Steel Insights, April 2014

4 Steel Insights, April 2014

COnTEnTs

30 | COVER STORY BSL aims at `1500 crore profit in three years With signs of planned efforts bearing fruit, Bokaro is upbeat on better capacity utilisation .

24 | FEATuRE Industry should grow 5-6% in 2014-15: Nissan IndiaIn first six months of FY15, Nissan aims at overall market share of 10-15%.

41 | SPECIAL FOCuS Adding up the wrong numbersSelection of wrong target segments not helping steel demand growth.

18 | FEATuRE Cost of construction up 30% in 4 years Polls results can have a direct bearing on realty market sentiment.

12 | FEATuREScrap imports nearly halved in 2013-14 due to import duty In 2013-14, scrap import volumes to come down to around 4-4.5 mt.

6 IndiatakesfirststeptoresumeproductioninGoa

8 Tight iron ore market scenario to continue into FY15

16 Flat product capacity to increase 5-6 mt in 2014-15

20 Poll-itical manoeuvrings 22 A quick March for auto makers?26 Coking coal prices plummet, talks of monthly

contracts gain momentum45 Ramp-up in output main challenge in FY15:

RINL45 TRL Krosaki gets information security

certification46 Efficientscreeningmediacansaveoncost,

time48 Phoenix sets benchmark in conveyor belt

space 50 Konecranes launches new SLX electric

chain hoists 50 Siemens invests in LanzaTech51 Iron ore handling by major ports drops

12.34% in Apr-Feb52 Railways’ iron ore handling falls 9.31%

m-o-m in Feb53 Global crude steel output down 3.69% in

Feb m-o-m54 Ferro alloys market remains stagnant 55 Steel and coking coal prices remain key

talking points56 Annexure57 Price data58 Production data60 Ferro alloy data61 Iron ore data

sPECIAL fEATuRE

India takes first step to resume production in Goa

Steel Insights Bureau

After Karnataka, Indian authorities have taken the first step in the direction of a carefully monitored

resumption in iron ore mining in the top exporting state of Goa.

A committee of experts set up by the Supreme Court of India for assessing the macro-environmental impact has submitted its interim report to the court. The committee has suggested that mining in Goa may be permitted, but with an annual cap of 20 million tons once the state sets up an adequate regulatory and monitoring mechanism.

The committee, which analysed various data from different sources, said mining at the rate of 20-27.5 million tons per annum appeared sustainable, but felt capping it at 20 mtpa for now would be adequate. This was almost half of Goa’s peak iron ore output of 56 mtpa.

In its 11-point recommendation, the six-member committee said it may not be desirable to start fresh extraction without adequate regulatory and technological measures that ensure restoration of degraded landscapes and ecosystems and minimise future damage to the environment.

If the court agrees to the recommendation and does cap Goa’s export at 20 mtpa, and lifts the nearly 18-month-old mining ban, it would mean mining of less than half of that state’s peak output, and curbing potential shipments to key buyer China. What is more, analysts believe that even with 20 mtpa, the additional supply of ore from Goa could further pressure iron ore prices in a global market expected to be in surplus this year.

The Supreme Court of India had, on October 5, 2012, banned mining of iron ore and its exports, acting on a public interest litigation filed by the Goa Foundation, a non-governmental organisation (NGO).

At that time, the states of Goa and Karnataka were producing almost half

of India’s output of iron ore. Goa had accounted for about half of India’s iron-ore exports, but according to an expert panel, lost an estimated $5.8 billion because of illegal mining, following which the ban was imposed.

Ore exports from Goa had dropped to zero from 43.27 mtpa in 2011. Goa used to export 70 percent of India’s iron ore. Due to the ban, India – which was once the third-largest exporter of ore – had dropped to No. 10.

According to reports, the panel had told the court that such monitoring should continue for mining activities until the scientific study of the committee was completed, which could take probably a year.

It was only recently that the Supreme Court had allowed a relaxation in its earlier mining ban order by allowing the state government to conduct e-auction of iron ore, extracted prior to the ban.

Anticipating resumption in mining soon, the Goa state government has already started making its own moves. It announced that it would construct a dedicated mining corridor for transportation of ore from pitheads to stockyards and port.

While it is generally expected that the mining ban may be lifted in April, actual mining operations would only start sometime in October this year.

Steel Insights, April 20146

8 Steel Insights, April 2014

sPECIAL fEATuRE

Tight iron ore market scenario to continue into FY’15

Steel Insights Bureau

The tight iron ore market situation will continue into financial year 2014-15 as demand is expected to increase

from new capacities coming on stream and a ramp-up in demand from the plants commissioned in 2013-14, and there will not be much of a correction in domestic iron ore prices in the near term, feel industry experts and analysts.

“Incremental supplies would be marginal as ramp-up at the Karnataka mines would be slow. Moreover, the Shah Commission has recommended capping of Odisha’s iron ore output at 50-55 million tons against the

current 69 mt. As a result, the impact of the sharp decline in global iron ore prices on domestic iron ore rates would be minimal. There is not likely to be much correction in domestic iron ore prices in the near term,” said an analyst report.

The domestic iron ore market has remained tight over the last two years because of several regulatory caps on Karnataka, Goa and Odisha. While mining still remains banned in Goa, it has been partly opened up in Karnataka with restrictions.

Domestic iron ore output, which declined 18.7 percent y-o-y to 139 mt in 2012-13, is expected to remain at same levels driven by output in Karnataka and Orissa. However, India’s iron ore exports saw a 27.6 percent

NMDC records 11% rise in production

NMDC Ltd, India’s largest iron ore miner, produced 30.18 million tons (mt) of iron ore in 2013-14, an increase of 11 percent from the previous year and a record high, the company said.

Iron ore sales were at 30.50 mt during the year, approximately 16 percent more than last year, the company added.

As against an envisaged target of `2,720 crore for the year 2013-14, the company incurred `2,518 crore for its various expansion and diversification projects.

Development was carried out at two new mines—Deposit-11B iron ore project in Chhattisgarh and Kumaraswamy iron ore mine in Bellary, Karnataka—as part of its expansion programme.

The company said installation of a 3 mt steel plant at Nagarnar in Chhattisgarh, as part of NMDC’s forward integration programme and value-addition, is in various stages of execution.

Ore output may grow 14% in FY’15India’s iron ore production is expected to grow 14 percent to touch 155 million tons during fiscal 2015, industry experts feel.

For fiscal 2013-14, production of the key steel-making raw material is estimated to have declined five percent to 136.4 million tons from 143.6 million ton in 2012-13.

For the year 2014-15, the increase in production is expected to come from Goa, Karnataka and Odisha. While Goa is likely to commence production in the second half of the year, Odisha and Karnataka would increase their production.

Odisha, which accounted for a production of 57 million ton in FY’14, may increase its production to around 62 million ton in FY’15, while in Karnataka the production is pegged at around 22 million tons, as more mines are likely to get approval to restart their mining operation.

COvER sTORy

BSL aims at `1500 crore profit in three years

Financial year 2013-14, which also coincided with the 50th anniversary of Bokaro Steel Plant (BSL) of the Steel

Authority of India Limited (SAIL), proved a watershed year, signalling a long-awaited turn-around in plant operations.

The bet on taking up major maintenance activities started paying off, as the losses accrued in the first half of fiscal 2013-14, on account of outsourcing of inputs like coke, sinter and pellets, were significantly neutralised during the third quarter. The first two months of the last quarter indicated a steady run for BSL, pointing to positive year-end accounts and a robust momentum in operations.

Meanwhile, work on the upcoming new 1.2-million tons (mt) state-of-the art cold rolling mill-3 is nearing completion. Commercial production from this unit is likely to begin in early 2014-15, which will help BSL recapture certain value-added market segments and boost profitability. Commissioning of the mill will also enable BSL to complete the repairs of cold rolling mills-1 and 2, and prepare the ground for further enhancing the share of value-added products.

Steel Insight’s Rakesh Dubey and Tamajit Pain caught up with BSL CEO Anutosh Maitra to get an overview of the plant – a major producer of flat products – and its plans to refurbish its equipment

and expand capacity as the steel sector, like other industries at this juncture, is in

the doldrums owing to a low demand scenario.

Maitra says that he would be aiming at increasing BSL’s profit to `1200-1500 crore levels in next three years by improving automation levels and better equipment utilization.

30 Steel Insights, April 2014

Steel Insights, April 2014 31

COvER sTORy

Excerpts:

What, according to you, is the current market situation so far as steel demand and prices are concerned?Steel demand is not as brisk as we would like it to be. With the existing over-capacity, price correction will only happen with increase in demand.

We are all waiting for the major event (general elections) in the country to get over so that the industry picks up from where it is today. The last few months had been fairly good for us and we will be faring well this month too. At least, Bokaro would.

But what the future holds is uncertain. We don’t know how the markets will actually evolve and what impact the dollar rupee parity would have because the rupee is already strengthening … it is better than `60 or at about `59 to one US Dollar.

Certain issues will remain … like raw material security, infrastructure and logistics, projects, technology etc. These issues would continue to plague the steel industry for some time and the key to success would lie in the stimulation of new facilities that would be coming up. And this is true for all companies. Even Tatas, I think, have given a timeline of 2015 for the Odisha project but the markets are stagnant...

Steel demand is weak globally. What are your views on the scenario?It has always been the case, except for a brief period of Olympics in China. Globally, the World Steel Association has projected that steel consumption or demand will pick up by about 3.5 percent or so and may be Indian consumption will increase by 5.5 percent during the current period. So, we have to create capacities accordingly provided our infrastructure growth picks up. Infrastructure comprises 60-70 percent of the Budget but there is always a rush to exhaust the funds towards the end of the fiscal. So, we are in any case spending less.

The steel market is not growing as it was projected to and that is putting a lot of pressure on steel-makers?Yes, it is. The only silver lining is that imported coal prices are coming down. That is possibly because of higher supplies from Australia.

But it is said that coal prices are soft mainly because of low demand from China?Chinese demand will be toned down because of restrictions. But the kind of impact that the Chinese demand had during the Olympics, may not be repeated. Huge properties in China had come up during that period … shopping malls, railway networks etc, which means that they had made major investments which boosted demand at that time. As far as India is concerned, customers will decide the demand for steel.

Demand has been thin in the last 2-3 years, mainly because of the economic slowdown. What is your view?The power sector is almost in a slumber and only now it is talking of huge orders. But then once again this is connected to some coal linkages and that is why power projects which were in inertia are now waking up! In infrastructure… for example, roads, not much is happening. There is a general sense of insecurity among the investing community.

Once you invest, you will think of the results. To that extent Bokaro is just like an island. There is nothing around us that will push up economic activity. When I see the map of Bokaro, in the south, there is Purulia. To the north, Giridih, Hazaribagh and Dhanbad. There are no industries around, if you notice. Whatever industries

are there in and around the plant are mostly ancillary industry and also a large amount of trading activity. It’s difficult to be in the public sector and operate in a sort of an island.

Industries in the private sector, the Tatas for instance, have the flexibility to operate, which we do not have in the public sector. Moreover, the Tatas have been in this industry for a long time. We have a presence of about 50 years. Certain ancillaries have been developed around the Tata plant. Its main objective is to cater to the automobile sector. All types of auto aggregate manufacturers have set up their plants in an around the Tata plant.

There is a steel market around Bokaro in places like Jamuria, but it is only recently that they have started buying product from us because they have relationship with Tata.

I do not know whether it is relationship or binding because I have not been able to understand the system where steel is given to them to convert, but steel price is not indicated to them as the product pricing is being dictated by Tatas. However, this also means they are in a certain disadvantageous position and are facing bad times as well because automobile sector is not doing well. The plants around Adityapur are operating at very low capacity utilization and it has been a bad time for them also.

Adding up the wrong numbers

Were the promoters of these projects too profligate? Did the planners overlook the real demand pockets?

Steel Insights delves into what went wrong with India’s steel growth story and presents a contrarian view.

A growth plan gone awryWhen Kingfisher Airlines – a trend-setter in the Indian skies – bagged three global awards at the Skytrax World Airline Awards in 2010, little could one imagine that it would go kaput in two years. In September 2011, a stock market filing by company CMD brought to light the extreme financial stress the flier was going through. The company’s networth had eroded and it was “drowning” in high-interest debt. By early 2012, the airline accumulated losses of over `70 billion (US$1.1 billion). In 2013, Kingfisher shut down its operations and the government announced withdrawal of domestic and international flight entitlements.

If the fall of Kingfisher was shocking,

sPECIAL fOCus

Arindam Bandyopadhyay

There is a little bit of steel in everybody’s life. While that may be a fact, in India, that little is too little.

As per the latest estimate, the average Indian consumes around 60 kg steel per year. Even if that figure could be increased to the world average of 210 kg, the Indian steel market would jump to more than 200 million tons (mt). The question is how?

Over the last decade, the Indian government has been busy munching numbers while the industry has continued to count the eggs. It was envisaged that as India aspires to be a developed country by 2020,

there would be massive demand for mega infrastructure projects – new airports, ports, roads, bridges – and these in turn would promote demand for the alloy big time.

Two decades of pursuing the said growth model has yielded little. In last ten years, India’s steel consumption has grown by around 40 mt, compared to China’s 400 mt. Both the government and the industry now look clueless about what would drive the customers to the plants and when.

Standing at this juncture, it appears there were some serious errors in the growth model itself. Did the planners target the wrong sectors? Did the developmental projects cater to too small a part of the population?

41Steel Insights, April 2014

Tear along the dotted lineTear along the dotted line

62 Steel Insights, April 2014