Author Archives: Sohrab Darabshaw

With steel overcapacity touching a historic high at about 737 million tons (MT), and China adding to new capacity, this remains a huge industry concern.

Not only is the demand-supply market askew, jobs are being lost, especially in the United States, which, by one reckoning, has seen about 35% of steelmaking jobs vanish in the last two decades or so.

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So, when representatives of G20 member states met at the end of November for the Global Forum on Steel Excess Capacity in Berlin and announced they had come to a basic understanding on the need for restructuring of the sector and dismantling market-distorting subsidies to ensure a level-playing field, many welcomed the move.

In the meeting, China and the U.S. may have locked horns — but China’s neighbor, India, on the other hand, seemed more content regarding the developments coming out of the meeting.

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Besides bringing back some cheer to the sector, the latest report by industry monitoring body World Steel Association (WSA) on crude steel production reveals an interesting story.

World crude steel production soared in October, thanks to higher output in China, the U.S., India and Japan.

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While production in the U.S. zoomed by 12% year-over-year in October, China manufactured 72.4 million tons (MT) in the same month, a 6.1% year-over-year increase and 10 times more than the U.S. did that month.

India, on the other hand, produced 8.6 MT of crude steel in October, up by 5.3% to 8.6 MT.

Clearly, the October cheer is positive news, in the sense that the steel sector is making a comeback. The WSA tracks steelmakers in 66 countries globally, representing about 85% of total steel production, and has said in this report that world steel production increased 5.9% year-over-year to 145.3 MT in October.

The China steel story, incidentally, produced nearly half of the world’s steel in October, which indicates a revival of sorts in the growth story there, too.

According to Moneycontrol.com, the downside was reported from Japan, the world’s second largest crude steel producing country. It registered a 1% contraction in output at 8.971 MT in October 2017, compared to 9.060 MT during the same month last year.

During the first 10 months of 2017, Japan’s steel output dropped from 87.442 MT to 87.239 MT, a 0.2% dip compared to the same period last year.

There’s a keen tussle on between the four steel giants (the U.S., China, Japan and India), with the latter already the world leader in stainless steel production and the third largest crude steel producer.

For example, India had overtaken Japan to become the second-largest steel producer in the world after China in 2016, according to the International Stainless Steel Forum. The country’s stainless steel production had gone up to 3.32 MT for 2016, approximately 9% more than the 3.0 MT achieved in 2015. Read more

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Indian industry is in the midst of a mini-crisis — more specifically, a power crisis.

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In fact, both industrial and retail consumers in many parts of the country are reeling from electricity cuts, due to a shortage in supply of coal to thermal plants.

Incidentally, Piyush Goyal, India’s coal minister, was also appointed railway minister recently. The railways transport a bulk of the coal to power plants around the country.

Yet, not much is coming out of the minister’s office regarding the coal shortage. In fact, in his role as coal minister, Goyal earlier declared India’s “independence” from imported coal.

Some time in June this year, the coal secretary announced India did not need to import coal from anywhere in the world, as it had sufficient capacity.

Now, all that seems so far away.

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It’s a proposal that’s been up in the air for some time now — but those connected with it are positive of it coming to fruition.

A proposed joint venture (JV) between India’s state-owned Steel Authority of India Limited (SAIL) and the world’s largest steel producer ArcelorMittal for an automotive steel plant in India may be sealed within the next two months.

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The new plant, when set up, will provide support to India’s automobile sector, and also offer specialized technologies to SAIL. It will focus on producing specialized grade steel products for defense, space and automobiles.

Reports in the media here talk of the agreement being signed soon, perhaps in the next 60 days. Incidentally, the deadline for sealing the deal had ended in May this year.

A report in the Sunday Guardian, too, said the deal was in its “final stages.”

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Everything about India’s growth script is gigantic.

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Take the Indian Railways (IR) expansion drive, for example.

The IR a few days ago floated a global tender to procure rails, and, get this – 700,000 metric tons of it.

Two things unique about this development – the quantity and the fact that for the first time the IR has decided to invite private parties to supply the rails.

The Indian government has earmarked about $132 billion to upgrade a creaking network, established when the British ruled India, which includes huge track-laying projects to modernize passenger and freight movement.

So far, the state-run steel supplier Steel Authority of India Limited (SAIL), held a monopoly of supplying rails to IR. But now, with the Ministry going in for a global tender, not only foreign players but even domestic steel companies — such as Jindal Steel & Power Ltd., one of the biggest non-state steelmakers — could benefit.

The additional rail tracks will help the railways towards clearing the track renewal backlog.

Some important notes:

  • Indian Railways is the country’s largest employer with 1.4 million personnel.
  • The carrier has a track length of around 115,000 kilometers, making it the world’s largest railway network under a single management.
  • It runs around 20,849 trains daily and transports 23 million passengers and 3 million tons of freight.
  • It operates 10,773 locomotives, 63,046 coaches and 245,000 wagons.

Going forward, IR is contemplating a mega-renovation in partnership with state and central administrations. The plan includes constructing elevated corridors for Indian cities like Mumbai and Delhi, alongside existing rail tracks, for which a portion of the new rails will be used.

SAIL, according to a report by news agency Reuters, has failed to supply rails to Indian Railways.

India’s steel ministry, said the news report, had asked SAIL to make sure it met its target of 1.14 million tons of supplies in 2017-18. Reuters earlier reported the upgrade for the IR was at risk because of rail shortages from SAIL. Between April and August, SAIL could supply only 70% of its monthly targets set for Indian Railways.

For 2017-18, SAIL has committed to providing only 1.14 million tons, against a requirement for 1.46 million tons.  SAIL, which has posted losses for nine straight quarters, is targeting capacity additions of 2 million tons a year.

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IR expects annual demand for steel rails to rise to 1.5 million tons in the year ending March from about 800,000 tons in the prior 12-month period.

If there’s one success story being written in India, it’s that of renewable energy.

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By the government’s own reckoning, despite India’s energy needs likely to double over the next seven years (going by the current rate of economic growth), the nation is likely to meet two-fifths of its electricity needs with renewable sources by 2030.

Power and Renewable Energy Minister R K Singh told reporters recently that the efficiency of solar panels itself had already reached 30%, and prices were likely to reduce due to an increase in usage.

The government’s stipulated target is of 175 Gigawatt (GW) of renewable generation by 2022, which includes 100 GW of solar and 60 GW of wind generation, up from the current total renewable energy generation capacity of about 59 GW (with wind already now at about 33 GW).

What’s more, a report this month by the International Energy Agency (IEA) said India’s renewable energy capacity would more than double by 2022, which would be enough to overtake renewable expansion in the European Union for the first time.

India’s present-day renewable energy installed capacity is about 59 GW. “By 2022, India’s renewable capacity will more than double. This growth is enough to overtake renewable expansion in the European Union for the first time,” IEA said in its latest renewables market analysis and forecast.

The IEA added that the solar photovoltaic (PV) and wind together represented 90% of India’s capacity growth, as auctions yielded some of the world’s lowest prices for both technologies.

India needs an investment of around U.S. $100 billion to meet the target of 175 GW of renewable energy capacity by 2022.

As of now, China was the undisputed leader of renewable electricity capacity expansion over the forecast period, with over 360 GW of capacity coming online. China, as per the IEA, had already exceeded its 2020 solar PV target three years ahead of time and is set to achieve its onshore wind target in 2019.

China, India and the U.S. will account for two-thirds of global renewable expansion by 2022, according to the IEA report. The total solar PV capacity by then would exceed the combined total power capacities of India and Japan today, it added.

The power consumption of electric vehicles — including cars, two- and three-wheelers, and buses — was expected to double over the next five years. Renewable electricity is estimated to represent almost 30% of their consumption by 2022, up from 26% today.

This year’s renewable forecast was 12% higher than last year, mostly because of solar PV traction in China and India.

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For the longest time, India has been one of the largest global importers of scrap steel, behind only Turkey.

That could change in the coming years if a recent policy announcement is any indication.

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Chaudhary Birender Singh, India’s minister of steel, recently said his ministry proposed to set up steel plants with scrap as the raw material in various parts of northern and western India.

What the government expects is that in the next few years, 44% of the total scrap available in the country would be generated in various locations in the states of Jammu and Kashmir, Punjab, Haryana and Delhi. The main use for the scrap would be steel production.

The minister said the Indian government’s efforts to recycle waste products for productive purposes would save of 65% of iron ore, which is currently the main raw material for steel production.

For some time now, the Indian government has been toying with the idea of using scrap instead of iron ore for use in steel plants. One must remember that the supply of ore was disrupted due to a ban on mining for a few years.

Such scrap-based steel plants could go some way in helping meet the government’s steel production target of 300 million tons by 2030. According to the minister, the Indian government was adopting a 360% holistic approach wherein the recycling industry can help in achieving the production target by providing raw material for the steel industry.

India imports approximately 6 million tons of scrap steel every year, though the figure has come down a bit since last year. In November 2016, India imported 482,000 tons of scrap. However, combined imports during the initial 11-month period in 2016 were down considerably when matched with the corresponding period in 2015.

The government’s plan to set up the five scrap-based steel plants may happen within the next year. A Press Trust of India report quoting Aruna Sharma, India’s steel secretary, had said all the scrap will be reused to make steel, which could be about 40 million tons of steel. The first such plant would come up next month in Noida, Uttar Pradesh, followed by one in southern India.

State-run metal scrap trading firm MSTC signed a joint venture agreement with Mahindra Intertrade for setting up the first such plant. As of now the JV is between MSTC and Mahindra. Mahindra Intertrade is a part of Mahindra Partners Division of the $17.8 billion diversified Mahindra Group.

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According to the same report, Hyundai had also shown interest in setting up the southern India plant.

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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