Author Archives: Sohrab Darabshaw

If you were in India right now, someone is bound to tell you that it’s that time of the year.

He or she would be referring to the almost-three months of festivals and wedding season, which India sees starting from sometime late August and continues until early September. More specifically, just under a week remains before that “mother of all Indian festivals” — Diwali, the fest of lights.

All this also means an uptick in shopping, but, more specifically, gold shopping.

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Indians love their gold, and any excuse is enough to buy some more of the yellow metal. But Dusshera (a major Hindu festival preceding Diwali) and Diwali are special occasions, reserved for buying as much gold as possible. All of this makes India the second-largest gold-consuming market in the world.

This year, there was a slight damper on Indians’ demand for gold.

As part of the new tax reforms, the government included jewelers in the Prevention of Money-Laundering Act (PMLA) in August. This meant a compliance requirement on part of the buyer for any purchase above US $760 (Rs 50,000), including providing their income tax identity.

Incidentally, gold and real estate are the two investment opportunities that were often misused by hoarders of cash or those dealing in the black economy.

For some time, then, there were no “high value” deals as jewelers across the country, their associations and potential customers protested.

So, while September import figures of gold (in the month of Dusshera) were robust, they could have been even higher if the PMLA was not in effect, some associations claimed.

According to a report put out by news agency Reuters, India imported 48 metric tons, equivalent to $2 billion at today’s prices, in September. But since Dusshera fell in September instead of October this year (it follows the lunar calendar), the import figures compared to September 2016 were up, though on a month-on-month basis, it was lower, because of the uptake being down due to the PMLA.

But a decision by the government a few days back has brought back the cheer in the lives of gold consumers in India.

The PMLA has been put on hold for now, which means people can go ahead and buy gold without providing any of the previously required documents. Jewelers are hopeful the gold-buying spree, normally seen during these festive months, will at least revive in October, especially around Diwali. Imports are expected to go up to about 70 metric tons per month.

Just to give readers an idea of Indians’ love of gold, Indian households have the largest private gold holdings in the world, standing at an estimated 24,000 metric tons. That figure reportedly surpasses the combined official gold reserves of the United States, Germany, Italy, France, China and Russia.

This year, even the Indian government wants to take advantage of the festive gold bonanza.

Showing impeccable timing, it has announced the launch of new sovereign gold bond schemes. Never before has such a scheme been announced around festival time.

Free Download: The October 2017 MMI Report

The bonds issue opened Oct. 9 and remain so until Dec. 27, covering the festivals of Diwali and Christmas.

The government has also made important changes to attract high-value investors, raising the annual investment limit per person from 500 grams to 4 kilograms. For trusts and similar entities, the limit was raised to 20 kilograms. This higher limit will make the scheme attractive for high-net-worth individuals who had not participated in earlier schemes, as they found the 500-gram limit to be too low.

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The world’s largest coal miner, Coal India Ltd (CIL), has decided to diversify by looking at foreign shores.

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While fossil fuel will remain the primary source of power generation for at least the next two decades, CIL thinks it’s the right time for expansion, according to a company official.

CIL’s strategy shift to cut reliance on the fossil fuel will be two-pronged: it may have one unit to manage its local operations (which includes the mining of iron ore, bauxite and manganese), and another to expand into copper and nickel mining overseas.

CIL initially started as a fully government-owned venture in 1975. In 2010, it held an IPO in which 20% of its shares had been off-loaded. A similar offering with the same percentage of equity was conducted in early 2015.

Employing over 330,000, CIL has an annual revenue of over $130 million, with a market cap of approximately $33 billion.

This is not the first time that CIL has decided to look at foreign mines as part of its expansion. In the past, it made unsuccessful attempts in buying stakes in overseas coal mines.

The new plan to diversify into mining metals such as copper and nickel could be part of the miner’s long-term strategy to firm up revenues, analysts say.

Not Just a Coal Company

At a recent seminar, S N Prasad, CIL’s marketing director, told delegates the thinking in the company was that it no longer wanted to be known as merely a coal company. CIL wanted to diversify and enter iron ore, and bauxite mining. CIL’s core competency will hold it in good stead in this new foray.

Some reports said CIL had identified copper and nickel mines in Africa, and appointed research firm KPMG to prepare the roadmap that will see CIL emerge as a diversified mining company by 2030, something on the lines of Rio Tinto.

A Changing Mining Scene

Meanwhile, on another front, the Indian government has plans to put up 10 mines for commercial mining of coal, a long-awaited policy shift, analysts say. Most of these will be in the provinces of Odisha, Chhattisgarh, Madhya Pradesh and Jharkhand.

In 2014, the Supreme Court of India canceled all existing licenses of coal mines on the grounds that there were no objective criteria for giving out mining leases. At that time, many predicted this would result in large-scale commercial mining by the private sector, including many firms from overseas.

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But that has not happened. With the new policy shift, full-scale commercial coal mining was likely to happen.

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Like “electricity for all,” the Indian government’s latest ambitious plan is for a complete transformation of its auto segment and move towards all electric vehicles (EVs) by 2030.

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Toward this goal, the government has started making the right moves, but the question on every one’s mind is simple: Is the plan possible?

The political will is there, but to have all vehicles on the road running on battery by 2030 seems like a pretty impossible dream.

Nitin Gadkari, India’s road transport minister, made the government’s intentions clear, rather forcefully, when he said recently, “We should move towards alternative fuel … I am going to do this, whether you like it or not.” He was addressing delegates of India’s automobile lobby group, SIAM. Gadkari made it clear he would “bulldoze the plan through.”

It’s really all about numbers, say the experts. After all, how does a country of over 1 billion people, where over 20 million vehicles are sold annually, embark on such an ambitious drive?

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India has bucked the global trend where non-ferrous metals are concerned.3

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A recent report by professional services agency KPMG has said demand for non-ferrous metals, including aluminum and copper was likely to grow around 8% over the next five years.

Titled “India Non-ferrous metals industry: Building the future,” the report added that the expected demand growth in the non-ferrous metals industry would be even better than the “healthy trend” observed in the last five years.

“Over 2016-17 to 2021-22, the demand for these metals is expected to grow by around 8% in line with strong economic prospects, thrust on manufacturing sector, healthy growth in key end-use segments further aided by rising usage intensity,” the report states.

What’s more, the report said India had also registered strong growth in recycling of metals, a major step forward for an otherwise unregulated sector. It said over time, the share of recycled metals had increased considerably and was almost equivalent to the global level.

But KPMG added a note of caution, saying legislative intervention was required to contain the level of scrap imports that still dominated the globe.

It’s no secret that globally, the non-ferrous metal industry faced a turbulent time owing to a number of factors, including the global economic growth slowdown at large, as well as the slowdown of the Chinese economy, in particular, along with the high raw material prices.

But India went the other way.

The KPMG report added that “strong resilience in the Indian economy” had resulted in its non-ferrous metal industry outpacing the global trend. Apart from a strong demand base and future potential, India was rich in terms of raw material reserves coupled with a relatively low-cost structure of production, thereby providing huge opportunity for the development of non-ferrous metals industry in India.

That said, downstream products, such as copper wire and aluminum foils, were still being dominated by imports, as the downstream industry is relatively undeveloped in India.

China, with its sheer population as well as advancement of manufacturing, was the largest consumer of non-ferrous metals and majorly influences the dynamics of the industry. But the recent slowdown in that country has significantly impacted the global industry in terms of supply and demand, trade, prices and profitability. The country accounts for 52% of the global aluminum consumption. In Asia, consumption showed a declining trend in Japan, but was counteracted by higher demand from India and the Middle East. The report said North America had also firmed up since the global financial crisis. Prices had recovered because of supply cuts in China and a healthy demand growth.

In India, with steady growth in demand, non-ferrous metals were being consumed in several emerging applications offered by defense, aerospace, hybrid and electric vehicles, railways, and more, requiring complex design (be it large aerostructure parts or miniature structural components). However, lately there has been technological disruption in multiple industries, including metals, such as metal additive manufacturing or 3D printing, which offered the possibility of complex parts production at a faster pace and lower cost, the report observed. There were a number of industries which were increasingly using these technologies to revolutionize the manufacturing process.

A well-developed non-ferrous metals industry is vital for any developing country, as it provides important raw material to many industries that are the pillars of economic development. With the increasing usage of these metals in several existing and emerging applications, coupled with new technologies, there is a paradigm shift that can change the way non-ferrous metals are consumed in the future.

The KPMG report provides a glimpse of opportunities that are available for the development of the non-ferrous metals industry in India, which is riding strong economic growth momentum.

With a slew of reforms undertaken by the government, the end-use sectors of non-ferrous metals —automotive, electricals, packaging, consumer durables, railways, ports and inland waterways, roadways and renewable energy  — were expected to experience a strong growth trajectory.

However, certain metals were characterized by import, especially downstream products such as copper wire and aluminum foils, because of various reasons, including the undeveloped downstream industry, global competition and quality availability.

Aluminum

During 2011-12 to 2016-17, the demand for aluminum posted a CAGR of 5.4% led by a healthy growth recorded by the electrical and automotive sectors, which constitutes 60-65% of the total consumption of aluminum.

Primary aluminum demand was generally met through domestic supply, but there was considerable import of downstream products from China and the Middle East. Many players in the aluminum downstream industry were suffering from a lack of proper infrastructure and technology to efficiently process the raw material into high-quality products.

Significant capacity addition has taken place over the past five years due to implementation of various capacity addition plans by the major players. During 2011-12 to 2016-17, capacity has increased from 1.9 million tons per annum to 4.1 million tons per annum.

Copper

Demand for primary copper grew at a CAGR of 14% over the past five years, owing to the robust growth in the electrical sector and consumer durables.

Although India was a net exporter of copper, there was a significant proportion of import of downstream products. Many players in the copper downstream industry faced challenges such as outdated technology, improper infrastructure, high set-up cost, high funding cost and lack of skilled professionals.

During 2011-12 to 2016-17 copper imports, constituting mainly downstream products and alloys, grew at a CAGR of 15.4%.

Zinc

Demand for primary zinc in India was based on the growth of the steel market, which accounts for 70% of the total demand. It was mainly used in galvanizing and coatings of iron and steel to protect it from corrosion.

Free Download: The September 2017 MMI Report

During 2011-12 to 2016-17, demand for zinc grew at a CAGR of only 3%, mainly because of a surge in imports of galvanized steel.

In order to control imports, the government imposed a minimum import duty on certain steel products, in addition to a safeguard duty and anti-dumping duty.

In 2016-17, India’s imports of galvanized and coated steel fell by 47% compared to the previous year as a result of these supportive government policies.

Other government initiatives, such as the Smart Cities Mission, modernization of railways and the construction of highways were expected to boost the infrastructure industry, which uses galvanized steel for durability and endurance.

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India’s recent decision to impose an additional import tax on a number of stainless steel flat products from China for five years has generally been welcomed by the Indian steel industry and trade bodies.

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The tax, said the Government of India, was to curb the influx of cheaper foreign imports.

A countervailing duty of 18.95% has been imposed on some hot-rolled and cold-rolled stainless steel flat products. This is aimed at helping local steelmakers benefit when there is a surge in imports, the government said.

A statement by the government said Chinese imports “were distorting the domestic market, which was under huge stress and led to financial stress in the industry.”

In the past, too, India has imposed a slew of anti-dumping duties on imports of steel and stainless steel products from China, Japan and South Korea.

According to a Reuters report, the U.S. Department of Commerce also said it would be looking into possible dumping and subsidization of stainless steel flanges from China and India.

Steel producers in India have welcomed the move.

According to Jindal Stainless Vice-Chairman Abhyuday Jindal, the decision will encourage production of the metal within the country and will provide some relief to the domestic industry.

India’s apex stainless steel industry body, the Indian Stainless Steel Development Association (ISSDA), has also welcomed the imposition of countervailing duty, President KK Pahuja said.

Due to the subsidized imports from China, the domestic players were facing huge losses. Industry experts have claimed several MSME segment businesses were forced to shut down due to subsidized imports from China. The imposition of a countervailing duty would help revive the industry, regain lost ground and create jobs, the Pahuja added.

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The CVD investigation was initiated on April 12, 2016, by the Directorate General of Anti-Dumping and Allied Duties (DGAD) in response to a surge in subsidized imports of stainless steel flat products from China.

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Metals and mining conglomerate Vedanta Resources seems bullish on India.

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Chairman Anil Agarwal recently announced his group was actively thinking of investing about U.S. $9 billion (around Rs 50,000 crore) to expand its business in the country.

Why? In an interview to moneycontrol.com, he said “this was the best time to invest in India,” proceeding to list out concrete reasons.

The Indian government’s reforms were one of them. Agarwal said bankruptcy law and Goods and Services Tax (GST) would help improve the business environment and act as a magnet for global investors.

Vedanta is a “biggie” in India’s zinc, aluminum and refined copper sectors, with market shares of 72%, 40% and 35%, respectively. It’s also one of India’s largest private sector iron ore exporters and it’s the operator of 26 percent of India’s crude oil production via Cairn India.

Agarwal’s recent announcement of his India plans advanced Vedanta Ltd’s shares by 1% when the markets opened last Monday.

In another interview, Agarwal said they were looking at investing U.S. $8-9 billion to expand capacity in oil and gas, iron ore, aluminum, and zinc by nearly 50 percent over the next few years. This will create 40,000 direct and indirect jobs.

Vedanta may be interested in picking up some of the “stressed steel assets” in India. Just last week, MetalMiner reported that one of India’s largest steelmakers, Essar Steel, which is battling bankruptcy, has potential suitors lined up for its assets — though most are unwilling to come on record for the time being.

One hangup in Agarwal’s plan could be the “retrospective tax.” For some time now, Cairns India and the Indian government have been at loggerheads over this tax. As the name suggests, this was a back-dated tax levied on some international companies, including a claim for about $2 billion from Vodafone, the British telecommunications company, which the government lodged in 2012 for capital gains tax it said was due from Vodafone’s 2007 purchase of CK Hutchison’s Indian business.

Mr Agarwal’s company was forced to hand over $104 million in payments as part of the Cairn dispute after buying Cairns India in early 2017.

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Now, in an interview to Financial Times, Agarwal has criticized some of the ministers in Prime Minister Narendra Modi’s government over this retrospective tax, and asked the government to settle the issue once and for all.

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One of India’s largest steelmakers, Essar Steel, which is battling bankruptcy, has potential suitors lined up for its assets — though most are unwilling to come on record for the time being.

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Korean firm Posco and India’s largest steel company Tata Steel are reportedly thinking of bidding for Essar’s stressed assets. The latter was among a dozen large companies that India’s central bank, the Reserve Bank of India (RBI), had identified to be taken to bankruptcy courts to help clean up the banking system that is saddled with stressed loans.

According to reports, Essar Steel, with a capacity of 10 million tons per annum, had about $6 billion of debt in the 2015-16 fiscal year.

Days after the Essar Group had concluded the sale of its oil business to Russia’s Rosneft for U.S. $12.9 billion, the Ruia family-controlled conglomerate’s metal business, too, seems to have attracted suitors, news reports here said.

Tata Steel may be looking at Essar Steel to get itself a better position in western India.

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India’s aluminum production is expected to grow at a compound annual growth rate (CAGR) of 3.5% in the next 2-3 years to cater to a rise in domestic demand, according to a new report.

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CARE Ratings’ report titled “Aluminium Industry: The Silver Knight of the Economy,” said that what would propel this growth are the various initiatives taken up by the Indian government, and the ramping up of smelter capacities. Surplus stock will continue to be exported, owing to its low-cost advantage.

So what will drive the growth? According to CARE, the growth in consumption is likely to be driven by the growth in power transmission and the automobile sector. While the demand from the building and construction and consumer durable segment is likely to remain subdued, demand from the packaging sector is likely to support the domestic demand.

CARE has estimated the prices of LME aluminum to range around $1,800/ton to $2,000/ton in the short- to medium-terms.

India is among the lowest cost producers of aluminum in the world, owing to easy availability of raw materials and comparatively low labor costs. The growing demand for aluminum in the last decade, driven by India’s underlying growth story, has resulted in expansion of smelting capacities of the major domestic players.

With the addition of new aluminum capacities, India aims at not only satisfying domestic demand, but also playing a major role in the global aluminum market.

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India’s protectionist measures to safeguard its steel industry seem to be paying off.

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As reported consistently by AG Metal Miner, the Indian government, responding to the call of its steelmakers, had time and again imposed various forms of anti-dumping measures and fines to stop cheap imports of steel — especially from the world’s steel manufacturing leader, China.

Along with the U.S. and Brazil, India was said to be one of the world’s leading initiators of anti-dumping investigations, according to the World Trade Organization (WTO).

Well, now, all this has resulted in India’s steel exports doubling to 8.2 million tons and imports have been slashed by about one-third in 2016-17.

As per a report by the Press Trust of India (PTI), quoting from portions of the released Economic Survey, the rise in exports of steel could also wipe away the excess capacity built up in the steel sector. The mid-year survey by the government said steel imports had declined in 2016-17, while exports of steel had doubled.

Alloy imports dipped by 36.6% to 7.4 million tons in 2016- 17 against 11.7 million tons in the previous fiscal year. Exports doubled to 8.2 million tons last fiscal year, over 4.1 million tons in the corresponding year.

The news was welcomed by steel companies like Tata Steel. T.V. Narendran, managing director for Tata Steel India and South East Asia, told newsmen that steel demand in India was increasing, making it just right to make future investments. Stability was being witnessed in the steel sector globally, though it had faced some problem two years ago, Narendran told reporters.

Ironically, much of Indian steel joy stems from its traditional rival China, where there’s been a visible improvement in the economy — which meant much of its steel being produced was once again being used within the country. It was against the backdrop of China’s economic slowdown that the global steel industry had faced distress due to decline in global demand.

The Indian survey report said, in response to the dumping of cheap imports, the government in 2016 introduced a host of measures like raising Basic Customs Duty, imposition of Minimum Import Price (MIP) and anti-dumping duties in order to shield domestic producers. The government imposed the MIP for steel in February 2016 for a period of one year.

On April 12, 2016, India initiated countervailing duty investigation concerning imports of certain hot-rolled and cold-rolled stainless steel flat products originating in China.

According to the WTO, India’s share in total global steel exports increased from 1.1% in 2000 to 2.8% in 2016. During this period, China’s share in total steel exports rose from 3.7% in 2000 to 19.2% in 2016. Japan’s share in total steel exports in 2000 which was 12.2%, but fell to 9.1% in 2016.

Free Download: The July 2017 MMI Report

Meanwhile, the U.S. share in total steel imports was 17.0% in 2000, but has since come down to 12.1% in 2016.

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One of the top five regions in the world with the largest deposits of bauxite, India’s bauxite production is expected to increase from 22.08 million tons in 2016 to 49.4 million tons by 2021, according to new research.

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The BMI Research report says bauxite production is projected to hit 26.1 million tons this year, about 18% higher than 2016.

In the last two decades, India’s bauxite ore production has kept up with its aluminum output. As is the case with steel and other metals, bauxite production in the country, too, was estimated to go up in 2017 because of increasing domestic demand.

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