Author Archives: Sohrab Darabshaw

The Indian government has been taking a number of steps to tackle the serious issue of inflow of cheap steel products from China and other nations.

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Recently it issued quality control rules that required registration for the manufacture, import and sale of 16 steel products. One of the outcomes of this order was that it would weed out defective and substandard stainless steel used in utensils and kitchen appliances.

The quality control order was issued by the steel ministry in consultation with the Bureau of Indian Standards (BIS), making it compulsory to hold a BIS certificate. The certificates apply to low-grade stainless steel plates, sheets and strips, especially those used for utensils as well as for low nickel austenitic stainless steel sheet and strips used in kitchen appliances and utensils.

The latest Quality Control Order is applicable to some 25 grades of stainless steel. Incidentally, the QCO mainly covers three Indian Standards including IS 5522, IS 15997 and IS 6911. Grades covered by these three standards are: IS 5522 – 304, 302 & 430; IS 15997 – N1 (Min 1% Nickel), N2 (Min 1.5% Nickel) & N3 (Min 4% Nickel); IS 6911 – 405, 430, 410, 420S1, 420S2, 420S3, 431, 440, 201, 201A, 202, 301, 302, 304S1, 304S2, 309, 310, 316, 316L, 316Ti, 321 & 347.

The order was to be implemented by the producer, domestic or foreign, and not the end user.

Well-Received Order

The order placated a section of domestic steelmakers who were clamoring for a stop to cheap imports. In March, after some intense lobbying by steel players, the Indian government extended safeguard duties on a range of steel products by another two years to protect local steelmakers from cheap imports.

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The move was welcomed by the Indian Stainless Steel Development Association (ISSDA), a trade body representing the stainless steel industry. ISSDA also pointed out that the order will have a minimum impact on the stainless steel utensils market since it does not cover stainless steel containing less than 1% nickel.

ISSDA President N.C. Mathur said the order would ensure competitiveness and growth of India’s manufacturing sector.

Huge inventory levels and increased production are not helping India’s iron ore mining sector.

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According to a recent report by credit rating agency ICRA, India’s iron ore prices are not likely to recover in the near future. On the other hand, steel companies would benefit from this development in the short term. They were likely to enjoy “better profitability” due to improved steel prices in the current year, supported by imposition of minimum import price (MIP) by the government.

Production Up, Prices Down

India’s iron ore production in 2015-16 was at 155 million metric tons, registering an annual growth rate of 23%, ICRA said in a statement. Much of the incremental production in iron ore was because of stepped up mining in the Indian state of Odisha. In the current fiscal, ICRA said, India’s iron ore output could be somewhere in the range of 170-175 mmt.

The Federation of Indian Mineral Industries (FIMI), on the other hand, was of the view though that the Indian iron ore export mining industry needed tax relief to compete internationally after an absence of approximately four years when mining was largely banned in many Indian states.

Speaking at an iron ore conference in Singapore recently, R.K. Sharma, Secretary-general of FIMI said it would “challenging” to restart some of the mines after they have been shuttered for four years.

According to ICRA Corporate Sector Ratings Senior VP Jayanta Roy, because of the substantial iron ore inventory levels at existing mines and the fact that India’s iron ore production was slated to increase further, domestic iron ore prices are unlikely to recover meaningfully in the near term, which benefits local steel mills.

Post minimum-import-price, Indian hot-rolled coil (HRC) prices have seen a sharp increase of about 25% from the lows reached in February 2016, according to ICRA’s quarterly research report on the steel industry. Industry players saw additional gains due to an increase in sales volumes, as imports were likely to reduce in the current year.

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The MIP is scheduled to expire in the second quarter of the India’s fiscal year (April 1 to March 31), but according to analysts, the present level of international prices and the extension of a safeguard duty by the Indian Government to March 2018, could continue to boost prices and prospects for Indian steel producers.

“The World Silver Survey 2016,” an annual report published by The Silver Institute, said Asia’s silver mine output went up last year by 1% to 165.1 million ounces, following a 3% drop in 2014. A major part of the decrease originated from lead and zinc production sources with a lesser drop from primary silver mines. The bulk of the loss could be traced to mines in China and Kazakhstan.

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For India, silver production showed a “notable rise” last year, of over two-fifths, or by 3.6 million ounces, to reach a record production total for the country of 12.0 million ounces.

Indian Silver Production

Higher ore volumes and grades from the country’s Sindesar Khurd mine in the second half of the year were behind much of the gain, amid a period of otherwise lower output as the company’s flagship Rampura Agucha moved from open pit to underground mining.

Total physical demand in 2015 saw a 3% increase in 2015, driven by higher retail investment, jewelry and silverware fabrication and solar and ethylene oxide catalyst demand.

Also, last year, silver retail investment and jewelry fabrication hit a record high. Jewelry fabrication, for example, increased for the third consecutive year and hit a fresh record high of 226.5 millions ounces. Again, strong growth in Indian and North American fabrication offset a near one-third drop in Chinese fabrication.

The silver market, according to the report, realized an annual physical deficit for the third consecutive year in 2015. The market’s deficit of 129.8 million ounces was more than 60% larger than the previous year’s deficit of 78.6 million ounces and the third largest on record, the survey recorded. Silver prices averaged $15.68/oz, down 17.8% from 2014, the fourth consecutive annual drop. Prices were pushed lower by investor expectations for an interest rate hike in the United States and a weakening Chinese economy.

Silver bullion trade in 2015 continued to be dominated by flows to India, where total imports reached an all-time high of 256.0 million ounces, rising by 16% from the 2014 level.

In India, scrap supply declined for a third consecutive year falling by 14% from 2014 to 2.5 million ounces, the lowest in more than 15 years. This decline was largely attributed to three consecutive years of falls in annual average prices, which last year had dropped by 14%.

Physical Bar Demand

Compared to the previous year, global physical bar investment rose to a record 158.2 million ounces in 2015, a 24% surge. The declining silver price drove bargain buying higher, particularly in India and the U.S., where bar consumption rose 31% and 25%, respectively, said the survey. What also gave a boost to silver bar demand was a strong demand for official coins and the corresponding shortfalls of coin supply, as investors sought an alternative to satiate investment demand.

Last year, physical bar investments in India increased by 31% to 82.5 million ounces, the highest since 2008. In India, a large part of this form of investment comes from short term hoarding to benefit from lower prices or to profit from a differential in the spot and futures market. This type of build-up of positions eventually returns to the market as disinvestment when the price rallies.

Such disinvestment during price rallies resulted in local premiums (the price at which the metal is sold by a domestic trader after buying from importing agency) falling to a low of 2 cents and at times being forced to sell at discount, as against a lower threshold of 3 cents observed in 2014.

Turnover on the Multi-Commodity Exchange of India (MCX) more than halved in 2014 as a result of the commodities transaction tax, which was introduced in July 2013. The marginal 1% year-on-year decrease in 2015, to a nominal 7,705 million ounces, might indicate that investors have gradually adjusted to the change.

Outlook

The survey said in the first quarter of 2016, although safe haven demand was the primary driver, the relatively stronger market fundamentals acted as a spring board for silver prices, given the continued higher demand for coins and concern around mine supply reduction.

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The report predicted that silver mine production would continue to suffer losses in 2016 as a consequence of supply cuts in lead and zinc production, in combination with lower forecast output from both the primary silver and gold industries.

There are seven suitors in the ring for the United Kingdom assets of Tata Steel, but is the Indian steelmaker possibly rethinking selling the unit off and planning to keeping the business?

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A report in the Guardian quotes “sources close to Tata Steel” has claimed that Tata, even as it was going through the motions of the sale process, “was evaluating” the performance of its U.K. operations and the package of financial support that the U.K. government offered.

This steel plant at Port Talbot in South Wales, U.K., could close if Tata Steel can't find a buyer. Even as steel prices increased last week. Source: Adobe Stock/Petert2

This steel plant at Port Talbot in South Wales, U.K., might stay in Tata’s hands if the owner can work out a similar pension fix to what other suitors are offering. Source: Adobe Stock/Petert2

Hit by cheap Chinese steel imports, as elsewhere in the world, in addition to supply glut, Britain’s steel industry has been in the doldrums for some time now. In March this year, Tata Steel announced that it wanted to sell its remaining plants in the country, putting over 11,000 jobs at risk. Read more

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.

Free Download: The April 2016 MMI Report

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.

Last Week For The March 2016 MMI Report

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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