Author Archives: Sohrab Darabshaw

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

This is part 1 of a 2-part series on scrap recycling in India, come back tomorrow for part 2.

The downturn in the Chinese economy has claimed another unwitting victim – the scrap metal industry. Already, in the US, scrap dealers are looking to fill a huge export demand gap left by China’s absence as a buyer.

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It’s not as if this has been an overnight development. US exports of ferrous scrap to China (excluding stainless) peaked at 5.5 million metric tons in 2009, and they have fallen every year since.

The fall in iron ore prices forced US scrap exporters to look for new markets to send their metal. Next in line for ferrous exports were India, Turkey, Thailand, Saudi Arabia and Mexico.

After China’s export demand fell even more this year, all eyes turned to the one place with enough population and development to make up that gap: India, the World’s largest democracy. Read more

US company SunEdison, Inc., one of the world’s largest global renewable energy development companies, has announced it has signed a Memorandum of Understanding (MoU) with the provincial government of Tamil Nadu in India to develop 2 gigawatts of wind and solar energy in the next 5 years. The 2 gw are part of SunEdison’s larger plan to develop 15.2 gw of renewable energy in India by 2022.

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“SunEdison is dedicated to furthering India’s renewable energy program, and has committed to develop and construct 15.2 gigawatts of clean and cost-effective wind and solar power projects in the country by 2022,” stated Pashupathy Gopalan, SunEdison’s president of the Asia-Pacific and Sub-Saharan Africa regions, in a statement. Gopalan signed the MoU at the Tamil Nadu Global Investors Meet at the Chennai Trade Center with Tamil Nadu Chief Minister Ms. Jayalalithaa. Read more

It’s been a wait of about 3 years but Vedanta’s iron ore operation in the Indian province of Goa is finally set to resume exports, mainly to China. After the monsoon ends, other miners, too, are all set to restart mining.

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Representatives of steel manufacturing mills from China’s Jiangsu province and Tangshan area recently visited Goa to discuss the modalities with officials of Sesa Iron Ore, a subsidiary of Vedanta.  Sesa Iron Ore announced the resumption of iron ore extraction at its mine in Codli, 80 kilometers south of Panaji, Goa’s Capital, and once Asia’s biggest iron ore mining site.

Resumption of Ore Extraction

The current environment clearance limit for the mine is around 3 million metric tons a year, scaled down from earlier limit of 7 million metric tons. Before the mining halt, China was the biggest market for Goa’s iron ore. The extraction activity in Goa was stopped after the state government suspended mining leases due to illegal activities. Later, the Supreme Court of India banned it until April 2014. Recently, the Goa government renewed many of the leases, paving the way for resumption of iron ore extraction.

While the Chinese may be back, in Goa at least, and with more capacity added to the overall iron ore stock, the larger question being debated by iron ore analysts and mining companies in India and around the world is – will there be a revival in Chinese demand for ore? Are they back?

What About the Majors?

Mining major Rio Tinto, for example, recently reiterated its claim that Chinese steel production would reach 1 billion tons, soon, and also forecast renewed demand for iron ore and steel from other emerging markets in the next 15 years.

Rio may still have faith in the China growth story but competitors such as BHP Billiton and Fortescue Metals Group think otherwise. A few days ago, BHP said it had lowered its expectations of Chinese steel production.

Like Vedanta’s Goa mines, a few others around the world are preparing to add to the ore supply. India’s Essar Steel, for example, is hurrying up construction in Hibbing, Minn., of a $1.9 billion mining and processing facility.

But what effect will the increase in ore supply have on the already spiraling iron ore prices, globally?

Earlier this year, iron ore prices fell to historic lows. Overall, ore prices have plummeted around 70% since hitting a peak in 2013, hurting big exporters such as Australia. A majority of analysts are of the view that the iron ore mining sector is unlikely to recover anytime soon, especially since the Chinese economy shows no major signs of recovery.

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There’s been a brief rally in iron ore prices sending hopes soaring in some quarters. In the last days of August, Standard & Poor’s revised upward its price “assumption” for the year to $50 from the earlier forecast of US $45 per mt, but added that the imbalance in supply and demand would remain for another two years. Others expect prices to slide later this year and the next, and probably it would stabilize at $50 a year.

A recent research report said North America was the biggest market for water and wastewater pipes, following a revival, but China and India hold the key for future market trends.

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Labeled the “Water and Wastewater Pipe Market: Global Industry Analysis and Forecast to 2020″ the report by Persistent Market Research said that while Europe was number two, China and India, with their rapid urbanization and rise in living standards, were budding markets. According to one expert forecast, by 2050, India was expected to add more than 400 million urban dwellers while China will add 292 million. With more people staying in cities and towns, their water and wastewater system meant an increase in the demand for water and wastewater pipe.

While a water pipe is basically there to supply water, a wastewater pipe flushes wastewater into sewers. These are normally made of steel, cast iron, and copper, though recently, Polyvinyl Chloride (PVC) and High Density Polyethylene (HDPE) pipes have started making inroads in the market.

In the US, wastewater pipe demand was estimated to grow at over 7% per year to $17.8 billion by 2018, creating much needed demand from the US metals market. Another report by the Freedonia Group had pegged the demand in the US to grow by 7.7% per year to $18.1 billion in 2018.

US Market Needs Upgrades

According to the Environmental Protection Agency, utilities need to spend $633 billion over the next two decades to supply water and to treat sewage. A revival in the US construction market was expected to drive fresh impetus, though many analysts felt that eventually, the plastic pipe segment would retain the largest hold of the new pipe networks.

One of the biggest multinational players in the US market in this segment, Aegion Corporation, too, had forecasted strong growth. Its 2015 second quarter financial results declared late in July that its infrastructure solutions platform was benefiting from increased expenditures for municipal wastewater pipeline rehabilitation in the US. Municipal expenditures for wastewater pipeline rehabilitation remained at attractive levels led by improved financial health and several large EPA consent decree enforcement actions, it added.

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Incidentally, Aegion Corporate has several joint ventures and subsidiaries throughout the Asia-Pacific region including Australia, Singapore, Hong Kong and India.

Indian Water Market

In India, on the other hand, analysts said there were huge private sector opportunities in the Indian water market. Capital expenditure itself in the water and wastewater sector was expected to touch US $9.1 billion in 2018.

The Indian government, sensing the opportunities, had proposed a total budget of US $23.3 billion for water and wastewater infrastructure between 2013 and 2017.

  • Growth in India is coming in several ways:
  • Municipal and industrial wastewater treatment: A high priority in recent government policies, and water reuse. This is also where foreign companies like those in the US are expected to play a big role.
  • Private sector: Expected to play a crucial role in the efforts to improve India’s water supply and wastewater treatment.

India lagged in water infrastructure and sewerage development with only about 35% of the total population having access to improved sanitation. In rural areas, where about 65% of India’s population lives, only about 25% has coverage for sanitation.

With traditional players in the ductile iron pipe business such as Jindal Saw Pipes, Jai Balaji, Tata Metaliks Kubota, and Electrotherm, the market is set to see the entry of new players, some of whom will laterally integrate Indian infrastructure projects with their existing core business activities.

Was India’s Essar Steel Holdings’ serious in purchasing steel plants in Canada belonging to U.S. Steel?

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Essar, which had purchased Algoma Steel in Sault Ste.Marie, Ontario way back in 2007, was said to be interested in U.S. Steel’s Canadian (USSC) operations in Hamilton and Nanticoke.


Will Essar Steel revive operations at U.S. Steel’s Canada plants?

According to news reports, Essar was likely to bid for the two plants, though analysts have injected a note of caution since the company has yet to place a formal bid.

Previous Purchases

Essar Steel Holdings had purchased Algoma Steel for $1.85 billion, and later announced a $240 million expansion and modernization plan for it. Reports quoted unnamed sources saying Essar was vying for control of plants of USSC, now under creditor protection, and the former planned to bring the Hamilton plant back into production. Read more

Normally, when a project of this size is called off, it sends ripples throughout the entire steel sector, and even negatively affects the stock market.

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Yet, when a few days ago, South Korean steelmaker POSCO let it be known that it had decided to put its much-vexed $12 billion project to build a steel plant in India’s iron ore-rich state Odisha on hold, the reaction in India as well as globally was muted. Almost as if it was anticipated.

Regulatory and Approval Delays

The subdued response can best be attributed to the extraordinary delay – a decade – in trying to get the project off the ground. Holdups in receiving permissions for land use and environmental clearances from the local and Indian governments, long legal battles, protests against the project by residents, red tapism, even the kidnapping of company executives in 2007 for a day by protesting activists, all ensured that the project remained a paper tiger all this while. It’s been a veritable ten years of legal and public relations battles for the former Pohang Iron and Steel Company.

Read more

This is part two of an analysis of how China’s recent stock market crash affects neighboring India.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metal prices had gone down in the range of 2-21% in the first six months of 2015.

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On a year-to-date basis, Chinese domestic hot-rolled coil steel prices declined by 21%. London Metal Exchange nickel prices are down by about 12%, LME copper prices by 9% and China alumina prices by about 10%. In the last one month, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

What’s This Mean for Steel?

In reference to India’s steel sector, rating agency Ind-Ra pointed out that Indian manufacturers were already struggling with low capacity utilization, and lukewarm domestic demand was unlikely to benefit the margins of manufacturing units in the short term.

So was there any silver lining at all for India where the Chinese downturn is concerned? Depends who you listen to or talk to. Here’s what a report in the Business Standard claimed — the economic downturn would be good for smart cities. The rationale — copper is trading at a 6-year-low and China is the world’s top copper consumer, accounting for 40% of global consumption.

How About Aluminum?

Similarly, aluminum is trading at new lows and was already trading at prices below cost of production of many Chinese companies. For India, as a consumer, this is good news as the cost of constructing new infrastructure, especially smart cities, would reduce.

And that extends to a lower price for a technology innovation dear to almost everyone in the world, according to the report. Mobile phones will be cheaper, it predicted. If the Chinese really devalued their currency, world markets will be flooded with Chinese goods at low prices affecting exports of other countries, including India.

As for the rest, such as automobile manufacturers, it could possibly get only worse in the coming days.

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

Old Chinese proverb: when a giant in a race with another falters, the other, without a doubt, wins.

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Actually, I made that up. Ignore it. Still, when China’s economy started showing signs of a meltdown, some in India “predicted,” in a knee jerk reaction, that it was a “welcome development” for neighbor India.

No need to reiterate here how the two nations, with the largest populations and the largest economic growth rates, were in competition with each other in almost every sector.

A few days later, after the fog cleared, warning bells were rung by analysts and ratings agencies that if China was to lose the race, it would be tough for India, too. Even a tiny spill, such as the one China’s stock market felt last week, was bad enough. There would really be no winners in the race.

China’s economic troubles could have a significant impact on India, particularly in sectors like IT and steel, according to India’s trade and industry body, The Associated Chambers of Commerce and Industry of India (Assocham).

The adverse economic developments may have a directionally negative impact on the Indian metals industry as well as on sectors with an export focus, claimed another agency, India Ratings and Research (Ind-Ra) in a statement.

News reports, quoting metal analysts, claimed that while it was true that a drop in commodity prices linked to China’s slow demand was a positive for India, it was not really “good news” for a host of metal and iron ore producers such as Steel Authority of India, Tata Steel, and upstream oil producers.

The fall in ore, steel and copper prices hit Indian manufacturers as hard as any other company in the world, so what’s there to cheer about?

A paper prepared by Assocham said that in today’s global economy, where India’s economy — like any other — is plugged into the rest of the world’s, the China downturn was bound to impact India. China, incidentally, was the number one merchandise trader in the world with over $4.16 trillion worth of trade, followed by the US with $3.9 trillion, as claimed by Assocham.

But the more pertinent point made by Assocham was that the kind of cost competitiveness which the Chinese companies provided to manufacturing semi-process industries — such as electronics, electrical and telecom equipment — would disappear from the global supply chain. This is without even mentioning the inability of India to fill any of those spaces vacated by the Chinese companies.

Another news report quoted Hitesh M. Avachat, Deputy Manager at CARE Ratings, as saying that China accounted for more than 30% of the overall consumption of metals globally. For Indian metal producers, the price collapse meant their landed price in India would go down further, thereby pressuring companies to reduce prices. Because of the likely Chinese dump of its surplus goods, India’s export demand may also fall, he added.

Jayant Acharya, Director, Commercial and Marketing, JSW Steel Ltd., quoted in the same report, said if prices kept falling, margins would get impacted.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metals prices had gone down in the range of 2-21% in the first six months of 2015. On a year-to-date basis, Chinese domestic hot-rolled coiled steel prices had declined by 21%, London Metal Exchange nickel prices by about 12%, LME copper metal prices by 9% and China alumina prices by about 10%. In the last month, alone, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

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