Author Archives: Sohrab Darabshaw

While India marches on to become a $10 trillion economy, and recently posted a gross domestic product growth figure of 7.6% in 2016, the Indian government now plans to create a separate fund, the country’s first-ever sovereign wealth fund for various sectors that will attempt to address capital requirements of domestic steel companies.

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No doubt, everybody hopes the steel sector will play a pivotal role in India’s growth story, said Aruna Sundararajan, Secretary of India’s Ministry of Steel, in a session at the conference Championing Manufacturing in India – Excellence, Growth and Employment. Read more

The trigger to the recent increases in steel prices may have been a report by the World Steel Association that reasoned in its short-demand demand report that the increasing output and capacity utilization rate from February to March 2016 could be indicative of a recovery in the primary steel market’s fundamentals in both the European Union and North American Markets.

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Global investment bank Credit Suisse, in its report highlighted four “major changes” that had taken place of late, indicative of a cycle turn. It said one of them was that the inventory cycle had bottomed out globally. Given the extent of destocking and current inventory levels. Restocking could last more than the usual six-to-nine months. Any uptake in demand could further prolong restocking. Read more

A war over steel imports has broken out yet again between the world’s two largest producer nations: China & India.

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The Steel Authority of India Ltd. and JSW Steel & Essar Steel India filed a complaint with India’s Directorate General of Anti-Dumping and Allied Duties, seeking an anti-dumping investigation as well as the imposition of tariffs on steel imports from six countries. Soon thereafter, the DGAD said it had prima facie evidence of dumping of steel originating from China, Japan, Russia, Korea, Brazil  and Indonesia.

Chinese Production vs. Indian Production

China is the world’s biggest steel producer, accounting for around 822 million tons a year. Driven largely by a fast track economy in the past quarter century, China’s steel output has grown by more than 12 times it’s size in the ’80s. By comparison, the EU’s output fell by 12% while U.S. output has remained flat. Of late, China has found itself in the midst of dumping controversies involving many countries it sends exports to, including the U.S., the European Union and Australia.

Steel mills Molten iron smelting furnace production line

Chinese steel production is the target of India’s anti-dumping probe. Source: Adobe Stock/zjk.

The Indian probe’s purpose is to establish the “existence, degree and effect of dumping” by the six nations. If found to be true, it will then recommend a minimum amount of anti-dumping duties. The probe covers hot-rolled flat products of alloy or non-alloy steel in coils, as well as hot-rolled flat products of alloy or non-alloy steel not in coils. Most of these products are used in the the automotive, oil and gas line pipes/exploration, cold-rolling, pipe and tube manufacturing industries.

Trade between China and India has been growing but individually, the two are polar opposites so far as global exports are concerned. India’s exports account for just 1.7% of world trade, compared with nearly 12% for China’s. China exported 112 million metric tons of steel in 2015, which was 25% more than India’s total production of steel. India produced 92 mmt of steel in its 2014-15 fiscal year, while it imported over 9.32 mmt of steel, of which, an estimated 30% came from China.

Meanwhile, on the other side of the globe in Belgium, international steel producing countries, too, called for urgent action to curb overproduction.

A joint statement from the U.S., Canada, the E.U., Japan, Mexico, South Korea, Switzerland and Turkey, called calls for “ongoing international dialogue” to remove “market-distorting policies.”

But China rejected suggestions that it subsidized its loss-making steel companies.

India has often used anti-dumping duties and also imposed safeguard duties due to such import surges.

A few days ago, the Indian government extended the safeguard duty on steel imports until March 2018, after having first imposed them in September 2015. There will be no safeguard duties on steel imported at or above the minimum import price (MIP) stipulated by the government.

Anti-Dumping or Countervailing Duties?

Both, anti-dumping and countervailing duties try to rectify the same issue: low-priced imports. But the difference between the two is the real cause of the low price.

Anti-dumping duties are used to tackle “dumping,” a legal definition for imports whose price is lower than their production cost. An exporter sets steel prices lower than production costs and floods other markets with such steel products. If a Chinese producer spends $120 per mt to make cold-rolled steel, and then sells it in the Indian market for $90 mt, while his Indian counterparts are selling their produce for $110, then these imports are based on a predatory pricing model that is either indirectly subsidized in the originating country, or takes advantage of a lower-valued currency and production costs back home.

On the other hand, countervailing duties seek to counter low prices that are an outcome of direct subsidies. The Chinese government, like some others, offers subsidies on exports in the form of tax breaks. As a result, exporters can offer lower prices than domestic producers. Countervailing duties level the playing field by negating the advantage of direct government sponsorship by increasing import tariffs to level the playing field.

Such duties are allowed by the World Trade Organization under the General Agreement on Trade and Tariffs (GATT) but only if dumping is established. Anti-dumping duties have to be removed if the margin between the domestic price and imported price goes below 2%, or when the imports of product from a country account for less than 3% of total imports of the product.

Also, the WTO says safeguard and anti-dumping duties cannot be country specific. So, if India or the U.S. imposes duties on imports from China, the latter can also impose duties on imports from those two nations.

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This is what China is now pointing out to India. A few days ago, the world’s top steel maker asked India not to resort to “trade protection measures” and to “strictly follow” WTO rules while investigating cases of dumping by Chinese iron and steel exporters. Steel overcapacity is a worldwide problem which requires a joint effort from all countries, an unnamed Chinese official was quoted as saying by the official Xinhua news agency.

Sale will move the U.K.-based, loss-making long products division. After the sale of all U.K.-based assets, Tata Steel will operate only the Ijmuiden (Netherlands) unit.

Keeping in line with its earlier decision to sell its poorly performing business in the United Kingdom, India’s Tata Steel has sold its long products business assets in Europe to investment firm Greybull Capital. The sale amount, though not disclosed, was said to be “nominal.”

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The sale marks the start of the end of Tata Steel’s foray into the U.K. that started in 2007 with its acquisition of Corus. Greybull Capital will bring in a package of £400 million provided by a combination of banks and its shareholders, to fund working capital and future investments in the business.

The deal includes the Scunthorpe steel plant, mills in Teesside and northern France, an engineering workshop in Workington, a design consultancy in York, a bulk terminal, and associated distribution facilities.

Meanwhile, ratings agency Moody’s Investors Service said the action by Tata Steel U.K., the signing of the sale agreement, was “credit positive” for its parent, Tata Steel UK Holdings, and ultimate parent, Tata Steel.

“However, the agreement will not immediately affect our ratings for Tata Steel and TSUK Holdings, based on the information so far on the amount of liabilities and debt to be transferred,” Moodys said.

With the sale of the long products business to Greybull, the balance of its U.K. business comprises primarily all of its operations at Port Talbot, which manufacture slabs, hot-rolled coil, cold-rolled coil and galvanized coil.

The sale of the Scunthorpe-based division to Greybull Capital was expected to cut losses at Tata Steel Europe (TSE). Because the long-products division was running at sub-optimal capacity (three million metric tons per year versus full capacity of 4.5 mt per year) due to low demand and losses. The total capacity of TSE is 17.4 mt per year.

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The negative part, said Moody’s, was that Tata Steel would continue to carry debt and pension liabilities from the unit. Employees will remain under the £14-billion British Steel Pension Scheme, of which TSE is the sponsor.

The size of the U.S.contingent at India’s DefExpo 2016, held recently in the state of Goa, was enough to send out a clear message.

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Of the 47 participating countries, the U.S. was among the event’s largest international exhibitors, clearly underlining the importance of the region to the American defense and security business. This was the first time that DefExpo, India’s most prominent defense and security trade event, was held outside the capital, New Delhi.

Who Makes What? Or Asks For it?

The event saw a bit of “Make in India” mingling with “Ask America First.” The U.S. International Pavilion saw potential buyers looking for ways to meet a critical mass of U.S. suppliers, and an onsite business hub for American exhibitors looking to maximize their exposure and impact at the event.

Polaris_Dagor_550_041516

The Polaris DAGOR was designed for U.S. SOCOM (Special Operations Command) and U.S. Special Operations Forces. Source: Polaris. 

“When U.S. companies commit to exhibit at DefExpo, they’re saying they believe in the power of this event to attract real business prospects and customers. The global interest in this show speaks for itself,” said Kallman Worldwide President and CEO Tom Kallman, in a media release. Kallman Worldwide, Inc., was the designated U.S. Representative of the show, in coordination with numerous U.S. government agencies

“The United States is the world’s biggest aerospace and defense supplier, but that’s no guarantee that buyers will look to work with American companies over others,” Kallman said. We want every visitor to ‘Ask America first’ at DefExpo, and to be assured that America is listening.”

Heavy Defense Hitters

The list of participating companies read like a veritable who’s who of the U.S. defense and aviation industry. Boeing was there, of course, along with Honeywell, Lockheed-Martin, Raytheon and Textron, along with a cross section of leading American suppliers working to strengthen or initiate international partnerships. A high-level federal government delegation, which included General Dennis L. Via, Commander of the Army Material Command; Ann Cataldo, Deputy Assistant Secretary of the Army for Defense Exports and Cooperation; and Thomas L. Vajda, the Consul General of the U.S. Consulate in Mumbai were part of the U.S. delegation.

Clearly, as voiced by the Consul General, defense and space technology is now high on the list of cooperation between the U.S. and India. And the efforts of the federal government to reach out to local Indian manufacturers such as Tata Steel and Mahindra, who of late have formed their own defense equipment producing units, should boost India’s “Make in India” campaign.

Such collaboration could be music to the ears of both Indian and American steel and other metals manufacturers since outside of infrastructure and automobile, defense is one of the largest consumers of steel and aluminum.

For example, Polaris India Pvt. Ltd., a wholly owned subsidiary of Polaris Industries Inc. a leader in off-road and all-terrain vehicles, showcased its  products, the Dagor (Deployable Advance Ground Off-Road) and the Mrzr4 at the DefExpo India 2016.

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These vehicles were brought to India for the first time. Polaris also showcased its six-wheel drive off-roader, BosSportsman Big s 6×6 and its Ranger 6×6 800 at the event.

Polaris India has developed the DAGOR vehicle under a contract from elements of the U.S. Special Operations Command (SOCOM) and international Special Operations Forces (SOF) customers.

One of the world’s biggest steel makers, ArcelorMittal, is at a crossroads. Created by the takeover of Western European steelmaker Arcelor by Indian-owned multinational Mittal Steel in 2006, the Luxembourg-headquartered business has been facing tough times since recently, much of it because of external factors such as collapsing economies, but some of the pain is certainly of its own making.

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ArcelorMittal is at a turning point. It initiated a series of steps which management hopes will turn a corner and help it survive this period of global instability, especially in the  steel sector.

Coiledsteel_585

Cheap imports are hurting ArcelorMittal as much as any steelmaker as almost all of the markets the steel giant operates in are suffering price falls due to the imports.

Shareholders met in Luxembourg and by an overwhelming majority, passed a stock issuance for a capital increase of $3 billion.

Stock Sold to Pay Down Debt

The fundraising is part of an overall plan unveiled in February 4 by ArcelorMittal. For now, though, it has too much debt on its records. At the end of 2015, ArcelorMittal’s total debt was $19.8 billion. The debt rate had reached 57% by December 31, compared to 35% a year ago.

Except for India and China, global steel purchasing — on the national level — is down in the last few years. Cheap Chinese imports are hurting the markets that ArcelorMittal competes in as much as any. If a further market deterioration was to take place, ArcelorMittal would be looking at a bleak future, hence the rush to raise funds and retire debts, some analysts.

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The way countries around the world, faced with downturns in their respective economies, are placing import curbs on metals or finished products, it almost seems to be a tit-for-tat battle.

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Over the last three years, the U.S., some European nations, and India, China and South Korea, on the other side of the globe, have periodically imposed or increased duties to curb cheap imports.

U.S. Ferrous Tariffs

At the start of this March, as reported by MetalMiner, the U.S. Department of Commerce announced its affirmative preliminary determinations in anti-dumping duty investigations of imports of cold-rolled steel flat products from Brazil, China, India, Japan, South Korea, Russia, and the U.K.

imports

While China received a previously unheard of preliminary dumping margin of 265.79%, based on adverse facts available, the India respondent to the investigation JSW Steel Limited/JSW Coated Products Limited got off relatively lightly and received a preliminary dumping margin of 6.78%. All other producers/exporters in India received a preliminary dumping margin of 6.78%.

Aluminum Import Duties

Apart from steel, the US aluminum industry, too, of late, has increased its efforts to address China’s overproduction capacity and the resulting glut in the global market. The “China Trade Task Force,” a cooperative effort between smelter Century Aluminum and the United Steelworkers union, have been working to slow imports of cheap Chinese product for some time, but now the industry trade group the Aluminum Association is speaking out more forcefully.

And before you could say aluminum, the Indian government, a few days ago, proposed raising the basic customs duty on the metal by 2.5% in a bid to protect local producers from cheap imports. To be fair, though, to India’s government, the proposal is part of the country’s 2016-17 union budget, so it was not a sudden, knee-jerk move, but a carefully thought out proposition in the wake of increasing demands by local producers.

Basic customs duties were proposed to be hiked on primary aluminum from 5% to 7.5%, and on aluminum products from 7.5% to 10%.

Vedanta Wonders If It’s Worth It

The aluminum lobby in India has been pressing for an increase in the face of low-priced aluminum from foreign countries making its way into the Indian market for years. Some local  producers, unable to keep up, even slipped into losses. Vedanta Resources, in August, initiated the process to shut down its 1 million metric ton per year alumina refinery in Odisha.

But Vedanta Resources CEO Anil Agarwal said the move lost meaning, since the hiked duty had been “neutralized” by doubling the tax on coal. In the same union budget, there is a promise to double the clean-energy tax on coal, which now will make the fuel costlier for metal producers, effectively wiping out the gains made by increasing the import tax.

According to industry data, total aluminum imports in India had grown by over 159% to 1,563,000 metric tons in 2015 against 881,0001 mt in 2011, mainly from China and Middle-Eastern countries. This has led to imports accounting for 56% of the Indian aluminum consumption in 2014-15, while products of Indian producers accounted for only 44%.

Interestingly, while the Indian government has taken the step to hike duties to protect local industry, some experts have argued against the move. The government’s own report India’s Economic Survey 2015-16, released before the budget, itself indicated that raising tariffs to quell imports of cheap aluminum would do harm to downstream sectors such as power, transportation and construction.

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The report said India’s aluminum industry would continue to experience tough economic times unless the global aluminum price increased. The domestic aluminum industry’s capacity utilization had dropped over the last eighteen months, matching the global aluminum price decline. As of now, India’s cost of production for aluminum was higher than the current global price for the metal, part of it attributed to market saturation by China.

Tata Motors‘ marketing division is breathing a bit easier these days.

Earlier this month, MetalMiner reported that one of India’s auto majors was suddenly saddled with a name problem for a key, new product. Its latest hatchback, named Zica, launched recently, sounded similar to the dreaded virus Zika.

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The top honchos at India’s fifth-biggest automaker, which owns the Jaguar and Land Rover brands, went into a huddle, wondering how they would be able to tackle the branding problem. Now, after an interesting exercise, the car has had an image makeover and has been renamed, officially, as Tiago. And, yes, this is the same car which is being endorsed by none other than world soccer player of the year Lionel Messi.

From Zica to Tiago

For months, the marketing division spent thousands of dollars promoting the former Zica’s, now Tiago, promotional activities, until that pesky Zika virus came along and infected not just its victims, but Zica’s worldwide brand value.

Tim Leverton and Mayank Pareek at the official unveiling of the new Tata Zica at an auto show in Goa last December. Source: Tata Motors

Tim Leverton and Mayank Pareek at the official unveiling of the new Tata Zica at an auto show in Goa last December. Source: Tata Motors

“Empathizing with the hardships being caused by the recent Zika virus outbreak across many countries, Tata Motors, as a socially responsible company, has decided to re-brand the car,” the company said in a statement.

The Tiago will cost about $5,800 and will come in gasoline engine and diesel versions. Tata Motors will apply for regulatory registrations, with the aim of formally launching Tiago to the market by the end of March, it said in a statement.

Still Fantastico?

So, how did the auto major zero in on the name Tiago? Here’s how: The Tata Tiago name was chosen after a global crowd-sourcing competition called “#FantasticoNameHunt” was conducted in which fans got to vote for their preferred new name from a shortlist of 3 suggestions — Tiago, Adore, and Civet. Tiago beat the other two.

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Auto analysts are hopeful that the name change may yet save the day for this new hatchback, after it was launched at the Auto Expo in New Delhi earlier in February. Zica, by the way, stood for “zippy car.”

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

A beleaguered ArcelorMittal has been trying its best to stay in the steel game despite low prices across the globe. The multinational has cut costs at its US operations, a market where its facing — as the company itself put it — “a challenging environment.”

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The Luxembourg-based steelmaker has explained that its price reduction comes at a time when cheap imports have captured almost 30% of the US market. According to one report, the steel major — helmed by one of the world’s richest business tycoons in Lakshmi Mittal — is looking to close finishing lines, including the one at its Indiana Harbor facility in East Chicago, Ind.

ArcelorMittal is counting on lower prices and production costs to bring it back to profitability. Source: Adobe Stock/ft2010.

ArcelorMittal is counting on lower prices and production costs to bring it back to profitability. Source: Adobe Stock/ft2010.

ArcelorMittal recently revealed that its US operations have implemented a number of cost-saving initiatives. These include reduced purchasing, supplier and operating costs and also a reworked healthcare plan for employees.

Cheap Imports Eroding Profitability

At least 12,000 steelworkers in the US lost their jobs last year due to the crisis of cheap steel imports, according to figures put out by the Alliance for American Manufacturing.

Pitching in with an offer, the United Steelworkers, earlier this month, offered to save ArcelorMittal money. It includes “innovative” changes to the structure of the existing employee benefits plans that, the union claims, will not lower the standard of living for thousands of USW workers and retirees.

ArcelorMittal reported a disastrous loss of $7.9 billion in 2015, including a massive $6.7 billion loss in the fourth quarter. The world’s largest steelmaker said late last week that it planned to raise $3 billion in fresh capital in a bid to reduce debt in the face of weak steel and mining sectors. The steel major is also set to receive about $1 billion from the sale of a 35% stake in automotive steel specialist Gestamp.

The company, while reporting its annual figures, acknowledged that it suffered fourth-quarter operating losses in its steelmaking units in each of its major markets, including Europe, North America and Brazil.

Low-Cost Operations

So far as its iron ore mining operations are concerned, there, too, the company plans to focus on low-cost operations in Canada while cutting costs and reducing production at higher-cost mines.

News reports from Canada say the management and the United Steelworkers, which represents workers at two Quebec facilities, have reached a tentative deal on a new global agreement.

Though details are sketchy, the new deal will cover operations and maintenance employees at the Contrecoeur East steelworks and bar mill as well as operations and maintenance employees of the Longueuil bar mill.

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ArcelorMittal has said its losses, including those from the fourth quarter last year, were largely due to dropping steel prices and to write-offs in the company’s large mining business.

It’s a problem that’s dogged almost all the major economies as well as developing nations – the dilemma of steel cheap imports. Steelmakers in the U.S. have, in the past, not only cried foul at the World Trade Organization but also imposed steep anti-dumping duties on cheap imports from China, Korea and India making their way into the U.S. market, thus further depriving an already-stressed out market.

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A few days ago, as reported by MetalMiner, seven EU nations asked the European Commission to intervene to stop cheap imports of steel, particularly from China and Russia.

India has imposed a minimum import price on most steel products. Source Adobe Stock/Jovanning.

India has imposed a minimum import price on most steel products. Source Adobe Stock/Jovanning.

In India, a market where steel consumption continues to grow bucking global trends, the situation is no different. So, finally giving in to the loud protests by domestic steel companies against cheap imports, the Indian government recently imposed a minimum import price (MIP) ranging from $341 to $752 per metric ton on 173 steel products as a “temporary” measure.

Minimum Import Prices

The MIP conditions are valid for six months from the date of the notification or until further orders, whichever is earlier. The MIP, though, will not be applicable on imports under the advance authorization scheme and high-grade pipes used for pipeline transportation systems in the petroleum and natural gas industry are exempt.

The move seems to have gone down well with a majority of the steel trade bodies and a large section of India’s steel industry, but some have called it simply a band-aid for the hemorrhaging steel sector.

India’s domestic steel production between April-January 2016 dropped 1.8 % to 75.66 million mt, while imports rose 24.1% to 9.3 mmt. Consumption grew 4.2% to 65.91 mmt. For domestic steelmakers, apart from the MIP, the import duty has also been raised to 10% for flat products and 7.5% for long products.

The rationale behind the MIP was explained by Steel Secretary Aruna Sundararajan, in an interview with The Economic Times. She said the move would give India’s steel industry much-needed breathing space to get healthy.

Emergency Measure

Over the last couple of years, India had seen a spurt in steel imports, leading to a decline in prices. According to the Steel Secretary, India had over 400 mmt of surplus steel. All that surplus has put the domestic steel industry into distress.

While imposing the MIP, the Indian government also took care to ensure that downstream users were not affected. That’s why certain categories of steel — required by end-user industries — not manufactured in India, were exempted.

The government’s decision to impose MIP will, however, reduce the benefit of lower commodity prices for automobile companies, according to many experts. Also, according to the engineering goods exporters’ body, EEPC India, the MIP will lead to further erosion in engineering exports. It has thus sought from the government a compensatory mechanism to make up for the increased raw material price (about 10%) for the distressed exporters, mostly in the small and medium-sized enterprises segments.

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The Indian government has dubbed the MIP an “emergency provision.” In the next six months, it will be looking at anti-dumping duties  and moving toward more stable, longer-term measures. It will also be keeping a close watch on imports after the MIP, as well as the response of domestic steel companies and consumers.