore for exports, steel plants and for other domestic user in January rose to `670.85 Commodity-wise revenue Commodity
Quantity (in mt)
Earning (in `cr)
Coal i) for steel plants ii) for washeries
i) from steel plants
ii) from other points
i) for export
ii) for steel plants
iii) for other domestic users
Mineral Oil (POL)
iii) for thermal power houses iv)for public use v) Total Raw material for steel plants except iron ore Pig iron and finished steel
Container Service i) Domestic containers
ii) EXIM containers
Balance other goods Total revenue earning traffic Source: Indian Railways
crore, up 15.32 percent from `581.75 crore in December. Overall, the Indian Railwaysâ€™ revenue earnings from commodity-wise freight traffic rose month-on-month in January, mainly due to higher transportation of coal and iron ore. Revenue earnings from commodity-wise freight traffic during January 2013 stood at `7,903.35 crore, up 5.49 percent compared with `7,491.74 crore earned in December. The Indian Railways transported 46.12 mt of coal in January 2013, up by 3.64 percent from 44.5 mt in December 2012. Revenue earnings from transportation of coal also increased to `3,457.96 crore in January from `3,347.27 crore in December. Revenue from transportation of cement in January stood at `745.23 (9.64 mt) as compared to `674.78 (8.72 mt) in December, while that from food grains transportation increased to `660.77 (4.65 mt) in January from `596.54 (4.24 mt) in December. The Railways revenue from transportation of fertilizers in January rose to `485.74 crore (4.45 mt) from `480.23 crore (4.38 mt) in December. Revenue from transportation of petroleum oil and lubricant (POL) in January stood at `425.52 (3.52 mt), while the same from pig iron and finished steel from steel plants and other points was `477.58 crore (3.2 mt). Revenue from container services was `360.54 crore (3.79 mt) and from transportation of other goods was `515.51crore (5.92mt).â€‚
Steel Insights, March 2013
Macroeconomic indicators of India Steel Insights Bureau
India’s foreign exchange reserves further dropped $1.602 billion in the week ending February 22, 2013, to $291.916 billion after falling by almost $1.02 billion in the previous week to $293.51 billion. For the week ended February 22, 2013 the reserves fell on the back of a significant dip in Foreign Currency Assets (FCAs) by $1.556 billion to $258.228 billion while SDRs were down $29.9 million to $4.376 billion and the country’s reserve position in IMF was down $16 million to $2.335 billion. Gold reserves however, remained unchanged at $26.97 billion.
in Rupees crore
Inflation rate in India
2-Mar-12 16-Mar-12 30-Mar-12 13-Apr-12 27-Apr-12 11-May-12 25-May-12 8-Jun-12 22-Jun-12 6-Jul-12 20-Jul-12 3-Aug-12 17-Aug-12 31-Aug-12 14-Sep-12 28-Sep-12 12-Oct-12 26-Oct-12 9-Nov-12 23-Nov-12 7-Dec-12 21-Dec-12 4-Jan-13 18-Jan-13 1-Feb-13 15-Feb-13 in Million $
The INR continued to remain bearish against the USD in February but managed to recover slightly towards the end of the month with exporter and corporate dollar sales aiding the recovery. The INR, which fell 2.1 percent in February touched 54.48 during February which was its lowest during the month. It ended the month at 53.77 against USD. Experts expect the INR to touch 55 in the coming months with little signs of improvement in the economy.
in Rs crore
in million $
Foreign Exchange Assets
72 70 68 66 64 62 60 58 56 54 52 50 48 46 44 42 40
INR vs GBP & YEN
INR vs USD & EURO
INR movement against select major currencies
Source : OEA, GoI, Ministry of Commerce & Industry
230 220 210 200 190 180 170 160 150 140 130 120 110
Wholesale price index (Selected categories)
India’s wholesale price inflation in January slowed to below 7 percent for the first time in more than three years to 6.62 percent, providing some comfort to policymakers and making way for monetary policy rate revision in an economy set to expand at its weakest pace in a decade. However, consumer price inflation was at 10.79 percent in January indicating that the benefits of the slowing wholesale inflation aren’t percolating to consumers.
Index of Industrial Production
185 165 145
All Commodities Manufactured Products Basic Metals Alloys & Metal Products
Primary Articles Fuel & Power Steel
Source : OEA, GoI, Ministry of Commerce & Industry
India’s wholesale price index (WPI) (Base 2004-05=100) stood at 169.2 in January 2013 almost similar to 168.6 recorded in the previous month. WPI for November this year was however unchanged at 168.8 this month. The index for primary articles group increased by 10.31 percent to 221.4 from 200.7 in January the previous year. The index for manufactured products group also rose by 4.81 percent to 148.3 from 141.5 in January 2012. Fuel and power index rose 7.06 percent to 189.5 from last year while index for basic metals and metal alloys rose by 2.98 percent to 166 for the month. Steel index however remained unchanged.
56 Steel Insights, March 2013
125 105 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Mining & Quarrying Electricity
Manufacturing General Index
Source : Govt. of India, MoSPI
India’s industrial output in December decreased 0.6 percent to 1.1 percent for a second straight month, weighed down by weak investment and consumer demand. This has added to an economic gloom, increasing demands for fast-paced fiscal reforms and aggressive monetary easing to revive growth. Manufacturing output, which accounts for the bulk of industrial production, fell 0.7 percent in December from a year earlier.
Global crude steel production up 2.8% m-o-m in Jan Chandrika Mitra
orld crude steel production for the 62 countries reporting to the World Steel Association (Worldsteel) rose by 2.89 percent to 124.799 million tons (mt) in January 2013 as compared to that reported in December 2012 at 121.293 mt. Again, crude steel production for January 2013 was higher by 0.83 percent compared to 123.768 mt in January 2012. In January 2013, Asia produced 82.325 mt of crude steel, an increase of 3.98 percent over January 2012. The EU produced 13.452 mt of crude steel in January 2013, down by 4.99 percent compared to the same month of 2011. North America’s crude steel production in January 2013 was 10.139 mt, 2.99 percent lower than the corresponding month of 2011.
China, the single largest producer, produced 59.339 mt of crude steel in January this year, an increase of 4.59 percent as compared to the corresponding period in 2011, when production stood at 56.733 mt. Again, m-o-m production saw a fall of 2.92 percent as compared to December 2012’s produce of 57.656 mt. Elsewhere in Asia, Japan produced 8.865 mt of crude steel in January 2013, an increase of 2.72 percent compared to the same month last year. India’s production for January 2013 stood at 6.6 mt, up 3.82 percent compared to January 2012. South Korea produced 5.751 mt during the same period, a 0.38 percent decrease on the same month 2011. In the EU, Germany produced 3.6 mt of crude steel in January 2013, an increase of 5.4 percent on January 2012. Italy’s crude steel production was 1.8 mt, down by 19.7
percent compared to January 2012. France’s crude steel production was 1.4 mt, down by 1.3 percent on January 2012. Spain produced 1.1 mt of crude steel, 2.5 percent lower than January 2012. In January 2013, Russia produced 5.7 mt of crude steel, a decrease of 5.7 percent compared to the same month last year. Ukraine’s crude steel production for January 2013 was 2.7 mt, 4.4 percent less than January 2012. Turkey’s crude steel production for January 2013 was 2.9 mt, a decrease of 8.8 percent compared to January 2012. The US produced 7.3 mt of crude steel in January 2013, down by 5.8 percent on January 2012. The crude steel capacity utilisation ratio for the 62 countries in January 2013 declined to 71.2 percent from 73.2 percent in December 2012. Compared to January 2012, it is 5.5 percentage points lower. It is to be noted that the March 2012 to January 2013 data covers 62 countries while March 2011 to December 2011 contains 64 countries. In January and February 2012, only 59 countries are covered as three African countries, Algeria, Libya & Morocco while two Middle East countries Iran and Qatar did not provide monthly production statistics.
World crude steel production Apr 2012 European Union (27)
in ‘000 tons
Jan 2013/ Jan 2012 (% change)
Asia Oceania Rest of the world except China World Source: WSA
Steel Insights, March 2013
Domestic flat & long markets
Segments remain soft on subdued demand Steel Insights Bureau
fter exhibiting a slightly bullish trend in the first fortnight of the month of February, long steel prices failed to hold the optimism in the market. The sentiment took a hit as transaction activities slowed down and buyers adopted a wait-andwatch approach as the Budget raised a lot of speculation in the market. The market participants are not willing to make any investment decision at the moment till they know what the budget has to offer them. As per market sources, the prices continued to trade in a tight range in limited deals and settled either around the previous levels or experienced a hint of correction. The liquidity crisis is still there among the buyers which is acting as a dampener in the market and making the correction inevitable every time. The steel ingot market remained stable. The prices did not show much movement across the ingot market of the country by and large. The market for billets and blooms
remained more or less stable. The buying activities that witnessed a slight uptick in the initial two weeks of February saw a slight slowdown in the last week. However, the prices still remained stable. Finished steel market remains quiet
steelmakers are braced for sluggish demand and tight liquidity in the domestic hot rolled coil market to continue for several more weeks or even months. Demand was so weak that even now customers were still grumbling that the price hikes (announced for February) will be rolled back. The economic growth was also dismal and there was no euphoria in any of the steel-consuming and other sectors. This was pressuring steel market sentiments and prices, with domestic mills unable to secure price increases despite import offers remaining uncompetitive. The irony is that whichever way one looks at – import prices, weak rupee – there is no reason that these higher prices should not hold. Yet the market is unable to hold them.
The market for finished long steel items like TMT, angles, channels, joists, Domestic HR coil prices etc remained by and large quiet in (HRC - 2.5mm – cold rolling) February. The transaction activities Date Kolkata Kanpur Delhi have remained slow as the buyers are not very keen to go for new 17 Jan 2013 35940 37480 36440 investment plans till they know that 25 Jan 2013 35680 37050 36440 what is coming out of the budget. 01 Feb 2013 35510 36790 36440 Flat steel market
08 Feb 2013
15 Feb 2013
The domestic steel market continued 18-Feb-13 35090 36790 36710 to be slow in February as the sluggish The above prices are in `/MT (basic) demand, tight liquidity in the Source: Insights Research market, droopy end users segment continued to plague the market. The hike Sales volumes have not been very in the prices was not accepted by the buyers encouraging, although the volume has at as result the transaction activities continued least not declined so far. to remain weak pressurizing the domestic Transaction prices in the market are market sentiments down. presently at `33,750-34,250 per ton ex-works Market experts feel that Indian for structural HRC, 3mm thick and above. Some Indian exporters of hot-dip Ingot price trend galvanized coils lifted export offer prices to Places Feb 25 Feb 23 Feb 22 Feb 21 Feb 20 Feb 19 Feb 18 Feb 16 the USA by $15-20 per ton but saw little Raipur 29250 29300 29400 29300 29200 29300 29300 29300 buying interest in response. Some galvanizers were said to be offering 0.3mm thick soft Durgapur 28840 28840 29010 29180 29100 29000 29000 29100 coils with 90 grams/square meter zinc Mandi Gobindgarh 31750 31700 31750 31800 31900 31750 31600 31600 coating at $905-910 per ton cfr USA – price Prices in `/ton is basic levels that were last seen in mid-June 2012. The higher-priced offers came on the back TMT prices at Raipur of higher hot rolled coil prices in both the Dates 28 Jan 2013 2 Feb 2013 9 Feb 2013 19 Feb 2013 25 Feb 2013 domestic and international markets. AC-TMT 33110 33010 33350 33350 – The imports into the country have slowed AC-TURBO 33410 33010 33400 33400 33400 down with the rise in international prices NIRMAN – – 33500 33500 33200 ahead of the Chinese New Year coupled with PRIME GOLD -– – 33800 33800 – the weak rupee. Import offers into India were SUPER 33000 32800 33200 – 33100 also sparse for Japanese and Korean origin ATLAS – – – – 33400 HRC as mills there had secured sufficient order bookings for February production. The above prices are in `/ton (basic) Source: Insights Research
58 Steel Insights, March 2013
Market Report Scrap Import Market Scenario as on Feb 25, 2013
Domestic raw materials
Markets in wait-and-watch mode, remain steady
(in $/ton cfr)
PORTS NHAVA SHEVA KANDLA
Source: Insights Research
Steel Insights Bureau
he domestic scrap market remained somewhat steady in February with demand moving up very marginally towards the end of the month. The trade Melting scrap price trend Date
union strike during the month also halted the scrap trade. HMS 80:20 scrap prices across all the major cities of the country remained either steady or dropped by `200 per ton. The mood in the Indian scrap market was one of wait and watch as traders (` per ton) expected some Kandla Chennai improvement in 22400 23500 the first week of 22600 23500 March after the 22500 23500 declaration of the 22400 23500 Budget.
Neelachal Ispat Nigam Ltd (NINL) kept unchanged both their steel and foundry grade pig iron prices at `22,000 per ton (basic) and `22,500 per ton (basic) respectively for the month of
The above prices in `/ton (basic)
Source: Insights Research
February. The market remained quiet and sluggish. After exhibiting a slightly bullish trend in the first fortnight of the month of February, the opening week of the last fortnight failed to hold the optimism that was witnessed in the market. The sentiment took a hit as transaction activities slowed down and the buyers adopted a wait-and-watch mode for the time being as the budget is raising lot of speculations in the market. The market participants are not willing to make any investment decision at the moment, sources said. As per market sources, the prices continued to trade in a tight range in limited deals and settled either around the previous levels or experienced a hint of correction. The liquidity crisis is still there among the buyers which is acting as a dampener in the market and making the correction inevitable every time. Sponge iron in Indian markets (in `/ton basic)
Source: Insights Research
Indian sponge iron manufacturers do not see any major correction in prices going forward. In the past one month major markets like Raipur, Hyderabad, Rourkela and Durgapur witnessed change of around `200-400 per ton. However, analysts feel there is no room for further reduction of prices going forward.â€‚
Steel Insights, March 2013
Indicative market price for January 2013 Steel Insights Bureau (` per ton) Sl. No.
BILLETS 100 MM
BLOOMS 150X150 MM
WIRE RODS 6 MM
WIRE RODS 8 MM
ROUNDS 12 MM
ROUNDS 16 MM
ROUNDS 25 MM
TOR STEEL 10 MM
TOR STEEL 12 MM
TOR STEEL 25 MM
ANGLES 50X50X6 MM
ANGLES 75X75X6 MM
JOISTS 125X70 MM
JOISTS 200X100 MM
CHANNELS 75X40 MM
CHANNELS 150X75 MM
PLATES 6 MM
PLATES 10 MM
PLATES 12 MM
PLATES 25 MM
H. R. COILS 2.00 MM
H. R. COILS 2.50 MM
H. R. COILS 3.15 MM
C. R. COILS 0.63 MM
C. R. COILS 1.00 MM
G. P. SHEETS 0.40 MM
G. P. SHEETS 0.63 MM
G. C. SHEETS 0.40 MM
G. C. SHEETS 0.63 MM
MELTING SCRAP H M S - I
MELTING SCRAP H M S - II
SPONGE IRON (COAL BASED)
NOTE: (1) All prices are in Rs./Tonne and has been compiled on the basis of average of Main & Others producers’ price. (2) Prices are inclusive of Excise Duty & Sales / Vat Tax (3) All prices are as on 15 day of every month (4) Prices are indicative.
60 Steel Insights, March 2013
Production, imports, exports, availability & apparent consumption (provisional) April - January 2013 Steel Insights Bureau (in â€˜000 tons)
FINISHED STEEL PRODUCERS
Non-Alloy Steel (Carbon) 2012 - 13 (Prov.)
2011 - 12 (Final)
2012 - 13 (Prov.)
2011 - 12 (Final)
(b) Prod. of Major Producers $
Less : IPT/Own Consumption
(c) Total Production for Sale
(d) Imports $
(e) Exports $
(e) Availability (c+d-e) (f) Variation in Stock (g) Apparent Consumption (e-f) Less : Double Counting Real Consumption Source: Steel Ministry
62 Steel Insights, March 2013
2012 - 13 (Prov.)
(a) Prod. of Main Producers
2011 - 12 (Final)
Ferro alloys & metals price trends Steel Insights Bureau Ferro alloys & Metals
Ex-works Rs/ ton Ferro Silicon (Si - 70%) 71750
Ex-works Rs/ ton HC Ferro Chrome (Cr - 60%) 71500
Ex-works Rs/ ton HC Ferro Manganese (Mn - 70%) 52500
Ex-works Rs/ ton Silico Manganese (Mn - 60%, Si - 14%) 53500
Ex-works Rs/ ton MC Ferro Manganese ( Mn - 70%, C -1.5) 76500
Ex-works Rs/ kg Ferro Vanadium 863
Ex-works Rs/ kg Ferro Moly (Mo - 60% min) 1045
Ex-works Rs/ ton Ferro Titanium (Ti - 30%) 155500
Steel Insights, March 2013
Iron Ore data
Iron ore export data for January 2013 Steel Insights Bureau Port
Fe Content 57
63 57 19-Jan-13
Unit Price (in Rs/ton) 4,308
GANGAVARAM Total PARADIP
Quantity (in tons.)
3-Jan-13 JAPAN 8-Jan-13 SOUTH KOREA
64 Steel Insights, March 2013
Iron Ore data
Iron ore import data for January 2013 Steel Insights Bureau Port
Unit Price (in Rs.)
Unit Price (in $)
IRON ORE PELLETS
IRON ORE PELLETS
IRON ORE PELLETS
IRON ORE LUMPS (FE 63.50%)
IRON ORE PELLETS
IRON ORE LUMPS (FE 63.50%)
IRON ORE LUMPS (FE 63.50%)
IRON ORE PELLETS
IRON ORE LUMPS (FE 63.50%)
IRON ORE PELLETS
IRON ORE LUMPS (FE 63.50%)
IRON ORE PELLETS (BF ACID PELLETS 65)
IRON ORE PELLETS
IRON ORE PELLETS
IRON ORE PELLETS
IRON ORE LUMPS (FE 63.50%)
IRON ORE PELLETS
IRON ORE PELLETS
IRON ORE PELLETS
IRON ORE LUMPS (FE 63.50%)
IRON ORE PELLETS
9-Jan-13 11-Jan-13 15-Jan-13
21-Jan-13 22-Jan-13 23-Jan-13
IRON ORE PELLETS
IRON ORE PELLETS
IRON ORE PELLETS
KANDLA Total MUNDRA
Quantity (in tons)
Country Of Origin
IRON ORE PELLETS
MUNDRA Total PARADIP
IRON ORE PELLETS
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Steel Insights, March 2013
Published on Mar 7, 2013
Steel Insights is a monthly magazine providing he widest coverage of the Indian steel industry. From iron to finished steel, technology for...