Author Archives: Sohrab Darabshaw

A quiet revolution is going on in India’s defense sector.

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It is set to give an impetus to steel, aluminum and composite materials demand in the country. Recently, US aircraft manufacturer Boeing Co. and India’s Tata Advanced Systems Ltd. (TASL) announced a joint venture to manufacture aerostructures for aircraft beginning with the reputed AH-64 Apache fighter helicopter.

AH-64 Apache

Make in India, in this case, means making Apache helicopters there thanks to a joint venture with Boeing. Source: Adobe Stock / VanderWolf Images

The joint venture, according to media reports, would also then compete for additional manufacturing work packages across Boeing platforms, both commercial and defense.

Burgeoning Private Defense Industry

Currently, as many as 14 Tata companies are providing support to India’s defense and aerospace sector. In addition to TASL. The list also includes Tata Advanced Materials, a company that has delivered composite panels for cabinets and auxiliary power unit door fairings for the P-8I long-range maritime surveillance and anti-submarine warfare aircraft.

Another company, TAL Manufacturing Solutions, has manufactured floor beams out of composite materials for the Boeing 787-9, and provided ground support equipment for the C-17 Globemaster III strategic airlifter. Read more

Except for the well-connected in India’s iron ore and steel circles, very few know, or care, about the going-ons around Essar Steel’s proposed US iron-ore-pellet production facility in Minnesota. But in the US, it continues to hit the headlines regularly.

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At its center are two competitors — Essar and Cliffs Natural Resources. There have been over a decade of delays (accompanied with a series of controversies), but now, the Essar Steel Minnesota project, insists the company, is headed toward completion. The plant is expected to start making iron ore pellets sometime late 2016.

Minnesota Iron Ore Ship Loader

One of the many iron ore ship loaders in Minnesota. Could Essar Steel’s production facility revive the iron range? Source: Johnsroad7/Adobe Stock.

Essar plans to produce 7 million tons of processed taconite pellets a year. This may ultimately go to ArcelorMittal’s Indiana steel mill near Chicago, as well as Essar’s own steel mill in Algoma, Ont., Canada.

State Help

Essar received about $70 million in state grants and state loans after taking up the project in 2007 to build one of Minnesota’s only integrated taconite and steel mills. Read more

Last week, two major developments took place in India which are likely to impact global ore production and maybe even prices.

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Vedanta announced it has begun to export iron ore from the Indian province of Goa for the first time since mining was halted there about two years ago. Shipments started to China, one of the biggest buyers of Goa ore. India’s overall ore mining had ground to a halt over three years ago after a Supreme Court imposed ban that was subsequently lifted in phases.

Iron ore has averaged about $60 per metric ton this year. Depressed iron ore prices stabilized recently at about $55 per mt, after a long period of volatility. But Vedanta leadership is of the opinion that iron ore prices were in “freefall.”

Export Duty Falls

For some Indian miners, at least, restarting ore mining may become profitable again following India’s reduction of its export duty from 30 to 10% earlier this year on lower-grade exports of the commodity.

The other, more important development, though, is that India’s Tata Steel is reportedly reaching an agreement with New Millennium Iron Corp., its Canadian iron ore joint venture partner, to hike its stake in the JV to 94% from its current 80%.

Canadian Investments

New Millennium declined to make further investments in the JV’s projects at this time, something that Tata Steel accepted. Tata Steel will invest $401.39 million ($524.5 million Canadian) to continue as the lead investor in the JV, Tata Steel Minerals Canada Ltd.’s (TSMC). After the deal, New Millennium will end up holding only a 6% stake.

TSMC is pursuing a direct shipping ore project (export of iron ore fines) in Canada’s sub-arctic region. Shipments from the DSO project began supplying Tata Steel’s European facilities in 2013. The project has yet to be fully commissioned, but its capital cost has already increased beyond the $428 million ($560-million Canadian) announced in October 2012. Tata Steel entered into an entire off-take agreement with TSML at the project’s outset. The initial production for the DSO project was aimed at 1 million tons.

The DSO project license area contains 64.1 million metric ton of proven and probable mineral reserves at an average grade of 58.8% iron (Fe).

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Tata Steel is also reviewing its future commitment on developing New Millennium’s two other inferior grade (taconite) projects – Lab Mag and Key Mag – in Canada.

The World Steel Association (WSA) recently said that India is the silver lining in an otherwise gloomy global steel market where most of the steelmakers have come under intense pressure from the Chinese economic slowdown.

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The Association, in its Short Range Outlook (SRO) forecast issued a few days ago, forecast the demand for steel in India to go up by 110 basis points (bps) in 2015 to 7.3% and by another 30 bps in 2016. Compare this to another top producer of steel, the US, where demand continued to remain a “challenge.”

US, Chinese Consumption Falters

Crude steel production, for example, dropped 9.7% year-over-year to 7 million tons in the US in August this year, marking it the seventh straight month of decline in 2015. The WSA saw no major change in this position through the rest of the year, at least as a stronger greenback and a listless energy sector continued to weigh down the domestic steel industry. The WSA predicted steel usage in the US to drop 3% in 2015, before clawing back to a 1.3% gain next year.

Where China is concerned, the WSA said in its report that steel exports from there had risen 28% to almost 44 million metric tons in the first 6 months of 2015, despite output declining by 2%. No surprise there since China produces over half of the world’s steel, but finds domestic uptake slowing, forcing its steel companies to dump there products in foreign markets. Low local demand has started to affect steel production, so much so that in July steel production fell 3.8%.

Overall, the WSA has predicted a 1.7% drop in global finished steel demand to 1,513 mmt in 2015. Demand may increase slightly next year by just 0.7% to 1,523 mmt, as it hopes the Chinese economy stabilizes.. This iss slightly different from its April SRO forecast which said steel demand was set to grow by 0.5% in 2015 and then recover to 1.4% in 2016.

India, South Korea Buck Falling Trend

Only India and, to a certain extent, South Korea somehow managed to buck the global trend. India, in the top 5 producers of steel, had produced 91.46 mmt in the last year. According to the Brussels-based WSA, world steel production fell by 3% in August, its biggest fall this year. But India still managed to beat this trend to post a 2.8% growth in steel output as compared to the same month last year. Despite the threat of imports, India produced 7.66 mmt in August compared to 7.45 mmt in August 2014.

At 5.9 mmt, South Korea, too, posted a 4.9% growth in steel output in August as compared to the same month a year ago. In July, the country posted a 1.7% growth in steel production to 6 mmt in the month.

South Korea today has a high-per-capita steel consumption of steel, over 1,000 kg of finished steel per person. By comparison, China’s is half as much per capita. To a large extent, by virtue of it being 1 of the world’s largest automobile maker,s South Korea consumes a lot of auto grade steel. Shipbuilding remains another major source of South Korean steel demand.

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The WSA report is based on data collected from 65 countries, representing about 98% of the global steel production.

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

This is part 2 of a series on World Steel Association Short Range Outlook figures that recently showed only India and South Korea beat the global trend of falling steel production. The WSA report is based on data collected from 65 countries, representing about 98% of the global steel production. Check out part 1 if you missed it.

Indian steelmakers have beaten the global trend of slowing production, documented by the World Steel Association, because the Indian government initiated several measures in order to protect local industry.

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  • The imposition of anti-dumping duties on foreign competitors
  • Quality control norms
  • The government also imposed a 20% provisional safeguard duty for 200 days

The WSA also said India was 1 of the few countries to remain a “resilient” economy in the face of a  the global slowdown because of its commitment to “reforms.”

While the WSA pinned its hopes on a Chinese recovery next year and India, with its infrastructure growth story, the WSA added in its Short Range Outlook (SRO) forecast that developed Asian nations such as Japan and even South Korea were expected to show negative growth due to adverse structural forces weighing on their economies.

Tracing the history of the current global steel crisis, the WSA report pointed out that the performance of some key emerging and developing economies had started to deteriorate in 2012 due to “internal structural issues, lower commodity prices associated with China’s economic slowdown, and escalating political instability.”

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Some nations, such as Russia and Brazil, were experiencing a severe contraction in steel demand. Geo-political tensions and political instability in the Middle East, Africa and Ukraine continued to negatively impact global steel consumption. On the other hand, steel demand in India and Mexico and other countries in the Association of Southeast Asian Nations (ASEAN) and Middle East and North Africa (MENA) regions was expected to maintain growth momentum despite the adverse external environment due to positive domestic demand and progress in reform.

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

This is part-2 of a series on India’s climate change plan. If you missed part 1, see yesterday’s post.

India is the world’s fourth-largest carbon emitter – after China, the US and the European Union – but, so far, it has resisted attempts to limit its energy use, asking developed nations, which it largely blames for the greenhouse gases, to fix the problem themselves.

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So, in that sense, yes, India’s recent Intended Nationally Determined Contribution (INDC) for 2030 was indeed “path-breaking.”

Development + Emissions Cuts

Economists, as well as industry analysts, are trying to figure out how the country will juggle development of its infrastructure and industry, especially in the light of the ‘Make In India’ campaign, and keeping pollution levels down.

The INDC mentioned some big-ticket infrastructure projects such as the dedicated rail freight corridor to shift away from road transportation. Researchers such as Navroz Dubash, senior fellow at the Centre for Policy Research, New Delhi, has dubbed this section as “somewhat vague.” But in the same breath, analysts and environmental groups have welcomed it because it brings a climate perspective to a huge portion of the economy, including energy, transportation, water, forests, agriculture.

Unlike countries such as China and the US, the Indian plan does not commit to an absolute reduction or peak level for carbon emissions, acknowledging, tacitly, that India’s pollution will continue to grow, although maybe at a slower pace.

Is Industrialization Possible Without Coal-Fired Power?

On another front, analysts have found India’s continued commitment to expanding coal power capacity quite perplexing. In the submitted plan, coal continues to dominate India’s power generation.

Reacting to this, Greenpeace was quoted in a Bloomberg report that expansion of coal power would hamper India’s development prospects by worsening the problems of air quality and water scarcity as well as contribute to the destruction of forests and the displacement of communities.

Clearly, there seems to be some measure of conflict between India’s energy use and its desire to keep the climate clean. In the past, India has often mentioned its growth plans — providing electricity to over 50% of Indians, the construction of roads and infrastructure, all of which will require energy-intensive processes like steel and automobile production, as well as natural resource mining. India is the fastest-growing region of the world, most of it powered by fossil fuels.

Reconciling Growth and Green

A research paper drawn up by the Brookings Institution, earlier in the year, articulates this well. It asks: how can India thread the needle between climate disaster and premature economic stagnation?

Though the challenge was great, it said, India will be an important enough partner at the upcoming climate talks to articulate a set of red and green lines. India, said the institute, would find it difficult to accede to any deal that would make its ongoing industrialization “the first industrial revolution in history to be nipped in the bud by international restrictions.”

There are others like former climate adviser to the UN climate secretariat, Mukul Sanwal, who predicted that by 2030, India was likely to use less coal than China and the US. People are discounting hydro-electric power in India, slated to be a big area of development.

Others, like Arunabha Ghosh, founder of the Council for Energy Environment and Water, have pointed out that the government was already spending on combating the adverse effects of climate change through its renewables program. Given India’s 300 million-plus people lacking access to electricity and the many development challenges industrialization poses, committing to more emissions cuts in the absence of support could risk its development imperatives.

For now, at least, the Indian government seems to be making all the popular choices. It recently announced an increased renewable energy target of 175 gigawatts by 2021-22, from the earlier predicted 38 GW. Of this, 100 GW was planned from solar, 60 GW from wind, 10 GW from biomass energy and 5 GW from hydro-electric. If these targets were realized, renewable energy was expected to contribute about 20% of electricity generation by 2021-22.

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The targets have been revised because India wanted to get more electricity from renewable energy, said Ashvini Kumar, Managing Director of Renewable Energy Corporation of India.

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

Recently, when Indian Environment Minister Prakash Javadekar referred India’s plan for tackling climate change as “a huge jump” for the country, he was not far off the mark, really.

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It’s been only a few days since India submitted its Intended Nationally Determined Contribution (INDC) for 2030 with a focus on clean energy to the United Nations (UN). The plan was presented about a month ahead of a major global warming conference in Paris, with India being the last of the 140 nations in the conference to submit a strategy.

A Vague ‘Plan’

While the plan, overall, received a thumbs up from a vast section of domestic and international environmental groups, the question on everyone’s mind is will India be able to pull this balancing act between development and climate control? Before going into that, let’s just understand some of the salient points of the INDC:

  • India intends to produce about 40% of its electricity in 2030 from “non-fossil fuel based sources” like solar, wind or hydroelectric power, with help from international funds and technology advances.
  • It pledged to reduce the emission intensity of its GDP by 35% over 2005 levels by 2020.
  • It will plant more trees by 2030 to absorb 2.5 to 3 billion tons of carbon dioxide.

The INDC mentioned some big-ticket infrastructure projects such as the dedicated rail freight corridor to shift the population from fossil-fuel-intensive road transportation. Researchers such as Navroz Dubash, senior fellow at the Centre for Policy Research in New Delhi, has dubbed this section as “somewhat vague.”

Environmental Community Still Embraces It

Yet, in the same breath, researchers have welcomed it because the plan will bring a climate-influenced perspective to a huge portion of the economy, including energy, transportation, water, forests and agriculture.

Unlike countries such as China and the US, the Indian plan does not commit to an absolute reduction or peak level for carbon emissions, acknowledging, tacitly, that India’s pollution will continue to grow, although (maybe) at a slower pace.

“India, even though not a part of the problem, has been an active and constructive participant in the search for solutions,” was one of the remarks in the 38-page INDC. Thus, the country made it clear that though its contribution to causing global warming is “relatively small as compared to the developed nations,” it was game to mitigate its adverse impacts, something that was expected to cost anything between $1 and $2 trillion.

Responsibility for Emissions

India, incidentally, is the world’s 4th-largest carbon emitter – after China, the USs, and the European Union. It has, so far, resisted attempts to limit its energy use, asking developed nations, which it largely blames for the greenhouse gases, to fix the problem. So, in that sense, yes, India’s INDC was indeed “path-breaking.”

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Economists as well as industry analysts were trying to figure out how the country would juggle its 2 responsibilities – development of India’s infrastructure and industry, especially in the light of the Make In India campaign, and trying to keep the pollution levels down.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner. This is part 1 of a 2-part look at India’s climate blueprint.

Some US steelmakers recently urged regulators to impose anti-dumping duties on Indian exports of welded stainless pressure pipes.Turkish and South Korean producers recently got hit with tariffs for similar products.

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Synalloy Corp.’s unit Bristol LLC, along with Marcegaglia US, and a few others, have petitioned the Department of Commerce and the US International Trade Commission (ITC) to take action against Indian companies dumping the pipes at less than market prices in the US.

According to reports, Synalloy officials said the import of the pipes from India had increased at an “unbelievable rate” over the past 3 years at prices well below US rates.

Exports to the US Rise

Welded stainless pressure pipe imports from India climbed to 12,101 metric tons from 281 mt between 2012 and 2014.

While US companies that make these products are well within their rights to file such a complaint, ironically, in India, the multi-million Rupee pipe industry is in the doldrums, no thanks to cheaper imports from China.

Stainless steel tubing comes in two forms – seamless and welded. The seamless pipes sector, especially, was recently looking at plant shutdowns and large-scale job cuts.

Chinese Producers Undercut Domestic Indian Steelmakers

Leading producers such as Jindal Saw and Indian Seamless Metal Tubes (ISMT) see practically no demand for their products in the domestic Indian market, due to the large-scale availability of cheaper products from China. So drastic is the situation that Vice President of the Association of Seamless Pipes and Tubes S. Sarkar recently told the Press Trust of India that if there was no improvement in the current situation in the next 3 months, in addition to shutdowns, the sector could see almost 8,000 job cuts. The Indian seamless pipe industry has an installed annual capacity of 1.5 million mt, and provides employment to about 25,000 people.

The source of the rise in Indian pipe exports to the US… is that Chinese imports are undercutting Indian producers at home. Exported pipe is, seemingly, always cheaper to produce somewhere else.

With the downturn in its economy, China, like India, is saddled with a vast inventory of both seamless and welded pipes, largely used in the oil and gas industries, but also for filtration and refrigeration purposes, among others. China is facing anti-dumping and safeguard duties from countries such as the US, the European Union, Canada, Indonesia and Brazil.

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In the US case, the ITC is required to make a preliminary ruling on the companies’ petition within 45 days. The Commerce Department will likely issue preliminary duty rulings in early 2016, with final rulings by both agencies due by late 2016.

Brazil’s top steel producer, Gerdau, seems to be well on its path to making its India operations turn a profit by 2016.

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The company, which is listed on the Sao Paulo and New York Stock Exchanges, recently said with a rise in demand for specialty steel in India, its wholly-owned Gerdau Steel India subsidiary, which mainly serves India’s automobile sector, is trying to double its sale over last year.

Counting on Automotive Specialty Demand

The demand for specialty steel is rising across the auto sector, and Gerdau India expects to sell 200,000 metric tons this calendar year, a report in Financial Chronicle said. Sridhar Krishnamoorthy, Managing Director at Gerdau Steel India, said “The market is looking up. The demand for our steel is rising from across the auto sector, and we will be able to sell 2 lakh tonne (200,000 metric tons) this calendar year,”

Krishnamoorthy revealed the company recently received an order to supply specialty steel to some Japanese automobile companies in India, which were also Gerdau’s global clients.

How Did Gerdau Get to India?

Gerdau entered India in 2006-07 through a joint venture with Kalyani Group to acquire the SJK Steel Plant at Tadipatri. Gerdau took almost total control of the business in 2013. At that time, it was only making pig iron and billet.

Since then, the company has invested in a factory in the southern province of Andhra Pradesh, and in setting up the state-of-the-art production specialty steel production facility. The plant consists of iron and steelmaking facilities, has an installed capacity to produce 300,000 metric tons of specialty steel per year, he said. The integrated steel factory also supplies steel to India’s defense, rail and related industries.

New Products

The Brazilian multinational recently started selling a new type of steel for the US, Brazilian and European automotive industries. According to the producer, the material was 20% more resistant to heat and pressure, and will be used in diesel engines, mostly for pistons.

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Krishnamoorthy said the company adopted a 2-pronged strategy to make the operation sustainable. It is cutting down the sale of merchant bars, a commodity steel item, and was increasing the sale of value-added products to the more lucrative auto component sector.

Krishnamoorthy, being a company man, said the market is looking up, and the India operations will be able to break even and start making a profit in 2016.

This is part 2 of a 2-part series on scrap recycling in India, check out part 1 if you missed it yesterday.

The overall Indian recycling rate is about 25%. Compare this to the US – which is a net exporter of scrap with recycling rates of 80 – 90% and Europe, which has recycling rates in excess of 70%.

India’s annual scrap consumption is about 21 million metric tons while its imports are about 7 mmt a year, making it the world’s third-largest importer of scrap. A Frost & Sullivan report claimed India’s metal recycling industry had the potential to grow 11.4% per year until 2020 – but that comes with a big rider. Growth can only happen once the import duty and other free trade hurdles have been removed.

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India, incidentally, is perhaps the only country in the world to impose an import tax on steel scrap. This happened 2 years ago. The Metal Recycling Association of India has been on the forefront of a campaign to get the import tax stricken, with the current political administration even agreeing to look at the demand favorably.

So, while semi-finished products can be imported duty-free into the country, there is a 5% import duty on steel scrap, thus impacting the profitability of recyclers.

But the story on aluminum scrap is the exact opposite. India’s aluminum demand has been growing at an annual rate of about 11%, compared to a global growth of 6%. Part of the growth is fueled by imports including of aluminum scrap, especially from China.

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Indian Commerce Minister Nirmala Sitharaman recently told parliament that the government was considering a request for doubling the duty on aluminum imports to 10%, following representations that imports of aluminum scrap, especially from China, and the metal’s decreasing global prices were adversely impacting the industry in India.

What India Must Do to Increase Scrap Recycling

Essentially, for the Indian recycling sector to get an impetus and turn into a net earner, analysts including Frost & Sullivan, recommended the Indian Government initiate the following:

  • Removal of  the basic scrap import duty
  • Offer Special Economic Zones, the benefits of which will enable industry status for the metal recycling sector
  • Subsidize lending rates which will add more financial muscle in this sector